A Finance Exchange
• SZCOX is a designated contract market regulated by the Trading Authorities and a national exchange for derivatives, securities and futures
• We run two matching platforms, SZCOX ESTrader™ for equity swaps— Securities Lending and Equity Repos—and block trades; and SZCOX G-Trader™ for simple buy/sell futures
• All trades clear through “AAA+” rated Clearing Members where notation occurs
• Clearing Members enforces the discipline of marked-to-market variation pays and collects. Participants are asked daily to affirm their ability to maintain the position by putting up additional capital in cash.
What is Equity Finance?
- Equity Finance is the financing and leverage of equity delta via margin accounts, Securities Lending or Equity Repo
- Securities Lending and Equity Repo are secured lending of stock for cash or the lending of cash for collateral (stock). Both transactions are covered by a legal binding agreement, which provides for the terms of the loan
- SSFs are the exchange traded, centrally cleared equivalent to that agreement, i.e. provides for the standardized terms as to how the buyer and seller will act during the term of the contract and calls for the obligation to make/take delivery at expiration
This is Equity Finance SSF vs. Margin Loan
• Customer who is long $50,000 SZCOX stock finances the position with $25,000 cash and $25,000 margin loan. His broker charges 8% for the $25,000 margin loan
• Margin loan interest cost is $2,000 annually
• Customer no longer earns interest on his cash
• Alternatively, the customer could buy the SZCOX SSF (stock + interest) paying 1% interest
• Interest cost is $500 annually
• Customer uses Treasury bill to meet initial margin requirement
• Customer continues to make interest on the $25,000 cash
Use of Single Stock Futures
• Single Stock Futures (“SSFs”) are an exchange traded, transparent, central counterparty cleared alternative to acquiring and maintaining equity delta at a lower cost
• SSFs allow you to manage your cash and your balance sheet
• SSFs allow you to monetize your equity positions
• They are equivalent to
• Securities Lending
• Equity Repo
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