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financial transaction tax

  #32 (permalink)

New York
 
 
Posts: 13 since Jan 2010
Thanks: 6 given, 15 received

Food for thought:

The US has the largest active retail brokerage business in the world. A FTT at current proposed rates will have an impact. The retail futures brokerage business would vanish overnight with a FTT at 0.1% of notional value.

Ex. ES @2750.00 x $50 = $137,500 in notional value x .001 = $137.5 FTT, per side. RT = $275 or 22 basis pts.

At that rate, the entire futures market eco-system would be destroyed. Simple metrics like this will be brought up in any debate and lobbying effort. Most countries that have a FTT in place, levy a lower tax rate on derivatives than on equities.

If the goal is to 'lower volatility' but maintain the US's competitive edge and global market dominance, there could be an implementation of a tax on HFT (high frequency trading) generated by computer algorithms in the same vein that France does it. A rate of .01%, which is unnecessarily high, would tamp down on HTF to a significant degree. So much so, it would be expected that volumes would be cut by about 40% and volatility to increase north of 25%. However, a rate of .001% would be manageable and progressive enough to balance revenue generation without dramatically reducing liquidity.

We will be under threat of a FTT for the foreseeable future. The bright spot in all this is that the US financial sector has more political clout and lobbying dollars than perhaps any other sector. It might be 'hip' for certain lawmakers to play the 'soak the rich' card. But when it comes down to it, the campaign contributions from the financial sector give pause for 'reasonable' compromise.

Prediction:

Futures: 0.001% to 0.005% per side *or* a flat rate per side/per contract (much like the NFA fee)
These lower rates would likely accompany an increase in the capital gains rate or even an adjustment to the 1256 60/40 rule to something like 50/50 or 40/60.

FTT for futures at 0.001% to even as much as 0.0025% are 'manageable' for traders.

ES @2750.00 x $50 = $137,500 in notional value x .0001 = $1.375 FTT, per side. RT = $ 2.75
ES @2750.00 x $50 = $137,500 in notional value x .00025 = $3.4375 FTT, per side. RT = $ 6.875

We have 2 to possibly 6 years to have to worry about any of this. But I'm fairly certain that an American FTT would be quite different rate-wise than an EU zone FTT.

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