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The Jolly Contrarian’s Glossary
The snippy guide to financial services lingo.™

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Commission is what the fee you pay to an agent, who helps you conclude the contract without ever being part of the contractual chain. A broker may well be an agent on a securities sale or purchase — in which case you pay it a commission — but where it acts as riskless principal (or any other kind of principal) there is no commission: the payment we call a “commission” is really just an additional fee.


  • Agency “commission”: In a pure agency contract, there is no direct transaction between agent and principal, so the only way the agent can be remunerated is by a separate “agency fee”: this is a “commission” calculated on the value of the transaction between Street and the Customer directly to which the agent is not a party.
  • Riskless Principal compensation: In a riskless principal structure there are two contracts: one between Street and Dealer, and between Dealer and Principal. Therefore Dealer may extract a fee by:
    • Mark-up/Mark-down: imposing a mark up/mark down between the two contracts; OR
    • Fee: separately charge a fee, which may be labelled a “commission”.


A real estate agent arranges a transaction between seller and buyer. Needless to say the agent doesn’t buy the house and on-sell it — so it is not in the contractual chain itself. Therefore the buyer pays the purchase price to the seller, but the commission — which may be calculated on the sale price — to the agent[1]

Delta-one swaps

Now: if you have legal, regulatory or — gasp — tax reasons for not wanting to have anything to do with the principal contract between — say your swap counterparty and its hedge, you are best advised to call the consideration you pay your swap counterparty for agreeing to pass the economics of its hedge to you a “fee”, because the counterparty is your counterparty in the contractual chain, and not a “commission”, which might be taken by mendacious minds in revenue departments to imply it was an agent.

Does it really matter?

The JC’s house view is that “a rose is a rose, and by any other name smells just as sweet” — putting it another way, who honestly gives a toss? — but the answer to that question is “tax lawyers”, and they aren’t so well-read.[2]

See also


  1. Look upon it as a derivative of the purchase price, if the fancy takes you, though honestly even I think that is to stretch the metaphor a little.
  2. Heaven only knows what passes for literature for tax inspectors. Tolley’s Tax Handbook, probably.