Obama 2012 Federal Budget-Includes Tax on Futures

In my previous post, I attacked Obama for lacking any leadership capability.  Turns out, he lacks common sense too.  His presidential budget slapped a “user fee” on all futures trading to fund the CFTC.   This is also known as a Transaction Tax.

In the past year, PnF wrote about the transaction tax.  Representative Jan Schakowsky of Evanston supported a tax. There are many economic arguments against the tax.

A transaction tax tacks on a small fee to every futures transaction.  In effect, it is a tax on liquidity.  Virtually every high frequency trader will leave the US with a transaction tax.  I once calculated what I would have paid as a medium sized eurodollar trader with a .05 levy, and it was around $200k per year.  Not exactly chump change.

Even a small tax would alter the width of the bid/ask spread, making it much more expensive for hedgers to enter and exit the market. The amount of contracts bid or offered at any one time would diminish as well making for a less efficient market.

No other futures market in the world would have the tax.  Since markets are electronic, it would simply be a flip of the switch to shift volume to a market with no taxes.  The US doesn’t control financial markets in the world anymore.  No one has to trade here.  Singapore would be happy to see traders move over there. So would Toronto.  Any exchange outside of the US looking to build a derivatives market would encourage the US govt to apply a fee here.  Gives them a leg up competing.

Virtually every Presidential budget has this in it.  It must be in the software.  However, one would think that Obama being from Chicago, and having so many Chicago centric people in his administration would have caught it and zeroed it out.

Just to remind the Chicagoans who are now inside the beltway Washingtonians now.  Chicago exchanges account for thousands of jobs in the city, and surrounding suburbs.  Firms lease miles of office space in the city. Traders keep lots of hairdressers, waitresses, and bartenders alive with business and tips. They also help the divorce attorneys in town make a living!

Write your Congressman, tell them to get the tax out of the budget.

  • http://twitter.com/TheArmoTrader Jerry Khachoyan

    This is one tax I can agree with you that shouldnt be passed. I also believe the effects can make markets less effiecent.
    However, I cannot agree on this statement:

    -“Virtually every high frequency trader will leave the US with a transaction tax. “….
    -Yes, some would leave. However a lot will stay IMO. These HFT firms/banks have the politicians bought out and everything is already established here. Unless the tax significantly alters their profits, I do not see MANY leaving. Certainly some would, but I doubt we see an outflow of HFT firms leaving for Singapore or Europe.

    • http://www.pointsandfigures.com pointsnfigures

      they’d trade a lot less, and once a competing exchange listed the same contract, they would migrate the liquidity and be outta here.

      • http://twitter.com/TheArmoTrader Jerry Khachoyan

        If they trade less then that would lead to less profits (theoretically). I do not think those firms want to make less profits and I highly DOUBT they would purposely NOT trade to show their point. If the tax was so significant that it would cut into their profits by like +35%, then ya, I could see them trading less. But I dont think the tax is going to alter their profits by that much.
        -In my opinion, Companies ALWAYS want to make the most money, regardless of taxes (Obviously they would prefer not to pay them but which countris dont tax companies? Oh ya America lol)

        Do you know how much % the proposed tax would be of their current profits?

        • http://twitter.com/TheArmoTrader Jerry Khachoyan

          I should add that the corporate tax has to be a reasonable one or obviously the companies would not want to operate there****

    • Lschulman

      the best HFT firms have margins around $.20 per contract. (They trade about 2-3 million contracts per day). A $.05 transaction tax would be a 25% tax on their profits. The regulatory cost is proportional to open interest, not volume. Any user tax should be based on OI. Liquidity providers would have a much smaller burden.

      • http://www.pointsandfigures.com pointsnfigures

        or not have a tax its dodd-frank that is pushing costs-not the industry

  • http://jerrykhachoyan.com Jerry Khachoyan

    This is one tax I can agree with you that shouldnt be passed. I also believe the effects can make markets less effiecent.
    However, I cannot agree on this statement:

    -“Virtually every high frequency trader will leave the US with a transaction tax. “….
    -Yes, some would leave. However a lot will stay IMO. These HFT firms/banks have the politicians bought out and everything is already established here. Unless the tax significantly alters their profits, I do not see MANY leaving. Certainly some would, but I doubt we see an outflow of HFT firms leaving for Singapore or Europe.

    • http://www.pointsandfigures.com pointsnfigures

      they’d trade a lot less, and once a competing exchange listed the same contract, they would migrate the liquidity and be outta here.

      • http://jerrykhachoyan.com Jerry Khachoyan

        If they trade less then that would lead to less profits (theoretically). I do not think those firms want to make less profits and I highly DOUBT they would purposely NOT trade to show their point. If the tax was so significant that it would cut into their profits by like +35%, then ya, I could see them trading less. But I dont think the tax is going to alter their profits by that much.
        -In my opinion, Companies ALWAYS want to make the most money, regardless of taxes (Obviously they would prefer not to pay them but which countris dont tax companies? Oh ya America lol)

        Do you know how much % the proposed tax would be of their current profits?

        • http://jerrykhachoyan.com Jerry Khachoyan

          I should add that the corporate tax has to be a reasonable one or obviously the companies would not want to operate there****

    • Lschulman

      the best HFT firms have margins around $.20 per contract. (They trade about 2-3 million contracts per day). A $.05 transaction tax would be a 25% tax on their profits. The regulatory cost is proportional to open interest, not volume. Any user tax should be based on OI. Liquidity providers would have a much smaller burden.

      • http://www.pointsandfigures.com pointsnfigures

        or not have a tax its dodd-frank that is pushing costs-not the industry

      • http://www.pointsandfigures.com pointsnfigures

        or not have a tax its dodd-frank that is pushing costs-not the industry

      • http://www.pointsandfigures.com pointsnfigures

        or not have a tax its dodd-frank that is pushing costs-not the industry

    • Lschulman

      the best HFT firms have margins around $.20 per contract. (They trade about 2-3 million contracts per day). A $.05 transaction tax would be a 25% tax on their profits. The regulatory cost is proportional to open interest, not volume. Any user tax should be based on OI. Liquidity providers would have a much smaller burden.

    • Lschulman

      the best HFT firms have margins around $.20 per contract. (They trade about 2-3 million contracts per day). A $.05 transaction tax would be a 25% tax on their profits. The regulatory cost is proportional to open interest, not volume. Any user tax should be based on OI. Liquidity providers would have a much smaller burden.

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  • timmy

    do you know how big this fee will be?

    a fixed amount per trade or a percentage of the bet?

  • timmy

    do you know how big this fee will be?

    a fixed amount per trade or a percentage of the bet?

  • http://www.rossgreenspan.com rossgreenspan

    Call your Reps. Call your Senators. This would be a death knell for Chicago and Illinois. This would send anyone with a brain to Dubai, Singapore, even London.

  • http://www.rossgreenspan.com rossgreenspan

    Call your Reps. Call your Senators. This would be a death knell for Chicago and Illinois. This would send anyone with a brain to Dubai, Singapore, even London.

  • http://www.rossgreenspan.com rossgreenspan

    Call your Reps. Call your Senators. This would be a death knell for Chicago and Illinois. This would send anyone with a brain to Dubai, Singapore, even London.

  • http://www.rossgreenspan.com rossgreenspan

    Call your Reps. Call your Senators. This would be a death knell for Chicago and Illinois. This would send anyone with a brain to Dubai, Singapore, even London.

  • http://www.rossgreenspan.com rossgreenspan

    Call your Reps. Call your Senators. This would be a death knell for Chicago and Illinois. This would send anyone with a brain to Dubai, Singapore, even London.

  • http://www.FuturesKnowledge.com Michael Wayne

    Jeff – would you be willing to allow us to repost/repurpose your commentary on http://www.FuturesKnowledge.com? We have a lot of traders who would be interested in your point of view…

    • http://www.pointsandfigures.com pointsnfigures

      just link back here, thanks

  • http://www.FuturesKnowledge.com Michael Wayne

    Jeff – would you be willing to allow us to repost/repurpose your commentary on http://www.FuturesKnowledge.com? We have a lot of traders who would be interested in your point of view…

    • http://www.pointsandfigures.com pointsnfigures

      just link back here, thanks

    • http://www.pointsandfigures.com pointsnfigures

      just link back here, thanks

    • http://www.pointsandfigures.com pointsnfigures

      just link back here, thanks

  • http://www.FuturesKnowledge.com Michael Wayne

    Jeff – would you be willing to allow us to repost/repurpose your commentary on http://www.FuturesKnowledge.com? We have a lot of traders who would be interested in your point of view…

  • http://twitter.com/pricentime John

    As a servant of Rome, it is doubtful that he has done this in error…or without knowing the full impact. Just another prong of the Requirimiento long in play against this Republic.

    As for Chicago and Illinois workers, I remember a quote in Braveheart where Longshanks orders his archers to fire while his infantry is fully engaged with the Scots and his General asks “But Sir, won’t we hit our men?” and the answer was “Yes, but we’ll hit theirs as well.”

  • http://twitter.com/pricentime John

    As a servant of Rome, it is doubtful that he has done this in error…or without knowing the full impact. Just another prong of the Requirimiento long in play against this Republic.

    As for Chicago and Illinois workers, I remember a quote in Braveheart where Longshanks orders his archers to fire while his infantry is fully engaged with the Scots and his General asks “But Sir, won’t we hit our men?” and the answer was “Yes, but we’ll hit theirs as well.”

  • http://twitter.com/pricentime John

    As a servant of Rome, it is doubtful that he has done this in error…or without knowing the full impact. Just another prong of the Requirimiento long in play against this Republic.

    As for Chicago and Illinois workers, I remember a quote in Braveheart where Longshanks orders his archers to fire while his infantry is fully engaged with the Scots and his General asks “But Sir, won’t we hit our men?” and the answer was “Yes, but we’ll hit theirs as well.”

  • http://twitter.com/pricentime John

    As a servant of Rome, it is doubtful that he has done this in error…or without knowing the full impact. Just another prong of the Requirimiento long in play against this Republic.

    As for Chicago and Illinois workers, I remember a quote in Braveheart where Longshanks orders his archers to fire while his infantry is fully engaged with the Scots and his General asks “But Sir, won’t we hit our men?” and the answer was “Yes, but we’ll hit theirs as well.”

  • Andrew Stanton

    Wonder what soon to be mayor Rahm thinks about this?

  • Andrew Stanton

    Wonder what soon to be mayor Rahm thinks about this?

  • Dave

    I don’t like the tax, but 0.10 a round turn would not kill me. I trade all over the world and the difference in exchange fees is a lot more than 0.10 a round turn. If this really was a problem, we would all be trading IR contracts.

  • Dave

    I don’t like the tax, but 0.10 a round turn would not kill me. I trade all over the world and the difference in exchange fees is a lot more than 0.10 a round turn. If this really was a problem, we would all be trading IR contracts.

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