CME Group Inc.’s Chicago Board of Trade and its adversary, the Chicago Board Options Exchange, both suspended trading in seats Monday ahead of an expected announcement of a settlement of their long-running legal dispute.
The exchanges have been battling in court for close to two years over whether Chicago Board of Trade members, whose exchange CME bought last year for $12 billion, are entitled to a stake in the CBOE. A key hearing in the case is scheduled for Wednesday in Delaware.
“In light of important matters to be considered by the board of directors that may be material to the value of exchange memberships, the executive committee has determined to declare a suspension of purchase and sale transactions in transferable CBOE memberships in order to allow for the possible dissemination of information regarding these matters,” a note to CBOE members this morning said. “In no event will the suspension last longer than today.”
A CME spokeswoman confirmed the suspended trading in CBOT seats. Spokeswomen from both exchanges did not respond further to requests for comment.
“My best guess is that this probably means a courthouse-steps settlement,” says Brendan Caldwell, president and CEO Caldwell Investment Management LLC, which has 45 seats in the CBOE. “The two sides were never that far apart.”
Talks between CBOT members and the CBOE fell apart in March. At the time, CBOT members suggested a settlement of about $1.3 billion; the CBOE had put forth a $900-million settlement proposal.
News of a potential settlement is the latest chapter in a dispute dating 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 confer equity ownership in the options exchange.
CME is bankrolling the lawsuit.
The dispute has raised enough questions about who really owns the CBOE that it has kept the options market from pursuing an initial public offering or merger with another exchange.
In March CBOT members asked for 22% of the CBOE plus $300 million to $400 million in cash, people familiar with the matter said at the time. That’s about $1.3 billion, assuming CBOE is worth $4 billion. Analyst estimates for the CBOE’s value range from $2.5 billion to more than $6 billion. The CBOE had offered 15%, plus $200 million to $300 million in cash.
Caught in the middle are CBOT members holding on to millions of dollars of CME stock to remain eligible to participate in any payout from the CBOE.
With CME shares down more than $300 from their $714 high in December, some CBOT members simply want the lawsuit behind them.
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