30 countries around the world have now implemented some type of financial transaction tax. The US needs to do this too. Widen the bid ask spread increments and add a tiny percentage of tax to each transaction and this will go a long way to reducing reckless speculation and high frequency trading in public markets. All the while, funds raised can be siphoned back to real world needs like health and education. One simple, easy to implement, elegant step toward societal balance and equality. Congress, get to work.
“The American public provided hundreds of billions to bailout Wall Street during the global fiscal crisis yet bore the brunt of the crisis with lost jobs and reduced household wealth,” Ellison said Monday. “This is a phenomenally wealthy nation, yet our tax and regulatory system allowed the financial titans to amass great riches while impoverishing the systems that enable inclusive prosperity.
“A financial transaction tax protects our financial markets from speculation and provides the revenue needed to invest in the education, health and communities of the American people.”
Under Ellison’s Inclusive Prosperity Act, stock trades would face a transaction fee of 0.5 percent, bond trades would be charged 0.1 percent, and derivatives trades would be assessed a fee of 0.005 percent. Ellison said it would be easy to charge these fees because these trades are all computerized.”
He also said it would make high-frequency trading “unprofitable,” but said this would have the positive effect of reducing speculation on commodities.”
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If it can really be enforced, a transaction tax could ease the problem of high – frequency trading. But I expect the financiers would just find some way to “trade but not trade,” making agreements amongst themselves to pay each other “as if” they had made taxable trades, but avoiding the tax. Mundane investors, however, would pay the tax, and 0.5% for equity trades seems quite steep, especially in the current zero-interest-rate environment.
A more promising, if more radical, solution is to restrict the privilege of limited-liability incorporation (Steve Keen’s proposal on corporate stock might be one good piece of this), and generate public revenue from taxes on privilege rather than taxes on productive activity.
I disagree with you on this one Danielle. Transaction tax is punitive for all of us and doesn’t help with discovering real price/value of stock.
Better solution would be to have mandatory order cancellation fee (0.25 CAD) for every transaction you are cancelling. This would kill off HFT profits in a second.
You should not put in an order that you are not planning on to follow through.
What HFT companies do is to create fake orders to get first in line and then cancel them right away if it doesn’t work.
This way they are front running you and I find it illegal.
The other solution would be to have mandatory time that your order has to stay in the system – like 2 seconds. That would do it too.
Transaction tax is not solution here.
Regards,
Martin
The issue is the HFT traders pay less (or zero) trading costs.
If that does not change, then transaction tax won’t help (on the contrary).
Let’s guess: what are the odds that HFT traders will end paying a transaction tax like the rest of us?
apple at 700 per share
a trader wants to buy 1000 shares and then sell that 1000 shares.
(700 x 1000) x .005 = $3,500 per side
7k round trip
at a 7k cost a trader would need apple to make a 1% move of 7 points in order to just break even. ( not including cap gains taxes or commissions)
Sounds like the worst idea i have ever heard.
Main street will pay it, but the banks will be exempt from it.
RETARDED IDEA
I agree with Martin’s comments. The Cancellation fee in particular.
Another concern with a tax, is governments see this as another money generator, before new taxes are implemented governments need to control and cut back spending not be given another basketful of money they can spend freely as if the bucket has no bottom.