European HFT Fee Coming; USA Next?

A potential game changer in the world of High Frequency Traders is coming soon to Europe, and potentially, to the USA. In 2014, fees on financial trading will begin. Rates will range from 00.1% to 00.01% for trades over €10,000 Euros, depending upon the traded asset.

Under existing lack of HFT rules, High Frequency Traders exert a tax on all other investors. This is due to the corrupt relationship they have with exchanges such as the NYSE and NASDAQ. HFT firms pay these exchanges to co-locate their servers, to see orders before the public, and to front run them. They also allow them to send millions of spoof orders per minute, canceling and re-offering them. This stresses the entire plumbing of the electronic markets, raising costs form everyone else.

While some have incorrectly described this as adding liquidity, the Flash crash taught us that’s nonsense.

Here are the HFT fee details:

“The tax would be owed no matter where the trade took place, as long as a European security or European institution was involved. The law has been written so broadly that if a French bank bought shares in an American company on the New York Stock Exchange, the tax would be owed.

Manfred Bergmann, the European Commission director for indirect taxation and tax administration and a primary designer of the tax plan, calls it a “Triple A approach — all markets, all actors and all products.”

To get out of the tax, a financial institution would have to do more than simply move its headquarters out of the 11 countries that now plan to impose the tax. It would also have to forgo serving clients in any of those countries and trading in securities or derivatives from any of the countries. Officials are confident that no major institution will be willing to forsake such large markets as France, Germany, Italy and Spain.”

If American regulators were smart — something we know they are not — the USA would join Europe in pursuing this same goal. In the meantime, the HFT tax steals money from long term investors.

It’s time to stop this nonsense.



A Tax That May Change the Trading Game
NYT, February 21, 2013

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