France’s financial market regulator AMF has calculated that the introduction of a financial transactions tax (FTT) in 2012 led to a ten percent decrease in the volume of shares traded on the stock market. This study was based on an analysis of the volume of trading between eighteen months before and ten months following the entry into force of the FTT. The AMF looked at whether transactions had been diverted towards derivative products or if transactions had been diverted to other stock exchanges of Europe. The study shows that the proposed introduction of an FTT by a number of EU countries and carries risks and that the size of the risk may depend on the tax rate, the tax base and the type of tax exemptions introduced. There may be consequences for both the trading volumes and the quality of the stock market.
The FTT introduced in France on 1 August 2012 is charged at a rate of 0.2 percent on share acquisitions, high frequency operations, and sovereign credit default swaps (CDS). Some types of transaction are exempt, such as purchases on the primary market, transactions that improve the liquidity of the market, intra-group operations and employee share schemes.
A number of other European countries are looking at the possibility of an FTT and they need to study the French experience carefully. Some other countries, such as the UK, have ruled out the possibility of introducing an FTT in the form currently under discussion.
