Hedging Disruption - Equity Derivatives Provision: Difference between revisions

Hedging Disruption - Equity Derivatives Provision (view source)

Revision as of 16:29, 2 August 2017

35 bytes removed , 2 August 2017

no edit summary

Amwelladmin

Bureaucrats, Interface administrators, Administrators

82,891

edits

@@ Line 1: / Line 1: @@
 {{fullanat2|eqderiv|12.9(a)(v)||12.9(b)(iii)|}}
-{{Nuts|Equity Derivatives|Hedging Disruption}}
+{{box|
+{{Nuts|Equity Derivatives|Hedging Disruption}}}}
-===Why the "why should I pay your hedging costs - I have no control over that" argument is bogus===
+===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 totally wear them in a cash trade, is why.In physical brokerage, the client would ''always'' pick up that difference.
+Because [[synthetic PB]] is just cash brokerage done with derivatives and you would wear them in a cash trade, is why.
-*The [[broker]] owes you [[best execution]]. that means it has to interrogate all venues and get you the best possible price.
+*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 is free to instruct the broker to exclude certain venues and brokers.
+*Under [[best execution]] rules the client may instruct the broker to exclude certain venues and brokers.
-*The broker will be able to configure its [[order router]] to accommodate the client's preferences.
+*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 that venue had the best price, you’d miss it).
+*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 the risk is market risk in replacing the trade, not credit risk.
+*Trades settle [[DVP]] so there is [[market risk]] in replacing the trade, not [[credit risk]].
-*That said, the market risk could be significant: failure of a venue will heavily impact [[liquidity]] and market [[volatility]] for a period.
+*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 that market loss when a venue does fail while getting the benefit its pricing whenever it does not is asking for a free option on the your own execution risk.
+*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===
 Expect to see some amendments to this clause, chiefly to appease [[Mediocre lawyer|fastidious counsel]]. For example: