- 39 -
customer named Milburn Partners at a loss of $119,000. At the end
of trading, account No. 233 showed a profit of $7,466 for Merit.
(3) 1982 Transactions
(a) T-Bill Options
During its taxable year 1982 (beginning July 1, 1981), after
passage of ERTA, Merit's T-bill operations slowed dramatically. It
had only two clients, Case Holdings and Monex.14 Merit closed out
a number of its spreads, realizing carried-over gains of
$2,774,360. Its accounts, reflected on Leema's 1982 Federal income
tax return, show T-bill option trading income of $2,766,085,
apparently reflecting the unrealized appreciations retained from
trading in earlier years.
(b) Stock Forwards
During its taxable year 1982, Merit's principal trading
activity took place in its new stock forwards program. Merit's
stock forwards account was account No. 601. Merit acted as the
"other side" for its stock forwards clientele. The nonmarket
makers had approximately 17,000 trades. At the end of its taxable
year, Merit reported T-bill option income of $2,766,085 and
"cancellation fee" deductions of $2,845,358.
Leema (Merit's parent corporation) had two additional wholly
owned subsidiaries which engaged in stock forwards trading:
Horizon Trading, Inc. (formerly Merit Trading, Inc.) (Horizon),
14 Case Holdings ended its T-bill trading in 1982. Merit
continued to trade T-bill options with its single remaining
customer, Monex, until 1988.
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