Rule Arbitrage

Evading Regulatory, Tax, Accounting, Covenant and Credit Rating Rules

For critics, financial structures that reduce taxes, bypasses regulations, or artificially inflate financial metrics are inherently suspect. Rule Arbitrage argues that a subset of these transactions can be legitimate, providing real benefits within the bounds of legal language and legislative intent.

Businesses often face criticism for engaging in financial activities with no genuine business purpose other than to minimise taxes or enhance financial statements. Opponents of financial engineering highlight notorious cases like WorldCom, Enron, and Long-Term Capital Management, where accounting abuses and aggressive tax avoidance strategies created significant public backlash. For many critics, any financial structure that reduces taxes, bypasses regulations, or artificially inflates financial metrics is inherently suspect and deserving of condemnation. Rule Arbitrage challenges that view, arguing that a subset of these financial transactions, often criticised as rule arbitrage, can be legitimate, providing real benefits while staying within the bounds of both legal language and legislative intent.

Through clear explanations and 20 detailed case studies, Oussama A. Nasr defends these structures, showing they can achieve legitimate tax savings, regulatory relief, or other business advantages without violating the spirit of the rules they operate within. Written in accessible language, the book covers a range of financial topics including senior/subordinated debt, prepaid forwards, collateralized loan obligations, and credit default swaps.

Designed to educate both casual readers and finance experts alike, Nasr provides insight into how these structures work, addressing objections, and demonstrating why many of these transactions are deserving of respect rather than condemnation. With an eye toward both practical application and regulatory context, this work offers a balanced perspective on the complex world of rule arbitrage.

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