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Having Killed Their Equity Market, China Unleashes "Tobin Tax" For FX Market

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In September last year, Chinese regulators stepped on the throat of a 'fair' market in equity futures trading and for all intent and purpose killed the Chinese equity market. Tonight - after 2 days of Yuan weakness - having warned everyon from Soros to Kyle Bass that "betting against the Yuan can't possibly work," The PBOC just unleashed plans for so-called "Tobin Tax" on FX transactions (which implicitly taxes each transaction, reducing liquidity, raising margins and reducing leverage).

 

Deputy central bank governor Yi Gang raised the possibility of implementing a Tobin tax late last year in an article written for China Finance magazine, and now, as Bloomberg reports, it is on!

 

China’s central bank has drafted rules for a Tobin tax on currency trading, according to people with knowledge of the matter.

 

 

 

Rules are aimed at curbing speculative trading, say the people, who asked not to be identified as the discussions are private

 

 

 

An initial tax rate may be set at zero so as to allow authorities time to set up rules without immediately implementing the levy, people say

 

 

 

Tax is not designed to disrupt hedging and other FX transactions undertaken by companies, people say

 

 

 

Rules still need final approval by central government and it’s not clear how quickly they may be implemented, people say

 

 

 

People’s Bank of China doesn’t immediately respond to faxed request seeking comment

 

What happens next? Well that's easy... This!~

 

20160314_SHCOMP_0.jpg

 

NOTE: Yes that is real... and Yes there is 'some' volume there

 

Good luck unwinding those levered shorts... and even if the hedgies are profitable, we suspect the tax will be tiered to enable the maximum pain to be extracted from so-called speculators.

 

 

 

Charts: Bloomberg

 

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