A version of it was tried in Sweden in 1984, where a 0.5% tax was introduced on the buying and selling of shares.
The results were disappointing. It had been hoped that about 1.5bn Swedish kronor (£142m) per year would be raised. On average, 50 million was raised. Capital gains tax revenues also fell.
But the impact on market trading was also more dramatic. During the first week of the tax, the volume of bond trading fell by 85%.
In 1991, the tax was scrapped.
By 1990 over 50% of Swedish equity trading had moved to London.
I have read over the relevant comments several times now and I cannot for the life of me figure out how that comment is a response to un petit cadeau's.
Switching from continuous trading to a centralized call market would be a fairly complex process. A fully centralized stock market, i.e. one without fragmentation, is most likely infeasible. However, it is more specifically the lack of synchronization between trading venues—a direct result of fragmentation—that permits HFTs to gain an informational advantage via speed.
Therefore, it will be necessary to develop a robust method for synchronizing multiple trading venues. Such a method would require precise coordination between exchanges and would need to ensure that trade executions and quote updates all occur simultaneously, across all markets, in order to eliminate the potential for latency arbitrage. This is a challenging task, as there are several issues that will necessitate careful consideration, such as how to determine the unique transaction price across all venues for a given matching interval, how to ensure that the global price quote is accurate, and how to handle orders that match across multiple venues (Sparrow, 2012).
From t1 – t2, all trading venues open for order entry
- Orders are not made visible to market participants
- Participants allowed to cancel any open orders while order entry window is open
At t2, order entry window closes for all markets
- Allow a short time (t2-t3) to ensure all venues’ order entry windows are closed (venues confirm closure to each other)
At t3, initiate matching process (regulator could provide signal to initiate)
- Determine unique clearing price for the current call by having venues compare their
- Each venue matches orders at the clearing price (do not allow intra-call time-priority)
- Cross-venue matches determined as per bi-lateral venue agreements
- Allow dark orders and crosses to execute at clearing price
- Orders that would lock or cross market are cancelled or re-priced
- Allow passive orders to book in order to attract liquidity to next call
At t4, matching process completes, trades are reported to tape and regulator, passively booked orders reported
At t5, next order entry window opens
- Lather, rinse, repeat
Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behaviour. Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.
What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?
A story about greed, fear and randomness from the insides of Wall Street.
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