Template:M summ Equity Derivatives 8: Difference between revisions

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 [[File:Slight return.jpg|left|thumb|193x193px|A [[Cash-settled - Equity Derivatives Provision|cash-settled]] [[slight return]] swap yesterday]]
 {{equity swaps versus forwards}}
-=== Cash Settlement of Equity Swap Transactions under Section {{eqderivprov|8.6}} ===
+=== Section {{eqderivprov|8.6}}: {{eqderivprov|Cash Settlement of Equity Swap Transactions}} ===
 {{eqderivprov|Equity Swap Transaction}}s can be settled either by reference to {{eqderivprov|Price Return}} or {{eqderivprov|Total Return}}, but not [[slight return]].
 {{cashsettlement}}
-===Types of return when referencing futures===
+===Section {{eqderivprov|8.7}}: {{eqderivprov|Equity Amount}}===
-{{Type of Return and swaps on futures}}
-==={{eqderivprov|Equity Amount}}===
 {{eqderivprov|Equity Amount}}s, then. Straightforward enough:  Take your {{eqderivprov|Equity Notional Amount}} — helpfully filled out in the {{eqderivprov|Confirmation}} — multiply it by the {{eqderivprov|Rate of Return}}, being the performance of the underlying share over the period in question — and there’s your number.
-===The basics: a worked example.===
 Let’s put some numbers on this, because, as with many of the finer creations of {{icds}}, there is quite a lot of buried technology in there to unpack.
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 *'''Where the stock went ''up''''': USD1,000,000 * {{font colour|green|+5%}} = USD{{font colour|green|+50,000}}.
 *'''Where the stock went ''down''''': USD1,000,000 * {{font colour|red|-5%}} = USD{{font colour|red|-50,000}}.
-===Shorts, longs and flexi-transactions===
-Now as you know, the {{isdama}} is a bilateral construct — In a funny way, a bit [[Bob Cunis]] like that — and while the [[equity derivatives]] market is largely conducted between dealers and their clients, this doesn’t mean the [[dealer]] is always the {{eqderivprov|Equity Amount Payer}}. The client — as often as not, a [[hedge fund]] — is as likely to be taking a [[short]] position — [[locusts]], right? — as a [[long]] one. One does this by reversing the roles of the parties in the {{eqderivprov|Confirmation}}: The {{eqderivprov|Equity Amount Payer}} for a ''[[long]]'' transaction will be a [[Swap dealer|dealer]]. The {{eqderivprov|Equity Amount Payer}} for a ''[[short]]'' transaction will be the [[Hedge fund|fund]].
-So much so uncontroversial. But then there are flexi-transactions: in these modern times of [[high-frequency trading]], [[unique transaction identifier]]s and [[Trade reporting|trade]] and [[transaction reporting]], [[dealer]]s and their clients are increasingly interested in consolidating the multiple trade impulses they have on the same underlyer into single positions and single transactions: this makes reconciling reporting far easier, and also means you don’t have to be assigning thousands of [[UTI]]s every day — at a couple of bucks a throw — to what is effectively a single stock position.
+===Section {{eqderivprov|8.8}}: {{eqderivprov|Cash Settlement Payment Date}} ===
+A provision that does very little to help an inquiring mind with the question “What is the {{eqderivprov|Cash Settlement Payment Date}} actually, like, ''for''?”
-What does this have to do with {{eqderivprov|Equity Notional Amount}}s? Well, the {{eqderivprov|Equity Notional Amount}} of that single “position” transaction is now a moving target. A ''short'' trade impulse on a (larger) existing long position will reduce the {{eqderivprov|Equity Notional Amount}}, but it won’t necessarily change who is the {{eqderivprov|Equity Amount Payer}}, ''unless the total notional of the position flips from positive to negative''. Then it will. This is kind of weird if you stand back and look at it from a stuffy, theoretical point of view, but once you slip into that warm negligee of pragmatism in which almost all [[legal eagles]] love to drape themselves, you get over it.
+For that, you would be advised to consult Section {{eqderivprov|8.6}}, {{eqderivprov|Cash Settlement of Equity Swap Transactions}}, which differentiates between “{{eqderivprov|Price Return}}”, which concerns itself purely with the prevailing equity price of the underlier, and “{{eqderivprov|Total Return}}” which also factors in [[dividend]]s paid on the relevant stock, and “[[slight return]]”, which is a Jimi Hendrix song.<ref>It doesn’t really relate to [[slight return]], though that is a Jimi Hendrix song.</ref>
-Well, I did, anyway.
+Note: {{eqderivprov|Dividend Amount}}s are typically payable on the {{eqderivprov|Cash Settlement Payment Date}} — though the {{eqderivprov|Cash Settlement Payment Date}} following what — that is the question, whose answer, it turns out, is a little bit odd, as you will see if you investigate further.