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CME chief warns against a state derivatives tax

Wednesday, Oct 11, 2017

* This has come up as an issue in the gubernatorial campaign

CME Group Inc. has a message for Illinois legislators who see the $47 billion global derivatives trading giant as a piggy bank to help solve the state’s fiscal woes.

Chief Executive Officer Terry Duffy said that the exchange is less rooted in its historical home of Chicago because it now barely relies on face-to-face dealing in trading pits. CME has no plans to leave the city, he said in an interview Tuesday.

“If you were to whiteboard it today, you probably wouldn’t pick Chicago, and it’s nothing against the city,” he said. “We’re here for legacy reasons, and now that we are here for legacy reasons, it makes complete sense” to stay.

Just last year, politicians went searching for new revenue to fix a budget crisis, with some floating the idea of taxing trades on CME’s exchange. It wasn’t adopted. […]

Enough lawmakers in Illinois — which has the lowest credit rating of any U.S. state — get that taxing CME isn’t the solution, he said. And those who don’t should remember the company isn’t tied down: It’s pared back real estate holdings in the area and the shift to electronic trading means CME could move anywhere. The exchange, more than ever, is a virtual operation currently based in a data center in Aurora, Illinois, just outside Chicago.

The whole interview is worth a read, so click here.

- Posted by Rich Miller        

  1. - A guy - Wednesday, Oct 11, 17 @ 9:29 am:

    Duffy is shrewd in this interview; no threats, just a healthy dose of reality on the situation. It would be insane for anyone to go this route.

  2. - Arsenal - Wednesday, Oct 11, 17 @ 9:30 am:

    That everything is so online is, frankly, a point in favor of derivatives tax. In the era of flash crashes, there should be a little more consideration in trading.

  3. - wordslinger - Wednesday, Oct 11, 17 @ 9:56 am:

    Meh, talk of a derivatives tax has been just that for 50 years. Not because it’s unreasonable or would be bad for business, but because they’re wired like Exelon with the powers that be.

    These guys got a huge one-off tax break in the depths of
    The Great Recession from a Democratic legislature and governor. Who, exactly, is going to tax them?

    The we-can-do-this-anywhere claims fool the easily rattled and ignorant. The NASDAQ has been a virtual trading community since Day One. Yet it continues to pay the highest expenses and taxes in the country to be in Manhattan.

    Ken Griffin grew up in Florida and went to school in Boston. But he makes his billions in Chicago.

    Educated labor force, infrastructure and quality of life count for the bosses.

  4. - City Zen - Wednesday, Oct 11, 17 @ 10:05 am:

    And that Aurora data center is owned by CyrusOne, not CME, meaning even less of a physical footprint here.

    The trading industry employs so many well-paid programmers, network admins, software salespeople, support staff, etc. It’s not just traders.

  5. - Last Bull Moose - Wednesday, Oct 11, 17 @ 10:09 am:

    CME is an example of a footloose industry. As internet based service industries grow, they will become an increasing part of the economy.

    I know a guy who runs one of those businesses. He likes Illinois but can save tens of thousands dollars each year by moving.

    It would be nice if we could fit our tax structure to the new reality.

  6. - Foster brooks - Wednesday, Oct 11, 17 @ 10:11 am:

    Someone has to pay unless you use the George ryan write off model

  7. - wordslinger - Wednesday, Oct 11, 17 @ 10:25 am:

    – He likes Illinois but can save tens of thousands of dollars each year by moving.–

    Then what are his reasons for not doing so? Your statement doesn’t begin to make sense of your claim.

  8. - A guy - Wednesday, Oct 11, 17 @ 10:40 am:

    ==That everything is so online is, frankly, a point in favor of derivatives tax.===

    Only the accounting of it. Just imagine the Mickey Mouse games that could be played moving electronic losses around. Leave it alone.

  9. - Newsclown - Wednesday, Oct 11, 17 @ 10:42 am:

    One reason they might choose to stay anyway is that the Chicago/Aurora internet hub sits on one of the very fastest internet nodes in the world. When automated trading takes less than a second to react to a market change and make trades, every fraction of a millisecond in latency costs real money.

  10. - Ron - Wednesday, Oct 11, 17 @ 10:45 am:

    The state and city would be insane to do anything like this.

  11. - wordslinger - Wednesday, Oct 11, 17 @ 11:09 am:

    – Just imagine the Mickey Mouse games that could be played moving electronic losses around.–

    I wonder what that’s supposed to mean? I’m truly at a loss finding an idea in that random-word mash-up.

    Proposed taxes over the decades have been on trades. Either a flat trade tax, or an .02-.05% tax on the value of the transaction, similar to a real estate transfer tax.

  12. - David - Wednesday, Oct 11, 17 @ 11:10 am:

    Newsclown may be right.If that’s the case he should have kept his mouth shut…they might be less mobile than they claim.

  13. - City Zen - Wednesday, Oct 11, 17 @ 11:19 am:

    ==One reason they might choose to stay anyway is that the Chicago/Aurora internet hub sits on one of the very fastest internet nodes in the world.==

    Kind of a chicken/egg observation. Is it the fastest due to the trading industry or is the trading industry the beneficiary of the existing hub?

    This hub be duplicated anywhere. Technology changes so quickly that hardware refreshes are frequent enough to explore other opportunities to improve the backbone. It’s not cheap, but I’m sure the exchanges have run the numbers.

  14. - A guy - Wednesday, Oct 11, 17 @ 11:43 am:

    ==I’m truly at a loss…”===

    Just end the sentence there Sling. Or do what you suggest and try the google.

  15. - Whatever - Wednesday, Oct 11, 17 @ 11:54 am:

    A guy — The proposed tax is not an income tax, so there are no “losses” to move around. For Illinois income tax, where you can have losses to mover around, the income of a multistate business is allocated among the states based on where the business’s customers are. Merely moving the employees and the office or equipment doesn’t change anything. Finally, as Newsclown points out, the Aurora internet up is a big reason that CME can’t just pick up and move. Microseconds (or maybe nanoseoncds) count for so many of their customers.

  16. - wordslinger - Wednesday, Oct 11, 17 @ 12:07 pm:

    Try the google on what, Guy? I’ve been following proposed trading taxes for 30 years and never come across this “moving around electronic losses” scheme you’ve hatched. I have no idea what it means.

    Googling “electronic losses finance” is no help at all. Some guidance on pursuing your informed insight, please.

  17. - Last Bull Moose - Wednesday, Oct 11, 17 @ 12:10 pm:

    Wordslinger, both parents have cancer and live in Illinois. Personal factors count. As they stabilize, he may move.

    Trying to tax trades will move the transactions out of Illinois. Also the traders will go.

    Most people are creatures of habit and sentiment, they do not move for small reasons. But they will move if pushed hard enough. Why push?

  18. - A guy - Wednesday, Oct 11, 17 @ 12:57 pm:

    Gee Sling, since you’re so tuned in, actually talk to someone who works at the Merc then. That’s what I’ve done.

  19. - A guy - Wednesday, Oct 11, 17 @ 12:58 pm:

    And..go to Poor Phils. Turns out there are traders who live in Oak Park.

  20. - wordslinger - Wednesday, Oct 11, 17 @ 1:10 pm:

    LOL, Guy, you never fail to triple-down with nonsense on things you know absolutely nothing about.

    But your “Guy at the Merc” - how would he avoid a transaction tax — a tax on the trade itself, levied and collected at the fulfillment of the trade?

    Because in 30 years of doing business on and off the floors, that’s a new one.

  21. - Arizona Bob - Wednesday, Oct 11, 17 @ 1:29 pm:

    Enlighten me. Does anyone know what other financial center US cities levy the kind of tax being proposed? I don’t believe there’s a Fed tax on this, which would make taxing much easier…

  22. - Whatever - Wednesday, Oct 11, 17 @ 1:58 pm:

    New York has a stock transfer tax, that actually has to be paid, but then they give it all back as a rebate. Go figure.

  23. - Last Bull Moose - Wednesday, Oct 11, 17 @ 1:59 pm:

    There is no necessary connection between the transaction and Illinois. The real estate transfer tax applies to Illinois real estate. That is clear and unavoidable connection.

    It is easy to completely sever the link between Illinois and a commodity or security transaction. There goes the basis for a tax.

  24. - City Zen - Wednesday, Oct 11, 17 @ 2:59 pm:

    If there is ever going to be a financial transaction tax, it will be at the federal level, not the state or city. Thus, Illinois’ budget woes will remain just that, full of woe.

    For all the local orgs that lobby for a LaSalle Street tax (looking at you, CTU), I’m sure if you told them it would only be at the federal level and those federal dollars would go to plug the social security or national debt gap with no other budgetary increases in spending otherwise, they would lose interest immediately.

  25. - A guy - Wednesday, Oct 11, 17 @ 4:03 pm:

    Gee Sling. It’s so simple that they should just go ahead and do it then. And yet they haven’t and the CME has made it’s case to nearly everyone but you…and you’ve been down there on and off for 30 years. I’m guessing more “off” than “on”.

    It’s a dopey idea and would drive an enormous asset away from Illinois. So, in this case, I’ll quadruple down. Nearly no one is “on the floor” anymore. Tax trades, and the trades will trade addresses. It’s that simple. Traders can clear their trades anywhere.

  26. - A guy - Wednesday, Oct 11, 17 @ 4:04 pm:

    In fact read the article on top again. Duffy explains it succinctly. Maybe call him.

  27. - Anonymous - Wednesday, Oct 11, 17 @ 4:13 pm:

    A guy, why don’t you just explain it? You’d get to look smart and say “I told you so”.

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