Financial Transaction Tax (FTT)
Financial Transaction Tax (FTT)

The following Financial Services guidance note provides comprehensive and up to date legal information covering:

  • Financial Transaction Tax (FTT)
  • What is the concept behind the EU FTT?
  • How would the FTT work?
  • Timeline of FTT developments
  • Practical operational impacts for financial institutions
  • The UK’s position on the FTT
  • Possible concerns with the FTT

What is the concept behind the EU FTT?

The original Financial Transaction Tax (FTT or ‘Tobin tax’) Directive proposal (published in September 2011) was a very wide-ranging tax imposed on most transactions in derivatives and securities (fixed income and equities). The tax would apply whenever one party was a financial institution and it, or the counterparty, was established in the EU.

The FTT is often referred to as a Tobin Tax, which is named after the Nobel-prize winning American economist James Tobin who, in 1972 suggested a tax on all payments from one currency to another.

The EU FTT proposals are aimed at reducing speculative trading of financial instruments that the EU Commission claims have a destabilising effect on markets and the real economy. Certain trading styles (eg algorithmic trading carried on with little human intervention—generally known as high frequency trading) involve millions of deals being placed every second to take advantage of tiny price differences. The profits of each trade are small. The aim is that an FTT would raise costs making some transactions unprofitable and so reduce trading volumes.

Support for the tax has been strong but not comprehensive. Only nine Member States need to be in favour of the proposal for the enhanced co-operation procedure to be used. As there is a desire in some camps to push