A significant number of American individuals and firms engage in arbitrage each year. In the widest sense, arbitrage refers to the practice of making money off of price discrepancies in markets. This might be currency trading, or it might be buying a product for one price in one market and then selling it for a much higher price in another market. However, when you hear about firms engaging in arbitrage and arbitrage compliance in the states, what people are mostly referring to is a specific type of arbitrage involving bonds and stocks or securities. What these people are doing is taking advantage of the tax advantages of certain bonds, and turning the money they make from those bonds into more money by investing in stocks and securities. The US federal government has tried to limit or reduce this type of financial transaction because they don’t love the idea of people taking advantage of tax-advantaged bonds and putting that money at risk of being lost. Thus, they’ve instituted a lengthy set of regulations and laws regarding the industry aimed at curbing the frequency of such transactions.
Nonetheless, people and firms engage in this type of activity, which means at the end of the year they have to hire firms to handle their finances and figure out what their arbitrage rebate is, the amount of money they owe the federal government. The rules and regulations surrounding this type of arbitrage compliance are quite serious, so if an individual or firm doesn’t properly calculate their arbitrage rebate they might end up having to pay the federal government hefty fines. This is why most firms and individuals hire firms like Arbitrage Compliance Specialists to do their calculations for them. They know they can’t afford to make a mistake, so they hire a firm that they know will get the job done right the first time.
Apart from the rules and regulations surrounding arbitrage compliance being very serious, they’re also being changed all the time. Nearly every year the US federal government will change some things in the tax code regarding arbitrage compliance. They’ll change what qualifies for this type of compliance, how the compliance works, and what the individual or firm must claim in order to remain compliant. This only muddies the waters regarding arbitrage compliance and makes it even more difficult for firms and individuals to remain compliant. It would appear the purpose of constantly making changes is just to ensure that the federal government is accounting for all forms of arbitrage, but it has the result and dissuading even more people from engaging it because they’re not sure if they’re compliant or not. This is just one more reason to hire an outside firm like ACS to handle your arbitrage compliance. Only the most well-trained and knowledgeable professionals will be able to identify where the changes took place and figure out how they impact people engaging in arbitrage. The fact the rules and regulations are constantly evolving and changing is just one more reason to outsource your compliance to someone else.