Yes, it would be nice for the exchanges (and, yes, I do realize that Merrill and Goldman pretty much own the NYSE because they can threaten to cross trades in house and SIG owns the PHILEX, etc.) to get the spreads and commissions back the way they were before ECNs and commission deregulation drove down cushy, easy profits for them. The thing is, 30 years ago, foreign exchanges weren't providing significant competition to them. Today they are. The price elasticity of demand has increased. So, for every unit increase in transactions costs, there's a decrease in volume as traders simply find something else to trade abroad. Certainly, going to Singapore will be no problem for a pro trader. Retail guys are always screwed no matter what. Because of this international competition, I don't think the big guys are going to be getting that edge (economic rent) back because if they do it by raising prices, they will lose volume to the competition. The only way they can win is by increasing volume by decreasing price. Already the big guys have cottoned on to this and they're providing locked markets on large trades for a commission instead of the bid/ask spread. No small market making firm can safely make that kind of market. If they add a tax to that, more of those huge trades cross on foreign exchanges and the big guys will lose commission. If the only guys who are exempt are the big guy and that drives the small guys out of business, then no tax revenue (or virtually no tax revenue) will be collected. The only transactions will be infrequent ones by long term investors and volatility as well as the cost of raising capital for firms will go up as a result - which is how I define "killing the capital markets". Collecting a couple of dollars in tax revenue doesn't seem worth killing the capital markets for. But then....we're talking about government and government is fully capable of so much bullshit that nothing it does amazes me anymore.
just to add.... You're wrong that institutions like mutual funds don't care about a tax. A tax is just a cost and they care about all costs - especially if they can easily avoid the cost by trading abroad from their desks in Boston, Chicago and New York. It's almost impossible to tax foreign trades because it's so costly to implement and you need the cooperation of all the individual foreign exchanges. And smarter retail guys as well as pro traders who trade as customers will also simply do more business on foreign exchanges. The tax may not kill capital markets in the sense that they won't exist anymore at all, but it will certainly hamper American capital markets and the American economy to the point that America will eventually become the uncompetitive wasteland that Europe was in the 1980's.
I laughed through this whole post. I must be part of the 10% of traders that are democrats. I wish I could word search this thread for total times the phrase: obama nation, liberals, class warfare, etc. came up. I will remind most of you that you voted for the boy wonder not once but TWO times. I think we have to get some fiscal sanity back in this country. Hard decisions and answers of what we need as a nation and a means to PAY for it. However, you all know a 1/4 tax will NEVER happen. This thread just turned into a conservative mouthpiece manifesto
I'll just claim ignorance, and say I didn't know I was supposed to pay any taxes. If Obama's Treasury Secretary nominee can get away with it, why not me????
yeah the republicans will go from deficit dodo birds to deficit hawks on Obama's watch. I will say repubs do the loyal opposition thing way better than democrats.
I would love for Obama to try and pass something like this. If he does, no question he will be a one term president.
Volume will dry up quickly. BID/ASK spreads will become wide and equity will trade like options contracts. Yeah this is a real smart idea. LOL