Synthetic prime brokerage: Difference between revisions

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	*'''Terminating''': In the same way you can buy or sell a physical position on any day, under [[synthetic PB]] you can terminate a synthetic position 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}}).		*'''Terminating''': In the same way you can buy or sell a physical position on any day, under [[synthetic PB]] you can terminate a synthetic position 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}}).

	*~~'''~~'''[[Tax]] Risk''': In some jurisdictions, derivatives are taxed differently to equities (as regards [[stamp duty reserve tax]] for example) so it is important that your synthetic position doesn’t look like a tax play. One of the key ways it might do this is if you have contractual control over your [[prime broker]]’s hedge (in which case your swap position might be recharacterised as a disguised custody arrangement. Depending on which tax specialist you ask, this might extend even to the hedge execution price. Thus you will see much chatter about the termination price being the one a “hypothetical broker-dealer” might achieve selling fungible securities, and [[volume-weighted average price]]s and so on.		*'''[[Tax]] Risk''': In some jurisdictions, derivatives are taxed differently to equities (as regards [[stamp duty reserve tax]] for example) so it is important that your synthetic position doesn’t look like a tax play. One of the key ways it might do this is if you have contractual control over your [[prime broker]]’s hedge (in which case your swap position might be recharacterised as a disguised custody arrangement. Depending on which tax specialist you ask, this might extend even to the hedge execution price. Thus you will see much chatter about the termination price being the one a “hypothetical broker-dealer” might achieve selling fungible securities, and [[volume-weighted average price]]s and so on.