: How does an Investment bank benefit from Synthetic ETF Swap? Let's say ETF A is offering Synthetic ETF's to the public. They could do this by entering into a total swap return agreement with an investment bank who then obliged

Vote Up Vote Down   0 Reactions

Login to give Reaction!

How does an Investment bank benefit from Synthetic ETF Swap?
Let's say ETF A is offering Synthetic ETF's to the public. They could do this by entering into a total swap return agreement with an investment bank who then obliged to pay the ETF provider the return on the index.
My question is what is the benefit to the investment bank for paying this return? I understand that the reason may be linked to a market-maker's "funding costs" (whatever that means) see Page 8 in this paper, but is there a clear way to explain how this works? Why does an investment bank "need funding for its inventory and how might the swap help"?

(0)

Login to post a comment!