“High-frequency trading plays a critical role,” he said. “When you put a tax on transactions, you risk damaging liquidity. As mutual fund investors we rely on having liquidity,” he added. “A drop in liquidity is bad for fund shareholders.”
The Democratic Party’s platform doesn’t specify the size of the tax. A bill Representative Peter DeFazio, a Democrat from Oregon, introduced Wednesday would tack on a 0.03 percent fee onto stock, bond and derivatives trades in the U.S. He said it would “discourage the same speculative financial trading that led to the 2008 Wall Street collapse and 2010 ‘Flash Crash.’”
Though that doesn’t sound like a lot, it’s enough to potentially make a difference to the high-frequency traders investors rely on to complete their trades.
“If you look at what most of those high-frequency traders actually do, they are doing things that really support long-term investors,” said James Angel, a finance professor at Georgetown University in Washington, adding that the trouble with financial transaction taxes is that they “wind up being paid for by the mom-and-pop investors at the end of the day.”