There is a strange anomaly going on with the dance between the Chicago Board Options Exchange, Chicago Board of Trade members and the newly formed CME Group.

Theoretically the closing of the merger between the Chicago Mercantile Exchange and CBOT should have negatively affected the value of CBOE seats but CBOE announced a record seat sale of $2.65 million yesterday. After all the Intercontinental Exchange (ICE) had worked a deal with the CBOE that if approved by CBOT members would have put a definitive price on the value of exercise right privileges (ERP) on CBOE held by CBOT members. In outbidding the ICE, the CME took off the cap on funds it would dedicate to defend those rights. Additionally CME Group pledged yesterday to “vigorously defend the right of CBOT B-1 members in the Delaware litigation against CBOE.”

The CME Group release goes on to say, “We will continue to work to preserve the rights of CBOT members to become or remain exerciser members of the CBOE pursuant to the exercise right and to share equally in any CBOE demutualization (ital. mine).”

The term “equally” is an important one. There are 1,331 ERPs out there and approximately 827 CBOT members holding all of the necessary components to use the right. But we are not talking about using the right, we are talking about equity in a demutualized CBOE. A CME Group spokesperson says only those members with all the necessary components would be eligible to retain the right pursuant to the Delaware court action and qualify for equity in a CBOE demutualization but that a record date would be set in the future and members would be able to reassemble components to qualify for a stake. There are 930 CBOE members, if an additional 827 ERP holders (and possibly many more) qualify for a full share stake in a CBOE demutualization, current CBOE members would see their share stake cut by nearly half, or more.

To give a little perspective, the first CBOE seat sale in 2007 was for $1.8 million and a seat went for a low of $850,000 as recently as January 2006.

So why did a CBOE seat sell for a record $2.65 million? With seat prices continually rising throughout the ICE/CBOE negotiations, there probably is a CBOT member equity stake in CBOE worked into the price of CBOE memberships. But if that is the case that price is probably the equivalent to the CBOE offer, which was roughly 10% of a CBOE full member not including the ICE share. A source with an interest in the value of both CBOE and CBOT told Futures prior to the CME/CBOT merger vote that the street was valuing the ERP at 20-25% of a CBOE membership. The assumes that ERP holders would eventually be awarded equity in CBOE equivalent to 20-25% of what a full CBOE member gets. If somewhere between 827 to 1,331 ERP holders are awarded a 100% share of what the 930 CBOE members will receive, that would make the most reason sale a pretty bad investment. However, the market is usually right and if the CBOE wins the court battle and the rights are extinguished completely, that $2.65 million price tag will be the bargain of the century.