February 26, 2007
Dear Members of the SEC,
The Securities Exchange Commission (the "SEC") has received a proposed rule change from The Chicago Board Options Exchange (the "CBOE") in regards to Article Fifth (b) of its Certificate of Incorporation. I would ask that this rule change be disallowed as this proposed rule change is an attempt to eliminate a valuable property interest of Chicago Board of Trade ("the CBOT") full members without proper compensation.
In 1973, the CBOE was created by CBOT full members, not CBOE members. Upon creation of the CBOE, CBOT full members were given exercise right privileges enabling them to trade all CBOE markets without purchasing a separate CBOE membership. The CBOE has reiterated this right numerous times since its creation.
Not only did CBOT full members create the CBOE, but CBOT full members have added to the value of the CBOE with active participation in CBOE markets. From the first day the CBOE opened CBOT full members have, through exercising their right to become CBOE members, provided much volume and liquidity to contracts traded on the CBOE. For comparison's sake, when the CBOT demutualized the Associate members of the CBOT ("the AMs") were given additional compensation for their active participation over the years in the growth of the CBOT. The AMs were not created until 1977, long after the CBOT opened in 1848. Yet the AMs were still rewarded for their contributions. CBOT full members should be given proper compensation for not only creating the CBOE but for their active participation in the growth of the CBOE, every day the CBOE has been in existence, as well.
The CBOE has already proven that it believes the exercise right of CBOT members has value by purchasing numerous exercise rights over the years. From May 31, 2005 to June 29, 2005 the CBOE purchased 68 exercise rights for $100,000 each. CBOE full memberships were trading for only $300,000 at the beginning of 2005, far less than the $2,000,000 that they are trading for today. Now the CBOE would like to terminate the right of CBOT members to become CBOE members so that it may enrich its regular members at the expense of CBOT full members.
But for the contributions of CBOT full members the CBOE would not exist. Furthermore, were it not for the active participation of CBOT full members over the years the CBOE would not have grown into the venerable institution that it is today. I ask that the proposed rule change be denied and that CBOT full members be allowed the right to share equally in any distribution stemming from CBOE's planned demutualization.
Stephen R. Geldermann
CBOT full member