Some private gains are created by shifting costs onto others. The Accord prices those costs at the source: carbon, methane, speculation, systemic financial risk, pavement destruction, public-health harms, aquifer depletion, interchange extraction, and labor-market undercutting.
High-frequency speculative trading imposes costs on long-term investors and on market stability. Empirical studies (BIS, ECB, FSB) consistently find that high-frequency trading provides genuine liquidity in some market states but extracts liquidity (and amplifies volatility) in stress states. The pattern is asymmetric: HFT firms profit in both regimes, while long-term investors and the broader financial system pay the volatility cost in stress states.
The 2010 Flash Crash, the 2015 Treasury flash crash, and the August 2024 carry-trade unwind illustrate the pattern: in moments of market stress, HFT liquidity disappears, prices gap, and long-term holders absorb the dislocation cost. Between events, HFT throughput accumulates fees and spreads.
The structural argument for an FTT is that the activity has positive private return and ambiguous social return — the kind of externality a Pigouvian instrument is designed for. The Eurozone has had partial FTT regimes since the 2010s; the EU has been working toward a unified FTT for a decade. The US has had no comparable instrument.
Base rate 0.10% on financial transactions. The rate sits in a corridor of 0.10–0.25% governed by the Speculation Brake macrogovernor. When the National Statistics Board's published housing-or-equity-surge indices trigger the brake, the FTT rises toward 0.25% and the Federal Housing Standards Board lowers non-primary-residence LTV toward 60%. As conditions normalize, both ease back.
The architectural design is that the FTT functions in two regimes simultaneously. As a structural revenue instrument at the 0.10% base rate, it produces stable revenue across cycles. As a stabilizer, the rate elevates in stress to disincentivize speculative trading that's contributing to the dislocation.
Financial-market participants on each transaction. High-frequency operators carry the bulk of the load because their per-share throughput is many orders of magnitude higher than long-term investors. A typical day-trader or HFT firm executes thousands to hundreds of thousands of round-trip trades per security per day; an index fund executes a fraction of that per year on the same notional.
Practical impact is concentrated at HFT firms, market-makers operating in high-throughput regimes, and arbitrage funds whose strategy depends on rapid round-trip execution. Affected firms include the major proprietary trading houses (Citadel Securities, Virtu, Jane Street, Two Sigma trading desks, etc.) and the high-frequency desks at major investment banks.
Long-term investors face de minimis incidence. A 0.10% friction on a portfolio rebalanced quarterly produces an annual drag of 0.04% — well below typical mutual-fund expense ratios. A 0.10% friction on a buy-and-hold portfolio held for years produces vanishingly small annual drag.
Retirement-account contributions and rebalancings face the same de minimis incidence. A 401(k) participant making periodic contributions doesn't notice the FTT; an index-fund holder rebalancing once a year barely notices.
Genuine investment activity (long-term equity holdings, retirement saving, ordinary portfolio management) is structurally protected by the fact that the FTT scales with transaction frequency. Activity at human time-scales is unaffected; activity at millisecond time-scales is meaningfully priced.
Pending canonical scoring (CFG.FTT base 0.1% per canonical params).
FTT revenue at the 0.10% base rate is moderate. Most of the trading volume on US exchanges is HFT — by some estimates 50–75% — so a 0.10% rate on the full base produces a substantial number, even after empirically expected volume contraction (EU FTT scoring suggests volume falls ~10–20% under a flat 0.10% rate, with revenue net positive after the contraction).
When the Speculation Brake elevates the rate toward 0.25%, the revenue-and-stabilization effect compounds: more revenue per transaction AND less HFT throughput contributing to the surge. The brake is designed to be activated rarely; most of the corridor's existence is at the 0.10% base rate.
See tax ladder · fiscal scoring
- Off-exchange routing
- FTT applies to financial transactions regardless of venue. Dark-pool transactions, internal-cross transactions, and bilateral-OTC transactions in covered instrument classes pay the same rate.
- Cross-border exchange shopping
- Transactions in US-listed instruments by US persons are subject regardless of execution venue. Aligned jurisdictions in the Alliance Incentive network operate reciprocal coverage.
- Speculation-brake gaming
- The brake is triggered by NSB-published indices on a transparent methodology. Operators cannot suppress the trigger by reducing visible activity at one venue while maintaining throughput at another — the indices are aggregate.
- Derivative-equivalent routing
- Derivative transactions in covered instrument classes are subject to FTT on the notional principle. Synthetic exposure does not avoid the rule.
HFT activity is hard to avoid because the strategy depends on transaction throughput. The architecture's closures cover routing games and exchange-shopping.
- Speculation Brake macrogovernor
- Governs the FTT corridor (0.10–0.25%) and the FHSB non-primary-residence LTV corridor (60–100%). When NSB indices flag housing or equity surge, both move toward the speculation-suppression end of their corridors.
- National Statistics Board
- Publishes the housing-surge and equity-surge indices that trigger the Speculation Brake. Index methodology is transparent and reviewed periodically.
- Federal Housing Standards Board
- Pairs with FTT corridor adjustment via LTV corridor for non-primary-residence financing. The two instruments together attack speculative housing and speculative equity simultaneously.
- Systemic-risk levy
- Prices implicit federal guarantee SIFIs carry. FTT prices throughput. Different externalities at the financial-system level.
- Financial Stability Reserve
- SIFI-levy revenue ring-fenced; FTT revenue flows to the General Fund. Different externalities, different fiscal routing.
The FTT and the systemic-risk levy together address the financial-system externalities. FTT prices throughput; systemic-risk levy prices implicit guarantee. Distinct externalities; complementary instruments.
Even at 0.10%, an FTT meaningfully increases the cost of market liquidity provision. HFT firms genuinely provide liquidity in normal markets; pricing their activity reduces the depth-of-book that long-term investors benefit from. The Eurozone FTT experience has been mixed; revenue projections fell short and liquidity contracted.
The 0.10% base rate is calibrated to the empirical evidence on liquidity provision. Below ~0.10%, the rate is too low to meaningfully discourage truly speculative HFT; above ~0.25%, the rate begins to materially affect normal market-making. The 0.10–0.25% corridor sits inside the calibration range.
The Eurozone experience is mixed for reasons specific to the EU's coordination problem: a partial-jurisdiction FTT incentivizes routing to non-FTT venues. The US framework operates at a single-jurisdiction scale (US-listed instruments, US persons), avoiding the routing problem. Aligned jurisdictions in the Alliance Incentive network coordinate reciprocally.
Liquidity provision in stress states is the more important consideration. Empirical studies consistently find HFT liquidity disappears precisely when long-term investors most need it. The FTT-plus-Speculation-Brake architecture is designed to elevate the cost of speculative activity in stress states (when the brake fires), capturing the externality at exactly the moment it's most costly.