ICE and CBOE reach $665m agreement over CBOE exercise rights

IntercontinentalExchange (ICE) has reached an agreement with the Chicago Board Options Exchange (CBOE) to pay full members of the Chicago Board of Trade (CBOT) compensation for the loss of CBOE exercise rights they would experience, should CBOT merge with ICE.

CBOE, a member-owned exchange, was set up by the CBOT in 1973. It is now planning to demutualise. Full members of CBOT can trade options at the CBOE without having to buy CBOE membership. Should CBOT be taken over - a distinct possibility given that both ICE and the Chicago Mercantile Exchange are bidding for the firm - CBOE wishes to see these rights terminated. CBOT however intends to protect these rights.

Under the agreement, full members of the CBOT holding CBOE exercise rights would receive $500,000 compensation for each right, up to a total of $665.5 million. This consideration would be paid equally by CBOE and ICE, with holders of exercise rights being entitled to receive cash and/or debt securities convertible into both stock of the newly combined ICE/CBOT Holdings and common shares of CBOE after its demutualisation. ICE and CBOE have also agreed in principle to a broad commercial partnership, including technology and product development, and access to the distribution capabilities of each exchange.

The agreement between ICE and CBOE is contingent on the completion of the proposed merger of ICE and CBOT Holdings, and may help ICE in its bid for the exchange.