Institutional investors in France appear to have increased derivatives exposure to avoid the country’s three-month old financial transaction tax (FTT) on equities, according to new research.
Single-stock futures in French stocks jumped nearly 250%, year-on-year with September figures rising from US$0.7 billion in 2011, to US$2.4 billion in 2012. In September 2010, single-stock derivatives exposure was US$0.3 billion.
Derivatives let investors gain synthetic exposure to underlying stocks without incurring the tax. The strategy is common among investors that want to avoid UK stamp duty and appears to also be gaining traction in France, the findings from Credit Suisse reveal.
The Credit Suisse findings also show an increase in the percentage of total open interest in Euro STOXX names, with French stocks now accounting for around 30%, their highest level since at March 2010.
The French FTT came into force on 1 August and 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.
Widespread fears that French trading volumes would suffer from the FTT have been proven wrong, as a 10% decline of equity trading in August rebounded strongly in September, driven by trading in liquid, large-cap stocks.
These results could build further support for a Europe-wide FTT on bonds, shares and derivatives trading, which gained the support of 11 EU countries last week.
Although details of the tax are not yet clear, it would likely mirror the French FTT. Details of the Europe-wide tax first released in September last year suggested a 0.1% tax on equities and 0.01% on derivatives, but further details will emerge by the end of the year.
Critics argue the tax could harm European growth and direct flow from continental exchanges to London and increase the use of instruments to bypass the levy.