A proposed tax break designed to keep exchange operators CME Group Inc
Executives at CME and CBOE have threatened to move their headquarters from Chicago since the state jacked up its tax rates earlier this year to plug a yawning budget hole.
The chief executive of CME, Craig Donohue, has said that the rise in the corporate tax rate -- to 7 percent from 4.8 percent -- puts CME in an untenable situation. CME, the biggest operator of U.S. futures exchanges, pays more taxes than any other corporation in the state, he said.
After months of negotiations with Governor Pat Quinn and state legislators, the exchanges appear to have clinched a tax cut for electronic trades, which account for the bulk of their trading.
A bill introduced this week by Illinois Senate President John Cullerton would continue to subject all floor trades made in Chicago to the higher levy, but would tax just 27.5 percent of revenue from electronic trading and clearing.
The bill would cut CME taxes by half, and would result in a $60 million loss to the state, Cullerton spokesman John Patterson said in an email.
Capitol Fax, citing an unnamed top Quinn administration official, said the bill could cost the state more than $100 million a year. For a look at the bill, please see http://1.usa.gov/u33QBn.
Just 11 percent of CME trading takes place on its two trading floors, one in Chicago and the other in New York.
CME -- which operators the Chicago Mercantile Exchange, Chicago Board of Trade and New York Mercantile Exchange and offers contracts tied to interest rates, oil, stock indexes and gold among others -- does not provide a breakdown of revenue by trading venue, although it typically charges higher fees for electronic trading.
Floor traders queried on Tuesday said the way the tax break is structured makes them nervous, because trading is already migrating away from open outcry and to the computer screen. If electronic trades get a tax break, they said, exchanges will have even less of a reason to promote face-to-face trading.
It's just another nail in the coffin for the floor, said Chess Obermeier, a veteran corn options broker and trader at the Chicago Board of Trade. While nearly all CME futures are traded electronically, about 70 percent of options are still bought and sold on the trading floor.
At the Chicago Board Options Exchange, 67 percent of contracts are traded electronically.
The tax break is designed to help the exchange companies, and is not targeted directly at traders. Still, Obermeier worries, traders could get hit indirectly.
It's not going to have a big impact on us but it keeps pushing the momentum away from the pit. he said.
It's unclear how much momentum the proposal has. Cullerton postponed a vote on the bill yesterday, as some Republicans and Democrats balked.
CME shares were down just over 3 percent, at $260.48 on the Nasdaq Stock Market, CBOE shares were down 3.9 percent, to $25.07.
(Additional reporting by Karen Pierog; Editing by Leslie Adler)