The objections have been aired and before you read this, a Delaware Chancellor could approve a $300 million settlement between former Chicago Board of Trade (CBOT) members and the Chicago Board Options Exchange (CBOE), ending the decades-long dispute over exercise right privileges (ERPs).
“There is light at the end of the tunnel,” says Bill Brodsky, CBOE chairman, musing that he had never said that before relating to this issue. Objections raised at the Dec. 16 hearing were mostly related to eligibility issues for the class action suit, Brodsky says, and not related to the fairness of the settlement. A ruling is expected in two to four weeks. Should the Chancellor approve the deal, former CBOT members would have 30 days to file an appeal, which could delay the process for as long as another year. “An appeal would be the last hurdle,” Brodsky says, adding that the exchange has “no debt” and could pay the settlement with a check.
“It’s unfortunate that this wasn’t settled years ago. This has just been a party for the lawyers,” says Nickolas J. Neubauer, former CBOT chairman. “And as a result of the way the settlement was constructed, many people have lost substantial amounts of money complying with the settlement stipulations.” For example, he and Alan Zatopa sued to shorten the escrow holding period for CME stock at Computershare to 14 days from 100 days. Although the risk and cost of owning a highly volatile stock was thereby reduced, many people had holding period losses that were higher than their expected settlement share, he explains.
The structure of the settlement required ERP holders to own CME Group stock (in an equivalent size to the full stock award of full CBOT members) in order to qualify for the settlement. CME stock has dropped more than 70% from its December 2007 high.
If the settlement is approved, CBOE’s demutualization could follow a shareholder meeting and vote, and lead to an initial public offering and put CBOE in play for merger/acquisition activity.
