White House Says HFT Tax “Worth Studying” After GameStop Debacle
In the aftermath of last week’s Robinhood hearing, the only quasi tangible policy proposal that emerged was the vague threat that democrats may consider implementing a transaction tax to slowdown the runaway expansion of HFTs which have bastardized modern market structure. To wit, House Financial Services Chairwoman Maxine Waters said she’s “very interested” and “certainly looking at” a financial transaction tax.
Needless to say, having criticized HFTs since 2009, we have been pushing for just such a “tobin tax” as it is also known, and on Friday we asked – jokingly – “If Dems pass a tobin tax will Virtu and Citadel threaten to uproot and take their microwave towers to Somalia?”
If Dems pass a tobin tax will Virtu and Citadel threaten to uproot and take their microwave towers to Somalia?
— zerohedge (@zerohedge) February 19, 2021
But maybe it wasn’t a joke because according to CNN, in a move that could have seriously adverse consequences for artificially inflated markets, the White House supports studying the merits of a financial transaction tax – a move favored by progressives and despised by so called “market makers” on Wall Street who really just use HFT algos to frontrun traditional orderflow- in the wake of the GameStop trading frenzy.
The GameStop situation highlights the serious issues of investor protection and market integrity, a White House spokesperson told CNN Business on Sunday. The potential impact of a financial transaction tax on GameStop-like trading deserves additional study and can be part of a greater evaluation of such a tax for revenue and market stability, the spokesperson said.
For Democrats, most of whom are completely clueless on such arcane concepts as fragmented market structure, lasers and microwave towers at the
New York Mahwah Stock Exchange, and latency arbitrage, a tobin tax would serve a far more tangible purpose: it would allow them to raise badly needed revenue, while also pretending to care about the health of financial markets.
A 0.1% tax on stock, bond and derivative transactions could raise $777 billion for the federal government over a decade, according to a 2018 estimate by the nonpartisan Congressional Budget Office.
More importantly, a 0.1% transaction tax would also put such HFT giants as Virtu and Citadel Securities (if not the Citadel hedge fund) out of business overnight. Which is why such a tax would face fierce opposition from Wall Street and it’s unclear whether moderate Democrats would support it. Opponents warn it would backfire on retail investors by raising costs and making financial markets less liquid.
This means that centrist democrats are on collision course with the progressive socialist fringe, and very soon it will be revealed that whatever Wall Street want, Wall Street gets, even if it means socialists end up with nothing again.
“This approach has a long history of unintended consequences that will penalize workers, pensioners and American families,” a spokesperson for the Coalition to Prevent the Taxing of Retirement Savings told CNN Business. That coalition includes the New York Stock Exchange, Nasdaq and UBS. Citadel Securities and Virtu Financial, two high-speed trading firms that would be hurt by a financial transaction tax, are also members.
“An FTT will increase trading costs for investors — including individuals — undermine the competitiveness of our capital markets and harm the U.S. economy just as we work to recover from this pandemic,” the spokesperson said.
Then again, maybe Wall Street has a right to be worried: the level of populist anger and fury in the aftermath of the Gamestop debacle which has now shifted to nearly two decades of broken market structure made possible by Reg NMS could mean that maybe, just maybe, a transaction tax has a shot at passing: during a heated exchange at a hearing last week, Democratic congresswoman Rashida Tlaib pushed back against Citadel Securities founder Ken Griffin’s concerns about a tax.
“Let’s not gaslight the American people. Y’all will be fine with the tax,” she said. “Our folks are tired of bailing you all out when you screw up.”
One way to see just how serious Wall Street takes the threat is to keep an eye on markets: if a 0.1% tobin tax is truly close, the first thing to go in freefall – before Ken Griffin’s net worth of course – will be the S&P500.