European Parliament proposes alterations to the FTT
18 July 2013 London
Image: Shutterstock
The European Parliament vote in favour of the financial transaction tax (FTT) approved the commission’s proposal—subject to certain proposed amendments.
The vote, which took place on 3 July, was praised by European commissioner Algirdas Šemeta, who said that it was now time to agree on the tax.
“With [this] democratic backing, Member states must now press ahead in reaching quick agreement on this file. Rumours and speculation are not good for business, and create a difficult environment for our economic operators.”
However, the European Parliament is only acting as a consultant, and its proposed amendments can be ignored by the legislator ECOFIN.
KPMG set out the main amendments that were proposed by the parliament, which were: extending the scope of the tax to cover currency spots on the FX markets; the introduction of the transfer of legal title principle; permanent reduced rates on repos and temporary reduced rates on trades in sovereign bonds and trades of pension funds; and the introduction of an exemption for market makers.”
The exemption for ‘liquidity providers’ defined them as: “A person who holds himself out on the financial markets on a continuous basis as being willing to deal on own account by buying and selling financial instruments against his proprietary capital (market maker), when performing an essential function with regard to illiquid bonds and shares in his role of liquidity provider, as provided for in the agreement between the market maker and the organised venue where the financial transaction is carried out, where that transaction is not part of a high-frequency trading strategy.”
A ‘high-frequency strategy’, KPMG noted, is defined by reference to portfolio turnover, proportion of orders cancelled, timing of unwinding of positions, and discounted orders.
Amendments to the rates related to reduced rates on repo and reverse repo agreements: 0.01 percent on such instruments with a maturity of up to 3 months.
Under current FTT proposals, repos would be taxed at 0.1 percent, along with stock and bond trades.
The vote, which took place on 3 July, was praised by European commissioner Algirdas Šemeta, who said that it was now time to agree on the tax.
“With [this] democratic backing, Member states must now press ahead in reaching quick agreement on this file. Rumours and speculation are not good for business, and create a difficult environment for our economic operators.”
However, the European Parliament is only acting as a consultant, and its proposed amendments can be ignored by the legislator ECOFIN.
KPMG set out the main amendments that were proposed by the parliament, which were: extending the scope of the tax to cover currency spots on the FX markets; the introduction of the transfer of legal title principle; permanent reduced rates on repos and temporary reduced rates on trades in sovereign bonds and trades of pension funds; and the introduction of an exemption for market makers.”
The exemption for ‘liquidity providers’ defined them as: “A person who holds himself out on the financial markets on a continuous basis as being willing to deal on own account by buying and selling financial instruments against his proprietary capital (market maker), when performing an essential function with regard to illiquid bonds and shares in his role of liquidity provider, as provided for in the agreement between the market maker and the organised venue where the financial transaction is carried out, where that transaction is not part of a high-frequency trading strategy.”
A ‘high-frequency strategy’, KPMG noted, is defined by reference to portfolio turnover, proportion of orders cancelled, timing of unwinding of positions, and discounted orders.
Amendments to the rates related to reduced rates on repo and reverse repo agreements: 0.01 percent on such instruments with a maturity of up to 3 months.
Under current FTT proposals, repos would be taxed at 0.1 percent, along with stock and bond trades.
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