Loss of Stock Borrow - Equity Derivatives Provision: Difference between revisions

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Loss of Stock Borrow - Equity Derivatives Provision (view source)

Revision as of 15:32, 10 January 2019

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→‎{{eqderivprov|LOSB}} under Synthetic PB
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*Where the {{eqderivprov|Hedging Party}} can’t locate a stock borrow, the {{eqderivprov|Non-Hedging Party}} has the option to source one that is struck at less than the {{eqderivprov|Maximum Stock Loan Rate}} within two {{eqderivprov|Scheduled Trading Days}}, failing which the {{eqderivprov|Hedging Party}} can terminate the {{eqderivprov|Transaction}}.  
*Where the {{eqderivprov|Hedging Party}} can’t locate a stock borrow, the {{eqderivprov|Non-Hedging Party}} has the option to source one that is struck at less than the {{eqderivprov|Maximum Stock Loan Rate}} within two {{eqderivprov|Scheduled Trading Days}}, failing which the {{eqderivprov|Hedging Party}} can terminate the {{eqderivprov|Transaction}}.  
*Where {{eqderivprov|LOSB}} and {{eqderivprov|Hedging Disruption}} both apply and the same event could qualify as either, it will be treated as a {{eqderivprov|LOSB}} (which has milder consequences for the affected party).
*Where {{eqderivprov|LOSB}} and {{eqderivprov|Hedging Disruption}} both apply and the same event could qualify as either, it will be treated as a {{eqderivprov|LOSB}} (which has milder consequences for the affected party).
==={{eqderivprov|LOSB}} under [[Synthetic PB]]===
{{LOSD under synthetic pb}}
For [[synthetic prime brokerage]], it is common for the [[PB]] to pass on its stock borrowing costs (well: it is a synthetic equivalent of a stock borrow and a short sale, after all, so this makes sense). It does this by subtracting the prevailing borrow rate from the floating rate it pays under the swap. Therefore the {{eqderivprov|Non-Hedging Party}} wears the ultimate cost of the expensive [[stock borrow]], so there’s no real need to impose a {{eqderivprov|Maximum Stock Loan Rate}} (though [[prime broker]]s will typically impose one as a matter of course).
{{comparison between LOSB and ICOSB}}'''Compare and contrast''' with {{eqderivprov|Increased Cost of Stock Borrow}}. There is a logical handoff and interaction between the two.
 
'''Compare and contrast''' with {{eqderivprov|Increased Cost of Stock Borrow}}. There is a logical handoff and interaction between the two.
*If the cost of a stock borrow exceeds the {{eqderivprov|Maximum Stock Loan Rate}} it is deemed to be (as good as) impossible to borrow stock, so it is treated as a {{eqderivprov|Loss of Stock Borrow}}, not merely an {{eqderivprov|Increased Cost of Stock Borrow}}. If a counterparty wants to apply Increased Cost of Stock Borrow whatever the cost of an available bid, the answer is to disapply {{eqderivprov|Maximum Stock Loan Rate}} altogether. This means that ''any'' possible stock borrow rate, however astronomical, comes under {{eqderivprov|Increased Cost of Stock Borrow}}, and {{eqderivprov|Loss of Stock Borrow}} (which is slightly more onerous a termination right) only applies where there are no offers in the market at all.
*If the cost of a stock borrow exceeds the {{eqderivprov|Maximum Stock Loan Rate}} it is deemed to be (as good as) impossible to borrow stock, so it is treated as a {{eqderivprov|Loss of Stock Borrow}}, not merely an {{eqderivprov|Increased Cost of Stock Borrow}}. If a counterparty wants to apply Increased Cost of Stock Borrow whatever the cost of an available bid, the answer is to disapply {{eqderivprov|Maximum Stock Loan Rate}} altogether. This means that ''any'' possible stock borrow rate, however astronomical, comes under {{eqderivprov|Increased Cost of Stock Borrow}}, and {{eqderivprov|Loss of Stock Borrow}} (which is slightly more onerous a termination right) only applies where there are no offers in the market at all.


{{seealso}}
{{seealso}}
*{{eqderivprov|Triple cocktail}}
*{{eqderivprov|Triple cocktail}}
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