Total return swap

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Equity Derivatives Anatomy™

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Resources About the Equity Derivatives Definitions | (full wikitext) | (nutshell wikitext)
Hot topics Synthetic Prime Brokerage Anatomy | The Triple Cocktail | Cancellation and Payment | Calculation Agent
TOC | 1 General Definitions | 2 Option Transactions | 3 Exercise of Options | 4 Forward Transactions | 5 Equity Swap Transactions | 6 Valuation | 7 Settlement | 8 Cash Settlement | 9 Physical Settlement | 10 Dividends | 11 Adjustments and Modifications | 12 Extraordinary Events · 12.8 Cancellation Amount · 12.9 Additional Disruption Events · 12.9 List of ADEs · 12.9(b) Consequences of ADEs | 13 Miscellaneous

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A total return swap, or TRS is a swap that pays a total return on an underlying security or basket of securities. All returns, such as dividends and the results of corporate actions, are included. An equity TRS includes all gains and losses equivalent to holding the underlying share and no part of the return is excluded.

Defined for the purposes of SFTR as follows:

total return swap means a derivative contract as defined in point (7) of Article 2 of Regulation (EU) No 648/2012 in which one counterparty transfers the total economic performance, including income from interest and fees, gains and losses from price movements, and credit losses, of a reference obligation to another counterparty.

A derivative contract, in turn — and you’ll love this — is defined as per MiFID as follows:

derivative’ or ‘derivative contract’ means a financial instrument as set out in points (4) to (10) of Section C of Annex I to 2004/39/EC (EUR Lex)[1] as implemented by Article 38 and 39 of 1287/2006 (EUR Lex);

In a nutshell this means options, futures, swaps, forward rate agreements and any other derivative contracts relatiing to


References

  1. That’s MiFID and not MiFID II to its friends — even though MiFID II has updated somewhat the Section C of Annex I to include emissions certificates.
  2. I mean Lord, give me strength.