Template:M gen Equity Derivatives 12.8: Difference between revisions

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===Negotiation tips===
===Negotiation tips===
[[Cancellation Amount - Equity Derivatives Provision|If]] you have the privilege or representing a [[dealer]], prepare to experience one of the great old chestnuts of the equity derivatives world. Dispute rights.  
[[Cancellation Amount - Equity Derivatives Provision|If]] you have the privilege or representing a [[dealer]], prepare to experience one of the great old chestnuts of the equity derivatives world: Dispute rights.  


{{dispute rights capsule}}
{{cancellation amount disputes}}
 
[[Buyside counsel]] will delight in requesting elaborate dispute mechanisms, which they will have cribbed from their days as deal counsel on synthetic [[CDO squared]] deals, when they earned their fortunes penning cascading dispute provisions that would run for five unpunctuated pages. A couple of things to note:
 
Firstly, in those [[CDO squared]] the counterparty was, needless to say, the dealer’s own [[SPV]], and it would neither ''seek'' a dispute provision, much less ''invoke'' one if it had it. That it ''did'' have one was an elaborate charade put on by the [[dealer]] for the sake of credulous ratings agencies, who laboured under the motivated irrationality of believing a [[calculation agent dispute right]] did a damn of good, and might meant that these piles of toxic waste could earn a AAA rating. I mean, just fancy.
 
Secondly, the disputability of derivative valuations, generally, falls into two camps: one one hand, those of liquid, publicly observable asset classes — such as those in the [[spot FX]] and listed equities markets — whose valuations derive from objectively-reported, independent market transactions and there isn’t really a great deal of scope for debate and, on the other, those that asset classes that comprise exotic, bespoke, “bull-''market''”<ref>This is one of those occasions where “bull-market” and “bull shit” are exact synonyms.</ref> transactions, which spring from the fevered imagination of credit [[structurer]]s and depend on fantastical internal models of convexity curves, volatility smiles and other such exotic confections. These, no-one but the mad professor who confected them could calculate, much less want to, and for absolute certain the person ''employing'' said mad professor — the [[dealer]] — would not dream of allowing anyone else to second guess those calculation because upon them is predicated the very, colossal, PNL on which the trade is predicated.
 
Anyway, I digress. Suffice to say [[equity derivatives]] belong to the ''former'' category. They are an access product: the dealer provides exposure without taking a naked proprietary position one way or another. It hedges [[delta-one]], so and is remunerated by means of (i) a [[commission]] for putting the trade on and taking it off, and (ii) managing the spread between the financing cost it charges and the net funding cost of its hedging activity. (For a full account, see ''[[prime brokerage charging]]''). Equity derivatives [[dealer]]s do not take a proprietary position.
 
They broadly determine the prices of your swap exactly as they would for cash equity brokerage: by buying or selling shares, only for its hedge, not for your account. Just as you wouldn't get a dispute right on cash brokerage trade — good luck saying, “yeah, I have another broker telling me it could have got a better price” to a stock broker —nor, really should you on a synthetic. The whole theory of the game is that it is a liquid market and the dealer has better access to that market than you do. If you can get better prices elsewhere, ''go'' elsewhere.

Revision as of 15:45, 6 January 2021

Negotiation tips

If you have the privilege or representing a dealer, prepare to experience one of the great old chestnuts of the equity derivatives world: Dispute rights.

Template:Cancellation amount disputes

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