Emerging Markets Represent the Future for HFTs

As reported by Justin Grand, the Congressional Budget Office warned Utah Senator Orrin Hatch in a letter earlier this month that should a proposed tax on high-frequency trading become law, business would move overseas and the U.S. would no longer be the world’s premier marketplace.

The tax would also be the kiss of death for high-frequency trading firms since it would make their strategies unprofitable, the CBO said. As a result spreads would widen and financial transactions would be more expensive, particularly for assets that are traded frequently.

The tax would levy a 0.03 percent charge on any transaction involving a stock or a bond.

The agency also told Sen. Hatch, the senior Republican on the Senate Finance Committee, that the tax would decrease trading volumes across the board and destroy the profitability of derivatives transactions, which are often used as a risk management tool.

Traders would have incentives to avoid the tax either by trading offshore or by creating new financial instruments that were not subject to the tax,” the CBO wrote. And “as foreign holders of U.S. securities moved their transactions abroad, more of the market could go with them, which could diminish the importance of the United States as a major global market.”

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