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Hedging exemption: Difference between revisions
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We wonder whether the firm might have committed itself to an outcome which on hindsight it realises is a bit potty, but polite comportment means it might now be a bit difficult to reverse-ferret out of. | We wonder whether the firm might have committed itself to an outcome which on hindsight it realises is a bit potty, but polite comportment means it might now be a bit difficult to reverse-ferret out of. | ||
There are two ways of | In any case it seems to us that the idea a repackaging SPV is ''not'' hedging, ''by definition'', with ''any'' properly-structured<ref>By which I mean it has effective, standard limited recourse terms and has been competently drafted to achieve the intention of overall transaction.</ref> [[OTC derivative]] it enters, is a faintly preposterous one. Vigorously preposterous, in fact. | ||
There are two ways of arriving at this conclusion: one is via a purposive approach, the other, a literalist one. Now financial services professionals and ''[[a fortiori]]'' their advisers are a profoundly literal, formalist bunch, so they lean hard into nuanced questions such as “would this qualify for hedge accounting under IFRS?” or “can we say this is directly reducing risks directly relating to the financing activity of the SPV?”, but struggle to stand back and look at the bigger picture. If they did, they might say “imposing a cash margining arrangement with a secured, limited recourse SPV makes no sense at all”. | |||
====The formalist argument==== | ====The formalist argument==== | ||