SANTIAGO, April 10 (Reuters) - The London Metal Exchange’s chief executive said on Wednesday a proposed EU financial transaction tax would harm industrial users of the world’s largest metals marketplace by restricting their ability to hedge risks.
Eleven eurozone countries have agreed in principle to impose a tax from January 2014 to make banks pay for help they received in the global financial crisis. The other European Union states have refused to join in.
Opponents of the tax have said the new charge would lead to a massive upheaval in the financial services industry, shackle investors and harm the economy.
It will be imposed on stocks, bonds, derivatives, repurchase (repo) agreements and securities lending with trades anywhere in the world linked to securities from the 11 markets covered.
“This type of tax is levied without any apparent understanding of the fact that it is a tax on industry, on companies trying to mitigate their risk,” LME Chief Executive Martin Abbott said at a dinner at the CESCO/CRU copper conference in Santiago.
European markets, he said, were facing a wave of regulation that would effectively restrict the ability of banks and brokers to grant credit to clients, Abbott said.
“The consequences of this last restrictive push will be that some industrial hedgers will not be able to finance hedges,” he said. “They will be forced to run their risk uncovered which means the authorities will have, inadvertently one assumes, introduced risk into the economy.”
The bloc’s European Commission has drafted rules to implement the tax to raise up to 35 billion euros ($45.80 billion) annually but they have yet to be approved by the 11 countries.
The repo industry stepped up its lobbying on Monday to water down the tax by publishing a report that challenged the motives behind the tax and outlining the impact it could have on repos.
ICAP, the world’s biggest interdealer broker, said separately this week the tax would bump up trading costs, damage the economy and see some trading move to outside the tax zone.
“All of this is the consequence of the heavy hand of political will being imposed on regulators,” Abbott said. ($1 = 0.7642 euros) (Reporting by Susan Thomas; Editing by Muralikumar Anantharaman)