NYSE Threatens to Leave NJ if Financial Transaction Tax Is Enacted

How the Tax Could Backfire

Nasdaq's Vice President for Global Government Relations Terry Campbell testified that the transaction tax would backfire and not provide the revenue that New Jersey hopes to collect because financial firms will avoid having trades executed through New Jersey data centers, including its own. He and others also noted that the increased costs for firms that continued to execute trades through New Jersey would be passed on to investors.

"The entire financial industry has been lowering their fees," which has resulted in "millions more coming to the market," said Joe Kinahan, chief market strategist at TD Ameritrade. "This proposal sends the opposite message than we're sending."

TD Ameritrade, Nasdaq and NYSE are members of the Coalition to Prevent the Taxing of Retirement Savings, which also includes cboe Global Markets, Citadel Securities, Credit Suisse, Equinix, IEX, MEMX, Virtu Financial and UBS. The coalition was formed to oppose New Jersey's proposed financial transactions tax and argues that such a tax ignores the portability of the servers in New Jersey and would increase costs on investments, savings and pensions for millions of Americans.

Many of those testifying at the assembly committee hearing noted that brokers are required under the Financial Industry Regulatory Authority's best-execution rules to find the most favorable price for financial transactions for their customers, and that would force them to send orders to data centers outside of New Jersey in order to get a better price.

Because of the best-execution rule, firms "are likely to gravitate towards alternate trading platforms in other states to offer a better price for their clients," said SIFMA President and CEO Kenneth Bentsen in a statement released Monday.

Assemblyman McKeon acknowledged the criticism of his bill at Monday's hearing. "I've listened to everyone," said McKeon, explaining the amendments to his original bill, which slashed the rate on financial transactions tax and added a sunset provision — "an extraordinary compromise on our part … I'm asking this industry to be part of the solution in what's the most difficult time."

The Need for More State Revenue

New Jersey, like many states, is facing huge deficits due to increased spending during the COVID-19 pandemic coupled with declining revenue. The state's $32.7 billion billion budget recently signed into law by Gov. Phil Murphy relies on $4.5 billion in new borrowing.

The budget did not include the financial transactions tax, but does include a "millionaire's tax" for those earning between $1 million and $5 million a year (residents earning over $5 million have been subject to the additional tax since 2018). The state's millionaire's tax and proposed financial transactions tax could be precursors for other states desperately needing to increase revenues.

"You can run but you can't hide," said McKeon, noting that the Illinois legislature is also considering a financial transaction tax, which is the "cost of portability" for firms that choose to relocate. "To think that 1/100th of a cent could be something that that would cause an exchange to move because that made them no longer competitive is just extraordinary … We will continue to work feverishly … to try to do the right thing by folks in the state."