CME Group annual meeting: A little taxing

Before its annual shareholders’ meeting even began, CME Group saw individuals protesting its recent reduction in Illinois tax burden arrested outside the Chicago Board of Trade building. During the meeting, CME Group executive chairman and president Terry Duffy addressed the change, which effectively lowered CME’s state tax burden by an estimated $85 million.

Duffy stated, “We are a global company and asked to be taxed like other Illinois companies doing business globally.“

The change means the state doesn’t count business generated outside Illinois in CME Group’s taxable revenue, something that is true for other businesses within the state according to Duffy.

If Duffy believed his announcement would end questions on the controversial subject, he was wrong because several shareholders (only shareholders were able to attend the meeting) raised the issue. One person argued, “As shareholders, it is time to give the money back. Everyone needs to pay their fair share.”

After five people raised the issue under the guise of “Item 3” — questions at this point in the meeting were to be reserved for eight items in the agenda to be voted on — a contingent of roughly 25 people stood and began chanting “Pay your fair share," and "Pharoah, Pharaoh give our taxes back.” Many of the protestors also carried signs.

Security cleared the protestors from the meeting, who then moved to the street just outside the second floor auditorium where the meeting was being held. When the meeting resumed, the chants still could be heard from the street and Duffy jokingly asked, “Are there any other questions on item #3.”

Of more concern to those shareholders interested in the business at hand was CME's stagnant share price, its reaction to the MF Global bankruptcy, the coverage of CME’s elimination in the bidding for the London Metals Exchange, ongoing valuation issue of Class B shareholders and its clearinghouse being designated as systemically important by the Financial Stability Oversight Council.

On the latter, Duffy bristled at the term “utility” in the definition of what qualifies, but he acknowledged that this was expected and that the clearinghouse will have additional capital requirements as a result. He added that CME has the additional capital on hand.  

One shareholder asked if CME had appointed an audit committee to look at the way it handled the MF Global bankruptcy.

Duffy noted that CME had hired an outside firm to do some forensics, but reiterated that CME staff acted properly at all times during the run-up to the bankruptcy. New CEO Phupinder Gill said CME couldn’t have done anything differently after looking at how it handled the situation. Both Duffy and Gill pointed out that they support some changes recommended by the National Futures Association, but the one change that could have made the process go smoothly needs to be made in the bankruptcy code. That  change would allow them to move funds in case of a bankruptcy.

Former CBOT chairman Pat Arbor raised the issue of whether an insurance program similar to the Securities Investor Protection Corp. (SIPC) could be initiated on a smaller scale to prevent losses in the case of another futures commission merchant violating segregation rules. Duffy reiterated his position that such a program would be too costly, particularly considering the narrow profit margin under which large traders are operating.

Several members also stood up to congratulate Gill on his promotion to CEO. Duffy added, “Gill will be an amazing CEO.”

CME Group 2012 Annual Meeting results

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