Ever since the Chicago Mercantile Exchange’s (CME) initial public offering in 2002 —if not before — the writing was on the wall in terms of the direction of member-based financial exchanges.
Exchanges were looking to demutualize and access the capital markets by going public. And the Chicago Board Options Exchange (CBOE) being the preeminent U.S. based options exchange, with a hungry and innovative challenger in the International Securities Exchange (ISE) hot on its heels, was no different. However, CBOE had a legacy to overcome.
CBOE was launched by the Chicago Board of Trade (CBOT) in 1973. The O’Connor’s who formed futures and options broker O’Connor & Associates are often credited with getting CBOE off of the ground.
The CBOT made a strategic decision to spin off CBOE as a separate entity so that the Securities and Exchange Commission (SEC) would not be involved in regulating their activities. Instead of being a part of the member owned CBOT the CBOE would be a separate entity with its own membership though all 1402 CBOT member would maintain an exercise right to trade on CBOE.
It is this legal structure that led to long legal battles between the two neighboring Chicago exchanges and made the demutualization process so arduous for CBOE.
It watched the CME go public, the CBOT go public, competitor ISE go public and other competitors merge with well capitalized public companies while CBOE methodically worked towards demutualization while continuing to innovate and maintain market share in listed options, the most competitive exchange sector in the derivatives industry.
Today after a long arduous journey CBOE went public with an opening trade of $32.80, approximately 13% above its offering price.
Now the speculation will ramp up as to who the CBOE will partner up with. Will it be CME Group, as many are speculating, that snatches the last major independent options exchange? Perhaps a deal will be made consolidating Chicago’s derivatives exchanges into one global behemoth but for now the members, leadership and staff of CBOE Holdings Inc. should be given a chance to enjoy this long awaited day. Despite being the youngest of the major Chicago exchanges, given the competitive and regulatory environment for options exchanges, CBOE is perhaps the most resilient.
CBOE deserves its day in the sun. We can speculate on what comes next a little further down the road.
