August 2, 2013 / 2:05 PM / 4 years ago

UPDATE 1-Trading tax hits French, Italian stock turnover

* 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 (Reuters) - 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.


If it does make it to law, stocks are likely to be the main target.

“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 houses.

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 first quarter.

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.

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