UPDATE 2-CBOE profit rises, beating Wall Street view

Ann Saphir
Friday, 1 Nov 2013 | 10:32 AM ET

(Adds share price rise, executive comments, spending forecast)

Nov 1 (Reuters) - CBOE Holdings Inc, which operates the biggest U.S. stock-options market, posted a higher quarterly profit Friday on increased trading of exclusively listed contracts, and its CEO forecast "more to come" as volatility rises to historical norms.

CBOE's expenses were lower than many analysts expected, and the company's shares rose in morning trading.

Third-quarter net income was $41 million, or 47 cents a share, the Chicago-based company said. That beat analysts' average forecast of 45 cents a share, according to Thomson Reuters I/B/E/S.

CBOE, under new Chief Executive Edward Tilly, has fought hard to boost its exclusive franchise in stock-index options, even as it faces a growing number of competitors vying for market share in options on individual stocks. Its exclusively listed contracts command much higher trading fees than any other of its products.

Last month CBOE began a long-delayed expansion in trading hours for contracts tied to its CBOE VIX index, known as Wall Street's fear gauge.

Starting next week it will allow trading in its popular VIX futures to begin at 2 a.m. CST (0800 GMT), about five hours earlier than currently, as the company seeks to pull in traders from Europe.

"We think we will increase the interest from high frequency traders and day traders if we return to a higher level of volatility," Tilly told analysts on Friday, adding that "there's more to come" from that highly active set of traders.

The CBOE VIX index, at about 13.47, is trading below its long-term average of 20 and is far below its peaks during the financial crisis. Trading in the contract typically rises when volatility increases.

In the third quarter, trading in single-stock options fell to an average of 1.77 million contracts a day from 1.96 million a year earlier; trading in CBOE's index-options rose to 1.38 million contracts daily from 1.15 million.

CBOE gets about 67 cents in revenue for each index-option trade, compared with only about 8 cents for each option on an individual share.


The Chicago Board Options Exchange, like several of its U.S. competitors in U.S. equities trading, has been plagued by technological problems this year.

CBOE had to shut down for a half day last April 25 because of a problem connected to expanding its trading hours.

CBOE Chief Financial Officer Alan Dean told analysts on Friday that the company would boost capital spending next year to "harden" its trading technology and guard against technological glitches. He declined to give details.

Technology failures forced shutdowns at other U.S. exchanges this year as well, disrupting trading and undermining confidence in the stability of the technological infrastructure for U.S. equities trading.

CBOE on Friday lowered its forecast for expenses this year, projecting spending on capital projects of $33 million to $36 million, down from earlier guidance of $35 million to $40 million.

Its forecast for core operating expenses was unchanged at $189 million to $194 million.

In the year-earlier third quarter CBOE earned $37.7 million, or 43 cents a share, excluding a one-time tax benefit.

CBOE shares were up 0.8 percent to $48.83 in morning trading.

(Reporting by Ann Saphir; Editing by Gerald E. McCormick and John Wallace)

  Price   Change %Change