A new ICI Viewpoint entitled, "​FTT Would Shut Financial Institutions in Participating Countries Out of Repo Market" tells us, "The European Commission has proposed imposing a 0.​1 percent (​10 basis points) levy on financial transactions. As ICI has detailed, this financial transaction tax (​FTT) would have a host of negative consequences, including harm to investors and extraterritoriality. Here'​s another strike against the proposal: its impact on the market for repurchase agreements (​repo). Proponents claim that the proposed tax -- 0.​1 percent of the value of repo transactions involving financial institutions from the 11 countries that have signed on in support of the proposed tax -- would hardly affect market participants. But the opposite is true. For example, the FTT would be felt acutely by investors (​including U.​S. money market funds) conducting repo transactions in which financial institutions from those 11 countries were counterparties. Thus, the tax likely would work to eliminate repo as a source of funding to affected financial institutions, particularly French and German banks.... Repos are a form of short-​term funding used largely by financial institutions such as banks. The financial institution sells the securities to investors, such as a money market fund, usually on an overnight basis, and agrees to buy them back at a higher price reflecting the cost of funding.... The FTT would create a substantial drag on repo yields for investors conducting repo transactions with affected financial institutions. In fact, it would produce negative net yields on repo -- both in the current low interest rate environment and at more normal interest rate levels for shorter duration repo."

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