CBOE Plans to Exclude Trading Executives From Board of Directors

The operator of the Chicago Board Options Exchange plans to exclude trading-industry directors from its board.

Three members who run brokerages and had been designated as “representative directors” will leave and eventually be replaced by executives from outside the trading industry, memos on CBOE Holdings Inc. website show.

The move is part of a broader response to an investigation by the Securities and Exchange Commission into the exchange’s role as a regulator responsible for overseeing the activities of member firms, the Wall Street Journal reported yesterday. CBOE disclosed the SEC probe last year.

Changing its makeup will remove conflicts on the board, according to a person familiar with the changes, the Journal said. Gail Osten, a CBOE spokeswoman, declined to comment.

The shift away from industry executives aligns CBOE’s governance with other exchange operators such as NYSE Euronext and Nasdaq OMX Group Inc. The number of individuals drawn from the options brokerage industry has declined over the last 15 years as the number of public directors rose, tilting the balance away from professionals working in the business.

The three industry executives elected representative directors to the CBOE Holdings board in June are Benjamin Londergan, chief executive officer at Group One Trading LP; Mark F. Duffy, a managing member of Cornerstone Trading Group; and Paul Kepes, a managing director at Chicago Trading Co. Londergan has been on the CBOE board since 2008, Duffy since 1995 and Kepes since 2007, according to data compiled by Bloomberg.

Advisory Panel

All three serve on a separate, 13-person CBOE advisory panel composed mainly trading executives. The group, run by CBOE President and Chief Operating Officer Edward Tilly, advises the exchange about issues involving trading procedures and offerings, market structure, competitive initiatives, products, and legislative and SEC proposals, according to its charter. CBOE Holdings Chairman and CEO Bill Brodsky is also on the advisory board.

Tilly will become CEO of the Chicago-based company in May, according to a statement last month. Brodsky will be executive chairman of CBOE Holdings, the announcement said.

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