Institutional Insights: Mobilizing for Fixed Income and Options Requirements

Phase III of the U.S. Internal Revenue Service (IRS) cost basis reporting (CBR) regulations, which were announced in April 2013, have several staggered effective dates that will have varying levels of impact on brokers. In order to encourage open discussion about what the rules really mean and how we can help our clients decipher them, Scivantage recently held an interactive panel  event for the CBR community to provide clarity on the fixed income and options regulations ahead of the effective date of Jan. 1, 2014.

Event participants got a chance to hear from distinguished industry experts. Led by Dan Mayo, Principal of KPMG, the panel also included Paul Dumas, Manager of Tax Operations at Scotiabank; Arthur Wolk, Senior Vice President of Product Strategy at SunGard Wall Street Concepts; and Phillip Varghese, Vice President of Investment Reporting at Scivantage. Cameron Routh, Executive Vice President of Corporate Development at Scivantage moderated the discussion, which covered in depth the scope of the final regulations and relevant effective dates, key operations challenges, as well as the potential impact on the investor customers.

One of the major issues brokers will face come January is the responsibility to distinguish between less complex debt, for which the effective date is 2014, and more complex debt, for which there is a 2016 effective date, keeping in mind that some less complex instruments are excluded from CBR. Broker firms will also need to note that they can support only five customer elections, and compute and report interest, discount, premium and basis consistent with these elections. Providing transfer statements when debt, options or securities futures contracts are transferred out of an account is another process brokers should be aware of and prepared for.

The session was extremely interactive with some great questions – which is to be expected, since a few of the final IRS regulations were unclear and left room for debate. In addition, the panelists agreed that the experience firms gained from complying with the equities mandates in Phase I may not help with the debt requirements when considering the operational challenges. Brokers may also need to consider additional issues they could face with Phase III, such as deciding to what extent additional changes may need to be made to reporting systems and firm-specific operations ahead of the January 2014 deadline. The panel also agreed that brokers should expect a greater potential for confusion among their clients with Phase III of CBR.

Clients of Scivantage Maxit® tax lot accounting system have been prepared for the fixed income and options mandates of Phase III cost basis reporting compliance since earlier this year. We hope to continue such discussions and events to ensure the community has a venue for cost basis reporting debate.

If you’d like to learn more about the event and the panelists as well as access the resources used during the Cost Basis Reporting Panel click here.

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