The Chicago Board Options Exchange will be unable to seek a strategic partner or a potential flotation until 2010 following the latest legal setback to its four-year pursuit of demutualization.

A long-running spat over the ownership of the largest U.S. options exchange by volume has frustrated many stakeholders and last week triggered fresh appeals against a planned resolution.

The member-owned exchange has been moving toward demutualization since early 2006, and the ownership disputes have seen it miss the sharp jump and subsequent slide in sector valuations.

A painstakingly crafted settlement involving members and stakeholders from the Chicago Board of Trade, which created the CBOE in 1973, is again contested by the appeals filed last week.

The Delaware Supreme Court is set to receive opening briefs by Oct. 12 concerning ownership rights. Oral arguments are expected in December, with resolution seen sometime in mid-2010.

William Brodsky, CBOE's chairman and chief executive who has often stated his preference for an IPO, said that the exchange was reviewing the appeals and declined further comment.

The Chicago Board of Trade members claim they are entitled to equity in a demutualized CBOE, an argument the CBOE initially rejected until agreeing in 2008 to a settlement that would give the CBOT members an 18% equity stake and $300 million in cash.

Now the disagreements hinge on how the settlement is divvied up.

Most of the seven appeals filed Aug. 28 seek inclusion in the settlement's class A, which will split the equity stake and remaining cash after class B participants are paid $250,000 each.

However, at least one appeal seems to question the fairness of the settlement, a more thorny legal issue that could take longer to resolve, according to persons familiar with the matter.

The CBOE has continued to grow as its future is considered by various Delaware courts. Last year was the exchange's busiest on record, and last month saw an average 4.4 million contracts change hands each day, making it the most active August ever at the CBOE.

The exchange, situated in the heart of Chicago's financial district, commands more than 90% of the index options trade in the U.S. It's also home to the oft-quoted CBOE Volatility Index, or VIX, known as the market's "fear gauge."

The CBOE's continued dominance of the fast-growing options sector has made it a prime candidate for M&A speculation, though Brodsky has stated his preference for an IPO before entertaining other deals.

Transatlantic exchange operator NYSE Euronext (NYX), which already maintains two options platforms, is seen as one potential acquirer. Another is Germany's Deutsche Boerse (DB1.XE), which bought the CBOE's chief rival, the New York-based International Securities Exchange, in 2007.

CME also has been considered a candidate, though the Chicago-based derivatives giant's resistance to regulation by the Securities and Exchange Commission is seen as a major barrier.

Though the CBOE doesn't have a publicly listed stock, its value has suffered in the financial turmoil. While a seat at the CBOE fetched $3.1 million in early 2008, the most recent sale, at $1.8 million, valued the 930-member exchange at about $1.67 billion.

-By Jacob Bunge, Dow Jones Newswires; (312)-750-4117; jacob.bunge@dowjones.com