2013-09-03 10:18:02 -
Paris/Singapore, September the 3(rd) 2013
ACI - The Financial Markets Association with a membership of over 12,000 market
practitioners globally is concerned with the proposed Financial Transaction
Taxes (FTT) in Europe.
A FTT will impact all users of financial products and this is not confined to
banks and financial institutions. It will have significantly broader and larger
implications for growth, jobs and pensions. It will hit corporate users who
today use these financial products to hedge their risks. It will also impact
individual's savings as Pension Funds use many of the financial instruments
available to hedge and as a direct result secure less risky but better returns
for their savers.
The level at which the tax will be charged appears immaterial to those who are
not involved in the financial markets.
But, when looked at across products,
costs increase sharply as the proposals can be for a FTT that is many multiples
of the bid offer spread in certain cases. This could destroy certain markets,
taking away valuable borrowing opportunities for banks, financial institutions
and corporations. As bid offer spreads in many of the products widen thus
damaging price discovery, reducing willingness to make market prices, giving
disincentives to hedging financial risks and may lead to overall systemic risk
increasing in the system.
The FTT will also kill innovation and limit a bank's ability to offer risk
reducing products to clients given the unnecessary burden of incremental costs
imposed by a FTT. This will reduce liquidity in markets further and increase
inefficiency in the financial system.
There is no appetite outside the Eurozone to apply a FTT. The tax will
disadvantage banks in the Eurozone. Even within the Eurozone, there is a lack
of understanding of how the FTT will be applied and the tax rates may differ
between countries within the Eurozone. This is a taxation scenario setting
itself up for harmful and disruptive geographical arbitrage.
Existing robust frameworks already exist in the management of a bank's capital
and its transactions. Basel, IOSCO and the FSB via capital, liquidity and risk
management measures have effectively regulated the activities of banks. The
direct consequence of a FTT will be to further weaken bank capital management
with the knock on effects to the real economy through reduced lending.
Much discussion has taken place and much resistance has been shown in the
Eurozone. The FTT is already being watered down and is likely to finish up
being a local stamp duty tax in some EU countries. This parochial approach in
managing what has been an efficient industry will set Europe's banking industry
back against global competitors.
Many, including ACI, welcome measures to strengthen the framework for the
governance of the banking industry and its operations. However, ACI is of the
opinion that a FTT will only work against the European banking sector.
Financial Transaction Taxes have their roots in ancient Stamp Duties, are
inefficient and if broadly levied in the modern economies of today will lead to
knock on effects with secondary dire consequences. We trust that the EU's
governmental bodies will consider this carefully.
For more information visit www.aciforex.org
ACI The Financial Markets Association
ACI is a leading non-profit but also non-political association of wholesales
financial market professionals. Members of ACI are in a large part engaged
within the financial trading or sales environment in the global financial
markets representing the Foreign Exchange, Interest Rate Products and other
Securities, Banknotes & Bullions, Precious metals and Commodities and their
various kinds of Derivatives. ACI counts some 13,000 international members from
more than 60 countries.
ACI The Financial Markets Association
8. rue due Mail / F-75002 Paris
T. +33 (0) 1 42 97 5539
F. +33 (0) 1 42 97 5116
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Source: ACI - The Financial Markets Association via Thomson Reuters ONE