The madness of the market seems to stem from the tight feedback loop. Want to really make a difference? Pool it by hour. All calls have to be in by a millisecond before the hour, and after resolution no more transactions occur until the next hour. Now everyone has to cool off for a bit before making a trade based on changes to the market, and algo trading is relegated to stocks that don't matter. Any transaction worth making will have a human thinking about them for an hour, and it regulates the top speed of a crash.
Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
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Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#42Earlier quoted context omitted.
I was thinking the same thing. Wouldn't a percentage tax make more sense? If you just require a 1% tax on all transactions, it would basically be equivalent to what Cuban was saying (he mentioned a $0.05 tax for shares under $5), and it wouldn't pressure companies to do reverse splits. Even people who trade frequently (e.g. 1-2 times a day) wouldn't likely see much cost associated with this. This would have to be acc…
A 1% tax would still be huge. Traders measure trading cost in basis points (100ths of 1%). Such a tax would affect not only high-frequency traders, but also all market makers and even long-term investors like pension funds and mutual funds. To operate an index fund, for instance, you have to buy and sell millions of shares everyday. A 1% tax would make impossible to operate an index fund cheaply. Cuban's proposal is…
I think he understands it just fine. Implement a tax that requires people to actually buy stock for reasons other than its price. Make it too expensive to trade millions of shares every second to make small fractions of a return. Make people buy shares because they want to see the company succeed, not to make a quick buck.
Back to basics. I kind of like the idea.
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#43This particular proposal isn't very well thought out, but plenty of other people have had similar ideas, going back at least to Keynes:
http://en.wikipedia.org/wiki/Financial_transaction_tax
http://news.google.com/news/search?q=%22financial+transactio...
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#44"Every time markets crater, there is never a lack of liquidity."
To me this just reeks of misunderstanding of what happened last Thursday. The 20 minute nosedive was largely due to a lack of liquidity--bids just disappeared in most markets (hence trades that happened at 1c).
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#45There's a lot of shares worth less that $0.25 (edit: I missed the thing about smaller tax on low-price stocks on first reading...but IMHO that'd just feed pump & dump schemes). I'd prefer a small per-transaction tax which would cut into the margins of HF traders a bit. People object that that would reduce liquidity but the market does not and should not depend on speed trading. Frankly I'm not a fan of algorithmic trading strategies, I really feel that trades should be human-executed at all times.
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#46What about a better idea - take away the tax incentive / mandated 401k contributions and allow "Main St." to stop being at the mercy of Wall St.
And how is removing an incentive to save for your own retirement (vs. relying on "social security") a good thing?
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#47For all those people that consider this a good idea, have you ever really considered what high-frequency traders do for the market? High-frequency is a significant source of liquidity. Had high-frequency not been place during the financial crisis, the drops would have been much more significant than what we actually saw. Congress and the American public don't seem to understand this. If you pull the plug on high-frequency trading, you are pulling the plug on automated market makers, and the less market makers there are, the wider the spreads will be and the more volatile the markets will be. Now, I'm not saying that all high-frequency is market-making, but it surely a significant portion of it.
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#48Here's a much better solution for stabilizing wall st. and our financial system: end fractional reserve banking. It's completely unnecessary for financial intermediaries to rely on the fractional reserve system to function and generate returns, look at venture capital firms and hedge funds. It is an unsustainable business model injecting a lot of the root fear into the market that is propped up by the federal subsidy of Deposit Insurance in order to function. FDIC is nothing more than a subsidy for banks to take on unnecessary risk and arbitrage the yield curve by making riskier loans.
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#49Two problems: 1) Acquiring a company worth $100mm pre-tax? - After tax, the cost just went up to $125mm. 2) Global competition - Foreign exchanges would under-cut domestic exchanges, attracting many US based companies to list there and if the US attempted to tax foreign transactions by domestic persons, then foreign investors would end up with an unfair advantage. The idea of disincentivising short-term investments i…
After tax, the cost just went up to $125mm
That's only assuming the company is trading at $1/share, which Cuban's proposal is saying should be taxed at $0.05/share, raising the cost to $105mm. The actual tax will be dependent on the valuation of the company divided by the number of shares there are. It's not a straight 25% tax across the board.
Re: Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades
#50Earlier quoted context omitted.
A 1% tax would still be huge. Traders measure trading cost in basis points (100ths of 1%). Such a tax would affect not only high-frequency traders, but also all market makers and even long-term investors like pension funds and mutual funds. To operate an index fund, for instance, you have to buy and sell millions of shares everyday. A 1% tax would make impossible to operate an index fund cheaply. Cuban's proposal is…
I think he understands it just fine. Implement a tax that requires people to actually buy stock for reasons other than its price. Make it too expensive to trade millions of shares every second to make small fractions of a return. Make people buy shares because they want to see the company succeed, not to make a quick buck. Back to basics. I kind of like the idea.
More like back to the stone age. Look at the Indian stock market: they have transaction taxes on the order of .01-0.1% and the bid-ask spreads are huge. A tax like this would make it even more difficult for average people to get a fair price.