WASHINGTON Derivative trades should be taxed to curb speculation and fund better market oversight, a regulator says, as plans to halt disruptive high-speed trading practices take shape.
The Commodity Futures Trading Commission hopes to come out with a paper on high-frequency trading in the next month or two, the top derivatives regulator's first step toward a possible set of rules.
Bart Chilton, one of the CFTC's five commissioners and an often outspoken Democrat, said a fee of 0.06 cent on each futures trade could generate revenue of $300 million for the cash-strapped regulator.
"A targeted user fee will keep our agency able to regulate these growing and morphing markets," Chilton said in notes prepared for delivery on Wednesday.
It was not clear whether Chilton's plan for a transaction tax will be incorporated in the CFTC's paper.
The idea of a transaction tax has never gained much political foothold in the United States, though mishaps such as last week's market rout after a fake tweet of an attack on the White House could change that.
Hackers on April 23 took control of the Twitter account of the Associated Press, sending a false tweet about explosions in the White House that briefly wiped out $136.5 billion of the S&P 500 index's value before markets recovered.
Many in the market blamed automated trading for the wild swings, and CFTC Chairman Gary Gensler said the incident underscored the need for the regulator to come out with its so-called concept release on speed trading.
Eleven European Union countries are examining a plan to tax stock, bond and derivatives trades, aiming to raise up to 35 billion euros ($46.14 billion) a year to make banks pay for the help received in the financial crisis.
Under Chilton's plan, so-called end-users who use derivatives to hedge commodity positions or interest rate exposure, for instance, would be exempt.
The U.S. Office of Management and Budget had proposed transaction fees under both Republican and Democrat administrations, but such plans never got anywhere, Chilton said.
High-frequency traders were first singled out in the May 6, 2010 "flash crash" when markets tanked in a matter of minutes without an obvious cause, prompting U.S. regulators to issue a report with 14 recommendations for market reforms.
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(Reporting by Douwe Miedema; Editing by Dan Grebler)