HFT Tax: Italian Toe in the Water

The Italian financial transaction taxation plan has come into effect this week. It includes two aspects, an HFT tax, and an equity derivatives tax. (Since I don’t speak Italian, I am relying on English language reporting for the details.)

I’ll reserve judgement on the derivatives tax. I don’t think market specific taxes are a great idea if they just push order flow onto different bourses. This is an area where market coordination is necessary.

The HFT tax is a step in the right direction. It includes a tax on the practice of making orders and cancelling them within milliseconds, which is one of the most pernicious activities of the algorithms used in HFT. This practice clogs the network with spam, slowing and disrupting real market activity. As with e-mail spam, a tax is the most appropriate measure to curb the abuse of a common good.

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