High-frequency trading and a financial transactions tax

Reuters finance blogger Felix Salmon has an interesting post on high-frequency trading up today with a very interesting (and unusually high-quality, barring the first comment) discussion.

Both Salmon and the comments thread raise the possibility of a financial transactions tax to mute the effects of HFT. It’s an interesting discussion. I am personally of the view that spreads matter, but that if we can eliminate risk, even at the expense of price accuracy, we should consider it. However, the comments propose a cancellation fee instead for orders; it seems to me this would hit HFT where it hurts without needing to chew up everyone’s transactions with a tax.

And then of course there’s YOUR spread that gets eaten by high-frequency trading. Not fun, and not really just either. Maybe we should have a MARKETS FOR HUMANS! movement.

[UPDATE September 18, 2014: interesting how far I’ve evolved on the HFT tax question, which I no longer favour, but I am still intrigued by the proposal of a cancellation fee…]

Written by Craig Burley

Craig is a tax lawyer in private practice in Hamilton, Ontario. Call Craig at (905) 296-3378 to discuss issues that you think may need independent tax advice. In addition to tax, Craig writes and works publicly on a number of other issues related to law, justice, and public affairs.

Website: http://craigburley.com