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| {{eqderivanat|12.9(a)(v)}} | | {{eqderivanat|12.9(a)(v)}} |
| ===Regulator informal action===
| | {{triplecocktail regulator action}} |
| Does a [[regulator]]’s direction to ditch a hedge mean a {{eqderivprov|Hedging Party}} is “unable to commercially reasonably maintain” its [[hedge]]?
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| As long as there is no regulatory-approved alternative means of hedging (you know, [[futures]], for example), then the [[JC]] says '''yes'''. The aspiration to maintain good relations with a body having power to regulate your operations, let alone a plausible apprehension of sanction (be it a monetary penalty, adverse publicity or the regulator barring you from operating in its market or just taking a dim view of your outfit) — provided it is sincere — is a [[reasonable]] commercial consideration which would prevent you from maintaining that hedge.
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| ===Why the “why should I pay your hedging costs? I have no control over them” argument is bogus===
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| Because [[synthetic PB]] is just cash brokerage done with derivatives and you would wear them in a cash trade, is why.
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| *The [[broker]] owes [[best execution]]. That means it has to interrogate all venues and get the best possible price.
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| *Under [[best execution]] rules the client may instruct the broker to exclude certain venues and brokers.
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| *To comply with best execution, the broker must configure its [[order router]] to accommodate the client’s preferences.
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| *But excluding a venue impacts the quality of the available execution (whenever the excluded venue had the best price, you’d miss it).
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| *By not excluding the venue, therefore, you ''benefit'' from the venue being present (as long as it doesn’t fail) every order you place.
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| *Trades settle [[DVP]] so there is [[market risk]] in replacing the trade, not [[credit risk]].
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| *The market risk could be significant: failure of a venue will heavily impact [[liquidity]] and market [[volatility]] for a period.
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| *Asking the broker to underwrite a market loss when a venue or [[intermediate broker]] fails while getting the benefit its best pricing as long as it does not is asking for a free option on your own execution risk.
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| ===Pernickety amendments=== | | ===Pernickety amendments=== |
| Expect to see some amendments to this clause, chiefly to appease [[Mediocre lawyer|fastidious counsel]]. For example: | | Expect to see some amendments to this clause, chiefly to appease [[Mediocre lawyer|fastidious counsel]]. For example: |