Despite repeated warnings from many in the industry that Europe’s proposed financial transaction tax—which is aimed at curbing high-frequency trading—will be flawed and lead to end investors suffering, one recent report claims that the levy will actually benefit end investors such as pension funds.

The tax, which received a resounding go-ahead from the European parliament last month, now only needs to secure a qualified majority vote from the Council of Ministers before the controversial enhanced co-operation agreement—which will see the levy introduced in 11 of the 27 member states—is enacted.

If the proposal negotiates the final hurdle in Brussels, the French and German backed initiative is expected to be in operation in the coming months, although a two-speed Europe is set to be created in which many of Europe’s biggest stock markets—including Frankfurt, Paris, Milan and Madrid—will be affected by the tax, while others, such as London, Amsterdam and Warsaw, will not.

The introduction of a financial transaction tax, which is aimed at making the financial services sector pay for the global financial crisis, could have severe implications for capital markets, though.

“A broader European Union financial transaction tax is certainly not going to help the trading environment,” Kee-Meng Tan, managing director and head of agency broker Knight Capital’s trading group in Europe, told Markets Media in November.

High-frequency traders—who perform millions of rapid trades, each yielding a tiny profit— and proprietary trading firms would likely be hit hardest by any levy as their profits would diminish and it could force them out of markets, with liquidity potentially vanishing. Market structure could also break down with participants locating to other jurisdictions.

Many buy-side institutions, such as pension funds, are also against such a tax as they fear wider spreads, higher transaction fees and a dramatic drop-off in volumes.

“The industry is not going to pay for it; we will see volumes drop but the end investor will pay for that, not any bank or trading firm,” a London-based source told Markets Media.

The European Commission is proposing a 0.1% tax on all share and bond transactions and a 0.01% levy on derivatives trades, but with a potential exemption for pension funds—who invest the retirement savings of the general population—as the Commission feels that they should not be affected by the tax.

But in a recent report, the Network for Sustainable Financial Markets (NSFM), a body which has an interest in long-term investing, believes perversely that pension funds should not be exempt as if they were then others would potentially exploit this loophole and this would reduce the effectiveness of the tax to contribute to a more stable and less short-term focused market.

NSFM argues that “for pension funds making more traditional long-term investments, turning over their portfolio on average every two years, the financial transaction tax will add a negligible cost which will be largely absorbed by asset managers competing for pension fund clients” and says that the impact would be felt most keenly by high-frequency traders, thereby improving market stability and helping to boost pension funds in the process.

“The rate for the financial transaction tax is set so low precisely to avoid hitting longer term investments such as people’s savings and pensions,” said Jack Gray, one of the authors of the report and adjunct professor at the Paul Woolley Centre for Capital Market Dysfunctionality at the University of Technology Sydney.

“Far from being a ‘tax on pensioners’ it will help secure pensions by encouraging longer term investments and reducing costly management fees.”

The 11 countries to support the financial transaction tax are France, Germany, Italy, Spain, Austria, Belgium, Greece, Portugal, Slovenia, Slovakia and Estonia. The original European Commission proposal in June for an EU-wide tax was vetoed by the U.K., Sweden and the Netherlands among others. However, the European Commission hopes that its 11-member scheme, if adopted, will prove to be a success and pave the way for the initiative being adopted globally.

“I urge finance ministers [of the Council of Ministers] to make this matter a top priority in the new year, and to give the green light needed for the financial transaction tax to proceed,” said Algirdas Semeta, the European commissioner for taxation after the European parliament voted in favor of its adoption on December 11.