By Ann Saphir
May 3 CBOE Holdings Inc, which runs the
oldest U.S. stock-options trading venue, said on Friday that
quarterly earnings rose on a trading surge of its lucrative
contracts for two of the most closely watched stock indexes.
Shares rose 4.3 percent to $39.10 on the Nasdaq.
But in a potential setback to the company's future growth,
CBOE Chief Executive William Brodsky indefinitely deferred plans
to extend trading hours for one of the contracts - futures on
the CBOE Volatility Index.
The operator of the Chicago Board Options Exchange had
planned to start extending the hours for the contracts at the
end of this month, eventually offering nearly around-the-clock
trading in its proprietary futures and options to get more
A half-day outage at the Chicago Board Options Exchange last
week and a more limited outage on Thursday, exposed software
problems that came about as it prepared for the longer trading
"We are taking a deep breath," Brodsky said. "Our concern
is, let's stabilize things, because when you make a change like
this, you are basically running your computers all day long." A
consultant will start reviewing CBOE systems on Monday.
Asked how long the delay will last, he said, "We will
announce a date when we are comfortable."
CBOE's proprietary products, led by futures and options on
the VIX and the Standard & Poor's 500 Index, are a
centerpiece of the exchange operator's strategy.
Brodsky, who will become executive chairman later this
month, and his second-in-command and incoming CEO, Ed Tilly,
have vigorously defended CBOE's right to list the products.
Rivals have unsuccessfully challenged that exclusivity in court
The contracts are used by institutional and retail investors
to bet on and hedge against swings in U.S. stock markets.
First-quarter results, released on Friday, underscored their
Net income at the operator of the Chicago Board Options
Exchange rose to $41.8 million, or 48 cents a share, from $32.9
million, or 37 cents a share, a year earlier.
Excluding accelerated stock-based compensation expenses, the
profit was 50 cents a share, better than the 47 cents that
analysts expected, on average, according to Thomson Reuters
The increase came despite a sharp drop in trading of options
on individual stocks, which are also offered at CBOE's 10 rival
By contrast, trading in CBOE index options last quarter
jumped 28 percent from a year earlier to 1.5 million on an
Including both CBOE's options and futures exchanges,
index-based contracts accounted for 37.9 percent of total
trades, compared with 25.4 percent a year earlier, the company
By revenue, the share is even bigger, Friday's report
showed. CBOE attributed more than 60 percent of its transaction
fees to the contracts.
Operating revenue in the quarter rose 18 percent to $142.7
The delay in the longer trading day may affect CBOE growth.
Since the contracts are licensed and not offered at any other
exchanges, CBOE is able to command much higher fees for them: 67
cents, on average, compared with 14 cents for single-stock
Last week's outage prevented investors from getting access
to the exclusive contracts, but Tilly said he did not expect the
outage to limit CBOE's ability to list the products exclusively.
The preparations for the longer trading day will not boost
expenses beyond current projections, CBOE Chief Finance Officer
Alan Dean said on the call.
Brodsky said the exchange was working with regulators and
that the delay in allowing investors access to its stock-index
products was "unacceptable."
Although CBOE has a backup system in case of trading
disruptions, it takes a long time to get up and running. Brodsky
said he wanted a "faster alternative backup for our proprietary
products," but did not offer specifics.