“We want the FTT to wipe out HFT" (February 2013).

Axel Troost, a member of the Left party, said today that “We want the FTT to wipe out HFT”. Back in February 2011 Angela Merkel and leading cabinet members expressed outspoken disapproval to speed limits. Life ironies!!!

By Jonathan Morgan on February 27, 2013 (Bloomberg)

High-frequency trading will be regulated for the first time in Germany after a parliamentary committee approved a bill requiring firms that use the computer- driven strategies to register with banking authorities.

The proposed law means HFT companies would come under the Kreditwesengesetz, or KWG, banking legislation, forcing them to open a regulated office in Germany if they want to trade in the nation, according to a draft bill passed by the parliamentary finance committee today. The lower house of parliament is due to vote on the plans tomorrow.

Germany is the first developed market to legislate on HFT, which uses computers to buy and sell securities in fractions of a second and profit from price discrepancies. The practice attracted the attention of regulators after the so-called flash crash in May 2010, when the Dow Jones Industrial Average (INDU) briefly lost almost 1,000 points.

“We have passed important legislation on high-frequency trading, closing a gap in a previously unregulated area of the financial market,” Ralph Brinkhaus, a lawmaker in Chancellor Angela Merkel’s Christian Democratic Union and a member of the committee that drafted the legislation, wrote in an e-mail. “This brings us another step closer to fulfilling our goal from the coalition agreement to leave no financial product, no financial actor, and no financial market unregulated.”

Merkel faces pressure from the opposition Social Democratic Party to impose stricter rules on the finance industry in the run-up to federal elections slated for September.

Trading Costs

Obtaining authorization under the KWG may increase costs for start-up trading firms, according to Artur Fischer, chief executive officer of Boerse Berlin.

“HFTs are not banks with other people’s money, so why impose regulation which only costs money and serves no purpose?” Fischer wrote in e-mailed comments. “If you put only your own capital at risk you currently don’t need any kind of license. The proposed law wants to change that in such a way that, even if it’s only your own capital, as soon as you use computer algorithms you have to be regulated.”

Requiring HFT companies to obtain KWG authorization and have a physical presence in Germany may make global trading firms participating in German markets liable to pay the European Union’s proposed financial-transaction tax, or FTT, according to Axel Troost, a member of the Left party who sits on the financial committee.

‘Wipe Out’

“We want the FTT to wipe out HFT,” Troost said today in e-mailed comments. “The KWG registration is an important requirement to achieve this objective.”

The European Commission has tabled a plan for a transaction tax that would set a rate of 0.1 percent for stock and bond trades and 0.01 percent on derivatives deals. The EU is trying to curb what it sees as a patchwork of local levies with a tax that it believes could raise 30 billion euros ($40 billion) to 35 billion euros a year.

London or Luxembourg could be the beneficiaries of an FTT in Germany, as trading migrates to centers which are opposed to introducing the levy, according to Dirk Klee, country head of Germany, Austria and eastern Europe at BlackRock Asset Management Deutschland AG in Munich.

“Financial markets are global,” Klee said in an interview in Frankfurt today. “An FTT scenario that would only go ahead with a few countries would mean that assets would shift into countries which don’t have FTT. Germany could be disadvantaged.”

HFT accounts for 40 percent of trading volumes on Deutsche Boerse AG’s cash-market segment, Xetra, and 30 percent of transactions on Eurex, Europe’s largest derivatives exchange, according to the Frankfurt-based company.

Deutsche Boerse shares slipped 0.4 percent to 47.80 euros at the close of trading in Frankfurt today, trimming the 2013 advance to 3.4 percent.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net
To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

 

FTT

On 21 February, the first Council working group on the new FTT proposal published by the European Commission on 14 February 2013 took place. The proposal is being taken forward via ‘enhanced cooperation’ as the majority of Member States were fiercely opposed to the introduction of the tax. Given that unanimity voting is required for tax proposals, enhanced cooperation among those Member States in favour of its adoption was the only way to proceed. The countries taking part in the enhanced cooperation procedure are Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.

The new proposal retains the original rates proposed of 0.1% for shares and bonds and 0.01% for derivatives. The proposal will capture trades made in the two following ways:

§ By means of the ‘residence principle’ - The tax will be due if any party to the transaction is established in a participating Member State, regardless of where the transaction takes place. This is the case both if a financial institution engaged in the transaction is, itself, established in the FTT-zone, or if it is acting on behalf of a party established in that jurisdiction.

§ By means of the "issuance principle" - financial instruments issued in one of the 11 Member States will be taxed when traded, even if those trading them are not established within the FTT-zone.

Sources have indicated that the first meeting among Member State attachés was mostly taken up by the Commission explaining its new proposal. The UK and Luxembourg were reportedly aggressively opposing the tax which would have extraterritorial consequences and would capture Member States who have chosen to remain outside the cooperation. Luxembourg is also said to have threatened litigating against the proposal at the EU Court.

Even those countries which have signed up to the cooperation are far from being aligned on their positions which seriously jeopardises the Commission’s ambition for an 01 January 2014 entry into force date. Italy and France for example are both said to have serious misgivings regarding the text. Germany is also biding its time in the run up to its national elections this Autumn. These countries, together with the other participating States will have informal meetings among themselves to agree on what it is they want – they will however be joined by the non-participating countries in the formal working groups. Although those States not participating will not be able to vote on the text, they are granted the right to comment on proceedings and can therefore voice concerns. Dutch pension funds are said to be heavily lobbying the Dutch government claiming that the exemption for pension funds is not viable. Although the Netherlands is not taking part in the enhanced cooperation, it can still make comments and can put pressure on those that are.

 

sterotypical tax hiking libs