AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (2 comments)

  1. Why not tax bids that were withdrawn and not completed?

    As much of the high frequency trading is a storm of bids that do not get filled, but are withdrawn, they have no intent to purchase. This would make it more costly to manipulate the market, but would have little effect on investors that actually intend on buying or selling the securities.

  2. Wayne Abernathy

    This tiny tax, this smallest of taxes, taxes on someone else, rather than me. What’s to make you think that once established it will stay “small” or that once applied it will not spread in its impact? I am aware of few small taxes that stayed small. And, of course, once you tie the tax to providing a benefit to someone, what’s to make you think that this benefit will ever be “enough” or that there will not be plenty of new applicants lining up for some of this new largesse? If you don’t want to attract flies, then don’t make yourself a honey pot.

    The argument about damping liquidity is also wrong. The most important service of liquidity is not in emergencies but rather in the vastly more usual day-to-day trades, when liquidity keeps the price of everyday transactions lower.

    This is just another half-baked scheme thought up by people who are smarter than the markets. Their track record is rather poor.

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