* France, Italy taxes have caused slide in market share
* YTD share trade in both down 10 pct vs 14 pct broad uplift
* Both countries to take in less money than expected
* Nine other countries likely to start tax from 2014
By Simon Jessop
LONDON, Aug 2 The launch of financial
transaction taxes in France and Italy has hit demand for stocks,
offering a glimpse of the impact a pan-European levy might have
on a recovery in market volumes.
European monthly trade as a whole is up 14 percent in 2013
from 2012, helping drive profits across investment banking. But
French and Italian turnover is down 10 percent.
Since their taxes on trades were launched - August 2012 for
France and March 2013 for Italy - their market shares have
fallen as much as 30 percent and 45 percent, respectively,
Thomson Reuters Equity Market Share Reporter data shows.
That means Italy could end up with just a fifth of the
government's projected 1 billion euros from taxes, Italian
brokers association Assosim said. A lobbying source in Brussels
said France may get a third of its hoped-for 800 million euros.
By jumping the gun and going it alone before political
horsetrading over a broader tax was agreed, France and Italy
have both lost some trade to other countries, such as Germany.
They have also pushed some cash-market trade into other,
untaxed parts of the market.
With the tax raised less than expected, more pressure is
piling on the other nine countries debating a European
Commission proposal for a tax across multiple markets, as they
decide if and in what form to adopt the plan.
Germany, Spain, Austria, Portugal, Belgium, Estonia, Greece,
Slovakia and Slovenia are all part of discussions. But agreement
has not yet been reached and any tax is likely to be narrower in
scope than originally planned.
The amount of tax, indeed, may end up being so small as to
not make much difference to trading.
STOCKS IN SPOTLIGHT
If it does make it to law, stocks are likely to be the main
"It's the easiest political win possible, if there's going
to be an (financial transaction tax) in Europe," said Benoît
Lallemand, senior analyst at Brussels-based independent policy
body Finance Watch.
It is much more difficult to tax other asset classes such as
over-the-counter derivative trades.
Part of the reason is that a lot of stock trade is done on
an exchange, and is therefore easier to track. It is also a
proven model - the UK has taxed deals for more than 200 years -
while taxes on other forms of trading would be a global first.
A stamp duty was first applied to 'conveyances of sale',
including shares, in 1808. In 1986, the Stamp Duty Reserve Tax
was created to cover transfer of shares and securities that
occur without a paper transfer.
But there are ways around the tax - all of which could be
expected if the pan-European plan comes to fruition.
In the non-euro zone UK, traders are used to the tax and
many of its listed companies are must-have stocks for investment
But demand is nonetheless high to trade in areas not
impacted by the tax, such as via contracts-for-difference
derivatives, or CFDs, in which the investor bets on the price
movement in a stock without actually owning it.
A similar pattern can already be seen in France, where the
market share of French-domiciled stocks against that of all
other stocks in the European Union and Switzerland has fallen
as much as 30 percent since last July, the month before the tax
was introduced, Thomson Reuters EMSR data showed.
NYSE Euronext spokeswoman Caroline Tourrier said since the
start of 2013, trading volumes on shares hit by the tax were 20
percent lower than volumes on other shares.
But Pierre-Antoine Dusoulier, Saxo Bank's head of Western
Europe, noted a 20 percent rise in French CFD volumes in the
And it's not just a win for CFDs. A Credit Suisse study in
March said demand to trade non-taxed single-stock futures had
also risen after the tax.
The hunt for ways to skirt the tax is also evident in Italy,
although there the exemptions were tougher and the tax was more
complex, levied at several rates depending on whether the trade
was on an exchange or off it.
Since the launch of the tax in Italy, the market share of
domestic stocks has fallen as much as 45 percent, to an average
monthly share of 5.9 percent of all EU plus Switzerland trade,
against an average over the previous year of 10.8 percent.
A head of trading at a leading investment bank in London
said he had seen many clients, especially in the United States,
pull back completely "because of the complication around the tax
and the additional cost".
Gianluigi Gugliotta, secretary-general of the Assosim
association, put that slide in demand to trade by institutional
investors at 20 percent, and said many others bought and sold in
one day to avoid the tax.
The fall in French and Italian volumes comes as broader
European trade picked up, buoyed by increased investor
willingness to take a punt on regional growth.
"You have seen an uptick in the volume numbers across Europe
but the difference is it's now focused on UK and Germany; it's
not returning to France or Italy," said Rebecca Healey, senior
analyst at financial consultancy TABB Group.