Give up

Never surrender.

A give up is in practical theory an arrangement whereby a pending trade between a hedge fund and an executing broker - be it a derivative or for a cash trade - is "given up" by the hedge fund to its prime broker, who accepts the fund's contract with the executing broker on condition that it can put on an economically identical off-setting transaction with the hedge fund.

It sounds, you might think, like some kind of novation. But oh, no. That would be far too sensible.

There are three normal ways of giving up, and ironically neither of them involve any contract which is given up.

• ISDA Give Up: under the 2005 ISDA Master Give-Up Agreement, derivatives traded under an ISDA Master Agreement may be given up to a Prime broker. Under this arrangement the hedge fund acts at all times as the prime broker's agent (it may not be a client of the executing broker at all) and never creates its own contract with the executuing broker - it simply arranges the contract between the executing broker and the prime broker. The PB then puts on a back-to-back trade with the HF under the ISDA between them. Net result: the PB intermediates between EB and HF. Calling this arrangement a "give-up" is something of a misnomer.
• Equity Give Up: Under a cash equity give-up process, the hedge fund seeks a firm price indication from the executing broker, but does not act on it: rather, the HF takes the quote and instructs its prime broker to do so. Once the PB has traded with the EB, the PB creates a back-to-back transaction with its client, usually in the shape of an equity swap transacted under an ISDA Master Agreement. This one is a misnomer too, amusingly enough*, since here, also, there is never a contract that is given up.
• ETD Give Up: Documented under the FIA standard giveup documentation, available free to the world, here. There is a Customer Version and a Trade Version of the Electronic Give-Up System (EGUS).

See Also

• 2005 ISDA Master Give-Up Agreement