(Updates with CEO and analyst comments)
By Tom Polansek
CHICAGO May 6 The quality of U.S. stock markets
will improve if regulators limit trading that happens outside of
exchanges, the head of CBOE Holdings Inc said on
Tuesday after the company reported higher-than-expected
The comments from CEO Ed Tilly, who runs the largest U.S.
stock-options market, put more attention on the role of
so-called dark pools after Terrence Duffy, executive chairman of
futures exchange-operator CME Group Inc, last week said that
regulators should look into dark markets.
Around 40 percent of all U.S. stock trades, including almost
all orders from "mom and pop" investors, now happen "off
exchange," up from around 16 percent six years ago. Increased
liquidity and trading volumes on exchanges could tighten bid/ask
Dark pools and high-frequency trading have come under
scrutiny in the past month following the release of Michael
Lewis' book "Flash Boys: A Wall Street Revolt," which says the
U.S. stock market is rigged.
Trading volumes at CBOE, which runs the Chicago
Board Options Exchange and CBOE Futures Exchange, could increase
if regulations drove more trading on to stock exchanges from
dark pools, Tilly said. He declined to estimate how much of
CBOE's volume comes from high-frequency trading, noting that the
industry did not have a clear definition of the practice.
"The options market does not cater to high-frequency trading
practices described in the Lewis book," Tilly said.
Stock prices for exchanges and brokerage firms have come
under pressure amid uncertainty about the outlook for new
regulations targeted at high-frequency trading. Any financial
impact on CBOE would not be material, Tilly said.
CBOE shares at midday were down 1.5 percent little on
Tuesday but were up 0.8 percent this year. Shares of
exchange-operators CME Group Inc and
IntercontinentalExchange Group are each down about 11
percent this year.
CBOE said first-quarter net income rose to $48.5 million, or
56 cents per share, from $41.8 million, or 48 cents, a year
earlier. Adjusted earnings were 58 cents per share, beating
analysts' estimates of 56 cents, according to Thomson Reuters
I/B/E/S. Operating revenue was $157.9 million, up from $142.7
million a year earlier and above estimates of $156.9 million.
Trading volume in the quarter was 342.8 million contracts,
or 5.62 million contracts per day, up from 262 million
contracts, or 4.37 million contracts per day, a year earlier.
Average daily options and futures volume in April was 5.1
million contracts, up 9 percent from a year earlier.
"There is some downside risk to near-term earnings, as
volumes have not been particularly strong to start the 2Q
despite CBOE maintaining market share," UBS analyst Alex Kramm
(Reporting by Tom Polansek; Editing by Jeffrey Benkoe and Alden