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CME Group leaders cite Illinois taxes in threat to leave Chicago

Scenes downtown Chicago March 14 2011. Looking south along LSalle St. toward Chicago Board Trade Building from Wacker Drive. l

Scenes of downtown Chicago, March 14, 2011. Looking south along La Salle St. toward the Chicago Board of Trade Building from Wacker Drive. l Keith Hale~Sun-Times

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Updated: August 3, 2011 5:50PM

Chicago business is partly defined by its concentration of financial traders, but the boss of the city’s two dominant futures exchanges said Wednesday that he might pull jobs out of the region in response to a state tax hike on corporations.

Terrence Duffy, chairman of CME Group Inc., said he, Chief Financial Officer James Parisi and the company’s internal staff are evaluating a move to other states.

Parisi said the state Legislature’s tax hike on corporations cost CME an extra $50 million a year. The tax increase, approved last January, brought the corporate tax rate to 9.5 percent from 7.3 percent.

A Tax Foundation report said the increase gave Illinois the third highest corporate tax rate among the states.

“I’m going to do what’s in the best interests of shareholders,” Duffy said, adding that “if that means opportunities are greater elsewhere, then we’re going to look at those opportunities.”

Interviewed after he briefly discussed a relocation at the company’s annual shareholder meeting, Duffy said he was angered not only by the tax hike but by the state’s failure to close corporate tax loopholes.

The loopholes favor some companies but leave others, including CME, to pay the full rate, Duffy said. CME owns the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange.

It accounts directly for about 2,000 jobs in the Chicago area, but its ripple impact goes much further. Trading firms set up shop here to be near the downtown trading floors, and banks and other institutions add staff to serve that business.

Some estimates place the job count from the trading industry here, which includes the Chicago Board Options Exchange, at more than 60,000.

Duffy said CME could retain some operations here even if it relocated. He declined to discuss those options, but it’s unlikely CME would move its trading floors in the Board of Trade building at 141 W. Jackson.

With its vast communications apparatus, a trading floor operation would be hard to duplicate elsewhere. It’s more likely that CME would consider moving staff and equipment that deal with electronic trading, which constitutes 80 percent of its business.

Duffy said he has no timetable for a decision. He also said he has not started face-to-face negotiations with the state.

A spokesman for Gov. Pat Quinn said the administration “has an aggressive business agenda and is always open to meeting with business leaders” about their concerns and job creation. The spokesman cited other sources that have praised the state’s business climate, saying, “Illinois’ advantages for business are unparalleled.” The corporate tax hike was approved during the Legislature’s lame-duck session along with higher income taxes for individuals.

The move elicited protests from other major employers in the state, notably including Caterpillar Inc.

CME has a data center in Aurora and a back office operation at 550 W. Washington. It also keeps a corporate headquarters at 20 S. Wacker, a two-tower complex where it used to have trading floors.

The threat to leave town seems to contradict another CME initiative to have trading firms place equipment inside the company’s data center in Aurora. Called co-location, the service promises firms that the proximity will shave milliseconds off trade processing time, which is seen as an advantage in hyper-fast markets.

But company executives said any extra costs firms would face for moving that equipment would quickly be repaid by state eager to get CME. The company is believed to be looking at New York, New Jersey, Texas and Indiana.

Jack Sandner, retired chairman of CME and a member of its board, said the threat is not idle. “The message is we’ll move if we have to,” he said.

But the threat also could raise criticism of the company, which booked a profit of $951 million last year on revenue of $3 billion, a margin that’s the envy of many industries.

CME also took a $15 million subsidy from the city for costs related to its renovation of the Board of Trade property, a landmark building.

At the shareholders meeting, one person asked Duffy if the company will give the money to city schools, “since they need it more than we do.” Duffy replied that the money rightfully belongs to shareholders and that he would have been remiss in not getting it from the city.

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