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Commission is only relevant to an [[agency]] contract. | Commission is only relevant to an [[agency]] contract. Where a [[broker]] 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]]. | ||
Where a broker 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=== | ===Rationale=== | ||
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'''Example''': A real estate [[agent]] arranges a transaction between vendor and purchaser. It is not in the [[contractual chain]] itself. Therefore one pays the purchase price to the [[vendor]], but the [[commission]] to the [[agent]] - 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. | '''Example''': A real estate [[agent]] arranges a transaction between vendor and purchaser. It is not in the [[contractual chain]] itself. Therefore one pays the purchase price to the [[vendor]], but the [[commission]] to the [[agent]] - 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. | ||
}} | }} | ||
=== | ===[[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]]. | 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]]. | ||