Monday, July 7, 2014

Robin Hood Tax -- A Layman's Explanation


Circumstances not easily explained have shifted my online creative time and energy from blogging to social media. Facebook and Twitter now take most of my time, with blogging reserved for subjects too arcane or unpopular for other media.  Blogging has always been more a scrapbook exercise for me than activism, so the shift is not as problematical as it seems. 

For reasons not clear to me, however, when I post some thoughts and links at Facebook they immediately appear on my newsfeed, but in a few cases seem to vanish. I can visit my personal Facebook link and they are always there, but since they never appear among those of my friends it makes me think they are not being sent out to them with the same priority as those recipes, selfies, infographics and cat videos that clutter the world of Facebook. It's almost like some subjects are too cerebral to survive the Facebook milieu. Needless to say, I never get comments or "likes" for any of those posts. Or as Facebook quaintly calls them "status" reports. 

In any case, today's links are in that outcast category. Here ends this morning's rant.
I have no idea why the copy and paste feature is not working with Facebook. I never noticed that before, but here is what I want to blog about.

This is the explanation of the Robin Hood Tax at the website.
Simply put, the big idea behind the Robin Hood Tax is to generate hundreds of billions of dollars. That money could provide funding for jobs to kickstart the economy and get America back on its feet. It could help save the social safety net here and around the world. And it will come from fairer taxation of the financial sector.

This small tax of less than ½ of 1% on Wall Street transactions can generate hundreds of billions of dollars each year in the US alone. 
Enough to protect American schools, housing, local governments and hospitals. Enough to pay for lifesaving AIDS medicines. Enough to support people and communities around the world – and deal with the climate challenges we're facing. 
It won't affect ordinary Americans, their personal savings, or every day consumer activity, such as ATMs or debit cards. It's easy to enforce and tough to evade. 
This is a tax on Wall Street, which created the greatest economic crisis in our nation, and globally, since the Great Depression. The same people who have returned to record profits and bonuses while ordinary Americans, the 99%, continue to pay the price of their crisis. 
So it's time for justice for ordinary families and businesses. For American families faced with a choice between buying food or paying the heating bill. 
The Robin Hood Tax is just. The banks can afford it. The systems are in place to collect it. It won't affect ordinary members of the public, their bank accounts or their savings. It's fair, it's timely, and it's possible. 
It's not a tax on the people, but a tax for the people.
The purpose of this post is now finished.
The reader now has the idea and the link.
No need for me to insult him or her further with more arguments.

The reason I am blogging and posting to Facebook is simple. When I first heard the idea it struck me as deceptively simple but politically impossible to put into place. I imagined the main argument to be the crushing administrative burdens it would place on the banking and financial transactions sector just putting it into place.

But I was wrong to worry about that. The fact is that the infrastructure is already in place and has been in use for a long time, thanks to the advent of computing and high-frequency trading. I had no idea how truly sophisticated those transactions really are.  I have only a vague grasp of this next quote, but it is clear that the notion of tracking, computing and charging incremental fees per transaction is an everyday part of the transactions envisioned by the Robin Hood Tax.  Here is the link to an entry at Dave Hunter's blog.
For passive trades, when trading in LX, Barclays lose the $0.0015 per share rebate they would get trading on NYSE, but they make up for some of that by charging HFTs $0.0002 to $0.0005 per share for aggressive trades. 
If you assume that the ratio of passive orders to aggressive orders is 50:50, then Barclays saves approximately $0.0014 per share by trading institutional orders against HFTs in LX versus trading on NYSE. 
$0.0014 per share cost savings doesn't sound like a lot. However, with client commissions for electronic orders in the order of $0.01 to $0.02 per share, this can have a significant impact to the bottom line of an electronic trading business. LX matches 285 million shares per week. This equates to approximately $20 million a year in cost savings. Not a huge amount compared to the $4 billion in equities revenue in 2013, but, due to constant client pressure to reduce commissions, equities is an incredibly low-margin business, and this is certainly enough to incentivise a heavily-siloed electronic trading business.
$0.0014 = fourteen percent of a penny, about a mill and a half. That's a very small amount, very much like the millage rate figuring county and local property taxes. And that's not the smallest of arithmetic cited here.
The smallest amount tracked is $0.0002 to $0.0005 per share for high frequency trades (HFTs). Those are not two to five percent of a penny, but two to five percent of a mill, which is only a tenth of a penny.

Gone are the days of salami-slicing when some low-level accountant could quietly open a dummy account into which fractions of interest arithmetic might be tossed, never accounted for, but accumulating over time until that clever bean counter had accumulated a serious amount of money. Some such schemes didn't wait for fractions of interest to come around, but actually stole tiny amounts from accounts so big they would "never be missed."  No, this is actual practice, all legal and above board. But only the shreqdest and most informed of investors is paying attention.

This is part of the banner image of Dave Hunter's blog.
And for readers interested in further details, here are his delightful opening paragraphs.
As the former head of electronic trading product management and quantitative strategies at Deutsche Bank, responsible for their dark pool in Europe, I wanted to add my own 2 cents to the noise surrounding Barclays and their dark pool, LX. 
Eric Schneiderman, New York Attorney General, has some serious beef with Barclays because they filled their dark pool, Barclays LX, with high-frequency traders (HFTs) and then lied about the highly predatory nature of their trading strategies to their institutional clients. They erased key data from marketing material and gave private, sensitive information to HFTs about other participants in the pool. 
As us brits would say, 'a rather silly move'.

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