 Trading firms and broker/dealers on Wall Street are weighing a departure from data centers in New Jersey as state legislators debate taxing trades executed there. Source: Michael M. Santiago/Getty Images News via Getty Images |
A financial transaction tax proposal in New Jersey has caught the ire of Wall Street to the point where executives are now scouting possible new homes for their data centers.
Policymakers in Trenton are actively reviewing the merits of a tax on trading in U.S. financial markets, an idea that has gained support from the New Jersey governor in recent weeks.
Now, Wall Street giants have started exploring potential alternative locations outside of New Jersey. These include Texas, Virginia and other states where they could house the technology that runs U.S. financial markets in case New Jersey moves forward with a trading tax, according to UBS Group AG's Vlad Khandros. Khandros is the Swiss bank's global head of market structure and liquidity strategy and a representative of an industrywide group fighting the tax called the Coalition to Prevent the Taxing of Retirement Savings. The group's 10 members, including the Intercontinental Exchange Inc.-owned New York Stock Exchange, Nasdaq Inc. and UBS, say the tax
"We don't want to do it," Khandros, who is also global co-head of principal investments and strategic ventures at UBS, said of moving the data centers out of New Jersey in an interview. "But we're having to seriously consider it."
In the modern-day infrastructure of American markets, New Jersey occupies a central role. While trading once primarily occurred on exchange floors in metropolises like New York City and Chicago, billions of products are now dealt through computers housed in data centers around the world. That includes several in northern New Jersey used by the biggest U.S. stock exchange operators.
Gov. Phil Murphy, a Democrat, recently decided to leave the contentious idea to tax financial trades processed in the Garden State off the 2021 budget proposal. It is still currently being considered in the New Jersey statehouse, according to Richard McGrath, a spokesperson for New Jersey Senate President Stephen Sweeney. Sweeney, a Democrat, introduced a bill in the state senate on Sept. 14 to impose a $0.0025 tab on each financial transaction that is processed using electronic infrastructure located in the state, mirroring identical legislation from Assemblyman John McKeon introduced earlier this year. McKeon has reportedly said the tax could raise $10 billion annually in state revenue. McGrath did say the exact shape of the bill could change as policymakers continue to think through the tax.
"We all think that's a good idea," said Murphy, a former Goldman Sachs Group Inc. executive, at a Sept. 17 news conference where he spoke about the tax alongside Sweeney and other high-ranking New Jersey officials. "That is something that we continue to machine."
Financial transaction taxes are not new. At the federal level, lawmakers like Sen. Bernie Sanders, I-Vt., and Sen. Brian Schatz, D-Hawaii, have proposed the idea in various forms as a way of generating new revenue for the government. States where the financial industry has sizable presences such as Illinois and New York have also explored financial transaction taxes in the past.
Across the country, cities and states are looking for new ways to generate revenue to offset lost income from the COVID-19 pandemic. Murphy has said the tax could improve the state's fiscal status and combat the wealth gap that persists among its residents.
Some 70-odd miles away from Trenton, Wall Street executives have been monitoring the tax proposals closely.
Exchanges, trading firms and broker/dealers have warned legislators in New Jersey of the fallout they say a transaction tax could bring to the financial markets, the broader economy and their own businesses. Through those conversations, the financial industry has also been pushing to make New Jersey lawmakers aware of its ability to quickly pick up and move across state lines, if need be. The Coalition to Prevent the Taxing of Retirement Savings, which has been actively involved in those meetings, has 10 member firms including NYSE, Nasdaq, UBS, Cboe Global Markets Inc., MEMX LLC, IEX Group Inc., Virtu Financial Inc., Citadel Securities LLC, TD Ameritrade Holding Corp. and data-center operator Equinix Inc.
The financial industry has already started planning how it would execute an exit out of New Jersey. An industrywide test of backup data centers located in Chicago is slated for Sept. 26, while the NYSE and Nasdaq are going one step further by running some of their markets out of Chicago for certain weeks in September and October.
"[T]he imposition of an FTT will likely lead to financial exchanges and firms moving their electronic infrastructure and the related jobs out of New Jersey, creating a negative fiscal and economic impact across the state," said Kenneth Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, in a statement. "We believe the proposal is far more likely to harm New Jersey investors and its overall economy than to achieve its revenue forecasts."