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HFT Tax On Deck, Musical Chairs Game Ending At A Corrupt Exchange Near You
While recently there has been much speculation about a Tobin tax equivalent hitting our much less "regulated" (could we please just load the entire SEC headquarters...during working house... on one of those unused Capesizes and take advantage of the crashing Baltic Dry to ship them over to Britain so they can continue their phenomenal job of zombifying investors for 40 hours a week) ancestors east of the Atlantic, the trade tax is actually coming to an HFT algorithm near you.
According to an article in The Hill, the push for taxation on churning (which has been rumored to be illegal for retail investors but perfectly legal when performed by 2600 trading cores), courtesy of TradeBots and other purely speculative vehicles is set to become a reality, courtesy of the AFL-CIO and Democrats.
The nation’s largest labor union and some allied Democrats are pushing a new tax that would hit big investment firms such as Goldman Sachs reaping billions of dollars in profits while the rest of the economy sputters.
The AFL-CIO, one of the Democratic Party’s most powerful allies, would like to assess a small tax — about a tenth of a percent — on every stock transaction.
Small and medium-sized investors would hardly notice such a tax, but major trading firms, such as Goldman, which reported $3.44 billion in profits during the second quarter of 2009, may see this as a significant threat to their profits.
“It would have two benefits, raise a lot of revenue and discourage speculative financial activity,” said Thea Lee, policy director at the AFL-CIO.
It would be hard to find fault with Ms. Lee's observation:
“This would discourage numerous financial transactions. People flip their assets several times in an hour or a day. They make money but does it really add to the productive base of the United States?”
The benefit: lots of much needed capital to fill at least a part of the massive black hole that the US budget has become:
Lee said that taxing every stock transaction a tenth of a percent could raise between $50 billion and $100 billion per year, which could be used to pay for infrastructure projects and other spending priorities. She said the tax could be applied nationwide or internationally.
The proposal would hit especially hard those hedge funds and large banks earning hefty profits despite the shaky economy from a practice known as high-frequency trading. High-frequency traders use powerful computers to conduct hundreds of thousands of orders in mere seconds, taking advantage of slower traders.
Only the biggest investment firms can afford to develop the technology, which delivers handsome profits at little risk. The growing popularity of the practice has contributed to the soaring volume of trades on Wall Street in recent years and, some critics argue, market volatility and rampant speculation.
If these estimates are correct, and one tenth of a percent tax can generate $50 billion in extra tax revenues, one can only imagine what will happen when this actually hits Congress and instead of the 0.1% bogey, lawmakers realize that this could easily plug quite a few extra holes and decide to ramp up the percentage substantially.
And, shockingly, front and center, is...who else...Goldman Sachs:
Democrats and labor officials would also like to take a bite out of Goldman’s profits. Liberals are angry the company, which immersed itself in the frenzy of speculation leading to last year’s financial collapse, is now making huge profits after accepting (and repaying) $10 billion in government aid. Goldman employees are on track to earn an average of more than $700,000 this year.
The bottom line here is that due to the highly fine-tuned leverage position of HFT profits to those that utilize it, even a 0.1% tax would put a huge damper on the recurring trade insanity which has pushed the stocks of bankrupt Lehman and WaMu (why are these even trading? SEC?) into the stratosphere over the past 2 trading sessions. Alas, when the regulators are woefully incapable of dealing with what a blind hobo would immediately classify as a borderline illegal acts of daily senseless churn, it takes labor unions and lawmakers to set the rules.
Maybe once the SEC is purged of its current crony administration which does nothing but demand more money and sends its personnel to cushy Wall Street jobs once their cronyism tenure is complete, these kinds of activities could be avoided. However, at a time when the market has become a huge Ponzi scheme which benefits only a select few who offload their worthless positions on a much less sophisticated institutional and retail base, it seems that no matter how many TV appearances Mary Schapiro puts on the convince anyone who gives a rat's ass just how (in)effective the Commission is, the regulators' opinion will be increasingly subdued and generally ignored when it comes to matters in which the government itself is now a primary backer, thanks to its massive ownership stake in virtually all financial (and soon all other) companies.
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get ready for the Law of Unintended Consequences... 10 bps wouldn't hurt anyone? really? The small investor might not notice 10 bps, but they'll notice when their counterparty goes away...
and oh - I love how they come up with the estimates of the revenues from the taxes - i'd bet dollars to chinese fortune cookies that they used the CURRENT trading volumes to calculate it... obviously, such a tax would decimate trading volumes.
..."decimate trade volumes."
How could that happen? The only thing trading these days is the TARP 5, and most of that is by their own prop desks as well as a massive Fed (& maybe Treasury) infusion (see BP today).
I see nothing inherently wrong with that. So long is order flow is not being intentionally leak to certain participants with real information.
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Does this mean that stock trading will move to Bermuda? Just like many US corporations have moved their headquarters, GE, Stanley, etc.?
After all Goldman moved to NJ to avoid NY and NYC taxes.
Kind of hard to co-locate your servers if they're in Bermuda.
Not so sure that co-location would in and of itself amount to a tax nexus.
The fact that the co-located server is the key to the profitability of the business (i.e., profits because it is located physically at that location, "doing business" at a fantastic rate per hour) would surely provide a rational nexus to beat that argument.
They make money but does it really add to the productive base of the United States?
What an interesting question. I wonder if it can be applied to beyond the confines of HFT.
Bingo! Adair Turner in the U.K. raised that point recently too. Time to shrink Finance, Insurance, and Real Estate finagling industry back to 10% of the economy.
My gosh... what have devolved into as a society, when AFL-CIO officials actually make more sense than our political and financial leaders?
In a Labor vs. Crony Capitalist battle, who do you think Obama will actually favor?
Answer: None. He will pander to both and defer the problem to the next unfortunate POTUS.
oh - and i completely agree that the market has become an insane ponzi scheme - but if you think that increasing trading costs will do something about that, you're missing the point. The ponzi scheme (of optimism) is not orchestrated by high frequency traders - it's orchestrated by the Administration.
I think the point here is that in the absence of the SEC controlling "perceived" externalities (and in fact benefitting from them as ZH speculated on Friday), soon you will see every Tom, Dick and Harry in charge of the legislative trying to monetize from their ongoing windfalls.
That is the real sad state of affairs
Right...but it is manipulated by the HFT.
Seems fair to me. If that money went into a fund to support infrastructure projects, even better.
Why don't you look at every other government trust...they are
all empty...every last one of them...all just full of iou's
Why don't you look at every other government trust...they are
all empty...every last one of them...all just full of iou's
By the way, TD you are woefully ignorant in the purpose and ways of the SEC.
Our dear departed Teddy's father was the first head of the SEC. Why did Roosevelt put Joe in charge? Probably it was felt that a stock manipulator was going to make the investment more secure, just like a fox will protect the henhouse from interlopers such as skunks and raccoons.
Speculators could care less about "proposed taxes".
For now, they have a free ride and are likely to continue gunning bubble stocks like the coffee plays:
These charts supposed to mean anything?
THis ain't news at all. FOR YEARS, some fringe democrats have been trying to pass a transaction tax. It will never ever ever happen. Keep dreaming.
It has to be a success. When you treat the symptom and not the cause, then problems just disappear.
I can't believe I agree with afl-cio, tax the bastards. All the talk about providing liquidity is BS. When 70% of the market is HFT what happens when Joe the plumber working nearby accidently hits the OFF switch? UH OH panic what happened? run for the hills
Watching CIT, my barometer for speculation today:
i liked the suggested 1 sec display on all orders. it gives humans that are actually working orders the ability to interact with algos/routers/HF boxes. also eliminates flash order programs that skirt around the 500ms loophole in regNMS.
Note how at the very first whiff of deflation, stock market correction, de-risking, etc.
Investors IMMEDIATELY SELL STOCKS and ask questions later...
And pile into T-Bills for safety.
Note the 7.0 TRIN reading today.
I love it when they say they are going to take some of your money but you won't even know it's gone. This proposal will seriously injure liquidity, and whether or not they believe so, will cause many people to just walk away from stocks altogether. Don't out think it: If you tax something, you'll get less of it.
This type of tax would decimate the likes of me, who may be considered retail, but trades mechanical strategies. I would have already lost 1% today, just due to taxes.
I don't think there is anyway this sort of legislation could pass. It would cause some significant destruction and will surely unleash worse problems onto the market landscape.
I like the idea of somehow punishing market manipulators however, they tried to tax the oil companies like this a few years ago and like the "oil tax" this will never happen. This is nothing more than a special interest group (that represents themiddle class)teaming up with a political party (that supposedly reps the middle class)and picking an easy target for the middle class to get behind.....Trying to take money from the successful. Since when does equity trading fund infrastructure? Isn't that what taxation is for?
Again, just for the record, I believe the groups manipulating the markets are scumbbags and deserve to punished....just not through taxation
Tyler,
Just how is a tax on a HFT profit base of $20B (according to the article on The Hill) that you claim over and over again to represent 70% of market transactions going to generate $50B in taxes?
Where is the estimate for the lost corporate taxes from those same HFT institutions?
This would stop much (perhaps most) automated market making, or at least blast the spreads so damn wide, that it would seem they'd all gone away... and then you would have the calamity you (or one of the other Tylers) is afraid of - the loss of liquidity in our markets due to the loss of the bulk of our computer market makers.
.1% on a transaction. Let's say the average retail "investor" buys 100 shares at $13.85. Take off .1%, and you have added $0.014 per share (presumably on both the buy and subsequent sell), and a wider spread paid on both sides.... This is a tax that noone would profit from.
If this nonsense were to gain traction, it would not be long before the current masses calling for the heads of HFT firms would rethink their misguided positions.
I guess it would be more fun for those who are currently banned from trading to have others effectively banned from trading... but to think that this would be good for the US markets, retail investors or the US budget deficit is insanity. It would only be good for foreign exchanges, to which much volume would migrate.
As for the use of the term churning, it is completely inapropriate. Churning is what a retail broker does to generate commissions. HFT trades frequently to generate capital gains and sometimes rebates. They are very different, and you are not helping educate the newbies you have successfully drawn to your site by conflating the two.
You can clearly write your acerbic attacks that the bulk of your readers seem to love, without resorting to throwing out terms so haphazardly.
Our readers appreciate every perspective on the matter. Even yours.
HE'S BAAAACCCKKKKK. Post one article attacking the GS crooks and, like magic this scumbag shows up.
"1% on a transaction. Let's say the average retail "investor" buys 100 shares at $13.85. Take off .1%, and you have added $0.014 per share (presumably on both the buy and subsequent sell), and a wider spread paid on both sides.... This is a tax that noone would profit from."
Name ANY tax that someone profits from. Other than the USG, of course.
a HFT tax would result in reduced liquidity and ultimately harm the investor. not really worth the government's time given the small amount of tax revenue and the overall damage the marketplace would incur.
I am an individual that trades stocks for a living. If this tax were passed, my means to make a living would be gone overnight.
Your's kidding, right ??????
Not at all.
Last Friday I traded 81k shares of stock. Notational value of the trades was ~$850k. A 1/10th of 1% tax would amount to a tax of $850 for the day. On top of that, I was negative on the day. There are many days when I will trade more capital intensive strategies that are easily $1 million+ per side. Just two larger trades would amount to a tax of $4k. Add to that commissions and the actual profit/loss of the trade.
If this tax were passed, I would absolutely be immediately forced out of my way of making a living.
People who traded slaves were forced out of their way of making a living when that practice was abolished. Boo hoo.
This tax isn't new - it has existed before in the US and actually financed a war or two. And if I'm not mistaken it used to be 1/4% not just a tenth. And the world didn't end.
For the average investor who is told to buy and hold, this type of tax would hardly be noticeable. It would help bring some stability to the markets which is much needed when so many people have their retirements tied to stock performance whether they like it that way or not.
If you can't average more than a 1/10th% profit on trades to begin with, maybe a new line of work would be in order anyway. Some of us do still work for a living which may come as a shock to many of the Goldman types.
If you're going to try to use historical events in support of your position, perhaps you should first verify that said events actually DO support your position. In this case, they do not. Studies of transaction taxes in the global markets have concluded that transaction taxes increase volatility, widen bid/ask spreads, and decrease liquidity. Are you sure that's what you want?
Look, I'm all for rules that might help reign in abusive trading. I'd be all for something like a requirement that quotes have to be firm for 1-2 seconds before they can be canceled so as to eliminate the noisy algos jumping all over the place. There are plenty of other reasonable ideas that could be tried.
Think about what would happen if a transaction tax were to be passed. The US would end up like London, which has a tax. However, in London market makers are exempt from the tax in the name of preserving liquidity. Only the "little guys" have to pay the tax. Similar exemptions would almost certainly be given to Goldman, etc. in the US. We would be left with wider spreads being quoted exclusively by larger, politically connected institutions. The volume done by small traders, such as myself is tiny in comparison to large institutions. The actual amount of tax collected would be negligible.
I understand the sentiment and anger which makes the tax seem desirable. But, it would only end up punishing the wrong class of trader and favoring the bigg institutions even more.
Studies done by whom show that such taxes increase volatility? Goldman Sachs?
And you think a 1-2 second time frame instead of mere milliseconds is sufficient to stop the fleecing? That's what counts as reasonable these days? How did we ever get along when people actually had to read the newspaper for a quote and call a broker to make a trade?
If you think any effort to tax transactions would result in an exemption for the large banks, then you are simply admitting that they are the ones who are really calling the shots and writing legislation. But there is nothing that says this has to happen.
Sounds like you are merely trying to defend a practice that does nothing productive for society at large.
Studies done by whom show that such taxes increase volatility? Goldman Sachs?
And you think a 1-2 second time frame instead of mere milliseconds is sufficient to stop the fleecing? That's what counts as reasonable these days? How did we ever get along when people actually had to read the newspaper for a quote and call a broker to make a trade?
If you think any effort to tax transactions would result in an exemption for the large banks, then you are simply admitting that they are the ones who are really calling the shots and writing legislation. But there is nothing that says this has to happen.
Sounds like you are merely trying to defend a practice that does nothing productive for society at large.
Nope... various universities. Here's a sample:
http://siteresources.worldbank.org/DEC/Resources/23661_chap_11_taxation.pdf
....
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1018363
....
http://www.questia.com/googleScholar.qst?docId=96501744
....
http://web.mit.edu/alo/www/Papers/heaton-lo-95.html
....
So what if I'm admitting that the large banks are involved in writing legislation? Welcome to reality. You don't think they are?
Why do you believe that having to read a newspaper, call a broker, pay a large spread, and large commission is preferable to the accessible and liquid stock market we have today?
of course 1 sec quote would be absolutely transformational and stop the fleecing. that's a enormous difference in magnitude, please reconsider your irrational position.
how is providing liquidity and efficient markets not productive to society?
even if it were not productive, what difference does that make? this is a free country and it doesn't make sense to ban something just because some fools on the hill don't understand it. perhaps we should ban playstation and maybe sports too? or maybe soda pop makers, i hear obesity is becoming a real problem for society's health costs?
this is a witch hunt.
Buy and hold investors lose money and will continue to lose money. They only way to make money is to buy stocks for 6-9 months at the most. In this economic environment it is almost impossible to make money with buy and hold.
If you are a buy and hold investor.........thanks for the cash.
Methinks you SHOULD get a real job. You are not investing - you are gambling/gaming.
I don't know if that is more funny or sad. You guys are like a broken record. I'm sure you're very well read on the various functions performed by the numerous categories of market participants and are quite aware of the difference between risk transference via speculation and risk creation via gambling. No need to turn this into a rational econmic discussion, though.
BRB, got to go across the street to the CBOT and shake my finger at the evil speculators. :)
If anything, it's probably a wash since at least half the people know the current system is fucked up and needs to be changed somehow.
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Maybe you need to trade less. It's clearly not working. The only person making any money is your broker.
You add what to economy?
I seriously do not feel for you.
That's a narrow minded point of view.
The trader takes risk, invests his own capital (supposedly) and makes money on a good day and looses money on a bad day. His risk, his money.
Look at his gain from the same perspective as any retailer which slaps a huge markup on garbage made in China for example.
Who or what is adding to the economy anymore?
People do what works for them and if they can live of that, good for them. As long as it's legal and nobody gets hurt, where's the harm?
AFL CIO is a union thug. He's not looking out for anyone else but another union thug.
I said before that this debate against Goldman and other banks, the vilification of Wall Street in general may have a completely different motivation and one day we may find ourselves wondering what happened and reminiscing of the good days when Goldman made money on the market and paid their employees well and paid taxes.
That day is when the exchange is closed for good because union thugs have taken over the country. Animal farm is already unfolding in this country with Obama as the pig Napoleon.
That's a narrow minded point of view.
The trader takes risk, invests his own capital (supposedly) and makes money on a good day and looses money on a bad day. His risk, his money.
Look at his gain from the same perspective as any retailer which slaps a huge markup on garbage made in China for example.
Who or what is adding to the economy anymore?
People do what works for them and if they can live of that, good for them. As long as it's legal and nobody gets hurt, where's the harm?
AFL CIO is a union thug. He's not looking out for anyone else but another union thug.
I said before that this debate against Goldman and other banks, the vilification of Wall Street in general may have a completely different motivation and one day we may find ourselves wondering what happened and reminiscing of the good days when Goldman made money on the market and paid their employees well and paid taxes.
That day is when the exchange is closed for good because union thugs have taken over the country. Animal farm is already unfolding in this country with Obama as the pig Napoleon.
I run a small long-short hedge fund (by small I mean we'll probably never grow beyond $25 mil, by choice). This is a bit off your nose to spite your face tax. Aside from this tax helping prices to be inefficient and spreads to be wide, so that society can allocate more capital to the wrong business endeavors, it will hurt investors. The investors in my fund are accredited investors, which means they rank in the top 9% of Americans with respect to household net worth, but none are super-rich. Hedge funds help them to diversify their portfolio, which helps them to feel more confident about their financial situation, and probably to spend/invest more instead of hoarding cash. If you want to make it illegal (or cost prohibitive) for people to have investment options that aren't correlated to stocks, then go for it--in a highly-regulated socialist regime, we can all be equally poor, so you won't be envious anymore.
Dig a ditch
how many trades a day are you making?
how many trades a day are you making?
I guess this is the chaser to the appointment of a labor guy to head the NYFED...let's keep our eyes and ears open to see where else in the scheme of corruption they place Union bagmen!
AFL-CIO is at least as detrimental to the economy as HFT.
Does this mean that we should tax them, too, preferably proportionally?
http://hotair.com/archives/2009/03/04/obama-tells-unions-that-card-check-will-pass-this-year/
Obama pro union...detremental to global competition.
Wouldn't 1/10 cent per share do quite nicely on HFT transactions while being negligible to everyone else, rather that .1% of the entire transaction? if 1/3 cents per share is paid for bringing volume to an exchange, and most of that goes out as tax, there would be no point to churning unless commissions were raised considerably.
I guess that's one way to find out the volume on "dark pool" trades.
considering it's somewhat 'speading the wealth', actually unless this tax has a specific designated purpose built into the bill, yes Ty, it's just padding their pockets, great job! (do they really think they can pick pocket their friends without paying them back with interest?) ah, the web we weave for the sake of chaos and corruption
I can't believe some people just going on with their life like nothing has changed. Peterpeter, I am looking at you.
The Rubicon has been crossed. The Elite must be brought down.
For me, an article like this just shows that people are slowly starting to figure things out. Doesn't mean this transaction tax is the right way to solve problems, but at least we are a LOT closer to admitting where the problem lies!
Corporations don't pay tax, silly. Only the little people pay tax. If anything, those HFT firms will be 'earning' capital gains, and be taxed 1/2 of what us income-earners would be charged.
Any way, the point is, the system NEEDS to be overhauled, wholesale! From top to bottom. From Fed to Congress to White House to Wall Street, nothing will even resemble what it looks like now, when we are done.
This isn't about Dems vs Reps, this is humanity against the oppressors of humanity. No more, no less.
This is about bringing back real capitalism and free markets, something we could not be further from, at the moment.
I find it surprising that you could call any policy that resorts to attempting to crack down on success by taxing it "bringing back real capitalism." It's the OPPOSITE of real capitalism.
No dude, you missed the glaring point where I said:
I don't think this tax is the right solution, but atleast we are closer to blaming the people who actually caused the mess.
My solution was to overthrow every institution currently in existence, as they have been entirely corrupted, from Congress, to the White House to the Fed. Wall Street doesn't need more regulations, they need the existing ones to ACTUALLY be enforced. Once that has happened, we can talk about what the next step is.
fair enough - and your second to last sentence is dead on. Enforce the existing regulations
GSE to be delisted and privatized soon. FSW are getting a swap deal....the rest take your chances.
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Churning: An unethical practice employed by some brokers to increase their commissions by excessively trading in a client's account. This practice violates the NASD Fair Practice Rules. It is also referred to as "churn and burn", "twisting" and "overtrading".
The illegal form of churning refers to doing excessive trading WITH SOMEBODY ELSE'S MONEY to charge them extra commissions. HFT shops are "churning" their own money. Yes, they are paying the commissions for this, but since they are making money, presumably they don't care. You can't prosecute somebody for stealing when they take their own money and throw it in the garbage (although in today's political climate, I suppose you could try to tax them for it).
Face it - HFT traders are leeches! They are sucking the blood from real investors and the US economy.
Just like congress..steal, tax and spend!
this is rich coming from the people who created Job Pools which pay people to sit in a room doing nothing
This tax would drive volumes down and encourage traders to move their activities to Europe and maybe Asian exchanges. Very bad. HFT == good, declining trading volumes and populism == bad. If you want to become a banana republic, then supress free markets. Otherwise learn some math and statistics and computer programming instead of blogging.
This site seems like a haven of C students.
Is the trading this summer what you mean by "free markets". Put down the stuff you're smoking and join the real world.
You assume that lower trading volume is a bad thing. Why?
To the extent that increasing volume contributes to increasing price discovery, then I agree. But clearly, maximal volume doesn't lead to maximal price discovery because of noise. There's a point where more volume detracts from price discovery and we're at or very close to that now.
HFT == neutral. Declining price information == bad.
rather than c++, java, or python? yeah those c guys are lazy.
As long as the expected return of a trading strategy is above the proposed tax X 2 (assuming a levy on both side of a trade), rational operators will continue to trade, but will take home just a smaller percentage of return on capital. Its diffcult to estimate the loss of revenues from corporation taxes at this stage, but you could argue anyway that if the money raised trough the new tax is then spent on public projects, tax will be collected down the line (ie salaries paid to workers and possibly increased consumptions of goods and services). If this means that you are pushing out of the markets strategies with an expected return of 0.2%, then so be it. Does anyone really think that a strategy worth at most 0.2% is a good strategy? will liquidity dry up? nope. will retail investors stop investing because of that? nope. will the bonuses at GS, or for this matter anywhere else where those strategies are implemented, be slightly less generous? perhaps but I doubt I will start a charity fund to support the needs of the new impoverished traders!
if you could make .2% on every trade you did, and you did a crapload of them, you'd be rich. don't confuse .2% per trade with a .2% annual return.
no confusion here dear KD! the rationale is that every trade is one item, so you need to consider all the costs involved, including tax, execution, clearing etc. So I stick with my point if you add 0.2% in your costs and your trade is no longer profitable, maybe you should not execute that trade. wheterer you then wish to look at the effect of this 0.2 on an aggregate base is another matter and still will not invalidate my point.
leverage.
the article also mentioned the tax being applied to oil futures contracts notional value, believe it or not if you consider the notional value of a futures contract .2% on top of commissions will decimate many strats. this would be the case for all futures not just oil.
funny...or ironic
the ex head of the AFL-CIO is now running the NY Fed
love this change
*blind applause*
I think that we should impose a 0.1 cent tax on every breath of air that a union member inhales, and about 1.0 cent tax on every breath of air that a union official inhales. Exhaling would be tax free, as long as the union member or official in question inhales at least as many times as he/she exhales during the tax year.
Burn it all, just burn it all down. I'm in cash and I couldn't care less about HFT, mechanical traders or speculators. Just tear the entire electronically rigged casino system down and start over.
Since when has the process of making money had anything to do with the productive capacity of a nation? This concept has been conflated with the idea that managed markets perfectly allocate capital.
Managed markets perfectly allocate capital? Freudian slip? Because I hace necer heard that.
The market right now must be damn near perfectly allocating capital at this moment, because it is more than managed, it is rigged!
I think all of you have some good ideas on this, but a
transactions tax is an old idea that has never been
implemented, for good reason.
The State of New York was going to try the same thing many years ago but the idea was quickly scotched when someone pointed out the obvious - that trading activity would quickly migrate elsewhere.
And that was back in the day before Asian and European exchanges had the computational infrastructure that they do now.
Institute this tax and London, Tokyo, or even Hong Kong or Shanghai will pick up the slack - just watch.
The casino won't shut down - it'll just move elsewhere.
Just a thought...
"...a small tax — about a tenth of a percent — on every stock transaction."
I believe I saw this in an old Doctor Who episode. But who is playing the part of the Doctor, and who is playing the part of the poisonous fungus?
The Sun Makers: http://www.bbc.co.uk/doctorwho/classic/episodeguide/sunmakers/detail.shtml
"The Doctor meanwhile gains access to the Company computer and programs it to apply a two per cent growth tax. The Collector, unable to cope with the loss of his profits, reverts to his natural form - a type of poisonous fungus - and is rendered harmless."
I am curious to see where this would go next. While I don't want any market player to have an advantage because of regulation or defined market structure I see nothing to be intrinsically wrong with HFT. I am not saying that the market is balanced the way I would want it to be right now but if we ban HFT because it is not a buy and hold strategy I worry about where it would lead us. Would we ban technical or momentum strategies? Would we all have to become value investors?
If a venue improperly exposes order flow via proprietary order types to certain participants I am totally against that. But if you can get an exchange, ECN or dark pool to "leak" information to you using algorithms I see nothing inherently wrong with that. So long is order flow is not being intentionally leak to certain participants with real information.
To me people complaining that certain players who are able to deploy a lot of capital to gain an advantage would be like a search startup complaining that google gets to spend more money.
This seems like a classic triangulation argument furthered by the Congress Critters. You may be angry about the HFT/Goldman profits, but the short-coming is in the regulation. Not the tax regime. The same sort of churning tax was proposed during the Great Depression and it was a horrible failure. Don't blindly agree with every plan to curb HFT if it means increasing a bloated state. Because in the end, this tax will be used to forgo investigations and indictments. It's a get-out-of-jail with someone else's money card.
Tax the dark pool. If you want to hide your transcation, pay a tax for it. Don't like the tax, make your transcations public.
+1, or double the tax for dark pools
The deregulation-by centralization ploy; failure to reform the economy will lead to debt peonage.
good articles; good articles 4 slow news day ..http://www..
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You guys really think GS would pay this tax if it gets passed? LMAO! You know that "liquidity providers" would be exempt, probably along with market makers in general.
On the surface, it has great populist appeal, but in reality it will once again be the little guys getting screwed.
The route of a transaction tax to deal with HFT is folly. Politically, its madness. You have a perfect group (investment banks and hedge funds) to go after with a targeted HFT tax provision but yet you would go with a tax provision that would ensnare everyone?
A more astute proposal would shine the spotlight on HFT profits as the ugly progeny of ivory tower Wall Street elitism that they are and tax them. A 100% income tax on HFT profits (a term which would be defined by statute to encompass the HFT gains that many find so objectionable) would have a much better chance getting through Congress than a broad proposal applicable to everyone.
HFT does provide liquidity making transacitons cheaper for all. plus there's not enough revenue in this segment to make a material difference to the gov'ts bottom line. more trouble than its worth.
I think a transaction tax was one of the major causes of the American revolution.
Stamp Act II?
The investment banks that play the market with their High Frequency Trading computer programs are probably manipulating the market and profiting from that.
When these computer programs can trade at very little transactional cost due to all the discounts they get from the exchanges. Then there is nothing to stop someone like Goldman Sachs from setting up two computers and have them trade with each other through the stock exchange in order to create the appearance that stock prices are increasing and lure human investors to buy these shares at inflated prices from Goldman Sachs.
Increasing the cost of trading would certainly discourage such market manipulation.
Perhaps the big investment banks aren't the only ones who can manipulate the market. Just take a look at the huge daily trading volume of MTLQQ and its sky high price, despite the fact that this company is totally bankrupt and worthless according to its own management.
All that trading and the high price of MTLQQ are probably nothing more than some Hedge Fund trading with itself at no cost to itself except the transactional cost and creating the appearance of demand in order to lure and fleece naive day-traders.
This tax would put me and 1000s of other non HFT traders out of business OVERNIGHT. A quick back of the envelope calculation for my trading activity last year would change a mid six figure income to a 6 figure loss.
For those of you who question what value short and medium term traders add to society: Ask anyone in FL, NV, CA how nice it would be to have a willing buyer for their house within seconds of offering it! Add to that the short term capital gains tax, city, and state taxes that we pay. And don't forget the food we put on our families tables.
The US stock and commodity exchanges are the ENVY of the world. These liquid markets are the model we are trying to replicate for the Credit default swaps, CDO's, CMBS, etc that have brought this economy to its knees! The two reasons for the success. The first is liquidity! Second, all transaction are printed on the tape making it transparent.
Fix what is broken, don't break what works.
ANYONE WHO DOES NOT KNOW WHAT THE CLOSING PRICE OF AN INVESTMENT WILL BE AT THE END OF THE DAY, WEEK, MONTH, YEAR, DECADE, IS SPECULATING.
They always forget how much tax revenue they get from active retail traders who put up consistently good numbers year after year. If they think for a second that behavior and trading frequency will continue unaltered...well I guess they'll understand better when they see the results of their work.
You say a transaction tax is bad, but you *ARE* the tax!
It's great that you can scrape a nice profit from the market by, let's say, Medium Frequency Trading (MFT). But you're occupying an air-pocket left by the passage of larger investments made with longer timeframes. Your profit derives from what is essentially a transaction tax on others.
There's nothing wrong with that, of course. But the rest of us shouldn't have any obligation to support your business model. It works until it doesn't.
Good luck.
As mentioned above, this will virtually eliminate the retail trader(30-50 thousand jobs) and do quite a bit of damage to the regular investor with the potential to move the bulk of the trading to other exchanges.
For example, if I buy 1,000 shares of a $25 stock and it goes up 10% and I sell it, I have to now pay a tax of $52.50. Hey, it was only .1% of the transaction price, but it was 2.1% of my profit. I'm not willing to give up that high a price for a false sense of security or fairness.
Additionally, the big players are going to get out of it. We just have to look at the recent legislation regarding lead paint in toys. Mattel has been allowed to use their own testing labs while everyone else has to use a third party. And Mattel was the reason the legislation was passed in the first place.
IMHO, the only problem with HFT is maybe the flash component. If you don't like HFT, efforts should be concentrated in that area.
As mentioned above, this will virtually eliminate the retail trader(30-50 thousand jobs) and do quite a bit of damage to the regular investor with the potential to move the bulk of the trading to other exchanges.
For example, if I buy 1,000 shares of a $25 stock and it goes up 10% and I sell it, I have to now pay a tax of $52.50. Hey, it was only .1% of the transaction price, but it was 2.1% of my profit. I'm not willing to give up that high a price for a false sense of security or fairness.
Additionally, the big players are going to get out of it. We just have to look at the recent legislation regarding lead paint in toys. Mattel has been allowed to use their own testing labs while everyone else has to use a third party. And Mattel was the reason the legislation was passed in the first place.
IMHO, the only problem with HFT is maybe the flash component. If you don't like HFT, efforts should be concentrated in that area.
In Belgium (euronext brussels), there actually is a 0,17 % tax on every buy/sell stock/option/... transaction you make. However, the tax is limited to maximum 500 € per single transaction...
Question remains whether this tax is also due by market makers, funds, ... or just another way to tax individual investors.
Don't know how much the tax helps in dumping the black hole that is Belgium's government deficit, but I don't think it has had a major impact on stock trading.
My broker actually disclaims that trading taxes may apply in other markets as well (I guess that would be mostly European markets).
If anyone can spare the time, I'd be interested in seeing an overview of markets and impacts (gov budget & trading).
Let's just instate the up-price rule (every trade must be at a higher price than the previous trade) and let the HFT-ers trade the market to infinity.
Do you know how excessive this tax is! It is 5 TIMES ALL OF MY TRADING COSTS COMBINED!
Here is an example:
If I buy 5000 shares of xyz stock for $50 per share. Currently my commission along with exchange fees, SEC fees, etc combined is $25 to buy and $25 to sell at a low cost Direct Access Broker.
This Tax would add $250 to the current commission and fees. IN OTHER WORDS 5 TIMES THE CURRENT COST OF DOING BUSINESS! To add insult to injury I will be paying taxes even if I sell for a loss and lose money on the trade. This is a TYRANNY TAX!
To rub salt in the wound the major Wall Street player will not pay this tax, they are designated Market Makers and will almost certainly be exempt!
Do you know how excessive this tax is! It is 5 TIMES ALL OF MY TRADING COSTS COMBINED!
Here is an example:
If I buy 5000 shares of xyz stock for $50 per share. Currently my commission along with exchange fees, SEC fees, etc combined is $25 to buy and $25 to sell at a low cost Direct Access Broker.
This Tax would add $250 to the current commission and fees. IN OTHER WORDS 5 TIMES THE CURRENT COST OF DOING BUSINESS! To add insult to injury I will be paying taxes even if I sell for a loss and lose money on the trade. This is a TYRANNY TAX!
To rub salt in the wound the major Wall Street player will not pay this tax, they are designated Market Makers and will almost certainly be exempt!
Yup. Buy and sell a $50,000.00 chunk of stock and you owe this new tax $100.00. The broker who executed both trades only gets a total of $16.00(8 per side). Add in the fact that GS will still chisel you somehow for another $20.00 bucks within the spread, and your headed back to stock trading costs from the 70's and 80's. Many will walk away for good. Some discount brokers will fold up shop soon after its implementation.
A small trader, such as the gentlemen above who trades for his own account, could easily be carved out of the tax, as exempt for "small" or "de minimis" trading activities. The language would be a treat to draft, but it could be done. Pick a line and tax those above it, it is done every day.
Zepplin, don't think for a second that desinganted market makers will be exempt from this tax. The little guy is the ONLY one who will pay it.
The same tax exists in the UK and virtually all institutions are exempt. Small investors are the only ones who pay it.
54493 has it. It's a tax on the small retail chump. The "Market Makers" will be exempt. HFT will go to 80% of all trades as the small bit players are pushed out.
This week on Robot Wars: JPM vs GS.
zero hedge is schizoid. they cannot decide if they are populist and want to round up all the intellectuals and put them in camps or just tax them out of existence. i find it weird that a site that is supposed to be about the markets has so many registered commenters who are so rabidly against making a living in the capital markets.
Fuck the fucking AFL-CIO.
BANKERS, UNIONS AND TRIAL LAWYERS RUN THIS FUCKING COUNTRY.
Oh yeah, healthcare reform without tort reform. Only in this fucking bizarro world we live in.
Congress is on recess and it was a slow news day for The Hill, hence this story. There is no evidence this proposal has any political support or inertia. As #54274 stated, the proposal is politically bankrupt from the outset anyway. A targeted provision has a much better chance of passage and would be sounder tax policy. You do not nuke a city to catch a criminal.
fuck HFT traders