Template:Difference between SES and MCA

Difference between synthetic PB and normal equity derivative master confirmations

Term, in a word. Under a normal equity derivatives MCA, the parties trade at arms length for a specified term, at the end of which both knows the trade terms out. So:

• In an MCA the parties specifically agree to the trade up front - there is no sense of the “facility” nature of synthetic PB (even if that facility is technically uncommitted). Thus the broker can assess the market and take a view for the duration how it feels about hedging risks, and maybe price them into the trade.
• By contrast, in synthetic PB, the expectation is that the broker will put the trade on at the pre-agreed rates, and will keep it on until the client wants to take it off, whether that is over night or five years. Assessing the potential for market disruption is therefore more fraught, hence more flexibility in the ability to get out of a trade if hedging conditions unexpectedly change.