EU Readying Finance Tax

The 2008 financial crisis brought quite a few ideas from the margins of financial thought into the limelight. Glass-Steagall’s ignominious death in 1999 came to be seen by many as a mistake, and the Volcker Rule arose to revive the restriction on prop trading for big banks. Now, it looks like another idea from the fringes is about to have its moment: taxes on financial transactions, sometimes called the Tobin Tax.

James Tobin’s name has become synonymous with the tax idea he popularized over 40 years ago: a tax on all foreign exchange conversions from one currency into another. More broadly, however, his name has been invoked in support of a broader measure: a tax on financial transactions themselves, regardless of currency. And after decades of discussion, it looks like some version may soon be arising in a European country near you. Reuters reports:

European Union finance ministers are expected to give their approval at a meeting in Brussels, allowing 11 states – Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia – to start preparations for imposing a tax on all financial market transactions…

Some believe that the tax could raise up to 20 billion euros a year, although estimates vary widely…

It is likely to suggest taxing stock and bond trades at the rate of 0.1 percent and derivatives trades at 0.01 percent.

Some are very unhappy with the idea – especially the UK, given the size of the finance industry in London. The Brits are definitely not signing on, but some form of the tax looks very likely in the 11 EU states discussing it.

So what will this mean for international markets? Right now supporters are billing it as a measure that will cut down on perceived high frequency trading abuses, by attaching a cost to the millions of trades they place every second. Whether or not this will work is one thing, but the unintended consequences are even harder to imagine. How will trading behavior be affected by the knowledge that every trade is going to lose some skin to the government?

Of course, if we know anything about financial companies, we’re likely to see a great deal of effort spent avoiding these taxes rather than paying them. This means more transactions moved beyond the borders of the countries signing on to the tax idea, potentially boosting trading volumes elsewhere.

In the long run, could this mean a Tobin Tax for the US? Probably not. US regulators still have their hands full sorting the mountains of Dodd-Frank regulations that have yet to be finalized (or written, in many cases). And past proposals for transaction taxes, as numerous as they’ve been, have never really gone anywhere. The CME group has always argued strongly against transaction taxes, saying they would hurt liquidity and move trading off-exchange, or to less-regulated exchanges. Now it looks like some EU members will give us a live experiment, and perhaps settle those arguments one way or another.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.