Thursday, May 30, 2013

30/5/2013: FTT: Up, Down, Down again: Climbing Political Hillocks in Europe

Looks like the EU is now climbing down another over-hyped policy hillock. After scrapping plans to ban / regulate olive oil in restaurants, the EU is now moving in the direction of drastically undercutting original plans for the Financial Transactions Tax (FTT).

I outlined on a number of occasions numerous reasons why FTT was a bad idea for the EU (see set of posts here: The latest changes in the EU seem to be related primarily to the rate of tax (see

However, also per article: "Rather than levying trade in stocks, bonds and some derivatives from 2014, it may now apply to shares only next year and to bonds up to two years later." Again, sadly, the new changes are way off, as argued here: .

The real problem is that there is no way to structure a reasonably efficient FTT. None at all. Any FTT proposal will strike either one or some of the outcomes below:

  1. Raise too much revenue, chocking off market efficiency and damaging liquidity
  2. Raise too little revenue, making no real differences in any direction
  3. Push high volume (liquidity-enhancing) and low margin (information-disclosing) transactions out of open markets platforms into dark pools and off-shore
  4. Incentivise even more debt over equity
At some point in time, we must realise that any defence of FTT is at this stage is nothing but political face-saving.
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