World’s First HFT Tax

September 3, 2013 Taxation in Italy

stock marketROME – Italy has become the first country in the world to enforce a tax specifically on high frequency trading activity.

In a statement issued on September 2nd the Ministry of Finance of Italy announced that a new tax of 0.02 percent has been instated on high-frequency trades of stock and derivatives transacted on the Italian national stock market.

The new tax will be imposed on any transaction performed within a time frame of 500 milliseconds of initially being lodged, regardless of the physical location of either party.

Concerns have already been raised that the new tax could hurt the national stock market, as high frequency trading activity is often claimed to provide liquidity and price discovery mechanisms.

In an effort to minimize the potential negative effects that the tax could have on the market, the new measure will not apply to intermediaries, such as market makers and liquidity providers, although this condition is expected to encourage more traders to restructure their activities to be reclassified as intermediaries.

High frequency trading is the use of powerful automated systems and algorithms to enter, amend, and leave market positions several hundred times within the space of a minute, potentially earning a small profit on each transaction.

Photo by artemuestra