Magazine article Modern Trader

Anticipation: CBOT/CBOE at It Again

Magazine article Modern Trader

Anticipation: CBOT/CBOE at It Again

Article excerpt

As the New York Stock Exchange and Arca Ex demonstrated, a merger can be a relatively quick and painless shortcut to becoming a publicly traded company. Perhaps that is what the Chicago Board Options Exchange (CBOE) had in mind as it negotiated a merger with the Chicago Board of Trade (CBOT).

In late August, however, merger talks between the CBOE and CBOT broke down and the CBOT filed a lawsuit to secure "full consideration" for CBOT members, who hold CBOE exercise rights in the event of the CBOE issuing publicly traded stock. CBOT members launched CBOE in 1973 and were granted exercise rights. Those rights were challenged as the CBOT went for profit, but the two exchanges agreed to decouple the exercise right so it could be traded like a membership, although a CBOT member would need to retain all the associated class A shares to utilize the exercise right. Whether or not that right should be translated to an equal share allocation as a CBOE membership is the bone of contention.

"To be able to exercise, you have to own all the pieces," explains Harold W. Lavender, an associate member at the CBOT. To exercise your CBOE option, you must have 27,000 shares of CBOE stock, a trading right and the C share. "It's going to be hard to refute [the CBOE] argument that the exercise right has now become a C share in-and-of itself, which needs to be combined with the other pieces to be exercisable," he says. "Ultimately, they will come up with a percentage, or a dollar amount or a number of shares ... obviously $100,000 wasn't enough."

The lawsuit has induced the CBOE to postpone filing its S-4 with the Securities Exchange Commission until after the exercise right issue is resolved. …

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