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Traders see Europe's Tobin tax hurting savers

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By Luke Jeffs

LONDON, Oct 11 (Reuters) - Europe's top trading firms warnedthat plans for a transaction tax in the region will burdenpension funds with higher charges because traders will shift theextra costs to their clients.

Eleven euro zone countries on Tuesday backed a levy ontrading, known as a "Tobin Tax", prompting angry reactions fromfinancial professionals who doubted itseffectiveness.

"It is not the trading firms that will take the hit, the guywho pays will be the man on the street, through his pensionfund," said Alasdair Haynes, the chief executive of AquisExchange, a new European stock exchange.

France in August introduced a trading levy, which could actas a template for other states, but banks and trading firms havekept their French tax bill down, partly by using loopholes andpassing costs to clients, traders have said.

"If the tax is structured like the French tax, the tax wouldbe borne by end investors and serve as an additional cost tothem," said Mark Hemsley, Chief Executive of Bats Chi-X Europe,the European exchange used by the top traders in the region.

Policymakers in Germany, Italy and Spain are keen on a taxon trades as a way to open up a potentially lucrative revenuestream to alleviate their governments' crushing debt burdens.

The Tobin Tax, named after economist James Tobin who mootedthe levy in 1972 to curb market volatility, has become apolitical symbol of a wider desire to make banks and hedge fundspay for the financial crisis.

But traders insist the move by the 11 countries ispolitically motivated and will likely prove counter-productive.

"It is likely to serve as another brake on economic growth,it is a highly inefficient way of raising tax, and given thenegative impact on growth it could even reduce overall taxrevenues in net terms," said Simon Lewis, Chief Executive of theAssociation for Financial Markets in Europe (AFME).

AFME is a trade body that represents the world's largestinvestment banks including Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley .

Trading firms said they were not surprised the Europeanstates backed the tax plan, given the hostility to banksfollowing the financial crisis.

They said plans are at an early stage and no real detail hasbeen made available so firms are not yet planning changes totheir internal processes.

(Editing by David Cowell)

((luke.jeffs@thomsonreuters.com)(+44 207 542 2471)(ReutersMessaging: luke.jeffs.thomsonreuters.com@reuters.net))

Keywords: TRANSACTIONTAX BROKERS