As The Guardian’s Max Lawson’s asks, what connects hunger in Africa, people dying for want of medicines or health care and fast-paced global capitalism? A small tax on financial transactions.
A new report about computer-driven high frequency trading (HFT), compiled by supporters of the Robin Hood tax campaign, reveals a niche world of millions of transactions each day. The report highlights how HFT threatens a new financial crisis. Driven by computers and their “algorithmic trading“, this activity is divorced from real-world fundamentals and is raising risk in alarming ways. It increases volatility and drives up prices, whether of shares or, increasingly, commodities such as oil or food. The Bank of England has identified high frequency trading as a serious systemic risk.
HFT is a rapidly growing phenomenon, and now accounts for over 70% of the UK equities market. Gone are the days of serious investors looking at a company’s prospects and plans and making a long-term investment. Now we have firms in the US boasting that the longest they hold a stock for is 11 seconds.
These millions of trades all rely on ultra-thin margins, meaning that one key way to reduce their number is a small tax on each transaction. Martin Wheatley, the incoming head of the new Financial Conduct Authority, is a supporter. Writing in the Financial Times, he has suggested that “the charge could be tiny – a fraction of a percentage point. This financial ‘grit’ would reduce the profit margin and hence limit the scope of HFT“. Lord Turner, head of the Financial Services Authority, agrees.