The Chicago Board Options Exchange announced that its board of directors unanimously authorized its demutualization.

The CBOE’s board signed off on the filing of a registration statement with the U.S. Securities and Exchange Commission. The filing is a key step in CBOE’s demutualization process, which will result in the conversion of CBOE from a membership organization to a wholly owned subsidiary of a new holding company, CBOE Holdings Inc.

The CBOE says it expects to submit the filing to the SEC in the coming weeks. Its proposed restructuring must be approved by the SEC and by a vote of the CBOE membership.

With its demutualization, memberships will be converted into shares of the new company. The conversion of memberships to shares also provides CBOE Holdings, Inc. with the ability to pursue an IPO, should it decide to become a publicly traded company.

In anticipation of its eventual demutualization, the CBOE began its transition to a for-profit corporation in January. The exchange streamlined its operating budget and reconstituted the composition and functions of its governance and advisory committees to reflect those of a for-profit enterprise.

For the first six months of 2006, CBOE reported revenues of US$129.6 million, versus US$98.2 million for the same time period last year; and, retained earnings of US$139.2 million, versus US$114.3 million a year ago.

“The willingness to change has enabled CBOE to continue to lead an industry vastly different than the one it launched 33 years ago. Our for-profit transition has enabled CBOE to operate more efficiently, and this next step will further increase CBOE’s autonomy and agility. Demutualization provides the “strategic optionality” necessary to chart the course for years to come. The conversion of seats to shares allows us to deal in the same currency as our competitors and potential partners at a time when the marketplace embraces the new structure,” said William Brodsky, CBOE chairman and CEO.

In related news, the exchange also announced plans to get into the stock trading business with the creation of a new stock trading market, along with four brokerage firms.

The options exchange is teaming up with Interactive Brokers Group LLC, LaBranche & Co Inc., Susquehanna International Group LLP, and VDM Specialists LLC to launch the CBOE Stock Exchange LLC, a new securities trading marketplace. Ownership of CBSX will be divided between CBOE and the partner firms, with approximately 50% of the venture owned by CBOE and 50% owned by the partner firms.

The CBOE Stock Exchange will feature a Hybrid market model that will combine elements of both screen and floor-based trading; and provide a new venue for the trading of New York Stock Exchange, NASDAQ Stock Market, and American Stock Exchange listed securities. The CBSX is expected to launch in early 2007, pending final regulatory approval from the SEC.

The Hybrid Trading System will be similar to the one currently being utilized for options trading at the CBOE, the largest options exchange in the US. It combines the point-and-click functionality of screen-based trading with the versatility of floor trading.

“We’re privileged to be partnering with some of the largest, most respected trading firms in the securities industry to launch this exciting new venture. Collectively, these firms represent significant portions of volume at our nation’s securities exchanges and the expertise and liquidity they will bring to the CBSX marketplace will be invaluable,” said Brodsky.

“This venture recognizes the proven success of CBOE’s Hybrid market model, which enables professional brokers to represent customer orders in an open outcry environment that is integrated with a state-of-the-art electronic system offering sub-second execution. We believe the CBOE Stock Exchange and its Hybrid market model can extend these same advantages to the stock world by providing it with this economical and proven alternative market,” Brodsky added.

http://www.cboe.com/