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Exchange operators hit by euro tax idea

17 august 2011, 12:44
Shares in the operators of major exchanges took a heavy hit Tuesday after French President Nicolas Sarkozy said he would propose a European tax on financial transactions, AFP reports.

NYSE Euronext, which operates share markets in New York, Paris, Brussels, Amsterdam and Lisbon -- and is awaiting approval for a merger with powerful rival Deutsche Boerse -- sank 8.4 percent on the news.

The IntercontinentalExchange, which operates major global commodities and financial futures markets, dropped 4.5 percent, while The NASDAQ OMX Group that controls markets in northern Europe pared 2.75 percent.

The losses were a direct reaction to Sarkozy's statement following a summit on Europe's fiscal problems with German Chancellor Angela Merkel.

"The German and French finance ministers will put a joint proposition for a tax on financial transactions on the table of European institutions from next month," he said.

Sarkozy failed to offer any details of the proposal, but he has been talking about ways to tame extreme speculation in global financial and commodity markets for some time.

It was a clear negative signal for exchange operators, who increasingly rely on high-speed, high-volume trading for income.

In the United States, "high-frequency trading" based on sophisticated computer programs buying and selling shares by the microsecond provides half of the volume on the exchanges.

In Europe, the practice is much less common, but expected to rise, according to Michael Wong of Morningstar.

Sarkozy's initiative "would reduce any probability of increasing the velocity of trading in Europe," Wong said.

"The velocity in Europe is much lower, they have much less high-frequency traders (who are) a major driver of revenue for the bourse operators."

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