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dgn2


Total Posts: 2064
Joined: May 2004
 
Posted: 2018-05-03 01:27
Is it possible to get a TRS on a net total return index (using domestic withholding tax rates) and have the TR payer deal with tax? I am looking for a way to do TRS without the headache of having to confirm all of the constituent specific dividend amounts every time the swap resets. I am not trying to avoid tax, I just don't want to do the administrative part of it.

...WARNING: I am an optimal f'er

TonyC
Nuclear Energy Trader

Total Posts: 1263
Joined: May 2004
 
Posted: 2018-05-03 04:44
>I am not trying to avoid tax,
>I just don't want to do the administrative part of it.

so you want the counterparty to calculate the swap value and avoid doing your own calculation (or equivalent ly, not verify the counterparty's work)

as a great actor once told a bald man with a nevus flammeus
"trust, but verify"

flaneur/boulevardier/remittance man/energy trader

dgn2


Total Posts: 2064
Joined: May 2004
 
Posted: 2018-05-03 15:32
It isn't that I don't want to verify the counterparty's work. The tax on the dividends is small relative to the overall payments. It creates a lot of work for a small team that doesn't add much value. The total dividend amount is computed by the system, but not shown at a component level. When our number doesn't match the counterparty number we have to move to the component level outside of our systems. I can, of course, write code and create a system to do this automatically, but I think there are better ways to use my time. I then need a subscription to the index components to get the exact weights, etc.

...WARNING: I am an optimal f'er

chiral3
Founding Member

Total Posts: 5057
Joined: Mar 2004
 
Posted: 2018-05-03 15:53
I have always bee of the opinion that if you're on the buyside you should be able to robustly value and perform attribution on all instruments traded. I've always maintained in-house valuation. It also helps ensure that the junior people understand all the nuances of trading and valuation conventions. Usually implemented in c++ and compiled as xlls that can be used in xls apps. My trade model is a c# wrapper. Regardless, I think it is worth the work. I usually benchmark to dealer marks and fincad to start. For swaps the nuances are always daycount, holidays, and curve building assuming you're not using a simple accrual method.

I found myself challenging marks constantly between 2008 and maybe 2011 (I wonder why?). Not so much lately, except maybe on exotics and otc swaps where cfs occur around quarter / year ends and they mysteriously move around by a couple of days.

Nonius is Satoshi Nakamoto. 物の哀れ

dgn2


Total Posts: 2064
Joined: May 2004
 
Posted: 2018-05-03 16:01
I agree with that. If you can't robustly value it, you shouldn't trade it. I have my own valuation, benchmarked to dealer marks and I use it for confirmations as well, but it operates at the index level, rather than at the index component level. Perhaps it is worth adding something to do the look-through. It wouldn't take me long and once done it could be run on anything. Thanks for the feedback.

...WARNING: I am an optimal f'er
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