Europe's Financial Transactions Tax Unlikely to Hurt Professional Traders
1. Osmo Timonen
Add Your Comments:
You must be registered to post a comment.
Not Registered? Click here to register.
Already registered? Log in here.
Please note you must now log in with your email address and
password.
LOGIN Remember me
E-mail Address:
Password:
TRADEWINDS
Guest Commentary
Europe's Financial Transactions Tax Unlikely to Hurt Professional
Traders
September 11, 2013
Osmo Timonen
Guest columnist Osmo Timonen, a proprietary futures trader at Futex in London, discusses how any Europe-wide financial transactions tax might not impact the professional trading community.
The European Commission proposed a EU-wide Financial Transactions Tax in September 2011. The aim of the tax is to make sure that the financial sector contributes to solving the Euro crisis
and to prevent fragmentation of financial regulation in Europe. The fragmentation is a real threat as some EU member states have already invoked a transactions tax while others firmly oppose
the idea. Also, the tax aims to discourage "financial transactions which do not contribute to the efficiency of financial markets or of the real economy." What such transactions are is not defined in
the European Commission's proposal, but professional trading could well be at the cross-hairs of the tax.
Professional futures traders and market makers have watched the political maneuvering around the tax proposal with concern. A significant bloc of
countries within the EU supports the idea, and at this point it looks likely that some sort of financial transactions tax will eventually be implemented. In its
current form, the tax would be collected from institutions, and brokers and banks would pass the costs on to their customers who make the transactions. In
essence, this would mean higher transactions costs for all traders who trade European products.
For derivatives transactions, the tax is planned to be 0.01 percent of the contract value. With many European futures contracts having the notional value of
100 000 euros, a trader entering and exiting a one lot position would be charged an additional 20 euros tax in commissions. That would put many market
makers and proprietary traders out of business as high-volume traders currently enjoy commissions of often less than one euro per futures contract.
Market makers create the liquidity that real money investors need when entering and exiting trades. They take the risk of keeping bids and offers available
and represent a vital part of a well-functioning market. The obvious importance of liquidity creators has been understood in Brussels, and the tax proposal is
most likely going to exclude day traders and designated market makers. A somewhat similar solution has already been implemented in France and Italy where a financial transaction tax is in
place.
Who then is going to be charged and who is to be taxed to 'discourage transactions that do not contribute to the efficiency of financial markets'? It seems likely that the bill is going to be picked
by institutions and individuals who do not practice day trading. The situation is evolving and nothing is certain at this point. The European Commission had initially planned to launch the tax as
early as January 2014, but it has now admitted that the deadline is unrealistic. The tax faces a solid resistance from the financial industry. Also, the UK has challenged the legality of the proposal.
The most recent turn has been that a group of European countries has decided to push forward on their own, hoping that other countries will hop on the wagon later. Proprietary traders and
market makers have a bit more political drama to watch for the coming months.
For more information on related topics, visit the following channels:
Brokerage
Buyside
Regulation
Viewpoints
COMMENTS (0)
GUEST COMMENTARY ARCHIVE
A Hedge for All the Right Reasons
NOVEMBER 6, 2013 - Today's traders are armed with countless tools and data like never before. Despite this wealth of wares and information, Bright Trading's Bob Friesen writes that traders lack
one thing: a crystal ball. In other words, they have almost no idea where the price of a stock is going to go.
An Old SIP in a Modern Market
SEPTEMBER 20, 2013 - In today's guest commentary, KOR Trading's Christopher Nagy talks about the need to fix the Securities Information Processor (SIP) as it is too old to function in today's
sophisticated market structure.
SEC to Exchanges: Straighten Out Your IT - Or Else
SEPTEMBER 12, 2013 - The Securities & Exchange Commission met with the heads of the top U.S. stock exchanges on Thursday morning to discuss the recent spate of trading glitches and
system outages that have plagued investment firms and exchanges. And they also got some marching orders: Fortify your trading systems.
How Wider Spreads Might Not Help Small-Cap Stocks
JULY 31, 2013 - Guest columnist Dennis Dick, a trader at Bright Trading, discusses how wider spreads in smaller. less-traded company stocks might not be enough to promote market making and
boost trading.
Of Frogs, Boiling Water, Market Structure and Trading
APRIL 17, 2013 - “Drift arbitrage” should not define the future of capital markets, says JonesTrading's Tom Carter.
AMERICAN BANKER THE BOND BUYER TRADERS MAGAZINE SECURITIES TECHNOLOGY MONITOR ON WALL STREET LEVERAGED FINANCE NEWS MORE
Europe's Financial Transactions Tax Unlikely to Hurt Professional Traders http://www.tradersmagazine.com/blogs/europe-financial-trading-tax-1...
1 of 2 8.9.2014 16:35