An equity swap involves a notional principal, a specified duration and predetermined payment intervals.
Typically equity swaps are entered into in order to avoid transaction costs (including Tax), to avoid locally based dividend taxes, limitations on leverage (notably the US margin regime) or to get around rules governing the particular type of investment that an institution can hold.
However a clearing house is needed to settle the contract in a neutral location to offset counterparty risk.
The bank pays the return on this investment to the client, but also buys the stock in the same quantity for its own trading book (1,000 Vodafone at GBP1.45).
Any equity-leg return paid to or due from the client is offset against realised profit or loss on its own investment in the underlying asset.
In that case, appreciation or depreciation since the last reset is paid and the notional is increased by any payment to the floating leg payer (pricing rate receiver) or decreased by any payment from the floating leg payer (pricing rate receiver).