High-frequency trading has become quite the punching bag for overseas governing bodies in recent months, but for the time being it appears that those who rely on it may escape being taxed for it.
Last week the Madrid-based International Organisation of Securities Regulators said in a report that "many HFT strategies, coupled with high speed, high volume trading algorithms, could cause market prices to move away from fundamental values in the short term and impair the price discovery process that takes place on public and transparent markets."
The idea that high-frequency trading obscures the markets and causes extreme volatility led the European Commission to consider levying a 0.1 percent tax on the sale or transfer of a range of financial products. Derivatives trades, which are often used by institutional investors as a hedge against swings in commodity and FX prices, would be tagged with a 0.01 percent charge.
In addition to slowing down executions, the tax could also raise $78 billion a year according to the EU's projections. But as it stands now that tax is unlikely to become law in Europe since it requires unanimous approval from all 27 members of the EU.
Germany and France are leading the charge across the continent for the so-called Tobin tax, but media reports say that in addition to the U.K., the Czech Republic is also against it.
Meanwhile finance ministers from the world's 20 largest economies will be debating the concept of a global financial transactions tax in the coming months. But with the United States, Canada, and the U.K. standing in the way, the idea is unlikely to gain much traction.
Even at the domestic level, the industry should be safe for the foreseeable future. Although U.S. Sen. Charles Schumer (D-N.Y.) floated the idea of a tax on high-frequency trading earlier this year, gridlock in Washington means that any legislation, let alone a tax that would be punitive for much of the nation's finance sector has little chance of ever being signed into law.As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio