03 July 2015

Fidessa Fragmentation Index

Steve Grob - Fidessa

108Posts 343,581Views 3Comments

No tax please, we're British, Italian, French...

27 February 2013  |  3112 views  |  0

The debate about Financial Transaction Taxes (FTTs) seems to roll on and on. Italy’s FTT is due to come into force this Friday and two democrats in the US want to introduce an American FTT. Even EU Tax Commissioner Algirdas Semeta says a global tax on financial transactions eventually should be a reality.

All of this got me thinking about what the real purpose of such a tax is and whether it can ever work in practice. Some regulators have argued that FTTs discourage predatory HFT activity, but the evidence from France (the first country to introduce such a tax) does not seem to confirm this view. The chart below shows volume in CAC 40 stocks and, at first glance, seems to show that volume fell away dramatically after the introduction of the tax on 1st August 2012.

So did this mean that the HFTers slunk away to lick their wounds? Well actually, no, as the second line in the chart shows that volumes across all other European indices fell away too. So what we were really seeing in France in August 2012 was just part of a macro phenomenon and nothing to do with the tax at all.

The second argument put forward by politicians is that such a tax is a way to extract recompense from the financial community as a whole. This doesn’t wash either as any sales tax (think VAT, for example) just gets passed down the line until it reaches the end consumer. So perhaps the real motive is simply a somewhat cynical attempt to introduce a tax that will ride on popular support for 'bank bashing'. The irony, of course, is that it will be you and me that actually pay this tax in our pensions, insurance premiums and other investments.

As to whether they will work, I have always maintained that in any market participants can move faster than regulators can pass legislation. The introduction of FTTs unilaterally around the globe should prove no exception to this game of regulatory whack-a-mole.

CAC 40 TagsTrade execution

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Steve

Time to sort RFQs?

22 June 2015  |  2056 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

The Tomorrow People

11 June 2015  |  1922 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Too big to fail or too big to succeed?

02 June 2015  |  6837 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Having your regulatory cake and eating it

14 May 2015  |  2982 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Backdoor Unbundling

09 April 2015  |  4904 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Steve's profile

job title Director of Group Strategy
location London
member since 2009
Summary profile See full profile »
I am responsible for strategic development at Fidessa. This includes the development of new geographic markets and strategic partnerships and driving new industry initiatives. As part of this I head u...

Steve's expertise

What Steve reads
Steve writes about

Who's commenting on Steve's posts

Andrew Miller