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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.
Elizabeth Warren's Financial Transaction Tax Proposal (to help pay for her Medicare For All):
"Impose a tax on the purchase of most stocks, bonds, and other debt obligations of 0.1 percent of its value and on the purchase of derivatives of 0.1 percent of all payments made under the terms of the derivative contract. Estimated to raise $800 billion from 2020-2029."
I'm not sure what "0.1 percent of all payments made under the terms of the derivative contract" means. I assume she is referring to notional value. Anyone have a different interpretation?
I'm not sure you would ever get 60 Senators to vote for this (50 + filibuster). I'm not even sure you would ever get 50 Senators to vote for this if they do away with the filibuster but that would certainly be a closer vote.
At any rate, there are certainly Wall Street excesses that need to be addressed like CEO pay and buybacks, but this is throwing the baby out with the bath water.
R.I.P. Roy Goldberg (srgtroy), 1965-2023.
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Yeah I saw that. I know the target of this is "the greed on Wall Street", "excessive speculation" and "all the Billionaires can afford to pay this small fee" but this would be devastating on so many business's, not just Wall Street. I wouldn't be surprised if all the pension companies, and even unions came out against it. As I've said before though, if enactaed I think you'll find that most if not all exchanges already have an 'off-shore' plan to avoid it. I believe when the EU was discussing it, they were all looking at moving everything to Switzerland to avoid it.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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And if Brexit happens it would all move to London!
From the article It is less ambitious that the original plan covering derivatives and other financial instruments.
and Initial public offerings, market making and intraday trading would also be exempt.
With regards to the last point, I've always thought there would end up being lots of exceptions, question is can you qualify for one!
Under a new blueprint for the tax, sent by Germany Finance Minister Olaf Scholz to the other governments on Monday and seen by The Wall Street Journal, anyone buying shares in large companies domiciled in those countries and with a market value of over €1 billion ($1.1 billion) will have to pay a minimum 0.2% tax over the transaction value.
No levy would be imposed on initial public offerings, market making, share buy backs and purchases by pension funds.
Well, this applies only to stocks, not to any derivatives / other financial instruments.
For example, if you buy stocks for $1,000, you'll have to pay $2(!) in tax on the purchase.
So, IMHO this proposal is quite useless in regards to 'fight' those bad speculators...
But, on the other hand, once such a regulation is established, there will always be room for extending it to other financial products.
"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." - Jim Rohn
Wonder if the drop in CME seat prices is related to odds of transaction tax passing going up. They’ve been in downtrend for years but sharper drop last month or so.
