Germany’s Merkel Is Key to Currency-Trading Levy

German Chancellor Angela Merkel’s choice of coalition partner will play a key role in deciding how far the foreign-exchange market is burdened by a proposed financial-transactions tax in 11 European Union states.
Merkel, who last year backed a European Commission plan for a broad-based tax on trades in stocks, bonds, derivatives and other assets, is due to start talks on forming a government with the opposition Social Democrats today. The SPD has pledged to make the delayed levy a high priority if a coalition with Merkel’s Christian Democratic bloc emerges. Currency traders are seeking an exemption from the tax, saying it would reduce liquidity and push up costs for companies and pension funds.
“Merkel is the key player and I think we’ll see Germany pushing their agenda and the other countries probably following suit,” Mark Persoff, a financial services tax partner at Ernst & Young LLP, said at the Bloomberg FX13 summit in London two days ago. “The impact on the foreign-exchange markets will obviously depend very closely on the political agreement on what the shape and scope of the FTT will be.”
The tax may increase some trading costs by as much as 4,700 percent, according to the London-based currency unit of the Global Financial Markets Association, which represents 22 firms responsible for 90 percent of the turnover in the $5.3 trillion-a-day foreign-exchange market.

Staggering, Terrifying

“The numbers are staggering,” Mark Johnson, global head of foreign-exchange cash trading at HSBC Holdings Plc, said at the event. Were the tax applied to currency derivatives called swaps, “the prospect of what it would do to people’s ability to fund is terrifying,” he said.
Under the proposals, a levy of 10 basis points would be applied to stock and bond trades and 1 basis point on derivative transactions, with some exemptions for primary-market sales and trades with the European Central Bank.
While foreign-exchange trading for immediate delivery, so-called spot transactions, would be excluded from the levy to avoid restricting the movement of capital, the commission has not extended this exemption to other forms of currency trade. The tax, which is still under development, may be applied to forwards, swaps, non-deliverable forward contracts and options that make up two-thirds of the market.
The tax would typically increase transaction costs for currency-market participants by between 300 percent and 700 percent for corporates, and 700 percent to 1,500 percent for pension fund managers, the GFMA said. It based its estimates on a simulation of the proposed tax using last year’s currency activity by 15 end users, both within and outside the tax zone, and with annual transaction values varying between $4 billion and $400 billion. It assumed currency transaction costs to be the difference between an offer to buy a currency and an offer to sell it.

‘What Benefit?’

“It’s another piece of regulation that throws sand into a very efficient, well-oiled process,” said Edward Davey, managing director for strategic planning and development at CLS Bank, the operator of the world’s largest currency-trading settlement system. “You introduce new risks as well as incremental costs, and to what benefit?”
The EU Commission, the architect of the levy, says it may generate as much as 35 billion euros ($47 billion) annually. Implementing the tax was delayed six months to mid-2014 after its EU proponents failed to agree on which products to exclude.
Merkel’s Christian Democratic bloc needs a coalition partner to govern in Germany after falling short of an absolute majority as it won Sept. 22 elections with the highest share of the vote since 1990. Initial talks on a possible union with the Greens will be held on Oct. 10, Merkel’s party spokesman said on Oct. 2.

‘Rational Action’

“Politics rather than rational action is crucial in this and one has to follow the politics extremely closely over the next few months,” said Oliver Harvey, a strategist at Deutsche Bank AG (DBK) in London. “The comments that come out from the next German government and the French government will begin to give us a very good idea of what sort of products will be covered.”
The proposals are a threat to the euro-area recovery because they may cramp businesses’ ability to hedge currency-market positions and act as a levy on trade into and out of the euro area, the GFMA says. Deutsche Bank estimates a direct cost of as much as 2.4 billion euros per year to importers and exporters in Germany, the region’s largest economy.
Lawyers for the Council of the European Union, which represents the executives of EU member states, say the tax plan goes too far and would discriminate against countries that don’t participate, according to an EU document. The legal service of the European Commission, which proposed the levy, stands by the plan and will offer a rebuttal, Emer Traynor, a spokeswoman for EU Tax Commissioner Algirdas Semeta, said on Sept. 10.

Revenue Generation

The 11 nations planning to apply a common FTT are: Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia and Slovakia and Spain, according to the commission’s website. The U.K, Denmark and Luxembourg and Sweden rejected the plan.
The FTT may not generate any revenue for the EU because of the damage to financial markets, ECB Governing Council member Christian Noyer said in May.
“The politicians, with the greatest of respect, need a little more education,” said Gavin Wells, chief executive officer of LCH.Clearnet Group Ltd.’s ForexClear service. “They’ve tried to raise money in a way that they don’t see the repercussions of.”

About the author


We've been closely watching the Crypto Currency Market if you can call it that, with all the fake data, fraud, and related problems.  One thing stands out - it's not so different than FX, commodities, futures, or stocks.  Market dyn...

Bitcoin and other cryptocurrencies flash-crashed Saturday night, one day after the US Commodity Future Trading Commission (CFTC) sent subpoenas four cryptocurrency exchanges in an ongoing probe into bitcoin manipulation that began in late July - following the launch of bitcoin futures on the CME, according to the Wall Street Journal
CME’s bitcoin futures derive their final value from prices at four bitcoin exchangesBitstamp, Coinbase, itBit and KrakenManipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
In delay reaction, Bitcoin fell as much as $433 or 5.6% in Saturday night trading, with some noting that the flash crash happened shortly after a 90th ranked crypto exchange, Coinrail, had suffered a "cyber intrusion", and was likely the more relevant catalyst for the crypto price drop.
While major Cryptocurrencies were down from 4.5 - 5.5%, Bitcoin Cash dropped over 8.4%. 
The CTFC subpoenas were issued after several of the exchanges refused to voluntarily share trading data with the CME after being asked last December. Of note, the CFTC regulates the CTC. 
According to the WSJ, the CME, which launched bitcoin futures in December, asked the four exchanges to share reams of trading data after its first contract settled in January, people familiar with the matter said. But several of the exchanges declined to comply, arguing the request was intrusive. The exchanges ultimately provided some data, but only after CME limited its request to a few hours of activity, instead of a full day, and restricted to a few market participants, the people added.
What is curious, is that if there was indeed manipulation since the launch of bitcoin futures, it was to the downside, as the price of cryptos peaked around the time the crypto futures were launched, and are down well over 50% in the 6 months since.
Coinbase in particular has been under the watch government regulators. On February 23, Coinbase sent an official notice to around 13,000 customers to notify them they were legally required to turn over their information to the IRS
The IRS had initially asked Coinbase in July 2017 to hand over even more detailed information on every one of its then over 500,000 users in an attempt catch those cheating on their taxes. However, another court order in Nov. 2017 reduced this number to around 14,000 “high-transacting” users, which the platform now reports as 13,000, in what Coinbase calls a “partial, but still significant, victory for Coinbase and its customers.”
Coinbase told the around 13,000 affected customers that the company would be providing their taxpayer ID, name, birth date, address, and historical transaction records from 2013-2015 to the IRS within 21 days. Coinbase’s letter to these customers encourages them “to seek legal advice from an attorney promptly” if they have any questions. Their website also states that concerns may also be addressed on Coinbase’s Taxes FAQ. The ongoing legal battle between Coinbase and the US government dates back to November, 2016, when the IRS filed a “John Doe summons” in the United States District Court for the Northern District of California.
On Feb. 13, personal finance service Credit Karma released data showing that only 0.04 percent of their customers had reported cryptocurrencies on their federal tax returns. 
And in April, former New York Attorney General, Eric "we could rarely have sex without him beating me" Schneiderman, launched a probe of 13 major cryptocurrency exchanges according to the Wall Street Journal - claiming that investors dealing in the fast-growing markets often don’t have the basic facts needed to protect themselves.
Former AG Schneiderman’s office said the program, called Virtual Markets Integrity Initiative,  is part of its responsibility to protect consumers and ensure the integrity of financial markets, and its goal is to ensure that investors can have a better understanding of the risks and protections afforded them on these sites.
CFTC Commissioner: Crypto is a "modern miracle"
While the CFTC, IRS and New York Attorney General's office are all cracking down on cryptocurrency exchanges, it seems to all be part of the government's embrace of virtual currencies.  Last week CFTC Commissioner Rostin Benham called cryptocurrencies a "modern miracleat the Blockchain For Impact Summit held at the UN in New York last week. 
But virtual currencies may – will – become part of the economic practices of any country, anywhere.  Let me repeat that:  these currencies are not going away and they will proliferate to every economy and every part of the planet.  Some places, small economies, may become dependent on virtual assets for survival.  And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.
We are witnessing a technological revolution.  Perhaps we are witnessing a modern miracle. -Rostin Benham
Rostin hinted at the upcoming legal action against the exchanges during his speech:
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself.  The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.

Meanwhile, the official Bitcoin website removed references to Coinbase, and Bitpay, according to Crypto News - only one of which, Coinbase, was subpoenaed.  just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it went after Coinflip for operating a platform for trading bitcoin options without the proper authorization. Since the agency effectively asserted its dominance over the bitcoin market with that decision, this is the first time it has given its blessing to an bitcoin options trading platform. Expect a burst of institutional trading activity to follow - especially since they approved institutional options trading in July
This post sponsored by Total Cryptos @  


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