Illinois Senate President Floats Bill To Cut CME, CBOE Taxes By 50%

Chicago-based derivative exchanges would see their state taxes cut by about half under legislation proposed by the president of the Illinois state senate.

Sen. John Cullerton, a Democrat, introduced a bill Monday to slash taxes on trades made over the electronic platforms run by CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE). The legislation would tax only 27.5% of electronic trades, down from 100% under current law. A vast majority of the trades on both exchanges are done electronically.

The bill comes as CME, owner of the Chicago Board of Trade and Chicago Mercantile Exchange, and CBOE, owner of the Chicago Board of Options Exchange, threaten to move some of their key operations elsewhere in the U.S., following an increase in the Illinois corporate tax rate earlier this year to 7% from 4.8%.

Cullerton's proposal doesn't change the corporate tax rate, but reduces the pool of revenue on which the exchanges would pay taxes. He estimates the bill would reduce state and local tax revenues collected from CME and CBOE by about $79 million annually.

Cullerton said he believes the legislation, if passed, would keep Chicago the center of operations for the two exchange companies. CME has been looking at possible incentive packages from other states including Texas and Florida. Details of those plans have not been made public.

"They're still going to pay taxes, and I think they're still going to stay here," Cullerton said of the plan.

He added the plan isn't the state reacting to a threat, but correcting the tax codes so that it only taxes trades done in Illinois. The vast majority of electronic trades are done outside of the state in places such as New York, London, and Singapore.

Cullerton expects the exchanges to support the bill, which was written in consultation with Chicago Mayor Rahm Emanuel.

The legislation is expected to be taken up in the fall legislative session, which started Monday. Cullerton said the proposal could go in front of the Senate as early as Wednesday. Then it would have to win passage in the House and be signed into law by Gov. Pat Quinn, a Democrat.

A spokeswoman for Quinn said he is reviewing the bill. Officials from CME and CBOE declined to comment on the proposal.

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

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