The Korean government decided, in 2016, to introduce a capital gains tax (CGT) on Kospi derivatives, both to secure tax revenue and to restrict speculative trading. We take advantage of a delay between the taxation of Kospi and Mini-Kospi derivatives to apply Difference-inDifferences to assess the impact of this tax on liquidity. The CGT reduced market activity and caused a switch from the Kospi to the Mini-Kospi derivatives. However, it had no effect on the bid-ask spread. A closer look shows also a shift in trading activity from individual to institutional traders which are exempted.

Keywords: Financial Transaction Tax, Tobin Tax, Capital Gains Tax, Derivatives Market Regulation, Mini-Derivatives, Liquidity, Kospi, Korea Exchange (KRX).