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No wonder the FTT is in trouble

Some Johnny Foreigner wants to tell us all how dastardly the financial industry is in opposing the financial transactions tax. In which piece he tells us this:

The lobbying aims to exempt all non-financial companies, for example, as well as the now infamous \”market-making\” activities, that is proprietary trading.

Imagine what happens when the crusading politician at the head of his howling mob starts talking to the adults and says something stupid like this.

Prop trading is not market making and market making is not prop trading. Sure, they\’re both done for the bank\’s own books but they are still very different things, both conceptually and in practice. Not knowing this just doesn\’t bode well for the level of financial markets nous on display elsewhere in the campaign.

13 thoughts on “No wonder the FTT is in trouble”

  1. How about “The idea for a transaction tax began with John Maynard Keynes.”

    Presumably Stamp Duty, a transaction tax that dates back to 1694, just doesn’t count.

  2. Who’s in charge of the EU FTT? Michel Barnier, a French poltroon who will fold as soon as he gets spoken to.

  3. BIS

    the problem is that Barnier seems to be quite good at not folding. In a recent debate on the audit market, he declared, in summary, that there was “no clear majority” on one point where there were two options (his proposal and a different opposing one).

    The ratio in question was 2 countries in favour of his proposal, 25 opposed.

    not one person challenged him.

  4. TranSaCtIon TaX nowz!

    But what about exemptions for market makers?

    TranSaCtIon TaX nowz!

    Yes but what about exemptions for market makers? We dont want to cascade that tax across one transaction, do we?

    WhATs A MaRkEt MaKer?

    The individual responsible for making a market.

    I hAvE iT oN gOoD autHoRiTy ThAt tRaDiNg LoTs Is bAd fOr EcOnOmy

    What do you mean?

    I wAs ToLd, By ah FriEnd

    Yes but even so what about market makers?

    TranSaCtIon TaX nowz!

    Oh for fuck sake.

    GeTz ZeE BanKeRs GeTz ZeE BanKeRsGeTz ZeE BanKeRsGeTz ZeE BanKeRsGeTz ZeE BanKeRs GeTz ZeE BanKeRs GeTz ZeE BanKeRs!!!!!!!!!!!

  5. In practice, it’s common for market-making to be combined with algorithmic trading – the algorithms work better if they don’t have to cross the spread. There’s very little difference between an automated prop trading machine taking an algorithmic view of market direction and an automated market-making machine taking similar algorithmic views.

  6. The point is that it’s because of exemptions for market-making that short-term proprietery trading on small margins is possible.

    The UK has stamp-duty on shares, for example. If it were applied across the board then short-term speculation would be very difficult. It isn’t though, some financial institutions are exempt on the basis that they’re market makers. This exemption is the only way to practically speculate on shares when price differences are small, which is almost always. So, companies that do proprietary trading must always become market-makers at least in name. I understand the alternative is to borrow shares from a financial institution, though I don’t know much about that.

  7. @ Current
    To be come a market-maker you have to register with the London Stock Exchange or whatever and have to maintain bid and offer prices in each of the securities in which you have declared yourself a market-maker. You cannot pretend a proprietary trade in Astra Zeneca is part of your business as a market-maker in oil stocks.
    I do not know of any exchange that allows Hedge Funds, which conduct the largest share of proprietary trading, to be market-makers

  8. john77 during my short tenure at an investment bank I know for sure market makers were trading on own account so to speak. if you make a market in astra zeneca you can go long or short as you wish (i.e. trade for capital gains not just fulfil orders for commission)

  9. @ Luis Enrique
    Yes, don’t dispute that – market-makers have been going long and short for longer than I can remember – but Current said “companies that do proprietary trading must always become market-makers at least in name” which is just wrong.
    Market-makers tend to do proprietary trades when they think the price is wrong but that doesn’t make all proprietary traders market-makers any more than a dog having four legs makes every four-legged animal a dog.

  10. @john77 – what the high volume hedge funds do in London is to deal in CFDs with a market maker counterparty. No stamp duty is payable by either side.

  11. I liked the way the writer mentioned that Sweden had implemented a FTT in 1984 but didn’t mention it repealed it because it was a disaster. The simple Guardian reader would get the impression its still in operation.

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