The E.U. transaction tax, if brought to the U.S., would mean the end of futures trading as we know it
- Posted by PeterLBrandt
- on February 5th, 2013
The E.U. tax could raise at least $100 billion annually for Uncle Sam and stick it to private traders
The European Union has given the green light for 11 countries to impose a small tax on trades in stocks, bonds and derivatives. On derivatives the tax could amount to as much as .01% (one one-hundreth of one percent) of the underlying value of the traded derivatives.
If brought to the U.S. — which is not at all unlikely given the state of the U.S. government debt and the predatory spending habits of the present Administration and Congress — the tax on derivative trading could amount to $100 billion per year or more.
The table below applies the .01% tax to selected U.S. futures. The tax, applied to the estimated volume of trading in 2012, would have represent $68 billion in revenue to Uncle Sam in just the 12 markets shown.
Now, this tax, as shown, would never be inacted in the U.S. There are several reasons why this is so.
- The added cost per contract would cripple the U.S. futures industry. Consider that the typical round-turn trading expense, all-fees included, is around $5 or less per contract today — much less for large institutional trading firms. The tax would increase the cost of trading by as much as $20 per round turn.
- The large institutional trading firms, including the HFT world, will lobby hard and successfully to be exempt — or largely exempt — from this tax. These firms have been well represented by the special interest group, the Futures Industry Association (FIA), for many years.
- The tax, if implemented, will apply to private day traders — ending their careers and the trading volume so represented.
So, in the end, the small trader will take the dumping. Why am I so sure of this? History 101 and Political Science 101 have the answers. There is no love lost by Washington DC toward commodity speculation. Doubt me? Refco, PFG Best, M.F. Global and others witness the fact that Washington DC, both from a political and regulatory standpoint, has no desire to protect the interest of private speculators. There is no will in Washington to protect “gamblers” — and that is what Washington thinks of market speculation.
There will eventually be some sort of EU-type tax applied to derivatives. Perhaps Futures Commission Merchants (FCMs) will be cut into the scheme, bringing the brokerage side of the industry much need revenues.
It will be the same story told throughout the history of financial markets — the big guys will make a deal with the powers that be and the little guys will get the shaft. What’s new? If you are a futures market day trader or a non-reportable speculator, mark my words — things are about to turn your trading world upside down.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Peter Brandt entered the commodity trading business in 1976 with ContiCommodity Services, a division of Continental Grain Company. From his start in the commodity industry, Peter's goal was to trade proprietary funds. But, he first needed to learn the business. More »