French FTT to include ADRs from December

The French financial transaction tax (FTT) will include American depository receipts (ADRs) from December, as details of the levy continued to emerge despite its introduction on 1 August.

The FTT charges 0.2% on all net buys of Paris-listed equities that have a market capitalisation of over €1 billion – covering around 110 stocks.

But ADRs – derivatives issued by investment banks that represent a specific number of stocks in a foreign listed company – will be exempt until December due to difficulties in forming a workable tax framework.

"ADRs just don’t operate the same way as local stocks – it’s challenging to apply the same rules to stocks that are traded in France to those traded on the secondary market outside of the EU,” said Stephane Loiseau, managing director, global equity flow division for Société Générale. “[The December start for ADRs] gives everyone a little more time to digest that new information and go through the different scenarios.”

Loiseau said the true effect of the new tax on trading would not be clear for a couple of months and said ADRs may be traded less, not more, before they are included in the tax.

"In my opinion, some investors may stay away from the product until there is more clarity on the final mechanism," Loiseau said.

Buy- and sell-side firms have complained that detail on the French FTT is lacking, with many unclear on when exemptions to the tax may apply, for example.

The French tax will operate in a similar way to UK stamp duty, and is part of efforts led largely by France and Germany, which are both backing an EU-wide trading tax. The French FTT was introduced as part of the country’s budget law on 8 February and is collected using a declaration system that is managed by Euroclear France, the country’s central securities depository.