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According to Rebecca Healey, senior analyst at Tabb and author of the report, the crucial marker of the French tax’s impact is that recent regional growth in equities has not resulted in a return to pre-FTT market share levels for the country’s equity market. The impact of the French tax may alter the approach of EU Member States supporting a pan-European FTT. In February the European Commission agreed a draft proposal for the levy, the details of which are being etched out in working groups between the 11 supporting member states.
The Commission’s current proposal outlines a global plan to tax equity and bond transactions at 0.1 per cent and derivatives at 0.01 per cent, if one side of the trade is based in a supporting Member State, or the instrument was issued in one of the states. Experts have suggested Germany, a major proponent of the tax, may pull its support if chancellor Angela Merkel is re-elected in September.
Healey added that a regional FTT could significantly weaken the buy-side’s ability to trade in size, particularly if proposed rules in the Council of the European Union’s draft of MiFID II that would limit dark trading are passed. “You can't look at the European FTT in isolation, it has to be considered with all the other regulation going on currently, such as MiFID II and EMIR, which could quite possibly combine to put a strangle-hold on European asset managers ability to execute orders”, she said.
Plans for a Europe-wide tax also differ from the French tax in that synthetic equity instruments would be hit, in order to reduce the appeal of such products in place of equities. Since the French tax was introduced, buy-side firms have turned to synthetic equity-based derivatives such as single stock futures and contracts for difference, which are not taxed.