The regulation of equity derivatives
The regulation of equity derivatives

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • The regulation of equity derivatives
  • What is an equity derivative?
  • Types of equity derivative instruments
  • Over-the-counter or exchange-traded products
  • Regulation of derivatives
  • General
  • FSMA 2000 (and RAO)
  • EMIR
  • MiFID II and MIFIR
  • Short Selling Regulation
  • More...

BREXIT: 11pm (GMT) on 31 December 2020 (‘IP completion day’) marked the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. Following IP completion day, key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see: Brexit and financial services: materials on the post-Brexit UK/EU regulatory regime.

What is an equity derivative?

An equity derivative is a financial instrument that references and offers economic exposure to the performance of an equity asset or other equity-related variable from which the instrument's price or value is derived.

Equity derivatives may be traded on an exchange or over the counter (see further details below). They may also 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. However, they also have a variety of other uses which will be covered in further detail below.

Types of equity derivative instruments

Equity derivative instruments fall into the following five principal category

  1. Options—the two main types of options are put options and call options. A put option holder has the right to sell an underlying asset (for example shares) to a counterparty for an agreed price on an agreed future date. A call option

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