

Mark Cuban: place a 25 cent-per-share transaction fee on Wall St. trades - davi
http://wallstreetpit.com/26503-tax-the-hell-out-of-wall-street-and-give-it-to-main-street

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yummyfajitas
For whatever reason, Mark Cuban seems to feel that the only legitimate form of
investment is long term speculation:

 _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?_

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?

If another speculator wishes to buy shares _right now_ , there is no problem.
But what if the other speculator wants to buy next week?

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?

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ianferrel
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.

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.

Middle class people buying small amounts of cheap shares in retirement plans
would pay the bulk of this tax.

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kqr2
You could limit this tax to short term trades so it wouldn't penalize long
term buy and hold investors.

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jsyedidia
Yes, the simplest solution is a 0.1 % tax on short-term trades. It's actually
pretty strange that practically everything else one buys is taxed by the
government but not shares. No surprise that we get all this useless and
dangerous high frequency trading, and an obscenely large financial sector.

~~~
yummyfajitas
Capital gains on shares are taxed. Short term capital gains are taxed at a
higher rate.

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joelhaus
Two 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 is a good one. Changes to
existing capital gains rules or a progressive per transaction tax may be more
feasible though.

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ahlatimer
_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.

~~~
joelhaus
Thanks, this illustrates the first problem well, I was just pointing out the
kind of impact Cuban's proposal _could_ have on a valuation. Any tax
implemented like this would still have a proportionate effect on returns.

Not sure that anyone is trying to make a case that we need less shares;
rather, we need a system that incentivises a focus on fundamentals.

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BrentRitterbeck
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.

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waterlesscloud
Here's an idea Mr. Cuban might like- a 99% tax on people who sell their
companies, retroactive.

It's easy to suggest taxes that don't affect you personally.

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hugh3
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?

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?

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jrockway
What about bonds, options, futures, etc.?

But anyway, it seems like the volatility that automated trading causes _is_
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".)

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.

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Judson
What 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.

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jbarham
And how is removing an incentive to save for your own retirement (vs. relying
on "social security") a good thing?

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ynniv
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.

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rgarcia
"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).

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fredmg
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.

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skybrian
This 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...](http://news.google.com/news/search?q=%22financial+transaction+tax%22)

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daniel-cussen
You realize that, as much or as little sense as this makes, it's roughly what
every voter wants to see happen?

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hugh3
Only the most ignorant. And even most of those could be talked out of it once
somebody explained the downsides to them.

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brianobush
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.

~~~
yummyfajitas
Supposedly 2/3 of the packets on the network are sent from one server to
another (e.g. webserver to DB) rather than from the server to the end user.
Eliminating those packets would make network traffic represent something more
meaningful than it does now.

Granted, your web server can't talk to the database anymore. But at least
we've killed a portion of the internet which I don't understand, and which is
mostly used by a bunch of geeks I don't like!

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metamemetics
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.

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anigbrowl
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.

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el_dot
eh, then Wall St. will just pass the extra expense on to Main St. in the end.

its a lose-lose solution

~~~
jrockway
Indeed. A high cost of investment means no more insurance, retirement funds,
or loans.

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wisty
Why tax 25 cents on a $80,000 stock (like whatever Berkshire-Hathaway is now),
and 25 cents on a "penny dreadful"?

I understand the point of view - tax away high-frequency trading, but have we
really thought things through? Obviously not.

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davi
FTA: "You could reduce the tax per share for stocks under $5 dollars to 5
cents. But I would leave it at 5 cents even for stocks priced at pennies per
share or less."

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hugh3
Crazy. Imagine what this would do to any stock hovering around the $4.99 mark.

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davi
( This article located due to mention by ruang:
<http://news.ycombinator.com/item?id=1331269> )

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teilo
This is actually one of the most reasonable proposals for fixing Wal Street
that I have seen in a long time.

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Aetius
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!!!

edit: you laugh now...

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davi
Did you read the article? The proposal seems reasonable to me, much more so
than your comment gives it credit for: a small per-share transaction fee which
could be fed into "an annual payment towards the next time Wall Street screws
up and we have a black swan event that no one planned on".

It's just an inflammatory, link-bait headline (which maybe I should edit).

\-----

edit: I changed the title from its original, "Mark Cuban: Tax the hell out of
Wall St. and give it to Main St.", to the current "Mark Cuban: place a 25
cent-per-share transaction fee on Wall St. trades"

~~~
Aetius
Not only is the title link-bait. The plan is pure red meat. We all know that
it's not _just_ financial engineering responsible for the crisis. It wasn't
just Wall Street. Wall Street just happens to be Washington's latest political
scapegoat. What I'm saying is beware when their attention turns westward.

~~~
davi
Adding a little bit of friction to vast, interconnected networks of automated
high speed trades doesn't seem like the worst thing in the world to me. It
seems like it might dampen otherwise wildly oscillatory behavior from the
system.

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yummyfajitas
Why do you feel that raising the bid/ask spread to $0.25 will prevent wildly
oscillatory behavior?

If anything, it will probably increase strange behavior. If you want to buy
shares, you'll either need to pay a largish premium or else you'll need to
wait a while. Fun fact: for the most part, prices have stabilized and spreads
have narrowed as HFT has entered the game.

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_delirium
If everyone, even the huge institutional players, has to deal with non-zero
bid/ask spreads, it does reduce incentive to spend a lot of effort exploiting
tiny arbitrage opportunities with huge-volume trades, which could stabilize
things overall. Admittedly, it's something economists disagree on.

~~~
hugh3
Arbitrage-exploiters do the worthwhile task of removing arbitrage. Putting
arbitrage back into the market, visible to everybody but which everybody will
sit on their hands until it becomes worth the 25 cent fee to exploit, seems
like a way to create _more_ instability.

~~~
_delirium
It can add instability though, if the arbitrage-exploiting is too large a
proportion of the market. If 95%+ of trades are trades based on statistical
market patterns, which are themselves created by those same 95%+ of trades,
you get weird feedback loops that have more to do with chaotic systems and
attractors than with supply or demand.

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hugh3
Looking at prices of any given share for any day other than Thursday (was it
Thursday?) would you say that such instability and big feedback loops are a
big problem?

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AKSHAYUDAYBHAT
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
: [http://www.smartmoneyindia.co.cc/2009/01/all-about-
securitie...](http://www.smartmoneyindia.co.cc/2009/01/all-about-securities-
transaction-tax.html) (not my link)

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DrSprout
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.

