FTT and financial market

Transcription

1 FTT and financial market CFE Forum 2014 Policies for a sustainable tax future Brussels 27 March 2014

2 Financial market versus FTT The devil is in the detail. FTT does not recognize differences between equity market and fixed income/derivative market liquidity, trading techniques (MPT, facilitation), crucial role of market making; FTT does not make the difference between genuine trading and back-to-back transactions concluded for settlement purposes (see A 2 para 2 FTT); very negative impact FTT mainly on central clearing; Legal uncertainties regarding definitions used in FTT, e.g. FX spot FX forward, the moment of chargeability (open-offer clearing systems); Inclusion of repomarket and securities lending market which play a crucial role as a source of collateral and financial instrument needed for settlement; Repos, reverse repos cannot be replaced by pledges because of verydifferent legal regime, i.e. Financial Collateral Directive (close-out netting, possible appropriation, preferential treatment in insolvency) versus non-harmonized national laws including insolvency law;

3 Negative synergies between FTT and other regulation Examples Contradictions between FTT and EMIR Article 46EMIR requires a CCP accepting highly liquid collateral with minimal credit and market risk to cover its initial and ongoing exposure to its clearing members. level II Regulation 153/2013: For the purposes of Article 46(1) of Regulation (EU) No 648/2012, highly liquid collateral in the form of financial instruments shall be financial instruments meeting the conditions:... (e) they have an active outright saleor repurchase agreement market, with a diverse group of buyers and sellers, to which the CCP can demonstrate reliable access, including in stressed conditions; Contradictions between FTT and MIFID II Article 17 para 3 MIFID II: 3. An investment firm that engages in algorithmic trading pursuing a market making strategy,as defined in paragraph 4, shall carry out this market making continuously during a specified proportion of the trading venue s trading hours, except under exceptional circumstances, with the result of providing liquidity on a regular and predictable basis to the trading venue.

4 Comparison between the tax and profit 10bps of the tax (regardless of the term of the repo) versus the bid/offer spread 5-15 bps for a repo agreement; e.g. 1D repo EUR 100million: MM revenues EUR versus EUR 200,000 of the tax; to absorb the tax the spread for overnight repo must be approx 72.1%, for a year repo bps; Could encourage uncollateralized lending contrary to other policy goals Pledges are not a simple alternative due to timeframes on enforceability Dealer pages on Bloomberg: Quotes 10yr USD IRS the bid/offer spread 0.4 bps in USD100 million (so bid to mid spread = 0.2 bps, and mid to offer = 0.2 bps) 1 bps FTT (on the initial trade itself) + another 1 bps FTT on the hedge, i.e. the bid/offer spread = 2.4 bps The difference 1 bps on both sides is HUGE to institutions when they trade. EU institutions would probably lose all non-eu clients and most EU clients.

5 Data provided by an EU (HFT) market maker One Exchange Contract Monthly Volume contract value Currency Tick FTT Exchange fee FTT:fee ratio FTT:tick ratio Monthly FTT LIFFE Euribor Futures EUR 12,50 100,00 0, , LIFFE Short Sterling Futures GBP 14,56 58,26 0, , LIFFE FTSE GBP 5,83 6,06 0, , LIFFE Long Gilt Futures GBP 11,65 11,65 0, , LIFFE Euroswiss Futures CHF 20,34 81,37 0, , Eurex DJ Euro Stoxx EUR 10,00 2,10 0,30 7 0, Eurex Euro-bund EUR 10,00 10,00 0, , Eurex Euro-schatz EUR 5,00 10,00 0, , Eurex Euro-bobl EUR 10,00 10,00 0, , Eurex German Stock Index Future EUR 12,50 13,44 0, , Same FTT rates applied to CME (outside Europe) CME E-mini S&P 500 Future USD 9,37 4,38 0, , CME Eurodollar Futures USD 9,37 74,99 0, , CME 10Y U.S. Treasury Note Futures USD 11,72 7,50 0, , CME Crude Oil Futures USD 7,50 6,46 0, , CME 5Y U.S. Treasury Note Futures USD 5,86 7,50 0, , CME E-mini NASDAQ 100 Future USD 3,75 3,33 0, , CME U.S. Treasury Bond Futures USD 23,43 7,50 0, , CME Natural Gas Futures USD 7,50 3,02 0, , CME 2Y U.S. Treasury Note Futures USD 11,72 15,00 0, , CASH INSTRUMENTS Exchange Symbol Name Price Currency FTT Broker fee FTT:fee ratio Daily vol avg Daily FTT Monthly FTT Xetra BMW.DE BMW 52,94 EUR 0,053 0,20 0, NYSE BP.L BP Plc 40,82 GBP 0,048 0,20 0, Xetra DBK.DE Deutsche Bank 26,5 EUR 0,027 0,20 0, Xetra CBK.DE Commerzbank 1,31 EUR 0,001 0,20 0,

6 Conclusion LOOK BEFORE YOU LEAP Contact: Daniela Doležalová Ministerstvo financí Letenská Praha 1 Tel daniela.dolezalova@mfcr.cz