Groups fight CBOE suit settlment
The Chicago Board Options Exchange's legal settlement with former members of the Chicago Board of Trade is flawed because some seat holders weren't treated fairly, objectors told the Delaware Supreme Court.
Eight groups appealed Delaware Chancery Court Judge John Noble's June approval of the accord, valued at $614 million at the time. Noble erred in approving a class-action settlement that deprives some groups of "fee-based payments," lawyers for Infinium Capital Management LLC, a Chicago-based trading company, said today in a court filing.
"The Court of Chancery abused its exercise of business judgment here by accepting CBOE's and the class plaintiffs' arbitrary exclusion of entity members from receiving the fee- based and supplemental fee-based payments," lawyers for Infinium said in the filing.
CBOE memberships have more than doubled from a three-year low of $1.2 million in March on speculation the 36-year-old U.S. derivatives market will be taken over. CBOE, which plans to become a for-profit, shareholder-owned company, has said it won't be able to change its status until the lawsuit is settled over how its membership interests are divided.
Former Board of Trade members sued in 2006 claiming they are entitled to swap CBOE trading rights that date to 1973 into shares of the exchange. The exchange countered that the Board of Trade's acquisition by CME Group Inc. in 2007 eliminated the ownership claims.
CME Group spokesman Allan Schoenberg declined to comment. CBOE spokeswoman Gail Osten couldn't immediately comment on the filing of the objectors' appellate brief.
CBOE Stake
CBOE agreed to give an 18 percent stake and $300 million to end the dispute. The settlement also called for CBOE to return temporary fees paid to the exchange to obtain certain privileges.
Some CBOT members objected to the settlement, saying it was too difficult to qualify for payments. CBOE estimated last year that as many as 900 to 1,100 former Board of Trade members may qualify for the settlement.
Lawyers for Infinium and Quiet Light Securities LLC argued in court papers that they were excluded from recovering payments they made to the CBOE for temporary memberships. A "handful of individuals" and four trusts were approved to receive such payments, according to court documents.
CBOE drew an "illogical distinction" between temporary members by concluding that, because Infinium and Quiet Light's registration was completed on their behalf by representatives, they aren't "individuals" as required by CBOE's rules and aren't entitled to payments, the lawyers said.
Access Fees
Infinium owns "three eligible Board of Trade full memberships of the CBOE," according to court papers. The company paid $381,372 for access fees associated with its temporary memberships between August 2007 and November 2008. Quiet Light paid fees totaling $224,942 from September 2007 through October 2008. Both companies have continued to pay access fees since, lawyers said in court papers.
"At this time, no firm date has been set for" CBOE's transformation," Kevin Mangan, an attorney for Infinium, said in the filing. He also noted that "the total amount of access fees paid by Infinium and Quiet Light continues to increase."
In addition to Infinium, the objectors include Geneva Trading USA LLC, Jeffrey Holland, Louis Panos, William L. Allen and A. Alan Zatopa.
The case is CBOT Holdings Inc. v. Chicago Board Options Exchange Inc., 2369-VCN, Delaware Chancery Court (Wilmington). The appeals case is In the Matter of CBOT Holdings Inc., 498,2009, Delaware Supreme Court.