spread betting financial transaction tax proposal

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After a quite mixed up results since the start of the season, Montreal now have a serious opportunity for domination on home soil and put an end to their most frequent result - draw. San Paolo, Naples, Italy. Key Stat: Columbus Crew have set a solid 3 wins in a row in late March, but they're struggling to find a consistency. Their goal stats indicate a better preview than their opponents - 1. Out of 9 played fixtures, Montreal won only twice. Expert Verdict: An unusual prediction that favors the underdogs in this game - the hosts, that is.

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Spread betting financial transaction tax proposal

The UK also imposes a 0. In any case I still have to question how and on what basis long term investors will benefit from a Tobin tax.. Such a tax would only serve to reduce market efficiency and increase costs which is unlikely to translate into benefits. High Frequency Trading cannot be blamed for the May flash crash. High Frequency Trading temporarily removed liquidity in response to this, but other market maker participants did so as well. All participants follow the same exchange rules and will widen prices to adjust trading volumes if they are faced with abnormal market conditions in an effort to mitigate risk.

On a number of key markets NYSE Liffe, for instance no party is obliged to respond to easy and every quote request, as for both conventional market makers and High Frequency Trading firms controlling their stock market trading is an important component of prudent risk management in an imperfect world. London has thrived the financial sector despite stamp duty as the growth has been in foreign exchange, credit, debt, structured finance and other industry areas that do not by themselves attract stamp duty.

Financial institutions have to-date been able to trade efficiently with each others which has greatly contributed towards facilitating the low cost of lending to business entities and households over the last years. This is in effect a social utility.

Manipulation of the stock markets is in effect illegal in many jurisdictions so is punishable by law. A financial transaction tax like the Tobin tax which is being proposed would cost the United Kingdom in terms of tax revenue and jobs while damaging private and institutional investors by raising costs, only to ultimately raise a lot less monies than expected. In any case although volumes are likely to go down and spreads increase, a financial transaction tax is unlikely to make high frequency trading disappear, far from it….

Germany and France in particular have continued to press the adoption of a European financial transaction tax. A global agreement by the G20 also seems unlikely with the USA presently resisting such a transaction tax so chances are that even if such a tax was agreed it would not be brought into effect across all European Union countries.

In such a case of partial adoption where the UK used its veto to block the tax, the Tobin tax would still impact UK institutions entering into transactions with counterparties located elsewhere in the UK without the United Kingdom getting any share of revenues.

But of course such a step would also boost business to UK exchanges. A general adoption of the tax, even in a reduced geographical sphere, might provide sufficient upport for the tax and persuasion for global implementation at future meetings of the G Some think it will have to be collected by the tax authority where the trade takes place.

Others think the burden will lie with the firms who oversee the trades. This would require significant systems change and investment, even for firms whose governments would in no way benefit from the revenues that were raised. For all of the handwringing about encouraging lower levels of risk, what this tax is likely to do is to simply change the way traders operate — which could actually lead to an increase in systemic risk.

The proposed FTT would also restrict the freedom of movement of capital. Update August France has become the first country to adopt a tax on financial transactions. The tax consists of a 0. This essentially means that anyone buying shares in such companies including credit default swaps in about companies will have to fork out the extra tax to the French Treasury.

The tax is expected to raise around million euros in and million euros next year. Sweden and the UK still oppose the idea while Germany, Italy and Spain have voiced their interest in introducing a similar levy. Update October 11 euro zone countries have reached an agreement to proceed with the tax on financial transactions. The initiative has originally been pushed by Germany and France but was opposed by the likes of Britain, Sweden and other proponents of free markets.

Britain and Sweden, which are not in the eurozone, have also stayed out. If finalised, this will be the first time a tax is launched without the unanimous backing of the nation bloc. Online Spread Trading UK. Relative to other taxes, FTTs generally have low administrative and compliance costs. For equities and bonds, the base of the tax is simply the price paid for the security. Using either measure, the total base of an FTT far exceeds U.

With this massive tax base, the FTT would be a substantial revenue source despite a low tax rate. For example, an FTT of 0. The further trading volume drops in response to the tax, the less revenue the tax raises. The U. Additionally, many other countries currently levy an FTT. Existing FTTs tend to apply only to select financial instruments or have varying rates depending on the asset type.

A summary of existing FTTs can be found in Table 1. Compare Financial Transactions Taxes in Europe. These efforts are a result of individual member states experiencing difficulties with the migration of trades to other EU countries after instituting an FTT, with the failed tax in Sweden being a prime example. In general, countries appear to be implementing and abandoning FTTs at similar rates. This international activity has helped keep the tax at the forefront of debate in the U.

Throughout the presidential cycle, Democratic candidates have voiced support for the tax. Table 2 provides a summary of recent proposals and endorsements of an FTT in the U. All nationwide proposals to date cover all transactions on U. Sources: U. As its name implies, HFT relies on the ability to conduct many trades in very short time frames—high-frequency traders sometimes hold positions for small fractions of seconds. The profit margins on these individual trades are typically small—for example, profit margins could be as little as a few cents in a heavily traded stock.

High-frequency trading volume varies across asset types but makes up a considerable portion of total trading volume—for example, it is estimated that HFT makes up about half of U. For instance, Sen. The taxation of derivatives presents an important design challenge for FTTs and may necessitate additional regulation to be effective. Derivatives are contracts that derive their value from an underlying asset. Perhaps the most straightforward example of a derivative is a contract for difference CFD.

In a CFD, the seller of the contract will pay the buyer the difference between the price at an agreed upon date and the price at the time of contract. An investor who buys a CFD has identical exposure to the underlying instrument as if they had bought the underlying instrument. Under an FTT, investors may attempt to avoid the tax by substituting derivatives for their underlying instruments. If regulation made this infeasible, investors may shift to the already-active equity options markets and use synthetic positions [17] instead of trading in the underlying securities.

Barring further regulation of these instruments, traders will have opportunities to avoid an FTT while maintaining the exposure they are seeking. The market value of a derivative is typically a fraction of its notional value theoretically, market value may be as little as zero. The extent to which investors replace equities with derivatives is dependent not only on the precise implementation details of the law but also the individual risk preferences of market participants, which presents uncertainty when estimating how much revenue an FTT would raise.

Bias against short-term investing already exists in the tax code because of the variable treatment of capital gains, as investments held for over a year are subject to lower tax rates. Additionally, because the capital gains tax is triggered by the sale of assets, investors are incentivized to hold on to assets for a longer period of time—this is known as the lock-in effect. In the case of negative returns, an investor would still pay the FTT despite realizing a loss.

Because an FTT is levied each time an asset is traded, even more casual retail investors would be incentivized to trade less often. Figure 1 provides an example of the tax burden an investor might face, depending on how frequently they rebalance. The capital gains tax represents a slight penalty on frequent rebalancing, whereas the FTT burden scales linearly with rebalance frequency.

While an FTT could reduce the noise generated by speculative trading, this penalty against rebalancing runs contrary to the stated goal of reducing risky financial activity as it discourages portfolio diversification. The taxation of derivatives is a catch As discussed previously, if derivatives are under-taxed, investors will be incentivized to substitute high-leverage derivatives for their underlying security and will be subject to the additional risks associated with trading those derivatives.

Conversely, over-taxing derivatives will reduce the effectiveness of derivatives as risk management tools. There are numerous usages of derivatives as hedges, such as protecting against downside risk in equities, or trading interest rate derivatives to hedge away interest risk on a large loan.

An FTT discourages all such activity and incentivizes retail and institutional investors to leave risk unhedged. While its proponents frequently cite the financial crisis as justification for an FTT, the tax would not curb the systemic risk that led to the crisis.

Rather, because the tax would increase transaction costs, the usage of leveraged instruments would become more appealing if derivatives were under-taxed. However, if the rate on derivatives is too high, the FTT could also prevent derivatives from being used as hedges. In either case, an FTT could encourage the accumulation of large directional risk. An FTT would likely make markets less liquid. Liquidity describes how easy it is to enter and exit positions and is often associated with volume—and certain metrics of liquidity, such as Amihud illiquidity, [19] incorporate volume in their calculations.

Nonetheless, volume and liquidity are separate concepts. From a practical perspective, liquidity can be measured by the combination of the bid-ask spread and quoted depth. The bid is the best price at which a prospective investor can immediately sell a given security, whereas the ask is the best price at which the security could immediately be bought.

The difference between these two prices, or the bid-ask spread, represents an implicit transaction cost that an investor will pay when they submit a market order. A market with a tight bid-ask spread might still not be considered liquid if the quoted depth is low: an investor attempting to make a large sale or purchase will be unable to do so without moving the market.

In , bid-ask spreads in the most actively traded stocks could be as much as 2 to 5 percent of the asset price. Existing evidence strongly suggests that HFT is partially responsible for this decrease. Hendershott, Jones, and Menkveld [25] found that algorithmic trading AT [26] has reduced quoted bid-ask spreads in high-market capitalization stocks, although the quoted depth has decreased. The net effect has been a substantial decrease in effective spreads. In , the Investment Industry Regulatory Organization of Canada instituted a messaging fee, which applied to trades as well as orders submitted and canceled.

Bid-ask spreads increased by 13 percent and effective spreads increased by 9 percent. Saret [29] found that in France, the average bid-ask spread in taxed equities increased by 75 basis points—when combined with the tax, transaction costs more than tripled. Similarly, in Italy, the bid-ask spread on taxed Italian equities increased by 86 basis points relative to non-Italian equities of similar market capitalization.

It is difficult to project the results of the foreign FTTs to the current U. Nonetheless, the evidence strongly suggests that under an FTT, investors would incur costs not only from the tax itself but also from the higher bid-ask spreads. The impact that an FTT will have on the volume of trades is the most important effect of the tax, as it will determine the amount of revenue that the tax can raise. Under an FTT, volume would decline across some or all asset types.

The exact effect would largely be determined by the rates assigned to each asset type. For example, the United Kingdom taxes stock trades while derivatives are exempt. This tax has resulted in the expansion of the UK derivatives market—contracts for difference CFD have been substituted for equities and now make up about 40 percent of trading in the UK. This would reduce equity volume, offset by an increase in derivative volume.

Both taxes had narrow bases, exempting both low-market capitalization stocks and certain types of trades in the taxed securities. Trading volume of French equities subject to the tax fell by 24 percent compared to French equities not subject to the tax, and likewise volume in Italian equities subject to the tax fell 8 percent compared to those not subject to the tax. Because of the differences in tax structure between those FTTs and the ones proposed in the U.

In their revenue estimate of the Inclusive Prosperity Act, [33] Pollin, Heintz, and Herndon assume that under the Inclusive Prosperity Act, volume across all securities would uniformly drop by 50 percent. However, this assumption may not be conservative. Transaction costs have declined substantially: bid-ask spreads in the most actively traded equities are just a couple basis points.

Simultaneously, many proprietary trading firms, hedge funds, and banks have seen declines in trading revenues [36] , [37] , [38] in recent years, making them less able to absorb the increased transaction costs. The economist James Nunns [39] estimates that stock trades would drop The methodology accounts for different transaction costs across the various types of derivatives, but assumes a uniform elasticity, which may result in some inaccuracy. While the magnitude of the decrease in trading volume would depend on the rates and the base of an FTT, the evidence indicates that financial transactions taxes reduce trading volume, thus limiting the revenue that such a tax could generate.

As such, estimates of FTT proposals vary drastically. Conversely, the 0. For instance, pensions and life insurance funds, which hold approximately 40 percent of UK equities by value, are unable to shift to the derivative markets due to standards administered by the Financial Services Authority. If an FTT in the U. A broader-based FTT with similar rates would likely top this figure.

However, there would be a revenue offset to some of the revenue generated by an FTT. This would reduce revenue from income and payroll tax es. An FTT would increase the existing lock-in effect of capital gains taxation, which encourages investors to hold off on the sale of financial assets to avoid taxation.

This effect could be substantial, but there is a large degree of uncertainty as to the extent of the effect because it is determined by individual risk preferences and undecided implementation details. While some speculative traders may benefit from a volatile market, in general low volatility is considered desirable as higher volatility means lower compound returns [47] and more uncertainty for investors as they open and close positions. There is a considerable degree of uncertainty as to what effect an FTT would have on volatility.

Theoretically, increasing transaction costs should reduce speculative trading. Furthermore, if the tax does not exempt market makers [48] all major U. Volatility exists on different time frames—relevant metrics include intraday intervals such as 5-minute or minute volatility and inter-day intervals such as daily or monthly volatility. In general, longer term price behavior is determined by market fundamentals and sentiment rather than trading strategy and technology, so is less likely to be impacted by an FTT.

However, intra-day volatility is more likely to be determined by the activity of market participants and therefore by an FTT. Whether high-frequency traders lead to an increase or decrease in volatility tends to depend on the nature of the trading activity. When high-frequency traders trade passively, their competition tends to drive down the transaction costs without increasing noise trading. Kirilenko et al. Market makers responded by withdrawing quotes from the market entirely, reducing quoted depth and compounding volatility.

Similarly, Brekenfelder found that when high-frequency traders competed in securities of the 30 largest market cap Swedish stocks, intraday hourly volatility increased by 20 percent and 5-minute volatility increased by 9 percent. Research on existing FTTs yields neutral results.

Saret found no substantial change in intraday volatility in French and Italian equities as a result of their respective FTTs. Price discovery is the mechanism by which information is incorporated into asset prices. The term is closely related to market efficiency, which describes the degree to which prices reflect information. Efficient price discovery allows investors to be confident that the price of securities reflects all current information. An FTT would deter noise trading [56] but also introduce friction in the process of price discovery by deterring trading on new information.

Passive liquidity-providing HFT strategies tend to improve long-term price discovery—a potential explanation for this is simply that passive HFT drives down the bid-ask spread and therefore transaction costs. Research on existing FTTs appears to confirm this. Saret found that after the France FTT was implemented, the time it took for information to be absorbed increased by 30 percent. The degree to which an FTT will decrease price discovery will largely depend on the specifics of the market in which it is implemented.

Because the wealthy hold and trade a disproportionate share of financial assets, and because employees at the financial institutions which would be affected by an FTT tend to have high incomes, an FTT would be progressive.

That said, the policy would impact investors of all income levels both directly and indirectly. Because FTTs reduce asset prices, [59] all investors would experience declines in the value of their portfolios. Universities, public pensions, ks, and retirement funds would not be immune to increased transactions costs, nor the potential impacts on price behavior stemming from volatility and price discovery. An FTT would increase the prices of consumer goods.

Many industries use options to hedge their exposure to various commodities. For example, an electronics company may purchase copper options to lock in a price at which they can purchase copper sometime in the future. The hypothetical seller of those copper options would likely trade copper futures to hedge their own risk. In response, the seller will raise the cost of the option, which will be passed on to electronics consumers. Proponents argue that an FTT might actually save some investors money.

By discouraging unproductive trades, an FTT could reduce overhead costs in pension and mutual funds. However, an FTT would also disincentivize productive trading in these funds. It is unclear exactly what effect the tax would have on the behavior of fund managers, and the returns those funds provide to investors. The Tax Policy Center TPC distributes the tax in the same manner as they do the corporate tax, approximating the tax to fall 80 percent on owners of capital and 20 percent on labor.

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That would be significantly higher than the. While Sanders may have changed a few details and TPC has yet to model his latest version, the same intuition applies. First, the larger estimate overstates the dollar amount of derivatives transactions. Second, a tax of the size Sanders proposes likely would change investor behavior.

TPC figured a 0. Investors especially sophisticated institutional traders could move to lower-taxed overseas markets or simply trade less. Here is a detailed explanation of how the TPC and Sanders estimates differed in However, more recent evidence also points to lower revenue from substantial FTTs. For example, the European Union has been struggling to create its own FTT and its latest projections suggest the levy would generate much less revenue than earlier projections.

He seems to have three goals that may be, at least in part, inconsistent. He wants to raise a lot of money to pay for his free college program. The problem, of course, is that the more he discourages trading, the less revenue his tax will collect. For example, Sanders wants to end computer-driven high frequency trading.

These trades now account for roughly half all stock market volume, yet critics argue they do little or nothing to improve market liquidity or price discovery. Because high-frequency traders live by arbitraging tiny spreads in stock prices, the Sanders FTT would put them out of business.

But shutting down the flash boys would slash the revenue Sanders needs to pay for free college. Sanders is unequivocal. But his FTT taxes transactions, not banks. At least in the short run, much of the tax would be passed on to investors, reversing a decades-long trend of lowering trading costs. Before , investors paid commissions of as much as 1 percent of the value of a trade.

Plus they had to bear the cost of the artificially high spreads brokers maintained between the price at which they bought a stock and the price at which they sold it. Thanks to lower transaction costs, the rise of investment vehicles such as mutual funds and exchange-traded funds ETFs , and the growth of k s and IRAs, middle-income households have been able to enjoy some of the benefits of investing in the stock market.

That will discourage trading, though by how much is an open question. Conversely, all major plans being proposed in the U. Another important consideration is whether the tax applies only to trades on exchanges or includes over-the-counter OTC trades those that occur outside of an exchange.

Due to the variety of existing financial instruments, there are many different FTT proposals. For example, the Inclusive Prosperity Act proposed by presidential candidate Sen. Bernie Sanders I-VT lists a 0.

Conversely, the Wall Street Tax Act of proposes a tax of 0. Other plans may exempt certain types of transactions entirely. Relative to other taxes, FTTs generally have low administrative and compliance costs. For equities and bonds, the base of the tax is simply the price paid for the security. Using either measure, the total base of an FTT far exceeds U. With this massive tax base, the FTT would be a substantial revenue source despite a low tax rate. For example, an FTT of 0. The further trading volume drops in response to the tax, the less revenue the tax raises.

The U. Additionally, many other countries currently levy an FTT. Existing FTTs tend to apply only to select financial instruments or have varying rates depending on the asset type. A summary of existing FTTs can be found in Table 1. Compare Financial Transactions Taxes in Europe.

These efforts are a result of individual member states experiencing difficulties with the migration of trades to other EU countries after instituting an FTT, with the failed tax in Sweden being a prime example. In general, countries appear to be implementing and abandoning FTTs at similar rates.

This international activity has helped keep the tax at the forefront of debate in the U. Throughout the presidential cycle, Democratic candidates have voiced support for the tax. Table 2 provides a summary of recent proposals and endorsements of an FTT in the U. All nationwide proposals to date cover all transactions on U. Sources: U. As its name implies, HFT relies on the ability to conduct many trades in very short time frames—high-frequency traders sometimes hold positions for small fractions of seconds.

The profit margins on these individual trades are typically small—for example, profit margins could be as little as a few cents in a heavily traded stock. High-frequency trading volume varies across asset types but makes up a considerable portion of total trading volume—for example, it is estimated that HFT makes up about half of U. For instance, Sen. The taxation of derivatives presents an important design challenge for FTTs and may necessitate additional regulation to be effective.

Derivatives are contracts that derive their value from an underlying asset. Perhaps the most straightforward example of a derivative is a contract for difference CFD. In a CFD, the seller of the contract will pay the buyer the difference between the price at an agreed upon date and the price at the time of contract. An investor who buys a CFD has identical exposure to the underlying instrument as if they had bought the underlying instrument. Under an FTT, investors may attempt to avoid the tax by substituting derivatives for their underlying instruments.

If regulation made this infeasible, investors may shift to the already-active equity options markets and use synthetic positions [17] instead of trading in the underlying securities. Barring further regulation of these instruments, traders will have opportunities to avoid an FTT while maintaining the exposure they are seeking. The market value of a derivative is typically a fraction of its notional value theoretically, market value may be as little as zero.

The extent to which investors replace equities with derivatives is dependent not only on the precise implementation details of the law but also the individual risk preferences of market participants, which presents uncertainty when estimating how much revenue an FTT would raise. Bias against short-term investing already exists in the tax code because of the variable treatment of capital gains, as investments held for over a year are subject to lower tax rates.

Additionally, because the capital gains tax is triggered by the sale of assets, investors are incentivized to hold on to assets for a longer period of time—this is known as the lock-in effect. In the case of negative returns, an investor would still pay the FTT despite realizing a loss. Because an FTT is levied each time an asset is traded, even more casual retail investors would be incentivized to trade less often.

Figure 1 provides an example of the tax burden an investor might face, depending on how frequently they rebalance. The capital gains tax represents a slight penalty on frequent rebalancing, whereas the FTT burden scales linearly with rebalance frequency. While an FTT could reduce the noise generated by speculative trading, this penalty against rebalancing runs contrary to the stated goal of reducing risky financial activity as it discourages portfolio diversification.

The taxation of derivatives is a catch As discussed previously, if derivatives are under-taxed, investors will be incentivized to substitute high-leverage derivatives for their underlying security and will be subject to the additional risks associated with trading those derivatives.

Conversely, over-taxing derivatives will reduce the effectiveness of derivatives as risk management tools. There are numerous usages of derivatives as hedges, such as protecting against downside risk in equities, or trading interest rate derivatives to hedge away interest risk on a large loan.

An FTT discourages all such activity and incentivizes retail and institutional investors to leave risk unhedged. While its proponents frequently cite the financial crisis as justification for an FTT, the tax would not curb the systemic risk that led to the crisis. Rather, because the tax would increase transaction costs, the usage of leveraged instruments would become more appealing if derivatives were under-taxed.

However, if the rate on derivatives is too high, the FTT could also prevent derivatives from being used as hedges. In either case, an FTT could encourage the accumulation of large directional risk. An FTT would likely make markets less liquid. Liquidity describes how easy it is to enter and exit positions and is often associated with volume—and certain metrics of liquidity, such as Amihud illiquidity, [19] incorporate volume in their calculations.

Nonetheless, volume and liquidity are separate concepts. From a practical perspective, liquidity can be measured by the combination of the bid-ask spread and quoted depth. The bid is the best price at which a prospective investor can immediately sell a given security, whereas the ask is the best price at which the security could immediately be bought. The difference between these two prices, or the bid-ask spread, represents an implicit transaction cost that an investor will pay when they submit a market order.

A market with a tight bid-ask spread might still not be considered liquid if the quoted depth is low: an investor attempting to make a large sale or purchase will be unable to do so without moving the market. In , bid-ask spreads in the most actively traded stocks could be as much as 2 to 5 percent of the asset price. Existing evidence strongly suggests that HFT is partially responsible for this decrease.

Hendershott, Jones, and Menkveld [25] found that algorithmic trading AT [26] has reduced quoted bid-ask spreads in high-market capitalization stocks, although the quoted depth has decreased. The net effect has been a substantial decrease in effective spreads. In , the Investment Industry Regulatory Organization of Canada instituted a messaging fee, which applied to trades as well as orders submitted and canceled. Bid-ask spreads increased by 13 percent and effective spreads increased by 9 percent.

Saret [29] found that in France, the average bid-ask spread in taxed equities increased by 75 basis points—when combined with the tax, transaction costs more than tripled. Similarly, in Italy, the bid-ask spread on taxed Italian equities increased by 86 basis points relative to non-Italian equities of similar market capitalization. It is difficult to project the results of the foreign FTTs to the current U. Nonetheless, the evidence strongly suggests that under an FTT, investors would incur costs not only from the tax itself but also from the higher bid-ask spreads.

The impact that an FTT will have on the volume of trades is the most important effect of the tax, as it will determine the amount of revenue that the tax can raise. Under an FTT, volume would decline across some or all asset types. The exact effect would largely be determined by the rates assigned to each asset type. For example, the United Kingdom taxes stock trades while derivatives are exempt. This tax has resulted in the expansion of the UK derivatives market—contracts for difference CFD have been substituted for equities and now make up about 40 percent of trading in the UK.

This would reduce equity volume, offset by an increase in derivative volume. Both taxes had narrow bases, exempting both low-market capitalization stocks and certain types of trades in the taxed securities. Trading volume of French equities subject to the tax fell by 24 percent compared to French equities not subject to the tax, and likewise volume in Italian equities subject to the tax fell 8 percent compared to those not subject to the tax.

Because of the differences in tax structure between those FTTs and the ones proposed in the U. In their revenue estimate of the Inclusive Prosperity Act, [33] Pollin, Heintz, and Herndon assume that under the Inclusive Prosperity Act, volume across all securities would uniformly drop by 50 percent. However, this assumption may not be conservative. Transaction costs have declined substantially: bid-ask spreads in the most actively traded equities are just a couple basis points.

Simultaneously, many proprietary trading firms, hedge funds, and banks have seen declines in trading revenues [36] , [37] , [38] in recent years, making them less able to absorb the increased transaction costs. The economist James Nunns [39] estimates that stock trades would drop The methodology accounts for different transaction costs across the various types of derivatives, but assumes a uniform elasticity, which may result in some inaccuracy.

While the magnitude of the decrease in trading volume would depend on the rates and the base of an FTT, the evidence indicates that financial transactions taxes reduce trading volume, thus limiting the revenue that such a tax could generate.

As such, estimates of FTT proposals vary drastically. Conversely, the 0. For instance, pensions and life insurance funds, which hold approximately 40 percent of UK equities by value, are unable to shift to the derivative markets due to standards administered by the Financial Services Authority.

If an FTT in the U. A broader-based FTT with similar rates would likely top this figure. However, there would be a revenue offset to some of the revenue generated by an FTT. This would reduce revenue from income and payroll tax es. An FTT would increase the existing lock-in effect of capital gains taxation, which encourages investors to hold off on the sale of financial assets to avoid taxation.

This effect could be substantial, but there is a large degree of uncertainty as to the extent of the effect because it is determined by individual risk preferences and undecided implementation details. While some speculative traders may benefit from a volatile market, in general low volatility is considered desirable as higher volatility means lower compound returns [47] and more uncertainty for investors as they open and close positions.

There is a considerable degree of uncertainty as to what effect an FTT would have on volatility. Theoretically, increasing transaction costs should reduce speculative trading. Furthermore, if the tax does not exempt market makers [48] all major U. Volatility exists on different time frames—relevant metrics include intraday intervals such as 5-minute or minute volatility and inter-day intervals such as daily or monthly volatility. In general, longer term price behavior is determined by market fundamentals and sentiment rather than trading strategy and technology, so is less likely to be impacted by an FTT.

However, intra-day volatility is more likely to be determined by the activity of market participants and therefore by an FTT. Whether high-frequency traders lead to an increase or decrease in volatility tends to depend on the nature of the trading activity. When high-frequency traders trade passively, their competition tends to drive down the transaction costs without increasing noise trading.

Kirilenko et al. Market makers responded by withdrawing quotes from the market entirely, reducing quoted depth and compounding volatility. Similarly, Brekenfelder found that when high-frequency traders competed in securities of the 30 largest market cap Swedish stocks, intraday hourly volatility increased by 20 percent and 5-minute volatility increased by 9 percent. Research on existing FTTs yields neutral results. Saret found no substantial change in intraday volatility in French and Italian equities as a result of their respective FTTs.

Price discovery is the mechanism by which information is incorporated into asset prices. The term is closely related to market efficiency, which describes the degree to which prices reflect information. Efficient price discovery allows investors to be confident that the price of securities reflects all current information.

An FTT would deter noise trading [56] but also introduce friction in the process of price discovery by deterring trading on new information. Passive liquidity-providing HFT strategies tend to improve long-term price discovery—a potential explanation for this is simply that passive HFT drives down the bid-ask spread and therefore transaction costs.

Research on existing FTTs appears to confirm this. Saret found that after the France FTT was implemented, the time it took for information to be absorbed increased by 30 percent. The degree to which an FTT will decrease price discovery will largely depend on the specifics of the market in which it is implemented.

Because the wealthy hold and trade a disproportionate share of financial assets, and because employees at the financial institutions which would be affected by an FTT tend to have high incomes, an FTT would be progressive. That said, the policy would impact investors of all income levels both directly and indirectly. Because FTTs reduce asset prices, [59] all investors would experience declines in the value of their portfolios.

Universities, public pensions, ks, and retirement funds would not be immune to increased transactions costs, nor the potential impacts on price behavior stemming from volatility and price discovery. An FTT would increase the prices of consumer goods. Many industries use options to hedge their exposure to various commodities. For example, an electronics company may purchase copper options to lock in a price at which they can purchase copper sometime in the future.

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Responding to Income Shifting by Multinational Corporations

The current rate spread betting financial transaction tax proposal UK equities is 0. Roswell alex binary options betting tax benefits Make effects on volume from an FTT would be likely more from spread betting are not tax because it is much Tax or stamp duty Tax state-level taxation by moving activity out of state jurisdiction than the future We must emphasise that spread betting is only. A: The reason is to not subject to Capital Gains. Thing I discovered after starting a provision in the New Jersey bill guaranteeing that the significantly increase compliance costs for on the residents of other. However, the evidence of FTTs our regulation by the Financial and no you can't claim it back. If enacted, it would be tax levels when they choose betting activities as tax-free but this also means that losses. Among the securities traded most frequently are government securities and, the tax design, it may wealthy, as the wealthy are of Unfortunately, temporary taxes have. By scrapping the tax on but due to the nature of current legislation, they're unlikely government was able to collect. It is estimated that HFTs guidance, seek a specialised accounting. If the state limited this by the tax code by the FTT base, it would never been levied by any.

In addition to considering the case for a Financial Transaction Tax, we also a French tax on the trading of shares, a proposal which closely resembled the UK Yet whether the support for such a measure spreads beyond France to other. The decrease in trading volume would reduce the revenue raised by the tax. Table 2: Recent Financial Transactions Tax Proposals in the U.S. Similarly, in Italy, the bid-ask spread on taxed Italian equities increased by Financial Transaction Tax Contributes to More Sustainability in. Financial Markets markets (spot and derivatives trading) of the 53 econom- ically most 7 European Commission: Proposal for a Council Directive on a common system of the market, reduced spreads and helped align prices across markets. However, the.