Cboe tops profit views as trade in 'fear gauge' products rises

(Reuters) - Cboe Global Markets Inc CBOE.Z on Friday reported quarterly profits that beat market forecasts as volatility sparked by the coronavirus pandemic boosted trading volumes and demand for products linked to the exchange operator's VIX index, Wall Street's so-called "fear gauge."

FILE PHOTO: Chicago Board Options Exchange (CBOE) Global Markets sign hangs at its headquarters building in Chicago, Illinois, U.S., September 19, 2018. REUTERS/Michael Hirtzer

The S&P 500 index .SPX went from a record high in February to cratering more than 30 percent in just three weeks in March, and then rising on the back of massive government stimulus programs into April, which ended as the index's best month since January 1987.

Chicago-based Cboe, which runs stock and options exchanges, saw record trading volumes across asset classes, and particularly in its proprietary products, which include futures and options on the VIX, which measures the 30-day expected market volatility of the S&P 500.

That helped drive a 43% rise in first-quarter net transaction fees to $253.1 million, which contributed to a 28% increase in overall net revenues to $358.3 million.

Stripping out onetime items, like acquisition fees, Cboe earned $1.65 per share, bettering analysts’ estimates by 11 cents, according to IBES data from Refinitiv.

The market turbulence eased in April, but Cboe said it expects more “permutations of volatility” as the COVID-19 crisis continues.

“No one can say with certainty how this situation will play out, but the path to recovery is unlikely to be linear,” Cboe Chief Executive Officer Ed Tilly said on a call with analysts.

“We expect investors to continue to deploy and redeploy our unique product set to trade their changing market views and hedge their positions as the crisis evolves.”

Cboe also said it aims to reopen its options trading floor on June 1, providing it can protect the health of its employees and traders who work there.

The floor has been closed since March 16 due to the pandemic, and the all-electronic trading experience has frustrated those doing the most complex types of options trades, Tilly said.

But even as it prepares to reopen the floor, Tilly said Cboe plans to begin rolling out electronic solutions aimed at better replicating the floor experience, prompting some analysts to ask if a permanent closure of the trading pits is coming.

“Our position has always been that when our customers tell us that there’s no utility in the trading crowd, when brokers provide no service to their customers, the electronic solution will close the trading floor, not Cboe and not its management team,” Tilly said.

Reporting by Abhishek Manikandan in Bengaluru and John McCrank in New York; Editing by Shailesh Kuber , Arun Koyyur and Jonathan Oatis