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The EU’s Financial Transaction Tax

29

September, 2011

Late Tuesday afternoon NYT Dealbreaker reported on the 27 member EU proposal for a Financial Transaction Tax (FTT), which we alerted you to. This morning we just want to share a few more details as we understand them.

EU FTT

This proposal will be debated by the European Council of Ministers this year, and if passed or agreed upon unanimously by the 27 EU members, will take effect January 2014.

- One of the parties must be established in the EU
- Rate = 0.1% of the value of stocks and bonds
- Rate = 0.01% notional value of derivatives
- No tax on spot currency trades.
- No tax on physical commodities.
- No tax on Primary Issues (new bond issues or IPO’s)
- Paid by both sides (i.e. not the exchanges or execution venues).
- Taxes collected in the country the firm pays taxes.

Themis Thoughts:

- 27 unanimous votes? Really? Good luck with that.
- UK is against.
- Given that the tax will really affect HFT firms, and the Exchanges who cater to them, and given the tough economic times, and the new data centers being built everywhere, and the regulators that have been hired by these firms, and the lobbying-nature of world businesses, it is hard to envision a sharp-toothed FTT outside of media headlines.
- Notional amounts of derivatives are much greater than primary product values (stock trade values). Given the Exchange and HFT migration to derivatives (it’s the reason for the DB/NYSE merger), the FTT would affect HFT in derivatives in a huge way. Again, I wouldn’t hold my breath waiting for such a tax.
- Perhaps we could see passage of watered down versions? Perhaps we would expect to see exceptions for “bona fide market making”, or large firms with good lobbying.

As we have seen in the US alone how difficult it is to get government to agree and act appropriately and in coordinated fashion (think Debt Ceiling), can you imagine getting 27 EU nations to accomplish that internally as well as together?

Anywho, we wanted to give you a few more details.

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