CBOE prices IPO at $27 to $29 a share

(Reuters) — The Chicago Board Options Exchange, the largest U.S. market for options on stocks and stock indexes, expects to sell shares in an initial public offering at $27 to $29 apiece, CBOE said on Thursday.

The range is higher than the $25 per-share floor the exchange had set for the offering. If shares sell at the midpoint of the range, the IPO would raise $328 million and value the exchange at $2.87 billion.

Also, three CBOE directors resigned because their employers restrict service on public company boards.

The share-price range represents no discount to the price of a CBOE seat on the private market, despite the sluggishness of the current U.S. IPO market. Even so, CBOE members, who collectively will be the market's biggest shareholders when it goes public, said the price may be too low.

"What the underwriters are saying to people who are interested in the issue is that they have the possibility of buying at roughly the range that the actual members are buying and selling their seats," said Brendan Caldwell, president and CEO of Toronto-based Caldwell Investment Management, whose control of 54 CBOE memberships will make it among the exchange's top shareholders after the IPO. "I think the CBOE's worth quite a bit more."

Shares bought in an IPO will be more liquid than shares acquired through the pre-IPO purchase of a membership, sold most recently on May 20 for $2.35 million. That price implies a $28.13 per-share price.

The CBOE will convert memberships into 80,000 shares each plus a one-time $100,000 dividend just prior to the IPO.

Those shares won't be eligible for trading until six months after the IPO.

Given those advantages, the initial price range "should also drum up a considerable interest," Caldwell said.

The IPO may also lure investors because CBOE is the last major independent North American financial exchange.

"In this case the brand awareness, the strength that they have in the market and the likely additional areas that they will get into to enhance their volume even further should allow for a strong opening," said Scott Sweet, Senior Managing Partner of IPO Boutique. "I expect that the price range will be absorbed well by institutions and retail alike."

Demand for the issue has been high since it was first filed, he said.

CBOE expects 11.7 million shares to be sold in the offering, planned for mid-June. CBOE will list its stock on Nasdaq OMX's Nasdaq Stock Market.

Also Thursday, CBOE said three of its 22 directors resigned, citing the policies of their employers.

John Smollen, a managing director at Goldman Sachs; Kevin Murphy, a managing director at Citigroup, and Jonathan Werts, a managing director at Bank of American Merrill Lynch, resigned on May 26, CBOE said in a Securities and Exchange Commission filing on Thursday.

The directors resigned "as a result of policies of their respective employers restricting service on public company boards," the filing said.

Smollen and Murphy will continue to serve on the boards of the Chicago Board Options Exchangeand its still-to-be-launched sister exchange, C2, the filing said.