EFTA01449314.pdf

30 July 2013 Exchange Rate Perspectives: FX and the Financial Transaction Tax transaction. For example, where a dealer provides liquidity to a financial entity and simultaneously hedges the same transaction with a third counterpany, afl three entities are likely to be caught. The FX industry would be impacted by this cascade effect. FX is an intermediated market, with several potential stages between the client and ultimate liquidity provider. These stages have evolved in response to demand for tighter pricing and a more efficient market. For example, in the case of an NDF transaction, a dealer is able to provide a better price for a client by being able to hedge that transaction through an offsetting one with a third counterpany. By discouraging this kind of intermediation, the FTI. may result in dealers providing wider prices for clients. By definition many FX transactions also contain multiple legs, each of may be subject to the FTT. For example, an FX swap is composed of two forward transactions, meaning that the FTT could be charged twice. FX transactions can also involve very large notionals, which would increase gross costs. As illustrated by the diagram below, a headline rate of 1bp translates into a much higher effective rate once the multiple steps of a typical FX transaction is taken into account. In this case, the final cost for a USD/iNFI NDF potentially increases up to 8bp, meaning the absolute cost for a USD 10.000,000 notional becomes US() 8,000. Figure 17 The FIT 'Cascade Effect' Financial Institutions Non-financial Institutions Baud nn usiMildt mceith M$. nmlonal USD 10,000.000. Schmunc ad World New World Corporates Can Choose bawl on European toininsilOn OrMinal and IS diugrative onN Bank Bank Bank Bank .t, Ell Bank Bank Bank Bank * Prime Clearing Broker Haze O4.N1ug (II Clewing L ism Wart Broker 8reskei CI' -nt ( Max: USD 8.000 Max: USD 8.000 Max: USD 5.00D Max: USD 7,000 Total Final Cost Min. USD 4,000 Mn: USD &COO Min: DSO 3,000 Min: use 3,000 Saga Past/0SM Deutsche Bank Securities Inc. Pays 9 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104665 CONFIDENTIAL SDNY_GM_00250849 EFTA01449314