Reuters | CBOE Holdings Inc, operator of the biggest U.S.
options exchange, said three of its 22 directors have resigned, less
than three weeks before an initial public offering that would value the
exchange at $2.87 billion.

All three of the directors are executives at Wall Street banks
underwriting the $328 million IPO, including lead underwriter Goldman
Sachs. Their resignations were effective on May 26, CBOE said in a U.S.
Securities and Exchange Commission filing on Thursday. None of the
board members who remain work for any of the other 15 underwriters.

The resignations come as Wall Street banks, and Goldman Sachs in particular, face increasing scrutiny over potential conflicts of interest.

Underwriters routinely buy and sell stock of the companies whose IPOs they manage, and board members can have access to non-public information about a company’s strategic plans or challenges.

“In today’s environment issuers are under a great deal of scrutiny with respect to their governance and that includes the independence of their members — which goes beyond regulatory considerations,” said Eleanor Bloxham, a corporate governance consultant in Westerville, Ohio.

Bloxham said such resignations are unusual mid-way through the filing process.

A CBOE spokeswoman did not respond to requests for comment on the resignations, which came on the same day that the company gave an expected per-share price range of $27 to $29, which would value the exchange at $2.87 billion.

The directors resigned “as a result of policies of their respective employers restricting service on public company boards,” the filing said.

The directors include John Smollen, a managing director at Goldman Sachs; Kevin Murphy, a managing director at Citigroup, and Jonathan Werts, a managing director at Bank of American Merrill Lynch.

An earlier filing cited the three executives’ deep experience in the options industry as reason for their suitability for board service.

Smollen and Murphy will continue to serve on the boards of the Chicago Board Options Exchange and its still-to-be-launched sister exchange, C2, the filing said. The two exchanges are subsidiaries of the holding company, which is planning its IPO for mid-June.

NO DISCOUNT BUT STRONG INTEREST

The estimated IPO price range represents no discount to the price of a CBOE seat on the private market, despite the sluggishness of the current U.S. IPO market. Still, CBOE members, who collectively will be the market’s biggest shareholders when it goes public, said the price may be too low.

“What the underwriters are saying to people who are interested in the issue is that they have the possibility of buying at roughly the range that the actual members are buying and selling their seats,” said Brendan Caldwell, president and CEO of Toronto-based Caldwell Investment Management. “I think the CBOE’s worth quite a bit more.”

Caldwell Investment controls 54 CBOE memberships, which would make it among the exchange’s top shareholders after the IPO.

The IPO may also lure investors because CBOE is the last major independent North American financial exchange.

“In this case the brand awareness, the strength that they have in the market and the likely additional areas that they will get into to enhance their volume even further should allow for a strong opening,” said Scott Sweet, senior managing partner of IPO Boutique. “I expect that the price range will be absorbed well by institutions and retail alike.”

Demand for the issue has been high since it was first filed, he said.

CBOE expects 11.7 million shares to be sold in the offering, planned for mid-June. CBOE will list its stock on Nasdaq OMX’s Nasdaq Stock Market.