Having Killed Their Equity Market, China Unleashes "Tobin Tax" For FX Market

Tyler Durden's picture

In September last year, Chinese regulators stepped on the throat of a 'fair' market in equity futures trading and for all intent and purpose killed the Chinese equity market. Tonight - after 2 days of Yuan weakness - having warned everyon from Soros to Kyle Bass that "betting against the Yuan can't possibly work," The PBOC just unleashed plans for so-called "Tobin Tax" on FX transactions (which implicitly taxes each transaction, reducing liquidity, raising margins and reducing leverage).

Deputy central bank governor Yi Gang raised the possibility of implementing a Tobin tax late last year in an article written for China Finance magazine, and now, as Bloomberg reports, it is on!

China’s central bank has drafted rules for a Tobin tax on currency trading, according to people with knowledge of the matter.


Rules are aimed at curbing speculative trading, say the people, who asked not to be identified as the discussions are private


An initial tax rate may be set at zero so as to allow authorities time to set up rules without immediately implementing the levy, people say


Tax is not designed to disrupt hedging and other FX transactions undertaken by companies, people say


Rules still need final approval by central government and it’s not clear how quickly they may be implemented, people say


People’s Bank of China doesn’t immediately respond to faxed request seeking comment

What happens next? Well that's easy... This!~

NOTE: Yes that is real... and Yes there is 'some' volume there

Good luck unwinding those levered shorts... and even if the hedgies are profitable, we suspect the tax will be tiered to enable the maximum pain to be extracted from so-called speculators.

“The Tobin tax can be considered as a form of capital control,” says Andy Ji, a foreign-exchange strategist and economist at CBA in Singapore.


“The levy will hurt market sentiment and cause investors more panic, as this shows that the existing capital controls are not enough to curb outflows,” Ji says; “Now is not a good time to roll out Tobin tax as the market is already concerned about whether China will be able to increase capital account convertibility in the coming years, and this is another step backward to achieve that goal

Simply put this imposition of a Tobin Tax suggests PBOC is expecting a lot of volatility and is trying to minimize any possibility of momentum ignition and speculation as much as possible.

Charts: Bloomberg

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Father Thyme's picture

Settle down!

Says mama-san.

Groundhog Day's picture

The hubris of guys like soros and bass are gonna get them wiped out
Hard to go up against a printer

Escrava Isaura's picture



The article is too vague to draw conclusions.

Without knowing the details, look like China is going after capital flight. If that is the case, China steeps are absolutely right.

11b40's picture

Yes, and the author conflates speculators with investors... A common practice, and often intentional.

Theosebes Goodfellow's picture

It seems that China is grabbing the bull by the tail in an attempt to control what the horns do. The problem isn't capital flight, that's just a reaction to the fact that China isn't ready or willing to deal with its mal-investment in infrastructure by CBOC or the country's SOEs. So the bubbles get larger.

I wonder if this Tobin tax will accelerate the use of Bitcoins to move yuan out of China. It's an interesting play that bears watching.

Tom Servo's picture

Policy error? lol


Element's picture

And is the purpose to raise state revenue?

venturen's picture

Well I guess we see the FED future....of kabuki capitalism

JustObserving's picture

It may have been simpler to add a mandatory 2 minute holding time on all FX transactions.  Maybe even 5 minutes

That makes it far more difficult for HFT computers to manipulate currencies 

carneades_jazz_hands's picture

Exactly!  It's not like the US has anything to brag about.  With US exchanges and regulators allegedly allowing, incentivizing, 'legalized' front running, that raises execution costs just as efficiently as any Government mandated tax.  After all, the exchanges are "too big to fail" and so quasi-government backed entities now anyway.

Between the Fed's actions and the Exchanges, it's a surprise there's any liquidity at all. 

Soul Glow's picture

Hotel California

Sorry_about_Dresden's picture

The Chines won't be Jewed. I hope Soros and Klye loss big money

KashNCarry's picture

“Fascism, like socialism,” the economist Karl Polanyi wrote, “was rooted in a market society that refused to function.”

sidiji's picture

china needs a hedge fund tax, 100% of speculator's transaction that is contrary to chinese interests.  you can call this the fuck you Bass/soros tax

Rock On Roger's picture

Speculators steal my production.

Mr. BaGoggles's picture

Off topic, but here are some funny Russian military fails (because those folks build tanks and weapons systems every bit as good as they do Ladas):


You like?  I like!

Rock On Roger's picture

We crashed a few...


Big Deal


Element's picture

you didn't like the music?

Flybyknight's picture

If you are going to play with big boys toys sometimes the sandpit wins


Element's picture

Yep, as bank angle increases, stall speed increases as well. Graphs of stall speed verses bank angle are in every flight manual for that very reason. Still pilots forget that bank angles that work fine at higher speeds do not work at all at low speeds. That pilot would have known that, and still forgot it, and not "flown by the numbers" graphed. In more modern jet flight deck avionics it makes sure you don't forget, in fact it won't let you exceed the flight envelope in that way, it'll auto decrease the bank angle instead and give you some very abrupt warnings about doing it. These sorts of accidents almost always happen when someone's showing off.

MiddleLeg's picture

Sooo, bank angles are not TBTF?

Got it, thanks.

theliberalliberal's picture

I recall proposals to put a 1c tax on all trades or similar to raise revenue from the stock market.

Peter Schiff is right in saying that they will never get the profit they think they will, that is at present there are a bazillion trades per day so you would think to raise a bazillion x 0.01.  However, since the market would stop trading at this volume you wont get the revenue expect so he said it was a shit idea.

He is correct that you wont get the revenue you expect.  He is wrong that it is a shit idea.  it would kill the robo traders that we (well at least I) despise.  Even if a human sitting at his desk trading all day makes 1000 trades, it affects him not ($10).

We need a tax like this for a fairer market IMHO.



ebworthen's picture

A nickle per trade and a 5 minute delay.

I do like the sound of "momentum ignition".

trulz4lulz's picture

lex luther tax? We just want the flactions?....k thanks bye!!?? Bad for hft however. I recently stacked a little yuan. Ya never know.

max2205's picture

They want $1 to $10 per both sides

trulz4lulz's picture

Yeaaahhh....tis a bit more than one would expect. Unless its directed right at HFT software algos? I 

Hope Copy's picture

Randomized at around 30 seconds to 2 minutes,  HFT would be dead in trhe water with that alone.

monad's picture

Giving so many tax exempt cronies 5 minutes to front run you...

tricorn teacup's picture

The central planner idiots think market speculation feeds volatility.  I think it feeds on volatility.  Penalize responsive trading and you can expect the market to make larger jumps rather than the present small steps.

Flying Wombat's picture

What the Chinese government has done with their stock market has been totally over the top and massive manipulation.  A Tobin Tax on FX, however, so long as it's a very small tax on a percentage basis, is not exactly an apples-to-apples comparison.  A Tobin Tax can have utility, and not be obnoxious nor injurious to FX price discovery and a reasonably well operating market.  Most of us wouldn't scoff at the idea of, say, the COMEX actually having some reasonable relationship between underlying physical delivery ability and contracts traded, and that is indeed the basis for ideas behind new bullion trading exchanges, and I doubt many here would say that would be "too much" "government involvement" and "excessive regulation," right? I mean, come on, the COMEX is a joke because there is no meaningful regulation.

No doubt, the Chinese government is kind of nuts, what with their outlawing of shorting from time to time, fining trading firms, forcing trading firms to go long and on and on...  But again, sticking a small Tobin Tax on FX is not an apples-to-apples comparison to the insanity of the Chinese government management of their stock market.  What is the proposed tax rate, anyway?  I haven't looked yet.

Eric Dubin

NoWayJose's picture

Go ahead punk - make the spoof go poof! It should be a tax on orders / not just trades. Most people already pay a small tax on trades (check your statements). Stop the orders that have no intention of being filled, and the little people will be able to place fair trades - but it will still be a Casino!

hedgiex's picture

Stop it and let us have our long soft landing..That is an order to global markets. LOL that the Unruly Crowd of Traders will oblige. This will unleash more funds (liquidity) to global markets. Keep going, we love the misfires of still about $2.5T of bazookas that land in the war chests of global markets. 

Tobin's tax, just another layer of cosmetics to in substance exchange control. It is war btw global markets and CBs, go sniping for your meals.

Zickster's picture

For more details about Tobin Tax see Tarpley.net and search Tobin tax for in depth application to markets and effects.

Latitude25's picture

What's the difference between killing all markets and manipulating all markets?

huggy_in_london's picture

IMF won't like or allow this.  They wanted entry into the SDR basket, they got it, but they will have to play by the IMF rules on it.  And a tax (capital controls) isn't 't one of their rules!

Golden Showers's picture

Dear Mao, et al.

All of you boot licking, ass licking bueaurocrats of the Party are filth and disgusting to me as a free man who breathes the same air as you. You all have a disease, fat heads and bellies. And I'll bet you're impotent. You are sick, deranged and disgusting warts on the skin of this beautiful planet. You keep a billion people on lock down and find it hilarious. Like you're winning a bet on how many people you can keep under your boot.

The same boot you lick. The same cities that are vacant.

One day I'm a visit you and take a copper scrubby pad called "chore boy" smoke crack out of it in my pipe, pass it to you and then me and my bro ABE are gonna take FUCKING HEADS YOU FUCKING PIGS!


Golden Showers's picture

Fuck all!

HEY, VLAD THE GLAD BAG! You couldn't ride a trained Black Bear in New Mexico, you fucking chrome dome hippy bitch!

Why don't you come down to my house for steak and eggs and I'll ride you for brunch!

What's this shit about pulling out of Syria? What the fuck was up with my god damn college housemates the.... Weinsteins who bought every last fucking thing and then their daughter married the guy from the String Cheese Incident?

Go check your facts with Mosssad and get back with me! Mother fucking hippies! How dare you send over Phish freaks! Fucking canker!

You wanna go? BITCH?! I want you! Just you! Me and ABE are gonna eat your liver you bitch! Unless you bring me some good Turkey you know what I mean? I'll see you at 8 with the mother fucker frome Iran and we'll get shit settled.


PS. I'm feeling much better now. Oh, thank god I feel like I could scull fuck Hit Girl!

Must be the power of St. Patricks Day. I know, right?

Mediocritas's picture

In this market, I don't consider killing off volume to be "killing the market" given that 99.99% of that "volume" is total fucking bullshit anyway.

If spreads were much wider and volume reduced but the only people trading were those with intent to hold a position for more than 0.000001 seconds, I fail to see how that would actually constitute a broken market or inhibit price discovery. We had a market 100 years ago did we not? Did prices fail to get set?

Hell, I bet fills would actually IMPROVE without all the HFT front-running going on, even with wider spreads. Certainly the economy would benefit as all the rocket scientists gaming each others' HFT algos had to get real jobs as actual rocket scientists.

FreeNewEnergy's picture

I love the no volume concept. Three guys in a bar, on wi-fi.

No price discovery, no market.

Solly, me suck trade long time.

falak pema's picture

The fiscal weapon is upon the Casino economy and so much the better! About time that ALL governments start taxing the Casino transactions. C'mon to the show of outlawing the fiscal paradises and burning the financial scalawags.

Hope Copy's picture

the basis for this type of taxation is clearly outlined in Frank-Dodd.  The question is are the banks going to be treatred like trustees or, what they really are, investors?

Angry Plant's picture

Very interesting play by China.

It brings up the question of does FX speculation actually add economic value for anyone but the specualtors?

It also slows down ability of people to remove money from China.

RadioactiveRant's picture

If you feared (or speculated on) a 20-40% devaluation a 1% transaction tax probably isn't going to stop you.

all-priced-in's picture

I am going to sell $5 million worth of equipment to a customer in Japan - the customer demands I set the price in yen today - equipment will be delivered and paid for in 6 months.


How do I hedge this transaction if no one is willing to be on the other side of this trade?


Speculators always get a bad name - but without speculators hedging currency risk will be almost impossible.

skeelos's picture

And that is exactly why there will never be a one world currency.  The elites will never give up such a huge money making enterprise.