Equity swap

Equity swap

Equity swap is a swap, where certain future cash flows are reconciled to the exchange of the two parties on specified dates in the future. Equity swap contains two cash flow, one of which necessarily tied to a change in the quotations of the shares, or stock index (for example, the Dow Jones Industrials, NASDAQ, FTSE 100 and the S&P 500, etc.). Other payment can be bound to a fixed interest rate floating interest rate (such as LIBOR) or the change in quotes of other shares or indices.
The parties may agree on a periodic payments through certain intervals of time, or make one payment (Bullet Swap) on the expiry of the contract.
Consider a swap of the securities at a specific example:
December 15, 2011 investment company entered into a swap agreement with the Bank, according to which the Equity swap:
•the company shall pay to the Bank a floating 90-day LIBOR +1%;
•the Bank shall pay out of the company changes the S&P 500;
•the amount of the contract than 20000000 USD. USA;
•payments are made on a quarterly basis: 15 March, 15 June, 15 September and 15 December;
•payments of LIBOR +1% are made on the settlement date at the rate fixed in the beginning of the period.