Template:Equivalent vs identical
So why do we say “equivalent” and not just “the same” or even “identical”?
Largely, to keep accountants happy. “The same” is narrower: it means exactly the same security or banknote that you were originally referring to, with not just the same ISIN but the same individual serial number. A different note from the same series, that happens to be fungible with it, even though in all material respects identical, would not do. If, for example, I give you my security to look after, you must give me that exact piece of paper back. If I title transfer my security to you, with the expectation you will title transfer the same security back, I give up all my ownership of that security. You can do with it what you will, but must at some point give me back a note that is fungible with what I gave you, but not need be exactly the physical piece of paper I gave you, and I am in exactly the same financial position.
As I say, all very moot in the age of electronic book-entry clearing.
Why do accountants care? Shouldn’t the simple fact that they do be enough? Well, it has to do with making sure the original transfer was a valid, absolute title transfer, so that the recipient can be confident it may freely deal with the security as long as it has it, and its only obligation is a debt claim back to the original transferor. This may also be important for the seller, if it is wanting the asset off its balance sheet.[1] If I give you a security by title transfer, but you must give me back precisely the security that I gave you — the very one; not just a fungible equivalent — then this suggests that I retain some claim to or ownership right over the original security I gave you. This in turn implies you are not free to deal with it, as in some way it remains mine: I have not fully transferred title to that security to you. By agreeing you may settle our debt by returning an equivalent security, it puts beyond doubt that you are free to deal with that security as you see fit, and when it comes to reversing out the transaction you can just go and buy in a security from the market, and we avoid the sort of anxiousness that can plague accountants.
- ↑ Though, if you simultaneously acquire a right or become obliged to take the equivalent security back, good luck getting it off your balance sheet.