NYSE Prepares To Move Operations Out Of New Jersey If Trading Tax Passes

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by Tyler Durden
Monday, Oct 19, 2020 - 02:53 PM

The saga over New Jersey's trading tax continues, and in the latest installment the Mahwah-based New Jersey New York Stock Exchange told New Jersey lawmakers that it is prepared to move operations out of state should they impose a new tax on electronic trades via data servers, according to Bloomberg.

To prove that the NYSE is serious, in late September, Hope Jarkowski, co-head of government affairs for NYSE parent Intercontinental Exchange Inc., said that the world’s largest exchange by market capitalization conducted a test "for a wholesale transition out of New Jersey" noting that "from Sept. 28 to Oct. 2, we moved our production servers for our NYSE Chicago exchange out of New Jersey to our secondary data center."

The kicker: "Proximity to New York City is no longer relevant in today’s trading environment."

NYSE facility in Mahwah, NJ

The latest threat to bail on the Garden State comes after state lawmakers announced they plan to charge a tax of a hundredth-cent per trade, down from an earlier proposal of a quarter-cent levy. The fee, which is set to begin Jan. 1 and last two years if passed, would be paid by "high-quantity processors of financial securities," or firms that collect and store data. Such operations exist in Mahwah, Secaucus, Carteret and elsewhere in New Jersey, where the NYSE, Nasdaq and CME all conduct operations, and whose proximity to Wall Street makes it conducive to fast electronic trades. But, as Bloomberg notes, "evolving technology is threatening the need for short, straight data lines, potentially allowing exchanges to operate well beyond their suburban tether."

While New Jersey has estimated that a trade tax would bring in $500 million in each of the two years on transactions involving stocks, futures, options, credit-default swaps, derivatives and other trades, market representatives disagree, and instead claim that such taxes enacted in France, Sweden and Italy have fallen far short of goals.

The strategy "will backfire," said Terry Campbell, vice president of global relations for Nasdaq Inc. "You will not get the revenue you predict."

Instead, according to those who have for years benefited from the legal frontrunning that is HFT, claim that individual investors and middle-class retirees would shoulder the burden, via higher transaction fees and costs passed on by pension funds and other investment managers. A coalition of exchanges and trading firms have been fighting the tax, with Monday’s hearing giving them another chance to warn lawmakers that the levy will hurt the state more than help.