Contract for differences

From The Jolly Contrarian
Jump to navigation Jump to search
Synthetic Prime Brokerage Anatomy™
A full-scale CDA call-out, yesterday.

Synthetic prime brokerage is documented under the 2002 ISDA Equity Derivatives Definitions, so read this anatomy in conjunction with our wider Equity Derivatives Anatomy. See also our Prime Brokerage Anatomy.

Index: Click to expand:

Get in touch Comments? Questions? Suggestions? Requests? Insults? We’d love to hear from you. Sign up for our newsletter

For most purposes in these pages, a contract for differences (“CFD”) is just another name for a synthetic equity swap.

That product, so a googling will tell you, was invented in the 1990s by a couple of chaps from UBS Warburg. While their product morphed into today’s beloved delta-one equity derivative, documented under an ISDA Master Agreement and, by old school types, still is documented that way, for the new generation of gullible millennials and Gen-Zers, a “CFD” is a product offered by a number of retail brokers giving a commoditised exposure to pretty much anything you like. These retail products are still, technically, unfunded derivatives, you buy them on margin, and you can lose your shirt easily, so European regulators are taking an increasingly dim view of them, especially where offered to gullible millennials and Ge-Zers.

You could imagine a UCITS fund confusing its regulator by referring to an over-the-counter synthetic equity swap — a more refined, professionals-only sort of affair — as a “CFD”, triggering an unseemly twenty-three nineteen alert and full CDA call out.

See also