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Equity Derivatives

A track record of excellenceEquity derivatives provide effective solutions for managing risk and yield enhancement in equity investments. Deriving value from one or more underlying equity securities, equity derivatives are traded to transfer risks associated with the underlying security. Our strategic emerging markets focus enables us to offer our clients new opportunities for managing equity-related risks via derivatives. This is who we are:    • Our personnel have a long-term track record of excellence in the Ugandan derivatives market.    • We offer highly competitive pricing and efficient execution of both vanilla and structured derivative trades due to our large balance sheet, risk appetite and leading market maker position.    • We offer a solution-focused, creative approach and will tailor products to the specific needs of our clients.    • With multi-asset class focus and ability to manage complex risk, we provide clients with innovative hybrid products including multi-asset options as well as more complex options, often referred to as exotic derivative payoffs.    • We are strategically aligned to our stock broking business, SBG Securities, which improves our execution capabilities.    • Our long-standing relationships with local companies means that we mostly have pre-approved credit lines in place allowing for fast deal approval and minimal internal governance.    • Our team has access to accounting and tax specialists to assist in making transactions efficient.    • Strong administration and support staff including dedicated scrip lending, credit, legal, IT and risk personnel enable efficient deal approval and documentation of transactions.

Benefits of using derivatives

A derivative solution is not always required for all problems. However, in the following cases the benefits of using derivatives are:

  • Non-linearity
    Non-linear payoffs are inherent functions of options, and are available only through options or option based structures. If you require upside participation combined with downside protection, or are looking for leverage, derivatives are a solution for you.
  • Customisation
    It is often the case that a company will need to hedge a specific exposure that has unique terms and conditions. The exposure will require a hedge that is tailored in terms of maturity, underlying asset, price and size. Only OTC structured derivatives can provide the flexibility to precisely match exposure.
  • Accounting, tax and regulatory structuring
    The accounting, tax and regulatory environment are increasing in both importance and complexity. We will review each strategy presented in conjunction with our clients' accounting, tax and regulatory concerns to design the most efficient solution.

Equity derivatives offer mechanisms through which holders of listed shares can either hedge or gear their equity exposures. Alternatively companies may acquire or dispose of exposure to listed equities.

Our derivative solutions

We provide the following solutions:

  • Hedging of share options
    We provide hedging solutions for corporate share incentive schemes and individuals with significant vested share options. At company level, hedging would reduce or eliminate a company's exposure to its own share price in a manner that is efficient for accounting, tax and regulatory purposes. The hedge will result in the company crystallising the cost related to a share incentive scheme thereby capping it. We also provide equity derivative solution to individuals who might have equity exposures through direct holding of listed shares or share incentive schemes transactions. The respective individuals can hedge against negative price movement of the underlying share price.
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  • Equity finance
    Holders of listed shares can use their respective holdings to raise finance through equity financing transactions. These transactions, which are typically executed at some share cover ratio based on the liquidity of the underlying shares, can be used to raise cash at competitive interest rates.
  • Entry and exit strategies
    We can provide vanilla and exotic options to offer our clients synthetic entry and exit strategies on listed equities. The strategies are usually entered into by entities to increase or decrease exposures to listed entities.
  • Share buy backs

Derivative transactions can be used to enhance buy back strategies.

Solutions

Stanbic  Bank uses delta one and volatility instruments to customise a range of hedging products, yield enhancement products and investment products to meet our client's needs.

  • Delta one instruments including futures, forwards and swaps
  • Vanilla call and put options
  • Exotic options
  • Listed notes and products including warrants
  • Convertibles
  • Reverse convertibles

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