| LAS VEGAS, April 25
LAS VEGAS, April 25 The options industry is
making efforts to defeat a proposal that would tax most
financial derivatives on a "mark-to-market" basis by valuing
positions based on their fair value.
The U.S. Securities Markets Coalition, composed of all eight
exchange operators and the OCC, formerly known as the Options
Clearing Corp, submitted a letter to Congress regarding the
proposal by congressman Dave Camp. It argued that the proposal
is "very damaging" to listed options and undermines the point of
using such derivatives.
"You come into the options market to hedge. This (the
proposal) defeats the whole purpose of why you came into options
in the first place," Gary Katz, chief executive officer of the
International Securities Exchange, said on the sidelines of the
Options Industry Council conference, held in Las Vegas this
Under the proposal by Camp, a Republican from Michigan who
chairs the House Ways and Means Committee, the writing of call
options would be treated as if the related physical stock
holding had been sold with gains and then marked-to-market at
the end of the year. That would apply even if the written call
was still outstanding.
"The mixed straddle provision essentially treats you when
you enter into a covered call transaction or protective put as
if you sold the underlying stock position at that time," said
Joseph Corcoran, first vice president and head of government
relations at OCC.
"Same thing, if you buy a put option to hedge downside risk,
you are treated as if you had sold that stock position."
These strategies are used heavily in the options market.
Individuals sell call options on a stock they hold in order to
generate additional income from the premiums they receive for
selling calls - referred to as selling "covered call options".
Individuals holding stock may buy a put option on the stock
as insurance against a significant decline in the value of the
The Camp proposal is intended for the so-called big players
in the market like institutional investors. But analysts say it
would hurt retail investors, who account for about 30 percent of
entire options volume, according to OCC.
In 2012, approximately four billion options contracts were
traded on U.S. options exchanges.