-29-
Mr. Maduff stated that the documentation petitioners provided
concerning Tandrill’s futures trading, while not complete, was
sufficient for him to conclude that Tandrill in fact made trades on
the futures exchanges and that those trades generally were “tax
straddles with no economic objective or effect other than to move
income from one year to the next with minimal market exposure and
no hope of profit.” He testified that while the commissions Bache
and ACLI charged Tandrill do not appear on the documents provided,
he was able to extrapolate the sum of commissions and fees charged
from the information supplied, namely $52.70 per contract charged
by Bache, and $41.50 for gold and $26.50 for copper charged by
ACLI.22
22 The charges connected with the execution of Tandrill’s
futures trading took two distinct forms: Broker’s commissions
(and associated fees) and market slippage, or the bid/ask price
spread. (The bid/ask price is the difference between the prices
at which floor traders are willing to buy and prices at which
they are willing to sell.) After studying the Bache and ACLI
monthly statements, Mr. Maduff concluded that Bache and ACLI
charged commissions and associates fees on a per-contract, round-
turn basis. (A per-contract basis means that the commissions and
fees are the same for each contract of a particular commodity
traded, without regard to the price. A round-turn basis means
that no commission is charged when a position is established
(whether long or short), but rather the broker waits until the
position is closed out with an offsetting sale or purchase and
then charges a single fee for the entire round-turn transaction.)
Tandrill also paid execution costs, meaning the markup the
investor pays to the floor trader every time he buys and the
markdown he suffers every time he sells. Thus, commissions are
paid only when a position is closed out while execution costs are
encountered when an investor enters his position and again when
he closes it out. The total marginal costs of a single contract
include two execution costs and one commission cost.
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