Proposed 0.25% Trading Fee Per Transaction - A Bad Idea

In a September 25 article titled, “0.25% Trading Fee”, members of Congress are considering a 0.25% fee on all transactions. That’s a’%’ and not a ‘$’.

Here’s the article:

Why isn't this idea gaining more "traction"?

Rep. Peter DeFazio, D-Ore. [...] advocated a new government fee of .25 percent of every stock transaction to ensure that the government can recoup funds to pay for the aid that it provides to lenders. “If this is truly such a catastrophe, I don’t see how anybody can object to a one-quarter of one percent fee,” DeFazio said. Others who attended the session said that proposal seemed to be gaining little traction.

Wall Street (and their enablers in both parties) want the taxpayers to shoulder the entire cost. Heavens forbid if Wall Street itself have to shoulder any of the burden.

Now 0.25 percent might be too high. I don't know. How about a tax per transaction? It looks like normal volume at the Dow is about 4 billion daily transactions. Slap a penny surcharge on every one of those transactions, and we're talking $40 million raised, and that's not including the NASDAQ and other markets (the Chicago exchanges, etc.). Over the course of the year, that would approach $10 billion. Hmmm.

Let's make that surcharge $0.25. That would be $1 billion raised per day, or about $240 billion raised in a year. That sounds better.

And yeah, it would suck for Wall Street, since that's real money out of their pockets, but they created the mess. They should be the ones paying to clean it up. Better the money come out of their pockets than ours.

As a trader, there are several problems I see with this:

• Individual scalpers and day traders will get hit the most within the retail category. These types of traders depend on the ability to trade rapidly to turn a profit, incurring significant transactions as well as shoulder the high burden of commissions. The addition of 0.25% per transaction will likely lead to a major shift in strategy among these traders.
• Institutions, particularly hedge funds, will obviously object to this proposal. Hedge funds account for more than 25% of the daily volume on the exchanges. This could amount to the hundreds of billions of dollars in fees by year’s end. Hedge funds that practice daily rapid-trading will likely shift their strategies.
• How are market-makers and specialists affected by this?
• Brokers will see reduced commission revenue and may need to raise commission rates or otherwise suffer.
• Why in the world would we help the government pay for something they failed to regulate in the first place?

Sure, we can help the government pay for the mess, but Isaac Newton would have said “for every action, there is a reaction”. This proposal will most likely reduce trading activity immediately and create havoc in a market that’s already in disarray. The market is already experiencing reduced liquidity due to the temporary short-selling ban; however, government action like this will kill liquidity and the confidence and support of traders and investors worldwide. I for one say NO.

Stock position: None.

Comments

[AlexS:]

The catastrophe would be that we pay for the catastrophe and then we pay another quarter percent to the same Washington D.C./New York City mob that started all this mess.

2008 Sep 26 10:40 AM

[sr9web:]

It's a stupid idea and won't go anywhere.

2008 Sep 26 10:41 AM

[AlexS:]

Here's a better idea. Every time one of us citizens trades stock, we receive 0.25% from a fund composed of all the campaign moneys of the polititicians, plus the refunded bonuses from their Wall St chums.

2008 Sep 26 10:43 AM

[Duude:]

Better yet, why couldn't we add a 15% excise tax onto every campaign advertisement. That wouldn't favor either party, and it would take a piece of the campaign and advocate slush funds that have grown to unfathomable proportions. It may squeeze money out of campaigns but it doesn't favor anyone but the American people.

2008 Sep 26 10:53 AM

[Al-USA:]

Lets get something straight here, "Wall Stree" per se did not create this mess. Rather, it was the fattest of the "fat cats" of Wall Street which now threaten the economy. So, slap on the tax or whatever you want to call it but do it only on a per volume share trade and total annual trading activity to catch the wanna be cheaters.

The billionaires want socialism for themselves and capitalism for the rest of us. Lets call them on it.

2008 Sep 26 04:46 PM

[Canbyte:]

Not a bad idea. Too many people trying to leech wealth instead of creating it. Lee has no insight except to maintain status quo despite obvious problems resulting.

2008 Nov 29 12:23 AM

[User 339040:]

It depends if it's a fee based on the total proceeds of a transaction.
Let's look at leveraged futures contracts:
For example, a S&P 500 emini fufutes contract is worth about $40k per side or a total of $80k for a round trip with the 50 miltiplier. So 0.25% fee for the total transaction is $200.
No trader would ever trade this vehicle again .... NEVER.
It's the most popular contract in history and the CME, NYMEX and others would be wiped out overnight.
If this is indeed the proposal, NO trader can "adjust their strategy" to counter this and 200,000 traders are gone from the USA overnight.
This would crash the entire financial system, and would make the Bank and Real Estate problem look like a picnic.
Again, if it is indeed a fee based on proceeds then it must have taken a real moron to ever conceive, let alone consider this rediculous notion.
I would like to see the Gov't ruin a 4 trillion dlooar (a day) industry with something as rediculous as this.

Jan 17 12:11 AM