The letters are stamped all over the hallways of Chicago’s giant skyscrapers and grand office buildings. DRW, IMC, CME, Cboe.
These are some of the derivatives firms that collectively handle trillions of dollars a year in trades, greasing the wheels of global markets with everything from stock options to corn futures. Most of them have called Chicago home for decades — providing thousands of jobs within the city’s $75 billion finance industry.
Now, the firms’ commitment to the Windy City is being tested by some $800 million in taxes proposed by a new mayor staring down a budget gap that’s swelled to half a billion dollars. One idea is a levy on financial transactions, which has alarmed companies already worried about a jump in crime that shows few signs of abating.
Behind the scenes, market makers and exchanges are working together to press their case with policymakers, with firms that typically compete with each other sharing data to help explain their economic benefits to Chicago. While executives haven’t explicitly threatened to leave, in private conversations it’s clear they will consider quitting the city if crime remains an issue and the financial transaction tax passes.
“We don’t want to leave,” said Ed Tilly, the chief executive officer of Cboe Global Markets Inc., the firm behind Wall Street’s so-called “fear gauge,” the VIX. “But we cannot be in a position where we are disadvantaged in the most competitive markets in the world, where our competitors don’t face the same economics that we would.”
The city is in a tough spot. Officials are projecting a $538 million budget deficit next year, with spending pressured by inflation and a surge in asylum seekers who have arrived in Chicago with no money or means of support.
The derivatives industry, home to some of the most profitable businesses in the city, is a tempting target to plug that gap. Just CME Group Inc. and Cboe, the two firms that are publicly traded, had combined adjusted income of more than $3.6 billion last year.
Mayor Brandon Johnson’s office said that no decision has been made on a transactions tax and the administration is open to dialogue with businesses. Jason Lee, a senior adviser, noted that Chicago has a diversified economy and “we are lucky we don’t depend on a single industry.”
“We know the financial transaction one has been highly debated and there may be merit in that, but we look forward to that debate,” he said. “What the mayor has said is that solutions cannot disproportionately impact the working and middle class of our city.”
Any firm mulling a move would likely get a friendly reception from economic development officials in Texas, Florida or other Sun Belt states that have seen a wave of relocations since the start of the pandemic. New York and California have each lost companies that managed close to $1 trillion of assets.
The exodus from Chicago hasn’t been as severe, but the city suffered a reputational blow last year when finance billionaire Ken Griffin moved his Citadel business to Miami, citing out-of-control violent crime and chronic budget problems that plague the state.
Months later, Johnson, a progressive Democrat, surprised pundits by beating incumbent Lori Lightfoot in the mayor’s race. Crime was a top issue — with incidents reported to the police up 54% since 2019 — and he ran on a pledge to invest $1 billion to make a “safer and stronger city.”
But in the midst of the campaign, Johnson promised not to raise property taxes, a pledge he stuck to in his 2024 budget proposal released Sept. 13. That’s left him very limited options for coming up with the money.
One of his campaign proposals would generate $20 million annually by reinstating a $4 per employee tax on big businesses. An additional $100 million could come from raising the levy on high-end property purchases — the kinds of homes bought by wealthy finance workers.
Most importantly for the derivatives industry, Johnson has floated seeking another $100 million with a levy of $1 to $2 for every securities contract traded. That would boost costs by as much as 800%, according to CME.