What is a cash-settled equity swap?

Under a cash-settled equity swap, two parties enter into an agreement that seeks to replicate the positions of a long and a short investor in a particular stock. derivatives transaction) often holds the underlying securities as a hedge against its short position.

How do equity swaps settle?

Equity Swap Transactions can be settled either by reference to Price Return or Total Return, but not slight return. if Re-investment of Dividends does not apply, applicable Dividend Amounts will also be paid by the Equity Amount Payer (along with the Equity Amount, whichever way it might be paid, as per Price Return);

What is an equity swap agreement?

An equity swap is an exchange of future cash flows between two parties that allows each party to diversify its income for a specified period of time while still holding its original assets.

What is TRS in banking?

What is a Total Return Swap (TRS)? A Total Return Swap is a contract between two parties who exchange the return from a financial asset. Banks and other financial institutions use TRS agreements to manage risk exposure. with minimal cash outlay.

How does a cash settled equity swap work?

In essence, a cash settled equity swap is a contract referenced to an underlying parcel of shares pursuant to which the investor or ‘taker’ gives or receives cash payments from the swap counterparty or ‘writer’ equal to the decrease or increase in the underlying share price between the date of the agreement and maturity of the swap.

What is an equity swap in corporate finance?

Unsourced material may be challenged and removed. For the corporate finance term see stock swap. An equity swap is a financial derivative contract (a swap) where a set of future cash flows are agreed to be exchanged between two counterparties at set dates in the future.

How does the index work in an equity swap?

The swap will include the exchange of future streams of cash flows. index. The other swap leg will be paid by Investor B to Fund A and will be based on the future total returns of ABC Corp.’s stock for the specified period. Both legs will be calculated using a notional principal amount.

What are the two legs of an equity swap?

One leg is the payment stream of the performance of an equity security or equity index (such as the S&P 500) over a specified period, which is based on the specified notional value. The second leg is typically based on the LIBOR, a fixed rate, or another equity’s or index’s returns.