Thus the 1256 Contract designation enhances the marketability based on the after-tax attractiveness of these products. The reason for the implementation of section 1256 was the fact that traders were hedging their short term futures contracts (going long and short at the same time) to transition to the next tax year without paying the short-term capital gains tax on these positions, and were effectively making these positions qualify for long-term tax treatment.
The implementation of section 1256 was driven by the practice of traders using hedging techniques to defer paying short-term capital gains taxes on their positions, thereby qualifying them for long-term tax treatment. The 1256 Contract designation enhances marketability by making products more attractive after taxes.