French FTT to make some trading strategies unprofitable
French authorities will give firms until November to
declare the trades that qualify for the country’s new financial transaction tax
(FTT), but brokers will add a higher-than-expected levy from 1 August, rendering
some trading strategies inoperable.
The tax applies to net buy trades in Paris-listed firms
with a market capitalisation of over €1 billion. There are around 110 French stocks
that fall into this category.
The French National Assembly adopted an amended
version of the country’s Finance Bill this morning, which confirmed the
tax would be doubled to 0.2%.
While the charge will be implemented from 1 August,
brokers – who will hold legal responsibility for collecting the tax – will be
given an extra three months before they are required to declare eligible
transactions to Euroclear France, the central securities depository (CSD)
collecting the tax on behalf of the French government.
But the sell-side has said any extra charges will need
to be factored in from the start, meaning brokers are still likely to pass the
cost down to their buy-side clients from 1 August.
“We will likely start factoring in a 0.2% charge from
1 August,” said a head of trading at a large investment bank, who wished to remain anonymous. “This could
render many types of trading strategies unprofitable for our clients, which is
clearly not an ideal situation. The French tax appears to have been designed
very quickly and with very little guidance on the optimal solution.”
Among the sell-side’s concerns are tax exemptions that they claim are currently vague, how the tax will be handled in the event
of a settlement failure and whether buy-side clients could claim rebates on the
tax if they buy a stock with one broker but sell it with another.
Exemptions to the tax currently include new
primary market issues, clearing and CSD activity, market making and lending and
Euroclear France is confident the French
government will present a decree in the coming days clarifying some of
"Feedback to the initial draft proposals has already
been made and we expect things to be clearer after this release," said Dan
Toledano, director, product management, Euroclear France.
Furthermore, a spokesperson for the Association for
Financial Markets in Europe said the sell-side trade body had been assured by
French authorities that further guidance would be issued shortly.
Unlike the UK stamp duty collection system, which is
collected and distributed automatically by Euroclear’s CREST settlement
service, the French tax will not be connected to the country’s post-trade
The French FTT will instead rely on a declaration
system managed by Euroclear France.
"The operating model will use the custody chain
to route the tax declarations and the payments from the taxable party
to Euroclear France, then on to the French tax authority," said Toledano. "We
expect the majority of taxes to be collected from outside of France because
this tax targets mostly blue-chip equities, which we know are actively traded by
The French FTT was introduced as part of the country’s
budget law on 8 February. In addition to equities, the scope of the tax may be extended to include American
depository receipts and derivatives.
The European Parliament is also backing an EU-wide tax
after adopting a resolution on its creation in April. The European FTT would
add a 0.1% fee on equity trades and 0.01% fee on derivatives. However, the
EU-wide proposal has run into resistance from various member states, leading
Germany – one of the initial drivers of the tax – to suggest Europe consider alternatives.
"I will now back equal alternatives, such as an extended stock market tax and one which has the broadest possible
backing," German finance minister Wolfgang Schaeuble is reported to have
said in April.