From: Peter M. Todebush
Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-1090
Attn: Nancy M. Morris, Secretary
Re: File No. SR-CBOE-2006-106
Dear Ladies and Gentlemen,
In November 2000 the Chicago Board of Options Exchange (CBOE) filed a rule change with the Securities and Exchange Commission (SEC – File No. SR-CBOE-00-44) claiming that if the Chicago Board of Trade (CBOT) restructures as a for profit company, any Full Member that sells any stock in the for- profit company would lose his Exercise Right Privilege (ERP), even if that Member holds the same trading rights and privileges as today. In addition, the CBOE claims the ERP will end “immediately” if the CBOT changes its trading rules and procedures, whether or not as a result of restructuring. The SEC, at that time, denied the CBOE request for a rule change.
In December 2006 the CBOE filed with the SEC (File No. SR-CBOE-2006-106) a rule change seeking to terminate the right of Full Members of the CBOT to become members of the CBOE pursuant to an ERP granted to CBOT Full Members under the CBOE’s charter. The filing claims that the CBOE seeks to terminate the ERP upon consummation of the proposed merger between CBOT Holdings and CME Holdings. It further states that the CBOE will allow CBOT members who have already exercised to continue trading at the CBOE for an unidentified “interim period of time” following the merger. However, the CBOE also proposes that individuals who were not effective exerciser members of the CBOE on December 11, 2006 will not have trading access to the CBOE during this “interim period” and thereafter.
I have been a Full Member of the CBOT since January 1976. I was also a CBOE (ERP) Member from 1978 to 1992. Additionally, I leased my Full Membership to a CBOE Delegate (ERP) Member from 1997 to 2007. Aside from the fact that CBOT Full Members founded the CBOE, underwrote all the costs, guaranteed the debt, provided floor trading space, and were the original traders/market makers that gave the Exchange its original legitimacy; i.e. its beginning. Aside from the fact that the ERP was the vehicle that provided early liquidity (bodies), transparency (remember the old “Put and Call” Dealer Association markets?), and price discovery; i.e. guarantee the volume growth and investment community acceptance of the Exchange. Aside from all this, the CBOE wants to again renege on its original contract with the CBOT. The CBOE, in its current filing, can not even determine the status of existing ERP Members who continue to be an integral part of its market place and management (allowing them trading privileges for an “interim period of time”). The SEC has to find that the ERP has been a significant contributor to the success of the CBOE, the functioning of its markets and management, and should be rewarded accordingly. That eliminating the ERP participation will dramatically and negatively impact the Exchange itself. The SEC has to deny the CBOE request for a rule change (as it did in 2000).
Interestingly, apply the claim of the CBOE, that the CBOT/CME merger changes the structure of the CBOT to the extent that it invalidates all contractual obligations, to the current JPMorganChase. Chase acquired Chemical Bank, Manufactures Hanover Trust, JPMorgan, and Bank One. Three Banks’ names disappear, but within each bank the same business continues. Does this mean that all the contractual obligations of Chemical, Manufactures Hanover and Bank One are invalid? Of course not.
Peter M. Todebush
CBOT FULL Member 1976