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part:
(A) In general.--For purposes of this title, gain
or loss from trading of section 1256 contracts shall be
treated as gain or loss from the sale or exchange of a
capital asset.
(B) Exception for certain hedging transactions.--
Subparagraph (A) shall not apply to any section 1256
contract to the extent such contract is held for pur-
poses of hedging property if any loss with respect to
such property in the hands of the taxpayer would be
ordinary loss.
The following legislative history is instructive in constru-
ing section 1256(f)(3)(A):
Historically, options market makers on securities
exchanges have reported ordinary income or loss from
their options transactions as well as from transactions
in the property subject to the option. Commodity
traders derive capital gain or loss from their * * *
[regulated futures contracts] transactions and are
subject to mark-to-market and 60/40 treatment.
* * * * * * *
The House bill changes the claimed present-law
treatment of options market makers and codifies present
law with respect to professional commodity traders by
providing that both categories of traders are treated
as buying and selling capital assets, except to the
extent that an option or future is acquired to hedge
property that would generate ordinary income or loss.
An options dealer is defined as any person who is
registered with the SEC and an appropriate national
securities exchange as a market maker or specialist in
listed options. Under the bill, an options dealer
would not recognize ordinary income or loss with re-
spect to his stock and securities transactions, unless
the taxpayer is a dealer in stock and securities under
general Federal income tax rules (determined without
regard to whether options in such property produce
ordinary income or loss).
In addition to nonequity options, which are
marked-to-market in the hands of all holders, equity
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