Synthetic prime brokerage

Prime brokerage done with derivatives. So instead of buying some shares on margin and asking your prime broker to hold them for you, you just trade a total return swap with your prime broker. The PB will buy the shares and hold in its own inventory.

You will be exposed to the price of the assets, but will not have any control or ownership over the prime broker's hedge. This can sometimes lead to disappointment when it comes to voting and corporate actions, but it's all for the best.

On the other hand, you have a right to terminate your synthetic equity swap on any day, at market (subject to usual market disruption and hedging disruption provisions (for more on this see our old friend the 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 hedge fund).

Equity Derivatives Anatomy™ →Go uptown {{{2}}} Resources About the Equity Derivatives Definitions | (full wikitext) | (nutshell wikitext) | Equity v credit derivatives showdown Hot topics Synthetic Prime Brokerage Anatomy | The Triple Cocktail | Cancellation and Payment | Calculation Agent TOC | 1 General Definitions | 2 Option Transactions | 3 Exercise of Options | 4 Forward Transactions | 5 Equity Swap Transactions | 6 Valuation | 7 Settlement | 8 Cash Settlement | 9 Physical Settlement | 10 Dividends | 11 Adjustments and Modifications | 12 Extraordinary Events · 12.8 Cancellation Amount · 12.9 Additional Disruption Events · 12.9 List of ADEs · 12.9(b) Consequences of ADEs | 13 Miscellaneous Index: Click ᐅ to expand: Equity Derivatives - Premium Synthetic Prime Brokerage Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.