UPDATE 4-CBOE directors approve plan for IPO by mid-2010

* Options exchange to demutualize

* Temporarily suspended seat sales on Thursday

* Settled long-running ownership rights case this month

* Goldman Sachs to underwrite the deal -- source

(Adds Goldman underwriting)

By Doris Frankel and Jonathan Spicer

CHICAGO/TORONTO, Dec 10 (Reuters) - The Chicago Board Options Exchange's marathon to become a public company could end by the middle of next year after directors approved plans on Thursday to offer common stock.

CBOE, among North America's last remaining member-owned exchanges, aims to demutualize and complete an initial public offering of holding company CBOE Holdings Inc shares at the same time, by mid-2010, Chairman William Brodsky said in a notice to members of the largest U.S. options venue.

The exchange, which this month settled a long-running ownership rights suit, said it expects to file for an IPO with the U.S. Securities and Exchange Commission by the end of the 2010 first quarter.

Goldman Sachs Group Inc (GS.N) will underwrite the offering, a source close to the exchange said.

A CBOE spokesperson said: "We continue to retain Goldman but have yet to determine who else will assist CBOE in the IPO."

It also suspended the buying and selling of seats for two hours on Thursday, according to another notice. One of CBOE's 930 seats fetched $2.5 million on Tuesday, down from $2.75 million for a membership on Nov. 5, and down from a high of $3.3 million in June 2008, according to the exchange.

Members still need to approve the demutualization plan. The source said the vote is expected to take about a month. The source also said the exchange does not anticipate regulatory hurdles ahead of demutualization.

CBOE's long path to demutualize its membership organization into a for-profit shareholder company was snagged in a legal battle with Chicago Board of Trade members over a decades-old agreement on trading rights. On Dec. 2, the Delaware Supreme Court approved the dismissal of appeals in the case.

CBOE would use the IPO proceeds partly for repurchasing shares from members and from those who received shares under a settlement agreement, it said.

Takeover speculation has surrounded CBOE for years and surfaced again as recently as October, when a media report said CME Group Inc (CME.O), the world's top derivatives exchanges operator, was in informal talks to buy CBOE. [ID:nN19371505].

Once demutalized, CBOE would be able to follow in the footsteps of several peers that have gone public, including New York Stock Exchange parent NYSE Euronext (NYX.N).

Others, such as energy and metals exchange NYMEX -- now part of CME -- have ultimately opted to be acquired. CME also owns CBOT.

CBOE was the first exchange to list options in the United States in 1973, and now accounts for more than 31 percent of total options volume.

Some analysts have said the $5 billion price tag for CBOE -- mentioned in the media report and discussed by industry players since -- is rich. Pali Capital's Chris Allen estimated CBOE's value at between $1.3 billion and $2.3 billion.

A total of 25 CBOE seats have changed hands so far this year, compared with 113 in 2008.

It is unclear how many shares will be offered. CBOE said it will give more details on the plan once it files for the IPO. (Reporting by Doris Frankel and Jonathan Spicer; editing by John Wallace, Leslie Gevirtz and Andre Grenon)