Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread

Dupont, Dominique; Lee, Gabriel S.

doi:10.1007/s00199-006-0097-3

Cited by 24 publications

(24 citation statements)

References 11 publications

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“…Dupont and Lee (2007) analyze the effects of a STT on depth and spread levels on a dealer market with a static model. They find that in times of low (high) information asymmetry the tax is incorporated in the spread together with small (high) surplus whilst the depth can increase (decrease).…”

Section: Theoretical Literaturementioning

confidence: 99%

Securities Transaction Tax and Market Quality – the Case of France

Gomber

Haferkorn

Zimmermann

2015

Euro Fin Management

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The French Securities Transaction Tax (STT) implementation on August 1 st , 2012, is considered a landmark development within securities markets regulation. However, until today the controversy about possible drawbacks and applicability has not reached a conclusion and consequences for market quality are yet to be thoroughly assessed. In this light a rigorous evaluation on the STT's effect on market quality is highly desirable and would provide guidance for academics, regulators and practitioners alike. On this basis, we provide evidence that trading activity declines by approximately 16% after the introduction of the STT. Even though the French proposal exempts liquidity providing activities, we find increased spread levels and a strong decline in top order book depth resulting in additional transaction costs for market participants beside the tax. Most alerting, as the STT affects trading on all French listing venues, we find this deterioration in market quality threatening inter-market information transmission by impairing price coordination among the European fragmented markets.

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Section: Theoretical Literaturementioning

confidence: 99%

Securities Transaction Tax and Market Quality – the Case of France

Gomber

Haferkorn

Zimmermann

2015

Euro Fin Management

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“…On the other hand, many theoretical works suggest that an FTT can have a stabilizing effect (Ehrenstein, 2002;Westerhoff, 2003Westerhoff, , 2004Westerhoff and Dieci, 2006). 23 However, other theoretical works also point out that such a stabilizing role is highly dependent on some important conditions such as market liquidity (Haberer, 2004), the level of the tax (Giardina and Bouchaud, 2004;Dupont and Lee, 2007;Demary, 2010;Fricke and Lux, 2015), the structure of the market (Pellizzari and Westerhoff, 2009). Lastly, many scholars view HFT as the main providers of liquidity in modern markets (Hendershott, Jones, and Menkveld, 2011;Menkveld, 2013).…”

Section: Financial Transaction Taxesmentioning

confidence: 99%

“…In this view, a financial transaction tax would not be beneficial because it would hurt the functioning of markets and reduce market quality (Dupont and Lee, 2007).…”

Section: Financial Transaction Taxesmentioning

confidence: 99%

Market Stability vs. Market Resilience: Regulatory Policies Experiments in an Agent-Based Model with Low- and High-Frequency Trading

Leal

Napoletano

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe investigate the effects of different regulatory policies directed towards high-frequency trading (HFT) through an agent-based model of a limit order book able to generate flash crashes as the result of the interactions between low-and high-frequency (HF) traders. We analyze the impact of the imposition of minimum resting times, of circuit breakers (both ex-post and ex-ante types), of cancellation fees and of transaction taxes on asset price volatility and on the occurrence and duration of flash crashes. In the model, lowfrequency agents adopt trading rules based on chronological time and can switch between fundamentalist and chartist strategies. In contrast, high-frequency traders activation is event-driven and depends on price fluctuations. In addition, high-frequency traders employ low-latency directional strategies that exploit market information and they can cancel their orders depending on expected profits. Monte-Carlo simulations reveal that reducing HF order cancellation, via minimum resting times or cancellation fees, or discouraging HFT via financial transaction taxes, reduces market volatility and the frequency of flash crashes. However, these policies also imply a longer duration of flash crashes. Furthermore, the introduction of an ex-ante circuit breaker markedly reduces price volatility and removes flash crashes. In contrast, ex-post circuit breakers do not affect market volatility and they increase the duration of flash crashes. Our results show that HFT-targeted policies face a trade-off between market stability and resilience. Policies that reduce volatility and the incidence of flash crashes also imply a reduced ability of the market to quickly recover from a crash. The dual role of HFT, as both a cause of the flash crash and a fundamental actor in the post-crash recovery underlies the above trade-off.

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“…None of these papers consider the market microstructure where trading costs can also increase as a result of wider spreads or a shallower book. In quote-driven markets the effect of a tax on prices and trading costs depends on the competition between market-makers and the degree of information asymmetry (Subrahmanyam 1998, Dupont & Lee 2007.…”

Section: Related Literaturementioning

confidence: 99%

Costs and Benefits of Speculation

2012

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We quantify the effects of financial regulation in an equilibrium model with delegated portfolio management. Fund managers trade stocks and bonds in an order-driven market, subject to transaction taxes and constraints on short-selling and leverage.Results are obtained on the equilibrium properties of portfolio choice, trading activity, market quality and price dynamics under the different regulations. We find that shortsale restrictions reduce short-term volatility and long swings in asset prices, while transaction taxes do more harm than good.

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Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread

Abstract: Asymmetric information, Securities transaction taxes, Liquidity, G14, D82,

Cited by 24 publications

References 11 publications

Securities Transaction Tax and Market Quality – the Case of France

Securities Transaction Tax and Market Quality – the Case of France

Market Stability vs. Market Resilience: Regulatory Policies Experiments in an Agent-Based Model with Low- and High-Frequency Trading

Costs and Benefits of Speculation

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