Financial Transaction Tax coined by Merkozy
When markets spiral downwards, it’s only a matter of time before the usual suspects are identified. The short sellers, the speculators and evil traders in general are found guilty of driving down the market to fill their pockets. While this may be a common view among certain folks, one would expect politicians to have had some education or at least receive some sound financial advice.
After banning short selling in some European countries, masterminds Sarkozy and Merkel take one more step in their struggle against free markets. They seriously proposed a Financial Transaction Tax, also known as the Tobin Tax or the Robin Hood Tax. The idea is plain simple. Massive amounts of money are flowing across the globe 24 hours a day, so let’s confiscate a tiny bit nobody will miss and all government deficits will be solved. Everybody happy. Even better still, the volatility in the markets stem from trading so let’s cut down this evil practice. Life is easier with fixed prices.
It’s hard to battle such a belief. Economists will have a hard time taking this kind of fairy tales seriously. With this tax the financial infrastructure will be devastated. Market makers will be wiped off the map and tens of thousands will lose their job. The financial lobby will probably be in the trenches at this very moment.
The Financial Transaction Tax will never arrive, but the sheer thought of serious people proposing a financial mass destruction is weird. Luckily our own minister of finance will save us (and the market).
OK, greedy bastards. It won’t happen.
On the other hand, this might be not too bad a weapon against HFT. Which I think a far greater danger than a trading tax.
Happy trading!
There is a similar issue with HFT, only clueless people who don’t understand how markets work are bashing it. It’s actually quite funny but at the same time quite sad to read the arguments of the anti-HFT lobby. It’s mostly old-school traders who either cannot compete anymore or older asset-managers who don’t realize how much they got raped in the days before HFT.
Haha, you really think it makes economic sense for some of the smartest people out there to compete in a game of creating faster and faster algorithms to calculate prices?
That’s almost as stupid as arguing that ‘defence industry is good for the economy’! You are adding almost no real value at all!
Society as a whole would be better off if 90% of resources currently used in the HFT industry would be devoted to science… I am not saying that liquidity isn’t a good thing, but one can overestimate the importance of it as well…
And I’m not even speaking of the giant game-theoretic effects that can develop with HFT algo trading… Don’t forget… markets are NOT efficient (i.e. do not automatically distribute resources is a way that maximizes society value – if you still didn’t get it).
P.S. I make a living in HFT myself so please don’t throw me the experience argument
nicely put, yah HFT brings down bid-offer, anything else ? All these volumes in market and money being made by HFT is not helping in real productivity/gdp, its really frictional cost in capital allocation, little bit more tax on this non-productive volumes/trading/hft/casino is perfectly okay, they should try taxing FX, thats the biggest slot machine,
of course its not going to actually happen because of cross-border issues, so take it easy, its part of negotiation between germany and france as to how to save euro, so they negotiate, give and take, but rest assured, the tax wouldnt happen at the end of day, though it doesnt make all these volumes in the market any more productive to real gdp, all this is still frictional costs,
If markets become less efficient, then banks will internalize more.
Leading to… more easy profits for the banks.
that be good, bank stocks are going to take the economy in another double dip, fuck this ..
btw, you are welcome to open a bank, broker, lending, exchange, asset mgmt et al, the volumes in the market and all the friction cost in finance, which is nothing but a spread lost in capital allocation, comes at a cost to the real GDP,
“If markets become less efficient, then banks will internalize more.
Leading to… more easy profits for the banks.”
Smartest post here in ages..
Also re HFT and productivity .. the productivity is second order .. in the resources HFT firms consume, being Telco & hardware infrastructure. Effectively moron customers who pay spreads are actually paying for the technology spending. That’s the real economy connection. This used to just pay for dudes making phone calls to eachother.
Which is more productive for a modern economy? HFT or not?
”when it comes to economic growth, the labor force size and productivity is what brings the growth, so kindly dont say productivity is second order to bid-offer spread .. HFT is fine, just pay little bit tax on share transaction .. in UK, if a retail guy buys a share, there is a 0.5% stamp duty tax attached to it which HFT is exempt of, talk about unfair advantage .. similarly when there is capital gains, the tax in US is 20% vs normal tax of 40%, all the PE and Hedgie use carried interest for taxes at 20%, if the system was rationalized for all players in the market, retail including, you can do all your HFT you want, better still you can make equities a 24 hour casino like FX ..
You’re on to something here, Jack, but will the ministers listen to you?
Hey guys, gotta disagree here; the whole point of a Tobin tax is to create stability as well as extra income. That’s what it was suggested for in the early ’70s, albeit for fx.
It won’t be the end of the world for trading, it will just be factored in to the spreads so indirectly everyone pays.
However it obviously will affect profitability and therefore likely result in some existing market makers being pushed out of the market and signficant forced redundancies; but be honest, do we really need this many people in the industry anyway???
If you look at the increase in staff numbers somehow involved in electronic market making and compare this to the increase of actual trading volumes; the increase in employees by far outstrips the increase in volume over the last decade, and that doesn’t even factor in that the market makers are responsible for a big chunk of that increase in volume!
My friends the truth is that you’ve had it too good for too long, time to stop crying; step up and take some responsibility to help solve this crisis like the rest of us who are suffering.
‘yah, the tax regime has to be uniform, if the retail guy has to pay 0.5% stamp duty tax, the market making company shouldnt be exempt from it .. though i agree with the fact that taxes are always not a good idea .. taxes themselves is frictional cost since govt doesnt spend the tax money most efficiently and there are so many wastages .. taxes have to be lower .. So who pays when collapsing banks are bring down down the real economy not to mention the hedge funds that short the company and then spread rumours to bring it down .. leading to not just that company collapsing but bringing other stock market and economy down ?
“those with ability to those with need”
Oh well, time to go do that PhD boys.
dont start with this socialism/marxism/stalin shit, taxes are bad in capitalist society, period,
A quote from Atlas Shrugged actually.
0,5% seems nothing, but do the math!
It’s a Financial TRANSACTION tax not a profit tax!
Trading a dax-future only wil cost about 70 euro’s at the moment!
And I’m not even talking about options.
Trading in especially deep ITM options will be extremely expensive
I believe in Sweden there was also a FTT introduced in the eighties, trading completely vanished after the introduction. Markets became everything but fair.
FTT would kill not some of us but all of us. And what about existing positions when the FTT is introduced?
you are saying 0.5% is nothing ?! most of the bid offers are barely 10-20 bp and you are saying 50 bp is nothing ?! how is the dax future going to be traded, like 10bp tax on underlying 70,000 euro exposure ? thats not a lot compared to 50bp stamp duty tax retail has to pay to buy LSE stocks ..
‘A quote from Atlas Shrugged actually’
you can attribute it to ayn rand or whatever, the fact of matter is I earn money and I should be free to decide how to allocate it .. govt and taxes should be limited to internal/external defence and limited amount of public goods .. not the big ass govt and bureaucracy and social welfare ..
dude, her point was that there should be no government at all & no taxes. you got is backwards.
the proposed tax is evil. it punishes those with ability, for the benefit of slothful morons. the best and brightest are currently in HFT. there’s absolutely no doubt about that.
Spreads would widen, volumes would drop, liquidity vanishes, more obscure games will be played by big banks. Eventually the people pay for the tax and more. And this will all flow in the pockets of a small group at the bank, while markets are less transparent. That is probably not what they want….
“the best and brightest are in HFT – there is no doubt about that”
You guys are all way too long yourselves….
“the best and brightest are in HFT – there is no doubt about that”
You guys are all way too long yourselves…
best and brightest techies. only.
‘dude, her point was that there should be no government at all & no taxes. you got is backwards.
the proposed tax is evil. it punishes those with ability, for the benefit of slothful morons. the best and brightest are currently in HFT. there’s absolutely no doubt about that.’
i havent read ayn rand, i am more from milton friedman camp, taxes are non-productive part of economy and they should be limited to pay for internal/external defence and few public goods .. the stamp duty tax should also be abolished ..
Look guys, speculation is simply bad for society. Instead of a tax only people with a real reason to buy or sell for example wheat or natural gas should be allowed to trade these contracts. Spot market for real demand and supply, not artificial one.
“There is a similar issue with HFT, only clueless people who don’t understand how markets work are bashing it. It’s actually quite funny but at the same time quite sad to read the arguments of the anti-HFT lobby. It’s mostly old-school traders who either cannot compete anymore or older asset-managers who don’t realize how much they got raped in the days before HFT.”
Never read any more bullshit.
HFT tightens the spread, granted. But HFT from speculation also increases demand and supply beyond the natural, real demand and supply and thus harms the economy in whole.
‘Look guys, speculation is simply bad for society. Instead of a tax only people with a real reason to buy or sell for example wheat or natural gas should be allowed to trade these contracts. Spot market for real demand and supply, not artificial one.’
with all due respect, you dont know what you are talking about .. you are so far off the mark, that it be best to just ignore your comment ..
‘But HFT from speculation also increases demand and supply beyond the natural, real demand and supply and thus harms the economy in whole.’
can you repharse the above .. you are not making much sense .. also how do you define real demand .. any of retail/fund/bank/hft wanting to buy shares is a real demand .. how do you define speculation .. if you want to ban speculation, you would have to close down the entire equity market .. also how does speculation harm the economy .. if it generates profit, it should be pursued, otherwise we might as well close the capitalist economy and go back to socialism ..
Can you take this tax talk to another blog please. No interest reading that rubbish here.
@11:44pm. never read any more bullshit, your argument does not make any sense. Please explain further what you are trying to say.
‘Can you take this tax talk to another blog please. No interest reading that rubbish here.’
all right, time for you to fuck off then,
Taxation is theft. Time to rise up and cast off the shackles of our parasitical classes:
http://www.youtube.com/watch?v=DAiV6jk9Pl4&feature=related
txn tax just moves “this” to a longer time fame