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Tobin, or not Tobin – that is the question

Well at least it is in France, as reports seem to confirm that its finance minister is enthusiastically pushing ahead with a unilateral Tobin-style tax on equities, bonds and derivatives trading. It’s a shame that the proponents of such a tax don’t seem to have done even a basic amount of homework. The original idea introduced by Nobel Laureate economist James Tobin was conceived as a tax on all spot conversions of one currency into another. The idea was to discourage speculators by making it less efficient to trade one currency against another. This was a sensible and considered reaction to a problem caused by the abandonment of fixed exchange rates a year earlier, but it was never intended to be a retroactive punishment on one sector of the global economy. The notion that the world’s problems were singly caused by the banks and/or that politicians are, de facto, better than anyone else at redistributing wealth is an over-simplification at best.

Even if the idea of such a tax were a good one, have they thought through how it will work in practice in the equity markets (let alone other asset classes)? Reports suggest that France will go it alone even if it cannot co-opt Germany into its plan. But, around 40% of the trading in the CAC 40 and DAX now occurs outside of Paris and Frankfurt (as the charts below show) with most of this liquidity residing on London-based (and FSA-regulated) MTFs such Bats/Chi-X and Turquoise.

So, even if the French can extend their jurisdiction, it seems unlikely that the City of London will support such a tax, especially as any revenue raised will stay in French (and possibly German) pockets.

Looks like it’s time that European governments recognised that, in equities trading at least, the go it alone nationalistic approach went on the scrapheap the moment the chaps at MiFID mansions first got their pens out. Maybe I should drop a note directly to Monsieur Baroin at the French Finance Ministry …

3 Responses to “Tobin, or not Tobin – that is the question”
  1. vj says:

    And if it were a stamp duty-style tax rather than a tobin-style tax? Would that change your stance? The UK charges stamp duty on all UK equity products and derivatives trading whether it takes place in London or elsewhere …

  2. Martin says:

    Could the tax base of such a “Tobin” be the confirmation of trades just before the settlement -and not the matching-, which is done by Euroclear France, so that France does not lose territoriality?

  3. Steve Grob says:

    This really isn’t a UK vs France debate – trading of all stocks is now pan-European so any unilateral tax isn’t going to work – all it will do is drive liquidity to other venues/jurisdictions.

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