As the FT reports this morning:
Italy will on Monday become the first country to introduce a tax on high-frequency trading in a move that has become a test case for potential further crackdowns on the controversial practice.
The Italian version explicitly focuses on high-frequency trading and derivatives, which are often used by corporations and banks to hedge against risk. The tax will also apply regardless of where the transaction is executed, or the country of residence of the counterparty.
For high-frequency traders, order changes and cancellations will be taxed at 0.02 per cent when they occur within a timeframe shorter than half a second, once above a threshold.
There are the usual howls of protest - including that claim that this will reduce liquidity in the market.
I wonder of those making the claim realise that reducing liquidity in the market is one of the aims of the tax? As 2008 proved, excess liquidity is not a good thing. The move is to be welcomed for exactly that reason.
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There are plenty of good arguments in favour of reducing HFT, but your reference to 2008 is quite wrong – HFT and “excess liquidity” had nothing to do with the crisis.
I think you will find a great many very well informed people who will disagree
really? who?
Let’s start with Lord Turner and move on from there
I can find articles showing that Lord Tuner thinks that HFT is excessively risky, and that he supports measures to tackle it. I can’t find anything where he cites a direct link to the events of 2008.
I hesitate to ask you if you can provide a link because you’re prone to interpret such requests as readers asking you to do their research for them.. as oppose to, say, asking you to provide footnotes for your statements. However, if you have a link then it would be appreciated.
you mean yo didn’t motive a three volume report on the issue?
And a pile of interviews afterwards?
I’m familiar with Turner’s views and the literature on the causes of the 2008 crisis. I haven’t seen anyone suggest it was caused by excess liquidity or HFT. Plenty of good reasons to want to close down HFT, and plenty of reason to think it could lead to a future crisis, but it didn’t have much to do with the last one. Subprime, structured products, badly incentivised bankers, ignorant investors, negligent rating agencies, lax regulators, principal/agent problems, interest rates too low for too long – there is a long list of people and institutions you can legitimately blame for 2008, but it doesn’t include HFT.
Good! The futures/derivative/high speed trading is not money that circulates in society but I bet the howlers start claiming it will be harmful for the economy and damage the non-existent trickle down effect- the only thing that trickles down is the excess salivation that cascades down the expensive suits of the financial rentiers that drool over big money for no productivity!
Why not simply ban it outright? Taxing HFT is like suggesting bank robbers can go ahead and rob banks all day and night so long as they pay tax on their loot. Of course that wouldn’t be right and neither is this. It legitimises the practice instead of ending the practice altogether as should happen. As such, I rate it worse than doing nothing.
That’s the approach the Germans are taking – they’re limiting the number of trade cancellations that can be made within a certain period of time and I believe (although I am not an expert) that that will make HFT unviable in Germany. Would be good to see an assessment of whether this approach or an FTT-style tax is more effective to stop HFT, and which has fewer unwanted side-effects on others. Not something I’ve seen to date, though.
Well….
“And with this loophole, the scramble to reclassify all HFT traders as market makers begins”
http://www.zerohedge.com/news/2013-09-02/first-ever-high-frequency-trading-transaction-tax-introduced-italy