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Synthetic prime brokerage: Difference between revisions
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Prime brokerage done with derivatives. So instead of buying some shares on [[margin]] and asking your [[prime broker]] to hold them for you, you just trade a total return swap with your prime broker. The PB will buy the shares and hold in its own inventory. | Prime brokerage done with derivatives. So instead of buying some shares on [[margin]] and asking your [[prime broker]] to hold them for you, you just trade a total return swap with your prime broker. The PB will buy the shares and hold in its own inventory. | ||
You will be exposed to the price of the assets, but will not have any control or ownership over the {{prime broker}}'s hedge. This can sometimes lead to disappointment when it comes to [[voting]] and [[corporate actions]], but it's all for the best. | You will be exposed to the price of the assets, but will not have any control or ownership over the {{tag|prime broker}}'s hedge. This can sometimes lead to disappointment when it comes to [[voting]] and [[corporate actions]], but it's all for the best. | ||
On the other hand, you have a right to terminate your synthetic equity swap on any day, at market (subject to usual market disruption and hedging disruption provisions (for more on this see our old friend the {{eqderivprov|triple cocktail}}). Thus you ''can'' make your prime broker liquidate its hedge, but you ''can't'' make it to sell the hedge to you or any of your friends and relations (something it might not want to do if it has an investment banking relationship with the issuer and you are an activist {{hedge fund}}). | On the other hand, you have a right to terminate your synthetic equity swap on any day, at market (subject to usual market disruption and hedging disruption provisions (for more on this see our old friend the {{eqderivprov|triple cocktail}}). Thus you ''can'' make your prime broker liquidate its hedge, but you ''can't'' make it to sell the hedge to you or any of your friends and relations (something it might not want to do if it has an investment banking relationship with the issuer and you are an activist {{tag|hedge fund}}). | ||
{{anat|eqderiv}} | {{anat|eqderiv}} | ||