Illinois Lawmakers Mull Plan To Cut Tax On Electronic Trades

Illinois lawmakers will consider eliminating a tax on millions of electronic trades performed daily through Chicago's two largest derivatives exchanges in a bid to keep them from moving jobs out of the state, said a spokesman for the state senate president Thursday.

Legislative leaders are at work on a bill that may be introduced as early as next week to exempt CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) from paying taxes on trades performed outside of Illinois on their electronic trading platforms, said John Patterson, a spokesman for Illinois Senate President John Cullerton.

"The idea is to only tax trades in Illinois, not every electronic trade worldwide," he said.

Electronic transactions accounted for 85% of all contracts changing hands at CME last month and a vast majority of the market transactions at CBOE.

The legislation came in response to complaints by CME and CBOE about the state's corporate-tax rate after Illinois increased it to 7% from 4.8% earlier this year. Both companies, because of the increase, have threatened to move workers out of Illinois.

Patterson said Cullerton supports a reduction in the corporate-tax rate, but it isn't clear whether it would be included in the bill that is being draw up.

"In general, we hope to have legislation for the fall session that addresses [the exchanges'] concerns," he said of the legislature's upcoming session that starts next week.

At stake is Chicago's place as the world's hub for derivatives trading, prompting the city's recently elected Mayor Rahm Emanuel to lobby the state legislature to take action. CME pays 6% of all the corporate taxes collected in Illinois.

CME and CBOE representatives declined to comment on the legislation being drafted.

Following the increase in the Illinois corporate tax in January, the exchanges have been approached by several states offering undisclosed financial incentives. Florida Governor Rick Scott, a Republican elected with the help of anti-tax tea-party organizations, indicated in recent weeks that he believes CME is likely to choose between his state and Texas.

-By Howard Packowitz, Dow Jones Newswires; 312 750 4132; howard.packowitz@dowjones.com

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