Hi Guys,My company is coming up with the Equity Swap trading desk and we are building a system the equity swaps. So, we are trying to build different parts for the overall system such as hedging calculation, PnL, Risk reporting, etc..Is there any book out there for the equity swap? Or any website?I have tried, but I could not find a lot many documents on how an equity swap system can be built. Does anybody have an insight on it? Would be really helpful.

What do you want to know?

There's no complete book out there on equity swaps. About the best written source that I have come across is Structured Products vol 2 by Das, pages 81-102.

Just to start with couple of basic questions,1). How do you make money on the equity swap? By commissions only or by taking the other side of the position your client is taking? Is there any other way desks make money?2). If you want to hedge your position, and I believe most of the desks do that unless they are Prop desk...-- Do you find the other side of the trade as soon as/ or at the same time you are making a trade with a clientFor example, I got a client like Wellington or Fidelity which is interested in taking a long position in IBM stock swap with 5,000,000 notional...Would I find the client who will take the other side of the trade meaning short position on IBM stock swap with 5,000,000 notional...And I make money in the commission (let's say 2-3%) on both the side. However, if I am not able to find a client who will take the other side of the trade, how can I hedge the position, especially in an illiquid stock? or the basket of stocks? 3). Do you know what kind of difficulties one can encounter while building a system for equity swaps? I know its a big system and there are so many difficulties, but to name a few......Thanks in advance for your answers...

1. commission2. you can find the other side or just buy the stock in the market. In an ideal world, you want to have two-way business clients that want to go long through a swap and those that want to go short. For the former, the attraction may be lower dealing costs, less balance sheet usage. For the latter, its a way of getting a non-recall short position which can be quite attractive. So if you are going to allow customers to short you should charge them for the stock borrow.The issues with an equity swap system are 1. booking high volume trades (hopefully). 2. rolling the trades on re-set points3. managing the cash flows 4. managing the margins 5. making sure you charge people who want to go short6. financing your book - if you end up with a very large long book, you can lend it out to reduce the cost of financing.

Just to add my 2 cents to Dave's:Commission and or spread on the financing legFor building the systems would also would watch out for basket swaps and how these are to be treated and risk managed and finally how swaps are broken. Would not under estaimte SA's point on the stock borrow. To underline DA's point: Depending on the purpose of the Equity Swap System (e.g. synthetic Prime Broker) would not underestimate the cashflow side of things

To clarify as well you are talking about Equity Swaps (CFDs) as opposed to Equity TR?Difference being the latter has a set maturity while the first example would have nightly rolls and are typically statement compliant.While we are on the topic does anyone have any papers or discussions over ATS? (Actively Traded Swaps)?What I gather is they are statement compliant, and/or there is typically no asset MTM till maturity or close-out, but there could be financing that 'resets' monthly to true up PnL.