I trade STW (taiwan futures options) index options, and see that on IB us US citizens are eligible to trade Nikkei (sgxnk) and SPI (aussie S&P) options.
certain others are not available, ie heng sang.
Why can't US citizens trade foreign equity or index options?
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I trade STW (taiwan futures options) index options, and see that on IB us US citizens are eligible to trade Nikkei (sgxnk) and SPI (aussie S&P) options.
certain others are not available, ie heng sang.
Thank you, buzzy2, for that very informative post.
I am not a lawyer, so don't take this as legal advice, but just as layman's speculation, I can imagine three potential workarounds.
a) As briefly mentioned in the article buzzy2 provided, travel to some foreign country that allows this and open an account at a foreign stock brokerage that never solicited you. I am not a lawyer and I haven't read much of the relevant regulations, so I am just guessing that that foreign brokerage would not be in violation of US law because they never solicited your business, which I am guessing is important because I am also guessing that paying someone to break US laws is itself defined as a US crime somewhere.
b) A legally more elaborate approach might be to buy an existing foreign corporation and trade through that (since it was not ""FORMED by a U.S. person principally for the purpose of investing in securities not registered under the Act") [1]. This is my favorite, since one would have a wide choice of stock brokerages to use, it would be easy to switch or to pick one that offered access to exchanges in many countries, and one could continue living in the US perhaps without even having to travel to set this up. I would, however, want to make sure that there was no common law saying that buying a corporation is equivalent to forming it for the purposes of the SEC regulations.
c) Reside outside the U.S. The SEC definition of U.S. Person does not appear to include non-resident U.S citizens [2], unlike the IRS definition of United States Person [3].
[1] Code of Federal Regulations, section 17 ("Commodities and Securities Exchanges"), part 230.902 ("Definitions") subsection k ("U.S. Person") part (1)(vii)(b) (for "formed by a U.S. person [...]").
http://www.law.cornell.edu/cfr/text/17/230.902
[2] same, but part (1)(i) which says "Any natural person resident in the United States", but does not seem to include non-resident U.S. citizens.
[3] United States Code title 26 ("Internal Revenue Code") section 7701 ("Definitions") subsection 30 ("United States Person") part A (for "a citizen or resident of the United States").
http://www.law.cornell.edu/uscode/text/26/7701
I want to emphasize that I am not a lawyer or particularly knowledgeable about this topic. I am posting this mostly to elicit input from more experienced members. I have no intention of following any of these ideas without consulting with lawyers in the US and the other countries involved, and I think anyone who reads this message should be at least that cautious.
I am not a lawyer, so don't take this as legal advice, but just as layman's speculation, I can imagine three potential workarounds.
a) As briefly mentioned in the article buzzy2 provided, travel to some foreign country that allows this and open an account at a foreign stock brokerage that never solicited you. I am not a lawyer and I haven't read much of the relevant regulations, so I am just guessing that that foreign brokerage would not be in violation of US law because they never solicited your business, which I am guessing is important because I am also guessing that paying someone to break US laws is itself defined as a US crime somewhere.
b) A legally more elaborate approach might be to buy an existing foreign corporation and trade through that (since it was not ""FORMED by a U.S. person principally for the purpose of investing in securities not registered under the Act") [1]. This is my favorite, since one would have a wide choice of stock brokerages to use, it would be easy to switch or to pick one that offered access to exchanges in many countries, and one could continue living in the US perhaps without even having to travel to set this up. I would, however, want to make sure that there was no common law saying that buying a corporation is equivalent to forming it for the purposes of the SEC regulations.
c) Reside outside the U.S. The SEC definition of U.S. Person does not appear to include non-resident U.S citizens [2], unlike the IRS definition of United States Person [3].
[1] Code of Federal Regulations, section 17 ("Commodities and Securities Exchanges"), part 230.902 ("Definitions") subsection k ("U.S. Person") part (1)(vii)(b) (for "formed by a U.S. person [...]").
http://www.law.cornell.edu/cfr/text/17/230.902
[2] same, but part (1)(i) which says "Any natural person resident in the United States", but does not seem to include non-resident U.S. citizens.
[3] United States Code title 26 ("Internal Revenue Code") section 7701 ("Definitions") subsection 30 ("United States Person") part A (for "a citizen or resident of the United States").
http://www.law.cornell.edu/uscode/text/26/7701
I want to emphasize that I am not a lawyer or particularly knowledgeable about this topic. I am posting this mostly to elicit input from more experienced members. I have no intention of following any of these ideas without consulting with lawyers in the US and the other countries involved, and I think anyone who reads this message should be at least that cautious.
I have had a foreign brokerage account for nearly 30 years since I lived overseas. I kept it when I came back to the US and have traded from here in it for 26 years. Just recently, they said I would have to close it as US regulations were becoming too burdensome to comply with. That account is what saved my a$$, as the country in question is stable, with low debt-to-GDP ratio, and so does not have crises or boom and bust cycles. As A result, my intial $60,000 investment has grown to just short of $1m, while all I have achieved in the US through the Tech bust, the Dot.Com bust, the subprime mortgage bust etc is a $2.4m carry forward loss which I can only deduct at the rate of $3000/year.
A method I used to make my foreign investments grow was to sell covered calls on my stocks with a strike price about 15% over market price (or what I paid for the stock) so that, if exercised against me, I would have a 15% plus gain, or if not, I would keep the premium. This adds to the total return and is a risk-reducing hedge.
Now, I can transfer my foreign stocks to either IB or Fidelity, both of which allow you to hold and trade in the native foreign currency on foreign exchanges; however, it is not possible to sell covered calls anymore or trade any other kind of foreign options from a US base.
US regulation/legislation, has resulted in such MAJOR encroaches into personal freedoms it is hard to see that the US meets the definition of "a free country" any more.
I am urgently exploring solutions, including emigrating, and I can tell you that some of the possible solutions suggested in the post I am replying to won't work. For example, if you buy a foreign corporation and trade in that, all the profits, whether capital gains or other, will be taxed as non-qualified dividends at 30%. In other words, you cannot net them against capital losses, as I need to do. You would have to own less than 10% of the corporation with non-US persons owning more than 90% to achieve pass-through while maintaining the character of the gains or profits for US tax purposes. Also, a US citizen resident abroad will have the same problem as it is not the SEC definition of "US person" that a foreign institution is looking at in determining whether they want him as a client or not.
It makes you wonder what is driving Congress and the SEC. If they think their legislation is to protect retail investors, they are dead wrong. It is doing just the opposite. All the regulation in the world failed to stop Enron, Bernie Madoff, the sub-prime mortgage fiasco, and so on; and now they are stopping us from reducing investment risk by denying us the hedging with covered calls on foreign stocks!!
The obhservable facts are that government bureacracy only increases in complexity over time, but there must surely be a limit. Will it take a bloody revolution, or can we elect people to Congress who truly understand where we are headed and reverse direction?
A method I used to make my foreign investments grow was to sell covered calls on my stocks with a strike price about 15% over market price (or what I paid for the stock) so that, if exercised against me, I would have a 15% plus gain, or if not, I would keep the premium. This adds to the total return and is a risk-reducing hedge.
Now, I can transfer my foreign stocks to either IB or Fidelity, both of which allow you to hold and trade in the native foreign currency on foreign exchanges; however, it is not possible to sell covered calls anymore or trade any other kind of foreign options from a US base.
US regulation/legislation, has resulted in such MAJOR encroaches into personal freedoms it is hard to see that the US meets the definition of "a free country" any more.
I am urgently exploring solutions, including emigrating, and I can tell you that some of the possible solutions suggested in the post I am replying to won't work. For example, if you buy a foreign corporation and trade in that, all the profits, whether capital gains or other, will be taxed as non-qualified dividends at 30%. In other words, you cannot net them against capital losses, as I need to do. You would have to own less than 10% of the corporation with non-US persons owning more than 90% to achieve pass-through while maintaining the character of the gains or profits for US tax purposes. Also, a US citizen resident abroad will have the same problem as it is not the SEC definition of "US person" that a foreign institution is looking at in determining whether they want him as a client or not.
It makes you wonder what is driving Congress and the SEC. If they think their legislation is to protect retail investors, they are dead wrong. It is doing just the opposite. All the regulation in the world failed to stop Enron, Bernie Madoff, the sub-prime mortgage fiasco, and so on; and now they are stopping us from reducing investment risk by denying us the hedging with covered calls on foreign stocks!!
The obhservable facts are that government bureacracy only increases in complexity over time, but there must surely be a limit. Will it take a bloody revolution, or can we elect people to Congress who truly understand where we are headed and reverse direction?
1) The foreign country is terrified of American trading talent, computing capability and money.
2) US traders can become dominant players in any country of the world thereby displacing local/ethnic traders.
3) In Japan, there is still a lot of lingering anger and blame of the US for gaining a toe-hold there in 1989 and causing the meltdown that began in 1990.
The reasons you give, nazzdack, do not hold water.
If there was a concern that equity options trading by US persons would come to dominate a local market, then why would only QIBs of $100m or more be allowed to do it, while small retail investors are prevented? Which of these would be likely to result in more manipulation?
It is not the local exchanges that have any fear of US investors.
They just cannot handle the extraterritorialization of extremely burdensome US financial regulation as well as their own.
Citizens of just about every other country in the world can trade foreign equity options in eachother's countries, e.g. Japan, Germany, France, UK, Korea and they jointly outnumber the US.
There needs to be a get-out clause, such as allowing a US retail investor signing an "at my own risk" letter (i.e. I don't give a damn about incompetent US regulators and I have more confidence in yours - which I really do - and it has been justified by results over time)
I have another suggestion for the US govt: They need to stop the paranoia about money laundering. I say, what you don't know can't hurt you! Instead, put controls on the outflow of money from the US, not the inflow. So if some US pimp makes a fortune selling Turkish hash to the Taliban, and wants to bring his money back to the US tax free, I say - let him do it; it's good that it ends up in the US economy. If somebody wants to send money to a foreign brokerage account - let him do it - as long as he reports where it ended up to verify it doesn't go to Al Qaeda (as is done today).
If there was a concern that equity options trading by US persons would come to dominate a local market, then why would only QIBs of $100m or more be allowed to do it, while small retail investors are prevented? Which of these would be likely to result in more manipulation?
It is not the local exchanges that have any fear of US investors.
They just cannot handle the extraterritorialization of extremely burdensome US financial regulation as well as their own.
Citizens of just about every other country in the world can trade foreign equity options in eachother's countries, e.g. Japan, Germany, France, UK, Korea and they jointly outnumber the US.
There needs to be a get-out clause, such as allowing a US retail investor signing an "at my own risk" letter (i.e. I don't give a damn about incompetent US regulators and I have more confidence in yours - which I really do - and it has been justified by results over time)
I have another suggestion for the US govt: They need to stop the paranoia about money laundering. I say, what you don't know can't hurt you! Instead, put controls on the outflow of money from the US, not the inflow. So if some US pimp makes a fortune selling Turkish hash to the Taliban, and wants to bring his money back to the US tax free, I say - let him do it; it's good that it ends up in the US economy. If somebody wants to send money to a foreign brokerage account - let him do it - as long as he reports where it ended up to verify it doesn't go to Al Qaeda (as is done today).
I think derivatives like Turkish hash should be legalized in the US.
The CME is said to be developing a marijuana contract in case more states legalize it so a listing can be done "sooner rather than later".
The CME is said to be developing a marijuana contract in case more states legalize it so a listing can be done "sooner rather than later".
We can officially become drug dealers