Always a highlight of the Conference, here are notes from the Exchange Leaders Panel.
The participants:
Paul Jiganti, Moderator, TD Ameritrade
Shelly Brown, MIAX Options Exchange
Steve Crutchfield, NYSE Euronext
Jeromee Johnson, BATS Exchange, Inc.
Gary Katz, International Securities Exchange
Tony McCormick, BOX Options Exchange
Edward Provost, Chicago Board Options Exchange/C2
Thomas Wittman, NASDAQ OMX/NASDAQ OMX PHLX
Moderator Paul Jiganti took some of the usual fodder for friction out of the panel from the onset instructing no one to talk about litigation or dividend trades.?
Looking at regulation/legislation, Jiganti asked what are the consequences of seemingly minor tax changes put forth by the House Ways & Means Committee.
Provost: All the exchanges are working together, as all interests in this regard are aligned.? It would significantly impact the use of options
(For some background, the Camp proposal creates a uniform tax treatment of all derivative products.? By painting all derivatives with such a broad brush, options are being penalized for being a derivative, which doesn’t reflect the difference between the highly regulated, plain-vanilla options traded by the exchanges, and OTC derivatives.? The proposal would change the long-standing tax treatment of options, requiring that all derivatives be marked-to-market at the end of the year and treated as sold for tax purposes.? The profit or loss from the supposition of being sold would then be treated as ordinary income and not capital gains.? In effect, this creates two very unfortunate scenarios for options traders: 1) it creates a taxable event, and 2) it raises rates.?
Additionally, some very basic, widely used strategies that are employed for insurance purposes would be affected: buying puts and selling calls.? The underlying stock tied to these strategies would be treated as sold for tax purposes.)
Crutchfield: The proposal is very detrimental to people with existing positions.? Just hold an option would be treated punitively.
McCormick: The bigger issue is having to come up with more revenue and spend less.? The tradeoff to the Camp proposal will be agreeing to a financial transaction tax.? It’s coming.? Even if we dodge this bullet, it’s coming.
With regard to this legislation, what is going on with transaction taxes?? Wouldn’t behavior change to get around it?
Katz: It is a very big issue in Germany right now. It’s very much a political issue, with politicians using it as a way to garner support from their constituents.? As long as people don’t see themselves as investors, it will appear to affect “the other.”? We must educate people that it will have the opposite of its intended effect, and the revenue will dissolve.? Exchanges can’t just be the lead on this.? Everyone must help.
Crutchfield: The tax will be passed on to investors.? It’s being described as a “tax on Wall Street,” but institutions will pass along that fee to retail traders.? There is 100% certainty that this tax will be passed on to individual investors.
Provost: We already have a transaction tax: Section 31 fees.? Futures don’t have anything comparable, and we’re playing on an uneven playing field.
To hear all of the exchange leaders session, look for it coming soon on Options Insider Radio.