Equity derivatives
Equity derivatives

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Equity derivatives
  • Why use equity derivatives?
  • Equity swaps
  • Equity forwards
  • Equity futures
  • Equity kickers
  • Equity options
  • Equity warrants
  • Convertible bonds
  • Equity indices and baskets of shares
  • more

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

Equity derivatives are contracts entered into between two parties, or purchased over an exchange, and which take their value from either a share price, a basket of shares or an index of shares of a company. They have a wide variety of uses and allow investors flexible and cost effective access to the movements of shares and equity markets which are not available through direct investment in that particular asset class.

Equity derivatives can be traded over-the-counter (OTC) or on exchange. Alternatively, there are also many structured equity products. They may be funded or unfunded. Equity derivatives are used primarily by funds and investors as speculative investments and by end users and banks as commercial hedges. 

Why use equity derivatives?

Equity derivatives are a good option for an investor to access the benefit of equity investment without having to pay an upfront purchase price, together with stamp duty and other taxes. Purchasing a derivative is typically cheaper than purchasing shares directly. Options, for example, require only a premium to be