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By drastically reducing volume it would also reduce liquidity and increase spreads. Sweden tested this in the eighties and abandoned after seeing the market sub
by blue1 15y ago
By drastically reducing volume it would also reduce liquidity and increase spreads. Sweden tested this in the eighties and abandoned after seeing the market substantially dry up (and the resulting taxes as well).
- _delirium 15y agoI can see that happening with a large tax, but surely it's not a step function, where no transaction taxes results in huge liquidity, while any non-zero tax causes a catastrophic drying up of liquidity. How about, say, a penny-per-trade fee? That would discourage trading at the sub-penny level of liquidity, which is not particularly useful anyway, while still making it profitable to provide liquidity if arbitrage opportunities of >$0.01 were involved.
- bluedanieru 15y agoIt would certainly reduce liquidity and increase spreads, but I think that's the point. Stocks are not supposed to be a terribly liquid instrument, yet volume continues to outpace growth in the market. It's true that trading in Sweden basically moved to London when they tried this, which is part of why now you're seeing a push against this unless the entire EU hops on board, or even the entire world (however it will not happen in New York in a million years). There are lessons to be learned from Sweden's experience, but I'm not sure you can necessarily point to as a definitive case study and say "See? It won't work."