AFME clarifies sell-side French FTT obligations
Sell-side trade body the Association for
Financial Markets in Europe (AFME) has released a protocol to help manage broker-to-broker
payments of the French transaction tax.
A number of brokers and proprietary trading
firms have signed up to an indemnity letter that allows them to manage the tax
they pay when trading with each other.
Under the French FTT – which came into
force on 1 August and levies a daily 0.2% charge on net buys of Paris-listed
stocks that have a market cap of €1 billion or more – responsibility for
collecting the tax lies with the party that receives a purchase order from the
final buyer of a stock.
But brokers that buy and sell French stocks
need to manage payments based on their positions at the end of each trading day
to avoid duplicate payments.
The same problem does not affect long-only
buy-side firms that typically invest over a broader horizon and do not buy and
sell stocks intraday.
Earlier this month, AFME also translated
guidance supplied by the French authorities to assist its members in preparing
for the tax.
While the tax came into force at the start
of this month, its collection – managed via a declaration system operated by
central securities depository Euroclear France – will be delayed until November
to help with compliance. American depository receipts will also be subject to
the tax from December.
Meanwhile, the extraterritorial applicability
of a draft German law that seeks to impose tougher controls of high-frequency
trading firms has also been called into question.
Under current proposals presented by the
German Ministry of Finance on 30 July, HFT firms would need to be licenced
under the German Banking Act, requiring them to have a minimum amount of
capital, while trading venues would be required to charge for excessive message
But how the law might apply to non-German
entities engaged in trading the country’s stocks remains a source of confusion.
“Under the draft wording, non-German market
participants might be subject to the obligation to provide information
requested by the German regulator,” said Martin Krause, partner at Norton Rose.
“The industry requests a clarification of the wording on whether non-German
market participants are not affected."