Fri, 26th May 2017

Anirudh Sethi Report


Archives of “financial transactions” Tag

Germany’s ‘boring’ election is vital to the eurozone

Over the past week, some of Germany’s most prestigious newspapers have almost all but given up reporting on the election campaign under way in Europe’s biggest country. It has simply become too boring.

Yet, the elections on September 22 are ultimately very important. The interesting question is not so much who is going to be the next chancellor – that seems all but settled. The important question is whether the new German parliament is more or less likely to agree steps to a resolution of the eurozone crisis. The important player to watch will be the opposition Social Democratic party. Depending on the result, it may, or may not, shift its position.

The SPD has not gained any traction against Angela Merkel, the chancellor. Perhaps more than any other social democratic party in the west, it has bought into the neoclassical economic policy consensus. That makes it hard to find a narrative with which to attack Ms Merkel. Read More 

Italy introduces tax on high-speed trade and equity derivatives

Italy will on Monday become the first country to introduce a tax on high-frequency trading in a move that has become a test case for potential further crackdowns on the controversial practice.

The country will introduce levies against high-speed trading and equity derivatives in the final part of a two-stage process established this year to tax equity-related transactions.

However banks and brokers – many of whom were scrambling on Friday for clarification of key details – have warned the new taxes could further damage liquidity in the Italian market. Volumes have fallen sharply since the introduction of a tax on equities in March.

Policymakers in Europe are considering levies on financial transactions as a way to stabilise markets, curb so-called speculative and high-speed trading and plug gaps in government budget deficits. A European Commission proposal has the backing of 11 eurozone countries while France mandated a watered-down tax similar to UK stamp duty a year ago. Similar proposals have also been floated by lawmakers in the US and Australia.

The Italian version explicitly focuses on high-frequency trading and derivatives, which are often used by corporations and banks to hedge against risk. The tax will also apply regardless of where the transaction is executed, or the country of residence of the counterparty.

For high-frequency traders, order changes and cancellations will be taxed at 0.02 per cent when they occur within a timeframe shorter than half a second, once above a threshold. Read More 

Iran’s rial loses half of its value against dollar

 Iran’s central bank on Saturday drastically devalued the national currency’s fixed subsidised rate against the dollar, as the Islamic republic struggles to shore up its faltering economy.

The rial has lost more than two thirds of its value on the open market since early 2012, when the United States and the European Union imposed harsh economic sanctions curbing Iran’s ability to export oil and conduct financial transactions.

The central bank on Saturday was selling one US dollar for 24,779 rials at the subsidised rate available only to select importers to procure basic commodities and medicine, according to the bank’s website at http://cbi.ir Read More 

Iran, Russia and China prop up Assad economy

Iran, Russia and China are propping up Syria’s war-ravaged economy, with President Bashar al-Assad’s regime doing all its business in rials, roubles and renminbi as it seeks to beat western sanctions, according to the country’s senior economics minister.

Syria’s three main allies are supporting international financial transactions, delivering $500m a month in oil and extending credit lines, Kadri Jamil, deputy prime minister for the economy, said in an interview with the Financial Times. He added that its allies would also soon help with a “counter-offensive” against what he called a foreign plot to sink the Syrian pound.

Mr Jamil’s combative remarks on the deepening economic crisis highlight a wider show of regime assurance, founded on recent military gains and a belief that its biggest international supporters remain solidly behind it.

“It’s not that bad to have behind you the Russians, the Chinese and Iranians,” Mr Jamil told the FT. “Those three countries are helping us politically, militarily – and also economically.” Read More 

Brazil acts after real hits four-year low

Brazil has reduced a financial transactions tax on currency derivatives to zero after its currency, the real, hit four-year lows against the dollar on Wednesday.

The measure was the second such move in a week to dismantle currency controls as the government sounds a rapid retreat from its earlier “currency war” against foreign capital inflows.

The 1 per cent tax, which applied to short dollar positions in the futures market that were essentially a bet on a stronger real, was considered one of the most onerous of Brazil’s currency controls when it was introduced in July 2011.

“This was the measure that created all kinds of distortions in the market, generated big losses in people’s portfolios, reduced liquidity and really caused inflows to suddenly stop,” said Tony Volpon, Nomura economist. Read More 

ECB offers to help rethink EU plans on ‘Robin Hood tax’

ROBINHOOD TAXThe European Central Bank has offered to help the EU redesign its financial transactions tax to avoid any ‘negative impact’ on market stability, highlighting official fears about the implementation of the levy.

Proposals by 11 eurozone countries for a “Robin Hood tax” on trading in bonds, shares and derivatives have run into strong opposition from the financial industry, which has warned they could dry up markets, increase costs substantially for investors and erode bank profits.

Publicly, the ECB has refused to take sides, pointing out it has no mandate in the field. But its offer to “engage constructively” in the design of the tax suggests that, privately, it has deep reservations about its impact on financial markets and the real economy.

Benoît Cœuré, ECB executive board member, told the Financial Times: “We’re willing to engage constructively with governments and the European Commission to ensure that the tax has no negative impact on financial stability.” Read More 

India ‘facing threat of regulatory arbitrage’

India needs to streamline regulations to attract greater foreign capital and fend off a growing threat of financial activity moving to other countries, the outgoing head of the country’s largest stock exchange has said.

Ravi Narain, who this month stepped down as chief executive of the National Stock Exchange, warned that competitor nations are using favourable regulatory regimes to attract business away from India, threatening the growth of financial markets in Asia’s third-largest economy.

“If you look at economies outside of India, it is relatively easy for them to supply financial services [to India],” he told the Financial Times in an interview. “There is a great deal of regulatory arbitrage between India and some other jurisdictions and we need to tackle that.”

India’s Financial Sector Legislative Reforms Commission (FSLRC), a long-term independent review established by the government two years ago, last month proposed wide-ranging changes to modernise the country’s fragmented system of regulations.

The FSLRC suggested that four separate financial regulators, covering areas including markets, forward contracts and insurance, should be unified into one body, while its report warned that “difficulties in regulation” could see Indian financial transactions moving offshore. Read More 

Bank funding threat from EU tax

The main source of short-term funding for European banks could more than halve if a new financial transaction levy goes ahead, according to the International Capital Markets Association.

The EU’s proposed levy on financial transactions in and around the region is expected to raise €30bn-€35bn a year.

But the tax will have “serious” consequences for the repo market, the European Repo Council of ICMA warned on Monday, and would cause the short-term funding market to contract by 66 per cent, according to a study it commissioned.

The proposed levy, which will take effect next January, will include transactions in the repo market, where banks pledge securities as collateral in exchange for funding from other financial institutions. Read More 

Korea becomes the red flag for Asia’s currency war

* Asia’s reaction to currency war muted so far, could heat up

* S.Korea’s tax proposal possibly triggered by capital outflow

* Capital controls more acceptable as policy option

* Cutting interest rates is a possible weapon

By Vidya Ranganathan

SINGAPORE, Feb 1 (Reuters) – South Korea’s threat to impose a broad tax on financial transactions is the first sign of deepening concern in Asia that speculation of competitive currency devaluations is prompting investors to head for the exit.

Until then, and because investors had not shown any big signs of concern, Asia’s reaction to the tensions centring on the yen had been passive, comprising an asymmetric mix of jawboning and light currency intervention. Read More 

Wider euro ‘Tobin tax’ will net €35bn

The eurozone’s biggest economies would raise €30bn-€35bn from their planned levy on financial transactions, according to an expansive European Commission proposal that ensnares trades executed in London, New York or Hong Kong.

The revised and strengthened Brussels draft plan, seen by the Financial Times, sets the stage for France, Germany and nine other euro area countries to agree the exact terms of Europe’s first so-called “Tobin tax” on equity, bond and derivative transactions.

Brussels’ drive for a Europe-wide tax opened an irreconcilable rift between EU members, forcing a eurozone vanguard to forge a smaller transaction tax bloc covering two-thirds of EU economic output but excluding the City of London. Read More