Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Equity definition

What does Equity mean? In corporate finance practice, equity means the risk-bearing capital provided by a company’s owners, usually through ordinary shares, as distinct from debt finance. Equity holders have the residual interest in profits and assets: returns are by dividend or capital growth, and they rank behind all creditors on insolvency. Equity commonly carries voting and control rights and is subject to company law capital maintenance and distribution rules (for example, dividends only out of distributable profits and statutory pre-emption on new share issues unless disapplied). It is central to capital structure, M&A, venture capital and private equity transactions. Practitioners also describe certain...

UK Equity Derivatives: Instruments, Uses, Structured Products, ISDA Documentation and Regulation

Published by a LexisNexis Banking & Finance expert

Practice notes

What is an Equity derivative?

Equity Derivatives are contracts struck between two parties, or bought on an exchange, whose value arises from a company’s share price, a Basket of Shares, or a share index. They provide varied applications, giving investors flexible, cost‑effective access to movements in shares and equity markets that cannot be achieved through direct investment in the asset class.

Traded over‑the‑counter (OTC) or on exchange
Include numerous structured equity products
May be funded or unfunded
Used mainly by funds and investors for speculation, and by end‑users and banks as commercial hedges

Other uses also exist...

Why use equity derivatives?

They enable investors to gain the benefits of equity exposure without paying an upfront purchase price, stamp duty, and other taxes. Buying a derivative is typically cheaper than purchasing shares directly. Options, for example, require only a premium to be paid in advance to secure the right to buy or sell shares, and similarly other derivatives may...

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Web page updated on 22/05/2026

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