CBOE vs CME Smackdown...Round 2

Discussion in 'Wall St. News' started by archon, Jul 23, 2008.

  1. archon



    Burying the Hatchet: CBOE, CME and the Road Ahead
    by: Mark Longo posted on: July 22, 2008 about stocks: CME / NYX

    Burying the Hatchet

    A few weeks ago, the derivatives market received news that cheered some observers and frustrated many more. After a long, and often ridiculous, legal battle, the Chicago Mercantile Exchange [CME] and the Chicago Board Options Exchange [CBOE] finally buried the hatchet.

    These two exchanges operate in separate hemispheres of the derivatives world. As a result, they do not compete directly for market share (unlike the CBOE and its many competitors in the options space). Far from being rivals, the two exchanges actually offer a great deal of synergy to each other.

    However, despite the many synergies between these two exchanges, they have been locked in a protracted struggle over a seemingly innocuous entitlement - the right of former CBOT members to trade on the CBOE (read "Much Ado About Nothing: CBOE, CME And The Battle Over The Exercise Right" for more information on the exercise right battle)

    All Or Nothing

    As with many epic legal battles, the end came not with a bang but with a whimper. Instead of a dramatic courtroom showdown, the two exchanges decided on a (relatively) simple compromise. In keeping with the spirit of a good compromise, both sides walked away pleased but not entirely satisfied.

    The CME had been angling for full CBOE membership for all of its members. It was an almost laughable claim, but it also illuminated the extreme positions of the two litigants. The CBOE took the polar opposite of the CME's position, claiming that the CME's acquisition of the CBOT completely nullified the exercise right.

    Even as they filed their papers in the Delaware Court of Chancery, both sides knew that their all-or-nothing positions were completely untenable. It was only a matter of time until a settlement was reached.

    SEC Steps In

    The CME gained a strong incentive to settle this dispute after the SEC ruled against it in January. The SEC agreed with the CBOE's position that no one could qualify as CBOE exercisers in the wake of the CBOT acquisition.

    That decision left the CME in a very weak position going into the final hearings at the Delaware Court of Chancery. With another negative decision looming on the horizon, the exchange realized that it was time to settle...

    full article here:
  2. What's the deal with this settlement? Is it still going on? I heard the CBOE postponed their vote on this issue.