Here we go again: US markets braced for the trading tax grab from the Democrats: https://www.ft.com/content/2d3f1c2a-74e6-11e6-bf48-b372cdb1043a A group of Democratic politicians have proposed a financial transaction tax on trades of stocks, bonds and derivatives.Hillary Clinton, the Democratic presidential nominee, is seeking a narrower tax on high-frequency trading (HFT), the technique of using computers to execute transactions in fractions of a second. Mrs Clinton’s plan would place a tax on orders — or messages that signal an intent to buy or sell — rather than transactions in stock markets. Specifically, her campaign says its tax “would hit HFT strategies involving excessive levels of order cancellations”. Rapid-fire entry and cancellation of orders have become a central allegation in recent legal cases against “spoofing” — conduct in which traders try to dupe other traders by generating a false sense of interest in buying or selling.
New Europe has obtained Monday’s state of play drafted proposal on core engines, that describes the territoriality, tax base and scope for derivatives, market making for shares markets, taxable event for securities, transaction chain and real economy pension funds, in comparison with theEuropean Commission’s Directive proposal of 14 February 2013. Territoriality On shares, the proposal suggests cumulation of residence and insurance principles. As a first step harmonised taxation, it shall only be applied on G10 shares. The measures will be extended to all shares after a transition period, unless participating member states decide otherwise. On derivatives, the Commission’s proposal shall apply. Tax base for derivatives The Commission’s proposal on tax base for option type derivatives, suggests that the tax base should preferably be based on the option premium. For products other than option-type derivatives and coming with a maturity, a kind of term-adjusted notional amount/,market value might be considered – where available – as the appropriate taxable base. For the same non-option-type derivatives products that are not coming with maturity, the notional amount/,market value -again where available – might be considered as the appropriate taxable base. In order to avoid distortions, in some cases, adjustments to the tax rates or to the definition of the tax base might be necessary. Scope of derivatives Repos/reverse repos and transactions of public debt managers and their counterparts, shall be exempt from the scope of the Directive. Apart from that all derivatives shall be taxed, 100% debt products as direct underlying, are as a first step products exempt from the scope of the Directive. After the transition period, the scope shall be extended to these derivatives, unless participating member states decide otherwise. Shares markets – Market Making A reduced minimum rate (80% of normal tax rate) can be applied for market makers bound by a contract with a specific trading venue to carry out market making activities with regard to specific shares, irrespective whether it is proprietary trading or market making. On taxable events for securities, taxation will be applied on gross transaction. Transaction chain The Commission proposes the taxation of all transactions in the chain, except agents and clearing members, when these members act as facilitators, according to the Commission’s proposal. https://www.neweurope.eu/article/financial-transaction-tax-is-back-on-the-table-state-of-play/
So the tax plus 80% of it on top to cover the market makers costs plus the significantly larger spread. For those outside of these 10 country's losing access to said products is no major loss, its the fact they they are going to craft the laws in a way that causes as much disruption to those not participating as possible.
I like the concept but I fear in practice it will be a problem, plus there's the precedent issue and I think nearly everyone agrees an actual transaction tax is a horrible idea. For example, I seen in the European proposal "market makers" are exempt or at least taxed at a lower rate. Which makes sense, it would be hard to make a market if you got taxed every time you changed your price. However nothing stops an HFT outfit from becoming a "market maker" and offering a couple shares at a big bid/ask, then engaging in HFT as usual with impunity while retail traders are the only ones impacted. While not generally anti-government, in this case I think it's arcane and technical enough that it's likely as not the lawmakers will get it wrong.
I like nothing about FTT. Only capital gains should be taxed and capital losses should be deducted immediately. That's the only fair taxation I can think of.
That's actually very concerning that market makers would get a reduced tax. Basically that means 5 or 6 big firms on every exchange get rates that allow day trading and everyone else in the world can't. I know market makers get reduced rates now. But they pay $0.35 a round turn instead of $2.00. But with a proposed 0.05% FTT the 'normal' traders on an exchange will be approaching $10 a round turn (that's pro rates not retail) and the market makers possibly get to avoid it. Talk about license to print money...for them!