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Swap PEA

The PEA (plan d’épargne en action) is a french saving method invested in stocks, this method allows to investors to benefit tax saving if they invest in european or french stocks. Indeed, after 5 years investors have not to pay taxes on realized gains. The other possibility is to choose Flat tax model with a tax rate of 12,8%.

Swap PEA is like TRS, it allows to swap performance of a stocks basket for a interest rate. For a mutual fund using a swap give the opportunity to be invested into the european area while at the same time get rid of performances and risks of european stocks market.

Those strategies allow mutual funds to be invested into asiatic stocks for exemple or into bonds. Whereas funds could only invest into european stocks, now strategies could be really deversified and specific.

The life of a Swap PEA is rythmed by reset, this means that during Swap PEA life, the nominal or the composition of stocks baskets can be modified (sell, buy stocks or add new stocks). When a reset occurs, couterparties exchange flows to each other. For exemple Bank A want to make eligible to PEA it fund then it decide to swap performance with bank B with a Swap PEA. Bank A fix an initial nominal for a stocks basket :

Trade date Order price Quantity Fx MTM
Total.SA 03-janv 12,00 € 1000 1 12 000 €
Orange 03-janv 9,70 € 5987 1 58 074 €
LVMH 03-janv 540,00 € 234 1 126 360 €
L’Oreal 03-janv 130,46 € 750 1 97 845 €
Societe Generale 03-janv 29,00 € 214 1 6 206 €
Sum 03-janv       300 485 €

 

Thanks to this table we can see the inital nominal of the stocks basket (300 485€), when a reset will occur we will compare the MTM of the stocks basket to the initial amount,
if MTM > initial amount then Bank A will pay the difference to Bank B and if it is the opposite Bank B will pay. Don’t forget to add the fixed leg. In this exemple Bank A will have to pay 1,995€

Trade date Order prices Quantity Fx MTM
Total.SA 15-janv 12,80 € 1000 1 12 800 €
Orange 15-janv 8,00 € 5987 1 47 896 €
LVMH 15-janv 544,00 € 234 1 127 296 €
L’Oreal 15-janv 144,00 € 750 1 108 000 €
Societe Generale 15-janv 30,32 € 214 1 6 488 €
Sum 15-janv       302 480 €

 

This strategie is criticized by regulators because mutual funds are eligible to PEA but are fictively invested into european stocks.

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