Dividend mystery at Van der Moolen
Financial trading firms are notoriously secretive, and won’t release any information on their trading activities unless they are forced to do so. The only listed trading firm in Amsterdam, Van der Moolen, had to present their figures on 2008 results today. Apparently the chairman didn’t want to share any information at all, as their results left investors with more questions than answers. And I smell a rat.
Nasty surprise
The operational trading results on 2008 weren’t spectacular at first sight, and provided no details on surviving a year with some horrible events but lots of trading. However, the company had some unexpected nasty surprise ; a EUR 43 million provision for losses on dividend tax.
That’s extremely weird. As a trading firm you’ll often have some stocks in your books during the dividend season. You can reclaim your dividend tax at the authorities. Maybe you won’t get it in some countries, but then it won’t be a surprise as you know the rules.
No regular trading position
Second, large losses are common these days but 43 million is still a lot of money. As it’s only the tax part of dividends, the total received sum of dividend should be around 285 million calculating with a dividend tax of 15%. On average stocks have a dividend of 75 cent, that makes a total share position receiving dividend on around 380 million stocks. That’s a lot. It doesn’t sound as positions you will get during normal option trading. And if you did had this dividend exposure, it would have been a terrible losing position in a year stuffed with dividend cuts.
Only Van der Moolen
Third, no other trading firms have reported any trouble with tax authorities on reclaiming dividend tax. Larger firms like Optiver, IMC and All Options haven’t called the press to complain about the fiscal regime. This little tax thing is clearly only hurting Van der Moolen.
Van der Moolen had an alliance with a company called GSFS, experts in dividend stripping. According to CEO Richard den Drijver this had absolutely nothing to do with it. According to him it’s just a matter of dividend on long stock positions due to, say, short calls.
Not getting away with it
Having trouble with tax authorities in five or six countries and a tax investigation for regular long positions – that sounds unbelievable. Honestly, that sounds almost like some kind of tax fraud. And not getting away with it.
Dude, you’re using way too many assumptions. 42 million is 285 million total dividend. With a dividend yield of 4% you have around 7 billion worth of stocks in your position.
So, you start off with saying this guy makes too many assumptions, and you continue making some more. First off all, why would you asume the dividend tax is 15% on average? There are countries with a dividend tax off 35%. Maybe biggest part of their long position is in this kind of countries. This would lower your calculation dramaticly. For obvious reasons you want to be long dividends with an above average yield. Changing the dividend yield from 4 to let’s say 7% also dramaticly lowers the outcome.
Second thing. Being long stocks against “say” short calls…Really??? Funny, I always exercise my calls before ex, I assume more people do this…
calls with a, let’s say, “big delta” ofcourse…
Long stocks against short calls sounds silly, but it was CEO Richard den Drijver coming up with this story on the webcast..
It’s impossible to calculate the exact amount of shares bought in this dividend tax issue.
Between 3 and 8 billion euro sounds very reasonable. And that is too much for normal trading, especially when you look at the current value of outstanding positions in their balance sheet.
I think VDM tried to fool the tax authorities.
Pure ‘dividend washing’, nothing else!
And definately not with short Calls of course, but long deep in-the-money Puts and short Futures.
Since the company is not making money in ‘legal’ trading it steps into territories. But therfor you need to now the laws…
I guess the company will not survive. The stock is a clear sell, even at the current low levels.
I believe dividend washing isn’t illegal. You just won’t get your money back. Is lying about it to the shareholders legal?
what about crossing deep in the money calls btw the market making accout for bigger amount that the open interest in order to steal the open interest in the call the day before a company goes ex-dividend.
What do you mean “divi washing”?
And you seriously think a MM firm would go long deep itm puts/short futures on a large scale, it’s not MM anymore, it’s taking leveraged directionnal positions…
Dividend washing = taking over someone else his stocks during dividend period for a discount, so he can avoid dividend tax. Market makers usually get dividend back, unless the tax authorities catch them..
Long deep itm puts or short futures against long stocks on a large scale isn’t market making but not directional either, It is fully delta hedged. Sounds indeed like a company in trouble not able to make money with normal trading.
yes, but imc and optiver have ongoing tax cases with the dutch authorities, going back for years
any update on these cases of IMC en Optiver? Heard these were about considerable ammounts of money also.
crossing deep ITM calls doesn’t work anymore. You get fined if you increase your open interest before dividend payments
Crossing deep in the money calls won’t give you trouble with the tax authorities. Just a little fine from the exchange.