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France's FTT Experience Should Warn Europe Of Risks

by Ulrika Lomas,, Brussels

08 April 2014

The introduction of a financial transactions tax (FTT) in France has led to a ten percent reduction in the volume of shares traded on the capital's stock market, according to a recent study conducted by the nation's financial market regulator, AMF. Trading volumes fell 20 percent in the first week of application.

AMF carried out a daily analysis of trading volumes 18 months before and ten months after the FTT entered into force on August 1, 2012, to assess the impact of the charge on the French stock market. Specifically, the regulator analyzed trading volumes and liquidity, and sought to determine whether the fee has resulted in a transfer of volumes to other financial centers in Europe or a move towards derivative products.

Over-the-counter (OTC) volumes were not included in AMF's analysis due to strong seasonal fluctuations in trading. Figures published by the European Central Bank show a 40 percent reduction in OTC volumes, however. Meanwhile, AMF found no evidence of increased uptake in alternative securities such as contracts for difference (CFD).

Finally, AMF said that its analysis of the French FTT highlights a number of risks associated with the introduction of an FTT in the European Union, warning that the rates applied, the base of the tax, and the tax exemptions in place may have significant repercussions on volumes as well as on the quality of the market.

France's FTT is a tax imposed at a rate of 0.2 percent on share acquisitions, high frequency operations, and sovereign credit default swaps (CDS). Exempt from the levy are purchases on the primary market, purchases that improve stock market liquidity, intragroup operations, and employee share schemes. Intraday operations are not taxable either.

TAGS: tax | share schemes | tobin tax | tax rates | France | trade | Europe

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