|
|
| (2 intermediate revisions by the same user not shown) |
| Line 1: |
Line 1: |
| {{eqderivanat|5.9}}
| | #redirect[[Equity Swap Transactions - Equity Derivatives Provision]] |
| Note that {{eqderivprov|Final Price}} isn't necessary the ''final'' {{eqderivprov|Final Price}}: you determine a fresh {{eqderivprov|Final Price}} on every {{eqderivprov|Valuation Date}}, as of the {{eqderivprov|Valuation Time}}, and they feed into the {{eqderivprov|Cash Settlement}} (or {{eqderivprov|Equity Notional Reset}}) process, whereby one party pays out the movement price of the underlier over the period since the last {{eqderivprov|Valuation Date}}.
| |
| | |
| Thus, {{eqderivprov|Final Price}} for today’s {{eqderivprov|Valuation Date}} becomes the {{eqderivprov|Initial Price}} for the ''next'' {{eqderivprov|Valuation Date}}, and so on and so on — yesterday’s rooster is today’s feather duster so to say.
| |
| | |
| Only on the ''final'' {{eqderivprov|Final Price}} does the {{eqderivprov|Transaction}} terminate and that contingency — you know, calling it quits and wrapping the whole thing up — isn’t addressed in any particular way in the definitions booklet, the presumption being that you will just follow the same procedure as you would for any other Valuation Date on the last one. This might give your US Tax guy the heebie-jeebies, be warned, as {{sex|he}} will want [[VWAP]], or some kind of [[Hypothetical broker-dealer|hypothetical broker dealer]] referenced in the very last one. Dash cold water in his face if so, and tell him to ''get it together, man''.
| |
| ===[[Synthetic prime brokerage]]===
| |
| Where you are doing [[synthetic equity swap]]s, the {{eqderivprov|Final Price}} on the {{isdadefsprov|Termination Date}} — the very one which gives your [[Tax lawyer|tax guy]] the heebie-jeebies — is mainly of academic interest, as it will only be a jowl-slappingly fortuitous coincidence if a client happens to go off risk at exactly the scheduled {{isdadefsprov|Termination Date}}.
| |
| | |
| In fact, a [[synthetic equity swap]] is an indefinite arrangement — it is replicating cash [[prime brokerage]], remember, where a fellow holds (or shorts) a security at {{sex|her}} own pleasure, so to speak — so the client can terminate at any time, and if it doesn’t terminate by the scheduled {{isdadefsprov|Termination Date}} she will typically want to roll the position (if she can<ref>There are complicated [[US Tax]] rules at play here</ref>) without realising a gain or loss. Thus the {{isdadefsprov|Termination Date}} is fairly arbitrary, existing really only to avoid syntax errors in a booking system which will insist on you inputting one, or to resolve the unspoken anguish of your financial reporting folk who may otherwise fear you have an undated exposure to the underlying security<ref>Not, in fact true, as the [[broker-dealer]] will almost certainly have a right to terminate on (a month or more’s) notice, but do not expect this to placate a [[Financial reporting|financial controller]].</ref>.
| |
| {{Equity swaps versus forwards}}
| |
| {{vwapadjustment}}
| |
| {{Seealso}}
| |
| *[[Volume Weighted Average Price]] ([[VWAP]])
| |
| *{{eqderivprov|Relevant Price}}
| |
| {{ref}}
| |