UPDATE: Illinois House Approves CME-CBOE, Sears Tax-Relief Bill

CHICAGO (Dow Jones)--A package of tax breaks to keep Chicago's largest derivatives exchanges and a major retailer in Illinois won approval Monday in the Illinois House of Representatives, but only after state government leaders reconfigured the deal.

The House vote was 81-28, with seven members declining to vote. The measure received only eight "yes" votes late last month when the same chamber overwhelmingly rejected the proposal.

The defeat was largely due to disagreements about broader tax relief that would aid low-income workers.

To make the bill politically palatable, legislative leaders agreed to split it in two, separating relief for CME Group Inc. (CME), CBOE Holdings Inc. (CBOE) and Sears Holdings Corp. (SHLD), and help for low-income workers through increases in earned-income-tax credits.

The House passed the earned-income-tax credits portion of the legislation earlier in the day.

The bills also must win approval in the State Senate, which is scheduled to meet Tuesday, and from Democratic Gov. Pat Quinn.

After the House vote, Quinn said the package meets the objective of "delivering help for both hard-working families and employers."

Chicago Mayor Rahm Emanuel is believed to be lobbying to ensure the city remains a hub for derivatives trading and risk management.

Emanuel said tax changes were necessary to protect thousands of jobs related to activity at the exchanges.

"By making Illinois more economically competitive, this legislation, passed with bipartisan support, protects the jobs of today and invests in the jobs of the future," Emanuel said.

The legislation allows CME and options exchange CBOE to be taxed on 27.54% of all electronic trades, which make up the vast majority of the business performed at the exchanges. Currently, the exchanges pay taxes on 100% of their electronic transactions, even though many of the buyers and sellers of CME and CBOE trades are not located in Illinois.

"They're being taxed on all of their trades, and that's not fair," said Republican House Minority Leader Tom Cross.

The tax breaks would start at the next fiscal year, which begins July 1.

But Cross warned that other corporations will approach Illinois for tax breaks almost on a daily basis because of the state's high-tax environment.

Many Republicans complained Illinois businesses are looking elsewhere after the legislature in January increased the state's corporate-tax rate to 7%, from 4.8%.

Testifying at a committee hearing Monday morning, CME Chief Financial Officer Jamie Parisi said the legislation will "modernize" tax statutes to account for exchanges' "more global focus."

CME has market participants in more than 150 countries, Parisi said.

Sears would pay lower taxes from the renewal of a special taxing district in the Chicago suburb of Hoffman Estates, which is the retailer's home.

About 6,000 people work at Sears' Hoffman Estates headquarters. About 2,000 CME workers are based in Illinois, although Parisi estimated that 130,000 jobs are tied to the derivatives industry.

Both companies are mulling offers from other states to leave Illinois. Indianapolis Mayor Greg Ballard made a personal appeal to CME executives during a Chicago visit on Dec. 2.

CME has called Chicago its home for all of its 163 years in business. If CME's board decided to move its headquarters, all that would stay would be the two trading floors located at the CME-owned Chicago Board of Trade, CME Chairman Terry Duffy said.

Open-outcry trading at CBOT represents less than 5% of CME's business, Duffy said during a committee hearing last month.

CME and CBOE representatives declined comment on the House vote.

Sears spokesman Chris Brathwaite thanked House members for passing legislation "aimed at keeping Sears an Illinois company."

"This is a major step in the process," Brathwaite said.

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

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