This past week the prospect of a Tobin Tax has been raised again. This simply is a proposal for a financial transaction tax so that potentially any financial transaction from, say, share trading to derivatives to foreign exchange could have a small deduction shaved off as a trading “fee”. This tax was originally put forward by James Tobin back in the early 1970’s shortly after the old Bretton Woods exchange rate regime fell apart. This was on the basis that the banks would be specifically benefitting from the increased number of foreign exchange transactions and therefore by paying a modest levy, they might be discouraged from any trading excesses. Additionally it could also provide “a nice little earner” to pay for the increased amount of supervision and banking regulation that was going to be necessary. Well it was rejected back then and has been rejected again by the vested interests involved.

As ever, forecasts of dire consequences for the future of London have been put out to scare any further discussion around the topic and although in certain circumstances they may have a point, the subject needs more considered thought than just a simplistic negative knee jerk rejection.

Actually in the UK we have had a financial transaction tax since 1694. It’s called Stamp Duty and King William, of that orange hue, introduced it as a very clever wheeze to help pay for his Dutch wars against Louis XIV - "An act for granting to Their Majesties several duties on Vellum, Parchment and Paper for 4 years, towards carrying on the war against France". So much for the four years!

This tax (including Stamp Duty Reserve Tax – SDRT) of 0.5% is levied on most share purchases, and we have also had a PTM levy since 1978 which is charged when you sell or buy shares with an aggregate value in excess of £10,000. The charge is £1, and the money raised goes to the Panel of Takeovers and Mergers. Although it has been an annoyance for investors, such a tax has not put too many people off investing in equities. However with the advent of the gambling industry coming into our world, the spread betters have found various mechanisms for the day traders and speculators to avoid these old charges and trade away tax free to their hearts’ content without having to contribute anything to the tax take – and in their case not even any capital gains.

What seems to have been quite likely is that such speculative trading in particular areas may have added to the nervousness and volatility in the markets. This in turn affects the confidence not just of investors and consumers but also companies. With confidence reduced, expenditure reduces and that path leads directly down towards potential recession. This then becomes a much more important economic issue and not just a parochial financial services one.

Such nervousness then translates into the hyperbole of “£58 billion wiped off the FTSE 100!” which I was confronted with in a recent interview, to which the correct answer was “Well that leaves us with over £1,300 billion left – so what was your point?” Volatility creates nervousness and excessive speculation and trading can create volatility. In such moments we need calm heads and clear minds – and not headline seekers.

This though is not just the issue of a number of speculators punting on the markets but more concerning are the High Frequency Traders. These probably account for the majority of exchange transactions these days and can potentially be very destabilising. They are not continuous price providers in the market but will dip in and out as necessary; they are difficult to monitor and thus presumably much more difficult to regulate. Perhaps then there is a perfectly valid argument for these market participants to pay some transaction charge as they are trading on the back of everyone else’s trades who have had to pay their dues.

I can hear the cries of the “free-traders” now, including some members of my own family, howling in horror, but such a charge on short term trading could potentially benefit the longer term investor and provide a fairer cost for participating in the markets. The key issues for its success would be its size and scale. To be very effective in fact the smaller it is probably the better, especially for the volume traders.

So would this drive investment houses offshore? Some, maybe, as we have seen with some of the online betting companies but others would still need the infrastructure of the rest of London around them. You also have to question just how many speculators we need to have. If some of them go and ply their punting trade elsewhere then I can’t see that ruining the nation.
We don’t necessarily wish to encourage firms to leave, and there have been examples before where markets moved due to excessive tax changes – the Eurobond market in the 1960’s from New York to London, and the Swedish transaction charges in the 1980’s which also moved business to London. However, at the right scale and as part of a broader package, most may well accept the logic.

So in fact here is a moment to reform the whole taxation of this area and not just add extra costs but improve it. Why not remove Stamp Duty and the PTM levy altogether and replace it with a modest transaction levy on a far broader range of transactions related to frequency as a fair cost of being part of the greater market? This is fairer for all participating, and if it ends up encouraging longer term investing away from shorter term betting, then that has to be a positive in my view.
However, there are two key issues. Firstly this tax on UK transactions should be for the benefit of the UK and not necessarily shipped elsewhere, and secondly finding a sensible mechanism for it to be levied in an orderly and effective manner.
If as a result we could have better supervision, clearer regulation, and more effective banking, then it could well be a price worth paying – and save us greater costs and pain down the road.

Well here is no news – Prime Minister Putin to be President again! I seem to remember writing that this was almost certain to be the likely outcome when he changed over to be Prime Minister and the unknown glove puppet became President as a means of getting around that tiresome blockage about a third term in the constitution. Well at least he won’t have to stand for a fourth term, as he will be probably Tsar Vladimir by then.

And finally........ A man known in Arkansas as the "Toe Suck Fairy" for a series of 1990’s assaults directed at women's feet was arrested after he struck again more than a decade later, police said.

Michael Robert Wyatt, 50, was arrested after two women identified him from a photo line-up as "the man who approached them in local stores commenting on their feet and asking to suck their toes," said LaTresha Woodruff, spokeswoman for the Conway Police Department.

Earlier in the month an 83-year-old woman told police she was sitting in a chair in front of her apartment when a man approached her. He took off one of her shoes and began sucking her toes, police said.

In the 1990’s, Wyatt was convicted and even served time in prison for his obsession.

He had pretended to be a podiatrist in order to fondle and suck a Conway (in Arkansas), woman's toes at a clothing store.
And he was convicted in 1991 of making threats to a convenience store clerk, telling her that he wanted to cut off her feet and suck her toes. For that, he was sentenced to four years in state prison, but served just over a year. In 1999 Wyatt was arrested again, police said, after asking a woman in a northwest Arkansas Walmart if she wanted him to amputate her feet.
Presumably one of the few people who run the risk of a severe infection of Athlete’s Lip.

Have a good week.

Justin A. Urquhart Stewart Director Seven Investment Management Limited