One cliff avoided, another straight ahead!

The Italian Financial Transaction Tax (IFTT) passed into law over the Christmas holidays and shocked market participants around the world. Quite apart from the increase in tax levels compared to earlier drafts, the Italian government has invented an additional HFT tax based on the value of amended or cancelled orders (click here for more details).

The French markets, luckily, didn’t fall of the cliff when their government introduced its own tax in August 2012, but they did experience a dip in trading volumes. Will the Italian markets be teetering on the edge of their own FTT cliff on the eve of 1st March? Certainly, the IFTT looks somewhat more complicated! Let’s hope that the Italian government decree covering the technical details, expected at the end of this month, will calm some nerves and catch the market before it falls.

2 Responses to “One cliff avoided, another straight ahead!”
  1. Peter W says:

    Apologies if I am way off the mark in my understanding – but according to the document on the IFTT, pension funds are exempt from the taxes. So a pension fund with its own trading desk does not have to pay, whereas any other buy-side with PF clients does have to pay?

  2. Christian Voigt says:

    In our understanding of Article 494, the exemption for pensions funds applies regardless of whether they trade directly or via an intermediary. Thus, we would interpret the law in a way that neither of the pension funds in your example have to pay. However, it is important to point out that the pension fund exemption seems not to apply to the HFT tax. So, in the event that the orders on behalf of the pension fund are executed using algorithmic tools but, as an unintended consequence, fall within the Italian definition of HFT, then the pension fund would have to pay the HFT tax levied by the Italian government.

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