Bring Opposing Views Together. Monetise the Difference.
A new way for funds to optimise dividend outcomes through short-term, credit-backed synthetic contracts.
The problem isn't dividend arbitrage. It's what it became.
Why DivArb Exists
Dividend arbitrage used to create value for clients — not just brokers.
Historically, prime brokers facilitated fair outcomes by offsetting long and short positions across their book. But as complex tax and lending structures emerged, the term DivArb became synonymous with opaque schemes and regulatory scrutiny.
In the aftermath, true economic value was lost.
Today, the pricing gap between long and short exposures remains wide — and unchallenged — because primes profit from the spread.
DivArb.com exists to restore what dividend arbitrage was meant to be.
We match institutional funds with opposing exposures through broker-verified, margin-backed short-term contracts — restoring pricing efficiency, transparently and cleanly.
1990s
Wide dividend spreads. Banks profit from client opacity around netting.
2000s
Fund pricing improves, but complex tax structures begin emerging.
2010s
Dividend scandals trigger global scrutiny of structured arbitrage.
2020s
Wide spreads return. Funds lose visibility and pricing power.
1990s
Wide dividend spreads. Banks profit from client opacity around netting.
2000s
Fund pricing improves, but complex tax structures begin emerging.
2010s
Dividend scandals trigger global scrutiny of structured arbitrage.
2020s
Wide spreads return. Funds lose visibility and pricing power.
Aligned
We never compete with our clients. DivArb is not a trading desk, hedge fund, or market participant. We are a neutral infrastructure layer enabling funds to safely match offsetting exposures — without execution conflicts or custody risks.
Purpose-Built
One facility. One purpose.
DivArb exists solely to manage credit-backed net exposure between opposing dividend positions. Just one product: structured dividend match.
Simple by Design
Simplicity enables scale and safety. The DivArb model is deliberately lean: standardised short-term contracts, broker-verified participation, and pre-funded margin. No hidden layers, no recursive trades.
Secured
Credit risk is neutralised through capital-backed contracts. Each matched position is margin-funded on both sides and cleared through a broker-orchestrated credit agreement. The credit pool is transparently governed, and can optionally include third-party default insurance or clearing agents.
Who It's For
DivArb is built for institutional participants who need clean, fixed-term access to stocks over a dividend period.
Including Cayman-domiciled and other offshore vehicles seeking fixed-term exposure to stocks over a dividend period — with economically adjusted dividend treatment, priced more efficiently than legacy prime brokers who widened spreads through structural baggage and misaligned incentives.
Offering limited-purpose guarantees against margin shortfalls — structured to be significantly more capital-efficient than holding traditional swap exposures directly.
Brokers operating in an agency capacity to match institutional clients with opposing views. Instead of routing trades to a prime broker, trades are given up to DivArb, which acts as the principal credit intermediary.
DivArb is not a fund, not a clearing house, and not a broker-dealer. Participation is limited to institutional counterparties and approved facilitators.
Why Choose DivArb
Today’s model is opaque, fragmented, and capital-inefficient.
DivArb simplifies access, standardises terms, and unlocks cleaner pricing.
The Current Model
Institutional funds will have multiple prime brokers and this presents the following problems
- Negotiation with multiple PBs, each with different dividend terms and rates.
- Opacity around whether terms reflect a true market match or internal prime broker optimisation — including tax-driven structuring.
- Regulatory capital for traditional PBs is calculated per counterparty, even for economically offsetting positions — creating inefficiencies in true net scenarios.
- Inefficient and unfair funding structure —
Long holders pay interest plus a spread.
Short holders don’t pay interest, but receive interest on swap and pay it back on the stock loan cash collateral — and still pay a spread.
➤ Prime broker captures the full economic value from both sides.
Our Model
DivArb simplifies access, standardizes terms, and unlocks cleaner pricing. This provides the following benefits
- Trades are only executed when a true net match exists between two funds — removing the need to chase rates across multiple PBs.
- Margin-backed credit exposure is covered via a lean guarantee structure that’s materially more efficient than swap exposures on a bank balance sheet.
- Aligned and efficient funding structure —
Long holders do not pay interest, only a simple flat spread.
Short holders continue to pay a spread.
➤ Because the short cannot exist without the long, DivArb fairly rewards the long holder.
Our Credit Facility
DivArb acts as principal to both counterparties in each matched trade, ensuring anonymity and execution integrity.
While trades are legally bilateral with DivArb, all economic risk is neutralised at inception, fully margin-secured, and protected by a dedicated third-party credit guarantee — enabling capital-efficient execution without regulatory intermediation.
When a matched trade is executed through DivArb, both funds post margin to segregated accounts via a tri-party agent. If either fund fails to meet its variation margin call, a default is declared and the guarantee activates to cover any shortfall.
Trade matched
Margin posted
Market moves
Variation margin required
Counterparty fails to meet margin call
Default triggered
Credit guarantor steps in to cover shortfall
DivArb + surviving fund protected
Our Funding Mechanism
DivArb introduces a simpler, fairer funding model — no hidden interest, no double-dipping. Just a clean spread, transparently shared between matched counterparties.
Traditional Prime Broker Funding Model
Prime brokers capture the full value of both sides — without passing through any netting benefit to clients.
The long holder pays interest plus a spread, while the short holder pays a spread on two legs of the trade.
Netting exists, but only the PB profits.
DivArb Funding Model
DivArb simplifies and rebalances the funding relationship.
Both long and short holders pay only a simple, transparent spread, with no interest charges or hidden funding costs.
Become a Credit Guarantor
Join a select group of institutional partners offering credit support to a transparent, margin-secured platform — with far lower capital impact than holding the positions on balance sheet.
| Metric | Description | Value |
|---|---|---|
| Fund A | Long $100m notional (i.e. ex-dividend buyer) | $100 million |
| Fund B | Short $100m notional (i.e. cum-dividend seller) | $100 million |
| Counterparty Type | Both funds are unrated Cayman-domiciled hedge funds | Unrated corporates |
| Initial Margin (IM) | 10% from each fund, held independently | $10m from each side |
| Total Margin Held | Total collateral available for close-out | $20 million |
| Historical Volatility | Typical single-security price action over 2-day closeout window | ~20% annualised |
| Stressed Price Move Assumed | 5% move during default & unwind | $5 million |
| Residual Risk Guaranteed | Residual shortfall after margin under a 15% price move (default + adverse event) | $5 million |
| Methodology | Exposure Type | Exposure Amount | Risk Weight (RW) | RWA | Capital Required (8%) |
|---|---|---|---|---|---|
| 1. Standardised | Gross bilateral exposure (Fund A long + Fund B short) | $200 million | 100% | $200 million | $16 million |
| 2. IRB Foundation | Same $200m, with internal PD, Basel LGD/M | $200 million | ~75% (est) | $150 million | $12 million |
| 3. IRB Advanced | Same, but with full internal PD/LGD/M | $200 million | ~50% (est) | $100 million | $8 million |
Unlike traditional bilateral exposure to hedge funds, the guarantor is not facing the full $200 million trade, but only the residual shortfall risk of $5 million in a stress scenario.
Under IRB Advanced treatment, this contingent exposure benefits from lower risk weighting and a reduced capital requirement.
| PB’s Role | Exposure | RW (IRB Advanced) | CCF (Guarantee) | RWA | Capital (8%) |
|---|---|---|---|---|---|
| Guarantor to DivArb | $5m tail-risk only | 20% | 50% | $0.5m | $40,000 |
All capital assumptions based on Basel III standard formulas. Actual RWAs may vary by jurisdiction, internal model approval, and Pillar 2 add-ons.