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Rep Defazio (D-Oregon) at it again: REINTRODUCES FINANCIAL TRANSACTION TAX ACT 0.1%
Represenative Peter Defazio has once again... yet again... introduced legislation of a FTT (Financial Transaction Tax) of 0.1% on stocks, bonds and derivatives. [Note: no currencies included.]
The most interesting change from his previous proposals is how derivatives would be taxed:
"payment flows under derivatives contracts"
This is not the same nor as devastating as computing the tax on notational value (index price x its multiplier).
Payment flows for futures would be instances when funds are exchanged between party and counter-party. That includes delivery at expiration, daily settlement, and possibly closing out an intra-day trade.
I'm not sure about the intra-day payment flows. Technically it is a payment flow when you take an offsetting position to close out the trade. But by day's end, at settlement time, you'd be flat - no payment flow would occur at that time. Probably splitting hairs here though.
In any event, 0.1% would be $0.05 per $50 in payment flow (gain or loss).
True statement. The subtext is an increase in socialist policies that will have significant impact on US equity markets, interest rates, and inflation rates.
But really, I'm saying that only because I want to point out that US has been pretty socialist for a long while now..in the form of crony capitalism.
Crony capitalism is not capitalism. Crony capitalism is socialism for the well-connected.
Now, US monetary and fiscal policies (or so it presently appears) will allow that mindset to flow down to main street rather than just wall street. As the argument goes, if wall street can get bailed out, why can't main street? And thus democratic socialism takes hold. And this actually started with the CARES Act, I might add. He who is the chief executive of the US matters not.
Understanding this dynamic will be important in watching the market narrative unfold.
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There's still a payment of flows. If you made money on your day trade, the exchange sends you that money, isn't that the payment of flows?
What's the point of this comment? Just trying to create more divisiveness from afar?
For what its woth President Biden and Represenative Defazio are actually different people! One was elected in a national election in 2020 the other was elected in small regional election, covering less than a million people. Defazio has also been a representative since 1987 and as @DmanX stated has proposed variations of this bill several times before.
Probably would. Also make market making much less lucrative. Question is would the combination of the two net help or hurt the average person?
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It is technically. But they may craft the bill for only overnight holds, marking to market everyday at settlement being that that is the most objective, easily auditable metric. But I'm guessing here, since the latest EU FTT proposal exempts derivatives and intra-day trades - much like France's currently, German's proposed.
If there are any exemption carve outs, it would likely come in the form of market-making activities being exempt. HFT can revamp some of their operations to become more market-making in nature as they do already provide liquidity. Moreover, if the basis for taxing derivatives survives a final draft as payment for order flows, expect to see many more single stock futures and an increase in equity index volume. Derivatives would become the default price discovery mechanism in the market while equity market volume evaporates.
Should a FTT pass, we'll also probably see a resurgence of spot currency dealing in the US as that has been exempt (contrary to the original idea of a FTT as proposed by Tobin on currencies trading). Which means many more brokerages will be offering spot currency trading to US customers with leverages between 2-3% (50:1 and 33:1). From ECN style to market making bucket shops.
As for the probability of something like this passing, it's a hard call. Normally I'd say no. However, if the EU had it in place, then yes, we would very likely follow suit albeit in a more competitive manner. Of course, Asia (China specifically) and the ME (Dubai specifically) would take advantage of the situation and dramatically increase efforts to become financial centers. But as it is, the EU FTT talks have stalled because of a number of countries saying no to a historically failed idea. Germany is trying to copy France but are having difficulty with the idea.
Unfortunately, the West will never give up on the idea of an FTT until Asia becomes a serious financial sector competitor.
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I agree. It is my believe that if something like this ever is enacted, the people it is allegedly aimed at the most, ie HFT, will find exemptions, probably in some form of liquidity providing exemption.
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