A Robin Hood Tax will stop the machines wiping out the market

A small tax on each transaction will stop pointless yet risky high-frequency trading.

From Terminator to the Matrix, our fear that humanity may be supplanted by the machines we create has helped Hollywood make mega-bucks. But while Arnie’s cyborg killing machine and the Neo’s alternative reality remain firmly in the realms of science fiction, our financial sector’s love of a fast buck is leading us to cede control of markets to computers with sometimes disastrous consequences.

The extent to which financial markets are now dominated by computer-driven high frequency trading was revealed again last week, when Knight Capital, a leading New York trading firm made a mistake in its computer programming. The rogue programme swamped the stock market with errant trades, cost the firm $440 million and put the future of the firm in jeopardy.

So what? I hear you ask. Why should we care if a firm of traders loses millions because they rushed out a new computer programme before it was ready?

The fact is that beyond acting as a casino for traders to make or lose fortunes, financial markets are crucial to the functioning of the global economy. They are supposed to allocate resources efficiently and help firms raise capital and manage risk. When things go wrong, as in the crisis of 2008, the consequences for the real economy can be devastating.

A growing number of economists and financial experts – including more than 50 financiers who wrote a recent letter to David Cameron and other world leaders – are warning that unchecked high-frequency trading undermines markets’ economic efficiency and risks disaster. In May 2010, the most infamous "flash crash" dragged the Dow Jones index of shares down nine per cent with more than half the fall happening in just seven minutes. Shares in Accenture plunged from $40 per share to just $0.01, almost wiping out the value of the company.

High frequency trading (HFT) conducted may now account for more than three-quarters of all equity deals in the UK. When you consider that this sort of trading, managed by computers according to complex algorithms, was almost unheard of seven years ago, it is hard to avoid the conclusion that traders have been competing in a technological arms race that has left regulators floundering.

So what can be done? As anti-nuclear campaigners have discovered, it is not possible to un-invent a technology once the genie has left the bottle. But fortunately this is not necessary. High-frequency trading is only profitable because of the sheer volume of trades carried out; the profit margin on each trade is incredibly low.

A tiny tax of a fraction of a percent on each transaction would curb the worst excesses of this cyborg-style casino capitalism, while having little effect on long-term investments such as pensions where trades are carried out far less frequently.

European leaders are working towards such a tax – covering stocks, bonds and derivatives – but the UK government has chosen to side with City interests rather than back the efforts of Germany, France, Spain, Italy and others to make finance work in the interests of society rather than the other way around.

UK opposition to the tax, based as it is on the claim that such taxes have to be global to work, is somewhat ironic. The UK already has an FTT on shares, known as the Stamp Duty, which at 0.5 per cent is many times larger than the proposed European tax (0.1 per cent for shares and bonds, 0.01 per cent for derivatives). The problem is that banks, hedge funds and other high-frequency traders avoid the stamp duty by trading in derivatives.

Extending the UK’s existing FTT to derivatives and bonds would not only "throw sand in the wheels" of HFT and therefore increase stability in financial markets and the wider-economy; it would also raise billions in revenue – the reason the Robin Hood tax campaign is backed by almost 120 organisations from Oxfam to the TUC and by global figures such as Kofi Annan and Bill Gates.

Despite avoidance, the UK Stamp Duty raise £3bn a year. A full-blown FTT could raise as much as £20bn – money that could be used to help those hit by the economic crisis at home and abroad and to meet the UK’s obligations to help poor countries cope with climate change.

It can be done. The UK’s Stamp Duty is one of 40 or so FTTs that already exist around the world. Hong Kong has introduced an FTT on derivatives precisely to curb the excess of computer-driven trading. Charles Li, Chief Executive of the Hong Kong Stock Exchange, says it "effectively limits high frequency trading, just like a highway with many toll booths limits speeding."

By rejecting a broader FTT, the UK government is making its own bet on the markets. It is accepting instability and forgoing much needed revenue in the hope the City’s casino capitalism will help drive recovery from recession.

It is a risky bet. As Andrew Haldane, Executive Director of Financial Stability at the Bank of England has put it:

"Grit in the wheels, like grit on the roads, could help forestall the next crash."

"Whoa" ~ Neo, The Matrix. Do we all fear that machines will supplant us?

Jon Slater is a Senior Press Officer for Oxfam and a spokesperson for the Robin Hood Campaign

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Four times Owen Smith has made sexist comments

The Labour MP for Pontypridd and Jeremy Corbyn’s Labour leadership rival has been accused of misogynist remarks. Again.

2016

Wanting to “smash” Theresa May “back on her heels”

During a speech at a campaign event, Owen Smith blithely deployed some aggressive imagery about attacking the new Prime Minister. In doing so, he included the tired sexist trope beloved of the right wing press about Theresa May’s shoes – her “kitten heels” have long been a fascination of certain tabloids:

“I’ll be honest with you, it pained me that we didn’t have the strength and the power and the vitality to smash her back on her heels and argue that these our values, these are our people, this is our language that they are seeking to steal.”

When called out on his comments by Sky’s Sophy Ridge, Smith doubled down:

“They love a bit of rhetoric, don’t they? We need a bit more robust rhetoric in our politics, I’m very much in favour of that. You’ll be getting that from me, and I absolutely stand by those comments. It’s rhetoric, of course. I don’t literally want to smash Theresa May back, just to be clear. I’m not advocating violence in any way, shape or form.”

Your mole dug around to see whether this is a common phrase, but all it could find was “set back on one’s heels”, which simply means to be shocked by something. Nothing to do with “smashing”, and anyway, Smith, or somebody on his team, should be aware that invoking May’s “heels” is lazy sexism at best, and calling on your party to “smash” a woman (particularly when you’ve been in trouble for comments about violence against women before – see below) is more than casual misogyny.

Arguing that misogyny in Labour didn’t exist before Jeremy Corbyn

Smith recently told BBC News that the party’s nastier side only appeared nine months ago:

“I think Jeremy should take a little more responsibility for what’s going on in the Labour party. After all, we didn’t have this sort of abuse and intolerance, misogyny, antisemitism in the Labour party before Jeremy Corbyn became the leader.”

Luckily for Smith, he had never experienced misogyny in his party until the moment it became politically useful to him… Or perhaps, not being the prime target, he simply wasn’t paying enough attention before then?

2015

Telling Leanne Wood she was only invited on TV because of her “gender”

Before a general election TV debate for ITV Wales last year, Smith was caught on camera telling the Plaid Cymru leader that she only appeared on Question Time because she is a woman:

Wood: “Have you ever done Question Time, Owen?”

Smith: “Nope, they keep putting you on instead.”

Wood: “I think with party balance there’d be other people they’d be putting on instead of you, wouldn’t they, rather than me?”

Smith: “I think it helps. I think your gender helps as well.”

Wood: “Yeah.”

2010

Comparing the Lib Dems’ experience of coalition to domestic violence

In a tasteless analogy, Smith wrote this for WalesHome in the first year of the Tory/Lib Dem coalition:

“The Lib Dem dowry of a maybe-referendum on AV [the alternative vote system] will seem neither adequate reward nor sufficient defence when the Tories confess their taste for domestic violence on our schools, hospitals and welfare provision.

“Surely, the Liberals will file for divorce as soon as the bruises start to show through the make-up?”

But never fear! He did eventually issue a non-apology for his offensive comments, with the classic use of “if”:

“I apologise if anyone has been offended by the metaphorical reference in this article, which I will now be editing. The reference was in a phrase describing today's Tory and Liberal cuts to domestic spending on schools and welfare as metaphorical ‘domestic violence’.”

***

A one-off sexist gaffe is bad enough in a wannabe future Labour leader. But your mole sniffs a worrying pattern in this list that suggests Smith doesn’t have a huge amount of respect for women, when it comes to political rhetoric at least. And it won’t do him any electoral favours either – it makes his condemnation of Corbynite nastiness ring rather hollow.

I'm a mole, innit.