Margin lending: Difference between revisions
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{{a|sftr|<br>{{SFTR 3(10)}}<br>}}This is the classic [[prime brokerage]] trade. I'm a [[hedge fund]], and I am all about [[vega|Vega]] — the [[Greeks|Greek]] that denotes [[leverage]].<ref>“My name is [[Vega]]. I live on the second floor. I live upstairs from you. Yes, I think you’ve seen me before.” — [[Vega|Suzanne Luca]]</ref> | {{a|sftr|<br>In a nutshell:<br>{{Nutshell SFTR 3(10)}}<br>full text:<br>{{SFTR 3(10)}}<br>}}This is the classic [[prime brokerage]] trade. I'm a [[hedge fund]], and I am all about [[vega|Vega]] — the [[Greeks|Greek]] that denotes [[leverage]].<ref>“My name is [[Vega]]. I live on the second floor. I live upstairs from you. Yes, I think you’ve seen me before.” — [[Vega|Suzanne Luca]]</ref> | ||
How do I get my spectacular returns? <s>[[Alpha]]</s> [[Leverage]], that’s how. I buy securities “[[Margin lending transaction - SFTR Provision|on margin]]”. This means ''I'' buy the security, and ''you'', dear [[prime broker]], pay for it. Well, strictly speaking, you lend me the funds I need to pay for it, but in practice you settle the transaction directly with the [[executing broker]] and you take delivery of the security on my behalf. For, in return for your loan, I let you look after the security for me, whereby you can (A) have a [[security interest]] over it to secure your loan, and (B) you can [[rehypothecate]] it into the market to defray your funding costs of providing me the loan in the first place. | How do I get my spectacular returns? <s>[[Alpha]]</s> [[Leverage]], that’s how. I buy securities “[[Margin lending transaction - SFTR Provision|on margin]]”. This means ''I'' buy the security, and ''you'', dear [[prime broker]], pay for it. Well, strictly speaking, you lend me the funds I need to pay for it, but in practice you settle the transaction directly with the [[executing broker]] and you take delivery of the security on my behalf. For, in return for your loan, I let you look after the security for me, whereby you can (A) have a [[security interest]] over it to secure your loan, and (B) you can [[rehypothecate]] it into the market to defray your funding costs of providing me the loan in the first place. | ||
Revision as of 15:22, 7 November 2019
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SFTR Anatomy™
Regulation on Transparency of Securities Financing Transactions and of Reuse (2015/2365/EC (EUR Lex)), aka the securities financing transactions regulation
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This is the classic prime brokerage trade. I'm a hedge fund, and I am all about Vega — the Greek that denotes leverage.[1]
How do I get my spectacular returns? Alpha Leverage, that’s how. I buy securities “on margin”. This means I buy the security, and you, dear prime broker, pay for it. Well, strictly speaking, you lend me the funds I need to pay for it, but in practice you settle the transaction directly with the executing broker and you take delivery of the security on my behalf. For, in return for your loan, I let you look after the security for me, whereby you can (A) have a security interest over it to secure your loan, and (B) you can rehypothecate it into the market to defray your funding costs of providing me the loan in the first place.
I must pay you initial margin as cover should the value of my new asset decline against repayment value of the outstanding loan.
See also
References
- ↑ “My name is Vega. I live on the second floor. I live upstairs from you. Yes, I think you’ve seen me before.” — Suzanne Luca