I'm curious. What legislation is there to prevent a bank (or any financial entity) with two regional business units (acting as independent entities) from operating identically the same OTC (over the counter) options against each other?
Why would anyone do this?
Well if one of the business units is in a low tax regime and it exercises the options more often in favourable conditions (for example, in the extreme, the other unit exercising the options in all circumstances) then this acts as a mechanism for funneling profits from a high tax to a low tax regime.
It would seem pretty straightforward to create a mass of intra-company trade and algorithms to control this trade that would give the appearance of a legitimate trading activity.
Is OTC intra-bank trading legal? If it does occur, has anyone compared how low tax regime business units fare against their high tax regime counterparts?