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The EU Tobin tax proposal got unstuck? That's great. This is a small tax on financial transactions - 0.1% on shares and bonds, and 0.01% on derivatives. It's not primarily to raise revenue. It's to kill high-frequency trading and, overall, substantially reduce the amount of unnecessary trading. This should force financial markets to think in terms of longer term goals. (Like a day, rather than a minute, probably.)

Think of it as a tax on zero-sum financial activity.

If the EU does this, the US should. China's government likes the idea and would probably go along; they hate financial volatility. With all the big players on board, the financial system should generate less noise.

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From : http://deeconometrist.nl/?p=3623

"Before the rise of HFT, when old school brokers were the ones doing the market making on the trading floor, the difference between the buy and the sell price was about twenty-five times larger than it is today."

The other thing is that HFT firms make less money all together than Goldman Sachs does on its own:

"From 2011 onwards, HFT has been on the decline. In 2009, high-frequency traders moved about 3.25 billion shares a day. In 2012, it was 1.6 billion. Not only did the trade volume decrease, HFT firms profit has also been diminished since its heyday. In 2009, the entire HFT industry made around $5 billion trading stocks. In 2013, this was around $1.3 billion before expenses. Today, HFT companies seem to disappear just as fast as they appeared. Its most notable case might be that of Goldman Sachs selling its HFT department recently. This department, which it acquired in 2000 for $6.5 billion, yielded them a mere 30 million this present day."

The big investment banks hate HFT firms because they have destroyed their spreads on trades. They push out arguments to get rid of them so they can return too the good old days of making sure they get a cut of each trade.

Who pays the Clintons hundreds of thousands for a 'speech'? The investment banks. Not HFT firms, they make too little money and compete too hard.

Wait, are you saying HFT are great and should be kept because their business model looks like its collapsing?

No, he's saying HFT are great and should be kept because they are a net gain for society. They lower spreads and take margins away from the huge players. So much so, that the big players are lobbying for taxes like this to make HFT less effective so they can make more money for themselves.

HFT is just another example of software eating the world and doing a job that used to be done by humans more efficiently. This is a good introduction to the mechanics of what HFT is, written by... yummyfajitas on HN I think?

https://www.chrisstucchio.com/blog/2012/hft_apology.html

Since shares (and other securities) would be more thinly traded, wouldn't a tax like this significantly reduce overall liquidity and increase volatility?

No, even with HFT the instantaneous liquidity of the market is firmly in the volatile regime, by orders of magnitude. So while HFT adds some liquidity, its very far off from bringing anything like enough to make markets more stable and it does it at the cost of many more destabilizing trades into the system.

If you look at countries such as Kenya which have huge amounts of brokerage fees (2%), which you could model a tobin tax like this on.. they have 2-9% daily swings the average volatility is much, much higher. This goes for similar exchanges with larger fees.. (or larger minimums to exchange financial instruments)

Don't believe me? Look over historical data or even just yesterdays or todays (which I wont be able to see yet when im asleep) gains or loses : https://www.nse.co.ke

Also in case you think its biased against the top or bottom movers, keep in mind there's barely 60 companies listed there.

It might be worth pointing out too, that volatility has increased on italian instruments that bear this tax, not reduced it. It's also made it harder to judge the depth of the market in terms of how much can be sold/bought/raised/invested.

You're assuming this will solve financial volatility: the creation of options, liquidity brokers, HFT a virtual cornucopia of financial products and you think this tax will solve it? It could actually make it worse because it actually removes liquidity from the system..

And if you want an indication of what it could do, have a look over at the italian markets where it has not helped at all. Just recently infact there was a bond issue that was oversubscribed unexpectedly because the trading system gave no indications it could support that, people now actively bypass secondary markets for their main street business.

The tax is even larger than brokerage for shares for retail investors, seriously where will the liquidity come from when its needed?

Could you expand on why you think the activity of HFT is "unnecessary trading?"

HFT Doesn't generate any value, it just siphons money to the people who do it. Stock markets are the original Kickstarter. However with increasing trading frequency you turn something that generates value for society into a grotesque casino.

Why do people trade against HFT (particularly, HFT market makers) if they just siphon money out?

Same reason people gamble. You sometimes win.

A very, very large majority of all trading volume is done against HFT market makers. Regardless of the non-HFT trader's motivations, they appear to consistently trade with the HFT market maker over some other participant -- why is that? Even in the case when their motivation is to gamble, why gamble with the HFT as opposed to a non-HFT order?

The vast majority of stock trades are just trades between two parties (neither of which is the company) that believe different things about the stock. I agree that HFT doesn't generate much value, but by this metric, neither do any transactions besides IPOs.

> Think of it as a tax on zero-sum financial activity.

Except market making is not zero sum.

> they hate financial volatility

Why do you think there would be less noise if the actors get higher costs while trying to converge on prices in the massively distributed system that is the global economy? Have you ever run a distributed database of some kind? Have you ever seen what slow network does to the performance of those?

Sweden had such a tax. What happened?

"By 1990, more than 50% of all Swedish trading had moved to London." - Wikipedia. But the Swedish tax was 10x higher and Sweden didn't have large stock markets.

Even more, the EU is taking the American approach to taxing there ("if you're American you're paying, regardless where you're living"):

Banks with headquarters in the EU have to pay the tax, even if the transactions are done in Somalia. Every transaction in European stocks is taxed, even if done in Afghanistan.

Well, then, the banks will move.

Doesn't help. As long as European stocks are being traded the transactions are taxed.

Expect the listings to move to NASDAQ. A bunch of European companies have primary listings there already.

Somalian banks tend not to have passporting access rights to the EU market.

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