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April 15, 2009

Death and Taxes

By Dan Mathisson

Also in this article

If H.R. 1068 were to pass, the likely scenario is that Toronto would cross-list all U.S. equities, broker-dealers would handle the FX trades behind the scenes, and trading would likely continue on as before, with many clients not even realizing their order had crossed the border and been executed in Canada. Wall Street fat cats would likely remain untouched, untaxed and unrepentant, although a few thousand fat-cat jobs would presumably shift to Toronto.

But Toronto should hold off on going on a hiring spree-the good news is that we are told that the gentleman from Oregon is unlikely to successfully push this tax all the way through, that H.R. 1068 is one of many naive bills that will be dismissed. Even so, it is a disturbing prospect that we have gotten to the point where elected U.S. representatives are lining up to get their name on any anti-Wall Street bill, no matter how inane.

And there are many other unfortunate bills in the works that were clearly written to curry favor with the "pitchfork and torches" crowd. Some are just aimed at Troubled Assets Relief Program firms, like the new rule that bans hiring of foreign workers in TARP recipients' U.S. offices, or the bill seeking to eliminate conferences and holiday parties. More disturbingly, others are aimed at the capital markets themselves, like the trader's tax, or the proposal to bring back the uptick rule.

Get Ready

Here's to hoping old Ben Franklin was wrong about the inevitability of death and taxes, and that H.R. 1068 quickly becomes a footnote in history's dustbin. But with other more likely trading restrictions looming, Mr. Franklin would likely counsel thinking ahead, having also said, "By failing to prepare, you are preparing to fail."

Institutional investors should think about how they will need to change their business models in an age of legislation-induced lower trading volumes, higher transaction costs and lower average returns for their investors. But at least these new rules will teach Wall Street a lesson. Take that, you fat-cat 401k holders!


Dan Mathisson, a Managing Director and the Head of Advanced Execution Services (AES) at Credit Suisse, is a contributing writer to Traders Magazine. The opinions expressed in this column are his own, and do not necessarily represent the opinions of the Credit Suisse Group.

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