Italy targets high-frequency trading

Italy has cracked down on the controversial practice of high-frequency trading (HFT) this week with a tax on all trades lasting less than half a second, as well as a levy on equity derivatives. 

The 0.02 percent tax, which applies regardless of where the transaction is executed, follows the first phase of Italy’s financial transaction tax (FTT), introduced in March to target exchange-based and over-the-counter share trading. 

While HFT has been blamed for volatility in markets, as well as a number of stock market glitches in recent months, the new tax is not without its critics, who argue that trade will simply move elsewhere.

Following the first stage of Italy’s FTT, the Financial Times reported that ‘average daily trading volumes for Italian-domiciled stocks have fallen to €2.8 bn ($3.7 bn) in March compared with  €4.6 bn and €4.5 bn in January and February, respectively. This is the biggest fall in volumes on any major European exchange so far this year.’

Taxing financial transactions remains a popular idea, however, with the European Commission (EC) – backed by 11 member states but challenged by the UK – seeking to introduce a common framework for an FTT sometime in 2014.

‘Through the FTT, as proposed, the financial sector will properly participate in the cost of rebuilding the economies and bolstering the public finances of the participating member states,’ says the EC. It estimates annual revenues from such taxes to be in the region of €30 bn to €35 billion – ‘or 0.4 percent to 0.5 percent of the GDP of the participating member states’.