The Emergence of Cum-Ex

Abstract

This chapter provides an explanation of how the cum-ex trade was designed to work in the German equities market. It describes the features of the market infrastructure that made the German share market fertile ground for the cum-ex trade, including the role of Clearstream as Germany’s central securities depository, and the way that dividends paid by German companies were treated for tax purposes. It then contrasts the intended operation of the settlement system with the unintended operation of the system that was exploited by the cum-ex trade. Finally, it explains that some German tax specialists took the view that the dividend and tax credit generated by the cum-ex trade should be respected for all relevant tax purposes in Germany. This was essential for the success of the cum-ex trade as it enabled the apparent tax credit to be repaid in cash or allowed as a credit to reduce an existing tax liability.