On request from the commission we have sent in our detailed comments to the Mifid review consultation on which we have been in close touch with DG Markt. Here is our quick accessible take on some of the more controversial issues where media interest has been high.
The world has woken up to an urgent fiscal challenge. Budget cuts will soon start to bite at home in Europe, while funding for international development and tackling climate change has already been cut. Meanwhile, the financial system that got us into this fiscal mess remains largely unreformed, with proposed changes largely neglecting the issue of systemic risks posed by financial markets in favour of ‘quick fix’ changes to the banking system. Even less has been done to align finance with the real economy.
Implementing a series of Financial Instrument Taxes (FITs) offers a highly flexible toolkit to help achieve progress on all three fronts. These are similar to, but broader than, the widely-discussed financial transaction taxes (FTTs), and can be tailored to the idiosyncrasies of particular markets. For example, more liquid markets in stocks, futures and certain derivatives will be taxed on a per transaction basis, whereas illiquid securitized products, mortgages and OTC derivatives would be taxed on issuance.
In a new Re-Define policy brief we have addressed the all important question of the incidence of financial transaction taxes, seeking to answer the question ‘who pays in the end’, should FTTs be widely introduced. We also demonstrate how a differentiated transaction tax regime can address market behaviour issues such as churning and excessive short termism as well as help reduce systemic risk.