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May 6, 2014

Advocates to Congress: Tax Wall Street Trades to Avoid Another Flash Crash

United States Falling Behind Europe in Efforts to Curb High-Frequency Trading

WASHINGTON, D.C. – On this day four years ago, the impact of high-frequency trading hit home as the stock market plummeted 1,000 points in a matter of minutes. The Dow Jones Industrial Average bottomed out after losing 9 percent of its value, causing around 20,000 trades to be cancelled by exchanges. The automated computer algorithms used by high-frequency traders have been found to be a large contributor to the escalation of the crash that day.

Financial reform advocates marked the Flash Crash anniversary by urging Congress to pass a financial transaction tax and to support the European Union (EU) nations as they today announced a move to implement a unified tax on trades. Though participating nations will continue to work out the nuances of the unified tax, it is scheduled to take effect before January 1, 2016, and in its first phase will focus on taxation of shares and some derivatives. The United States formerly taxed trades from 1914-1966.

“It took only a few minutes for high-speed trading computers to send the market into freefall. It’s outrageous that four years later, Congress has yet to fix the problem by reinstating a meaningful tax on Wall Street trades,” said Susan Harley, deputy director of Public Citizen’s Congress Watch division. “Even though taxes proposed are tiny, they stack up quickly, meaning that our country could bring in hundreds of billions of dollars in much-needed revenue. We can’t afford another Flash Crash, just like we can’t afford to let Wall Street continue to get away with not paying its fair share.”

“It's not too late to learn lessons from the Flash Crash,” said Sarah Anderson, global economy project director for Institute for Policy Studies. “Speed-demon high-frequency traders add no value to the real economy. Now is the time for the U.S. to follow Europe’s lead and place a petite tax on trades that would encourage longer-term productive investment.”

“Congressional proposals to tax Wall Street will take us a long way toward solving the problems that led to the Flash Crash of 2010,” said Marcus Stanley, policy director for Americans for Financial Reform. “What’s more, nonpartisan experts estimate that a tax of just 3 pennies per $100 of Wall Street trading would generate more than $352 billion in revenue over 10 years. At a time when crucial programs for middle class Americans are being cut back, we can't ignore this potential revenue source any longer.”

“The economic data are clear: A tax on Wall Street trades would save money for the average investor,” said Nicole Woo, director of domestic policy for Center for Economic and Policy Research. “It’s important that our market investors are focused on long-term, productive trades, not short term churning.”

Getting much hype from Michael Lewis’ book, “Flash Boys: A Wall Street Revolt,” high-speed trading is also being examined by the Department of Justice, the Securities and Exchange Commission and the Commodity Futures Trading Commission regarding claims that it amounts to illegal front-running which provides an unfair advantage in the market.

For live updates, follow #FlashCrash and #WallStTax on Twitter.

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