Wednesday, July 31, 2013 9:26:18 AM

French equities take 25% hit from FTT

France’s market share of European equities has plummeted nearly a quarter since the introduction of a national financial transaction tax (FTT) last August, which could prove crucial for the development of a Europe-wide levy.

Based on the average of monthly market share figures for the first 11 months the tax has been implemented, compared to the preceding year, France’s share of European equities has slipped 23.4% to 13.11% from 17.12%.

The Thomson Reuters data has been compiled by Tabb in a report to be published next week and shows a market share high registered in June 2012 of 20.72% will mark a 37.8% decline compared to the estimated 2013 market share value of 12.88%.

Since 1 August last year, French authorities have levied 0.2% on equity transactions of Paris-listed stocks of firms with a market cap of €1 billion or more. France has supported the development of a European FTT alongside 10 other EU member states, including Italy, which launched a national FTT of 0.1% on equity and bond transactions in March.

Lost growth

According to Rebecca Healey, senior analyst at Tabb and author of the report, the crucial marker of the French tax’s impact is that recent regional growth in equities has not resulted in a return to pre-FTT market share levels for the country’s equity market.

Based on the Thomson Reuters figures, Tabb predicts total EU trading will grow 7.6% to €18.4 trillion in 2013, from €17.1 trillion in 2012.

“Even though European volumes are increasing, the market share isn't going back to France, or Italy, it's going to other markets such as Germany and the UK,” Healey told

The impact of the French tax may alter the approach of EU member states supporting a pan-European FTT. In February the European Commission agreed a draft proposal for the levy, the details of which are being etched out in working groups between the 11 supporting member states.

The Commission’s current proposal outlines a global plan to tax equity and bond transactions at 0.1% and derivatives at 0.01%, if one side of the trade is based in a supporting member state, or the instrument was issued in one of the states.

Experts have suggested Germany, a major proponent of the tax, may pull its support if chancellor Angela Merkel is re-elected in September.

Block concerns

Healey added that a regional FTT could significantly weaken the buy-side’s ability to trade in size, particularly if proposed rules in the Council of the European Union’s draft of MiFID II that would limit dark trading are passed.

“You can't look at the European FTT in isolation, it has to be considered with all the other regulation going on currently, such as MiFID II and EMIR, which could quite possibly combine to put a strangle-hold on European asset managers ability to execute orders,” she said.

Plans for a Europe-wide tax also differ from the French tax in that synthetic equity instruments would be hit, in order to reduce the appeal of such products in place of equities.

Since the French tax was introduced, buy-side firms have turned to synthetic equity-based derivatives such as single stock futures and contracts for difference, which are not taxed.

Richard Henderson +1 212 217 6916