Re-Define, a think tank run by a one time TJN colleague, Sony Kapoor, has issued a new paper on financial transaction taxes. If I’m honest it makes claims for itself that the return does not quite fulfil. I think Taxing Banks tackles the issues of incidence better, for example, but I acknowledge my bias.
That said Sony adds useful data on volume trading in many financial markets:
¬? High frequency traders now account for 70% of US equity market trading volume and account for between 30%-40% of the trading volume at the London Stock Exchange
¬? High frequency traders reportedly account for 50% of US future market volume, 25% of foreign exchange volume are becoming increasingly important in options markets
¬? Banks account for only 13% of the trading volume at the Chicago Mercantile Exchange one of the largest and most diversified exchanges in the world trading in commodity, equity, energy, forex, interest rate, metals, real estate and weather products. Much of the balance is attributable to hedge funds.
¬? Hedge funds represent more than 30% of the volume in high yield debt, 90% in convertible bonds, almost 90% of distressed debt and emerging market debt
¬? Hedge funds are the dominant players in the credit default swap market accounting for more than 60% of market volume.
¬? Hedge funds are responsible for between 55% and 60% of transactions in leveraged loans
Sources are in the paper.
Yes I know pensions funds now invest in hedge funds. But this type of volume trading is pure gambling: that’s it. Is that how we want our pensions to be provided? And is the cost of destabilisation of society worth it? My answer is “clearly not”.
If, as I predict, at least 25% of activity disappears as a result of a financial transaction taxes that might be considered very good news indeed.
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High Frequency Trading is simply the electronic equivalent of open outcry on electronic exchanges, so there is no reason to be surprised that it takes up a substantial part of the volumes. 70-80% of trading on most commodity and financial markets is between market makers.
“Banks account for only 13% of the trading volume at the Chicago Mercantile Exchange one of the largest and most diversified exchanges in the world trading in commodity, equity, energy, forex, interest rate, metals, real estate and weather products. Much of the balance is attributable to hedge funds.”
That’s because this is largely a commodity exchange, dealing in orange juice, oilseeds and pork bellies as much as financial futures. Many of the “hedge funds” are simply vehicles set up by large commodity dealers such as Cargill and Archer Daniels Midland.
For over 40 years the former De Zoete Bevan now matamorphised into Barclays have produced an Annual booklet of Gilt versus Equity Investments which shows equity investment is advantageous over many more 100s years.
This will return as in final analysis everything regresses to the median
Or will the last man { not me} turn off the lights
R