This Tax Alert updates previously issued lists of IRC Section 1256 qualified boards or exchanges.

Background

Generally, a taxpayer must mark to market transactions qualifying as IRC Section 1256 contracts at the end of each tax year as if those transactions were sold for fair market value.¹ Subject to important exceptions, any gain or loss on an IRC Section 1256 contract is treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss, regardless of how long the taxpayer actually held the contract.²

IRC Section 1256 contracts include (among other things) regulated futures contracts and non-equity options.³ A regulated futures contract is a contract that is (i) marked to market on a daily basis to determine the amount that the taxpayer must deposit to its margin account to cover losses, or the amount that it may withdraw from such account as a result of favorable price changes during the day, and (ii) traded on or subject to the rules of a qualified board or exchange.⁴ A non-equity option is an option (other than an "equity" option) that is traded on or subject to the rules of a qualified board or exchange.⁵ A "qualified board or exchange" means (i) a national securities exchange, (ii) a domestic board of trade, or (iii) any other exchange, board of trade or other market that the Secretary determines has rules adequate to carry out the purposes of IRC Section 1256.⁶

Qualified board or exchange

IRC Section 1256(g)(7) defines a qualified board or exchange (QBE) as (1) a national securities exchange that is registered with the Securities and Exchange Commission, (2) a domestic board of trade designated as a contract market by the Commodities Futures Trading Commission, or (3) any other market that the Secretary determines has rules adequate to carry out the purposes of the section. The exchanges and boards listed in this Alert qualify as QBEs under IRC Section 1256(g)(7).

A "national securities exchange" is a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934. The following securities exchanges are registered with the SEC under Section 6(a) of the Exchange Act as national securities exchanges:

• BOX Exchange LLC (formerly BOX Options Exchange LLC)
• Cboe BYX Exchange, Inc. (formerly Bats BYX Exchange, Inc.; BATS Y-Exchange, Inc.)
• Cboe BZX Exchange, Inc. (formerly Bats BZX Exchange, Inc.; BATS Exchange, Inc.)
• Cboe C2 Exchange, Inc.
• Cboe EDGA Exchange, Inc. (formerly Bats EDGA Exchange, Inc.; EDGA Exchange, Inc.)
• Cboe EDGX Exchange, Inc. (formerly Bats EDGX Exchange, Inc.; EDGX Exchange, Inc.)
• Cboe Exchange, Inc.
• Investors Exchange LLC
• Long-Term Stock Exchange, Inc.
• MEMX, LLC
• Miami International Securities Exchange, LLC
• MIAX Emerald, LLC
• MIAX PEARL, LLC
• Nasdaq BX, Inc. (formerly NASDAQ OMX BX, Inc.; Boston Stock Exchange)
• Nasdaq GEMX, LLC (formerly ISE Gemini, Topaz Exchange)
• Nasdaq ISE, LLC (formerly International Securities Exchange)
• Nasdaq MRX, LLC (formerly ISE Mercury)
• Nasdaq PHLX LLC (formerly NASDAQ OMX PHLX, LLC)
• The Nasdaq Stock Market
• New York Stock Exchange LLC
• NYSE Arca, Inc.
• NYSE American LLC (formerly NYSE MKT, NYSE Amex, NYSE Alternext US, and the American Stock Exchange)
• NYSE Chicago, Inc. (formerly Chicago Stock Exchange)
• NYSE National, Inc. (formerly National Stock Exchange, Inc.)

Certain exchanges are also registered with the SEC through a notice filing under Section 6(g) of the Exchange Act for the purpose of trading security futures. These exchanges also qualify as qualified boards or exchanges for purposes of IRC Section 1256:

• Cboe Futures Exchange, LLC
• Chicago Board of Trade

The following domestic boards of trade are designated as contract markets by the Commodity Futures Trading Commission (CFTC):

• Bitnomial Exchange, LLC
• Cboe Digital Exchange
• Cboe Futures Exchange, LLC
• Chicago Board of Trade
• Chicago Mercantile Exchange, Inc.
• Commodity Exchange, Inc.
• FMX Futures Exchange, L.P.
• ICE Futures U.S., Inc.
• Kalshi  
• LedgerX LLC
• LMX Labs, LLC
• Minneapolis Grain Exchange, LLC.
• New York Mercantile Exchange, Inc.
• Nodal Exchange, LLC
• North American Derivatives Exchange, Inc.
• Small Exchange, Inc.

Under IRC Section 1256(g)(7)(C), Treasury has also determined that the following exchanges have rules adequate to carry out the purposes of IRC Section 1256:

• International Futures Exchanges (Bermuda) Ltd. (inactive) (Revenue Ruling 85-72)
• Mercantile Division of the Montreal Exchange (inactive) (Revenue Ruling 86-7)⁷
• Mutual Offset System — partnership between Chicago Mercantile Exchange and Singapore International Monetary Exchange Limited (Revenue Ruling 87-43)
• ICE Futures Europe (Revenue Ruling 2007-26)
• Dubai Mercantile Exchange (Revenue Ruling 2009-4)
• ICE Futures Canada (Revenue Ruling 2009-24)
• London International Financial Futures and Options Exchange (LIFFE) (Revenue Ruling 2010-3)⁸
• Eurex Deutschland (Revenue Ruling 2013-5)

Scope

The exchanges and boards listed in this Alert are subject to change on an ongoing basis as new qualified boards or exchanges are approved or removed. Changes in the status of these qualified boards or exchanges are not immediately reflected. Taxpayers ought to consult with their tax advisors when analyzing whether IRC Section 1256 applies to a particular contract on a particular qualified board or exchange.

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Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

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ENDNOTES

¹ IRC Section 1256(a)(1).

² IRC Section 1256(a)(1), (3).

³ IRC Section 1256(b)(1).

⁴ IRC Section 1256(g)(1).

⁵ IRC Section 1256(g)(3).

⁶ IRC Section 1256(g)(7).

⁷ It is uncertain whether this ruling applies to the current Montreal Exchange.

⁸ Part of ICE Futures Europe.