Another Swiss private bank under U.S. tax investigators' spotlight

* Rahn & Bodmer informed of U.S. investigation last week

* Bank says stopped accepting undeclared assets in 2008

(Reuters) - Private bank Rahn & Bodmer is under investigation by U.S. authorities, it said on Wednesday, following a recent deal to allow some Swiss banks to pay fines instead of facing prosecution for tax evasion by their U.S. customers.

That deal applies to about 100 second-tier Swiss banks, which may have to disclose information and face penalties of up to 50 percent of assets they manage for wealthy Americans.

A group of banks already under U.S. criminal investigation includes Credit Suisse, Julius Baer and state-backed regional bank Zuercher Kantonalbank. A second group of dozens more Swiss banks, which also helped weathy Americans hide their assets, are not yet under formal investigation.

"We knew we would have to go to U.S. authorities, so we began to prepare the documentation concerning our U.S. business some months ago, believing we would be in the second group," said Rahn & Bodmer partner Christian Rahn.

"It is difficult to evaluate whether being in the first group of banks is better for us or not," he said.

The bank was informed last week that it was under investigation, Rahn said. A spokeswoman for the U.S. Justice Department declined to comment.

The bank will not need to set aside capital to meet regulatory requirements if it has to pay a fine, as it has provisions which will cover a potential payment, Rahn said.

Credit Suisse and Julius Baer said in July they were preparing information on client withdrawals demanded by U.S. investigators to help pinpoint tax evasion, which may have pointing the finger at other banks.

However, Rahn said he did not believe his bank was being investigated as a result of data passed on by other banks as it had stopped accepting undeclared U.S. assets in 2008 and advised clients with such assets to make voluntary disclosures to the U.S. authorities.

According to its website, the Zurich-based bank managed client assets of 12.5 billion Swiss francs ($13.4 billion) at the end of 2012. It employs about 200 people.

It is the oldest bank remaining in the German-speaking part of Switzerland after St. Gallen-based Wegelin shut its doors earlier this year following an indictment and fine by U.S. authorities for conspiring to help U.S. clients evade taxes.

UBS paid a fine of $780 million in 2009 and delivered the names of more than 4,000 clients to avoid indictment, giving the U.S. authorities the information that has enabled them to pursue other Swiss banks.

http://www.reuters.com/article/2013/09/11/swiss-usa-tax-idUSL5N0H73BX20130911?feedType=RSS&feedName=financialsSector

Obama Seen Delaying Fed Choice Until After Syria Vote

“Syria right now has kind of paralyzed the town,” said David Plouffe, a former senior Obama adviser. “They’ll wait until the dust clears.”

An administration official said Obama hasn’t yet decided whom he will nominate for the Fed chairmanship. The official, who requested anonymity because the deliberations are private, declined to discuss the potential timing of an announcement.

Obama is mounting a full-court press to win support from members of Congress for authorization to attack Syria over what the administration says is the regime’s use of chemical weapons. Even as he traveled overseas to meetings with leaders in Sweden and Russia, he was making phone calls to senators and canceled a planned trip to California next week to focus on lobbying.

The Senate plans to begin debating an authorization resolution when it returns from its five-week break on Sept. 9. House leaders don’t plan to begin consideration until after a Senate vote, according to a House aide. That opens the possibility that the congressional debate on Syria will drag on until the week of Sept. 16.

http://www.bloomberg.com/news/2013-09-05/obama-seen-delaying-fed-choice-until-after-syria-vote.html

Households On Foodstamps Rise To New Record High: More Americans Live In Poverty Than The Population Of Spain

There was much discussion of Friday's "disappointing" non-farm payrolls goal-seeked, seasonally adjusted, X-13-ARIMA conceived [4] jobs "number." The conclusion was that it showed an economy which one year after the start of QEternity was growing nowhere near where the Fed has projected and hoped it would be at this time. But in addition to the BLS jobs number, there was another just as important number that was released on Friday: the monthly foodstamp (SNAP [5]) participation update. There was no discussion of this particular number and for good reason. If the NFP number was at least meant to show some economic stability, if subpar, the monthly foodstamp update shows month after month that the greatest depression is nowhere near ending for millions of American living in poverty (83% of SNAP households [6]have gross income at or below 100% of the poverty guideline ($19,530 for a family of 3 in 2013), and these households receive about 91% of all benefits. 61% of SNAP households have gross income at or below 75% of the poverty guideline or $14,648 for a family of 3 in 2013).

To wit: in June, the number of households receiving foodstamps rose to 23.117 million, an increase of 45.9k in one month, and also a new record high. As for the average monthly benefit per household: $274.55, just off record lows.

 [7]

At the individual level, in June an additional 125,059 Americans started using Foodstamps, i.e. entered poverty. However, the silver lining was that unlike at the household level, the increase to 47.8 million was not a record high. It missed that particular record, set in December 2012, by 31,771.

 [8]

And while it is understandable why the media has been obsessed with Syria: after all the administration is in dire need of distractions from so many things having gone wrong, it is also understandable why no mainstream media outlet will show the following chart: the change of Americans on foodstamps and disability vs jobs since the start of the Depression in December 2007. The reason is that while over that time period the US still needs to generate an additional 2.2 million jobs to get back to breakeven (ignoring for a minute that the jobs created are mostly part-time or low paying jobs), the number of foodstamp and disability recipients has risen by 22 million!

SNAP and Disability vs Payrolls monthly:

 [9]

And SNAP and Disability vs Payrolls cumulative:

 [10]

Finally, putting it all into perspective, there are more Americans on foodstamps than the entire population of Spain.

 [11]

Source: USDA [5]

http://www.zerohedge.com/print/478601

Syria and Second Passports

By Nick Giambruno, Editor, International Man

All of us by now have seen the latest sales pitch from the Obama administration for yet another so-called "humanitarian intervention" in the Middle East. It is not hard to see that the case for war is a bunch of rubbish and will likely end in disaster for both Syria and the US.

I am not diminishing the tragedy that is going on in Syria. The events there touch me on a personal level. I have good friends who live in Damascus and have been there myself several times when the situation wasn't so hot.

As some of you may know, I used to live in neighboring Beirut while I was cutting my teeth in finance at a regional investment bank. Due to its rich history and importance today, I have long been interested in the Middle East and sought ways to combine it with my professional background in finance.

I know it may be hard to fathom given what is put forth 24/7 on the mainstream media and if you have never been there, but Damascus is actually an amazing city on many levels—that is when it is not an active warzone of course. It is arguably the oldest continuously inhabited city in the world. The Christian quarter of the old city is one of the most enchanting places I have ever visited. And it's tough to beat the pistachio encrusted sweets from the legendary 100+ year old Bakdash ice cream parlor in the souk el Hamidiyeh.

Anyway, my purpose today is not give travel tips or to debunk the case for US intervention in Syria as hokum—David Galland did an excellent job of doing that in his latest piece here.

Instead I want to talk about Syria in terms of the lessons it provides us in internationalization.

It is human nature for people all around the world to have the "that can't happen here" mentality. And prior to the deterioration of the situation, many Syrians believed the same.

As Doug Casey has eloquently stated "The problem—your problem—is that any country can turn into a 1970s Rhodesia. Or a Russia in the '20s, Germany in the '30s, China in the '40s, Cuba in the '50s, the Congo in the '60s, Vietnam in the '70s, Afghanistan in the '80s, Bosnia in the '90s. These are just examples off the top of my head. Only a fool tries to survive by acting like a vegetable, staying rooted to one place, when the political and economic climate changes for the worse."

The uncomfortable truth is that, as history shows, no country is immune—especially one that has a deteriorating fiscal health—and internationalization is the ultimate insurance policy.

You won't be any worse off by moving some of your savings into multiple friendly jurisdictions and into things that are hard to confiscate, such as physical precious metals and foreign real estate. Obtaining a second passport is also an important ingredient in the mix.

Once you have taken these steps you will have insulated yourself and your family to a high degree from the uncertainty and sovereign risk emanating from your home country.

Developing your internationalization game plan takes time, and you must take action before it is too late. For Syrians, it would obviously have been optimal to have developed internationalization options many years ago.

Having a second passport and a financial account abroad denominated in a currency other than the Syrian pound, which has suffered from hyperinflation, would have gone a long way for the average Syrian today. The Syrian passport is not a great travel document; it requires a visa for most countries outside of the Middle East.

Having a second passport ensures that you will always have another place to potentially call home, another place where you will always have the legal right to live and work. In worst case scenarios, a second passport guarantees that once you get out of dodge, you won't have to live like a refugee.

A second passport can also come in handy when a government decides to starting treating its own citizens as beef cows instead of milking cows (i.e. when they need more soldiers for war) or if passport restrictions and other types of people controls are implemented.

The Syrian government, for example, previously refused to renew the passports of Syrians abroad it suspected of being associated with the opposition. This is not surprising and should have been completely predictable—any government could and would behave in a similar manner. Any government has the ability to revoke the citizenship and/or passport of its citizens at a moment's notice under any pretext that it finds convenient. Look at how the US cancelled Edward Snowden's passport by fiat.

It is not inconceivable that the US government would, for example, make it more difficult for Ron Paul supporters to travel internationally one day in the future. Heck, they have already taken the first step and labeled them potential domestic terrorists.

The bottom line is that if you hold political views that the establishment of your home government does not like, don't be surprised when they decide to restrict your travel options. In this case, having the political diversification that comes from having a second passport is even more important.

Unfortunately, getting a second passport, while necessary, is not easy. There are no solutions that are at the same time cheap, easy, fast, and legitimate. There is a lot of misinformation and bad advice out there regarding black and grey market passports that could likely end up causing you significant problems. It is essential to have a trusted resource to guide you through the process. There are definitely some options that are better than others. You can find our top picks for the best countries to obtain a second passport in and how to do it in Going Global 2013, a comprehensive guide to internationalization from Casey Research.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

http://www.marketoracle.co.uk/Article42146.html 

FURTHER READING ON THIS TOPIC AVAILABLE AT GLOBAL INTEL HUB

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http://globalintelhub.com/securing-email/

Americans turn in passports as new tax law hits

HONG KONG (CNNMoney)

The number of Americans choosing to give up their citizenship has spiked dramatically this year as the government works to implement a new disclosure law aimed at stamping out tax evasion.

Some of the rush may be caused by Americans hoping to avoid the new disclosure requirements. Others living abroad say they are giving up their U.S. passport because they are tired of dealing with overly complicated tax filings.

http://money.cnn.com/2013/09/04/news/citizenship-us-tax/index.html?iid=s_mpm

U.S. Stock Market Indices Since Their 2000 Highs

Courtesy of Doug Short writes: Here is a update in response to a standing request from David England, a retired professor now actively educating investors through his Trader’s Eye website. In his presentations, he likes to disprove the standard message of Wall Street, “Don’t worry! The market will always come back.” I furnished David with some charts, and I now share them with regular visitors to my Advisor Perspectives pages.

Specifically, David had asked for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. So I created two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which I usually just refer to as the CPI). The charts below have been updated through the yesterday’s close (September 3rd).

The charts require little explanation. So far the 21st Century has not been especially kind to equity investors. Yes, markets usually do bounce back, but often in time frames that defy optimistic expectations.

The charts above are based on price only. But what about dividends? Would the inclusion of dividends make a significant difference? I’ll close this post with a reprint of my latest chart update of the S&P 500 total return on a $1,000 investment at the 2000 high.

Total return, including reinvested dividends, certainly looks better, but the real (inflation-adjusted) purchasing power of that $1,000 is currently, over 13 years later, is only 10 bucks above break-even.

- Phil

Click here for a free trial to Stock World Weekly.

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

http://www.marketoracle.co.uk/Article42138.html

Forex volume surges to 5.3 Trillion per day

Foreign-exchange trading surged to an average $5.3 trillion a day in April 2013, boosted by greater yen volumes, the Bank for International Settlements said.

Trading increased 33 percent since the same period in 2010, the BIS said, citing a survey of currency traders it runs every three years. That’s an acceleration from a 20 percent increase in the three years through 2010. The yen had the biggest jump in trading activity among major currencies, while the euro’s role as the second-most traded currency was reduced. Emerging-market currencies increased their share, with the Mexican peso entering the top 10 most-actively traded currencies.

Volumes in the global foreign-exchange market are increasing as traders expand activities in developing nations and banks focus on the currency markets while stricter regulations after the financial crisis threaten earnings from other divisions. Transactions jumped this year as diverging economies stoked increasing swings in exchange rates.

“Post the financial crisis in 2008, foreign exchange has been a very interesting asset class for banks and investors to focus on because of the liquidity and diversity,” said Vincent Craignou, the London-based global head of foreign exchange and precious metals derivatives at HSBC Holdings Plc. “It has also become extremely competitive because a lot of banks have been keen to grow market share.”

http://www.bloomberg.com/news/2013-09-05/currency-trade-reaches-5-3-trillion-a-day-as-yen-turnover-jumps.html

McCain playing poker on his iPhone

As the hearing continues, our ace photographer Melina Mara reports she spotted Sen. John McCain (R-Ariz.) “passing the time by playing poker on his iPhone during the hearing.”

We eagerly await the photographic proof, but generally trust Melina’s sharp eye.

Update 5:55 p.m.: And here’s the proof:

Senator John McCain plays poker on his IPhone during a U.S. Senate Committee on Foreign Relations hearing where Secretary of State JohnKerry, Secretary of Defense Chuck Hagel, and Chairman of the Joint Chiefs of Staff General Martin Dempsey testify concerning the use of force in Syria, on Capitol Hill in Washington DC, Tuesday, September 3, 2013. (Photo by Melina Mara/The Washington Post)

http://www.washingtonpost.com/blogs/post-politics-live/the-senates-syria-hearing-live-updates/?id=ed01ca14-222b-4a23-b12c-c0b0d9d4fe0a

US government lawsuit is revenge for AAA downgrade, says S&P

S&P, America’s largest credit ratings agency, has also accused the government of curtailing its right to free speech, which is enshrined in the US constitution.

The Department of Justice (DoJ) is suing S&P for allegedly misleading banks about the risk of certain debt products in the run-up to the 2008 financial crisis, in order to boost the fees it could claim. The ratings agency also failed to downgrade the ratings it awarded the so-called collatoralised debt obligations (CDOs) even though it knew that the mortgage-backed securities they were based on were becoming increasingly shaky.

A number of major credit ratings agencies gave the CDOs high ratings at the time, but S&P is the only one being taken to court by the DoJ for allegedly misleading banks. It is also the only major ratings agency to have downgraded the US’s credit rating.

On Tuesday, the credit ratings agency accused the DoJ of pursuing an “impermissibly selective, punitive and meritless” lawsuit in “retaliation” for its decision to exercise “free speech rights with respect to the creditworthiness of the United States of America”. It made the claims in papers lodged in a California court – one of 16 parallel lawsuits S&P is fighting in different states to have the claims permanently dismissed on the grounds that the claimants are prejudiced.

S&P controversially downgraded America’s credit rating from the top-tier AAA status to AA-plus in 2011, to reflect fears that Washington’s failure to address the so-called fiscal cliff would jeopardise its ability to meet debt repayments. The downgrade outraged the US government and sparked sparked a sell-off of US shares.

http://www.telegraph.co.uk/finance/economics/10285005/US-government-lawsuit-is-revenge-for-AAA-downgrade-says-SandP.html

No Electricity Or Toilet Paper Is A Small Price To Pay For "All Time Highs"

Now that the All Time High (ATH) in the S&P is a distant memory (at least until the Syrian war becomes a widespread conflict involving all global powers and the US suddenly has to issue, and monetize, a few extra trillion) there are those momentum chasers who have an itch to BTFATH. To all of them we have a message: don't despair, and merely set your sights a little lower, on the globe that is, to Venezuela where the local stock market keeps crushing every upside resistance level and hitting new all time highs day after day after day, resulting in an annualized return of nearly 200% so far!

Now, some of the more pedantic readers may ask: is it worth having a "record high" stock market and not having toilet paper?

We don't know. Supposedly according to Keynesian logic record high stocks day after day should lead to consumers ignoring everything adverse about their lives: such as wiping with, well, nothing, and looking with hopeful eyes to a future made of maxed out credit cards.

However, while toilet paper may be a luxury in the country with the best performing stock market in 2013, electricity is still a staple. So we intent to follow closely what happens next in Venezuela, where as Reuters reports, a blackout just left most of the capital, and numerous states, out in the dark.

A large-scale blackout on Tuesday affected much of the capital Caracas and various states, members and witnesses reported Reuters.

For now, there was no official confirmation on the cause of the interruption of light, but users in the social network Twitter reported that states like Zulia, Anzoategui, Merida, Lara, Barinas Falcon and also lacked electricity.

Venezuela suffers constant electricity rationing due to problems with hydroelectric generation, from which 64 percent of the country's electricity is derived.

In 2010, the government blamed the drought for the electricity crisis and after the rainy season reservoirs recovered accusations pointed to sabotage, but continued rationing.

So: all time stock highs but no toiler paper or electricity... oh and a constantly devaluaing currency of course, which is the only reason for the stock market performance? At what point does the stock market surge no longer serve as a distraction to what is plain and simple social collapse (not only in Venezuela): is the breaking point civil war, cannibalism, the zombie apocalypse, or thermonuclear war? Luckily, if and when the US attacks Syria, we made find out soon.

citizens not employed chart

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US Banks on Swiss: RIP

The Buffets and the Gates of the US will be shedding a few tears this week as the United States and Switzerland have reached an agreement that brings the status of the latter as a tax haven for Americans (or will they?). No more hiding their cash away in Swiss banks. No more tax avoidance and money laundering. No more secret accounts and banking secrecy. At one time bankers could be trusted to keep secrets. These days they can’t. There’s always someone somewhere willing to pay more than the secret of what you have locked away in the vaults is actually worth.

The US and Switzerland have been talking over the possibility of putting a stop to the flow of money from the US into the Swiss banks for three years and have just found some common ground. Although it is hard to see just what advantage the Swiss state has got out of the whole affair. Swiss banks will end up being punished if they have aided and abetted wealthy US citizens in their attempts to hide money from the tax authorities. They will also be required to provide details to the US authorities regarding the account holders as well as details about people who are working on the accounts at the banks. Is this the end of Swiss banking?

US: Swiss Banking Secrecy

It seems that this will only marginally change things however, since for a number of years now already the Swiss bankers have been afraid of increased administration that has been imposed by US authorities and have ended up declining US-based clients from opening accounts with them. Although, it will have the added problem of making it very hard for a US citizen that is living or working in Switzerland to manage to actually open a bank account. The Swiss banks will refuse to do so after this agreement with the US. It’s all very well wishing to reduce tax havens, but what more does the US state actually want in terms of controlling US citizens that wish to open bank accounts in the place where they are living and working?

Delusions?

It also seems that the US authorities are under the greatest delusion believing that because the Swiss bankers refuse to open bank accounts that the US citizens that wish to place their wealth in other tax havens won’t be doing so. The Swiss banks are just a few amongst many world tax havens. The latter will naturally be opening the doors with welcome arms. Forbidding anything never stopped people doing it. Anyhow, perhaps we have all been deluded ourselves into believing that the National Security Agency was far more powerful than it actually was or is with its eavesdropping. Surely they could locate right down to the last dime the money that they are losing in tax avoidance?

But, that said, you would have to have been born just about yesterday at 4pm to still believe that Swiss banks would keep your secrets. Switzerland has been in the firing line for many years now with regard to their banking system.

The only thing that the Swiss will get out of it is that they will be able to write off all disputes with the US regarding taxation that has been voided due to money being placed in their banks. But, the future?

The Swiss Finance Minister Eveline Widmer-Schlumpf stated that the reputation of Switzerland’s banking sector and financial services depended on the agreement going through so that people might have confidence in the banking system. But, isn’t it just the opposite that made Swiss banks famous? Wasn’t it the secret and the fact that it was like a confessional box where anything that was said in the protected basement vaults stayed there? Whatever happens in a Swiss bank stays in a Swiss bank? No more, you had better get to Vegas; things apparently still stay there when they happen.

Swiss Banks

Intimidation?

The case of the Swiss banker that was arrested in April 2013 after having travelled to the USA showed the determination of the US authorities to come down upon tax evasion and tax havens with a mighty blow. The banker had entered the US on a vacation visa in New York. Although, once again the impunity of the US authorities to believe that it has the right to arrest anyone that enters the country for no apparent reason beggars belief. Just because you’re a banker doesn’t mean that the US can arrest you, does it? Intimidation? Bad for your image, at least. That’s not the way things are done in the world. Or, they shouldn’t be done like that. We don’t intimidate people that work for structures that are legal whether we like it or not. Change the laws, come to agreements. Stop using priggish, bullying force to get your own way. It’s not the bankers that are responsible for something that was set up long before they were out of diapers and into daiquiris.

People in senior positions in banks in Switzerland were advised to avoid travelling to the US at the start of this year. So, perhaps the only thing that occurred was for the US to lose out on visitors; visitors that were wealthy bankers to boot. It won’t change anything. While loopholes exist, the wealthy will find a way of exploiting the system and the administration is far too big and by the time the cog-wheels get moving for a change, the people have moved on to another place.

Secrecy Gone

In March 2013 Swiss banks such as Wegelin & Co. agreed to pay roughly $58 million in fines. They had admitted to helping hide $1.2 billion from the Internal Revenue Service. UBS also ended up paying a penalty of $780 million for having helped US citizens avoid taxes.

Now, the secrecy has gone in Swiss banks, who in their right mind would bank anywhere near Geneva? In 2012, there were 145 foreign-owned banks based in Switzerland. Today that number has fallen to just under 130. It’s not just the Swiss that were secretive. The foreign-based banks were also complacently happy with doing the same. Today, Switzerland has an offshore banking industry that is worth $2.2 trillion. That’s still the largest in the world. But, for how long?

It seems that Singapore is where the money flows are now going as the Swiss banks are seeing money being withdrawn from accounts in a capital flight. By 2020 Singapore is expected to be the number one destination for tax avoidance.

The solution? Perhaps like the other 670 US citizens did in the first half of this year: relinquish all rights to Americancitizenship and along with it avoid paying your taxation. The figure is the highest since data was first compiled in1998. Eduardo Saverin (Facebook founder) went last year. Isabel Getty (daughter Christopher Getty) threw in the towel this year along with Mahmood Karzai (brother of the President of Afghanistan).  So far, 39, 000 US citizens have come forward and owned up to having secret bank accounts outside of the US in the past few years. But, that’s just a minute sample of what is winging its way to the tax havens of the world.

But, it’s far from just the world’s wealthy. Secret files that were revealed by the International Consortium of Investigative Journalism in April 2013 showed that it was the dentists, the doctors that were at it too. There were even Greek villagers sitting alongside the Russian executives and the Wall Street fiddlers that were hiding their stash of cash in tax havens. It’s not just the mega-buck earners. It is estimated that there may be between $21 and $32 trillionthat is hidden somewhere in an off-shore bank account around the world. The 50 largest private banks in the world saw their assets grow from $5.4 trillion (2005) to $12 trillion (2010). Those private banks provide services to mainly high net worth people and they also happen to provide access to tax havens.

Whatever is happening with this world?

There was a time when the Swiss were known for being bankers, the Chinese were corrupt and the US was fair. Admittedly it was a long time ago, now. The Swiss just make chocolate and watches now.

The Chinese slap fines on companies that dabble with the Shanghai Composite and the US has become corrupt. Or were they just hiding that from everyone else?

http://www.zerohedge.com/contributed/2013-09-02/us-banks-swiss-rip

First Ever High Frequency Trading Transaction Tax Introduced In Italy

Nearly four years after Zero Hedge first suggested an HFT tax should punish algos that "churned" quotes and blasted empty bids and offers to stimulate "momentum ignition [12]" strategies, and generally corrupt market structure in a way that lead to both the flash crash, the BATS IPO farce, the FaceBook IPO debacle and the Nasdaq 3 hour crash, the first such tax is now a reality. And while it is not, and likely never will be implemented in a major (if declining) exchange such as the NYSE or Nasdaq, the first country to finally put an end to millions of parasitic empty quotes is Italy.

From the FT [13]:

Italy will on Monday become the first country to introduce a tax on high-frequency trading in a move that has become a test case for potential further crackdowns on the controversial practice.

The country will introduce levies against high-speed trading and equity derivatives in the final part of a two-stage process established this year to tax equity-related transactions.

The Italian version explicitly focuses on high-frequency trading and derivatives, which are often used by corporations and banks to hedge against risk. The tax will also apply regardless of where the transaction is executed, or the country of residence of the counterparty.

The conventional fallback excuse is already in play: liquidity will be damaged. Maybe, it remains to be seen. What will remain, however, is a far stronger orderbook, one which doesn't disappear on a dime, and one which doesn't lead to wholesale market shutdowns as the now infamous Nasdaq closure from two weeks ago.

Banks and brokers – many of whom were scrambling on Friday for clarification of key details – have warned the new taxes could further damage liquidity in the Italian market. Volumes have fallen sharply since the introduction of a tax on equities in March.

Specifically, the tax implementation will look as follows:

For high-frequency traders, order changes and cancellations will be taxed at 0.02 per cent when they occur within a timeframe shorter than half a second, once above a threshold. There will be fixed charges for equity derivatives, depending on the type of contract, and deals executed off-exchange will subject to a higher tax band.

There are of course those who have paid into the system handsomely enough to be exempt:

Intermediaries such as market makers are exempt from the tax.

And with this loophole, the scramble to reclassify all HFT traders as market makers begins.

So while the saying "better late than never" may be applicable, we are confident that when speaking in trivial cliches "too little too late" is far more appropriate.

 [14]

http://www.zerohedge.com/print/478343