UPDATE 1-CBOE extends exclusive deal to list S&P 500 options

Wed Mar 13, 2013 3:30pm EDT

* CBOE extends deal for options contracts through 2032

* Exclusive rights were set to expire in 2018

By Tom Polansek

BOCA RATON, Florida, March 13 (Reuters) - The parent of the Chicago Board Options Exchange said on Wednesday that it will maintain exclusive rights to list flagship contracts linked to the Standard & Poor's 500 stock index through 2032.

CBOE owner CBOE Holdings Inc extended a deal with The McGraw-Hill Companies, owner of the S&P Dow Jones Indices, for rights to use the S&P 500 and the S&P 100 indexes to create options on those indexes and other derivative indexes.

The S&P 500 index options contract is the most-active U.S. index option and traded nearly 700,000 contracts a day in 2012.

"This is a biggie for us," William Brodsky, chief executive of CBOE, said at a media event in Florida.

Under a previous agreement with McGraw-Hill, CBOE had exclusive rights to the contracts through 2018 and non-exclusive rights until 2022, according to the exchange. CBOE will now keep exclusive rights through 2032 and have non-exclusive rights the following year.

CBOE said it will pay S&P Dow Jones Indices royalties on S&P 500 options and on its widely watched CBOE Volatility Index, or VIX.

Financial terms of the new deal were not disclosed, although the CBOE estimated that the royalty fees it paid to S&P Dow Jones would have been 10 percent higher if the deal had been in place last year.

The exchange initiated discussions with McGraw-Hill about extending the deal well before the existing arrangement expired because "the analyst community was pressuring us constantly" for answers about what would happen, Brodsky said.

The extension cements CBOE's hold on a "significant revenue stream," Richard Repetto, equity analyst for Sandler O'Neill, said in an interview. The deal also makes a premium more certain if CBOE is acquired by another exchange, he said.

CBOE has had an incentive to develop the market for S&P Dow Jones contracts because of the exclusive agreement that has been in place, said Alexander Matturri, chief executive for the S&P Dow Jones Indices.

"It's hard to argue with success," Matturri told reporters at the media event, adding that he hoped the agreement with CBOE would extend beyond the next two decades.