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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Derivative contracts: relevant contracts: why distinguish options, futures and contracts for differences?

Does it matter what sort of relevant contract you have?

Any contract which is generally thought of as being a derivative will almost certainly be either an option, a future or a contract for differences (CFD). In most cases where, for example, you are looking at ordinary interest rate, currency or commodity contracts, you will not have to worry into which category a relevant contract falls.

The distinction becomes relevant where any of the following apply:

  • You are looking at a contract whose underlying subject matter is intangible fixed assets - see CFM50720. Intangible fixed assets are an excluded subject matter for options and futures, but not for CFDs.
  • The contract only satisfies the ‘accounting conditions’ in CTA09/S579 because it falls, or may fall, within CTA09/S579(2)(b). This provision admits CFDs with certain sorts of underlying subject matter into the Part 7 regime, but not corresponding options or futures - see CFM50270.
  • The contract is an embedded equity derivative - provisions relevant to the derivatives embedded in convertible, exchangeable or asset-linked securities depend on whether the embedded derivative is an option or a CFD (see CFM52500 onwards).
  • Cases in which the special provision at CTA09/S593 applies. This section deals with the unusual case where part of the underlying subject matter of a contract is ‘excluded’ and part is not (CFM50860). It applies to options and futures only.

Futures and options on the one hand, and CFDs on the other, are mutually exclusive categories. A future or an option cannot also be a CFD (CTA09/S582(2)).