(September 5) – “After months of sparring with the Chicago Board Options Exchange, the Chicago Board of Trade blinked,” writes Daniel Rosenberg in today’s Wall Street Journal.
“CBOT leaders decided last week that rather than continue staring down the CBOE over trading rights, they would restructure their restructuring plan. The CBOT eliminated a key element of the plan that drew objection from the CBOE — the idea of splitting the CBOT into separate electronic and open-outcry exchanges.”
“By doing so, the CBOT may well avoid further legal struggles with its fellow exchange. But it could draw much less interest from investors once it restructures, mainly because its electronic side will remain in the same corporation as its traditional open-outcry pits, which would seem a less attractive investment with their declining volume should the exchange seek to go public.”
“In addition, the CBOE said Thursday it is no longer interested in exploring a merger with the CBOT. A merger with the options exchange also would have made the CBOT a more attractive investment.”
“Both the revised restructuring plan and the CBOE’s rejection of a merger were bitter pills to swallow for CBOT Chairman David Brennan. Earlier this year, he fought the CBOE fiercely on the trading-rights issue, saying the CBOT’s restructuring plan met the terms of a 1992 agreement between the exchanges. By backing down, Mr. Brennan essentially acknowledged that the CBOT wouldn’t fight the CBOE any longer.”
“Ironically, Mr. Brennan didn’t mention the CBOE in a letter to members Thursday describing the altered restructuring. However, the letter was notably sober, without any claims that the new plan bettered the old one.”
” ‘The board of directors believes this revised strategy will enable us to move forward more quickly with becoming a for-profit company and modernizing our governance structure,’ Mr. Brennan wrote. In other words, the new plan could let the CBOT move ahead without a legal challenge from the CBOE.”
“The CBOE had challenged the CBOT’s plan to split into separate open-outcry and electronic entities, saying it could result in a flood of CBOT members demanding trading rights at the CBOE. Since the early 1970s, when CBOT members formed the CBOE, full members from the CBOT have been allowed to trade at the CBOE. But the CBOE said it would purge those exercise rights if the CBOT went ahead with its restructuring plan.”
“Meanwhile, Mr. Brennan expressed regret that the CBOE rejected a merger.”
” ‘I am very disappointed that the CBOE closed the door on a merger between two of the world’s leading financial institutions,’ Mr. Brennan wrote in a separate letter to members released late Thursday. ‘Such a merger would have strengthened both exchanges.’ “