Template:Comparison between LOSB and ICOSB: Difference between revisions
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=== | ===Comparing {{eqderivprov|LOSB}} and {{eqderivprov|ICOSB}}=== | ||
Compare and contrast {{eqderivprov|Loss of Stock Borrow}} with {{eqderivprov|Increased Cost of Stock Borrow}}. There is a logical hand-off and interaction between the two: | Compare and contrast {{eqderivprov|Loss of Stock Borrow}} with {{eqderivprov|Increased Cost of Stock Borrow}}. There is a logical hand-off and interaction between the two: | ||
*Under a {{eqderivprov|Loss of Stock Borrow}} the {{eqderivprov|Non-Hedging Party}} has a bit less flexibility in what it does: it must pony up (or procure) a [[stock borrow]] within 2 {{eqderivprov|Scheduled Trading Days}} itself, or {{eqderivprov|Hedging Party}} can terminate outright. Under {{eqderivprov|Increased Cost of Stock Borrow}}, the worst that can happen is the trade is repriced to take in the higher rate. So {{eqderivprov|ICOSB}} is the "gentler" provision from the {{eqderivprov|Non-Hedging Party}}’s perspective. | *Under a {{eqderivprov|Loss of Stock Borrow}} the {{eqderivprov|Non-Hedging Party}} has a bit less flexibility in what it does: it must pony up (or procure) a [[stock borrow]] within 2 {{eqderivprov|Scheduled Trading Days}} itself, or {{eqderivprov|Hedging Party}} can terminate outright. Under {{eqderivprov|Increased Cost of Stock Borrow}}, the worst that can happen is the trade is repriced to take in the higher rate. So {{eqderivprov|ICOSB}} is the "gentler" provision from the {{eqderivprov|Non-Hedging Party}}’s perspective. | ||
*If the cost of a stock borrow exceeds the {{eqderivprov|Maximum Stock Loan Rate}} it is deemed to be (as good as) impossible to borrow stock, so it is treated as a {{eqderivprov|Loss of Stock Borrow}}, not merely an {{eqderivprov|Increased Cost of Stock Borrow}}. | *If the cost of a stock borrow exceeds the {{eqderivprov|Maximum Stock Loan Rate}} it is deemed to be (as good as) impossible to borrow stock, so it is treated as a {{eqderivprov|Loss of Stock Borrow}}, not merely an {{eqderivprov|Increased Cost of Stock Borrow}}. | ||
*If a counterparty wants to apply {{eqderivprov|Increased Cost of Stock Borrow}} ''whatever the cost of an available bid'' — and given that it can pass the cost on, a [[Synthetic prime brokerage - PB Provision|synthetic prime broker]] might be happy to do this — the answer is to disapply {{eqderivprov|Maximum Stock Loan Rate}} altogether. This means that ''any'' possible stock borrow rate, however astronomical, comes under {{eqderivprov|Increased Cost of Stock Borrow}}, and {{eqderivprov|Loss of Stock Borrow}} (which is slightly more onerous a termination right) only applies where there are no offers in the market at all. <br> | *If a counterparty wants to apply {{eqderivprov|Increased Cost of Stock Borrow}} ''whatever the cost of an available bid'' — and given that it can pass the cost on, a [[Synthetic prime brokerage - PB Provision|synthetic prime broker]] might be happy to do this — the answer is to disapply {{eqderivprov|Maximum Stock Loan Rate}} altogether. This means that ''any'' possible stock borrow rate, however astronomical, comes under {{eqderivprov|Increased Cost of Stock Borrow}}, and {{eqderivprov|Loss of Stock Borrow}} (which is slightly more onerous a termination right) only applies where there are no offers in the market at all. <br> | ||
Revision as of 15:41, 10 January 2019
Comparing LOSB and ICOSB
Compare and contrast Loss of Stock Borrow with Increased Cost of Stock Borrow. There is a logical hand-off and interaction between the two:
- Under a Loss of Stock Borrow the Non-Hedging Party has a bit less flexibility in what it does: it must pony up (or procure) a stock borrow within 2 Scheduled Trading Days itself, or Hedging Party can terminate outright. Under Increased Cost of Stock Borrow, the worst that can happen is the trade is repriced to take in the higher rate. So ICOSB is the "gentler" provision from the Non-Hedging Party’s perspective.
- If the cost of a stock borrow exceeds the Maximum Stock Loan Rate it is deemed to be (as good as) impossible to borrow stock, so it is treated as a Loss of Stock Borrow, not merely an Increased Cost of Stock Borrow.
- If a counterparty wants to apply Increased Cost of Stock Borrow whatever the cost of an available bid — and given that it can pass the cost on, a synthetic prime broker might be happy to do this — the answer is to disapply Maximum Stock Loan Rate altogether. This means that any possible stock borrow rate, however astronomical, comes under Increased Cost of Stock Borrow, and Loss of Stock Borrow (which is slightly more onerous a termination right) only applies where there are no offers in the market at all.