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Equity Swap |
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Equity swap A swap in which the cash flows exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate). Related: Interest rate swap.
Equity Swap A swap in which the at least one of the two legs is the cash flow from some equity instrument like a stock. For example, the counterparties to an equity swap may agree to exchange the dividends from two stocks of roughly the same value. Alternatively, they may exchange the capital gains from a stock index for an interest rate calculated over a nominal value. Equity swaps may take a variety of forms, but all exist in order to diversify the cash flows of the parties without requiring them to buy anything new. An equity swap may also help one or both parties legally avoid taxation. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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Equity swaps raise a number of significant legal issues under federal securities and commodities laws that are beyond the scope of this article. Derivatives, like equity swaps, may enable a plan sponsor to capture a view on a market without disrupting the underlying manager. TABB Group believes that as trading strategies grow more complex, "execution paths and order routing for products that firms want to automate within an asset class, such as FX, equity swaps or sovereign debt, will need to be centralized. |
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