CME Group Inc , the world's largest derivatives exchange, is in talks to take over the Chicago Board Options Exchange in a deal that would value the largest U.S. options market at up to $5 billion, according to Crain's Chicago Business.

Acting through intermediaries, officials at the exchanges have held informal discussions over the past month about a combination, but no formal bid is on the table, Crain's cited sources in a report on Sunday.

Further talks are on hold until after Wednesday, the report said. A deal of that size would mean a big payday for CBOE members, with each CBOE seat valued at about $4 million, about 50 percent more than they fetch today, the report said.

The $5 billion price tag would value CBOE at about 20 times its expected annual earnings after it converts to a shares-based private company from a member-owned exchange, the report said.

Brendan Caldwell, chairman of Caldwell Investment Management Ltd in Toronto, which has 49 CBOE seats in various funds and vehicles, said the $5 billion price tag sounds about right.

A bid from CME or NYSE Euronext seems logical and reasonable, he added.

I don't know who, if anyone, is making a bid for CBOE, Caldwell said. But it does, however, seem realistic that somebody, if they wanted to buy CBOE, would make a bid before we went through the process of demutualizing and going public.

Since 2006, CBOE has embarked on a path to demutualize its membership organization into a for-profit shareholder company.

But the exchange's quest to complete the conversion plan has been delayed by a protracted legal dispute over who is entitled to an ownership stake at the options exchange.

Now, however, CBOE's legal problems appear to be coming to an end and could make an acquisition more realistic as it awaits a ruling from the Delaware Supreme Court this week, based on the filing of appeals to a proposed settlement approved by a Delaware judge earlier this year.

The resolution of those appeals could take as long as nine months, according to CBOE representatives in a memo to the membership dated on September 1 or the appeals could be dismissed.

A Delaware judge in June approved a proposed settlement reached in 2008 between CBOE and Chicago Board of Trade members over who is allowed to have an equity stake at the options exchange.

Under the terms of the agreement, CBOT members who own at least 10,251.75 shares in CME Group and hold an exercise right privilege at CBOE and one CBOT B-1 membership will receive an 18 percent equity interest in the CBOE's demutualization as well as a share in the $300 million cash payment. Other members would qualify only for a payment from the cash pool.

But CBOT members and several entities have disputed parts of the settlement and have filed appeals with the Delaware Supreme Court.

CBOT, now owned by derivatives exchange CME Group Inc and some of its members sued the CBOE in 2006, arguing that the historic trading rights also confer equity ownership in CBOE. CBOT helped create the CBOE in 1973.

The potential for an initial public offering, merging with another company or remaining a for-profit demutualized company has long been discussed by Chief Executive and Chairman William Brodsky for CBOE, one of the few exchanges untouched by the merger and IPO fever that gripped the sector in recent years.

Representatives for CME and CBOE declined to comment.

(Reporting by Franklin Paul, Anupreeta Das, Jonathan Spicer and Doris Frankel; editing by Gunna Dickson)