Equity Derivatives

Abstract

In this article we hope to provide a high level overview of how equity derivatives are used in the market as well as provide an insight into the variety of commercial and legal challenges that arise in respect of this asset class. An equity derivative can be a very simple and standard transactions or it can be extremely complex and when used in a strategic way can have a prodigious and sometimes catastrophic effect on the market. Challenges exist across the board, ranging from the desire to standardise processes and negotiations to allow for efficiency in relation to the volume of trading activity, as well the apparent need to control and regulate the strategic uses of equity derivatives which can have adverse effects on the market. We will look into the efforts that have been made in relation to standardisation, with the developments in relation to the Equity Derivatives Definition Booklets and the developments of Master Confirmation Agreements. We will also look at the regulatory developments, which in doing so requires an understanding of events which have occurred that have given rise to concerns in the markets and how regulators have sought to address these.