Magazine article Modern Trader

ERP Waiting on SEC

Magazine article Modern Trader

ERP Waiting on SEC

Article excerpt

MEMBERSHIP ISN'T A PRIVILEGE?

Depending on whom you speak with, the Chicago Board Options Exchange (CBOE) may have scored some early points in its battle to end exchange-right privileges (ERPs) held by some members of the Chicago Board of Trade (CBOT). And until the Securities and Exchange Commission (SEC) decides on the validity of CBOE proposed rules changes, the judge has suspended proceedings in a Delaware Chancery Court.

Those proposed rules changes would invalidate ERPs held by CBOT B-I members on the premise that there are no longer CBOT members to exercise those rights now that the CBOT has merged with the Chicago Mercantile Exchange and the surviving entity is the CME Group Inc. Another rule change, the Interim Access Rule, grants those ERP holders temporary membership status and allows CBOE to charge them a monthly access fee until the SEC decides on the ERP issue.

The judge denied the CBOT's request for a temporary restraining order, and allowed the CBOE to continue implementing the rule, which according to court documents filed by CBOT lawyers, "strips away the ability of CBOT Full Members to lease and, importantly, to collect rents from the leasing of their CBOT B-I memberships to third parties." CBOE also created a new class of temporary trading privileges that does not require an ERP, thereby ending any opportunity for ERP holders to earn income through the leases.

"They have already achieved substantial value from [ERPs]" says Chuck Sorsby, president of Sorsby Financial Management and a CBOE member. "Our expectation is that the SEC will rule in our favor, and if they do, then the ERPs will no longer exist. …

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