The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Options

  • From Vol. 9 No.22 (Jun. 2, 2016)

    OTC Options on Major Currencies May Be Marked-to-Market for Tax Purposes

    In Wright v. Commissioner, a recent court decision that came as a surprise to many, the Sixth Circuit held that over-the-counter (OTC) options on so-called “major” currencies should be marked-to-market for U.S. federal income tax purposes. This could have significant consequences for investment funds that take positions in options of this type. In a guest article, John Kaufmann of Greenberg Traurig discusses the Wright case; the applicable regulations and legislative history; and the decision’s potential implications for hedge fund managers who take positions in OTC options on major currencies. For additional insight from Kaufmann, see our two-part series on “The New Section 871(m) Regulations: Withholding Law Applicable to Non-U.S. Hedge Funds”: Part One (Jan. 21, 2016); and Part Two (Jan. 28, 2016). For more on mark-to-market accounting, see “Tax Practitioners Discuss Taxation of Options and Swaps and Impact of Proposed IRS Regulations” (Feb. 19, 2015).

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  • From Vol. 7 No.42 (Nov. 6, 2014)

    Rules Against “Spoofing” and Other Disruptive Trading in Futures, Swaps and Options

    The Dodd-Frank Act resulted in new rules on disruptive trading in futures, options and swaps.  Following Dodd-Frank, both the Commodity Futures Trading Commission (CFTC) and the CME Group Exchanges implemented their own rules to address disruptive trading.  These new rules have significant implications for pooled investment vehicles, such as hedge funds and commodity pools.  This guest article outlines new disruptive trading rules and recent cases that the CFTC, futures exchanges and U.S. Attorneys’ Offices have brought under these new rules.  The authors of this article are Thomas K. Cauley, Jr. and Courtney A. Rosen, both litigation partners in the Investment Funds, Advisers and Derivatives and Securities and Derivatives Enforcement and Regulatory practices in the Chicago office of Sidley Austin LLP, and Lisa A. Dunsky, a counsel in those practices.  For additional insight from the authors, see “Contractual Provisions That Matter in Litigation between a Fund Manager and an Investor,” The Hedge Fund Law Report, Vol. 7, No. 37 (Oct. 2, 2014); and “Derivative Actions and Books and Records Demands Involving Hedge Funds,” The Hedge Fund Law Report, Vol. 7, No. 39 (Oct. 17, 2014).

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  • From Vol. 4 No.36 (Oct. 13, 2011)

    Hedge Fund Healey Alternative Investment Partnership’s Complaint Against Royal Bank of Canada for Failure to Pay Full Cash Settlement Value of Equity Barrier Call Option Agreement Survives Bank’s Motion to Dismiss

    Plaintiff Hedge Fund Healey Alternative Investment Partnership (Fund) purchased a cash-settled equity barrier call option from defendants Royal Bank of Canada and RBC Dominion Securities Corporation (together, Bank).  The option agreement referenced a basket of financial assets, including interests in hedge funds.  However, the Bank was not obligated to own those assets.  In September 2008, the Bank’s monthly report on the option agreement showed its value to be almost $22 million.  The Fund formally terminated the option agreement as of June 30, 2009.  The Bank paid about $9.16 million to the Fund, but refused to pay any further amounts, claiming that it was unable to value certain hedge fund interests, particularly hedge fund investments held in side pockets.  The Fund sued the bank, claiming breach of contract, breach of fiduciary duty and breach of the covenant of good faith and fair dealing.  The Bank moved to dismiss for failure to state a cause of action.  This article provides a comprehensive summary of the factual background and the District Court’s legal analysis.

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  • From Vol. 3 No.26 (Jul. 1, 2010)

    AKO Capital LLP Options Trader and Risk Manager Pleads Guilty to One Count of Insider Dealing for Directing Preferential Trades to a Broker in Exchange for Cash and Gifts

    On May 18, 2010, former AKO Capital LLP options trader and risk manager Anjam Saeed Ahmad pled guilty to one count of insider dealing after entering into an agreement with the U.K.’s Financial Services Authority (FSA) under the Attorney General’s Guidelines on Plea Discussions in Cases of Serious or Complex Fraud.  On June 22, 2010, the Southwark Crown Court sentenced him to a suspended prison term, community service and a £50,000 fine.  That same day, the FSA issued a Final Notice requiring that Ahmad disgorge an additional £131,000 as restitution for profits he made from regulatory misconduct unrelated to his insider dealing.  We describe the conduct that led to the guilty plea, the relevant statutes and regulations and the FSA’s analysis of the proposed sanction (including its consideration of Ahmad’s cooperation as a mitigating factor in determining the appropriate sanction).

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