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Template:M summ Equity Derivatives 8.7: Difference between revisions
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Template:M summ Equity Derivatives 8.7 (view source)
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{{eqderivprov|Equity Amount}}s, then. Straightforward enough: Take your {{eqderivprov|Equity Notional Amount}} — helpfully filled out in the {{eqderivprov|Confirmation}} — multiply it by the {{eqderivprov|Rate of Return}}, being the performance of the underlying share over the period in question — and there’s your number. | {{eqderivprov|Equity Amount}}s, then. Straightforward enough: Take your {{eqderivprov|Equity Notional Amount}} — helpfully filled out in the {{eqderivprov|Confirmation}} — multiply it by the {{eqderivprov|Rate of Return}}, being the performance of the underlying share over the period in question — and there’s your number. | ||
===The basics: a worked example.=== | |||
Let’s put some numbers on this, because, as with many of the finer creations of {{icds}}, there is quite a lot of buried technology in there to unpack. | Let’s put some numbers on this, because, as with many of the finer creations of {{icds}}, there is quite a lot of buried technology in there to unpack. | ||
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*Where the stock went ''up'': 1,000,000 * {{font colour|green|+5%}} = {{font colour|green|+50,000}}. | *Where the stock went ''up'': 1,000,000 * {{font colour|green|+5%}} = {{font colour|green|+50,000}}. | ||
*Where the stock went ''down'': 1,000,000 * {{font colour|red|-5%}} = {{font colour|red|-50,000}}. | *Where the stock went ''down'': 1,000,000 * {{font colour|red|-5%}} = {{font colour|red|-50,000}}. | ||
===Shorts, longs and flewxi-transactions=== | |||
Now as you know, the {{isdama}} is a bilateral construct — In a funny way, a bit [[Bob Cunis]] like that — and while the [[equity derivatives]] market is largely conducted between dealers and thThis doesn't mean the dealer is always the {{eqderivprov|Equity Amount Payer}}. The client — as often as not, a [[hedge fund]] — is as likely to be taking a [[short]] position — locusts, right? — as a [[long one]]. One does this by reversing the roles of the parties in the {{eqderivprov|Confirmation}}: The {{eqderivprov|Equity Amount Payer}} for a ''long'' transaction will be a [[Swap dealer|dealer]]. The equity amount payer for a ''short'' transaction will be the [[Hedge fund|fund]]. | |||
So much so uncontroversial. But then there are flexi-transactions: in these modern times of [[high-frequency trading]], [[unique transaction identifier]]s and trade and transaction reporting, [[dealer]]s and their clients are increasingly interested in consolidating the multiple trade impulses on the same underlyer they have each day into single positions and single transactions: this makes reconciling reporting far easier, and also means you don’t have to be assigning thousands of [[UTI]]s every day — at a couple of bucks a throw — to what is effectively a single stock position. | |||
What does this have to do with {{eqderivprov|Equity Notional Amount}}s? Well the {{eqderivprov|Equity Notional Amount}} of that single “position” transaction is now a moving target. A ''short'' trade impulse on a (larger) existing long position will reduce the Equity Notional Amount, but it won’t necessarily change who is the {{eqderivprov|Equity Amount Payer}}, ''unless the total notional of the position flips from positive to negative. | |||