HeadnoteMutualReliance Review System for Exemptive Relief Applications - demutualizationand restructuring of The Board of Trade of the City of Chicago,Inc. - issuer bid relief and prospectus and registration reliefin connection with restructuring transactions, subject to firsttrade restrictions.
ApplicableOntario Statutory ProvisionsSecuritiesAct, R.S.O. 1990, c.S.5., as am., ss. 25, 35(1)(12)(ii), 35(1)(13),53, 72(1)(f)(ii), 72(1)(g), 74(1), 89(1), 93(3)(b), 93(3)(h),104(2).
ApplicableOntario RulesRule72-501 - Prospectus Exemption for First Trade Over a Market OutsideOntario (1998) 21 OSCB 2318
INTHE MATTER OF
THESECURITIES LEGISLATION OF ONTARIO
ANDIN THE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM
FOREXEMPTIVE RELIEF APPLICATIONS
ANDIN THE MATTER OF
THEBOARD OF TRADE OF THE CITY OF CHICAGO, INC.
MRRSDECISION DOCUMENTWHEREASthe local securities regulatory authority or regulator ("DecisionMaker") in each of Ontario and Manitoba (collectively, "Jurisdictions")has received an application from the Board of Trade of the Cityof Chicago, Inc. ("CBOT") for a decision under the securitieslegislation of the Jurisdictions ("Legislation") that:
(a)the requirements contained in the Legislation to be registeredto trade in a security and to file and obtain a receipt for apreliminary prospectus and a prospectus ("Registrationand Prospectus Requirements") shall not apply to tradesin securities made in connection with the proposed RestructuringTransactions (as defined below); and
(b)the requirements contained in the Legislation relating to thedelivery of an offer and issuer bid circular and any notices ofchange or variation thereto, minimum deposit periods and withdrawalrights, taking up and paying for securities tendered to an issuerbid, disclosure, restrictions upon purchases of securities, bidfinancing, identical consideration and collateral benefits togetherwith the requirement to file a reporting form within 10 days ofan exempt issuer bid and pay a related fee ("Issuer BidRequirements") shall not apply to trades in securitiesmade in connection with the proposed Restructuring Transactions.
ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications ("System"),the Ontario Securities Commission is the principal regulator forthis application;
ANDWHEREAS the CBOT has represented to the Decision Makersas follows:
1.The CBOT is one the world's leading exchanges for the tradingof futures and options on futures contracts and dates back to1848. In 1859, the Illinois General Assembly, by legislative act,granted a special charter to the CBOT.
2.In August 2000 the CBOT was reincorporated in Delaware and currentlyexists as a Delaware nonstock, not-for-profit corporation.
3.CBOT memberships generally confer rights to access floor tradingat the CBOT's exchange facilities and provide an individual memberwith the opportunity to profit from such individual's tradingon the floor of the exchange.
4.The CBOT proposes to implement certain restructuring transactionsfollowing member approval and satisfaction of certain other conditionsdesigned to demutualize the CBOT, modernize its corporate governancestructure and reorganize and restructure its electronic tradingbusiness ("Restructuring Transactions").
5.In addition to offering products traded on traditional open outcrymarkets, the CBOT also makes its products available for tradingon an electronic trading system that it operates through its controlledsubsidiary, Ceres Trading Limited Partnership ("Ceres").
6.Created by the CBOT in 1992, Ceres conducts certain electronictrading and related business activities. The CBOT's wholly-ownedsubsidiary, Electronic Chicago Board of Trade, Inc. ("eCBOT"),is currently the general partner of Ceres.
7.In addition to the general partner, Ceres has Class A and ClassB limited partners. Except for a nominal number of limited partnershipinterests held by eCBOT, Class A limited partnership interestsare generally held by individual CBOT members. Class B limitedpartnership interests are held by CBOT clearing member firms.
8.There are two CBOT members with mailing addresses in Canada: onefull member with a mailing address in Ontario and one full memberwith a mailing address in Manitoba. In total, there are approximately1400 full members, primarily in the United States. Each of theCBOT members with a mailing address in Canada also holds a ClassA limited partnership interest in Ceres.
9.Due to the unique nature of the organizational relationship betweenthe CBOT and Ceres, the Ceres limited partnerships are currently"stapled to" and only transferable with the associated CBOT memberships.
10.The demutualization of the CBOT will be accomplished by creatinga stock, for-profit holding company, CBOT Holdings, Inc. ("CBOTHoldings"), and distributing shares as a dividend ofcommon stock of CBOT Holdings ("CBOT Holdings Shares")to CBOT members.
11.The CBOT will be merged with a newly formed non-stock, for-profitsubsidiary, ("CBOT Merger Sub") which will resultin the CBOT being the surviving entity ("ReorganizationMerger").
12.Upon completion of the Reorganization Merger, the CBOT will becomea non-stock, for-profit corporation and a subsidiary of CBOT Holdings("New CBOT").
13.Prior to initiating the Reorganization Merger, the CBOT Boardof Directors ("CBOT Board") will declare a dividendof CBOT Holdings Shares that will be payable to each of the CBOTmembers immediately prior to the effectiveness of the ReorganizationMerger.
14.In connection with the completion of the Reorganization Merger,each member of the CBOT will receive an appropriate number ofCBOT Holdings Shares.
15.The number of CBOT Holdings Shares to be received by each CBOTmember will be based upon the type of membership held in the CBOTand the allocation methodology developed and recommended by theCBOT Board's Independent Allocation Committee and approved bythe CBOT Board.
16.Immediately after the completion of the restructuring transactions,the CBOT members will be the only common stockholders of CBOTHoldings.
17.Upon completion of the Reorganization Merger, the surviving entity("New CBOT"), then a subsidiary of CBOT Holdings,will create three new classes of membership: Class A memberships,Class B memberships and Class C memberships ("New CBOTMemberships").
18.CBOT Holdings will hold the sole Class A membership in the NewCBOT, which will entitle CBOT Holdings to the exclusive rightto vote on most matters requiring a vote of the members of theNew CBOT, as well as the exclusive right to receive all distributions,dividends and proceeds upon liquidation from the New CBOT.
19.The Class B memberships will consist of five separate series:Series B-1, Series B-2, Series B-3, Series B-4 and Series B-5,with each series having associated with it trading rights andprivileges that correspond to one of the current five classesof CBOT membership. Members of the CBOT will receive one of thefive series of Class B memberships in the New CBOT in respectof each membership held by such member.
20.Each full member will also receive a Class C membership in theNew CBOT, evidencing pre-existing rights, which will, subjectto satisfaction of certain requirements, entitle the holder tobecome a member of the Chicago Board Options Exchange ("CBOE")without having to purchase a membership on such exchange. Thisright is set forth in the certificate of incorporation of theCBOE and is currently held by each full member of the CBOT.
21.As part of the reorganization of the CBOT's electronic tradingbusiness, a wholly-owned Delaware subsidiary of the New CBOT,Ceres Merger Sub, Inc. ("Ceres Merger Sub") willmerge with and into Ceres, with Ceres as the surviving entity("Ceres Merger").
22.Each of the two Canadian full members will receive: (i) 25,000CBOT Holdings Shares; (ii) one Class B, Series B-1 membershipin the New CBOT; and (iii) one Class C membership in the New CBOT.
23.Pursuant to the Ceres Merger, the limited partners of Ceres, otherthan eCBOT will receive a cash payment in exchange for their limitedpartnership interests ("Ceres Limited Partnership Interests")as determined by the board of directors of the CBOT and eCBOT.The CBOT has engaged Arthur Andersen LLP to determine the fairmarket value of Ceres and the Ceres Limited Partnership Interestsand evaluate the fairness, from a financial point of view, toCeres and each class of limited partners of the considerationto be issued in the Ceres Merger to each class of the Ceres limitedpartners.
24.The CBOT Holdings Shares will generally be subject to a completerestriction on transfer for the first 270 days following the datethe CBOT Holdings Shares are issued. Thereafter, 15%, 25%, 25%and 35% of the CBOT Holdings Shares will be eligible for transferon the date that is 270, 450, 630 and 810 days following the datethe CBOT Holdings Shares are issued, respectively.
25.Notwithstanding these restrictions on transfer, stockholders mayat any time transfer all, but not less than all, of the CBOT HoldingsShares associated with a Class B membership and, to the extentapplicable, a Class C membership, in the New CBOT if all suchShares are transferred together with the associated Class B membershipand, to the extent applicable, a Class C membership (for example,25,000 CBOT Holdings Shares with one Series B-1, Class B membershipand one Class C membership in the New CBOT).
26.Although Class B memberships in the New CBOT generally will notbe subject to any transfer restrictions, the exercise of the tradingrights and privileges associated with the Class B membershipswill be subject to substantially the same application and approvalprocess that currently applies to the CBOT membership candidates.Under that process, any adult, other than an employee of the NewCBOT, of good character, reputation, financial responsibilityand credit will be eligible to become a Class B member of, andexercise trading rights and privileges at, the New CBOT. Candidateswill be reviewed to determine whether they meet applicable requirementsin accordance with the rules and regulations of the New CBOT.
27.The Class C memberships in the New CBOT generally will also notbe subject to any transfer restrictions. However, a holder ofa Class C membership seeking to become a member of the CBOE musthold 25,000 CBOT Holdings Shares and one Series B-1, Class B membershipin the New CBOT, along with such Class C membership, in each casesubject to certain adjustments, in order to be eligible to becomea member of the CBOE without having to purchase a membership onsuch exchange.
28.No market presently exists for CBOT Holdings Shares or the NewCBOT Memberships but a market may develop following the expirationof any applicable restrictions on transfer. There are no currentplans to list the CBOT Holdings Shares or the New CBOT Membershipson any stock exchange.
29.The completion of the Restructuring Transactions is subject to,among other things, approval of the members of the CBOT, the receiptof any approvals required by the U.S. Commodity Futures TradingCommission, receipt of a satisfactory private letter ruling fromthe U.S. Internal Revenue Service and/or an opinion of counselconcerning the tax-free status of the transactions.
30.All of the CBOT Holdings Shares to be issued in connection withthe Restructuring Transactions will be registered with the SecuritiesExchange Commission ("SEC") under the U.S. SecuritiesAct of 1933, as amended. A registration statement was initiallyfiled by CBOT Holdings with the SEC on October 24, 2001 (as amendedand supplemented "Registration Statement").
31.The Restructuring Transactions will be structured to comply withcertain other state or "blue sky" regulatory requirements.
32.The CBOT will mail the U.S. proxy statement and U.S. prospectuswhich form part of the Registration Statement to all of the members,including the Canadian members, once the SEC has declared theRegistration Statement effective. The U.S. proxy statement andU.S. prospectus will contain prospectus level disclosure aboutCBOT and eCBOT and the Restructuring Transactions.
33.A meeting of the members for the purpose of voting to approvethe Restructuring Transactions will take place not less than 20business days following the mailing of the U.S. proxy statementand U.S. prospectus.
34.CBOT Holdings and the New CBOT are not and do not intend to becomereporting issuers or the equivalent in any of the Jurisdictions.
35.An exemption from the Registration and Prospectus Requirementsand the Issuer Bid Requirements is not available in the Jurisdictionsfor all of the trades to be made in connection with the RestructuringTransactions.
ANDWHEREAS pursuant to the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, "Decision");
ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;
THEDECISION of the Decision Makers pursuant to the Legislationis that:
(a)The Registration and Prospectus Requirements shall not apply tothe trades and distributions in connection with the RestructuringTransactions provided that the first trades of CBOT Holdings Sharesand New CBOT Memberships shall be a distribution unless:
(i)at the time of the first trade, CBOT Holdings and the New CBOTare not reporting issuers under the Legislation of the Jurisdictionin which the trade is being made; and
(ii)such first trade is executed in accordance with the transfer restrictionsin the Registration Statement and with a purchaser resident outsideof Canada or such first trade is made with a purchaser residentin Canada in reliance on an exemption from the Registration andProspectus Requirements under Canadian securities law.
(b)The Issuer Bid Requirements shall not apply to the trades in connectionwith the Restructuring Transactions.
"PaulMoore" "Robin Korthals"