Why taxing high-frequency trading won’t work

By Vasant Dhar

We don't need to impose taxes on HFT and expose ourselves to the risks and unintended consequences associated with such a policy.

By Vasant Dhar

Democratic presidential candidate Hillary Clinton is proposing a new tax on high-frequency trading as part of a "Wall Street reform plan" Such an action is unnecessary and could result in unforeseen consequences that often accompany the best-intentioned regulation.

A better approach would be to build a powerful regulatory capability based on data, one where market manipulators can be detected and put on notice quickly. Such a deterrent capability should accomplish what we need without losing the benefits associated with allowing markets to function freely. Illegal behavior such as market manipulation can be punished swiftly if regulators have the means for rapid detection.

We have every reason to be concerned about the stability of financial markets. There is concern, and rightly so, that given the speed at which trading occurs, rapid computer-based trading can result in over reactions, which destabilize markets.

Read the full article as published in CNBC.

Vasant Dhar is a Professor of Information Systems.