Stupid question, probably already been asked so forgive me for bringing this up. But if for some horrible reason this damn tax gets passed, wouldn't that widen the Bid/Ask spreads to something like we saw prior to decimalization? Say if the tax is $10, that the spread on your average stock goes from $.01 to $.10 or something like that?
1/4% Tax on all stock trades pushed in NY Times today
- Thread starter seasideheights
- Start date
On the average stock of $20 or so, some researcher believes spreads will be around $0.53, costing several times more than the inane tax itself.
Long-term investors are the ones that need to understand that. The CIO of Vanguard estimates this FTT along with increased spreads will cost long-term, buy and hold investors 2 percent yield loss annually.
It is higher than that, unless they buy the stocks on their own in an etrade account and hold for 10+ years.
Average "long term" investor buys a mutual fund or is in a pension. What was the study out of the UK? If a fund with only 1.5 turnover a year (which is inactive fund), would be a 5% yield loss per year!! That is the number that should scare the sh!t outta everybody (even the hard core liberals who push the FTT).
this will just help institutional traders out a bunch. Smaller traders will be shafted if legislation similar to this passes...
My bookmarks and articles saved over the last three years are a mess...someday...
Article from 3 years ago only mentions CIO Sauter of Vanguard saying it would cost the typical long-term investor in their funds 2 percent annually. That's all I remember. The site requires registration now, free I guess.
https://home.investmentnews.com/cli...nvestmentnews&CSAuthReq=1:273447768469238:AID
A researcher found spreads in the mid 1980's to be $0.53. Economist Baker gleefully states the FTT would bring spreads back to where they were in the 1980's.
Most everyone hates HFT. Some of that hate may be legitimate because of certain antics, but taxing HFT and yourself...? There are other ways.
Excerpts from a letter to the SEC from Vanguard:
April 21, 2010
The recent financial crisis has caused terms like "dark pools" and "high frequency trading" to become part of everyday political discussion. Accordingly, some have called for immediate action to regulate and restrict certain aspects of our equity markets. In many cases, these "solutions," often couched as efforts to "penalize Wall Street," are not based on empirical data and do not take into consideration down-stream consequences to the markets at large and the collateral impacts to long-term investors.
Vanguard and its investors have benefited from the competition that today's market structure facilitates. Over the past fifteen years, the competition among trading venues and significant technological advancements have greatly reduced transaction costs for all investors across our markets.
As the number of trading venues increases, discrepancies in prices across those venues will naturally result. The price discrepancies across multiple markets create an opportunity for nimble traders to make a small arbitrage profit by scouring the markets for these discrepancies and eliminating them. As the number of trading venues expands, the number of such arbitrage opportunities increases. So, it is not surprising that we have seen a tremendous increase in trading volume over the past decade, and that the activity is increasingly dominated by "high frequency traders." While Vanguard does not engage in this type of trading, we recognize that such trading has a positive impact on the markets at large, including longer term investors. Such arbitrage trading enables investors to get a fair price across market centers. Vanguard believes that the market structure changes facilitated by the Commission's various regulatory initiatives and the "knitting" together of the marketplace by "high frequency trading," have led to a significant decline in transaction costs for long-term investors over the past ten years through increased liquidity and tighter bid-ask spreads.
Various groups have attempted to quantify the reduction in transaction costs over the last ten to fifteen years. The Commission will continue to receive this data throughout the comment period. While the data universally demonstrate a significant reduction in transaction costs over the last ten to fifteen years, the precise percentages vary (estimates have ranged from a reduction of 35% to more than 60%). Vanguard estimates are in this range, andwe conservatively estimate that transaction costs have declined 50 bps, or 100 bps round trip. This reduction in transaction costs provides a substantial benefit to investors in the form of higher net returns. For example, if an average actively managed equity mutual fund with a 100% turnover ratio would currently provide an annual return of 9%, the same fund would have returned 8% per year without the reduction in transaction costs over the past decade. Today's investor with a 30 year time horizon would see a $10,000 investment in such a fund grow to approximately $132,000 in 30 years, compared to approximately $100,000 with the hypothetical return of 8% associated with the higher transaction costs. This roughly 25% decrease in the end value of the investment demonstrates the impact of reduced transaction costs on long-term investors. Thus, any analysis of "high frequency trading" must recognize the corresponding benefits that long-term investors have experienced through tighter spreads and increased liquidity.
Vanguard believes any analysis of market structure must focus on the goal of maximizing liquidity.
Gus Sauter
George U. Sauter Managing Director and Chief Investment Officer The Vanguard Group, Inc.
http://www.sec.gov/comments/s7-02-10/s70210-122.pdf
http://www.channel4.com/news/cameron-threatens-to-veto-eu-reform-treaty
---www.guardian.co.uk/world/2011/dec/07/cameron-threatens-veto-eu-treaty
---www.guardian.co.uk/world/2011/dec/07/cameron-threatens-veto-eu-treaty
I thought that 2014 was their earliest target date all along? Who knows what the EU is going to look like then?
-Guru