IMPACT OF European Financial Transaction Tax

[SlowlyButSurely]

A1) The tax applies to the nominal value of the product. For FX, if trading 250 lots EUR USD (€25m) you will end up paying €5,000 plus transaction costs of €279.

A2) The tax applies not to where the transaction takes place but where the company making the trade is based. Therefore if you are based in Germany, but trading Gilts you will still pay the tax, as will the UK buyer/seller.

The FTT will likely fail and if they do implement it, it will be watered down and have a small impact, likely only on those who adopt it. A terrible idea when you realise that in the first week that Sweden added a financial tax, they lost 98% of volume in futures and 85% volume in bonds.

Also top financiers have written to the G20 asking them to block Brussels proposals. Looks like there are some powerful lobbyists trying to block this law:

Financial transaction tax contravenes G20 agreements, warn global markets bodies - Telegraph

 

[tommog]

I dont think the politicians realise what a negative impact this will have on the world of trading.

Assuming this did go ahead. And the bund was impacted for example. This would result in all short term players, whether that be HFQ Algos, Locals, Market Makers etc not trading. I am not one of these people that claims trading is a noble profession and we provide a valuable service. Nobody would care if I or any of us stopped trading. But when every short term trader stops trading the markets become very very different. As markets are now, banks, hedge funds, mortgage companies etc etc can all hedge their interest rate risk efficiently and cheaply. If you take short term players out of the market they are suddenly paying 3 or 4 times the bid ask spread, pushing markets as they get in or out. The volatility of the market increases. Less transparency. More risk of individuals dominating a market. Mortgage rates will go up to accommodate extra risk as will interest rates.

I know i am preaching to the converted but i am not trying to explain this is a bad idea. I am saying it would severely damage the institutions the politicians are trying to protect. I cannot see this happening.

And on another note, there is too much incentive for a country to not sign up for this because everyone will just trade on that exchange and put Eurex out of business. The ECB needs Eurex as much as a Eurex trader needs it.

 

[Purple Brain]

When Sweden implemented this tax in the early 80s it had a negative impact on tax revenue. They removed the tax in the early 90s. I think Brazil did something similar in both applying and then rescinding the tax because of the negative impact not only to government tax revenues, but also to off-shoring of trading and assets.

Although still often referred to as the Tobin tax (which it is not) James Tobin himself recanted on his theory which he introduced 40 years ago. He realised that the nature of global economics had moved on and any tax of this nature would be counter-productive. That the EC is considering this at this time when the EZ is in such dire economic straights and growth needs stimulation not capping further underlines their competence to be making such decisions.

 

[A Dashing Blade]

The Repo desk of the IB I'm currently working for have just worked out how much they would pay under the proposed tax . . . £1.2bn for Q1 this year.

Yup.

So . . . short-term funding for medium/large businesses is going to dissapear overnight, bottom-line, it's not going to happen in it's current incarnation.

Personally I'm going to spend this weekend looking at which spread-bet componaies are publically quoted just as a hedge . . .