RPT-Paris traders brace for financial transactions tax
(Repeats to fix link to factbox)
PARIS, July 31 (Reuters) - French traders hoping for a summer break from the eurozone crisis are instead likely to be grappling with the fine print of a new tax on financial transactions, due to come into force on Wednesday.
Critics say the levy - which charges 0.2 percent on purchases of any securities issued by more than 100 top French companies - will add to brokers' woes. It comes at a time of high stock-market volatility, eroding brokerage margins and growing bets on an impending French stock-market slide.
The legislation also includes taxes on high-speed trading and the purchase of contracts that insure against a European Union sovereign-debt default, a package that politicians say will raise at least 1.6 billion euros ($1.96 billion) in a full year but which detractors say will hurt earnings and investment.
"The worst-case scenario is that the tax will encourage businesses to invest elsewhere at the expense of Paris as a financial centre," said Yannick Naud, portfolio manager at Glendevon King Asset Management.
Naud also said the tax could spell trouble for the final valuation of Credit Agricole's brokerage unit Cheuvreux, as the French bank finalises the sale of its subsidiary to Kepler Capital Markets.
"It's still not clear just what the impact of this tax is going to be for volumes," he said.
The transactions tax is designed only to impact the end purchaser of the shares, and traders say it will be particularly dissuasive to retail clients or small investors whose transaction costs will effectively double. Beyond the initial impact, brokers are having to incur additional back-office costs and will likely seek to pass these on across the board.
"There will be a processing cost, a maintenance cost, as well as a potential impact on client revenues," said Serge Domecq, Country Manager at online broker BinckBank in France. "We are moving towards an increase in fees charged to clients."
Escape routes around the tax exist, traders say, which might lead to a rise in synthetic products designed to mimic a security's performance while avoiding the levy. American depositary receipts (ADRs), or U.S.-traded securities of non-U.S. companies, will however be hit by the tax from Jan. 1.
Traders are also feeling gloomy about the prospects of high-frequency trading in France as a result of the tax, which slaps a 0.01 percent levy on order cancellations above 80 percent of total orders and defines "high-speed" as half-second intervals.
Repeatedly sending out and cancelling orders is regular practice in the high-speed trading world and is seen as a way of "pinging" the market to gain an advantage.
"High-frequency trading is seen as all but banned in France," a Paris-based banker said, citing additional fears over new French President Francois Hollande's pledge to split risky trading activities from banks' retail operations.
France's two top banks, BNP Paribas and Societe Generale, make up to 250 million euros ($307.50 million) in revenues per year from high-frequency trading, or about 11 percent of total equities income, according to JPMorgan analyst Delphine Lee.
"The top French banks are important players in high-frequency trading and are likely to see an impact," said an industry source who declined to be named.
($1 = 0.8168 euros) (Additional reporting by Leigh Thomas; Editing by Stephen Powell)
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