4 ms·

The anti stock is actually a great idea, I am surprised Wall Street doesn’t do this already to create synthetic longs. Unfortunately it would be hard to collat

The anti stock is actually a great idea, I am surprised Wall Street doesn’t do this already to create synthetic longs. Unfortunately it would be hard to collateralize since there is technically no limit to the dividend, similar to a sold call, but just like a sold call you could collateralize with an equivalent sized long position. That could probably be useful for tax optimization (similar to how many of the crypto lending services require full or over collateralization of the underlying, with the market generally being people who want to spend appreciated crypto without realizing a gain). Congress would certainly eventually address this, but there would be a few glorious years of deferred capital gains. It could also be extremely useful for market making - when you can’t get a share to sell to fill or collateralize an order, you generate a synthetic long and anti stock. But you’d probably have to get some system in place with clearing houses where you eventually replace the synthetic long with a real share. IIUC this is pretty close to how the system works already. I want to go to this party, IME most Bay Area parties are just really awkward nerds trying to suss out who is making the most money

6yyyyyy 4y ago
>I am surprised Wall Street doesn’t do this already to create synthetic longs. A comment on the post covers that: It's called a "bucket shop", and it's illegal.
- monero-xmr 4y ago
  Synthetix has been running a bucket shop for a long time. They added stocks through Kwenta but got spooked and removed them. https://synthetix.io/ https://synthetix.io/
  - JumpCrisscross 4y ago
    > Synthetix has been running a bucket shop for a long time Well, this is an awkward moment to be in a car with a connected friend from Adelaide!
    - TeMPOraL 4y ago
      Invite them to our HN bashing on defi subthread party here!
      - JumpCrisscross 4y ago
        Given Synthetix is based in NSW, the bashing will come in a more formal forum.
- SilasX 4y ago
  I don't see how this is describing the same thing: https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) The Wikipedia description of a bucket shop says that it's gambling market on stock prices. The anti-stock idea in the article is a security where the holder is obligated to pay out the same dividends as the underlying stock. Not the same thing, AFAICT.
- julkali 4y ago
  Not relevant to the discussion but why is it illegal? Would save a lot of transaction fees ...
  - ravel-bar-foo 4y ago
    Probably because the counterparty is the dealer, so the dealer has to manipulate prices and terms in their favor to turn a profit. Also, since no actual stocks trade hands, there is no effect on stock price and no investment value.
- acover 4y ago
  There are derivatives that settle in cash[1]. How do they differ from a bucket shop? [1] - https://www.investopedia.com/terms/c/cashsettlement.asp https://www.investopedia.com/terms/c/cashsettlement.asp
seanhunter 4y ago
> The anti stock is actually a great idea, I am surprised Wall Street doesn’t do this already to create synthetic longs Wall Street already does do this (and basically anything else you can think of that “Wall Street doesn’t do”). There are (at least) two forms. Firstly an Equity Swap[1] and secondly a Total Return Swap[2] (which is just Wall Street’s Swiss army knife tool for synthetically being long/short the return on some asset or basket). If you just want to long/short the price return (and don’t include dividends which are mentioned in TFA) then there are also contracts for difference (CFDs) where the parties swap the price return on an equity. When I was in this business those were usually used because of tax differences between capital gains and other types of tax. [1] https://www.investopedia.com/terms/e/equityswap.asp https://www.investopedia.com/terms/e/equityswap.asp refers to it as having an index on one side and a rate on the other side, but there’s no reason not to have a single stock rather than an equity index and we used to do these 15 years ago when I worked in equities [2] https://www.investopedia.com/terms/t/totalreturnswap.asp https://www.investopedia.com/terms/t/totalreturnswap.asp Edit to add: There are also “dividend swaps” where the parties just swap the dividend return on the asset if you only care about that stream. This is sometimes helpful matching investors who have tax or other structural problems with receiving dividends with others who just want a dividend income stream without the asset price risk.
- pram 4y ago
  Yeah I was thinking of CFDs but they don't exist in the US afaik.
  - rich_sasha 4y ago
    They do, as do TR swaps. They may not be advantageous for tax reasons. For example, at one point, trading equities via swaps carrier a tax benefit to the end user, at no significant cost to the bank arranging this. Lots of institutions used that for trading. But later, the tax advantage was lost, while banks were forced to treat these swaps as a proper credit liability, thus depleting the pool of available capital. So people stopped doing this. This is about 10 years outdated so I'm not sure what status quo is, but as a hack, this definitely exists in the US.
- 4y ago
AtlasBarfed 4y ago
Weren't all the big shorts essentially synthetic longs? (Edit: Context: the movie "The Big Short")
- seanhunter 4y ago
  The actual big short (haven't seen the movie) was on a credit default swap index[1] (it was on one of the CMBX series which have commercial mbs as underlying[2]. There are also RMBX series for residential mortgages). CDSs are a swap (ie they are synthetic by definition) where one person is long the risk (short the protection) and one person is long the protection (and therefore short the risk). So the concept of who is long and short can be a little confusing. [1]Source: worked at Goldman as a strat (quant developer) on the mortgages desk at the time. I knew and worked with pretty much all of the people involved although I was based in London. The actual person who came up with the research behind the short idea was a fellow strat and brilliant econometrician[3] and most of the trading guys fought him like hell over it only to later found hedge funds and pretend that it was their idea all along. [2] https://www.investopedia.com/terms/c/cmbx_indexes.asp https://www.investopedia.com/terms/c/cmbx_indexes.asp [3] Michael Marschoun https://www.researchgate.net/scientific-contributions/Michael-Marschoun-2015589984 https://www.researchgate.net/scientific-contributions/Michae...
mlla 4y ago
Dividend derivatives have been a thing for quite a while. When Covid lockdowns started in 2020, EU mandated that EU banks are not allowed to pay dividends and Société Générale took quite a hit: "SocGen said it lost about 200 million euros on products related to the cancellation of dividend payments in the trading business." [1] Some more information about available dividend derivatives on EUREX: https://www.eurexchange.com/resource/blob/80940/d5a6e620224a920b26b0903305aa4755/data/presentation_dividend_derivatives.pdf https://www.eurexchange.com/resource/blob/80940/d5a6e620224a... [1] https://www.straitstimes.com/business/banking/socgen-posts-surprise-loss-as-equities-traders-are-wiped-out-in-rout https://www.straitstimes.com/business/banking/socgen-posts-s...

6yyyyyy 4y ago

>I am surprised Wall Street doesn’t do this already to create synthetic longs. A comment on the post covers that: It's called a "bucket shop", and it's illegal.

monero-xmr 4y ago
Synthetix has been running a bucket shop for a long time. They added stocks through Kwenta but got spooked and removed them. https://synthetix.io/ https://synthetix.io/
- JumpCrisscross 4y ago
  > Synthetix has been running a bucket shop for a long time Well, this is an awkward moment to be in a car with a connected friend from Adelaide!
  - TeMPOraL 4y ago
    Invite them to our HN bashing on defi subthread party here!
    - JumpCrisscross 4y ago
      Given Synthetix is based in NSW, the bashing will come in a more formal forum.
SilasX 4y ago
I don't see how this is describing the same thing: https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) The Wikipedia description of a bucket shop says that it's gambling market on stock prices. The anti-stock idea in the article is a security where the holder is obligated to pay out the same dividends as the underlying stock. Not the same thing, AFAICT.
julkali 4y ago
Not relevant to the discussion but why is it illegal? Would save a lot of transaction fees ...
- ravel-bar-foo 4y ago
  Probably because the counterparty is the dealer, so the dealer has to manipulate prices and terms in their favor to turn a profit. Also, since no actual stocks trade hands, there is no effect on stock price and no investment value.
acover 4y ago
There are derivatives that settle in cash[1]. How do they differ from a bucket shop? [1] - https://www.investopedia.com/terms/c/cashsettlement.asp https://www.investopedia.com/terms/c/cashsettlement.asp

seanhunter 4y ago

> The anti stock is actually a great idea, I am surprised Wall Street doesn’t do this already to create synthetic longs Wall Street already does do this (and basically anything else you can think of that “Wall Street doesn’t do”). There are (at least) two forms. Firstly an Equity Swap[1] and secondly a Total Return Swap[2] (which is just Wall Street’s Swiss army knife tool for synthetically being long/short the return on some asset or basket). If you just want to long/short the price return (and don’t include dividends which are mentioned in TFA) then there are also contracts for difference (CFDs) where the parties swap the price return on an equity. When I was in this business those were usually used because of tax differences between capital gains and other types of tax. [1] https://www.investopedia.com/terms/e/equityswap.asp https://www.investopedia.com/terms/e/equityswap.asp refers to it as having an index on one side and a rate on the other side, but there’s no reason not to have a single stock rather than an equity index and we used to do these 15 years ago when I worked in equities [2] https://www.investopedia.com/terms/t/totalreturnswap.asp https://www.investopedia.com/terms/t/totalreturnswap.asp Edit to add: There are also “dividend swaps” where the parties just swap the dividend return on the asset if you only care about that stream. This is sometimes helpful matching investors who have tax or other structural problems with receiving dividends with others who just want a dividend income stream without the asset price risk.

pram 4y ago
Yeah I was thinking of CFDs but they don't exist in the US afaik.
- rich_sasha 4y ago
  They do, as do TR swaps. They may not be advantageous for tax reasons. For example, at one point, trading equities via swaps carrier a tax benefit to the end user, at no significant cost to the bank arranging this. Lots of institutions used that for trading. But later, the tax advantage was lost, while banks were forced to treat these swaps as a proper credit liability, thus depleting the pool of available capital. So people stopped doing this. This is about 10 years outdated so I'm not sure what status quo is, but as a hack, this definitely exists in the US.
4y ago

AtlasBarfed 4y ago

Weren't all the big shorts essentially synthetic longs? (Edit: Context: the movie "The Big Short")

seanhunter 4y ago
The actual big short (haven't seen the movie) was on a credit default swap index[1] (it was on one of the CMBX series which have commercial mbs as underlying[2]. There are also RMBX series for residential mortgages). CDSs are a swap (ie they are synthetic by definition) where one person is long the risk (short the protection) and one person is long the protection (and therefore short the risk). So the concept of who is long and short can be a little confusing. [1]Source: worked at Goldman as a strat (quant developer) on the mortgages desk at the time. I knew and worked with pretty much all of the people involved although I was based in London. The actual person who came up with the research behind the short idea was a fellow strat and brilliant econometrician[3] and most of the trading guys fought him like hell over it only to later found hedge funds and pretend that it was their idea all along. [2] https://www.investopedia.com/terms/c/cmbx_indexes.asp https://www.investopedia.com/terms/c/cmbx_indexes.asp [3] Michael Marschoun https://www.researchgate.net/scientific-contributions/Michael-Marschoun-2015589984 https://www.researchgate.net/scientific-contributions/Michae...

mlla 4y ago

Dividend derivatives have been a thing for quite a while. When Covid lockdowns started in 2020, EU mandated that EU banks are not allowed to pay dividends and Société Générale took quite a hit: "SocGen said it lost about 200 million euros on products related to the cancellation of dividend payments in the trading business." [1] Some more information about available dividend derivatives on EUREX: https://www.eurexchange.com/resource/blob/80940/d5a6e620224a920b26b0903305aa4755/data/presentation_dividend_derivatives.pdf https://www.eurexchange.com/resource/blob/80940/d5a6e620224a... [1] https://www.straitstimes.com/business/banking/socgen-posts-surprise-loss-as-equities-traders-are-wiped-out-in-rout https://www.straitstimes.com/business/banking/socgen-posts-s...