August 16, 2007
August 15, 2007
Office of Secretary
Securities and Exchange Commission
100 F Street, N. E.
Washington, D.C. 20549—1090
Attn: Ms. Nancy M Morris, Secretary
Via: Electronic Mail ONLY: Rule-Comments@SEC.gov
Ladies and Gentlemen,
RE: FILE NUMBER: SR-CBOE-2007-91 and SR-CBOE-2007-77
This letter is in reference to your File No. SR-CBOE-2007-91 and SR-CBOE-2007-77 in which you invite comments from all interested persons.
My interest in these rule filings concerns my standing as an applicant at the CBOE through the normal method of exercising my CBOT membership. I have been a member of the CBOE from March 1976 to February 2006. Since February of 2006 I have been trading on the CBOT, however I continued to update my CBOE application in order to receive the normal expedited approval process by filing the appropriate papers with the CBOE. Approximately two months ago I submitted my CBOE application as a CBOT exerciser with the intent to pursue trading at the CBOE just as I did for the 30 years that I made my living on the CBOE. On about July 13, 2007 I received notice that my application for CBOE membership had expired based on the new CBOE rule filing, SR-CBOE-2007-77. The CBOE office informed me that upon the date of July 12, 007, the date of the CBOT-CME merge, CBOT exercisers would not be recognized.
This action by the CBOE has in effect deprived me of making a living at the CBOE utilizing my CBOT membership as I did for thirty years. The CBOE has forced me to rent a CBOE membership at approximately $56.400.00 dollars per year. However because there are no CBOE memberships available I cannot gain access to CBOE membership. Because I am officially not a CBOE member as of July 1,2007, I also do not qualify for the special permits issued by the CBOE at the same $56,400.00 per year cost. Had I qualified for a special permit or a regular CBOE membership was available I would be at a substantially financially inferior position than I was when I utilized my CBOT membership in an exercised form. This extreme financial burden that I must absorb is not necessary if the status quo was maintained, that CBOT exercisers would continue to be recognized by the CBOE. . Further for the numerous reasons stated by the attorneys representing the CBOT-CME a CBOT membership that is exercised at the CBOE should continue to be granted all the rights and privileges as any other CBOE membership, just as they have since the inception of the CBOE. This fact is true even though the CBOT-CME merger has occurred.
Despite what the CBOE claims, after the merger the CBOT memberships have the same rights and privileges as they did prior to the merger. In fact the memberships of the two exchanges, CBOT and CME continue to remain separate and whole. Members of the CBOT will only be allowed to trade their products and CME members will be limited to their present products. Further unlike what the CBOE claims we will retain all of our membership rights including the right to elect directors and nominating committee members, the right to call special meetings of member, etc. This is true providing that one retains all three necessary parts of CBOE membership exercise package namely 100% of BOT stock or what has become CME stock, a BOT trading right, and the ERP. Inherent in the ownership of stock and the ownership of a BOT trading right is the right to vote on certain issues, which contradicts the CBOE statement that we have lost those voting rights.
The CBOE contends that there was an agreed interpretation of the agreements between the CBOE and CBOT pertaining to the exercise right and the CBOTs restructuring and subsequent IPO, and that interpretation applies only so long as there is no further change ot the structure or ownership of CBOT not then in contemplation. There in fact is no written documentation of this agreed interpretation. Further if there was a restriction that the change to the structure be anticipated or contemplated by the parties then in fact the CBOE should have certainly been on notice that this merger was under discussion. There have been representations made of this potential merger in industry publications and national and local newspapers for at least the last 20 years and particularly the last few years since both exchanges combined clearing. Further once a company becomes a public company and is listed on a stock exchange that due to the new liquidity of its stock it can be anticipated that a likely event in general would be the merger or acquisition of the stock of the listing company by another company within the same industry.
In addition the CBOE rule filing SR-CBOE-2007-77 is premature for the fact that this is what is being disputed both at the SEC level and the District Court of Delaware. As eloquently stated by the CBOT attorneys this is clearly a property rights issue and should be remanded to the District Court of Delaware. As the attornies representing the CBOT/CME have previously commented to the SEC, the proposed rule change is not the proper subject of CBOE rule making under the Exchange ACT. I will not be redundant by repeating those attornies but the fact is that the CBOE has orchestrated this whole dispute in the form of a SEC rule filing and a SEC rule interpretation in order to take valuable property rights away from a particular segment of their membership. The CBOEs attempt to utilize the regulatory body of the SEC in order to accomplish this property right taking is preposterous and in fact devious. It is not an issue of market regulation or supervision of maintaining fair and orderly markets on the CBOE.
Until a resolution of this property rights dispute has occurred in the District Court of Delaware no action or rule filings are necessary by the CBOE. Further the claim that this rule is necessary to maintain fair and orderly markets is totally false, because if the CBOE did not submit a rule filing the existing situation would be maintained by keeping the CBOE memberships in balance In fact in addition to depriving me the ability to make a living on the CBOE utilizing my CBOT exercise right this rule filing has the effect of increasing expenses in the amount of $54,600 per year for each person in my situation at the CBOE and would possibly reduce the liquidity and therefore contribute to the potential ability of those market-makers from making fair and orderly markets.
Respectfully submitted,
William Terman