FTT could hit new member states harder
Wednesday 18 January 2012 - by Jiri Krol
In assessing the impact of its proposed financial transaction tax, the European Commission has looked at the EU financial market as a whole, as if it were one single market like that of the United States, for example.
The latter countries' capital markets are characterised by a relatively small number of shares admitted to trading on local exchanges, an underdeveloped derivatives market and a comparatively undersized domestic bond market, often dominated by government issuance denominated in a local currency.
What is more, those member states' economies often rely heavily on bank financing which flows to domestic banking subsidiaries and the economy via parent companies established in Western Europe.
Liquidity is heavily concentrated in the member states of the first group.
Looking at share trading, more than three quarters of liquid shares as defined by the EU Mifid directive are concentrated on exchanges of only six member states (UK, France, Germany, Netherlands, Italy, Sweden).
These very same top member states also concentrate similar if not larger size and liquidity in bond and derivatives markets. The bulk of any financial transaction tax intake would therefore come from these markets.
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