Also J&J Talc Bankruptcy II, paying for sell-side research and funding carbon capture.
Matt Levine
There are different ways to buy a stock index. You can just pay cash to buy all the stocks in the index. You can buy an exchange-traded fund that holds all the stocks in the index. Or you can do an equity index swap: You sign a contract with a bank in which the bank promises to pay you the return on the index over some term. If the index is at 100 today, and you do a $10 million one-year swap with a bank, and then the index is at 108 in a year, then the bank pays you $800,000 (the index’s 8% return on the $10 million notional amount). If the index is at 93 in a year, you pay the bank $700,000.
The swap is approximately like the bank lending you the $10 million to buy the index: You don’t put up the $10 million upfront, but you get back the return on $10 million worth of stock. The bank charges you for that synthetic loan; the terms of the swap contract will say:
