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''Financial “equivalence” is not, er, equivalent, to colloquial “equivalence”.''}} | ''Financial “equivalence” is not, er, equivalent, to colloquial “equivalence”.''}} | ||
When you get given something — [[credit support]], for example — that at some point you’ll have to give back, the deal is you have to give an ''identical'' thing back. | It barely need being said, but let’s say it: this site is about financial stuff. When we talk about equivalence, we mean financial equivalence. This is a narrow, specialised meaning. When you get given something — [[credit support]], for example — that at some point you’ll have to give back, the deal is you have to give an ''identical'' thing back, in the sense of having not just the same issuer, same maturity date and ranking [[pari passu]] with what you were given in the first place, but actually being from the same series, with the same [[ISIN]]. | ||
Where securities are held in electronic form, this doesn’t really mean a great deal, but in the old days, when securities were printed on paper, it did. The only securities commonly printed on paper these days are bank notes: One British five pound note is equivalent to another British five pound note, but is not equivalent to a Jersey five pound note, because even though jersey is in a currency union with sterling, the Jersey note is not legal tender in England. | |||
So why do we say “equivalent” and not just “the same”? Largely, to keep accountants happy. “The same” is narrower: it means ''exactly'' the same security or banknote that you were originally referring to: one that is fungible with it, even though identical, will not do. | |||
The reason accountants care has to do with making sure there is valid, absolute [[title transfer]] of the original security. If I give you a security by title transfer, but you must give me back precisely the security that I gave you — the very one; not just a fungible equivalent — then this suggests that I retain some claim to or ownership right over the original security I gave you. This implies I have not fully transferred title to that security to you. By agreeing you may settle the debt by returning an equivalent security, we avoid the sort of anxiousness that can plague accountants. | |||
Now, when it comes to return it, ''dilemma'': you’ve been mucking around with it. You don’t still ''have'' “it”. You could go and buy a ''new'' “it” and return that, but the ''exact old “it”'' they gave you — that’s goneski. | Now, when it comes to return it, ''dilemma'': you’ve been mucking around with it. You don’t still ''have'' “it”. You could go and buy a ''new'' “it” and return that, but the ''exact old “it”'' they gave you — that’s goneski. | ||