The Chicago Board Options Exchange moved closer to becoming a shares-based company like its competitors after a Delaware judge on Wednesday approved the settlement of a long-running dispute between the CBOE and the Chicago Board of Trade.
The exchanges have been battling in court for almost three years over whether Board of Trade members, whose exchange CME Group Inc. bought last year, are entitled to a stake in the CBOE. The settlement which gives certain Board of Trade members an 18% stake in the CBOE and $300 million in cash paves the way for CBOE to strike a deal with another exchange or to do an initial public offering.
Those options werent open to CBOE without putting the dispute behind it.
We are extremely gratified to have reached this important milestone on the path to CBOE's demutualization and plan to move forward with the demutualization process once the Delaware court proceedings are satisfactorily concluded, CBOE Chief Executive William Brodsky told members in a memo Wednesday.
The ruling is subject to appeal over the next 30 days.
The value of the settlement, reached last year, is at least $614 million, based on the most recent price paid for one of CBOEs 930 memberships. (On Tuesday, a membership fetched $1.875 million.)
But some members and analysts say the settlement could be worth much more, because membership prices dont reflect CBOEs earnings power the way a publicly traded share price would. Some estimates put the value of the settlement at upwards of $1 billion.
The dispute between the exchanges dates to 1973, when CBOT members funded the start-up options market, giving themselves the right to trade there.
The CBOT members and the Board of Trade sued the CBOE in August 2006, arguing that the trading rights also conferred equity ownership in the options exchange.
CME has bankrolled the lawsuit since it bought the CBOT.
The dispute raised enough questions about who really owned the CBOE that it kept the options market from pursuing an IPO or merging with another exchange.
Ann Saphir is a reporter at Crain's Chicago Business, a sister publication of Pensions & Investments