Equity Finance Overview
The products; positioning vs. financing transactions; carrying costs of short/long positions; review of securities lending; preview of equity repo and alternative structures; role of the equity finance desk.
Equity Repo, Sell/Buy Backs, Collateral Swaps
Origin of equity repo; accounting treatment; market participants; mechanics; financing vs. yield enhancement; pricing; bilateral repo, tri-party repo; advantages of repo for dealer and cash investor; collateral swaps: mechanics and uses.
Total Return Swaps and Put/Call Combinations
Mechanics of total return swaps; use as a synthetic long or short position (no sale); combined with sale for financing; balance sheet treatment; financing with sale plus TRS; review of put and call options and alternative treatment of premiums; put/call combo: with at-the-money strike/with out-of-the money strike; balance sheet treatment.
Exercise:
Delegates will structure the same transaction as a repo, a TR swap, and a put/call combination. |
Contracts for Difference and LEPOs
Advantages in terms of stamp duty relief tax; CFDs: description, terms, infrastructure; applications in the market; comparison with equity swaps; use in leveraged transactions.
Yield Enhancement Trades / Key Tax Considerations
Withholding tax on dividends; arbitrage possibilities; differential eligibility for reclaims; yield enhancement strategies.
Exercise:
Participants will work out the stock loan fee corresponding to a given percentage of the dividend. |
Using Alternatives Structures for Yield Enhancement
All-in pricing; enhanced returns as transaction driver: walked-through example of pricing the same transaction over record date, using stock loan vs. non-cash, stock loan vs. cash, sale plus swap and sale plus put/call combo, all resulting in earning a given percentage of the dividend.
Exercise:
Participants will structure and price a trade over dividend in several different ways. |
Case Study
Over dividend trades |
Risk and Documentation in Equity Finance
Counterparty risk, collateral risk, operational risk, insolvency risk; relevance of netting and other protections offered by standard contracts.
Equity Financing, Focus on Market Risk
Formula for financing; components of financing; repo rate; explanation of risk; market risks.
Product Innovations and Future Trends
Corporate repo; motivations for corporates; rolling repo line; future development for the financing business.
Tri-Party Services
Development of try-party collateral facilities; mechanics; role of try-party agent; fixed income vs. equity; stock loan vs. repo; legal aspects.
Accounting Considerations in Equity Finance
Review of accounting treatment of plain vanilla and structured equity financing products: accruals vs. realisation vs. mark-to-market: on and off balance sheet.