A rather ignoble practice whereby the rich essayed to become richer at the expense of others and, at the same time, avoid paying taxes by juggling with stocks and shares or bonds - hence the name - and taking advantage of certain loopholes in the tax laws. These gaps have now been effectively closed and the term is of little more than historic interest. The bond-washer was the person who, not being a dealer in shares, sold them cum-div with a prearranged agreement to buy them back, almost immediately after they became 'exdiv'. The selling price would necessarily include the accrued dividend but the buying price would be lower as a result of the dividend having been paid. The resultant profit would be of a non-taxable capital nature. Since the introduction of capital gains tax, such a gain is now treated as if it were a normal profit on trading. In a sense 'bond-washing' was a rather sophisticated instance of normal bear operations.
|Reference: The Penguin Business Dictionary, 3rd edt.|