In what has turned into a very public “family” dispute at the end of LaSalle Street, the Chicago Board of Trade and its offspring, the Chicago Board Options Exchange, continued their war of words this week, with the CBOE spelling out why it believes a plan for the CBOT to restructure will cancel a full CBOT member’s privilege to trade at the CBOE.
The CBOT, in turn, called the arguments “preposterous.”
Like other derivative exchanges around the world, the CBOT wants to drop its membership status. It has a plan to become two for-profit, independent companies, one an electronic exchange and the other an open-outcry exchange, with members becoming shareholders in each company.
In accordance with a 1992 agreement between the exchanges, the 1,402 full CBOT members can exercise trading rights at the CBOE and, by taking a test and paying a fee, also become a CBOE member. About 700 full CBOT members now exercise trading rights at the CBOE.
The CBOE fears that if the CBOT reorganization plan fails, the 700 or so other full CBOT members will exercise. Or, if the CBOT plan succeeds, full CBOT members will treat their single shareholdings as two, trading at the CBOT electronic trading company and exercising at the CBOE on the open-outcry shares. Either way, the CBOE membership pool becomes flooded and seat prices would plunge.
As of Wednesday afternoon, a full CBOT seat was priced at $501,000 and a full CBOE seat at $482,000.
Although the chairmen of both exchanges were out of the country this week, a letter-writing campaign essentially authored by lawyers continued.
On Tuesday, CBOE members received a memo that goes through three basic legal arguments why the CBOT’s plan will cancel the exercise right.
The CBOT promptly responded with a letter Wednesday, disputing the arguments.
The CBOT is scheduled to vote June 28 on the first part of its restructuring plan, a vote the CBOE has said will bring the two sides closer to a legal battle. The outcome of the vote is too close to call for most observers.
Meanwhile, the two exchanges have hired investment bankers that for more than a month have been meeting to try to figure out whether the two exchanges should merge.
