Brussels, 10/04/2013 (Agence Europe) - The International Capital Market Association (ICMA) and the European Repo Council (ERC), which represent companies active in the repo (short-term bonds) market in 50 countries' markets, want the EU to exempt the repo market from the financial transactions tax (FTT) to be introduced on 1 January 2014 by 11 EU member states through the enhanced cooperation mechanism. They announced at a press conference on Monday 8 April that they had sent an open letter to the European Commission, the European Banking Authority (EBA) and the European Central Bank calling for this move.
They say that application of the FTT would cause the short-term repo market to shrink by 66% with severe knock-on effects on other financial markets and the real economy. A study commissioned by the two associations on the state of the short-term repo market, which had a turnover of €5.611 trillion in June 2012, showed that a 0.1% FTT on the gross value of cash transactions with the 11 FTT countries without taking account of the length of time that a bond was owned, would make it unprofitable to deal in bonds lasting for less than a year and would thus cause the market to collapse. If applied to all intermediaries at various stages of a transaction (sale, purchase and re-sale), it would have a domino effect that would push up the cost of transactions and in fact increase the tax to 1.1% of the value of the transaction. Other negative effects could be creating an uneven playing field between banks in the 11 FTT nations and banks outside the 11, a negative impact on sales of sovereign bonds more generally and forcing investors to make use of non-guaranteed deposits on which the FTT is not levied because alternative guaranteed investments do not exist. The research can be found on the ICMA website: http://www.icmagroup.org/ (FG/transl.fl)