Transaction Tax Will Decimate Finacial Markets
August 5, 2013 Taxation in EU
LONDON – Applying a tax on securities lending will destroy the industry by making more than half of all lending transactions economically unfeasible, with the negative effects spilling over to nearly all other financial activity in Europe.
Over the weekend the UK-based International Securities Lending Association (ISLA) released a new report showing that a tax on financial transaction in Europe would nullify the profit margins on 65 percent of all transactions taking place on the securities lending market, reducing the industry’s profits by more than EUR 2 billion per year.
According to the report, the fees charged for securities lending will need to rise by at least 400 percent in order for the industry to maintain its current level of profitability.
The financial transaction tax, currently being proposed in Europe, includes securities lending as a taxable activity, with a levy of 0.1 percent to be paid on each transaction by both the lender and the borrower.
The increasing costs of securities lending will have a direct impact on the costs of setting up hedging structures, decreasing certainty and increasing costs throughout the entire financial sector.
Security lending is a transaction whereby one party lends securities, such as shares on bonds, to another party for a preset period, in exchange for a predetermined fee.
Photo by Iman Mosaad