The long-awaited announcement from the Chicago Board of Options Exchange, or CBOE, saying it has filed documents with the SEC to go public came March 11. The CBOE’s IPO is expected to be complete by the end of the second quarter, and should generate up to $300 million (although no pricing or share volume was listed in the SEC filing).
When the CBOE finally goes public, it will mean that all of the major North American financial exchanges will now be publicly traded entities.
According to the SEC filing, the CBOE will pay a special dividend of $113 million before the IPO to its current stakeholders, and annual dividends of 20%-30% of prior-year net income to shareholders after the IPO. This conversion to a share-based company, a process called demutualization, does require the approval of the CBOE’s 930 current members.
According to some reports, many of these members could lose a lot of the lease income they receive from traders under the new structure, but that potential loss of revenue is what that 20%-30% dividend is designed to make up for.
To be certain, Wall Street had been waiting for the CBOE to make this move for some time.
The deck was cleared for the deal last year after ongoing legal wrangling over ownership rights with the CME Group (CME) — which runs the Chicago Board of Trade, or CBOT — was finally settled. The settlement between the CBOE and CBOT gave the latter’s members a collective 18% stake in the CBOE, and that deal paved the way for last week’s IPO announcement.
While it remains to be seen what kind of interest the CBOE IPO will be met with, if it’s anything like the fanfare surrounding other exchange IPOs such as the Intercontinental Exchange (ICE), the Nasdaq OMX Group (NDAQ), the NYSE Euronext (NYX) or the aforementioned the CME Group, you can bet the CBOE’s issue will generate big buzz on every trading floor.
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