Derivatives, repos and stock loans: an overview

Tax practitioners will sometimes encounter derivatives and even repos and stock loans in relation to the transactions they advise upon. Such derivatives repos or stock loans may be central to the transactions in question or play a more ancillary role such as the conversion of floating rate interest payments under a borrowing into fixed rate ones by means of an interest rate swap (see also below). Two key questions usually arise in relation to this type of transaction: how and where are they taxed and what tax-related provision needs to be made for them in relevant contracts?

Thankfully some of the heavy lifting in relation to the second question will be achieved under market standard documentation in the relevant areas such as the ISDA Master Agreement as regards derivatives and the Global Master Repurchase Agreement (GMRA) as regards repo transactions. However those provisions will not...