Jeff Sprecher, CEO of IntercontinentalExchange (ICE), must have been hoping politicians on both sides of the Atlantic were listening to his remarks on ICE's conference call Wednesday. Sprecher said that ICE's presence was a "privilege" for London, and that it could "easily move" if it were so inclined. He continued that the UK has not been active in calling for a transaction tax, unlike Germany and France.
Sprecher's comments are even more interesting since news broke that Sen. Tom Harkin (D, Iowa) and Rep. Peter DeFazio (D, Ore.) would be introducing bills Wednesday in each house calling for a financial transaction tax on financial firms. The bill, which is unlikely to pass due to Republican opposition, would impose a 0.03 percent tax on trades, lower than the 1 percent the EU is looking to impose. The EU proposal, if passed, would go into effect in 2014, and is expected to raise about $78 billion a year.
All of this tax talk comes as governments around the world attempt to raise revenue to help pay down massive debt. Germany and France have been the most vocal supporters of the tax, while the UK has shied away from the issue. Lawmakers in Illinois are currently working to alter the way Chicago's two big exchanges, the CME Group (CME) and the Chicago Board of Options Exchange (CBOE) pay taxes on electronic trades, attempting to appease the exchanges in the face of a higher state tax rate in Illinois, for the next few years.
Ultimately, I believe that trading has become too electronic, and therefore too easy to move, to be subject to special higher tax rates in certain states or countries. Exchanges like ICE can easily move the few hundred miles from London to Dublin to enjoy a lower tax rate if the UK imposed a transaction tax and the EU did not, just as the CME and CBOE suggested that leaving Illinois, was a possibility due to new higher tax rates over the summer. Unless there is a global consensus on a financial transaction tax, which is unlikely, any country or region imposing such a tax will greatly incentivize exchanges and financial firms to move trading outside that country or region. Politicians considering this tax should listen to Sprecher, as well as the CEOs of CME and CBOE, as they discuss this tax. Just as governments use tax breaks to attract businesses to a region, they should realize that higher taxes may push companies outside their boarders.
Disclosure: I am long CBOE.