IMPACT OF European Financial Transaction Tax

[Halo]

Hello....

I'm informed that the EU published it's plans for a Commission wide Financial Transaction tax that would kick in next year (2014).

It looks very, very worrying if I'm reading things correctly.

I understand that the proposed rates are 0.1% for shares/bonds and 0.01% for 'derivatives products'.

Question for the enlightened amongst you ... and I'm hoping for feedback from any Arcade owners/clearers/Exchanges/Futures Brokers where this is your bread and butter!

Will this kill daytrading in the 11 member states - and instruments from those countries - that will implement? Signatories are Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia

As I understand it - if you trade a German product (Bunds/Dax futures being relevant to me).... then you'll incur the FTT. It's likely (but not confirmed) that the Exchange will levy the charge.

Question 1.
Will the tax be on nominal value of a Futures contract? If so, then 0.01% will kill off trading.
Question 2.
It looks like the UK has not signed up. Will this mean we all rush into the FTSE/Gilt/Sterling pit? to avoid the FTT? What else can we trade.
Question 3.
Will 'spread bet' looky likey schemes put a wrapper around our Exchange trades so we can just crack on?


Politically the EU (and Govt in general) wants to bash things like High Frequency Trading and Short Term Speculative trading in general .. some misplaced hangover from the Credit Crisis - you know, the one where 'voters' spent too much money they didn't have on Plasma TVs and self cert mortgages

Please tell me I'm wrong but this needs to be looked at! All

Taxation of the financial sector - European commission

 

[Trading Spaces]

Learn to trade US markets and have a lie in.

 

[Halo]

not such a bad shout. more civilised, less tax.

 

[Trader333]

All that any tax like this will do is kill trade and it requires a global agreement to implement which the US won't agree to. It is also very short sighted by the ivory tower theoretical bureaucrats who should be looking at ways of increasing trade and therefore reducing / removing tax as opposed to stifling it in my view.

 

[Halo]

I agree with all your points - but I'm not sure that it will require a global agreement. The political will in Europe seems to be quite strong ... and we all know that they are happy to defy logic and common sense in good old EuroLand.

From speaking to some people closer to this they are trying to limting the potential for regulatory arbitrage with comprehensive language in terms of coverage... ie, if you're a US resident trading VW with a HK broker they will tax you because you're trading a German instrument... if it's an on Exchange trade I can see it, will it just mean listing of EU financial instruments on APAC/US exchanges?? Someone clever will always try to find a way round this but ultimately it might just make our lives more complex for no good reason...

The EU stuff was released on 14th Feb but I'm hoping someone like Eurex will comment. The timeframes are so tight I can't believe it will happen smoothly but these people seem intent on making a political point.

If short term volume left Eurex then the FDAX and Bund b/o spread would be 100 ticks wide .. what does that do to mr Pension Fund trying to hedge his portfolio? Liquidity is king in my book!!!

 

[Halo]

In Italy there's a preliminary tax (will be replaced by the EU wide one) on Equities which has 3 bands - High Frequency T, OTC and Exchange (in descending order of %rate).

Be interested to know if this has hit liquidity??

 

[Trader333]

How will it work for transactions between USD and other currencies if the US are not playing ball ?

 

[Halo]

If it's an Exchange trade then I guess it's pretty easy, Eurex or XETRA - or a I guess NYSE LIFFE Euronext could levy the charge as so it would get a US counterparty that way.

I believe the tax language will contain language around 'issuance' and 'residence' to try and capture global traffic ...

where they're trying to be clever is taxing both sides of the trade... and get this... if one side doesn't pay, they'll pursue the other side to pay double!

Unbelievable but apparently this is what the plan is.

 

[Halo]

I hate to sound like a doom-monger.. but this is a lot of people's living! I'd love to know what everyone else is hearing.. and I'd love for this not to be the case!!!

 

[wackypete2]

Financial Transaction Tax FAIL:
Swedish financial transaction tax - Wikipedia, the free encyclopedia

"As a result, revenues from these taxes were disappointing. For example, revenues from the tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kronor per year. They did not amount to more than 80 million Swedish kronor in any year and the average was closer to 50 million.[3] In addition, as taxable trading volumes fell, so did revenues from capital gains taxes, entirely offsetting revenues from the equity transactions tax that had grown to 4,000 million Swedish kronor by 1988.[4]"

Gov't regulators, politicians, and economists are so short sighted it boggles the mind. They only focus on 1 thing: MONEY. Consequences to these ridiculous plans and taxes never seem to be considered. HOW can any economist advise gov't regulators that a transaction tax is good for the financial markets?? Absurd.

Peter

 

[DT]

Could Liffe re-launch Bund futures? Would surely be ideal for them if trading on eurex is hit by this 0.01% tax.

 

[tomorton]

I assume the EU's objectives is to meld Europe into a United States of Europe. Stuff like this makes more sense in that context. The Eurocrats don't see their job as requiring them to enable or enrich the individual citoyen, rather to enable the state: and the bigger the state, the better the job.

And it's hard to remember the USE is not a short-term political policy objective - the EU and its predecessors have already been running 50+ years and maybe Europe is maybe 60% ? of the way to political unification? But that's real (and realistic) progress when your project milestones are 1789, 1870, 1871, 1918, 1945, 1957, 1992 and 2002.

 

[Halo]

Unfortunately I think the EU will impose the tax on Bund futures (for example) based on the issuance of the underlying - in this case German bonds... and therefore pursue tax revenue.. That said, I cannot for the life of me see how they can organise the infrastructure before 2014!

But how about this...

If the EU don't like High Frequency Trading ... how about we bring back open outcry? Won't be a problem then.

I'll see you in the pit!

 

[DT]

Unfortunately I think the EU will impose the tax on Bund futures (for example) based on the issuance of the underlying - in this case German bonds... and therefore pursue tax revenue.. That said, I cannot for the life of me see how they can organise the infrastructure before 2014!

I don't see how they could enforce that? If liffe offered a bund contract in the UK who is going to collect the tax?

 

[Halo]

the b*ggers will probably pursue the Exchange to collect - they collect Exchange fees all the time and it would be difficult for a regulated Exchange to say 'No'...

It's all a massive pain in the ar5e.

Hopefully it will just rot and die in the EU 'bad ideas' bucket... the other 'positive' is that the timelines seem woefully inadequate.

I'll try and keep an eye out for any more press - surely there will be some... futures haven't been caught up in this rubbish before so I'd hope an Exchange or FOA type organisation comments.

Fall back plan:
FTSE, Gilt, mini S&P and FX .

Hoorah!

 

[Halo]

aha!!!
My good friend google...

True Nature of Europe?s Financial Transaction Tax Revealed February 21, 2013 - CME Group

 

[Predicabo]

Don't worry. FACTA et al. If we didn't have politicians inventing these apparent hurdles for us we'd have to do it ourselves. Nothing beats getting a premium rate for providing basic services. There is no cohesion even within the EU itself for this to go ahead in any meaningful way any time soon, let alone in concert with other trading hubs. Even if it did you'd look to switching your provision offshore and into non-policed regions. Think, Africa, China, Russia.

 

[DT]

the b*ggers will probably pursue the Exchange to collect - they collect Exchange fees all the time and it would be difficult for a regulated Exchange to say 'No'...

Unless there was a legal requirement to do so I really doubt it... which of the 11 nations implementing the tax would collect it for starters? I'm interested in whether there would be a legal requirement given that the UK isn't implementing the tax it would seem unlikely. Even then whats to stop CME from offering bund contracts or indeed any other exchange outside of the countries implementing this tax.

 

[wackypete2]

As usual, the prospect of money hinders politicians' ability to think straight or to put forward a well thought out plan.

Peter

 

[maxima]

6E contract value on CME is Eur 125K. Hence 0.01% is 12.5. Pay one tick for each trade...

Hmmm I would love to separate from the UK, create my own country and open my own exchange. I'd trade everything and then some... for guaranteed tick on every trade placed..

Oh yeah.. that already has been done.. its called spread betting... sh1t!