Tobin Tax Opponents Are Ignoring The Real HFT-Induced Trading Toll; Why VWAP Is A Gold-Mine, But Not For You

Tyler Durden's picture

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anynonmous's picture

and from conspiracy corner - the latest from Bob Chapman

The following information may be the most important we have ever published. One of our Intel sources, highly placed in banking circles, tells us that on 1/1/10 all banks that have received TARP funds have been informed by the Federal Reserve that they must further restrict any commercial lending. Loans have to be 75% collateralized, 50% of which has to be in cash, which is a compensating balance....


Anonymous's picture

and then every company that is listed will try to sell obligations and that will be follow by a obligation crash follow by yet another credit crunchy for breakfast.


That is my que to start shorting the markets.
Thx for the info!

Anonymous's picture

I read it, now I can sleeep better.

Anonymous's picture

REDACTION : All my chinese funds seem the be down 10% since friday, could you investigate that?
It seems that the dubai fears have made it into those funds.

Anonymous's picture

Tobin Tax Proponents are ignoring the ease at which the HFTers will bypass the tax by moving off shore or procuring loopholes in the law. Give me a freaking break.

Anonymous's picture

if the tax is levied at source (i.e. US venue where the trade is done) it does not matter if the executor of that trade is off-shore.

India for example has myriad taxes on transactions (stamp duty/sebi duties/service tax/security transaction tax etc) all levied at source. None of that has destroyed Indian market.

jdun's picture

No kidding. The only thing it does it line the pocket of government which is something we don't need. Less government, less tax, better country.


Tax always hurt the poor and middle class. It does little against the rich. All they have to do is move to another country.


If you want to stop HFT outright ban it and it something I support. Hower I do not support tax in whatever form.

Anonymous's picture

Bingo! There are other ways to address HFT. HFT is merely a red herring to institute an enormous and capital destroying tax on US investors. The government just wants the money and this is a convenient excuse and one that will likely screw every market participant except GS.

(Funny how it works that way)

Anonymous's picture

This is an interesting report....

There only need to be a few rules....

1) all orders stand two second minimum

2) the exchanges have to be defragmented into a singular direct access electronic exchange....

3) first come.....first served

4) no account minimum day trading size restriction

5) simple 4:1 margin...applies to both intraday and overnight....

6) no dark pools or internal order matching....all transactions have to occur on the exchange....

7) upper size restrictions per account

8) no uptick rule....shares are electronically tagged
and cannot exceed outstanding locates required....

9) applies to all securities

10) securities information.....fact based format....

11) Universal the language/currency of choice

12) no taxes of any kind on any the name of efficient capital ....

13) transaction costs have to be the same for all transactions....20 cents per hundred units....removes trading advantage biase....

This solves the HFT issue....

Anonymous's picture

The upper hand that a fast algos give will not be mitigated AT ALL by your simplistic "solutions".

"First come, first served": Who do you think will be? You and your big fucking brains, or that boatload of computers standing right next to the actual stock market box? And what the fuck does "stand in 2 seconds minimum" have to do with anything, given that you also say "first come, first served"?

Anonymous's picture

that clears that up.

onelight's picture

more manufactured news that is really non-news..

bread and circuses for the bored sheeple..

why Tiger even has to say anything is an affront to everyone's intelligence and dignity as human beings..

who cares what their personal business may or may not be...and being a public figure does not change that..

seriously, it's like TMZ and the rest are working to turn everyone into a cynical pseudo-moralist, seeking to know who might have failed at anything at all

where does it end?

1984 except the inmates think they are in charge..

the craven, celebrity-stalking media sells eyeballs to advertisers, and first they have to aggregate them with whatever prurient hook will distract them from whatever more real thing they might be doing...



aint no fortunate son's picture

Speaking of taxes, I have a dumb question. Do the institutions have the same tax reporting requirements as retail traders; ie., do they have to report short term gains/losses the same way we do? 

If so, how do the Goldmans compute wash sales on easily half a billion or more trades a year, covering a total of maybe 50 billion shares actually traded... many of which become odd lots and get carved up due to iceberging etc, and then the iceberged stuff gets iceberged, etc etc to virtual infinity?

I go back to my original thought from two weeks ago... wouldn't it just be better to cut out the middle man, do away with the IRS, and send our returns and payments direct to Goldman? I mean, they must be more expert at figuring taxes than the IRS. If they actually pay their rightful taxes that is...


peterpeter's picture

There are no wash sale reporting requirements if a mark-to-market election is made, which essentially means that all trades are accounted for as short term gains (and taxed as such).

With wash sales, the dis-allowed loss doesn't get thrown out - it just gets put into the next basis calculation for the next purchase/sale of the same equity - so if everything is being accounted for as a short term capital gain (or loss), then the effect of the wash sale rule is 100% neutral (disallowed losses under the wash sale rule would lower the next cost basis giving you back the same money as never having applied the wash sale rule).

So... things are actually much easier to account for.  You just need to itemize for each asset traded the total proceeds and total costs of proceeds, as your business revenue and costs of revenue lines, and then pay short term capital gains tax on the difference between the 2.

Non-corporations can also file with the IRS for a "mark to market election", which would absolve them of having to compute wash sales, but would mean that any long term capital gains treatment would go out the door... so it only makes sense for individuals who have chosen to trade frequently on a short term basis, have not incorporated a trading business to host their activities, and who do not have and will not in the future have long term capital gains.

aint no fortunate son's picture

Thanks peterpeter... in a few paragraphs you explained everything clearly, concisely, perfectly, even answered additional questions I had but didn't ask. Much appreciated.

spekulatn's picture

Well done, peterpeter. Great stuff. 

Anonymous's picture

"What's the frequency, Lloydeth?" is your Benzedrine, uh-huh

Anonymous's picture

The reason small traders are the most vocal about the transaction tax is because as it is currently proposed, they will all be out of work....scalpers, day traders, swing traders. There is no doubt algo trading is a giant scam/mess. How do we reform that without killing the little guy. The tax as it is now proposed will make all short term trading unprofitable unless you have a computer driven system that generates 90% plus winners. Hmmmm....sounds like the Vampire Squid will be fine. The rest of us unemployed.

Mark Beck's picture

IMHO, increasing trading overhead through a tax is the worse way to regulate.

I pay taxes, I fund the SEC, they just need to do their job, investigate the allegations and regulate. It is clear there are only a certain number of market makers, with the required access; market, customers, equipment, and exchange. To permit high activity at near zero cost relative to what may be charged for a customer trade. The overall system has to be in place for clearing trades. It is how the system is used which is in question.

For Government to add a tax, to an open market to encourage broker behavior already under the jurisdiction of a Government agency (SEC), sounds crazy to me.

Mark Beck

heatbarrier's picture

"Deterrence is the art of producing in the mind of the machines the FEAR to trade. A Tobin tax is terrifying and simple to understand, completely credible and convincing." -Dr. Strangelove

Anonymous's picture

What is more important to understandf is that the only people in Japan that have made any money since the all time 29 years ago....have had to become traders....

Try this...

Take out a bond calculator...

Place in a 30 year 3% bond at par....change the rate to 7,8,9 %....

The value plummets ....even from our current levels....
COULD plummet 70% +....

The other reason is that the baby boomers have no savings....and even if they did ....there would be no a 3% long bond paying $30 per $1000 per year ???? Not going to cut it....

Furthermore any form of transaction tax would make an already weak market....much weaker...

And the bid ask spread on many stocks would widen from a few cents to over a dollar....and even more....It would cost about 5% for most to transact a stock to break even.... This would be more than what a bonds pays for a year....

Low rates are here to stay....just like Japan....they sacrificed the retirements of their old people to try to save the youthful future....The SAME is happening in the US....

The US stock market....or any stock market needs rules that make for a level playing field and efficient mentioned above...

All securities capital should not be taxed in any the name of efficiency....

The legal largess headwinds also should be dramatically reduced.....

And because of government imposed low rates.....



And by the buys real estate when rates are high...not low....EVERYONE buying at a 0% interest rate impostion is going to get smoked....

You know it...

The best the government can do is to make TRADING smooth sailing....

Because that is it folks.....

And the market needs billions of small accounts with diverse opinions....not a handful of managers who will need to exit at once....

You know it....

peterpeter's picture

> A critical observation of who is trading with whom now that HFT accounts for 70% of trades: the conclusion is surprising in its simplicity: at least 20% of the incremental order flow (over 50%) has nothing to do with providing liquidity, thereby refuting all claims that HFT is purely an altruistic strategy seeking merely to benefit all market participants. If that was the case HFT would max out and plateau at 50%.

Oy!  This is what happens when people throw around numbers that are not well grounded, and then which they don't understand.

The 70% figure from TABB (which I think is questionable at best) means that 70% of transactions included a HFT on ONE SIDE of the trade.  That means that if TABB had meant to say that *all* trades are done by HFT with a HFT bid hitting a HFT ask, the reported figure would have been 200%.

You are taking a poorly constructed figure from Larry Tabb that was inflated to be more impressive sounding (by counting any transaction that had a HFT fingerprint on either the sell or buy side or both), and making an erroneous conclusion from it.

Of course, some HFT is trading with other HFT some of the time - but for each such trade, I posit that it is not possible for both parties to make money (when viewed on a statistically meaningful sample size).  Further, I posit that it would not be possible again over a statistically meaningful sample size of transactions with HFT on both sides of the trade for the 2 institutions to have combined made a net profit.

Ergo - the volume of HFT is self limiting, unless the software is modified to become more charitable.

As for the rest of the article, it made my stomach churn a bit.  How many ways are there to mis-interpret data?  If you look at the adverse selection of large institutional traders and measure their implementation shortfall without attempting to quantify the spread impact of the HFTs (i.e. compared to human market makers), as well as the lower SEC+NSCC+FINRA+exchange fees - then you have only looked at the costs rather than the reduction in costs.

And regarding the nonsense about sub-$10 stocks trading more frequently - when in history has it not been the case that a lower stock price means increased volume?  Do you expect to see BRK.A trade as frequently as BRK.B?  Crap - companies have been doing stock splits for decades, in an effort to make their shares more affordable, so that non-odd-lot orders (i.e. 100 shares or multiples of 100) are reasonably priced for retail investors.  If someone is willing to commit $25K to a purchase, the number of shares traded is obviously inverse to the price...

> [so yeah, all it takes is an i7 and a $29.95/month program to run a HFT system, right]. The time frames under consideration are so short that many of these firms have taken the step to co-locate their technology inside the buildings housing the exchanges.

A dual quad core i7 with sufficient memory from the likes of Dell (cost just under $10K for 2 2.93GHz processors and 24GB of memory) will do just fine.  A really good programmer could probably get by with a single processor and save $3K.

The data feed will need to be better, but there are many cheap brokers who will get you L2 data feeds perhaps ~2ms behind co-located servers with as little as $25K in your trading account.

It is not the cost that is out of reach of most people, but the ability to construct a trading strategy that works and build an efficient implementation.  Anyone who claims it takes millions of dollars is either trying to thwart additional competition through scare tactics, or is simply ignorant.


Tyler Durden's picture

While you keep claiming that factual data presented by Tabb, or any other data source that disagrees with you is irrelevant, Zero Hedge readers keep waiting for you to demonstrate some/any opposing data as opposed to merely opinions. 

Also, for those interested, here is the draft price sheet for the NYSE Mahwah collocation costs: the monthly prices for a full bundle of HFT services add up to the millions per year. And yes, you do need the a bundled package otherwise there is no point in even presuming one is competitive with the upper tier of those who have monopolized the HFT process.

Normal 0 false false false EN-US X-NONE X-NONE Normal 0 false false false EN-US X-NONE X-NONE


Mahwah Price Sheet - DRAFT 
















Gbps Circuit Prices - 3 Yr Term













 $                2,500






 $                7,500






 $                1,250





of Each

 $              22,500










Gbps Circuit Prices - 3 Yr Term













 $              10,000






 $              20,000





Optic - 1st and 2nd Ckt*^

 $                1,700





Optic - Additional Ckts*

 $                6,250





of Each

 $              63,400










6 Packs
- 3 Yr Term












1G Bundle*

 $              18,000





10G Bundle*

 $              60,000











* Cross connect charges at Access Centers are not included
in SFTI Optic prices.






^ Customers can only order two (2) SFTI Optic circuits at
this price






A SFTI 6 pack is six (6) circuits, two (2) of each type
of circuit (i.e., SFTI IP, SFTI LCN and SFTI Optic) all at either 1 or 10






One Time Charges are still to be determined























General: The pricing is based on kW and
ranges from $1200/kW/month down to $900 / kW/ month depending on the number
of cabinets.


Reservation Pricing:  A
one time per cabinet rate:  $10,000 for a 4kW  cabinet and
$20,000 for an 8kW cabinet  will apply. Monies will be deposited in a
trust account and will be applied to the customers first bill in 2010.


Member Tiered pricing schedule:


First 2 cabinets for members:


Standard density cabinet at 4kW for $4,800 per month


High-density cabinet at 8kW for $9,600 per month


Cabinets 3-5 for members:


Standard density cabinet at 4kW for $4,200 per month


High-density cabinet at 8kW for $8,400 per month


Cabinets 6-10 for members:


Standard density cabinet at 4kW for $3,800 per month


High-density  cabinet at 8kW for $7,600 per month


Cabinets 10+ for members:


Standard density cabinet at 4kW for $3,600 per month


High-density  cabinet at 8kW for $7,200 per month


A one time fee of $5,000 per cabinet will also apply.




1.       Pricing reflected
is for firms (members) that have trading permits with the various NYSE


2.     Discounting follows a tiered
structure and is based on cabinet volumes. Discounting starts with cabinets 3
through 5.

Zippyin Annapolis's picture

HFT like GETCO are to Mahwah as love potion #9 is to Elliott Spitzer--a match made in lustful heaven.

peterpeter's picture

>  As periodic clearing eliminates the possibility off line-jumping by predatory and block sniffing algorithms due to all trades clearing all at once at a set interval, this would be a comparably viable approach to eliminating the parasitic features of HFT.

And so would keeping all trading in dark pools....

Or maybe we should just get rid of the computers and use a telephone and go back to a ticker tape.  Those glass jars were kind of cool looking.

Maybe we should just save retail investors the most money and shut down the mutual fund business (which is the largest contributor to any predatory HFT), and save small time investors from having to pay ridiculous fees to fund managers who on average perform worse than a broad index ETF like SPY.


gatopeich's picture

Yeah p-p, you already made it clear you are on the 'hard earning' side of HFT trading.

Anonymous's picture

Peterpeter is on to something. Remember when Nasd added the sale volume to the buy volume of a trade while the NYSE counted the volume of the trade to get to daily volume. It is the strategy where we all fall down, buy low sell high, free beer tomorrow

overbet's picture

I have read that just one high frequency trader can flip 15 to 20 million shares a day. 15 million * .0024 liquidity rebate per share per trader per day is $36,000. a day with very little risk. They can send out up to 1000 orders a second. If they are sending orders on 1000 symbols with 1000 share lots and the average stock price is $20.00 a share thats a lot of money on the line that could potentially go up in smoke if something went haywire. The speculation is that high and ultra high frequency trading is going to quintuple from here. That many traders sending that many orders is dangerous. They have already started to do different strategies besides liquidity providing for rebate. They are now speculating in stat arb just as much as liquidity providing. Which basically means they are getting more aggressive and taking more risk. It is no longer primarily risk free exchange or ecn arbitrage.

The state of the market as I see it is that you must be a good stock picker or you should invest your money in a business of your own or speculate in real estate. The market pirates are just going to tax the fuck out of every dollar you put into the market and kick a little back to the politicians and regulatory bodies. Instead, dont put your money in the market and kick them back yourself. They are gonna get your money one way to another why not get some representation for it. 

Brokers prop desks, HFT, and anyone else who will pay the exchanges can get away with this: See order flow before other market participants. Front run others orders. Place hidden limit orders so there is no transparency to what the real market is. They can game dark pools. Detect or maybe even see buyers or sellers orders and discretionary limits and front run them and then unload to them at a profit for themselves and i am sure there are many many many other things. I mean come on Dark Pools are to remove transparency, how do they get away with letting them exist? Another joke is that the HFTs are defending their profits which are clearly a  form of market taxation by saying they step in and provide liquidity in the Fall/Winter of 2008. Whenever, I try to hit their bids they disappear. It is basically a savvy way to legally steal. If the market is falling like a rock they expect us to believe they are gonna step in like heros and hold it up? We all know they would be shorting the market instead or they wouldbnt be profitable traders. We know they are profitable. I am steaming now I need to meditate. This shit fires fires me up. I need to breathe slowly.

We should make a list of all of the corrupt day to day market activity that is being allowed to happen that is clearly wrong, every little and big thing. I would like to see the total number of wrong doings that are legal. Seriously, why do we even have the SEC? Just get rid of them and give their budget money back to Obama so he can make it rain somewhere. I cant imagine people losing less money because of market corruption if there was no SEC yet that is why they exist. Actually i bet the amount of money investors lose to corruption would be significantly less if there was no SEC because they would be forced to do their own due diligence or not play. The brokers would have to prove to them the game was legit instead of having a government agency give it the seal of approval. People have been conditioned to trust government agencies like the FDA they are supposed to be the standard setters. When the SEC says this or that is okay the public thinks oh it must be fine. When in reality some things the SEC is supposed to regulate and they dont even understand how they work themselves.  I am convinced that the SEC only exist to protect brokers and professional market participants from the inquiring public while trying to appear like they are protecting the public. Where is the "Fair and Orderly" or is that just cheap talk? 


overbet's picture

If  you want to know a lot about HFT read all of these articles and you will have a good understanding. HFT is okay imo if that just means sending many orders at once to employ a stratgey. Co-location, naked access, front running, dark pools and other hidden orders are not okay.;jsessionid=0P4V...

Anonymous's picture

There is one certain outcome to this tax: No
short term traders will be able to avercome this. This will amount to a 100% tax for 1000's of people.

Anonymous's picture

Spent some time reading the documents in question. I think there is a lot to be criticitze in the QSG report.

First of all, their stock sample seems to be pretty skewed. If I understand the tables on page 6 correctly, the number of trades per second in stocks for the arrival algo is around 1 per second, whereas the number of trades per second in stocks for the vwap algo is around 0.3 per second.

These are not unbiased samples of high liquidity stocks. They are lower liquidity stocks, meaningfully segregated by order type (to the advantage of trying to make the author's points).

Second, the vwaps are 4 hours... vs. 20 min for the arrival algo. It is hardly surprising that (since these orders presumably have alpha) long duration orders have greater implementation shortfalls (measured from arrival price) than short duration orders.

So, we've learned that it is better to trade quicker when you have alpha that realizes over your trading period. And that trading low liquidity stocks is more expensive than trading high liquidity stocks. Sigh.

Cistercian's picture

 Let us dispense with half measures:let's ban HFT outright.I can't for the life of me see a benefit...except to people who like using a money siphon on the market.


 I must add that I doubt the veracity of those who support HFT as it is currently implemented/abused.Too much to gain at the expense of literally everyone else.

 I would GLADLY have a slightly less "efficient" market that was not simply a criminal enterprise.And for perspective on this view, I also think banking should be opposed to a high stakes casino.You know, loaning money using boring actuarial tables, requiring actual collateral....and not originating sewage loans to be bundled into derivatives only to explode like an atom bomb in the future.Obviously, I live in a trite fantasy world where ethics actually matter in combination with business practice.

KidDynamite's picture

TD - VWAP is an excuse for the BUY SIDE - not a tool of the sell side.  I agree it's absurd to execute at VWAP - after all - if a firm is executing at VWAP, wtf are they paying a trader for?  the PM could enter the order directly.  VWAP is used by buyside traders to avoid accountability - plain and simple

as for the impact of a Tobin Tax - it's tough to estimate, because the Law of Unintended Consequences will insure that liquidity and trading volumes post Tobin Tax will be vastly different than we likely think, but it seems to me that the comparison is simple: you take the money that the HFT guys who would be virtually eliminated by such a tax are currently making (these would be market improvements - SAVINGS, as you'd say), and compare that to the increased cost of trading as a result of wider bid/ask spreads when liquidity diminishes (Which is difficult, but far from impossible to calculate/estimate).. .ie, notional $trading volume per year x increase in bid/ask spread on average

Zippyin Annapolis's picture

Custom algos are meant to throw chaff at the HFT programs that are sniffing the buy side order flow--think Star Wars--this is all evolving and gross generalizations are just -well- gross.

Anonymous's picture

A transaction tax puts thousands of us out of business. So it is a 100% tax like the previous commenter suggested.

This is the same as saying I am going to take your job whether you like it or not.

And we had nothing to do with subprime or HFT.

And there are no other similar jobs to go to for us.

Tell you what, considering how ratings agencies, politicians, and the large IBs are intertwined with the SEC and politics, just mark another one down for the small guy, who got clocked for no reason, putting their livelihoods and families on the street.

Just mark me an Expat for sure.

The US is just not what it used to be.

Too much corruption, fascism, and lack of freedom, and soon to be much higher taxes.

The US is going down the tube faster and faster.

What the markets really need are millions of accounts like us that have varied opinions. Just having a handful of big players that are going to need to get in and out at similar times do not make for a complete marketplace.

USA = Good Riddance

I think that the exchanges are going to be more non US centralized anyway just because of the higher taxes to come.

Switzerland, Singapore, and Hong Kong are going to be far more efficient to operate from.

Why would anyone want to have to pay 50 cents to produce a $1 in income, when one can trade in any one of the three countries and pay 10 cents to make a dollar ? It is really as simple as that.

The US Exchanges are "gone" anyway , just on this alone.

Securities are a homogeneous product, and computer banks can be anywhere.

Good riddance.

Anonymous's picture

What is your line of work, may I ask??

And you know what? A couple of thousands out of work to fix the place for several hundred millions? **I DO NOT GIVE A FLYING FUCKTARD.**


gatopeich's picture

Re. "A transaction tax puts thousands of us out of business.":

I have the feeling that HFT is already putting small traders out of business, and probably out of their money. Probably only a matter of realization here.

Excuse my non-tradergroupthink, but I can't easily imagine how a tax in the order of 0.1% would really hurt a human trader. Unless he/she is doing roughly the same as HFT (on a lesser scale).

While blaming others for corruption, fascism, and lack of freedom in the US, could you explain how scalpel-wielding day traders are 'fighting back'?

And good luck with your 'dissimilar' job!


Anonymous's picture

Hear, hear! I so wholeheartedly agree to this point - I just had to say it!

(ZH: Thumbs up/down buttons on comments? And articles to, for that matter?)

Anonymous's picture

In order to be more needs to understand where we used to be and where we are today in terms of total execution costs.

Let's take 1978 in a typical Merrill Lynch office.
One could view the pneumatic tape on the wall....and walk over to the Quotron and get single quotes. There was no internet. When one wanted to buy, one would ask the broker to write a paper ticket, and if one bought market the market makers would kindly take the spread which was commonly 50 cents or more.....and the commission for a 1000 shares was a few hundred bucks...

Today, because of ECNs, the spread is now pennies, and the commission for 1000 shares could be largely rebated to nothing via competing ECNs....

Now Congressmen who have never traded a share of stock want to direct how the exchange should be run and taxed.

I think that says enough.

Anonymous's picture

This is THE MOST important point here.

I'm sorry if you are a click execution trader and use your mouse to trade shares. At the end of the day, your services are no longer needed, and your execution strategies are incredibly inefficient. The reason you pay more for slippage is because market information is now more efficiently processed (by HFT algorithms) to price in the actual market impact of your trade - tick by tick. If you can't handle that, I'm sorry.

Markets have always been PREDATORY. A "predatory algorithm" is no worse than an "opportunistic trader" who sees movement in the market and is quick to jump on it. This has always been a factor in the micro market structure, and now because humans are no longer competitive, they are pissed that they are being beaten at their own game. Want to make money? Don't trade on a short time frame - stat arb only works so well. You can still make money trading on fundamentals - if you are smart.

The amount of garbage spewed on zerohedge about this stuff is absurd. The worst part is, now that it has so many viewers, its not like its authors can ever admit that they are wrong. I mean, why would they? They probably have more viewership than they ever did before!

All of these "nails on the coffin" are examples of idiot traders placing orders that will obviously get sniped, because they are incredibly unsophisticated. Not to mention, the bottom line is that SPREADS decrease - which means that the INCREMENTAL market pricing is more efficient - it does not mean that the market will be dumb and digest your order with less slippage. Although, I wouldn't expect anyone to think for themselves on this blog, because they are clearly to busy refuting people's legitimate claims in all caps and substituting profanity for any sort of coherent arguement. Nice work.

Anonymous's picture

This is soooo simple.

Ban HFT, but no taxes. Define it as one cannot trade
over 100x per minute, and the order has to be good for two seconds.


One wants to tax capital in a depression ?

Anonymous's picture

The IMF Is Not Considering The Tobin Tax

If the US polys want to go it alone,

Then bye bye US Exchanges.

Anonymous's picture

No, they're apparently considering a plain Pay The Government More Money tax - to help pay for cleanup and .. you know .. the general mess you citizens make.

Such a tax, if I understand you bunch of morons on this comment board, is bad.

Instead one could pursue a tax that took the bull directly at its horns - killing off the entire situation with a tax that was utterly and fully directed at *THE PROBLEM*, not towards the necessary band-aids that one'll need later. A normal person, a normal company, a normal WHAT-THE-FUCK-EVER, would not feel such a tax AT ALL.


But it would *KILL* those shops whose sole means of making money is the pretty-much gratis access to putting unlimited amounts of orders on the market, so that THEY in effect can levy a tax on ALL ORDERS that go through the system.

Ah - THERE I get it - YOU ARE ALL FOR PRIVATE GOVERNMENT!! Companies should be able to levy taxes on .. ALL OF US! WHATEVER IT TAKES, as long as we can kill the *actual* government!!

Most (apparently more than 50%, judging by the vote) of the folks on this board have a HUGE short-cut on their internal logic board. Please fix this.

Anonymous's picture

Even though we are taking a leap of faith with the “QSG T-Cost Pro tick-based cost attribution technique” (whatever the heck that is) this paper puts some real data behind the hypothesis (some of us had) that many off the shelf algos aren’t so light on their feet and at worst hand “the keys of the kingdom to whoever is in charge of the primary child order splitting algorithm.”

But how do we know exactly that HFT is “adversely impacting the increasingly fewer number of non-algo based traders” ??

HFT isn’t constantly driving prices up or constantly driving them down and periods of constant up and down (volatility) can be taken advantage of. Even Goldman’s stat-arb desk can’t anticipate the stubbornness and whimsy of a human trader or PM who just doesn’t feel like paying more than a quarter today. One large, stick-to-your-guns, found-the-other-side cross – over the phone or in a dark pool, can trump a whole slew of trades that under or over tracked by 5bps. If HFT exploits the algos you use and drives up your costs, don’t use those algos anymore, write your own or drop them altogether, don’t ask the government to level the field with taxes. Good grief (here's the gun Big Hoss just don't point it at me!)

Trade cost analysis is almost entirely a function of buy-side compliance hassle avoidance. What started as a means to justify that you weren’t sending business to Dewy, Cheatum & Howe simply because of the steaks and the strippers quickly turned into micromanaging busywork that had the net result of missing the forest for the trees. The true, total cost of a trade, however you measure that, is already baked into the performance of the underlying portfolio which is very much a stark naked, transparent and well noticed number. When traders are more concerned about making compliance happy than making their PMs happy or focusing on the bigger picture, the head trader or some committee eventually picks some VWAPy type metric to measure all trades by because it’s easy to understand and makes a certain amount of sense. As a bonus, after thinking about it for five minutes there turns out to be some plausibly deniable way for you (the trader) to tweak the workflow or compliance laden order management system to your advantage every now and again to give yourself a VWAP head start. So now the trader is focused on keeping compliance happy and trying to game the system. Terrific. And hey, these algo things are cheap and easy! But guess who else is gaming the system? – the guys who wrote or at least better understand those algos and can figure out how to turn small, regular waves into exploitable momentum. Total execution cost was probably lower for the buy side when everything was done by phone at 6c/share with three times the traders.

Anonymous's picture

It is so "funny" reading all your reflex responses to "one more tax".

What the fuck is wrong with you Americans?

What would you want, really? You repeatedly whine that you don't want more government, that "taxes are lining the governments pockets", "less government" etc etc etc.

What do you want? Pure anarchy? Do you REALLY believe that would be good? What about the fact that people actually ARE differently equipped from birth, and that your country, AFAIK, not yet has started to kill people failing to achieve some specific limit on IQ tests and similar. So what do you want to do about it? Have you ever thought such thoughts, EVER?

My god, you folks are so retarded. So god damn retarded. Oh my. You are probably the same fucking morons that come up with the interesting idea that global warming is something that scientists have come up with to "get more money". It is SO FUCKING RETARDED I have problems relating how I feel about it.

BUT, I digress: Here's my real point: This tax would not be to "line governments pockets", but PURELY as a dis-incentive to place HFT orders. If one single PLACEMENT of an order had a tax of e.g. 50 cents, then "thousands of orders per second" would at least COST something. One would have to believe that ones order could extract MORE than those 50 cents. Placing orders just to probe the market would suddenly be dear.

Moving off-shore wouldn't help jack - as if you wanted to trade on American companies, you'd have to do it on the American stock exchanges - and you'd get the tax.

If ALL companies moved their stocks to off-shore stock exchanges, then you'd have a problem. But that won't happen. a) It just won't, but b) those other venues would then have to allow HFT - which, logically, basically was banned "back home" because it HURT THE INVESTOR. Why the FUCK do you think the companies would want to hurt THEIR INVESTORS?

"Raping the middle class" arguments: AS IF the *middle class* makes thousands of order per .. any fucking time unit you can come up with, up to and including "during their fucking lifetime". So just how much would this tax hurt the middle class? Take your vested bullshit arguments and just fuck off.

It boils down to the fact that IF you go into the stock market, you should believe that the stocks you trade in have an ACTUAL momentum somewhere, over a time span of more than milliseconds. Because if you don't, you will be killed by the tax. If you actually buy stocks because you believe in the company or whatever, thus having a time frame of at least some minutes, then this tax will just hit you AT ALL - it will pretty much cease to exist.

Anonymous's picture

Uh...actually it looks like some very significant part of global warming is in fact something that scientists have come up with to "get more money".... best analysis here: