Confessions of a researchaholic

March 31, 2021

Total return swap

Filed under: Real — liyiwei @ 10:27 am
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I listened to this WSJ podcast about recent block selling from some banks caused by a total return swap.

Apparently, it is possible to structure financial instruments into various forms as long as there are counter parities on each side.
In that particular case, a bank purchased a set of stocks and swapped the variable return (dividends and capital gains/losses) with a fixed return, and had to sell the assets when the counter party failed to pay for capital losses, causing further downward spiral.

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