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Template:Equity giveup: Difference between revisions
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The [[executing broker]] may have stern words to the [[hedge fund]] about this, but not ones that would sound in actual damages (but — you know — good luck with your ongoing relationship with that [[broker]], right?): the entire theory of their arrangement is that the [[hedge fund]] never committed to any trade with the [[executing broker]]. All care, no responsibility. | The [[executing broker]] may have stern words to the [[hedge fund]] about this, but not ones that would sound in actual damages (but — you know — good luck with your ongoing relationship with that [[broker]], right?): the entire theory of their arrangement is that the [[hedge fund]] never committed to any trade with the [[executing broker]]. All care, no responsibility. | ||
Why all this delicate tiptoeing around the subject? [[Tax]], in a word. There are no stamp duties payable on equity derivatives. There are all kinds payable on cash equity transactions.<ref>[[SDRT]] in the UK, [[FTT]] in various European jurisdictions, and in the US a typically baroque arrangement covered in Section [[871(m) ]] of the [[Internal Revenue Code]].</ref> So the name of the game is that the fund is arranging a transaction between two brokers, not executing one. | Why all this delicate tiptoeing around the subject? [[Tax]], in a word. There are no<ref>Okay - ''mostly'' no stamp duties. In the US, [[Section 871(m)]] has gone some way to equalising the tax payable under synthetic and cash transactions.</ref> stamp duties payable on [[equity derivatives]]. There are all kinds payable on cash equity transactions.<ref>[[SDRT]] in the UK, [[FTT]] in various European jurisdictions, and in the US a typically baroque arrangement covered in Section [[871(m) ]] of the [[Internal Revenue Code]].</ref> So the name of the game is that the fund is arranging a transaction between two brokers, not executing one. | ||
Regulated [[broker-dealer]]s may have intermediary exemptions from these; clients like [[hedge fund]]s generally will not. So if the taxman decides that the fund has bought the security from the [[executing broker]] and then sold it to its [[prime broker]], then the hedge fund gets hit for [[stamp duty]] ''twice''. If the {{tag|broker}} buys directly from another [[broker]], there will be at the most one dutiable transaction (and, if intermediary relief applies, there may be none). | Regulated [[broker-dealer]]s may have intermediary exemptions from these; clients like [[hedge fund]]s generally will not. So if the taxman decides that the fund has bought the security from the [[executing broker]] and then sold it to its [[prime broker]], then the hedge fund gets hit for [[stamp duty]] ''twice''. If the {{tag|broker}} buys directly from another [[broker]], there will be at the most one dutiable transaction (and, if intermediary relief applies, there may be none). | ||