Template:M summ Equity Derivatives Transactions

From The Jolly Contrarian
Jump to navigation Jump to search


There isn’t a generic catch-all term for the underlier of an Equity Derivatives Transaction. This is a pity, since “Index, Share or Basket as the case may be” isn’t the most elegant expression in the annals of legal literature. You might have used “Instrument” or even “Underlier” might do.

Underlier” is a JC-spawned confection, and we do use it from time to time, when our patience with ISDA’s crack drafting squad™ and its leaden drafting becomes as shiny, thin and translucent as the seat of an old pair of suit trousers.

Equity Swap Transactions

A handy catch-all term to make your confirmation somehow legible, although to use it you must forego many, many juicy as the case may bes. Equity Swap Transactions break into two main categories:

Share Transactions

A nice way of bunching up transactions relating to Shares so you don’t have to say “Share Swap Transaction, Share Option Transaction or Share Forward Transaction, as the case may be”, however much your inner “analyst” may compel you to do so. And you have to admit, there is a dirty satisfaction in doing so, isn’t there?

But not Share Basket Transactions, you understand. Just single Shares.


Now back in the day counterpartiers exchasnged long-form conformations starting out Dear Ladies and Gentlemen, and cleaved to a long and tedious form, but in Equity Derivatives world it quickly became apparent this was quite the waste of trees: equity derivatives tend to be vanilla, delta-one and traded in high volumes.

Thus ISDA-sponsored master confirmations quickly emerged, allowing parties to agree general terms up front, so the process of confirming was nothing more than a spreadsheet or xml file exchanged at the end of each day.

In the prime brokerage space, the parties developed their own synthetic equity swap master conformations — somewhat more bespoke than the ISDA MCs, with a further level of standardisations of currencies and tenors, designed to replicate cash equity trading as nearly as possible.

All of these things count as Confirmations. No doubt some bright spark will try to do something one day on a blockchain.