The Swiss bank’s Trading Strategy report, released last week, finds that since the Italian FTT (IFTT) was introduced in March 2013, average daily turnover (ADT) in Italian stocks has fallen by 29.7% versus the average from January to February 2013.
Over the same time period, ADT in other European stocks increased by 4.5%; therefore, Italy has experienced a 34.2% relative decline in ADT since the introduction of the tax.
The IFTT followed the introduction of French FTT and adopts a similar model but with extended scope which includes a tax on equity-like financial instruments and derivatives, as well as high-frequency trading.
In Italy, the tax on equities levies 0.10% per exchange transaction and 0.20% on over-the-counter trades. The corresponding derivatives tax levies a fixed charge per transaction, ranging from €0.01875 to €200 depending on the instrument type, with a significant tax discount if the orders are traded on exchange.
Transactions generated by algorithmic trading incur an additional charge of 0.02%, though activities deemed to be market-making are exempt.
A crucial difference between the Italian tax and the French FTT is that CFD hedging activity is not exempt from the IFTT, meaning that it’s therefore not surprising to find that the IFTT has had a much more pronounced impact on volumes.
“Given the specific nature of the Italian market and the dominance of retail investing, it is no surprise to see the IFTT having an effect on trading volumes, particularly as CFDs are popular instruments in the country,” says Alex Dalley, co-head of sales, BATS Chi-X Europe. “However, the 34.2% drop is certainly higher than expected.”
In France, the reports says FTT appears to have had a modest impact on overall French volumes, but may have contributed to lower liquidity in mid and small cap stocks.
In the 20 months since the FFTT was introduced, average daily turnover (ADT) in French stocks has fallen by 9.2% versus the average from January to July 2012. Over the same time period, ADT in other European stocks fell by 2.8%; therefore, France has experienced a 6.4% relative decline in ADT since the introduction of the tax.