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Bank of America Corp.

CFTC Investigates Global Banks' Role in Dividend-Arbitrage Trades

Strategic Insights

— 1 min read

The US Commodity Futures Trading Commission (CFTC) is scrutinizing the involvement of global banks in dividend-arbitrage trades, a strategy that allows hedge funds and other clients to reduce their taxes on dividend payments. According to a report by the Wall Street Journal, the CFTC has sent inquiries to Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and Morgan Stanley to gather information about these trades. The CFTC is examining the issue after initially asking banks for details about the strategy last year. This move comes as US authorities have been questioning the legitimacy of dividend-arbitrage trades, which can result in a significant reduction in tax payments.

Key Takeaways:

  • The CFTC is investigating the role of global banks in dividend-arbitrage trades, a strategy that allows hedge funds and clients to reduce taxes on dividend payments.
  • The Commission has sent inquiries to Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and Morgan Stanley to gather information about these trades.
  • Dividend-arbitrage trades can result in a 30% reduction in tax payments, from 30% to 10% of the dividend payment.
  • The CFTC is examining the issue after initially asking banks for details about the strategy last year.
  • US authorities began questioning the trading strategy last year, following a report by the Wall Street Journal in September.
  • Bank of America has confirmed that it no longer finances dividend-arbitrage activity.
  • The CFTC's enforcement division is leading the inquiry into global banks' involvement in dividend-arbitrage trades.

Statistics:

  • The CFTC has sent inquiries to five global banks: Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and Morgan Stanley.
  • Dividend-arbitrage trades can result in a 30% reduction in tax payments, from 30% to 10% of the dividend payment (WSJ).
  • The Wall Street Journal first reported on the issue of dividend-arbitrage trades in September.
  • Bank of America has told CNBC that it no longer finances dividend-arbitrage activity.
  • The CFTC's enforcement division is conducting the inquiry into global banks' involvement in dividend-arbitrage trades.

Sources:

  • Wall Street Journal, "CFTC Questions Global Banks' Role in Dividend-Arbitrage Trades"
  • CNBC, "Bank of America No Longer Finances Dividend-Arbitrage Activity"
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