Feasibility of taxing derivatives trading

Rodney Schmidt, September 2012

A report from a leading expert on the Financial Transaction Tax (FTT) explains why (and how) applying an FTT to derivatives trading is more feasible today than ever before.

Currently a minimum of 9 European countries, including Germany, France, Italy and Spain, are pushing ahead to implement an FTT by the end of 2012. Negotiations are now underway concerning the coverage of the tax and discussions are ongoing over whether or not trading in derivatives will be taxed – with some (mistakenly) arguing its too complicated and not technically feasible.

The Robin Hood Tax campaign is pushing for an FTT to be applied to derivatives as this would generate significantly more revenue and also help reduce the casino-style banking behaviour which contributed to the current economic crises. Encouragingly, Germany is also pushing for the inclusion of derivatives.

As these discussions are happening between countries, Professor Rodney Schmidt, a leading expert on the FTT from Canada’s North-South Institute, has published a timely report explaining how, given new regulations currently underway, applying an FTT to derivatives trading is more feasible today than ever before. Here’s why:

  • An FTT on derivatives, whether OTC or on-exchange, will be feasible as soon as new regulations requiring globally centralised trade reporting are in place. In the US and Europe this process will be complete within the next year.
  • This is technically feasible because matching, confirming, storing, and settling contracts is standardised, centralised, and electronically automated. This came about through cooperative action of the largest dealers and under the lead and guidance of regulators.

This is an extremely useful, informative and timely report, which we encourage all interested in understanding the mechanisms of taxing financial transactions in a little more depth, to read.

Please download the Feasibility of taxing derivatives trading document as a pdf (137KB).