UPDATE: Illinois House May Consider Tax On Stock, Derivatives Trades

An Illinois state representative has introduced a bill that would tax traders doing business in Chicago's futures, options and stock markets.

The Financial Transaction Tax Act, put forth late last week by Rep. Mary Flowers (D., Chicago), would charge one hundredth of one percent of the value of transactions carried out on markets run by CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE).

The bill would add to heavier tax burdens borne by exchanges, brokers and traders in Chicago, which has seen its status as the "risk management capital of the world" threatened this month by a proposed merger of major European rivals.

"This state is in dire need of new revenue," said Flowers in an interview. She said she didn't know whether the idea would find support with Illinois House Speaker Michael Madigan (D., Chicago) or Gov. Pat Quinn, also a Democrat. The party controls both chambers of Illinois state government.

"I wouldn't put it out there if I wasn't willing to fight," Flowers said.

The prospect of a tax on trading periodically arises in Washington as a potential new source of government revenue, but staunch opposition from industry groups, exchanges and major Wall Street firms has helped keep such plans at bay on the federal level.

"We're on the record opposing transaction taxes because they're bad for business," said a CME spokesman Monday.

Illinois is among the U.S. states most desperate to fix its balance sheet. Chicago-based businesses last month saw the state corporate tax rate rise to 7% from 4.8% under a proposal backed by Quinn to help shore up Illinois' beleaguered finances. Earlier this month, he separately proposed borrowing $8.75 billion to help pay overdue bills.

Flowers' bill has yet to be assigned to a committee, where it will be looked at before the entire Illinois House of Representatives would hear it. The proposed tax would go into effect Sept. 1.

Patrick O'Shaughnessy, Chicago-based exchange analyst with Raymond James Financial Inc. (RJF), said he believed the bill was "very, very unlikely" to become law.

"It would substantially disadvantage Illinois-based exchanges relative to their competitors and potentially even lead to Chicago-based exchanges relocating," he said. "The net result would be a loss of jobs and perhaps even a loss of revenue for Illinois."

Tony McCormick, Chicago-based chief executive of BOX Options Exchange, said that the tax bill's math "doesn't make economic sense," and estimated that the tax could come out to about one-third of a typical trading commission paid by retail-level investors.

"If you want to drive business out of the state, then go for it," McCormick said.

Flowers said she could negotiate on the tax's rate and duration but rejected the notion that business could flow out of state or overseas. Revenue from the tax ideally would help defray the state's education and health-care expenses, she said.

"This is our country and we should all be interested in making sure we survive," she said. "You mean to tell me this particular group of people can't give something back?"

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

-Howard Packowitz contributed to this article.

CME (NASDAQ:CME)
Historical Stock Chart
From May 2024 to Jun 2024