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Congressman Vito Fossella (R-NY13) today urged Congress to reject a proposal in the Administration’s Fiscal Year 2009 budget that would impose a new tax on futures transactions cleared by a derivatives clearing organization that is regulated by the Commodity Futures Trading Commission (CFTC).
In a letter to House Budget Committee Chairman John Spratt and Ranking Member Paul Ryan, Fossella said the new fee would make U.S futures markets less competitive, reduce liquidity, disproportionately hurt market makers and create incentives for investors to shift to alternative markets.
“Due to the unique nature of the futures markets, where many products generate price references that are used in broader segments of the U.S. economy, I am concerned a transaction fee will reduce the liquidity on regulated U.S. futures exchanges. The impact of the proposed fee will fall disproportionately on the market makers who provide vital liquidity to the exchanges through the frequency and speed of their transactions. Further, I am concerned an additional fee imposed upon market participants will divert trading on U.S. futures exchanges to alternative markets.
“As we explore new ways to strengthen the leadership of the United States capital markets in the global economy, imposing new fees upon market participants seems counterintuitive. We need to preserve the strength of the futures markets and the efficiencies, price discovery and risk management they provide to the national economy. Additionally, we need to be sensitive to creating incentives that shift volume to less transparent markets and foreign markets.”
The Administration, which wants to add $96 million for the proposed $130 million budget of the CFTC, has unsuccessfully sought to impose this new tax in previous budget proposals. Congress has rejected it in past years.
Fossella currently serves as Chairman of the “Capital Markets, Economic and Information Security” Task Force under the House Republican Policy Committee. Since the formation of the Task Force in June 2007, Fossella has met with top officials of the financial services industry in Chicago, Atlanta, Philadelphia, Dallas and other cities. He has reached out to a broad spectrum of market participants to build upon the findings and recommendations included in several reports released on the issue over the past year. The Task Force is using these recommendations as a starting point and is focusing on legislative remedies that would more effectively strike a balance between upholding investor protections and promoting competitive markets.
