I now feel an equity swap is an OTC contract; whereas an IBM cash buy/sell is executed on the exchange.
- When a swap trade settles, the client has established a contract with a Dealer. It’s a binding bilateral contract having an expiry, and possibly collateral. You can’t easily transfer the contract.
- When a cash trade settles, the client has ownership of 500 IBM shares. No contract. No counterparty. No expiry. No dealer.
I think a cash trade is like buying a house. Your ownership is registered with the government. You an transfer the ownership easily.
In contrast, if you own a share in coop or a REIT or a real-estate private equity, you have a contract with a company as the counterparty.
Before a dealer accepts you as a swap trading partner, you must be a major company to qualify to be counterparty of a binding contract. A retail investor won’t qualify.