3. In the eFInancial News article, Podimatastates, “We have to do whatever it takes to tackle wrong, harmful behaviors and attitudes in financial services.” Many in the industry already endeavor to do this. A financial transaction tax is not the method to achieve this goal. Regulation must focus on the abusers, not discourage healthy activity. Fine the guilty participants, and the capital markets industry, the economy and society at large could benefit from the revenues generated.
4. The European Commission expects to raise between EU30 billion and EU35 billion from the financial transaction tax annually, on the basis that “the costs for public finances plus costs of economic losses triggered by the subsequent recession are estimated to be in the order of magnitude of at least about 15% to 20% of the GDP of the EU. … The annual revenues raised should be in the order of magnitude of at least 0.3% to 0.5% of the GDP of the EU (FTT jurisdiction).” Asthe tax will drive down trading volume, and thus any tax revenue, however, it is hard to envisage how this will be achieved.
One example: French equity turnover has declined by 2% year on year, and by January 2013, as the effects of the French FTT took hold, this had fallen to its lowest level since 2008. According to the EU Commission report, the tax introduced by France in August 2012 is expected to generate about EUR 1.1 billion, or 0.06% of GDP annually. We will need to wait to hear from the French Treasury as to whether this is in fact the case.
5. The level of complexity that exists with European regulation before the introduction of an FTT already is in direct contrast to the proposed MiFID II efforts to harmonize financial markets. It’s going to be very hard for the regulator, ESMA, to control the market effectively at precisely the same juncture we are supposedly endeavoring to make financial markets safer.
6. The continuing grim macroeconomic dialogue illustrates that social crisis still remains the main threat to Eurozone stability. We have an urgent need to resolve the Eurozone crisis for the benefit of the growing unemployed youth population. Adding a tax to a sector that already is likely to put 130,000 people out of workin the UK alone does not help this situation – it only makes matters worse.
Every time Europe would appear to be clambering out of the hole, up pops a politician to demand more regulatory red tape. Draconian capital requirements continue to squeeze lending; Basel III will ensure brokers are hamstrung and unable to facilitate client trades sufficiently; and the push to on-exchange trading will alter a valuable hedging device into a more vanilla product and drain essential euros in central clearing requirements in the process.
Whichever way you turn, the cumulative effects of FTT regulation are likely to be disastrous for the Eurozone. Politicians appear to be focused on curtailing financial services activity at the very time that it could be put to positive, constructive use. Politicians wish to “discourage transactions that do not enhance the efficiency and stability of financial markets,” in the EC’s words – and this is the rub. Until the basics of trading are understood, trading per se will be perceived as unnecessary intermediary transactions between the original investor and the underlying company – rather than providing a valuable service to the asset management industry.
[Related: “FTT Migraines in Milan Could Cripple European Equities”]
For the record, I am not opposed to taxation or even regulation – I am, however, opposed to pointless taxation that is used as a political tool. A Europe-wide FTT will not deliver what it claims. We would be better advised to focus on growth policies and regulating those who abuse the market. If the European economy is over-reliant on financial services and we need to diversify, then this should be addressed through constructive initiatives. You don’t put out a fire in your home by destroying the building.
Comments | Post a Comment
23 Comments to "6 Reasons Why Some Politicians Just Don’t Get the FTT":
walterssmith
06 March 2013
I think the politicians get it completely-no matter what they might claim in a speech. FTTs are intended to be punitive. Regardless of collateral damage, if they harm financial markets that's a feature not a bug.
Comments (3)
kennymcb
06 March 2013
Well ever since the foundational element of the financial services infrastructure, the exchange, went to "for profit" we have created our own monster through fragmentation. If there is a profit to be made we know the government agencies will want to TAX it.
Comments (49)
binx
06 March 2013
I agree completely with Walter. The politicians aren't stupid and there have been plenty of people making these arguments; I realize I'm entrenched in a way they aren't, but I don't think they've got their collective head buried entirely in the sand, either. The problem is that Joe Plumber doesn't understand the ramifications, which allows the politicians to obfuscate the issue. But why doesn't Joe Plumber understand? Is he not interested enough? The information seems to be out there for him to find.
crammond1964
06 March 2013
Also could kill EUREX as nasdaq omx offering same contracts without the tax will soon see open interest move from eurex ...
Comments (252)
Gary Johnston
06 March 2013
Walter & binx... the point is the damage is on Joe Plumber or more specifically xxx xxxx! The fate of the financial services industry is directly linked with Iosif Plumber's. To quote another and probably significantly greater and less self serving Greek mind "All things are one" (Heraclitus).
binx
06 March 2013
Understood, Gary, however Rebecca's thesis was that politicians don't get it. My point was that they get it just fine - it simply doesn't suit their agenda to acknowledge the reality of the situation. Combine that with your accurate assessment, and we've got a much bigger problem than politicans not getting it.
Anonymous
06 March 2013
"French equity turnover has declined by 2% year on year, and by January 2013, as the effects of the French FTT took hold, this had fallen to its lowest level since 2008"
"Adding a tax to a sector that already is likely to put 130,000 people out of workin the UK alone '
The UK has the stamp tax, I don't see any one publicly lobbying against it..Btw France had that until 2008. Following the reasoning above, equity trading volumes have decreased and unemployment exploded ever since the French stamp tax has been revoked.
UpHillStill
06 March 2013
Gary, sounds a little like the scene in Blazing Saddles (dont shoot or the n**r get's it!). As much as I agree with your statement that we're all in it together, keep in mind that mankind has cut off its nose to spite his face many times in the past. The Romans never considered that mankind would rather destroy all of its advancements than see them stay in power. The five-star movement in Italy and the early tea-partiers in the US seem like early incursions of the Vandals..
I don't think any politician really believes that an FTT will net a dime, but the natives are restless.
Anonymous
06 March 2013
"why doesn't Joe Plumber understand?"
He must be not quite smart enough to penetrate all the whats and hows. I propose any decision involving a level of complexity above a certain level to be excluded from the democratic process and left to the analyst consensus. (complexity threshold to be determined by empirical tests confronting fi/eco analyst opinions vs general public polls)
Anonymous
06 March 2013
http://spectrum.ieee.org/energywise/energy/nuclear/do-experts-assess-risk-better-than-the-general-public
" the chasm between expert estimates and actual experience is so great, there is little doubt the general public's gut instincts have been closer to the mark than the scientists " Maybe this holds in economics too.
Gary Johnston
06 March 2013
Anonymous,your comment beggars belief. Evidently you haven't heard of CFDs which are attributable for 50% of the UK executable equity market. Stamp? Who cares, just trade the derivative... ... ... which rather interestingly yet unsurprisingly is what the market anecdotally appears to be doing with Italy since Friday's FTT roll out. Cash market vols down 20%, derivatives up 20%....
UpHillStill. Agreed. The phrase rearranging the deckchairs comes to mind.
crammond1964
06 March 2013
the market taken no blame for May 6th 2010 ; The actions of this day are the result of FFT , perhaps if
regulators and exchanges governed and monitored the HFT and algo market correctly this would never of happened ! And because it did we have to suffer the consequences . Finally we may accept that the current abuse and regulation is not up to standard ! ....
Comments (252)
walterssmith
06 March 2013
Yes, the expert analysts did so well in predicting the housing and Eurodebt bust and subsequent recession. I think Joe Plumber gets that pretty well.
Comments (3)
binx
06 March 2013
I don't think that's entirely fair to Joe Plumber, Anon. He's not necessarily inherently stupid, and none of these points are particularly complicated. I think he listens to the rhetoric, reacts emotionally to the unfairmess argument, and often doesn't even really try to understand (which, OK, isn't so smart).
UpHill ... great comment.
Gary Johnston
06 March 2013
The tragedy is that Joe Plumber's anger is pointed towards to market, not the politicians who so willfully manipulate him.
kennymcb
06 March 2013
Meanwhile back at financial services companies lobbying politicians and manipulating them.....
Comments (49)
kennymcb
06 March 2013
http://www.forbes.com/sites/stevedenning/2012/07/25/rethinking-capitalism-sandy-weill-says-bring-back-glass-steagall/
Comments (49)
walterssmith
06 March 2013
Crammond1964, you are certainly correct. One point is that 5-6-10 probably wouldn't have been such an issue had not the (vastly more damaging) housing and credit crash come just before it. HFT has become a convenient scapegoat and has been mixed into the bad Wall Street meme of the day. The biggest complainers are really just other HFT traders that don't like specific market rule. It's just that it's become more public than the specialist system it replaced. That system might not have looked so squeaky clean had it come under the microscope; nonetheless over the years it by and large did a very good job of keeping the market liquid and orderly.
Comments (3)
Anonymous
06 March 2013
Re: Gary Johnston : equity trading volumes have slumped on Wall Street too up to the end of 2012. French IRS must have a long hand, as it seems.
http://www.bloomberg.com/news/2012-10-02/wall-street-equities-traders-face-worst-year-since-2006.html
As to CFDs, seeing all kind of OTC migrate to listed derivatives and CFDs banned in more and more countries, I wonder whether using them as reference is of any help .
jtoes26
06 March 2013
One additional point worth mentioning is the opportunity costs investors will incur when large funds with access to investment vehicles not subject to a FTT, like SWAPS, move their trading to venues which retail investors do not have access to. This lose of liquidity will be an opportunity cost to investors who today interact with activity done by large funds in a non derivative means. Also, the political component to this tax is substantial, and so long as public perception remains negative on financial firms and the demonizing of all HFT continues, politicians will see our industry, and this activity, as a the path of least resistance for instituting new taxes. FTTs are a tax on investors, that are paid either by passing the fee on to the investor or in a lower performance on their investments. If you wish to express your opinions on FTTs to your local Congressman or Senator, please feel free to use the STA Traders Advocate which after entering your zip code will provide you the means to write a letter to your local representative. We have even supplied a template letter, drafted specifically in response the French FTT, for your use. Thank you. Jim Toes, President & CEO of the STA. f2
Comments (6)
anonymole
06 March 2013
It must be my imagination but don't all the detractors deriding a financial transaction tax sound like the cigarette companies in the 70's?
"No, no, cigarettes don't cause cancer. Adding a substantial tobacco tax to cigarettes will only hurt the farmers who's poor livelihoods depend on these crops to live. We (huge cigarette conglomerate) barely get by. Cigarettes are good for America."
"No, no, an FTT is the worse thing you can do to the markets right now. You're gonna punish all the wrong people with an extra tax. It's not the hegefunds who are going to get hurt the most, it's the tiny retail trader. How can you think of hurting the mom and pop investor with such a tax?"
Every anti-FTT voice is a shill for the hedgefunds, institutional banks, brokers, ECNs, and for profit exchanges.
Comments (83)
rhealey2
07 March 2013
Thank you for all your comments. To respond:
Binx/Walter –Some politicians do indeed get it, and some don’t. The danger with not acknowledging the reality of the situation is that they will fail to raise the necessary billions of euros to fix issues that do need resolving. As Gary rightly says “the fate of the financial services industry is directly linked with Iosif Plumber's pension pot”. As to your comment regarding JP suffering at the hands of the “expert analysts” not predicting the housing and Eurodebt bust and subsequent recession; the problem is that some politicians are selling this as financial services pays. If pension funds are included – JP pays explicitly; if the politicians strip out all liquidity - JP pays implicitly as jtoes26 illustrates.
Finally anonymole– love the analogy but I don’t see that cigarette companies were any benefit to the society at large and I would like to think that the pension fund manager does some good! As with crammond1964, market participants should be getting their house in order and there are elements of our industry that do need cleaning up (the other piece this week CSA’s is exactly to this point - http://tabbforum.com/opinions/is-your-ceo-worth-$20-000-an-hour). Further regulation is required but this should be focused on abuse of the system – not tearing down the system itself. If that does need radical overhaul, and there are market participants who would agree that this is the case, then this should be a collaborative process with a far greater level of rigorous analysis before implementation.
Comments (89)
rhealey2
14 March 2013
As predicted - italian equity volumes hit by tax - http://www.ft.com/cms/s/0/e593af72-8bf9-11e2-8fcf-00144feabdc0.html#axzz2NPnmQHG8
Comments (89)