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Section 871(m) amendment - ISDA Provision: Difference between revisions
Section 871(m) amendment - ISDA Provision (view source)
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The new regulations will establish up to a 30% [[withholding tax]] on foreign investors on dividend-equivalent payments under [[equity derivative|equity derivatives]]. There are a wide range of products that fall into this camp including [[swap]]s, [[option]]s, [[future]]s, [[convertible bond|convertible debt]], [[structured note|structured notes]] and other customised derivative where the ... | The new regulations will establish up to a 30% [[withholding tax]] on foreign investors on dividend-equivalent payments under [[equity derivative|equity derivatives]]. There are a wide range of products that fall into this camp including [[swap]]s, [[option]]s, [[future]]s, [[convertible bond|convertible debt]], [[structured note|structured notes]] and other customised derivative where the ... | ||
===Beware of {{tag|Greeks}}=== | ====Beware of {{tag|Greeks}}==== | ||
... [[delta]] (see what I did there?) against the underlying stock is .08 or greater. | ... [[delta]] (see what I did there?) against the underlying stock is .08 or greater. | ||
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It applies from 1 January 2017. | It applies from 1 January 2017. | ||
===So does that mean I can bin all this [[hypothetical broker-dealer]] nonsense?=== | |||
Since {{tag|WHT}} is now applied on [[high-delta equity derivative]]s in the same way it applies to physical cash trades, the [[recharacterisation]] risk is surely less fraught now, isn't it? do we really care whether the counterparty is seen to control the hedge? Can we therefore get rid of that tiresome “[[hypothetical broker-dealer]]” language, which so mightily confuses many counterparties, and just reference the actual hedge liquidation price as the closing price of the derivative? | |||
No, because 871(m) does not apply to all underliers that might feature in a [[synthetic equity]] transaction. and also because there are [[WHT]] and [[stamp duty]] regimes in other jurisdictions ([[SDRT]] on UK equities for example) where a derivative acheives preferential tax treatment over a cash equity trade. | |||
But you’re right: the [[hypothetical broker-dealer]] business ''is'' [[Don’t take a piece of paper to a knife fight|ridiculous]]. | |||
{{seealso}} | {{seealso}} | ||
*[[ISDA 2015 Section 871(m) Protocol]] | *[[ISDA 2015 Section 871(m) Protocol]] | ||
*[[Synthetic prime brokerage]] | |||
*[[Don’t take a piece of paper to a knife fight]] | |||
{{c|tax}} | {{c|tax}} | ||