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Synthetic prime brokerage: Difference between revisions
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{{a|PB|[[File:SES Google.png|450px|thumb|center|The internet's leading authority on [[synthetic equity swap]]s.{{tm}}]]}}{{a|glossary|}}''Also called a [[contract for difference]] or a [[high-delta equity derivative]].''<br> | {{a|PB|[[File:SES Google.png|450px|thumb|center|The internet's leading authority on [[synthetic equity swap]]s.{{tm}}]]}}{{a|glossary|}}''Also called a [[synthetic equity swap]], a [[contract for difference]] or a [[high-delta equity derivative]].''<br> | ||
[[Prime brokerage]] done with [[derivatives]]. So : | [[Prime brokerage]] done with [[derivatives]]. So : | ||
*'''Going long''': instead of buying shares on [[margin]] and asking your [[prime broker]] to hold them for you, you just trade [[a total return swap]] with your [[prime broker]] where the PB pays the return of the share price and you pay a floating rate. The [[PB]] will buy the physical shares and hold them in its own inventory as a [[delta-one]] hedge. But note it will do this across its whole book, not client-by-client, much less position-by-position.You will be exposed to the price of the assets, but will not have any control or ownership over the {{tag|prime broker}}'s hedge. This can sometimes lead to disappointment when it comes to [[voting]] and [[corporate actions]], but it's all for the best. | *'''Going long''': instead of buying shares on [[margin]] and asking your [[prime broker]] to hold them for you, you just trade [[a total return swap]] with your [[prime broker]] where the PB pays the return of the share price and you pay a floating rate. The [[PB]] will buy the physical shares and hold them in its own inventory as a [[delta-one]] hedge. But note it will do this across its whole book, not client-by-client, much less position-by-position.You will be exposed to the price of the assets, but will not have any control or ownership over the {{tag|prime broker}}'s hedge. This can sometimes lead to disappointment when it comes to [[voting]] and [[corporate actions]], but it's all for the best. | ||