30 July 2013 Exchange Rate Perspectives: FX and the Financial Transaction Tax member states. In February 2013, the European Commission published its detailed proposal of the FTT under the aegis of an enhanced cooperation agreement. The proposal closely mirrors that of the September 2011 original. Transactions in securities will be taxed at 0.1% of their notional value, transactions in derivatives at 0.01 % of their notional value. Financial institutions will be captured by the tax with a few exemptions. Non-financial institutions are not directly liable to pay the HT. However, financial entities will be liable to pay when undertaking transactions with non-financial entities. Any trade involving a counterparty established in, or a financial instrument issued in a participating member state will be captured. The FIT would have wide ranging implications for the FX industry. While FX spot transactions will not be taxed, forwards, swaps, NDFs and options may be taxed. These products currently make up nearly two thirds of FX market turnover.' Transactions in these products would be taxed at the rate for derivatives. While the FTT is only being introduced in 11 member states, the extra-territorial impact of the FTT under the current proposal is wide, and would have a significant effect on all major global trading centres of foreign exchange. The European Commission's proposal still has some way to go before it is agreed, let alone implemented. The eleven member states will continue to debate the proposal until it achieves unanimous agreement. In recent weeks there has been speculation over the future of the FTT after participating member states wrote to the European Commission for clarification on key details and EC officials acknowledged that implementation by the target date was unlikely!. In its current form, the FIT would dramatically increase transaction costs for FX markets with the likely result of effectively closing the non-spot FX market i