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Compliance

10:19 AM
Sean Hendelman and Brandon Rowley
Sean Hendelman and Brandon Rowley
Commentary
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An Order Cancellation Tax on HFT Would Curtail Deceptive Quoting

Taxing order cancellations would raise money from Wall Street while addressing disingenuous quoting from HFT firms on the visible order book.

Sean Hendelman
Sean Hendelman, CEO of T3 Live
Recently, there has been a great deal of talk in Congress about instituting a tax on transactions, the so-called “trader tax”. The goal is to raise needed revenue for the federal government and to force Wall Street to pay for the losses incurred by the federal government in supporting systemically important financial institutions. Yet, there is clearly a problem in that a large portion of the tax will fall on everyday investors as transaction costs rise for mutual funds and pension funds holding the bulk of Main Street’s savings. The transaction tax idea, while impacting Wall Street to some degree, has massive collateral damage by raising costs on retail investors.

We are not necessarily advocating increasing taxes rather we are operating under the assumption that the government needs to raise revenue and wants to do it by taxing Wall Street. To that end, there is a more effective alternative to the “trader tax” that also has the positive result of working toward greater transparency in the equity markets.

While the mechanics of the equity markets are under constant evolution with the consistent goals over time of increasing speed of execution and advancing price discovery, the major changes seen in the last decade have not come without drawbacks.

The prevalence of disingenuous quoting on the visible book is extremely high and we propose an order cancellation tax to remedy this detriment to the financial markets. While most retail investors probably have little concept of what high frequency trading is or its impacts, active equity traders have seen its pronounced imprint on the markets.

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