Reuters: Regulatory News: Italy share trade tax cuts volume, hits index

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Italy share trade tax cuts volume, hits index Mar 1st 2013, 14:42 Fri Mar 1, 2013 9:42am EST * Levy on cash market trades kicks off * Follows launch of similar French tax last August * Heralds even tougher EU-11 tax from 2014 By Simon Jessop and Toni Vorobyova LONDON, March 1 (Reuters) - Italy launched a tax on share trades on Friday that slashed equity volumes and sparked a stocks sell-off in a sign of what could happen if a planned European levy on financial dealings comes into force. The tax, introduced less than a year before the broader 11-country proposal is due to bite, is the latest blow for beleaguered Italian equities after weeks of political drama, which culminated in an inconclusive election last weekend. By 1120 GMT, volumes traded in the blue-chip FTSE MIB index were 30 percent of their 90-day daily average, lagging activity on Germany's DAX by around two-fifths and the UK's FTSE 100 by two-thirds. The slide in volume contributed to a marked index underperformance, with the FTSE MIB down 1.6 percent against falls of 0.8 percent for the DAX and 0.4 percent for the FTSE. "We know of two or three firms who ... have instructed us to essentially bar them from trading Italian securities -- banks who want to protect their clients from the tax," Jerry Avenell, co-head of sales at the BATS Chi-X Europe exchange, said. "That's a really bad signal for Europe Plc. If that's the impact of the (Italian) transaction tax, what are the implications for the much broader (European) transaction tax for investment in European companies?" he added. Critics of the European Commission's proposed tax, which is intended to make banks pay for aid they received in the financial crisis, have said it, too, would cut volumes, lead to double taxation on some deals and, ultimately, hit savers. The Italian tax follows the introduction of a cash market levy in France last August, which cut volumes on the CAC-40 by 20 percent, data from Equiduct showed. Italy also plans a tax on derivative trades from July 1, which would be a first for the region and take the country much closer to the even tougher rule-book envisaged by the European Commission and due to launch in 11 countries from Jan. 1, 2014. For now, the Italian plan covers cash-market trades in firms valued at more than 500 million euros ($653.67 million). Both the cash market tax and that on derivatives would severely limit trade in Italian equities, the head of sales at a major investment bank said. "It's all I've been talking about for the past three days... my personal, anecdotal estimate? I think a 30 percent fall in traded volumes on Italian equities would not be a surprise." DERIVATIVE LOOPHOLE The tax, coming on the heels of post-election share price falls and a subsequent ban on short-selling certain stocks, delivered a fresh knock to the Italian market's appeal. "Given that the goalposts keep moving very rapidly, there's a lot of hesitancy over whether you can actually trade the market properly," Knight Capital strategist Ioan Smith said. "There is a period of uncertainty after the Italian elections ... so with increased regulation of the FTSE MIB, that uncertainty is being reflected by people taking money out of Italian equity." That rush for the exit means the FTSE MIB is down 3.6 percent year-to-date, lagging the other big developed Europe indexes. While it us up more than a quarter since the European Central Bank pledged last July to protect the euro, it must still rise 180 percent to get back to its 2007, pre-crisis high. As when France launched its tax, some investors said they simply switched to betting in the derivatives market, although this time they will only be able to do so until July. Activity in FTSE MIB futures was in line with that in DAX futures DAX and higher than for contracts on the London index. However, said the head of sales at a leading investment bank, the blow to trading that could follow the full implementation of the Italian tax might lead other countries to rethink the broader European tax plans. "It's going to have such a massive impact on liquidity ... I think it might put them (other countries) off." Link this Share this Digg this Email Reprints

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