For whatever reason, Mark Cuban seems to feel that the only legitimate form of investment is long term speculation:<p><i>If you don’t think the company you are buying is worth at least a quarter more than what you are paying, why are you buying shares?</i><p>But markets need more than long term speculators. Suppose you want to sell shares to cash out of your long term speculative investment. Who do you sell to?<p>If another speculator wishes to buy shares <i>right now</i>, there is no problem. But what if the other speculator wants to buy next week?<p>Enter market makers. They buy from you right now and sell to the other speculator next week, making money off the spread and taking the risk that prices will move unfavorably in the short term. Everyone gets to execute their trades almost immediately and this makes the speculative activity which Mark Cuban favors much easier. Why is this activity deserving of being taxed into oblivion?
A per-share tax makes no sense, because a share is an arbitrary measurement. This would effectively be a regressive tax on small-time investors.<p>As Cuban himself mentions, it would put pressure on companies to do reverse splits. But I believe he underestimates how much pressure. You'd see stratification, with most companies issuing the A-class big investor shares with prices in the $10s of thousands ($100s?) and B-class cheap shares.<p>Middle class people buying small amounts of cheap shares in retirement plans would pay the bulk of this tax.
Two problems:<p>1) <i>Acquiring a company worth $100mm pre-tax?</i><p>- After tax, the cost just went up to $125mm.<p>2) <i>Global competition</i><p>- 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.<p>The idea of disincentivising short-term investments is a good one. Changes to existing capital gains rules or a progressive per transaction tax may be more feasible though.
For 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.
Here's an idea Mr. Cuban might like- a 99% tax on people who sell their companies, retroactive.<p>It's easy to suggest taxes that don't affect you personally.
I'm still confused as to exactly what problem he thinks he's solving here. That one-off weird glitch that happened for the first time in history yesterday and will probably never happen again? Or perhaps just sticking a few billion dollars extra into the gaping maw of the US Treasury?<p>And at what cost? Driving businesses out of the US? Severely lowering the attractiveness of listing a company on the US stock exchange? A billion other unforeseen consequences which neither I nor he is smart enough to see?
What about bonds, options, futures, etc.?<p>But anyway, it seems like the volatility that automated trading causes <i>is</i> the tax on the automatic traders. Anyone who bought, say, Accenture the day before this happened and sold it the next day just took losses similar to the wider market. (And the market is on a downtrend for good reasons, not "some computer program fucked up".)<p>Only the algorithms that were trading as it fell to zero lost money. It's unlikely a real person or long-term investor would have noticed it at all. So people that have their retirement savings in an S&P500 index fund have nothing to worry about, and the people that trade every millisecond have the same concerns as always.
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.
"Every time markets crater, there is never a lack of liquidity."<p>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).
It will take the people on Wall St. about 2 days to stop trading 'shares' and start trading '1 millisecond options'. Firms like Goldman Sachs make money by skirting the laws and regulations. While the average investor would end up paying this tax.
This particular proposal isn't very well thought out, but plenty of other people have had similar ideas, going back at least to Keynes:<p><a href="http://en.wikipedia.org/wiki/Financial_transaction_tax" rel="nofollow">http://en.wikipedia.org/wiki/Financial_transaction_tax</a><p><a href="http://news.google.com/news/search?q=%22financial+transaction+tax%22" rel="nofollow">http://news.google.com/news/search?q=%22financial+transactio...</a>
supposedly 2/3 of the market is from automatic trading applications - the ones that try to make a little money here and there. this would proposal would kill that portion of the market. at least market volume would represent something more meaningful than it does now.
Here'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.
There'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.
Why tax 25 cents on a $80,000 stock (like whatever Berkshire-Hathaway is now), and 25 cents on a "penny dreadful"?<p>I understand the point of view - tax away high-frequency trading, but have we really thought things through? Obviously not.
( This article located due to mention by ruang: <a href="http://news.ycombinator.com/item?id=1331269" rel="nofollow">http://news.ycombinator.com/item?id=1331269</a> )
Tax Silicon Valley! And give it to those without factory jobs!!!! After all it was Silicon Valley innovation that allowed the robots to take our jobs!!!<p>edit: you laugh now...
Actually there is a share trading tax in India it is equal to 2 percentage points of the value that is 0.02% of the value this makes sure that if anyone is going to do HFT there margin is at least bigger than 0.02%
Learn more here : <a href="http://www.smartmoneyindia.co.cc/2009/01/all-about-securities-transaction-tax.html" rel="nofollow">http://www.smartmoneyindia.co.cc/2009/01/all-about-securitie...</a> (not my link)
It might be better just to put the damn money in a trust to pay off the national debt. God knows everyone with the money to be trading on Wall St. is responsible for that debt.