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April 6, 2014

Tax could limit high-frequency trading

(Continued)

Fast forward a century or two, and we have reincarnated these robber barons. Now, though, days, weeks and months are instead measured in milliseconds and microseconds.

The robber baron speculators 21st century style do the same thing, but this time by making deals with stock trading floors to see where stock orders will be routed next, and getting there to buy up the particular stocks and resell them a blink of an eye later to the unsuspecting purchaser.

They may make only a penny or so each time, but add these trades up, millions and even billions in a day, and we are starting to talk about some real money. The trade still occurs, so they argue they are not inhibiting commerce, but they are nonetheless siphoning off millions each day that would have otherwise gone to you, to me, to our pension funds, and to those who take a long view on investment.

There are no efficiencies gained from this speculation. They are not making the market more efficient by allowing prices to converge to their proper values more rapidly. In fact, by siphoning off millions of profits for us, they give us all the impression there is no level playing field. Stock market participation is discouraged, and we all suffer.

This problem is easy to fix, though. If they can profit only by earning a penny a trade on billions of shares trading hands each day, let’s just impose a penny tax on each purchase or sale. This simple act would take much of the profit out of their surefire speculation, and yet would not at all affect those who are purchasing shares as a long-term investment vehicle. The tiny spread could even go to pay down the national debt rather than into the pockets of the greedy.

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