Unplugging Heartbeat Trades and Reforming the Taxation of ETFs

The much-touted tax efficiency of equity exchange traded funds (ETFs) has historically been built upon portfolios that track indices with low turnover and the tax exemption for in-kind distributions of appreciated property. This rule permits ETFs to distribute appreciated shares tax-free to redeeming authorized participants (APs) and reduce a fund’s future capital gains. ETFs and APs, working together, exploit this rule in so-called heartbeat trades in which an ETF distributes shares of a specific company or companies to a redeeming AP, instead of a pro rata basket of the ETF’s portfolio. The distributed securities are appreciated shares of companies that are on the verge of being acquired in a taxable transaction or that are slated to be removed from the index tracked by the ETF. In the absence of heartbeat trades, the ETF would recognize gain from the sale of the shares. Through everyday redemptions and heartbeat trades, equity ETFs are able to make tax-free portfolio adjustments and avoid generating capital gains until their shareholders sell their shares. The quasi-consumption tax treatment of ETFs is unwarranted and gives ETFs an unfair tax advantage over mutual funds, publicly traded partnerships, and direct investments by investors. Although these redemptions could be treated as taxable exchanges between the ETF and an AP under substance- over-form principles, given the vagaries of the tax common law, Congress should simply eliminate the exemption for in-kind redemptions. Congress could alternatively limit the exemption to redemptions consisting of a pro rata portion of an ETF’s portfolio. Either alternative would limit tax-free portfolio adjustments and better align the taxable and economic gains of ETF shareholders

The Calculation of Prejudgment Interest

This Essay describes the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the claim plaintiff holds in litigation represents an involuntary loan from plaintiff to defendant and recognizing that in bankruptcy courts treat legal claims similarly to unsecured debt, we argue that prejudgment interest should be computed using the defendant\u27s unsecured borrowing rate. Furthermore, we argue that courts should use a short-term, floating interest rate rather than a long-term rate in order to provide the proper incentive for the parties to settle. We criticize alternative bases for awarding prejudgment interest and address modifications to account for taxes, insurance, foreign currency conversion, asynchronous payments, and suits involving individual plaintiffs

The Calculation of Prejudgment Interest

This Essay describes the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the claim plaintiff holds in litigation represents an involuntary loan from plaintiff to defendant and recognizing that in bankruptcy courts treat legal claims similarly to unsecured debt, we argue that prejudgment interest should be computed using the defendant\u27s unsecured borrowing rate. Furthermore, we argue that courts should use a short-term, floating interest rate rather than a long-term rate in order to provide the proper incentive for the parties to settle. We criticize alternative bases for awarding prejudgment interest and address modifications to account for taxes, insurance, foreign currency conversion, asynchronous payments, and suits involving individual plaintiffs

Prejudgment Interest in International Arbitration

Tribunals in international arbitration are regularly asked by claimants to award prejudgment interest. Unless foreclosed by an agreement between the parties, there is widespread agreement prejudgment interest should put the claimant in the same position as it would have been had it not been injured by the respondent. However, there is little consensus how to calculate prejudgment interest in order to accomplish that purpose. In this Essay, we describe the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the respondent has forced the claimant to make an involuntary loan to the respondent, we argue that prejudgment interest should be computed using the respondent\u27s borrowing rate. Furthermore, we argue that tribunals should use a series of short-term, floating interest rates rather than a single long-term rate at the commencement of the dispute in order to provide the parties with the proper incentive to settle their dispute. We also discuss how the calculations are different when the parties are individuals and closely held corporations as opposed to corporations and governments, and we address complications that arise when a tribunal calculates damages in one currency and makes a final award in another currency

Depressed basal hypothalamic neuronal activity in type-1 diabetic mice is correlated with proinflammatory secretion of HMBG1

We recently found indicators of hypothalamic inflammation and neurodegeneration linked to the loss of neuroprotective factors including insulin-like growth factor (IGF-1) and IGF binding protein-2 (IGFBP-3) in mice made diabetic using streptozotocin (STZ). In the current work, a genetic model of type-1 diabetes (Ins2(Akita) mouse) was used to evaluate changes in neuronal activity and concomitant changes in the proinflammatory mediator high-mobility group box-1 (HMBG1). We found basal hypothalamic neuronal activity as indicated by manganese-enhanced magnetic resonance imaging (MEMRI) was significantly decreased in 8 months old, but not 2 months old Ins2(Akita) diabetic mice compared to controls. In tissue from the same animals we evaluated the expression of HMBG1 using immunohistochemistry and confocal microscopy. We found decreased HMBG1 nuclear localization in the paraventricular nucleus of the hypothalamus (PVN) in 8 months old, but not 2 months old diabetic animals indicating nuclear release of the protein consistent with an inflammatory state. Adjacent thalamic regions showed little change in HMBG1 nuclear localization and neuronal activity as a result of diabetes. This work extends our previous findings demonstrating changes consistent with hypothalamic neuroinflammation in STZ treated animals, and shows active inflammatory processes are correlated with changes in basal hypothalamic neuronal activity in Ins2(Akita) mice

Kepler Data Release 25 Notes (Q0-Q17)

These Data Release Notes provide information specific to the current reprocessing and re-export of the Q0-Q17 data. The data products included in this data release include target pixel files, light curve files, FFIs,CBVs, ARP, Background, and Collateral files. This release marks the final processing of the Kepler Mission Data. See Tables 1 and 2 for a list of the reprocessed Kepler cadence data. See Table 3 for a list of the available FFIs. The Long Cadence Data, Short Cadence Data, and FFI data are documented in these data release notes. The ancillary files (i.e., cotrending basis vectors, artifact removal pixels, background, and collateral data) are described in the Archive Manual (Thompson et al., 2016)

Spitzer Reveals Evidence of Molecular Absorption in the Atmosphere of the Hot Neptune LTT 9979b

Non-rocky sub-jovian exoplanets in high irradiation environments are rare. LTT 9979b, also known as TESS Object of Interest (TOI) 193.01, is one of the few such planets discovered to date, and the first example of an ultra-hot Neptune. The planet's bulk density indicates that it has a substantial atmosphere, so to investigate its atmospheric composition and shed further light on its origin, we obtained {\it Spitzer} IRAC secondary eclipse observations of LTT 9979b at 3.6 and 4.5 $\mu$m. We combined the {\it Spitzer} observations with a measurement of the secondary eclipse in the {\it TESS} bandpass. The resulting secondary eclipse spectrum strongly prefers a model that includes CO absorption over a blackbody spectrum, incidentally making LTT 9979b the first {\it TESS} exoplanet (and the first ultra-hot Neptune) with evidence of a spectral feature in its atmosphere. We did not find evidence of a thermal inversion, at odds with expectations based on the atmospheres of similarly-irradiated hot Jupiters. We also report a nominal dayside brightness temperature of 2305 $\pm$ 141 K (based on the 3.6 $\mu$m secondary eclipse measurement), and we constrained the planet's orbital eccentricity to $e < 0.01$ at the 99.7 \% confidence level. Together with our analysis of LTT 9979b's thermal phase curves reported in a companion paper, our results set the stage for similar investigations of a larger sample of exoplanets discovered in the hot Neptune desert, investigations which are key to uncovering the origin of this population.Comment: 12 pages, 5 figures; accepted to ApJ Letter