By Doris Frankel
CHICAGO, Jan 6 (Reuters) - The head of the Chicago Board
Options Exchange said on Tuesday he is confident a judge will rule
in favor of a settlement that represents the last roadblock in the
exchange's quest to become a shareholder-owned company.
Speaking to journalists at a luncheon, Chief Executive and
Chairman William Brodsky said a hearing in a Delaware court would
hopefully mark the "beginning of the end" of a process that could
complete its demutualization plan, barring any appeal.
Court approval would open the door for CBOE, the largest U.S.
options exchange, to consider a merger, an initial public
offering, or to continue as a for-profit demutualized company.
"There is light at the end of the tunnel. I have not said that
before," Brodsky said. "Barring a lengthy appeal period, we are
optimistic that 2009 will see an end to the exercise right issue
and the demutualization will happen."
CBOE's transformation into a shareholder-owned company from a
member-organization -- a process called demutualization -- has
been delayed for years by a protracted legal dispute with former
Chicago Board of Trade members, under a decades-old agreement on
trading rights.
CBOE decided three years ago to change its business model and
began operating as a for-profit company.
Last year, CBOE reached a legal agreement with members of
CBOT, now part of CME Group Inc , the world's largest derivatives
exchange, over who was entitled to an equity stake in the options
exchange spun off by CBOT in 1973.
Under the terms of the settlement, certain CBOT class members
would receive an 18 percent equity interest in CBOE's
demutualization and a share in a $300 million cash payment, while
other members qualify only for a payment from the cash pool.
But some legal obstacles remain. The Delaware Court on Dec. 16
considered various objections to the proposed settlement. Besides
technical objections, some CBOT members claimed that the terms of
the proposed package were too restrictive, Brodsky said.
It is unclear when the judge will issue a written ruling, but
Brodsky said he hopes it would be within the next two to four
weeks.
If the settlement is approved, opposing parties have 30 days
to appeal the decision to the Delaware Supreme Court.
Brodsky said that if there are any appeals, he believes that
they would be resolved fairly quickly and in a worst case
scenario, no more than a year.
"The minute he (the judge) rules, we are ready to
demutualize," Brodsky said, adding that demutualization would
still require a meeting and vote by CBOE members.
CBOE was busy last year. In October, it unveiled a separate
electronic options platform, pending regulatory approval, that it
hopes will attract liquidity and new customers. See:
ID:nN19471586.
It has offered new products, including options on the SPDR
Gold Trust exchange-traded fund. In the third quarter, CBOE posted
its best financial results ever, with $120.1 million in revenue
and pretax income of $60.7 million.
The exchange, boasting a 33.3 percent market share for 2008,
reported an annual volume record of 1.19 billion contracts, up 26
percent from 2007.
(Editing by Phil Berlowitz)
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