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Commission is | {{g}}[[Commission]] is what the fee you pay to an [[agent]], who helps you conclude the {{t|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]]. | ||
===Rationale=== | |||
*'''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”. | |||
===Example=== | |||
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]]<ref>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 {{tag|metaphor}} a little.</ref> | |||
if you have legal, regulatory or — gasp — tax reasons for not wanting to have anything to do with | ===[[Delta-one]] [[Swap|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 lawyer]]s”, and they aren’t so well-read.<ref>Heaven only knows what passes for literature for tax inspectors. [[Tolley’s Tax Handbook]], probably.</ref> | |||
{{sa}} | |||
*[[Agent]] | *[[Agent]] | ||
*[[Principal]] | *[[Principal]] | ||
*[[Riskless principal]] | *[[Riskless principal]] | ||
{{ref}} | |||