Hedging Disruption - Equity Derivatives Provision: Difference between revisions

Jump to navigation Jump to search

Hedging Disruption - Equity Derivatives Provision (view source)

Revision as of 09:17, 15 March 2019

2,005 bytes removed ,  15 March 2019
no edit summary
No edit summary
No edit summary
Line 1: Line 1:
{{eqderivanat|12.9(a)(v)}}
{{eqderivanat|12.9(a)(v)}}
===Regulator informal action===
{{triplecocktail regulator action}}
Does a [[regulator]]’s direction to ditch a hedge mean a {{eqderivprov|Hedging Party}} is “unable to commercially reasonably maintain” its [[hedge]]?
 
As long as there is no regulatory-approved alternative means of hedging (you know, [[futures]], for example), then the [[JC]] says '''yes'''. The aspiration to maintain good relations with a body having power to regulate your operations, let alone a plausible apprehension of sanction (be it a monetary penalty, adverse publicity or the regulator barring you from operating in its market or just taking a dim view of your outfit) — provided it is sincere — is a [[reasonable]] commercial consideration which would prevent you from maintaining that hedge.
 
===Why the “why should I pay your hedging costs? I have no control over them” argument is bogus===
Because [[synthetic PB]] is just cash brokerage done with derivatives and you would wear them in a cash trade, is why.
*The [[broker]] owes [[best execution]]. That means it has to interrogate all venues and get the best possible price.
*Under [[best execution]] rules the client may instruct the broker to exclude certain venues and brokers.
*To comply with best execution, the broker must configure its [[order router]] to accommodate the client’s preferences.
*But excluding a venue impacts the quality of the available execution (whenever the excluded venue had the best price, you’d miss it).
*By not excluding the venue, therefore, you ''benefit'' from the venue being present (as long as it doesn’t fail) every order you place.
*Trades settle [[DVP]] so there is [[market risk]] in replacing the trade, not [[credit risk]].
*The market risk could be significant: failure of a venue will heavily impact [[liquidity]] and market [[volatility]] for a period.
*Asking the broker to underwrite a market loss when a venue or [[intermediate broker]] fails while getting the benefit its best pricing as long as it does not is asking for a free option on your own execution risk.
===Pernickety amendments===
===Pernickety amendments===
Expect to see some amendments to this clause, chiefly to appease [[Mediocre lawyer|fastidious counsel]]. For example:
Expect to see some amendments to this clause, chiefly to appease [[Mediocre lawyer|fastidious counsel]]. For example:
Retrieved from "https://jollycontrarian.com/index.php?title=Special:MobileDiff/28843"

Navigation menu