United States

The derivatives market in the US continues to grow, with increasingly complex and sophisticated products being developed in a wide variety of market sectors. This has resulted in increased interest from regulators and legislators. Derivative products deemed to be securities are subject to federal regulation by the Securities and Exchange Commission (SEC), while those deemed to be commodity contracts are subject to plenary federal regulation by the Commodity Futures Trading Commission (CFTC). It is generally recognized that swaps are not securities for purposes of the US federal or state securities laws. In general, swaps, caps, floors and similar financial contracts raise 4 principal US federal income tax issues: 1. the timing of any income, 2. the character of the income, 3. the source of payments under the contract, and 4. under what circumstances the contracts may be integrated with related financial assets or liabilities.