FREE Exclusive: CME talks with Illinois advance

Article via Crain's, commentary below provided to FREE by Mr. Saunders who is a CME Member.

Terry Duffy's decision to possibly move the CME's headquarters to a more tax friendly state is understandable. From a shareholders perspective it might be considered an obligation. As a floor trader who lives in Chicago this might seem to be a scary possibility, however I believe it is highly unlikely that Chicago will lose the open outcry pits at its current location, 141 West Jackson. The CME will undoubtedly rent the current space to maintain the open outcry in Chicago while running its back office operations in a different state...a common practice used my most large corporations in the US. Chicago is known for being the mecca of trading in the world and I would hate to see this reputation disintegrate.

Michael Saunders
CME Member

  

By: Lynne Marek

(Crain's) — CME Group Inc. is making progress in talks with Illinois officials about a tax deal to keep its headquarters in Chicago, even as it expects to receive concrete proposals this week from five states seeking to lure the futures exchange operator away, people familiar with the conversations tell Crain's.

CME Executive Chairman Terry Duffy met with Illinois Gov. Pat Quinn recently to discuss a new way to tax the company based on where its futures market transactions occur, the sources said.

Currently, the tax is tied to the floor trading, even though most of the company's business is conducted electronically worldwide. The difficulty in tying the tax to those transactions is in linking them to a particular place and doing so despite confidentiality concerns.

CME executives have met with or talked to economic development officials from Florida, Texas, Indiana, Louisiana and Tennessee.

A CME spokeswoman said “no decision has been made” on a headquarters move.

Mr. Duffy has been railing about Illinois taxes ever since Gov. Quinn announced earlier this year that the state would boost the corporate tax rate to 7%, from 4.8%. He has said several times that the company might move as a result of the tax hike.The prospect of losing CME, with most of its 2,600 employees in Illinois, spurred action by state officials loathe to see jobs leave the state. Gov. Quinn recently awarded generous tax incentives to Motorola Mobility and Navistar after those companies threatened to move their headquarters elsewhere. Also apparently angling for such a deal is Hoffman Estates-based Sears Holdings Corp., which has said it is considering a move out of Illinois.

CME, which operates the biggest U.S. futures market, asserts that it pays the highest corporate tax bill in the state. The company estimated earlier this year that its annual state taxes would jump $50 million under the higher rates.

CME is seeking to make a determination on the issue by the end of September. Any solution requiring legislative approval would likely be taken up during an Illinois legislative veto session that begins in late October.


The company has been under pressure from shareholders to boost its stock price, which has declined from a high of over $700 in late 2007 to $255.93 on Friday.

In addition to trying to fatten its bottom line by cutting some costs, such as the tax expense, CME said in May that it would repurchase $750 million of its stock.