UPDATE: CME Exploring Stock Split, Moving Corporate Base

Top executives of CME Group Inc. (CME) on Wednesday acknowledged investor frustration with the exchange company's share price and promised to consider moves such as a special dividend or a stock split to improve it.

CME's Executive Chairman, Terry Duffy, said the company was also exploring a potential move of its corporate base, after Illinois earlier this year sharply lifted the corporate tax rate paid by the Chicago-based exchange company.

"Like the rest of you, I am frustrated," Duffy told shareholders at CME's annual meeting Wednesday, referring to the company's current share price of $262.24, 12% lower than it was a year ago.

"We believe in time our stock will more accurately reflect the investment in the underlying fundamentals of this company," he said.

Since the onset of the financial crisis, shares in the world's biggest futures exchange company have lost 25% of their value, underperforming the broader market as well as exchange sector peers like Deutsche Boerse AG (DB1.XE), IntercontinentalExchange Inc. (ICE) and NYSE Euronext (NYX).

The pressure has come despite robust performance, Duffy said, with $951 million in profits earned last year on about $3 billion in revenue.

Duffy and other CME executives on Wednesday asked stockholders for patience with factors "completely out of our control," including continued uncertainty around the shape of new rules for derivatives trading and years of stagnation in key interest rates, which fuel trade in major CME markets.

At the same time, Duffy said, CME has invested in new services for handling off-exchange derivatives trades as well as building a new trading platform that will power markets in Brazil and elsewhere. He compared the efforts to CME's early move 10 years ago to build up electronic trading capabilities, which paid off as trading migrated to the screen.

In response to a January move by the Illinois government to raise the state's corporate tax rate to 7% from 4.8%, Duffy said he and CME's chief financial officer, Jamie Parisi, were exploring the possibility of moving CME's corporate tax-paying base.

"We're investigating what would be in the best interests of our shareholders," Duffy said, noting that such a move would not mean CME would abandon its presence in Chicago, home to its markets for over a century.

CME's board is considering other moves to improve shareholder value, including the possibility of paying out a special dividend or a stock split, he said.

"I think that more consideration should be given by the board in regard to a stock split to give more of the people and more of the funds an opportunity to get involved with CME," one investor told CME's management team at the Wednesday meeting. Duffy said the board would continue to explore the idea.

Duffy also told investors that the size of CME's board--currently numbering 35--would shrink in the future, acknowledging that it is "too big" and expensive.

"The board will get carved down," he said. "But at the same time you don't want to lose the expertise."

CME's board inflated due to contractual obligations following its deals for the Chicago Board of Trade and the New York Mercantile Exchange, in 2007 and 2008, respectively. The earliest any reductions could be made is 2012, Duffy said.

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

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