I became a member of the Chicago Board of Trade in 1973. This was the same year the CBOE started trading in what was the previous smoking room. It was a major expensive undertaking for a new market that was a total unknown. What little stock option trading that was being done - was done on an unregulated over the counter market. The CBOT had really gone out on a huge financial limb. The success was considerable, so much so that the CBOT undertook an enormous construction project.

They decided that for the fledgling CBOE to be able to expand to its potential that a new floor would be added over the existing CBOT agriculture futures trading floor. Of course, there were extensive 'iron clad' agreements made that would insure that all full CBOT members would have full financial and trading rights to the CBOE in perpetuity. All a CBOT member needed was to exercise their right to trade on the CBOE. Since this time, restatements of these agreements have been reiterated, including extensive clarification when the CBOT demutualized into a for profit entity. In order for the CBOE to become a for profit entity an equal amount of shares, trading rights, or any other dispensation given to CBOE members must be warded as well to the parent CBOT membership. In fact there was an offer to purchase from CBOT members their right [the ERP] to the CBOE. This met with only marginal success. Only some approximate 80 ERP's out of a possible 1402 were retired. This left the CBOE in a quandary, how to extinguish the rest of the CBOT rights without giving up equal dispensation entitled to the CBOT members?

Their way out is the claim that the CME buyout of the CBOT in some way extinguishes the CBOT's rights to the CBOE. Yes, the stock that will be owned will be under the new entity [for every approximately .301 shares of BOT, 1 share of the new combined CME and CBOT will be awarded] but a CBOT trading right will only allow a member to trade the existing CBOT products. Basically nothing really changes but the name. Therefore the proposed agreements between the CBOT and the CME should have absolutely no impact on the rights of the CBOT member to their just compensation from the CBOE.

Thank you,
Michael E. Stone
CBOT full member