Traders see Europe's Tobin tax hurting savers

By Luke Jeffs

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

Eleven euro zone countries on Tuesday backed a levy on trading, known as a "Tobin Tax", prompting angry reactions from financial professionals who doubted its effectiveness.

"It is not the trading firms that will take the hit, the guy who pays will be the man on the street, through his pension fund," said Alasdair Haynes, the chief executive of Aquis Exchange, a new European stock exchange.

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

"If the tax is structured like the French tax, the tax would be borne by end investors and serve as an additional cost to them," 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 tax on trades as a way to open up a potentially lucrative revenue stream to alleviate their governments' crushing debt burdens.

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

But traders insist the move by the 11 countries is politically 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 the negative impact on growth it could even reduce overall tax revenues in net terms," said Simon Lewis, Chief Executive of the Association for Financial Markets in Europe (AFME).

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

Trading firms said they were not surprised the European states backed the tax plan, given the hostility to banks following the financial crisis.

They said plans are at an early stage and no real detail has been made available so firms are not yet planning changes to their internal processes.

(Editing by David Cowell)

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