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Canada tried such a tax, and there is already research showing the net effect it has. http://qed.econ.queensu.ca/pub/faculty/milne/322/IIROC_FeeChange_submissi

Canada tried such a tax, and there is already research showing the net effect it has. http://qed.econ.queensu.ca/pub/faculty/milne/322/IIROC_FeeChange_submission_KM_AP3.pdf http://qed.econ.queensu.ca/pub/faculty/milne/322/IIROC_FeeCh... http://www.publications.gc.ca/collections/Collection-R/LoPBdP/BP/bp419-e.htm http://www.publications.gc.ca/collections/Collection-R/LoPBd... The net result is that institutional investors (Goldman) won, retail investors (grandma) lost and spreads (the cost of trading) increased 9%. I haven't been paying close attention, but I thought Bernie was contrasting himself against Hillary who is supposedly in the pockets of banks. That image doesn't really fit with such a policy.

tyingq 11y ago
Here's what he has on his official site regarding it: "Has proposed a financial transaction tax which will reduce risky and unproductive high-speed trading and other forms of Wall Street speculation; proceeds would be used to provide debt-free public college education."[1] [1]https://berniesanders.com/issues/reforming-wall-street/ https://berniesanders.com/issues/reforming-wall-street/ I'm trying to avoid getting into a debate about whether it's a good idea. If you think, though, it has some chance of happening...it does specifically become an "Open Problem in Quantitative Finance", which is what the OP is asking for.
- yummyfajitas 11y ago
  Yeah, a financial transaction tax is exactly what Canada did. It did reduce "risky" [1] high speed trading, and in the process hurt retail while helping (a little) big traders. This is pretty much exactly what microstructure theory predicts. Figuring out the effects is a solved problem. The "open problem" I guess will be improving the existing tax avoidance software for traders? [1] High speed trading is extremely non-risky. Look at graphs of the most extreme HFT incidents: https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in_the_pan.html https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in...
  - thatcat 11y ago
    >helped big traders a little >reduced HFT don't big traders use HFT as a market advantage over retail?
    - Lazare 11y ago
      Not at all. The HFT debate has two real players: Large banks and large active investors (on the one hand) and HFT firms on the other hand. HFT firms profit by driving margins down at the expense of established players, and by reacting quickly to very large orders. Retail investors, however, benefit from the lower margins, and weren't placing very large orders. They're fairly clearly winners. (So are large passive investors. Vanguard is on record as being very pro-HFT, because it drives their costs down.) One description of the HFT (from the always thought provoking Matt Levine): "It's an incremental efficiency improvement, with some opportunity for gamesmanship, that overall allocates some money out of the pockets of banks and hedge-fund managers and into the pockets of exchanges and HFT technologists." That's basically correct. And as a bonus, the small retail investor buying twenty shares of Apple now gets his shares very slightly cheaper, which is kind of nice I suppose. (Unless you work for a large Wall Street firm who's revenue depends on retail investors paying high margins. But in that case my sympathy is quite limited.)
      - yummyfajitas 11y ago
        See also this article I wrote explaining this: https://www.chrisstucchio.com/blog/2014/fervent_defense_of_frontrunning_hfts.html https://www.chrisstucchio.com/blog/2014/fervent_defense_of_f... Concretely speaking, HFTs price discriminate when providing liquidity. Grandma gets a good price to sell her 2 lots of GOOG, but Bill Ackman and George Soros need to pay more to sell 20000 lots.
abrezas 11y ago
One of the problems with the Canadian tax law, was that Canada has to remain competitive to the same-language speaking country south of its borders that has a bigger and more advanced stock exchange. It is explained in the last section of your second link. The same problems will not be necessarily manifested if the law is applied in the US, especially if Canada has similar laws. However, the points of the first link seem to hold.
- yummyfajitas 11y ago
  That only applies to cross listed symbols (e.g. Blackberry), currencies, etc. The fact that one can shift trading in cross listed symbols to other venues doesn't mean that supply&demand also doesn't reduce market making (thereby increasing costs). In fact, Bernie Sanders explicitly hopes the tax will do exactly that.

tyingq 11y ago

Here's what he has on his official site regarding it: "Has proposed a financial transaction tax which will reduce risky and unproductive high-speed trading and other forms of Wall Street speculation; proceeds would be used to provide debt-free public college education."[1] [1]https://berniesanders.com/issues/reforming-wall-street/ https://berniesanders.com/issues/reforming-wall-street/ I'm trying to avoid getting into a debate about whether it's a good idea. If you think, though, it has some chance of happening...it does specifically become an "Open Problem in Quantitative Finance", which is what the OP is asking for.

yummyfajitas 11y ago
Yeah, a financial transaction tax is exactly what Canada did. It did reduce "risky" [1] high speed trading, and in the process hurt retail while helping (a little) big traders. This is pretty much exactly what microstructure theory predicts. Figuring out the effects is a solved problem. The "open problem" I guess will be improving the existing tax avoidance software for traders? [1] High speed trading is extremely non-risky. Look at graphs of the most extreme HFT incidents: https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in_the_pan.html https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in...
- thatcat 11y ago
  >helped big traders a little >reduced HFT don't big traders use HFT as a market advantage over retail?
  - Lazare 11y ago
    Not at all. The HFT debate has two real players: Large banks and large active investors (on the one hand) and HFT firms on the other hand. HFT firms profit by driving margins down at the expense of established players, and by reacting quickly to very large orders. Retail investors, however, benefit from the lower margins, and weren't placing very large orders. They're fairly clearly winners. (So are large passive investors. Vanguard is on record as being very pro-HFT, because it drives their costs down.) One description of the HFT (from the always thought provoking Matt Levine): "It's an incremental efficiency improvement, with some opportunity for gamesmanship, that overall allocates some money out of the pockets of banks and hedge-fund managers and into the pockets of exchanges and HFT technologists." That's basically correct. And as a bonus, the small retail investor buying twenty shares of Apple now gets his shares very slightly cheaper, which is kind of nice I suppose. (Unless you work for a large Wall Street firm who's revenue depends on retail investors paying high margins. But in that case my sympathy is quite limited.)
    - yummyfajitas 11y ago
      See also this article I wrote explaining this: https://www.chrisstucchio.com/blog/2014/fervent_defense_of_frontrunning_hfts.html https://www.chrisstucchio.com/blog/2014/fervent_defense_of_f... Concretely speaking, HFTs price discriminate when providing liquidity. Grandma gets a good price to sell her 2 lots of GOOG, but Bill Ackman and George Soros need to pay more to sell 20000 lots.

abrezas 11y ago

One of the problems with the Canadian tax law, was that Canada has to remain competitive to the same-language speaking country south of its borders that has a bigger and more advanced stock exchange. It is explained in the last section of your second link. The same problems will not be necessarily manifested if the law is applied in the US, especially if Canada has similar laws. However, the points of the first link seem to hold.

yummyfajitas 11y ago
That only applies to cross listed symbols (e.g. Blackberry), currencies, etc. The fact that one can shift trading in cross listed symbols to other venues doesn't mean that supply&demand also doesn't reduce market making (thereby increasing costs). In fact, Bernie Sanders explicitly hopes the tax will do exactly that.