From: Stephen L. O'Bryan
I am writing to you today to issue my opinion on the CBOE's proposed rule changes as it affects their interpretation of the CBOE exercise right on a CBOT member currently holding these rights. I will not bore you with the CBOT's position, nor that of the CBOE. Even though I am a longstanding CBOT member, I will try the common sense approach and hope the commission can see the plight under which I write this email.
For more than 25 years I have conducted customer business on the floor of the CBOT and always lived up to the rules of the exchange. In order to solicit grain business from the floor, an individual must be a full member in good standing and pay the going rate for that full membership. Up until the CBOT demutualized 15 months ago, all of the parts, CBOE exercise right, CBOT trading right, and the proposed value of the stock were in a lump called the CBOT membership. However, outside influences affected the value of the seat and therefore drove prices up and down depending upon which "leg" was valuable at any point in time. This is what a market is supposed to do and I have no complaints with the market. My complaint is that whatever value is perceived in any asset is not in the eyes of the beholder, but rather in what someone else is willing to pay for that right. The CBOE exercise right is a tangible asset attached to the CBOT membership and that asset is something for the owner to sell not the CBOE to declare null and void because it meets their needs at the time. This "property" that a CBOT member owns should never be vanished away because of the restructuring that the CBOT is going through. The CBOT members created this right to get something in return after granting the CBOE its existence.
Also to prove that the CBOE exercise right has real value is that of lease payments starting in the mid 1990's. The volume at the CBOT was down but the volume at the CBOE was screaming with the amount of stock option trading against the underlying. However, with my customer base growing I needed to lease a membership in order to put another person on the floor to help me with the workload. Lease payments for a CBOT seat were at all time highs because of many individuals who were using CBOT seats to exercise and trade at the CBOE. That in turn forced me to pay lease payments that were equivalent to CBOE seats not that of CBOT seats. Some of these payments were as much as $10,000 per month so that I could get access to the floor to earn a livelihood. Without the ability to take CBOT seats off the CBOT and move them to the CBOE, lease payments would have been a more normal expense. That expense should have been in the 10% a year category but I was paying in excess of 25% per year. On the other hand, by me paying above market values for seats meant that CBOE traders were able to get more seats on their market and keep there own lease rates at lower levels respectively. This is a value that is and was real to me and therefore cannot be extinguished through some legalese about a merger or the parent holding company of the CBOT.
Lastly, I am not wanting the commission to grant me some extraordinary compensation for the right I hold at the CBOE. This is fair and equitable treatment of all parties at all times just as any rational market will trade. The right has value and this value was never intended to be thrown away through the development of a merger. These are separate issues that should be dealt with in a separate manner. I didn't complain to the CBOE that they were driving up my lease payments, and I am certainly not complaining to them now, even though they appear to be circumventing the issue of dealing in good faith. This is plain and simply a property rights issue and I believe it to be better served in the court in Delaware than at the SEC. Thank you for your time and necessary response to this delicate and touchy issue.
Very truly yours,
Stephen L. O'Bryan