UPDATE 2-CBOE's longtime CEO Brodsky to step down in May
* Tilly to take CEO post; Brodsky to be executive chairman
* Brodsky led CBOE to its IPO in 2010
(Adds details, comment from investors)
Dec 12 (Reuters) - CBOE Holdings Inc Chief Executive William Brodsky, who transformed the member-owned exchange into a publicly-traded company best known as the home of Wall Street's favorite fear index, will step down in May.
Brodsky, 68, will be succeeded by President and Chief Operating Officer Edward Tilly, 49, CBOE said on Wednesday. Brodsky will assume the role of executive chairman.
Brodsky has run the operator of the oldest and largest U.S. options exchange since 1997.
During his tenure, what was once a cottage industry dominated by just four brick-and-mortar exchanges exploded into a hyper-competitive part of the securities-trading world, with no less than 11 exchanges now vying for a cut of 16 million or so contracts that change hands on an average day.
Brodsky carved out a dominant place for CBOE by relentlessly defending from would-be imitators its exclusive - and lucrative - options on benchmarks like the Standard & Poor's 500 Index and the CBOE Volatility Index, the well-known gauge of Wall Street anxiety known as the VIX.
He moved most of CBOE's trading to the computer screen, built an all-electronic trading venue in New York, and transformed the company from member-owned club to publicly traded company over several years, culminating in an initial public offering in June 2010.
Wednesday's announcement was unexpected, as Brodsky's contract runs through the end of 2013. Asked about his future as CBOE chief in a Reuters interview in October, he said his father had been on Wall Street for 60 years and he had done 45 and wasn't quitting yet.
The transition is unlikely to cause disruption, as Brodsky will likely continue to wield significant power, said Thomas Caldwell, chairman of Toronto-based Caldwell Securities and a longtime Brodsky booster
"He's not actually out the door and down the street. He'll still be there and will be a guiding influence," said Caldwell, who manages more than 1.5 million CBOE shares. "CBOE is still the most profitable of the options exchanges. Every other options exchange is a wannabe."
Brodsky keeps up a brutal schedule. When traveling, which is often, he can start at 6:30 in the morning and go until 10 at night, said former CBOE board member William Power.
"When I joined the board of directors in 2003, we had $20 million in revenues and we hardly had any profits to speak of," Power said. "Today in 2012 we have a half a billion dollars in revenues and the transition is completed from the non-profit to a profit-making company."
One investor played down the impact of the leadership change, saying Brodsky would continue to play a role in guiding the company.
"This will probably remove him somewhat from day-to-day operations, but his counsel, advice and leadership will still be present," said Chuck Sorsby, president of Sorsby Financial, a money management and hedge fund company in Chicago. Sorsby's five seats at the CBOE were converted into 400,000 shares at the IPO. "I think this is a normal transition to what has been occurring over time."
Before coming to CBOE, Brodsky spent 12 years running the Chicago Mercantile Exchange.
From time to time, speculation has surfaced that CME Group Inc would buy the smaller options exchange to create a single Chicago market behemoth.
But investors who bought into the CBOE's IPO in hopes that the options market would be snapped up were disappointed. The financial crisis put the kibosh on what had been a wave of exchange mergers, and Brodsky turned his attention to building the market from within.
Tilly, as chairman of the member-owned company, was known to attend CBOE-sponsored breakfasts in a trading jacket, filling up his plate with hearty helpings of bacon and eggs and carrying on conversations in the hoarse voice of a longtime floor trader.
In recent years he has exchanged his trading jacket for a suit and tie, and now usually goes for the kind of breakfast that Brodsky favors, including cereal and fruit.
Tilly has been a boon for the exchange, Power said. "He has an uncanny ability to see the problems of the large customer before they do and deal with them ahead of the competition."
(Reporting by Tanya Agrawal in Bangalore, Jonathan Standing in Singapore, Doris Frankel in Chicago; Editing by Bernadette Baum and John Wallace)