Financial Transaction Tax

[vienna 10]

This is probably OT...just came back from London, and saw news there that both Sarkozy and Merkel just agreed on a Financial Transaction Tax.They will meet in September to make a resolution on it. Christine Laguarde, the head of the IMF, is also a big proponent....seems the writing is on the wall...Given the fact that the US (Clinton and Obama) so far argumented against a "unilateral" FTT, but might change their tack now that it might not be unilateral:

 

What is your guys strategy to deal with it, should it occur? The numbers thrown around (.005 on the value of the contract) equal a $200 tax per lot per roundtrip ES, which would make at least the advanced method obsolete (not even the masters could slalom in and out with such a heavy toll on each turn)....

 

So- question to the experienced hands here- what would you do (markets, timeframes)?

 

Thanks, Vienna

[Corey 10]

This is probably OT...just came back from London, and saw news there that both Sarkozy and Merkel just agreed on a Financial Transaction Tax.They will meet in September to make a resolution on it. Christine Laguarde, the head of the IMF, is also a big proponent....seems the writing is on the wall...Given the fact that the US (Clinton and Obama) so far argumented against a "unilateral" FTT, but might change their tack now that it might not be unilateral:

 

What is your guys strategy to deal with it, should it occur? The numbers thrown around (.005 on the value of the contract) equal a $200 tax per lot per roundtrip ES, which would make at least the advanced method obsolete (not even the masters could slalom in and out with such a heavy toll on each turn)....

 

So- question to the experienced hands here- what would you do (markets, timeframes)?

 

Thanks, Vienna

I think that is to combat HFT only, they will exclude us retail traders since 95% does not make money so taxing or not nothing to be gained from it.

[Tradewinds 12]

Whatever they do, if they kill the ability or incentive for traders to make money, then it will hurt liquidity. From there it's just a down hill spiral. Taxing the trade is pathetically stupid. Tax end of year personal income, but don't increase fees on each trade.

[Tams 20]

This is probably OT...just came back from London, and saw news there that both Sarkozy and Merkel just agreed on a Financial Transaction Tax.They will meet in September to make a resolution on it. Christine Laguarde, the head of the IMF, is also a big proponent....seems the writing is on the wall...Given the fact that the US (Clinton and Obama) so far argumented against a "unilateral" FTT, but might change their tack now that it might not be unilateral:

 

What is your guys strategy to deal with it, should it occur? The numbers thrown around (.005 on the value of the contract) equal a $200 tax per lot per roundtrip ES, which would make at least the advanced method obsolete (not even the masters could slalom in and out with such a heavy toll on each turn)....

 

So- question to the experienced hands here- what would you do (markets, timeframes)?

 

Thanks, Vienna

 

Hong Kong has been levying FFT for the longest time,

it did not dent the market a bit.

 

The number you quote is for equities,

futures would cost a lot less.

 

if and when it happens, just deal with it and go on. This is just another expense, no difference from CME charging another buck for quotes, or your ISP charging another dollar for internet... just be happy that the market is providing you with an opportunity to pay.

[Corey 10]

.. This is just another expense, ...

You would make a fine politician

[friva 10]

hi vienna,

good question.

I think a FTT has more than 50-50 chances to come.

Even a R President in the US might want this.

Sarkozy and Merkel are both right wing after all (or so their label reads).

The UK said they won't go for it unless the tax is globally charged. That is not a NO.

Italy almost passed a 0,15% stamp duty tax on equity/ETF/index futures trading earlier this summer.

The Belgian Parliament already approved a FTT, if I remember well 3 years ago, that was meant to automatically become effective as soon a FTT was "globally" approved.

I am sure many other countries are ready to join: you can always count on politicians being even impatient to do stupid things.

 

So I think it's unwise not to get prepared.

 

If a FTT is passed I guess one can:

1) trade Contract For Differences or Spread Betting;

2) trade where replica contracts will be launched.

 

I know nothing about (1) and on TL I found close to nothing.

Can anybody recommend:

a) the best CFD broker in his/her view ?

b) any other valuable source of info on CFDs (eg: reliable historical data on the width of bid/ask spreads) ?

 

 

When it comes to (2) it's almost certain that some country will reject a FTT.

Some of them (Dubai?) will probably launch replica futures contracts.

Having said that tax payers might be asked to pay a FTT to their tax authorities irrespective of where the trades are effected.

If you are happy to report fine, but if you are not it is good if the broker you use manages accounts/servers outside of where you pay taxes.

Eg: IB holds european customers money in London. As far as I know it executes orders via its servers in Switzerland. This means that all non-British (and non-Swiss) customers can feel almost 100% safe that IB will not be asked to report their trades to the relevant tax authorities or whether they moved funds offshore.

 

Any other idea ?

 

Best

 

F

[vienna 10]

 

The number you quote is for equities,

futures would cost a lot less.

 

if and when it happens, just deal with it and go on. This is just another expense, no difference from CME charging another buck for quotes, or your ISP charging another dollar for internet... just be happy that the market is providing you with an opportunity to pay.

 

I think you are wrong:

0.1% of TRANSACTION VALUE means:

 

130k eur x 0.1% = 130 eur for buy and 130 for sell.

total 260 eur. or over 10 dax points, or 4 ES points.

 

If it were just a small fee, of course, you would be right...no course of concern at all.

[MightyMouse 12]

I think you are wrong:

0.1% of TRANSACTION VALUE means:

 

130k eur x 0.1% = 130 eur for buy and 130 for sell.

total 260 eur. or over 10 dax points, or 4 ES points.

 

If it were just a small fee, of course, you would be right...no course of concern at all.

 

If they did that, liquidity would vaporize. Spreads would be HUGE to reflect the cost.

[todds 10]

If I am reading the bill just introduced (HR3313) correctly, and it passes, it will effectively end day trading futures and other instruments. The bill calls for a .03% tax on the underlying specified base amount for the instrument.

 

This would mean $10,000 worth of stock would be taxed $3 in addition to current commissions and fees. What is now a $9.99 transaction will be $12.99.

 

For ES which is currently trading at around 1250, the base amount would be 1250 X $50 per contract = $62,500. The tax would be $62,500 X .03% or $18.75 per side and $37.5 round trip. Add that to the current $5 per round trip and you get $42.50 per round trip.

 

I am not sure how many day trading models can handle $42.50/contract in transaction costs.

 

Peter DeFazio (D) Oregon has openly said he wants to eliminate day trading, claiming it is a useless and destructive endeavor. This would do it.

 

I hope I am interpreting this wrong. Please someone tell me I am!

 

In all likelihood it will not pass with a Republican House but this is the third time a bill like this has been introduced. They will keep hammering away until they get it.

[silvermachine 10]

Peter DeFazio (D) Oregon has openly said he wants to eliminate day trading, claiming it is a useless and destructive endeavor. This would do it.

 

I hope I am interpreting this wrong. Please someone tell me I am!

You are not wrong at all.

You can thank DeFazio for talking so frankly.

Other politicians would say "we are looking for reasonable means to generate tax income".

But that's just the insanity about politicians and the people who vote them into power: how do you want to tax a business that you destroy?

About 80 years it was the "greedy jew" who was to blame for the world crisis.

And they didn't tax them to squeeze some money out. They just destroyed them. And the destroyers didn't even bother to make it sound good or reasonable.

 

Another evil scheme of european politicians is that they saw that a ftt in Sweden about 25 years ago killed all liquidity and sent money abroad. So to what conclusion has Merkel come? tax the traders according to their location, and not to the markets they're trading in.

 

I really hate them.

[gosu 10]

* * *

 

They will keep hammering away until they get it.

 

Who is "they"? Seems to me it's the same guy over and over again.

 

I don't know if you're reading the bill correctly or incorrectly, but think of all the lost jobs and lost revenue that such a measure would cost, not to mention the loss of dominance of US financial markets in the world. There is a reason the current administration, and not just the republicans, opposes a FTT.

 

Any sweeping FTT will not work unless ALL major economies agree to impose the same kind of tax. Very slim and none are the chances of that happening. No country is going to shoot itself in the foot by imposing a broad FTT unilaterally.

 

You have to understand that HFT is the villain du jour, just like daytrading was 10 years ago and short-selling was way before then. The last flash crash was blamed on it and the next flash crash will bring more negativity on HFT and I would not be surprised to see some kind of regulation or legislation to curb it. It remains to be seen whether or not daytrading as we know it will be collateral damage.

[todds 10]

Who is "they"? Seems to me it's the same guy over and over again.

 

You are correct that the people specifically introducing the legislation are the same, namely DeFazio and Harkin. But there is a growing chorus of influential individuals joining them calling for a worldwide FTT: Sarkozy of France, Merkel of Germany, and Bill Gates to name a few. Thankfully some do "get it" like Cameron of the UK and even perhaps Obama at this time (though I wonder how his feelings would change in a second term when there is no longer anything to lose). However, if the economy worsens and there is more civil unrest there will be a need for a "villain du jour" as you put it. In spite of how stupid and destructive such a tax would be, politicians are fully capable of such stupidity and destruction. It would behoove all of us, especially those participants on a trading website, to pay attention and spread the word lest the ball get rolling a bit too fast to stop.

[gosu 10]

You are correct that the people specifically introducing the legislation are the same, namely DeFazio and Harkin. But there is a growing chorus of influential individuals joining them calling for a worldwide FTT: Sarkozy of France, Merkel of Germany, and Bill Gates to name a few. Thankfully some do "get it" like Cameron of the UK and even perhaps Obama at this time (though I wonder how his feelings would change in a second term when there is no longer anything to lose). However, if the economy worsens and there is more civil unrest there will be a need for a "villain du jour" as you put it. In spite of how stupid and destructive such a tax would be, politicians are fully capable of such stupidity and destruction. It would behoove all of us, especially those participants on a trading website, to pay attention and spread the word lest the ball get rolling a bit too fast to stop.

 

A world-wide FTT will happen when nationalism and economic competition among nations cease to exist.

 

In any case I see the current trend as:

 

1. The economy worsens, more joblessness, poverty, despair.

 

2. There will be increased civil unrest, demonstrations, occupations, riots, clashes with authority.

 

3. There is already an obvious group of villains - the "1%", GS, HFT that will be targeted.

 

4. There will be regulatory and legislative overreaction, just like the last time with PDT.

 

 

Personally I am not alarmed at all by the chatter about a FTT as I see it as just one of many symptoms of the secular bear market in progress. Moreover, I believe there is nothing that people on a trading website, or even the entire population of traders, can do to alter that trend. I will ride it out and take advantage of the opportunities just like the last bear.

[horace 10]

But wouldn't Exchange mirror sites open up in other Countries followed by the attending Brokers.

 

Often if a door is slammed shut, it gives rise to a better one opening up.

[Tams 20]

interesting read:

Financial transaction tax - Wikipedia, the free encyclopedia

 

 

Swedish tax on equity securities, fixed income securities and financial derivatives (1984 - 1991)

 

In January, 1984, Sweden introduced a 0.5% tax on the purchase or sale of an equity security. Hence a round trip (purchase and sale) transaction resulted in a 1% tax. In July, 1986, the rate was doubled, and in January, 1989, a considerably lower tax of 0.002% on fixed-income securities was introduced for a security with a maturity of 90 days or less. On a bond with a maturity of five years or more, the tax was 0.003%. Analyst Marion G. Wrobel prepared a paper for Canadian Government in July, 2006, examining the international experience with financial transaction taxes, and paying particular attention to the Swedish experience.[30]

 

The revenues from taxes were disappointing; for example, revenues from the tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kroner per year. They did not amount to more than 80 million Swedish kroner in any year and the average was closer to 50 million.[31] 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 kroner by 1988.[32]

 

On the day that the tax was announced, share prices fell by 2.2%. But there was leakage of information prior to the announcement, which might explain the 5.35% price decline in the 30 days prior to the announcement. When the tax was doubled, prices again fell by another 1%. These declines were in line with the capitalized value of future tax payments resulting from expected trades. It was further felt that the taxes on fixed-income securities only served to increase the cost of government borrowing, providing another argument against the tax.

 

Even though the tax on fixed-income securities was much lower than that on equities, the impact on market trading was much more dramatic. During the first week of the tax, the volume of bond trading fell by 85%, even though the tax rate on five-year bonds was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared. On 15 April 1990, the tax on fixed-income securities was abolished. In January 1991 the rates on the remaining taxes were cut in half and by the end of the year they were abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s.[33]

[gterps 10]

hi, if this goes through in some form i believe someone will come up with a way to lessen the actual fee per transaction. my intial idea would be to somehow (within the exchange or your broker a transaction wouldn't involve the whole contract. an example would be for you and i to draw up a futures contract to buy/sell a house but because we are short term buyer and short term seller neither of us is going to hold and take delivery of the house. so maybe the seller only "sells" a bedroom not the whole house. transaction fee would be for something like 1/5 of what it would be for the whole house.

 

so with a s&p 500 contract neither of us would buy/sell the whole contract but only a portion of it. we really don't need to buy/sell 1250 points but only a few points, maybe 1 or 2, 5, 10, 20. of the 1250 points i buy 5 of the 1250 and you only sell 5, the broker "holds" "escrows" the other 1245 and they are never sold and never charged the transaction.

 

another idea is we don't buy or sell anything but it would be handled something like shorting a stock. my broker is your broker and we don't actually buy or sell a contract so we don't get charged the fee. the broker loans it to the seller, or leases it or _____it. maybe even at the exchange nothing is bought or sold. it could be some sort of unique option but trades like the futures. the only buy and sell would be if the buyer took delivery at the expiration of the contract, the fee could only be fully charged at that time.

 

last idea is daytraders don't even use the cme anymore but another type of exchange is set up and they are bets. just as etf's are hybreds a "hybred-casino" could be set up or maybe the las vegas casinos could jump in the futures business. they could set up their computers to be a millionthe of a second behind the exchange and we could trade there(actually it would be a bet).

 

binary options are somewhat in the gambling direction.

 

i'm sure there are a host of ideas out there.

 

somehow there will be a way to get around it.