France warns on use of derivatives to evade new transaction tax http://www.risk.net/risk-magazine/n...e-of-derivatives-to-evade-new-transaction-tax
In case that link leads to a log in page, here is full article: Tax adviser to the French finance minister tells Risk the country's authorities will act on "tax evasion through synthetic instruments" if necessary, as cash equity volumes fall The French government has warned it could take action if derivatives are used to evade its new tax on cash equity transactions. Market participants report volumes in the cash market have shrunk 10-15% since the tax was introduced - therefore reducing receipts - while volumes in exempt derivatives instruments, such as contracts for difference (CFDs), have increased. "We will be very careful on the risk of bypassing and tax evasion through synthetic instruments and take appropriate measures where needed," says Laurent Martel, tax adviser to Pierre Moscovici, the French finance minister, in an email to Risk. The taxe sur les transactions financières applies to the equity instruments of companies headquartered in France with a market capitalisation greater than â¬1 billion - currently 109 stocks. Originally set at 0.1% of each transaction's value, it had doubled to 0.2% by the time the law was adopted by the French parliament on February 29. Transactions became taxable as of August 1 and the French Treasury began collecting proceeds in November. One client estimated there's been about a 20-25% increase in CFD volumes The tax has reportedly proved a boon for derivatives desks at some dealers. They are said to be seeing an increase in clients looking to trade equity swaps or CFDs, which allow leveraged, synthetic exposure to movements in the underlying French equities without having to pay the tax. "What appears to be happening is that the hedge fund and prop trading segment of the market is increasingly looking to CFDs as an alternative. One client estimated there's been about a 20-25% increase in CFD volumes," says Tony Freeman, executive director for industry relations at post-trade software vendor Omgeo in London. For many, the tax isn't causing waves precisely because it's so easy to shift trading to futures or - if there is not enough liquidity - to over-the-counter derivatives. "We haven't seen a huge behavioural shift in the markets, as market participants can just switch to derivatives, either through their brokers or directly on the listed markets," says Dominique Ceolin, chief executive of ABC Arbitrage, a Paris-based systematic hedge fund. Institutional investors in France are said to be more wary of circumventing the tax via derivatives, but there is anecdotal evidence that some firms are reducing their turnover in the affected names or substituting French stocks for other European securities with similar characteristics. "Many institutional investors have been frank on this. For them, whether they trade France Telecom or Deutsche Telekom it's almost the same in portfolio allocation terms. They now prefer to replace French names with other eurozone securities from the same sector," says Laurent Fournier, head of business analysis and statistics for European cash markets executions at NYSE Euronext in Paris. The French tax has been crafted to minimise the impact on volumes. Eligible transactions are subject to the tax wherever they're traded, which removes the incentive to simply shift trading to foreign exchanges. It also offers nine exemptions, including for primary market activity, securities lending and a broad market-making exemption. On intraday trades, the tax is levied on the net buying position at the end of day, reducing the impact on hedge funds with rapid-fire trading strategies. August is traditionally a quiet month for trading volumes, especially in France, so the effect of the tax has not been easy to discern amid the seasonal trading slump. However, NYSE Euronext estimates the introduction of the tax has had a significant impact in its first few months. "In terms of volumes, we saw an incremental drop compared to market trends of about 15% across the market. In September and October, the incremental impact compared to the trend is more like negative 10%," says Fournier. Across Europe, 11 member states have written to the European Commission (EC) stating they would like to participate in plans for a common financial transaction tax (FTT), namely Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain. In December, the Council of the European Union is expected to instruct the EC to advance plans for an FTT under âenhanced cooperation' - a legislative procedure allowing a coalition of member states to forge ahead with a shared law that does not have the support of all 27 member states. In September 2011, the EC released a proposal for an FTT that would include both listed and OTC derivatives - a prospect some dealers privately said at the time would kill the OTC market. In an interview with Risk earlier this year, Michael Spencer, chief executive of interdealer broker Icap, said his company would relocate to another financial centre if a new transaction tax was introduced in the UK. Those threats will carry rather less weight in other countries, and as France contemplates avoidance of its own tax, lessons learned in Paris may filter through into the design of the EC's proposals. "This has to be dealt with in accordance with other European member states, in the framework of enhanced cooperation," adds Martel, the adviser to the French finance minister.
Somebody educate me on this line "On intraday trades, the tax is levied on the net buying position at the end of day, reducing the impact on hedge funds with rapid-fire trading strategies." Does that mean that as long as you are even at the end of the day you owe no tax ?
Right. The French FTT is just a joke. Nobody really pays it, not MMs, not arbitragers, not day traders, just a few mom and pop long term investors, and even with this kind of scheme, volume is down 20%. Good job.
Yes I believe that is the case but I'm not 100% sure. I remember reading about this aspect of the French ftt law and thought it was strange. I can't image the EZ enhanced cooperation ftt proposal would also include this. If anything France would probably change their ftt proposal to match the upcoming EZ one. But I've been wrong before, lol. -Guru
Fair dues the French design is one that would make sense, exactly as it is. I do not agree with these taxes yet if I had to choose one to live with it would be that, sadly it is for political capital and would be adjusted inline with the EUs version should it come into existance.
Here are some more names being tossed around for Treasury Secretary. From Politico: WOLIN FOR TREASURY? - Some buzz yesterday that Treasury Deputy Secretary Neal S. Wolin, a tenacious and widely respected proponent of smart regulation and a key architect of the Dodd-Frank financial reform law, might be a potential candidate for SEC Chairman. But that's not going to happen. ... Wolin is much more likely to hit the final list of candidates for Treasury Secretary along with Undersecretary for International Affairs Lael Brainard. ... Other candidates outside Treasury include Jack Lew, Erskine Bowles, Blackstone's Tony James, Blackrock's Larry Fink and Facebook's Sheryl Sandberg, among others. In addition to his strong government career, Wolin also has high-level corporate experience having served as general counsel of The Hartford, a Fortune 100 financial company.
Too many pro comments for an investing site. Harkin: Tax high-speed traders to fill budget hole http://www.marketwatch.com/story/harkin-tax-high-speed-traders-to-fill-budget-hole-2012-11-29
From the above article: Q: Are you getting traction on Capitol Hill on this? A: I hope so. I think there has been a lot of misinformation about it in the past. The finance committee will take this up. This bill was introduced on November 2, 2011 and hasn't made it out of committee. It currently has (3) co sponsors. Also this bill will expire at the end of the year along with the 112th congress. It seems as though Mr. Harkin is just trying to generate some press for himself. Also govtrack.us gives this bill a 3% chance of being enacted and Defazio's companion bill (in the house) a 2% chance of enactment. http://www.govtrack.us/congress/bills/112/s1787 -Guru
A friend of the family who's pretty well connected in DC political circles says there are a group of Democrats pushing hard for the FTT right now. It's time, once again, to send emails to your congressional representative and your state's Senators. Let them know that you're against the FTT and why you're against it. It's just 3 emails. It only takes a few minutes. Important Note: Reference the "Harkin-Defazio" and "Ellison" legislation in your subject line so that congressional staff members know how to classify your email. Also, make sure your letter is polite and professional or it will be ignored. Below is a sample email. Feel free to copy or use in any way you think is appropriate. ========================== Subject: Pending Financial Transaction Tax Legislation (bills introduced by Ellison and Harkin-Defazio). Dear Senator Feinstein, I am OPPOSED to the pending Financial Transaction Tax legislation (also known as the âFTT,â âTobin Taxâ or âRobin Hood Taxâ). It's not a tax on Wall Street â Itâs a tax on Main Street. ⢠The Secretary General of the European Federation for Retirement Provision says the FTT is not a tax on Wall Street, but rather a tax on retirement savings and other âinnocent bystanders.â ⢠A study by the Dutch Central Bank showed that over 40% of the FTT would be paid by pensions and retirement savings ⢠James Tobinâs co-author, Berkeley Professor Barry Eichengreen, says the Tobin tax is the âwrong toolâ to raise revenues. ⢠A study by the World Bank concluded that â⦠neither the tax revenues nor the efficiency gains hoped for⦠are likely to materialize.â ⢠The IMF showed that the best way to hold banks responsible is to tax them directly because the FTT tax burden would âfall largely on final consumers,â not the financial sector. To learn why a diverse group of people from many different backgrounds opposes the FTT, please read âStraight talk about the FTTâ at: www.financialtransactiontaxes.com . (Includes over 40 references with research from experts around the world.) Respectfully, Tom Davis =========================== It's important that we respond RIGHT NOW while the tax increase conversations are taking place in Congress and the White house.