The EU is imposing a tax on financial transactions
The devil is in the details, but at first glance that looks like an absolute disaster in terms of stock trading. For example, if a mutual fund bought a stock twice in a year, and then sold that stock twice in a year, that's 0.4% being gifted to the government right there? From just that mutual fund. And another 0.4% from whoever is on the other side? Wow!
Am I reading that right?
Also it says "financial institutions" but looks like it will also apply to individuals. The Wiki page says "If acting on behalf of a client, e.g., when acting as a broker, it would be able to pass on the tax to the client."
I think that could dry up trading volumes by about 95% in the affected countries. For example, when I sell stock now, a market maker takes the other side. But he won't want to if he has to pay 0.1% for the privilege. So now I can't sell a stock to an intermediary? I need to wait for another investor or a mutual fund to take the other side of my trade?
What am I missing? That can't be right?
Edit: one immediate thing that sticks out is that "derivatives" will be created to replace stocks, since the tax savings is about 90% by doing that. For example, let's say a stock costs $10.00. Why not create an "American style" call option on that stock, strike price $0.01, expiration date 2099. The value of that option is $9.99. But the tax rate is 0.01% on the derivative, vs 0.1% on the stock itself. Someone hasn't thought things through here.
Yeah, that makes no sense; every sane plan I heard for taxing stock transactions involves a flat amount per transaction, the idea being to discourage large quantities of trading (or at least convert it into revenue) while leaving the calm, occasional trader/mutual fund mostly untouched.
> if a mutual fund bought a stock twice in a year, and then sold that stock twice in a year
I think the idea is that such moves contribute to the instability of the market as a whole, and hence should pay a small penalty for it.
> I think that could dry up trading volumes by about 95% in the affected countries.
Yes, it is not entirely clear that large trading volumes contribute anything positive to the economy as a whole. There are real people somewhere in the picture who are trying to buy/sell shares in regular and are getting shafted in terms of either buying price or trading fees by high-frequency bots. The tax should even out things a little bit for the average person.
The devil is in the details, but at first glance that looks like an absolute disaster in terms of stock trading. For example, if a mutual fund bought a stock twice in a year, and then sold that stock twice in a year, that's 0.4% being gifted to the government right there? From just that mutual fund. And another 0.4% from whoever is on the other side? Wow!
Am I reading that right?
Also it says "financial institutions" but looks like it will also apply to individuals. The Wiki page says "If acting on behalf of a client, e.g., when acting as a broker, it would be able to pass on the tax to the client."
I think that could dry up trading volumes by about 95% in the affected countries. For example, when I sell stock now, a market maker takes the other side. But he won't want to if he has to pay 0.1% for the privilege. So now I can't sell a stock to an intermediary? I need to wait for another investor or a mutual fund to take the other side of my trade?
What am I missing? That can't be right?
Edit: one immediate thing that sticks out is that "derivatives" will be created to replace stocks, since the tax savings is about 90% by doing that. For example, let's say a stock costs $10.00. Why not create an "American style" call option on that stock, strike price $0.01, expiration date 2099. The value of that option is $9.99. But the tax rate is 0.01% on the derivative, vs 0.1% on the stock itself. Someone hasn't thought things through here.