CME/CBOE Tax Deal Not Likely To Happen This Week -Source

Illinois lawmakers will probably not agree before the end of this week to grant tax relief to the state's derivatives exchanges, even though they have threatened to move their headquarters elsewhere.

"It appears this is going to take some time, and we want to make sure we get this right," said John Patterson, a spokesman for Illinois Senate President John Cullerton.

That echoes comments made Tuesday evening by the chairman of a state House committee that did not take action on the deal. It would reduce by about half the state taxes paid by CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE).

Cullerton introduced a measure earlier this month that would tax the exchanges on only about 25.7% of the trades performed on their electronic platforms. Currently, they pay taxes on all electronic transactions, which make up the vast majority of the derivatives business.

CME and CBOE lobbied the legislature for relief after lawmakers in January raised the corporate income tax to 7%, from 4.8%. The tax hike costs CME an extra $50 million, said CME chairman Terry Duffy.

CME Group, owner of the Chicago Mercantile Exchange and Chicago Board of Trade, has been based in Illinois for all of its 163 years. It is considering "very, very lucrative offers" from other states, said Duffy during testimony before a House committee.

Duffy was reluctant to grant state lawmakers extra time to agree on a deal, stating that he could not limit the options of CME's board of directors, which would make the final decision on a move. The chairman of the House Revenue and Finance Committee, John Bradley, suggested Tuesday that the legislature might be called back into session by the end of this month.

Duffy said that if CME departs, it would move its Globex electronic control center from its Aurora, Ill., facility. All that would remain would be the trading floors at the Chicago Board of Trade, which accounts for less than 5% of CME's business, Duffy said.

To win bipartisan support, the legislation has broadened in scope to include tax breaks for Sears Holdings Corp. (SHLD) and a multi-year extension of a research-and-development tax credit for all state businesses.

Democratic Governor Pat Quinn has also pushed for the bill to also include tax relief for Illinois workers.

CME leaders were not immediately available for comment on the latest developments. A CBOE spokesman declined comment.

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

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