|
Intermediate-level 2-day course suitable for those with a good knowledge of securities lending who want a deeper understanding of alternative structures (equity repo, total return swaps, CFDs, put/call combinations and LEPOs), risk, balance sheet management and tax.
Moving on from plain vanilla stock borrowing and lending, this intermediate-level course examines the expanded product range that comprises equity finance, including collateral swaps, repos, structured repos, and derivatives. The course explains how these structures are used to reduce dealer funding costs and enhance yields through tax and balance sheet management. Ample hands-on opportunities are provided through the use of exercises and case studies to develop participants' understanding of how and why trades are structured using various economically equivalent derivative instruments.
Course categories:Securities Services/ Securities Finance, Securities Services/ Securities Finance Inhouse
|
|
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.
EXERCISE: Risk Arbitrage
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.
|
