PROPOSED 0.25% TRADING FEE

In an article today titled, “0.25% Trading Fee”, members of Congress are considering a 0.25% fee on all transactions. That’s a '%’ and not a ‘$’.

Here’s the article:

Why isn't this idea gaining more "traction"?

Rep. Peter DeFazio, D-Ore. [...] advocated a new government fee of .25 percent of every stock transaction to ensure that the government can recoup funds to pay for the aid that it provides to lenders. “If this is truly such a catastrophe, I don’t see how anybody can object to a one-quarter of one percent fee,” DeFazio said. Others who attended the session said that proposal seemed to be gaining little traction.

Wall Street (and their enablers in both parties) want the taxpayers to shoulder the entire cost. Heavens forbid if Wall Street itself have to shoulder any of the burden.

Now 0.25 percent might be too high. I don't know. How about a tax per transaction? It looks like normal volume at the Dow is about 4 billion daily transactions. Slap a penny surcharge on every one of those transactions, and we're talking $40 million raised, and that's not including the NASDAQ and other markets (the Chicago exchanges, etc.). Over the course of the year, that would approach $10 billion. Hmmm.

Let's make that surcharge $0.25. That would be $1 billion raised per day, or about $240 billion raised in a year. That sounds better.

And yeah, it would suck for Wall Street, since that's real money out of their pockets, but they created the mess. They should be the ones paying to clean it up. Better the money come out of their pockets than ours.

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As a trader, there are several problems I see with this:

· Individual scalpers and day traders will get hit the most within the retail category. These types of traders depend on the ability to trade rapidly to turn a profit, incurring significant transactions as well as shoulder the high burden of commissions. The addition of 0.25% per transaction will likely lead to a major shift in strategy among these traders.

· Institutions, particularly hedge funds, will obviously object to this proposal. Hedge funds account for more than 25% of the daily volume on the exchanges. This could amount to the hundreds of billions of dollars in fees by year’s end. Hedge funds that practice daily rapid-trading will likely shift their strategies.

· How are market-makers and specialists affected by this?

· Brokers will see reduced commission revenue and may need to raise commission rates or otherwise suffer.

· Why in the world would we help the government pay for something they failed to regulate in the first place?

Sure, we can help the government pay for the mess, but Isaac Newton would have said “for every action, there is a reaction”. This proposal will most likely reduce trading activity immediately and create havoc in a market that’s already in disarray. The market is already experiencing reduced liquidity due to the temporary short-selling ban; however, government action like this will kill liquidity and the confidence and support of traders and investors worldwide. I for one say NO.