2006 to be known as YEAR OF DELIVERY?

[BeefJerky]

Chicago futures industry set to fight proposed fee

President raises issue of transaction tax in budget

(Crain’s) — President George W. Bush’s new budget plan unveiled Monday held an unwelcome surprise for the Chicago futures exchanges, which must again fight to keep a new tax from being imposed on their business.

The Bush administration proposed a new fee that would apply to exchange-traded commodity futures and options on those futures. Proceeds would support the agency that regulates the futures markets, the Commodity Futures Trading Commission (CFTC), which currently is supported by general taxes and has a proposed budget of $127 million for fiscal 2007. The amount of the fee per contract is not specified.

In the securities industry, funding for the Securities and Exchange Commission is provided by markets like the New York Stock Exchange, which pays so-called Section 31 fees, or taxes based on trading volume. Those fees are passed on to customers by broker-dealer firms.

This is not the first time an administration has eyed the futures industry as a target for new taxes. “It pops up every four or five years,” says John Damgard, president of the Futures Industry Assn. in Washington, which opposes the tax and will lobby to fight it.

He argues that the fee would drive trading business out of the U.S., reducing the profits on which the government can collect income taxes. That effect would make the new fee a net revenue loser for Washington, according to Mr. Damgard, who says he has swayed lawmakers with that approach in the past.

“We ought to be able to defeat it just based on the logic,” he says. “But obviously in a tough budget year it’s something we have to be concerned about.”

The government, for its part, says the futures industry should bear the cost of operating the CFTC. “CFTC is the only federal financial regulator that does not derive its funding from the specialized entities it regulates,” according to the federal budget document. “This fee will shift CFTC’s costs from the general taxpayer to the primary beneficiaries of CFTC’s oversight.”

The futures industry is not eager to accept that logic. “It’s not as if the CFTC is burdening the taxpayers, with the fines they’ve imposed over the past year. It’s more than triple their budget,” Mr. Damgard says. “I’m objecting to this because frankly (the futures industry is) at the forefront of globalization, and for us to put an additional cost of doing business in the U.S. is idiotic.”

Both the Chicago Mercantile Exchange (CME), the largest futures exchange in the U.S., and the Chicago Board of Trade (CBOT) will fight the plan. "We oppose a tax," said a spokesman for the Chicago Mercantile Exchange. A CBOT spokeswoman says, “The CBOT is opposed to the proposed transaction fee set forth in the president’s budget. Such a tax discourages participants’ use of regulated U.S. futures markets, negatively impacting the markets’ ability to maintain liquidity.”

Mr. Bush made a similar proposal in 2002 that prompted all 21 members of the Illinois congressional delegation to sign a letter to the administration in opposition. "The two largest U.S. futures exchanges, the Chicago Board of Trade and the Chicago Mercantile Exchange, are responsible for tens of thousands of jobs in the Chicago area and put over $10 billion nightly in Chicago banks," they said.

The Chicago Board Options Exchange (CBOE) would also be affected, as it operates a very small futures exchange, trading fewer than 2,000 contracts per day.

[GoldWampum]

chit, another trading fee. Wonder if it applies to the indices also or just deliverables.

Reading another Bush's lipps, eh.

[californiajeff]

Another retarded tax. When will the government realize it makes more than enough money from the capital gains tax to regulate these exchanges?