A new tax proposed by European leaders is threading the status of London as a hub for trading in global FX markets.
The tax is spearheaded by Frances Sarkozy and Germany’s Merkel. The tax will be charged on every financial transactions, this will have an effect on the cost of the trade thus affecting profits.
The market hasnt welcomed the decision and large financial institutions are adamant that if this bill is passed they will find new jurisdictions with more attractive tax conditions.
London is home to over 35% of the worlds daily FX volumes. Mos large banking organisations have trading desks in London.
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London has conquered the broker/ dealer industry post NFA tightening of spot FX regulations. Most large US brokers including FXCM, CMSFX, Gain and FX Solutions transferred their base to take advantage of strong regulations under FSA and flexible trading conditions.
The Tobin tax was introduced in Sweden in the late 80’s. It had detrimental effects on the overall financial climate. 60% of the 11 most actively traded Swedish shares migrated to London and over 50% of Swedish equities had moved to London by 1990. The bill was scrapped within 5 years.
FX markets are announcing record volumes, price, liquidity and technology have been the key drivers. This bill could hamper growth in the words most traded asset class.