Page 61 - PRIAA Glossary

example, the counterparties to an equity swap may agree to exchange the dividends from two stocks of roughly the same value). Alternatively, they may exchange the capital gains from a stock for an interest rate (floating leg) calculated over a nominal value. Equity swaps may take a variety of forms, but all exist in order to diversify the cash flows of the parties without requiring them to buy anything new.
EQUITY/FIRST LOSS TRANCHE
The most junior, and therefore the riskiest, tranche in a structured finance transaction, such as a collateralised debt obligation (CDO), collateralised loan obligation (CLO) or collateralised mortgage obligation (CMO). The equity tranche absorbs the initial losses-due-to-default in the underlying portfolio.
ESCROW CONTRACT
A contract with a third party, generally a custodian bank,
to oversee financial assets and fulfil related financial obligations as necessary. This may include the transfer of collateral to cover exposure from derivative obligations and respond to margin calls. The third party/custodian bank may also issue escrow receipts which certify that the underlying security of an option writer is in fact in its possession.
ETHANE (C2)
An NGL hydrocarbon component of NGLs primarily used by petrochemical facilities. It is transported in gas form through pipelines.
EUREX
A European central counterparty (CCP) that offers clearing services for the exchange-traded derivatives market, bond and repo markets. In the over-the-counter (OTC) derivatives space, Eurex launched a credit default swap offering in Q3 2009
and IRS clearing in Q4 2012. It is planning to launch an Equity Option service for OTC transactions. Eurex also offers clearing for the following exchanges: Frankfurt Stock Exchange, Irish Stock Exchange and European Energy Exchange. Eurex is the clearing division of the larger Deutsche Börse organisation, which runs the Frankfurt stock exchange.
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