Wash Sale

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Related to Wash Sales: wash trade

Wash Sale

The buying and selling of the same or a similar asset within a short period of time.

A fictitious type of arrangement whereby a Broker, upon receiving an order from one individual to purchase and an order from another individual to sell a certain amount of a particular stock or commodity, transfers it from one principal to the other and retains the difference in value.

For the purposes of Income Tax, losses on a wash sale of stock may not be recognized as capital losses if stock of equal value is obtained within thirty days prior or subsequent to the date of sale.

Various stock exchanges disallow this practice because the orders to buy and sell should be executed separately to the advantage of each of the broker's clients.

References in periodicals archive ?
As for the investigation of the wash sales, the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC) have the jurisdiction to investigate, Barte noted.
The wash sales trap potentially applies to any disqualifying disposition in which an employee, within 30 days--before or after the stock sale--repurchases company shares.
Losses from wash sales will carryover to the next identical stock purchase until gains eliminate the loss or until the stock is sold outside of the 61-day period.
Because of automatic reinvestment, it is possible that a sale of fund shares at a loss can result in an unintended wash sale.
Wash sales are prohibited by banking and securities regulations because they distort financial markets by misleading third parties as to the volume and price of the securities being traded, when in fact, no real change in ownership of the securities occurs at the end of the day.
They said the officials of these two DBP units, who were involved in the wash sales, do not have professional licenses and lack the qualification, competency and work experience mandated by law.
Some banks try to go around the restriction by using a process-also prohibited by regulators-known as a wash sale wherein the securities are sold to another financial institution and bought back at a pre-agreed price, usually on the same day or shortly thereafter, to make auditors believe that these are new purchases rather than merely transfers meant to make their books look better.