(Bloomberg) — New Jersey Governor Phil Murphy said he is “very seriously” considering a tax on high-volume electronic trading in the state, home to Wall Street’s massive server farms.
“The notion is something we like a lot,” Murphy, a Democrat and retired Goldman Sachs Group Inc. senior director, said Monday, warning litigation would be a near-certainty. Though the nation’s top banks and money managers are traditionally in New York, such a tax would have huge implications for the industry, with northern New Jersey effectively serving as modern Wall Street’s digital trading floor.
The state would charge a quarter of a cent per “financial transaction” at entities processing at least 10,000 annually via electronic infrastructure in the state, according to the bill. It lists instruments including stocks and derivatives such as options, futures and swaps.
Assemblyman John McKeon, a Democrat from West Orange, introduced the bill on July 16 and an identical version followed, sponsored by Senate President Steve Sweeney, a Democrat who is New Jersey’s highest-ranking state lawmaker. Neither version has had a committee hearing.
“There are reportedly billions of financial transactions processed daily, and many of those are processed through electronic infrastructure located in New Jersey,” the bill states. “This tax, which is on the processor but may be passed along to the purchaser or seller, can therefore potentially raise a significant amount of revenue for New Jersey.”
The New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc. all have data centers in New Jersey that underpin the world’s biggest and most active stock markets.
If implemented, the tax could generate billions of dollars, said Larry Tabb, head of market structure research for Bloomberg Intelligence. Costs would be passed on to investors and would probably reduce trading and force exchanges to relocate over time.
It isn’t surprising that cash-strapped states are looking to raise revenue by taxing the financial industry, Kirsten Wegner, chief executive officer of the Modern Markets Initiative, an advocacy group for high-speed traders, said in an interview. But she said it’s probably the first time she has heard of levies targeting server processing.
She predicted it won’t work.
“You’re going to hear market participants say, ‘We’ll trade outside of New Jersey,’” Wegner said. “If you were to implement this tax and people move out, you wouldn’t raise any revenue, so it defeats the purpose.”
Sweeney, from West Deptford, said by phone that data centers won’t be so quick to leave. “When you move, it has an impact, because the farther you move, the slower it gets,” he said of how processors handle trading.
Murphy said he wouldn’t sign the legislation prior to the Oct. 1 fiscal-year start, because the likelihood of a legal challenge would make the tax impossible to count as a revenue source.
(Adds background on the state’s role in trading from the first paragraph.)
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