Total Return Swaps (TRS) Case Study

📌 Overview

This project explores how hedge funds used Total Return Swaps (TRS) to avoid UK taxes, how regulators closed the loophole, and what risks swaps still create today.

It includes:

• Report (below in this README)
• Notes (/notes/rough-notes.md)
• Excel/Python models (/model/)
• Charts (/images/)
• References (/references/)

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📄 Download the 2-Page Summary (PDF)

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1️⃣ Introduction

• What TRS are
• Why hedge funds use them
• How they can create both opportunities and risks

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2️⃣ The TRS Loophole

• How hedge funds used TRS to avoid taxes
• Example of synthetic ownership without stamp duty
• Why regulators saw it as unfair

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3️⃣ UK Law: Section 695A (Corporation Tax Act 2009)

• What the law says
• How it closed the loophole
• Impact on hedge fund strategies

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4️⃣ Real-World Case Studies

• Archegos Capital (2021): swaps and hidden leverage
• Other hedge fund examples

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5️⃣ TRS Today

• How swaps are used in a compliant way (hedging, financing, leverage)
• What changed after regulation

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6️⃣ Risks & Controls

• Hidden leverage and systemic risk
• Risk controls: margin, collateral, reporting
• Lessons for hedge funds and regulators

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7️⃣ Conclusion

• Summary of findings
• Why TRS matter for markets and risk management

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📊 Model Findings

Direct vs TRS PnL

TRS Return on Collateral

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🔁 Reproduce the Charts (Excel)

• Open model/TRS_vs_Shares.xlsx
• Change inputs (notional, financing, collateral) at the top
• Charts update automatically

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Python Simulation Results

Direct vs TRS PnL

TRS Return on Collateral

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📁 Project Files

• README.md – full write‑up
• notes/rough-notes.md – draft notes
• model/TRS_vs_Shares.xlsx – Excel model & charts
• model/TRS_simulation.py – Python simulator
• images/ – exported charts (Excel + Python)
• data/trs_results.csv – simulation outputs
• references/ – HMRC / legal references

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📚 References

• HMRC TRS Guidance (/references/)
• Corporation Tax Act 2009, Section 695A
• Academic papers and industry reports