Regulatory capital arbitrage is all activities that take advantage of differences between financial regulations in different jurisdictions to make a profit. Read more about this topic!
What is regulatory capital arbitrage? Definition of the term
Regulatory capital arbitrage is any activity that takes advantage of differences in capital requirements across jurisdictions to make a profit. In practice, it involves buying and selling different stocks, securities, financial instruments or other assets in different jurisdictions to take advantage of differences in capital requirements. It is a type of investment in which investors take advantage of market regulatory disparities to make a profit.
What is regulatory capital arbitrage?
Regulatory capital arbitrage involves managing investment portfolios in such a way as to take advantage of differences in capital requirements across jurisdictions. To do this, investors move their capital between different jurisdictions to take advantage of differences in capital requirements. For example, if one jurisdiction requires a larger equity contribution, an investor can take advantage of this difference by moving his capital to a jurisdiction where the required equity contribution is smaller. In this way, the investor can increase his returns because he will have more cash at his disposal.
Regulatory capital arbitrage – practical examples
Regulatory capital arbitrage can be applied in many situations, including the purchase of shares, the creation of hedge funds, portfolio management, etc. For example, an investor can conduct regulatory capital arbitrage by buying shares of one company in a market where lower capital requirements are required, and then selling them in a market where higher capital requirements are required. An investor can also use regulatory capital arbitrage by creating a hedge fund that is hedged by buying and selling assets in different jurisdictions where different capital requirements are required.
