February 14, 2013

Over the past few months, many in the US trading community have been quietly mobilizing against European Financial Transaction Taxes being collected within US borders. The voice of opposition grew louder yesterday with the Security Traders Organization (STA) calling on market participants to take action by communicating to their elected representatives their “strong opposition” to any foreign taxes being imposed for securities transactions on US soil.

It now looks like the community is going to have to contend with a home-grown tax issue in the form of the Wall Street Trading and Speculators Tax. Modelled largely on the European FTT effort, Senator Tom Harkin and Congressman Peter DeFazio are proposing to introduce the tax, which will collect 3bps on every trade and raise an anticipated $352 billion over ten years.

[Are Exchange System Errors the New Normal in High Speed Markets?]

This is not the first time US Congress has considered a Financial Transaction Tax. The same Senators pushed for similar measures in 2009 and again in 2011 at the height of the public outcry against Wall Street. This time, they appear to have learned from their previous attempts and are striking a populist tone. The tax, according to Senator Harkin, “does not harm small businesses or the middle class and Wall Street can certainly afford it”.

The new measure may contain safeguards to shield some market participants from the tax, but it seems certain to affect proprietary and high-frequency traders. Congressman DeFazio states that the tax “would target speculators who create tremendous volatility by flipping stocks a thousand times a minute”. Herein lies the difficulty with this line of reasoning: the SEC, the body that regulates US market structure, has yet to take a stance on whether HFTs harm the market or assist it with liquidity. Let’s hope the Senators are prepared to reveal how they made their determination.

Some have questioned whether Senators Harkin and DeFazio wield sufficient influence in financial circles to give their latest attempt to pass the legislation any better chance than in previous years. Stay tuned, stranger things have happened. After all, there is something to be said for perseverance.

This blog originally appeared on the Fidessa blog. Click here to read the original article.