到期前行使看漲期權的注意事項

簡介

到期前行使股票看漲期權通常不會帶來收益,因為:

  • 這會導致剩餘期權時間價值的丟失;
  • 需要更大的資金投入以支付股票交割;並且
  • 會給期權持有人帶來更大的損失風險。

儘管如此,對於有能力滿足更高資金或借款要求并能承受更大下行市場風險的帳戶持有人來說,提前行使美式看漲期權行可獲取即將分派的股息。

背景

看漲期權持有人無權獲取底層股票的股息,因為該股息屬於股息登記日前的股票持有人所有。其他條件相同,股價應下降,降幅與除息日的股息保持一致。期權定價理論提出看漲期權價格將反映預期股息的折扣價格,看漲期權價格也可能在除息日下跌。最可能促成該情境與提前行權決定的條件如下:

1. 期權為深度價內期權,且Delta值為100;

2. 期權幾乎沒有時間價值;

3. 股息相對較高,且除息日在期權到期日之前。

舉例

為闡述這些條件對提前行權決定的影響,假設帳戶的多頭現金餘額為$9,000美元,且持有行使價為$90.00美元的ABC多頭看漲頭寸,10天后到期。ABC當前成交價為$100.00美元,每股股息為$2.00美元,明天是除息日。再假設期權價格和股票價格走勢相同,且在除息日下跌的幅度均為股息金額。

這裡,我們將檢查行權決定,目的是維持100股delta頭寸并使用兩種期權價格假設(一個為平價,一個高於平價)最大化總資產。

情境 1:期權價格為平價 - $10.00美元
如果期權以平價交易,提前行權可維持delta頭寸并可避免股票除息交易時多頭期權價值遭到損失,從而保護資產。在這裡現金收入被全數用於以行使價購買股票,期權權利金就此喪失,並且股票(扣除股息)與應收股息會記入帳戶。如果您想通過在除息日前賣出期權并買入股票來達到同樣的效果,請記得考慮佣金/價差:

情境 1

帳戶組成部份 

起始餘額 

提前行權 

無行動 

賣期權 &

買股票

現金 $9,000 $0 $9,000 $0
期權 $1,000 $0 $800 $0
股票 $0 $9,800 $0 $9,800
應收股息 $0 $200 $0 $200
總資產 $10,000 $10,000 $9,800 $10,000減去佣金/價差

 

 

情境 2:期權價格高於平價 - $11.00美元
如果期權以高於平價的價格交易,提前行權獲取股息則可能並不會帶來收益。在此情境中,提前行權可能會導致期權時間價值損失$100美元,而賣出期權買入股票在扣除佣金之後收益情況也可能不如不採取行動。在這裡,可取的行動為無行動。

情境 2
帳戶組成部份  起始餘額 提前行權  無行動

賣期權 &

買股票

現金 $9,000 $0 $9,000 $100
期權 $1,100 $0 $1,100 $0
股票 $0 $9,800 $0 $9,800
應收股息 $0 $200 $0 $200
總資產 $10,100 $10,000 $10,100 $10,100減去佣金/價差

  

請注意:考慮到空頭期權邊被行權的可能性,持有作為價差組成部分之多頭看漲頭寸的賬戶持有人應格外注意不行使多頭期權邊的風險。請注意,空頭看漲期權的被行權會導致空頭股票頭寸,且在股息登記日前持有空頭股票頭寸的持有人有義務向股票的借出者支付股息。此外,清算所行權通知處理週期不支持提交響應被行權的行權通知。

例如,假設SPDR S&P 500 ETF Trust (SPY)的信用看漲(熊市)價差包括100張13年3月到期行使價為$146美元的空頭合約,以及100張13年3月到期行使價為$147美元的多頭合約。在13年3月14日,SPY Trust宣布每股股息為$0.69372美元,並且會在13年4月30日向13年3月19日前登記的股東支付。因為美國股票的結算週期為3個工作日,想要獲取股息,交易者需要在13年1月14日之前買入股票或行使看漲期權,因為該日期一過,股票便開始除息交易。

13年3月14日,距離期權到期只剩一個交易日,平價成交的兩張期權合約每張合約的最大風險為$100美元,100張合約則為$10,000美元。但是,未能行使多頭合約以獲取股息以及未能避免空頭合約被其他想要獲取股息的交易者行權會使每張合約產生額外$67.372美元的風險,如果所有空頭看漲合約都被行權,則所有頭寸總風險為$6,737.20美元。如下表所示,如果空頭期權邊沒有被行權,則13年3月15日確定最終的合約結算價格時,最大風險仍為每張合約$100美元。

日期 SPY收盤價 3月13日行使價為$146美元的看漲期權 3月13日行使價為$147美元的看漲期權
2013年3月14日 $156.73 $10.73 $9.83
2013年3月15日 $155.83   $9.73 $8.83

請注意,如果您的賬戶符合美國871(m)預扣稅要求,則除息日前平倉頭多期權頭寸並在除息日後重新建倉可能會帶來收益。

有關如何提交提前通知的信息請查看IB網站

 

上方內容僅作信息參考,不構成任何推薦或交易建議,也不代表提前行權會成功或適合所有客戶或交易。帳戶持有人應諮詢稅務專家以確定提前行權可能帶來的稅務影響,并應格外注意以多頭股票頭寸替換多頭期權頭寸的潛在風險。

有關股息的關鍵日期

Overview: 

下方顯示的是有關股息的關鍵日期:

1. 股息宣告日—指公司董事會批准股息支付并指定付息日和登記日的日期。

2. 登記日—確定有資格獲取股息支付的股東的日期。您需要在登記日收盤前持有股票才可獲取股息。

3. 除息日—股權登記日后的第一天就是除息日,這一天或以後購入該公司股票的股東,不再享有該公司此次分紅配股。大部份在美國交易的股票按常規方式結算,即交易后3個工作日;交易者必須在登記日三個工作日之前買入股票才可獲取股息。因此,除息日比登記日早兩天。

4. 付息日—指向在登記日持有股票的所有股東支付股息的日期。

Dividend Tax Withholding on Depository Receipts

In the event an account holds a dividend paying depository receipt, at the time of the dividend payment taxes will be withheld. In several jurisdictions, IB is unable to efficiently comply in an electronic, straight-through manner with the required beneficial owner disclosure requirements. As such, dividends on depository receipts where full beneficial owner disclosure is required in order to receive beneficial tax treatment will be withheld at the maximum tax rate applicable.

Shareholders will not be eligible for reduced tax treatment on the allocation of cash through IB. All shareholders should consult their tax advisor for information on how to obtain a tax refund or tax credit for such activity.


Considerations for Exercising Call Options Prior to Expiration

INTRODUCTION

Exercising an equity call option prior to expiration ordinarily provides no economic benefit as:

  • It results in a forfeiture of any remaining option time value;
  • Requires a greater commitment of capital for the payment or financing of the stock delivery; and
  • May expose the option holder to greater risk of loss on the stock relative to the option premium.

Nonetheless, for account holders who have the capacity to meet an increased capital or borrowing requirement and potentially greater downside market risk, it can be economically beneficial to request early exercise of an American Style call option in order to capture an upcoming dividend.

BACKGROUND

As background, the owner of a call option is not entitled to receive a dividend on the underlying stock as this dividend only accrues to the holders of stock as of its dividend Record Date. All other things being equal, the price of the stock should decline by an amount equal to the dividend on the Ex-Dividend date. While option pricing theory suggests that the call price will reflect the discounted value of expected dividends paid throughout its duration, it may decline as well on the Ex-Dividend date.  The conditions which make this scenario most likely and the early exercise decision favorable are as follows:

1. The option is deep-in-the-money and has a delta of 100;

2. The option has little or no time value;

3. The dividend is relatively high and its Ex-Date precedes the option expiration date. 

EXAMPLES

To illustrate the impact of these conditions upon the early exercise decision, consider an account maintaining a long cash balance of $9,000 and a long call position in hypothetical stock “ABC” having a strike price of $90.00 and time to expiration of 10 days. ABC, currently trading at $100.00, has declared a dividend of $2.00 per share with tomorrow being the Ex-Dividend date. Also assume that the option price and stock price behave similarly and decline by the dividend amount on the Ex-Date.

Here, we will review the exercise decision with the intent of maintaining the 100 share delta position and maximizing total equity using two option price assumptions, one in which the option is selling at parity and another above parity.

SCENARIO 1: Option Price At Parity - $10.00
In the case of an option trading at parity, early exercise will serve to maintain the position delta and avoid the loss of value in long option when the stock trades ex-dividend, to preserve equity. Here the cash proceeds are applied in their entirety to buy the stock at the strike, the option premium is forfeited and the stock (net of dividend) and dividend receivable are credited to the account.  If you aim for the same end result by selling the option prior to the Ex-Dividend date and purchasing the stock, remember to factor in commissions/spreads:

SCENARIO 1

Account

Components

Beginning

Balance

Early

Exercise

No

Action

Sell Option &

Buy Stock

Cash $9,000 $0 $9,000 $0
Option $1,000 $0 $800 $0
Stock $0 $9,800 $0 $9,800
Dividend Receivable $0 $200 $0 $200
Total Equity $10,000 $10,000 $9,800 $10,000 less commissions/spreads

 

SCENARIO 2: Option Price Above Parity - $11.00
In the case of an option trading above parity, early exercise to capture the dividend may not be economically beneficial. In this scenario, early exercise would result in a loss of $100 in option time value, while selling the option and buying the stock, after commissions, may be less beneficial than taking no action. In this scenario, the preferable action would be No Action.

SCENARIO 2

Account

Components

Beginning

Balance

Early

Exercise

No

Action

Sell Option &

Buy Stock

Cash $9,000 $0 $9,000 $100
Option $1,100 $0 $1,100 $0
Stock $0 $9,800 $0 $9,800
Dividend Receivable $0 $200 $0 $200
Total Equity $10,100 $10,000 $10,100 $10,100 less commissions/spreads

  

NOTE: Account holders holding a long call position as part of a spread should pay particular attention to the risks of not exercising the long leg given the likelihood of being assigned on the short leg.  Note that the assignment of a short call results in a short stock position and holders of short stock positions as of a dividend Record Date are obligated to pay the dividend to the lender of the shares. In addition, the clearinghouse processing cycle for exercise notices does not accommodate submission of exercise notices in response to assignment.

As example, consider a credit call (bear) spread on the SPDR S&P 500 ETF Trust (SPY) consisting of 100 short contracts in the March '13 $146 strike and 100 long contracts in the March '13 $147 strike.  On 3/14/13, with the SPY Trust declared a dividend of $0.69372 per share, payable 4/30/13 to shareholders of record as of 3/19/13. Given the 3 business day settlement time frame for U.S. stocks, one would have had to buy the stock or exercise the call no later than 3/14/13 in order receive the dividend, as the next day the stock began trading Ex-Dividend. 

On 3/14/13, with one trading day left prior to expiration, the two option contracts traded at parity, suggesting maximum risk of $100 per contract or $10,000 on the 100 contract position. However, the failure to exercise the long contract in order to capture the dividend and protect against the likely assignment on the short contracts by others seeking the dividend created an additional risk of $67.372 per contract or $6,737.20 on the position representing the dividend obligation were all short calls assigned.  As reflected on the table below, had the short option leg not been assigned, the maximum risk when the final contract settlement prices were determined on 3/15/13 would have remained at $100 per contract.

Date SPY Close March '13 $146 Call March '13 $147 Call
March 14, 2013 $156.73 $10.73 $9.83
March 15, 2013 $155.83   $9.73 $8.83

Please note that if your account is subject to tax withholding requirements of the US Treasure rule 871(m), it may be beneficial to close a long option position before the ex-dividend date and re-open the position after ex-dividend.

For information regarding how to submit an early exercise notice please click here

The above article is provided for information purposes only as is not intended as a recommendation, trading advice nor does it constitute a conclusion that early exercise will be successful or appropriate for all customers or trades. Account holders should consult with a tax specialist to determine what, if any, tax consequences may result from early exercise and should pay particular attention to the potential risks of substituting a long option position with a long stock position.

SPY - Dividend Recognition

Unlike the case of a stock, in which a dividend is taxable in the year in which it is paid, the SPDR S&P 500 ETF Trust (Symbol: SPY) represents itself as a Regulated Investment Company and its dividend is deemed taxable in the year in which the record date is determined.  As such, SPY dividends declared in either October, November or December and payable to shareholders of record on a specified date in one of those months will be considered taxable income income in that year despite the fact that such dividend will generally be paid in January of the following year.

 

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Overview of IBKR issued Share CFDs

The following article is intended to provide a general introduction to share-based Contracts for Differences (CFDs) issued by IBKR.

For Information on IBKR Index CFDs click here. For Forex CFDs click here. For Precious Metals click here.

Topics covered are as follows:

I.    CFD Definition
II.   Comparison Between CFDs and Underlying Shares
III. CFD Tax and Margin Advantage
IV.  US ETFs
V.   CFD Resources
VI.  Frequently Asked Questions

Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

66.3% of retail investor accounts lose money when trading CFDs with IBKR.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

ESMA Rules for CFDs (Retail Clients only)

The European Securities and Markets Authority (ESMA) has enacted new CFD rules effective 1st August 2018.

The rules include: 1) leverage limits on the opening of a CFD position; 2) a margin close out rule on a per account basis; and 3) negative balance protection on a per account basis.

The ESMA Decision is only applicable to retail clients. Professional clients are unaffected.

Please refer to the following articles for more detail:

ESMA CFD Rules Implementation at IBKR (UK) and IBKR LLC

ESMA CFD Rules Implementation at IBIE and IBCE

I.  Share  CFD Definition

IBKR CFDs are OTC contracts which deliver the return of the underlying stock, including dividends and corporate actions (read more about CFD corporate actions).

Said differently, it is an agreement between the buyer (you) and IBKR to exchange the difference in the current value of a share, and its value at a future time. If you hold a long position and the difference is positive, IBKR pays you. If it is negative, you pay IBKR.

IBKR Share CFDs are traded through your cash or margin account, and you can enter long as well as short leveraged positions. The price of the CFD is the exchange-quoted price of the underlying share. In fact, IBKR CFD quotes are identical to the Smart-routed quotes for shares that you can observe in the Trader Workstation and IBKR offers Direct Market Access (DMA). Similar to shares, your non-marketable (i.e. limit) orders have the underlying hedge directly represented on the deep book of those exchanges at which it trades.  This also means that you can place orders to buy the CFD at the underlying bid and sell at the offer.

To compare IBKR’s transparent CFD model to others available in the market please see our Overview of CFD Market Models.

IBKR currently offers approximately 8000 Share CFDs covering the principal markets in the US, Europe and Asia. The constituents of the major indexes listed below are currently available as IBKR Share CFDs. In many countries IBKR also offers trading in liquid small cap shares. These are shares with free float adjusted market capitalization of at least USD 500 million and median daily trading value of at least USD 600 thousand.  Please see CFD Product Listings for more detail. More countries will be added in the near future.

United States S&P 500, DJA, Nasdaq 100, S&P 400 (Mid Cap), Liquid Small Cap
United Kingdom FTSE 350 + Liquid Small Cap (incl. IOB)
Germany Dax, MDax, TecDax + Liquid Small Cap
Switzerland Swiss portion of STOXX Europe 600 (48 shares) + Liquid Small Cap
France CAC Large Cap, CAC Mid Cap + Liquid Small Cap
Netherlands AEX, AMS Mid Cap + Liquid Small Cap
Belgium BEL 20, BEL Mid Cap + Liquid Small Cap
Spain IBEX 35 + Liquid Small Cap
Portugal PSI 20
Sweden OMX Stockholm 30 + Liquid Small Cap
Finland OMX Helsinki 25 + Liquid Small Cap
Denmark OMX Copenhagen 30 + Liquid Small Cap
Norway OBX
Czech PX
Japan Nikkei 225 + Liquid Small Cap
Hong Kong HSI + Liquid Small Cap
Australia ASX 200 + Liquid Small Cap
Singapore STI + Liquid Small Cap
South Africa Top 40 + Liquid Small Cap
Brazil Bovespa
Russia MOEX

II.   Comparison Between CFDs and Underlying Shares

Depending on your trading objectives and trading style, CFDs offer a number of advantages compared to stocks, but also some disadvantages:
 
BENEFITS of IBKR CFDs DRAWBACKS of IBKR CFDs
No stamp duty or financial transaction tax (UK, France, Belgium, Spain) No ownership rights
Generally lower margin rates than shares* Complex corporate actions may not always be exactly replicable
Tax treaty rates for dividends without need for reclaim Taxation of gains may differ from shares (please consult your tax advisor)
Exemption from day trading rules  
US ETFs tradable as CFDs**  

*IB LLC and IB-UK accounts.

**EEA area clients cannot trade US ETFs directly, as they do not publish KIDs.

III. CFD Tax and Margin Advantage

Where stamp duty or financial transaction tax is applied, currently in the UK (0.5%), France (0.3%), Belgium (0.35%) and Spain (0.2%), it has a substantially detrimental impact on returns, particular in an active trading strategy. The taxes are levied on buy-trades, so each time you open a long, or close a short position, you will incur tax at the rates described above.

The amount of available leverage also significantly impacts returns. For European IBKR entities, margin requirements are risk-based for both stocks and CFDs, and therefore generally the same. IB-UK and IB LLC accounts however are subject to Reg T requirements, which limit available leverage to 2:1 for positions held overnight.

To illustrate, let's assume that you have 20,000 to invest and wish to leverage your investment fully. Let's also assume that you hold your positions overnight and that you trade in and out of positions 5 times in a month.

Let's finally assume that your strategy is successful and that you have earned a 5% return on your gross (fully leveraged) investment.

The table below shows the calculation in detail for a UK security. The calculations for France, Belgium and Spain are identical, except for the tax rates applied.

  UK CFD UK Stock UK Stock
All Entities
EU Account
IB LLC or IBUK Acct
Tax Rate 0% 0.50% 0.50%
Tax Basis N/A Buy Orders Buy Orders
# of Round trips 5 5 5
Commission rate 0.05% 0.05% 0.05%
Overnight Margin 20% 20% 50%
Financing Rate 1.508% 1.508% 1.508%
Days Held 30 30 30
Gross Rate of Return 5% 5% 5%
       
Investment 100,000 100,000 40,000
Amount Financed 100,000 80,000 20,000
Own Capital 20,000 20,000 20,000
       
Tax on Purchase 0.00 2,500.00 1,000.00
Round-trip Commissions 500.00 500.00 200.00
Financing 123.95 99.16 24.79
Total Costs 623.95 3099.16 1224.79
       
Gross Return 5,000 5,000 2,000
Return after Costs 4,376.05 1,900.84 775.21
Difference   -57% -82%

The following table summarizes the reduction in return for a stock investment, by country where tax is applied, compared to a CFD investment, given the above assumptions.

Stock Return vs cfD Tax Rate EU Account IB LLC or IBUK Acct
UK 0.50% -57% -82%
France 0.30% -34% -73%
Belgium 0.35% -39% -75%
Spain 0.20% -22% -69%

IV. US ETFs

EEA area residents who are retail investors must be provided with a key information document (KID) for all investment products. US ETF issuers do not generally provide KIDs, and US ETFs are therefore not available to EEA retail investors.

CFDs on such ETFs are permitted however, as they are derivatives for which KIDs are available.

Like for all share CFDs, the reference price for CFDs on ETFs is the exchange-quoted, SMART-routed price of the underlying ETF, ensuring economics that are identical to trading the underlying ETF.

V.   CFD Resources

Below are some useful links with more detailed information on IBKR’s CFD offering:

CFD Contract Specifications

CFD Product Listings

CFD Commissions

CFD Financing Rates

CFD Margin Requirements

CFD Corporate Actions

The following video tutorial is also available:

How to Place a CFD Trade on the Trader Workstation

 

VI.  Frequently Asked Questions

What Stocks are available as CFDs?

Large and Mid-Cap stocks in the US, Western Europe, Nordic and Japan. Liquid Small Cap stocks are also available in many markets. Please see CFD Product Listings for more detail. More countries will be added in the near future.

 

Do you have CFDs on other asset classes?

Yes. Please see IBKR Index CFDs - Facts and Q&A, Forex CFDs - Facts and Q&A and Metals CFDs - Facts and Q&A.

 

How do you determine your Share CFD quotes?

IBKR CFD quotes are identical to the Smart routed quotes for the underlying share. IBKR does not widen the spread or hold positions against you. To learn more please go to Overview of CFD Market Models.

 

Can I see my limit orders reflected on the exchange?

Yes. IBKR offers Direct market Access (DMA) whereby your non-marketable (i.e. limit) orders have the underlying hedges directly represented on the deep books of the exchanges on which they trade. This also means that you can place orders to buy the CFD at the underlying bid and sell at the offer. In addition, you may also receive price improvement if another client's order crosses yours at a better price than is available on public markets.

 

How do you determine margins for Share CFDs?

IBKR establishes risk-based margin requirements based on the historical volatility of each underlying share. The minimum margin is 10%, making CFDs more margin-efficient than trading the underlying share in many cases.  Retail investors are subject to additional margin requirements mandated by the European regulators. There are no portfolio off-sets between individual CFD positions or between CFDs and exposures to the underlying share. Concentrated positions and very large positions may be subject to additional margin. Please refer to CFD Margin Requirements for more detail.

 

Are short Share CFDs subject to forced buy-in?

Yes. In the event the underlying stock becomes difficult or impossible to borrow, the holder of the short CFD position may become subject to buy-in.

 

How do you handle dividends and corporate actions?

IBKR will generally reflect the economic effect of the corporate action for CFD holders as if they had been holding the underlying security. Dividends are reflected as cash adjustments, while other actions may be reflected through either cash or position adjustments, or both. For example, where the corporate action results in a change of the number of shares (e.g. stock-split, reverse stock split), the number of CFDs will be adjusted accordingly. Where the action results in a new entity with listed shares, and IBKR decides to offer these as CFDs, then new long or short positions will be created in the appropriate amount. For an overview please CFD Corporate Actions.

*Please note that in some cases it may not be possible to accurately adjust the CFD for a complex corporate action such as some mergers. In these cases IBKR may terminate the CFD prior to the ex-date.

 

Can anyone trade IBKR CFDs?

All clients can trade IBKR CFDs, except residents of the USA, Canada, Hong Kong, New Zealand and Israel. There are no exemptions based on investor type to the residency based exclusions.

What do I need to do to start trading CFDs with IBKR?

You need to set up trading permission for CFDs in Client Portal, and agree to the relevant disclosures. If your account is with IBKR (UK) or with IBKR LLC, IBKR will then set up a new account segment (identified with your existing account number plus the suffix “F”). Once the set-up is confirmed you can begin to trade. You do not need to fund the F-account separately, funds will be automatically transferred to meet CFD initial margin requirements from your main account.  

If your account is with another IBKR entity, only the permission is required; an additional account segment is not necessary.

Are there any market data requirements?

The market data for IBKR Share CFDs is the market data for the underlying shares. It is therefore necessary to have market data permissions for the relevant exchanges. If you already have market data permissions for an exchange for trading the shares, you do not need to do anything. If you want to trade CFDs on an exchange for which you do not currently have market data permissions, you can set up the permissions in the same way as you would if you planned to trade the underlying shares.

How are my CFD trades and positions reflected in my statements?

If you are a client of IBKR (U.K.) or IBKR LLC, your CFD positions are held in a separate account segment identified by your primary account number with the suffix “F”. You can choose to view Activity Statements for the F-segment either separately or consolidated with your main account. You can make the choice in the statement window in Client Portal.

If you are a client of other IBKR entities, there is no separate segment. You can view your positions normally alongside your non-CFD positions.

Can I transfer in CFD positions from another broker?

IBKR does not facilitate the transfer of CFD positions at this time.

Are charts available for Share CFDs?

Yes.

In what type of IBKR accounts can I trade CFDs e.g., Individual, Friends and Family, Institutional, etc.? 

All margin and cash accounts are eligible for CFD trading. 

What are the maximum a positions I can have in a specific CFD?

There is no pre-set limit. Bear in mind however that very large positions may be subject to increased margin requirements. Please refer to CFD Margin Requirements for more detail.

Can I trade CFDs over the phone?

No. In exceptional cases we may agree to process closing orders over the phone, but never opening orders.

Overview of the OneChicago NoDiv Contract

The OneChicago NoDiv single stock futures contract (OCX.NoDivRisk) differs from the Exchange's traditional single stock futures contract by virtue of its handling of ordinary distributions (e.g., dividends, capital gains, etc.).  Whereas the traditional contract is not adjusted for such ordinary distributions (the discounted expectations are reflected in the price), the NoDiv contract is intended to remove the risk of dividend expectations through a price adjustment made by the clearinghouse. The adjustment is made on the morning of the ex-date to ensure that the effect of the distribution is removed from the daily mark-to-market or cash variation pay/collect.

For example, assume a NoDiv contract which closes at $50.00 on the business day prior the ex-date at which stockholders of a $1.00 dividend are to be determined. On the ex-date OCC will adjust that prior day's final settlement price from $50.00 downward by the amount of the dividend to $49.00. The effect of this adjustment will be to ensure that the dividend has no impact upon the cash variation pay/collect as of ex-date close (i.e., short position holder does not receive the $1.00 variation collect and the long holder incur the $1.00 payment).


Dividend withholding procedures for foreign stocks traded in Japan

Foreign stocks listed for trading in Japan which issue dividends will have the cash dividend allocation subject to an increased withholding tax rate. The tax will vary based on the domicile of the stock issuing the dividend; however in general the withholding rate will be the highest withholding rate applicable and will not incorporate a reduction based on prevailing tax treaties.

This treatment is due to the tax reporting status of Interactive Brokers's clearing agent. As our clearing agent is unable to process the relevant tax declaration documentation which would allow for the application of tax withholding at a reduced rate, shareholders will be subject to the highest rate.

In order to avoid the application of the tax withholding on the dividends of foreign stocks, positions in such dividend paying stocks should be closed prior to the ex-dividend date.

We recommend that customers consult with their tax advisor for assistance in determining the eligibility, if any, for a tax credit on this withholding.

A list of foreign stocks and their applicable rates is provided below. Please be aware that the below is for informational purposes only and may not include all stocks which may be subject to the higher withholding rates.

Stock Code Stock Name DividendTax Rate
9399 Xinhua Finance Limited N/A

 

 

Dividend withholding procedures for entities issuing dual-sourced income

U.S. persons holding securities issued by entities that are domiciled outside of the U.S., but which invest within the U.S. should pay particular attention to IB's tax withholding obligation in the event of a distribution by the issuer. These entities, which may include Canadian unit trusts, REITS, limited partnerships or other common shares, often distribute dividends and/or interest based on both the U.S. and non-U.S. sourced income. While U.S. persons reporting a valid taxpayer ID number on their Form W-9 are generally exempt from backup withholding on U.S. sourced income, the nature of the custodial arrangement for these particular securities is such that U.S persons may be subject to a withholding tax calculated at a fixed rate of 30% on that portion of the distribution associated with the US-sourced income. This is in addition to any withholding required to be applied to the non-U.S. sourced portion of the distribution as required by the relevant foreign taxing body.

It's important to note that these taxes will be withheld by the depository prior to remittance of the distribution to IB and the subsequent credit of the net distribution to the accounts of any U.S. persons. Accordingly, IB has no ability to reverse or reclaim the withholding on behalf of its clients. In addition, as IB does not remit the withholdings to the tax authority, we do not report such withholdings to either the tax authority or clients on their year-end tax forms.

As IB does not provide tax advice or guidance, we recommend that you consult with your tax advisor for assistance in determining the eligibility, if any, for a tax credit on this withholding.

Below lists securities where this type of withholding has been applied previously. This list is for informational purposes only and may not include all securities.

Symbol Security Name
CHE.UN Chemtrade Logistics Income Fund
CSH.UN Chartwell Seniors Housing Real Estate Investment Trust
DR.UN Medical Facilities Corp
EXE.UN Extendicare real Estate Investment Trust
FCE.UN Fort Chicago Energy Partnerships LP
HR.UN H&R Real Estate Investment Trust
NFI.UN New Flyer Industries Inc
UFS Domtar Corp
UVI Unilens Vision Inc

 

Tax Treaty Benefits

Overview: 

Income payments (dividends and payment in lieu) from U.S. sources into your IB account may have U.S. tax withheld.  Generally, a 30% rate is applied to non-U.S. accounts.  Exemption from the withholding or a lower rate may apply if your home country has a tax treaty with the U.S.  Complete the applicable Form W-8 to find out your status. 

Background: 

Tax Treaties*

U.S. tax treaties with some countries have different benefits.  Legal tax residents of the following countries may be eligible for the treaty benefits.  Below is a list of the tax treaty countries.  Benefits vary by country.

Australia Czech Republic India Lithuania Sweden
Austria Denmark Indonesia Poland Switzerland
Bangladesh Egypt Ireland Portugal Thailand
Barbados Estonia Israel Romania Trinidad & Tobago
Belgium Finland Italy Russia Tunisia
Bulgaria France Jamaica Slovak Republic Turkey
Canada Germany Japan Slovenia Ukraine
China, People's Rep. Of Greece Kazakhstan South Africa United Kingdom
Commonwealth of Ind. States Hungary Korea, Rep. of Spain Venezuela
Cyprus Iceland Latvia Sri Lanka  

*Country list as of April 2009

 

Refer to IRS Publication 901 for details on withholding rates for your tax residence country and your eligible benefits.

 

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