Template:Difference between SES and MCA: Difference between revisions

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 ===Difference between [[synthetic PB]] and normal [[equity derivative]] [[master confirmation]]s===
-[[Term]], in a word. Under a normal equity derivatives [[MCA]], the parties trade at arms length for a specified term, at the end of which both knows the trade terms out. So:
+[[Term]], in a word. Under a normal [[equity derivatives]] [[MCA]], the parties trade at arms length for a specified [[term]], at the end of which both knows the trade terms out. So:
-*In an [[MCA]] the parties specifically agree to the trade up front - there is no sense of the “facility” nature of [[synthetic PB]] (even if that facility is technically uncommitted). Thus the broker can assess the market and take a view for the duration how it feels about hedging risks, and maybe price them into the trade.
+*The parties specifically agree to the trade up front — there is no sense of the “facility” nature of [[synthetic PB]] (even if that facility is technically uncommitted), where the broker more or less stands ready to take on any trade at the request of the client. Thus a [[broker]] under an [[MCA]] can assess the market at the time of trade and take a view for the duration how it feels about hedging risks, and perhaps price them into the trade.
-*By contrast, in [[synthetic PB]], the expectation is that the [[broker]] will put the trade on at the pre-agreed rates, and will keep it on until the client wants to take it off, whether that is over night or five years. Assessing the potential for market disruption is therefore more fraught, hence more flexibility in the ability to get out of a trade if hedging conditions unexpectedly change.
+*[[Initial margin]] may also be fixed.
+*By contrast, in [[synthetic PB]], the expectation is that the [[broker]] will put the trade on at the pre-agreed rates, and will keep it on until the client wants to take it off, whether that is over night or five years. Assessing the potential for market disruption is therefore more fraught, hence more flexibility in the ability to get out of a trade if hedging conditions unexpectedly change. While a broker will have a greater flexibility to adjust initial margin under a [[synthetic equity]] master confirmation, this doesn't impact the pricing of the risk per se. And there may well be a [[margin lock-up]], meaning the broker can’t quickly get out of the trade.