* EPS of 45 cents tops analysts' estimate of 42 cents
* Revenue rises 8 percent to $130.1 million
* Incoming CEO Tilly: VIX products to be a main focus
* Reserves $5 million for possible resolution of SEC probe
By Ann Saphir
Feb 8 CBOE Group Holdings Inc reported
a bigger-than-expected rise in fourth-quarter earnings on Friday
on a jump in trading of contracts tied to Wall Street's favorite
fear gauge, and the exchange operator's CEO-elect promised
further focus this year on those high-margin contracts.
The operator of the oldest U.S. stock-options trading venue
also said it was in talks with the U.S. Securities and Exchange
Commission to settle a previously disclosed probe into its
self-regulatory compliance and had reserved $5 million for a
CBOE has revealed few details of the probe, which is
centered on the exchange's role as a front-line overseer of
Chicago brokerage OptionsXpress. The investigation has cast a
shadow on the mostly lustrous legacy of longtime chief executive
William Brodsky, who plans to hand the reins to President and
Chief Operating Officer Ed Tilly in May.
Brodsky, who will continue as CBOE's executive chairman,
successfully turned the Chicago-based exchange operator from a
private member-run club to a public company 2-1/2 years ago, and
has since overseen growth that has kept it ahead of the
competition in a crowded field. There are about a dozen U.S.
Several high-level compliance officials left CBOE after it
acknowledged the probe a year or so ago, and the CBOE recently
removed board directors with ties to trading firms in a move it
said responded to the SEC probe.
NYSE Euronext was fined $5 million last September to
settle SEC allegations that the parent of the Big Board gave
some customers an early look at data.
Nasdaq OMX Group Inc is also in talks with SEC for
flubbing Facebook Inc's initial public offering, sources
have told Reuters.
On a call with analysts on Friday to discuss the quarter's
financial results, CBOE executives said they had boosted fees to
pay for higher regulatory costs and would do more capital
spending to enhance systems and software for regulatory
They did not discuss the probe or the possible settlement.
Instead, they focused on the surge of investor interest in
options and futures on the CBOE Volatility Index. This is
one of the exchange's most profitable contracts because an
exclusive licensing agreement keeps all rivals from offering
Trading in CBOE's exclusive index products, which also
include options on the Standard & Poor's 500 Index,
accounted for about 31 percent of overall buying and selling at
the company's exchanges and generated 59 percent of revenue in
Trading of the relatively new VIX fear gauge contracts is
still on a "hockey-stick" trajectory of growth, Chief Financial
Officer Alan Dean said.
That success is driving CBOE to try to shift even more of
its business into such high-profit contracts, Tilly said,
calling proprietary products "what we do best."
CBOE opened a London hub a few days ago to capture European
business and plans to expand trading hours later this year.
Later this month, it will move one of its S&P 500 index options
from its all-electronic New York market, where it had a
lackluster launch, to its main Chicago market, a move Tilly said
should help boost volume.
In contrast to its thriving index business, the company's
single-stock options trading suffers from relentless pressure
from competitors that include NYSE Euronext and Nasdaq. CBOE's
market share dropped in the quarter to just above 26 percent
from slightly above 29 percent the prior quarter.
CBOE has cut pricing to lure back lost business, but the
success of that move is not clear.
Shares of CBOE were up 0.1 percent at $34.34 on Friday
afternoon on the Nasdaq.
In the fourth quarter, net income rose to $39.2 million, or
45 cents a share, from $31.3 million or 35 cents a share a year
earlier. Analysts on average had expected 42 cents a share,
according to Thomson Reuters I/B/E/S.
Revenue rose 8 percent to $130.1 million.
Trading fell to a daily average of 4.1 million contracts,
but activity in CBOE's exclusive index options helped boost the
average per-contract fee to 35.5 cents from 32.1 cents.
The company said it expects operating expenses of $189
million to $194 million in 2013.