A swap for which payments on one or both sides are linked to the performance...
see also Interest Rate Swap) A contract in which counterparties agree to exchange payments related to indices, at least one of which (and possibly both of which) is an equity index.
An equity swap is used for corporate takeovers with the acquiring company exchanging shares with those of the acquired company. The system allows the acquiring company to make the acquired company a wholly owned subsidiary through a mandatory exchange of shares even if some shareholders oppose the deal. Such stock exchanges have long been part of corporate takeovers in the U.S. and other countries. Japan introduced the system in 1999 by revising the Commercial Code. A company must raise funds through bank loans or other means to buy another company unless it has enough funds on hand. But the acquiring company does not need to raise funds if it uses an equity swap. Even big corporate takeovers can be more flexible through such stock exchanges. The practice therefore supports corporate mergers and acquisitions worldwide.
Any equity swap is the exchange of a equity return for an interest rate return. For equity financing the cash lenders actually buys the equity from the cash borrower and then transacts the swap. During the term of the swap the cash lender received interest and pays the equity return to the borrower. At the end of the swap, which is typically transacted under 1992 International Swaps & Derivative Association master agreement, the cash lender sells the equity.
a contractual agreement between two counterparties to exchange cash flows arising from specific assets over a defined period
a derivative security where a set of future cash flows are exchanged between two counterparties
a simplified index trading strategy and allows an investor to gain exposure to the equity return without having to own the equity
a special type of total return swap, where the underlying asset is a stock, a basket of stocks, or a stock index
A swap in which loans are made from one company to another based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate).
A swap which involves an exchange of return on a recognised stock index or a specified basket of individual stocks for a fixed or floating interest rate.
A type of swap where payments on one or both sides are tied to the price of a specific equity issue or a specific equity index.
A swap in which the cash flows that are exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.
An equity swap is a swap where a set of future cash flows are exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate. The other will be based on the performance of a share of stock or stock market index.