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

CME Group Inc. (CME) announced late Friday that it will remain in Illinois after the state's governor signed into law a series of tax breaks.

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

Quinn's action erased lingering doubts among long-time traders that Chicago would lose its position as a worldwide hub for derivatives trading.

"Could the Chicago Mercantile Exchange be headquartered anywhere but Chicago?" said Larry Schneider, who grew up watching his father trade livestock futures on CME's trading floor. Schneider is now a broker for the Zaner Group.

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

The 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.

In a prepared statement, CME Chairman Terry Duffy said, "we are pleased that Illinois Governor Pat Quinn and the State Legislature have addressed the inequitable distribution of corporate taxes currently levied on CME Group."

"This necessary adjustment to the Illinois corporate tax laws will put CME Group on more equal footing with other Illinois companies and other global exchanges," Duffy said. "We will continue to call the great State of Illinois and City of Chicago the risk management capital of the world," he added.

CBOE and Sears indicated they too would stay in Illinois in statements released after the bill won final legislative approval on Tuesday, and again after Quinn signed the bill on Friday.

The legislation "ensures a more equitable tax structure for Chicago's exchanges," said CBOE chief executive William Brodsky.

Lawmakers "recognized the economic value of Chicago's exchanges to the city and state and lent bipartisan support," Brodsky also said.

Sears, a department store chain that also owns Kmart and Lands End, will benefit by paying lower taxes from the renewal of a special taxing district for its headquarters in the Chicago suburb of Hoffman Estates.

"We applaud the governor for his leadership and recognition of Sears' contributions to our state - thousands of jobs and hundreds of millions of tax dollars," the retailer said in a statement released Friday.

Illinois businesses have been sharply critical of the state legislature's January vote to raise the corporate tax rate to 7%, from 4.8%.

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.

"CME [executives] made the best decision for their company that's possible," Marc Lotter, a spokesman for Mayor Ballard said Friday.

"We take advantage of every opportunity we can to speak to companies and talk about the benefits of Indianapolis."

Chicago Mayor Rahm Emanuel praised Gov. Quinn and legislators Friday for protecting thousands of jobs and working to "keep the CME Group where it belongs, here in the city."

Had CME moved its key operations, Duffy warned that only the two trading floors at CME-owned Chicago Board of Trade would have remained. Traditional open outcry trading at CBOT accounts for less than 5% of CME's business, according to Duffy.

State government approval and CME's decision to remain headquartered in Chicago "are certainly comforting words for the Chicago trading community," said Lawrence Malato, a CME member, shareholder, and independent interest rate futures floor trader.

CME's departure would have been a "death knell" for the floor traders left behind, said Malato, creating further disadvantages due to a longer distance between the trading pits and electronic trading operations.

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

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