Zero Commission Trades = Perfect Fed Revenue Opportunity

 

As self-directed retail investing has grown, so has competition for those trading dollars, leading many discount brokers to offer zero commission trades.

Zero commission trades are not good for the markets as they encourage churn and risky short-term trading strategies that lead to price dislocations and speculative bubbles. Evidence indicates that the rise of low and no-commission trading has coincided with a huge increase in retail trading volumes which has led to equity price bubbles which are putting billions of dollars at risk.

I view this as a perfect opportunity for the Federal Government to enter the fray an start charging a $5 per trade tax.

Not only would such a tax encourage thoughtful and longer-term investing, it would be a revenue win.

$5 per trade is an insignificant cost and not a barrier to entry to the retail investor. It will reduce the number of trades, which is a good thing. It will encourage a more conservative investment strategy, which is a good thing. And, it will raise much needed revenue.

The NYSE trades an average of 3.6 billion shares per day. And, due to the rise in retail trading, the average trade is only 200 shares. If the Feds charge $5 per trade they could raise $90 million dollars per day in taxes, from the NYSE ALONE! The NASDAQ moves approximately 4 billion shares a day, so combined revenue from both sources would be over $180 million per day, or about $3.9 billion per month.

Even if this tax leads to 20% fewer trades, the Feds could still raise over $3 billion per month.

So, if the brokerages are willing to offer zero commission trades, then they have created a perfect opportunity for the Feds to raise revenue and limit some risky behavior.

Gap Year

Due to technological hurdles, and not wanting to put the country's progress in containing SARS-COV2 at risk, Kenya has decided that public schools will not convene for the 2020-2021 academic year.

I believe that this is smart decision and one that other countries should consider, particularly those who are considering remote education for this academic year.

The final months of the 2019-2020 academic year were held remotely and I was offered the opportunity to witness the academic experience from the perspective of my daughters, who are 6 and 9. It was clear to me that they were not learning, or at least not learning adequately to even begin to justify the time spent in front of the computer screen, not to mention the tuition expense.

I have job experience as a classroom teacher to students in the 10-12 year old range, and I can unequivocally state that remote learning for those students would have been a mixed bag, at best. There simply was too much variability in the student's level of focus and the amount of home support available to them to predict good outcomes for many of these students. Are we to leave these students behind while the other half marches onward?

Also, teaching children, particularly younger children, is by necessity a very hands-on and interactive job. The physical presence of a charismatic and energetic instructor provides a focal point which is the beginning of the learning process. The interactions between the students and the instructor, and perhaps even more importantly between the student and his fellow students, are of vital importance. Debate, group problem solving, competition and other group activities are absolutely necessary to achieve real learning.

In the United States most school districts are marching ahead with remote learning without any data to indicate how the students will perform. If standardized testing at the mid-point of the 2020-2021 academic year indicates that it is not working, are we prepared to abandon the experiment or are we going to allow these unprepared students to advance to the next grade?

For all of these reasons, I encourage a debate over the option of taking a gap year, with the plan to reconvene in-person classes when conditions permit.