La bozza del decreto

Italy’s Ministry of Economy and Finance published a draft of the decree for the Italian Financial Transaction Tax (FTT) just after the 31st January deadline imposed by the law (for an English translation visit our Raw material section). The decree sheds light on most of the dark corners left by the bill, detailing how charges are to be calculated, who is responsible for their declaration and, with a few exceptions, explaining the rules for the payments due. At around 20 pages, it’s twice as long as the original law and confirms the complications of a tax, originally intended as a tool to guard against speculation, that now looks set to penalise investors.

For equity derivatives the tax applies when the underlying Italian shares (equity-like or equity-related financial instruments) account for more than 50% of the market value at the date of entry into the contract. The decree contains a detailed definition of “notional value” on which the tax is levied. Where different types of underlying instrument apply, the average of the notional values (weighted according to the quantities of each underlying) is to be considered. È chiaro?

For the HFT component of the tax the decree settles on a time interval of half a second and a threshold of 60% ratio of order amends/cancels to executions. The exemptions for market makers and smart order routing have also been extended to apply to the HFT tax.

The new tax potentially introduces a distortion to the market. It is not the capital gain that is to be taxed, but the purchasing of shares itself which could trigger a sharp decline in trading of Italian instruments. The legislator was smart enough to include an exemption for Italian Government bonds, but brokers could see a contraction of their cash flow. In the end, the investor looks likely to be the only one who pays. As we know, derivatives are hit particularly hard by the tax. The recent scandal involving Banca MPS raises questions about the oversight of Italy’s banking system and will undoubtedly strengthen the case for the introduction of the FTT, regardless of the fact that it will do nothing to improve governance or prevent speculation.

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