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Anonymous
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Asked: 2022-12-21T20:16:13+00:00 In:

Wash Sale

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Wash Sale

What is a Wash Sale and what controls can investment compliance put in place to monitor Wash Sale?

30 day periodbuysellwash sale

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    A wash sale is a type of securities transaction in which an investor sells a security at a loss and then repurchases the same security or substantially identical security within 30 days before or after the sale. This type of transaction is generally not allowed for tax purposes, because it allows anRead more

    A wash sale is a type of securities transaction in which an investor sells a security at a loss and then repurchases the same security or substantially identical security within 30 days before or after the sale. This type of transaction is generally not allowed for tax purposes, because it allows an investor to claim a tax loss on a sale while retaining the same investment position.

    Investment compliance departments can put in place controls to monitor wash sales in several ways:

    Trading surveillance: Investment firms can use trading surveillance systems to monitor wash sales by analyzing trading patterns and identifying transactions that may be indicative of wash sales.

    Account monitoring: Investment firms can also monitor individual accounts for suspicious activity, including wash sales. This may involve reviewing account activity and looking for patterns suggesting a wash sale has occurred.

    Training and education: Investment firms can provide training and education to employees on the risks and consequences of wash sales, and ensure that they understand the firm’s policies and procedures for preventing and detecting wash sales.

    Policies and procedures: Investment firms can also establish policies and procedures for identifying and preventing wash sales, and ensure that these policies are followed by employees. This may include requiring employees to report any potential wash sales and conducting regular reviews of transactions to identify and address any potential wash sales.

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    Wash sale is a tricky one to monitor. Here are few of the approaches taken by companies i have seen in my career and also the gaps in those processes: For any "sell at loss", block repurchase on all securities from that issuer  for a 30 day period- Gap in this approach is that it does not factor inRead more

    Wash sale is a tricky one to monitor. Here are few of the approaches taken by companies i have seen in my career and also the gaps in those processes:

    • For any “sell at loss”, block repurchase on all securities from that issuer  for a 30 day period- Gap in this approach is that it does not factor in “substantially identical” securities.

     

    • For any “sell at loss”, block repurchase on all securities from that issuer and its subsidiaries for a 30 day period. – Gap in this approach is that all subsidiaries may not issue “substantially identical” securities.

     

    • For any “sell at loss”, block repurchase on all securities that might be in the same line of business using their sector classification for a 30 day period. – Gap in this approach is that it is too restrictive and can do more harm than good to the portfolio. Certainly PM’s aren’t going to be happy. Glad this approach never made it past the drawing board on any companies i worked with

     

    • Reviewing all trading activity in the account during a 30 day period to see evidences of wash sale – Gap in this approach is that this could be more manual than others.

     

    • Putting up a soft warning for opposite transaction in the same issuer or its subsidiaries and also for issuers in the same sector and reviewing the positions alerting(overnight). This is my preferred method.

     

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