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Will Italy’s financial transaction tax (FTT) become a blueprint for the regulation of high-frequency trading in Europe? France and Germany have already introduced measures, the UK wants to assess potential impact and, at the EU level, MiFID II includes related proposals. Chris Morris and Marco Ragusa of Ernst & Young explore the recent developments.
Original news
High-speed trading tax for Italy
Financial Times, 2 September 2013: A new high-frequency trading tax is being introduced in Italy, despite warnings from banks and brokers over potential damage to liquidity on the nation’s markets. The levy will apply to high speed trading in equities and equity derivatives on Italian Markets. The European Commission has proposed a tax on financial transactions which has gained the backing of 11 Eurozone countries and it is possible that a similar proposal for a tax on high frequency trading may be put forward in the context of the wider European Financial Transactions tax.
How does high frequency trading operate?
High frequency trading has increased substantially in recent years and now accounts for a significant proportion of equity trading activity in the US, UK and Europe. These trading strategies employ sophisticated computer algorithms to search for trading opportunities in the markets, using technology to execute these strategies with very ‘low latency’ between the arrival of market information and the reaction of the computer to place, amend or cancel an existing order.
How have different jurisdictions sought to regulate such trading?
In Europe, there has been much discussion about the effects of high frequency trading and the need for control of such activities whether by way of regulation or taxation. France has already imposed a tax on certain high frequency trading activities and Italy has followed suit with their own version.
What is the scope of the tax on high frequency tax in Italy?
Italy’s FTT includes an additional special levy that applies to ‘high-frequency trading’ transactions, the High Frequency Tax (or HFT). Unlike the FTT, the HFT applies to sell as well as
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