From: R. Kent Hardy
February 27, 2007
Re: File No. SR–CBOE–2006–106
Attn: Nancy M. Morris, Secretary
What a surprise!
Some 60 comments from BOT members say that the SEC has no business intervening in a decision that should be made in a state court. They say that the CBOE is “end-running”. Actually the CBOE is going to the proper authority to regulate matters involving the exchange. It’s the BOT that is avoiding that correct venue.
But then the BOT has always avoided the SEC from the beginning of the CBOE.
The BOT wrote the CBOE’s constitution. If they wanted ownership, that’s when they could have given each BOT member a free CBOE seat and called it equity. But they chose access through the exercise right (ERP) that allowed them to trade on the CBOE when they desired to, and relinquish that right if they wanted to go back trading on the BOT.
Why go through this complicated avenue to trade on the CBOE instead of straight equity? BOT members wanted no part of “ownership” that would involve SEC meddling.
Avoid the SEC!
Now these BOT members claim they always felt they had ownership in the CBOE. If so, why in the late 90’s did the CBOE seats trade at the same price as BOT seats? Actually, many times during that period CBOE seats traded even higher than BOT seats (In April 1999, CBOE seats traded at $700,000 and $695,000 while BOT seats traded under $600,000 - a full $100,00 less). Could that have happened with the BOT members claiming they always considered themselves CBOE owners? Would a BOT member sell his seat for less that a CBOE seat if he felt he also owned the CBOE seat? Absolutely NO WAY!
Many BOT members wrote about all the dues they paid on the CBOE, but fail to mention they only did so while taking full advantage of trading venues not available on on the BOT.
Many BOT members wrote about the BOT’s founding of the CBOE, It certainly did! It was an idea developed by a few BOT members when they were desperately looking for new trading venues during a long slow period for the BOT. But these current members make it sound as if they, each and every one, put huge personal efforts on the CBOE’s behalf.
Many BOT members wrote about funding and providing of space. Yes, $750,000 that was repaid and originally providing a members’ lounge to trade in. It got us started. They made it sound like the whole BOT was at risk. The CBOE members have expressed appreciation by living up to agreements and not trying to take advantage of the BOT during their IPO. BOT members have been handsomely rewarded through years of excellent trading venues developed by the CBOE and approved by the SEC.
Many BOT members wrote about CBOE members’ “greed”. That CBOE members should realize BOT members always meant ownership even though equity was never mentioned for the ERPs in the CBOE constitution. Each of the 1400 BOT members have over $4,000,000 in stock plus their BOT seats trading around $600,000. Now, through specious reasoning, BOT members demand equal shares the 930 CBOE members will receive by demutualizing. That’s Greed!
R. Kent Hardy