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Transaction tax hits London shares

Tuesday’s Sarkozy-Merkel summit has not had quite the catastrophic effect on markets some had suggested it might – the FTSE 100 is down just 17 points at lunchtime.

The effect it is having is on those who might be hit by the proposed tax on financial transactions.

Inter-dealer broker Icap is down 4% at 427p, while the London Stock Exchange is down 4.7% to 829p.

A UBS note said this morning:

We believe that a FTT is unlikely to be backed by the UK; which would suffer most given its exposure to the financial sector. Also, the notion of giving the EU power of direct taxation is not acceptable to many member states. We understand that any subsequent legislation to introduce a FTT would require unanimity in the Council. An FTT would encounter significant practical implications and be open to arbitrage. But given the backdrop, this risk cannot be ruled out.

Expect significant impact on shares
We believe LSE and BME shares to be most impacted as M&A premiums dissipate: the probability of LSE or BME being acquired with this overhang reduces materially. Given the downside seen in US exchanges, last night, we believe that there could be buying opportunities, and retain our Buy on DB1. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds