Illinois Governor Signs Deal To Keep CME-CBOE, Sears In State

A bill providing tax incentives to prevent Chicago's largest derivatives trading companies and a major retailer from leaving their Illinois headquarters, and the accompanying loss of thousands of jobs, was signed into law late Friday by the state's governor.

Gov. Pat Quinn signed the controversial measure that was adopted earlier this week by both chambers of the Illinois General Assembly.

The bill provides tax relief to CME Group Inc. (CME), CBOE Holdings Inc. (CBOE), and Sears Holdings Corp. (SHLD).

CME, Illinois' largest corporate taxpayer, protested that a tax increase imposed by the legislature in January would cost the exchange operator an extra $50 million a year.

Democrats, who control both legislative chambers and the governor's office, raised the corporate tax in January to 7%, from 4.8%.

Republicans contended that higher taxes will force other businesses to leave Illinois.

Several states, including Florida and Indiana, were quick to court CME, offering their locations as a new home base.

Indianapolis Mayor Greg Ballard visited with top CME executives in Chicago on Dec. 2.

However, Chicago is considered a major international hub for derivatives and risk-management trading, with 130,000 jobs connected to the exchange industry, said Jamie Parisi, CME's chief financial officer, during testimony before an Illinois House committee earlier this month.

The tax rate for CME and CBOE will stay at 7%; however, Illinois government will tax the exchanges on only 27.54% of all electronic trades, which is the dominant method of buying and selling derivatives contracts.

Currently, the exchanges pay taxes on all electronic transactions, even though exchange officials claim most of the trades don't originate in Illinois.

Tax breaks will start for the next fiscal year, which begins July 1.

During Tuesday's debate, Senate President John Cullerton argued that January's tax increase wasn't the problem, but rather the "unfairness" of how it is applied to the exchanges.

Sears, which also owns Kmart and Lands End, employs approximately 20,000 people in the state, according to the company.

It will pay lower taxes through creation of a special taxing district at its headquarters in Hoffman Estates, a Chicago suburb.

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

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