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"In fact, we can show that the spreads must widen to be larger than the tax itself being applied. If there’s a tax of 3 bps on a trade then no one’s going to tr

by gd1 13y ago

"In fact, we can show that the spreads must widen to be larger than the tax itself being applied. If there’s a tax of 3 bps on a trade then no one’s going to trade at a spread of less than 3 bps." 6bps. To market make a spread you have to buy AND sell. Tax is charged twice at each end. The intermediaries are charged the tax twice, which means the end consumer (investors, pension funds, whatever) will be charged (at least) three times. Once directly, and twice indirectly because market makers will have to widen their spreads by at least that amount.

another-one-off 13y ago
Bit of a red herring to say this matters to individual investors though - compared to income tax it is meaningless, and if the share is expected to pay long term dividends it is not big. It discourages day-trading on stock, but it won't do too much damage to mid/long term investors. It might actually encourage companies to make good mid-long term decisions. EDIT and the two endpoints can trade directly with a spread smaller than 6 bps if they are that price sensitive.
- gd1 13y ago
  What do shares have to do with anything? They are a small part of the picture. The spread on the e-mini S&P is currently 0.25, and it is trading at 1800. So 1/7200 is roughly 1.5 bps. This will increase the spread by (at least) 6 bps to 7.5bps, then charge you another 3. So spreads five times bigger. Instead of trading say 1810.00/1810.25, it will be trading 1810.00/1811.25. Do you get it yet? No one will trade. And the comical part is that they project supposed revenues based on current trading volumes. Also, I've missed the best part so far, when I mentioned that you get charged three times in my first post, that was just to get into a trade. So end-user will get charged at least 6 times per roundtrip (twice directly, four times indirectly through widened spreads).
crdoconnor 13y ago
It's kind of irrelevant anyway, since any financial transactions tax would be at least a couple of orders of magnitude less than 3 bps. i.e. - "harmful" for HFT, but practically irrelevant for anybody who doesn't do extremely frequent trades.

by gd1 13y ago

another-one-off 13y ago

Bit of a red herring to say this matters to individual investors though - compared to income tax it is meaningless, and if the share is expected to pay long term dividends it is not big. It discourages day-trading on stock, but it won't do too much damage to mid/long term investors. It might actually encourage companies to make good mid-long term decisions. EDIT and the two endpoints can trade directly with a spread smaller than 6 bps if they are that price sensitive.

gd1 13y ago
What do shares have to do with anything? They are a small part of the picture. The spread on the e-mini S&P is currently 0.25, and it is trading at 1800. So 1/7200 is roughly 1.5 bps. This will increase the spread by (at least) 6 bps to 7.5bps, then charge you another 3. So spreads five times bigger. Instead of trading say 1810.00/1810.25, it will be trading 1810.00/1811.25. Do you get it yet? No one will trade. And the comical part is that they project supposed revenues based on current trading volumes. Also, I've missed the best part so far, when I mentioned that you get charged three times in my first post, that was just to get into a trade. So end-user will get charged at least 6 times per roundtrip (twice directly, four times indirectly through widened spreads).

crdoconnor 13y ago

It's kind of irrelevant anyway, since any financial transactions tax would be at least a couple of orders of magnitude less than 3 bps. i.e. - "harmful" for HFT, but practically irrelevant for anybody who doesn't do extremely frequent trades.