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JLN Options: CBOE Holds its Own in 2012 – JLN Options

CBOE holds its own in 2012
by Sarah Rudolph William Brodsky has chosen an auspicious time to step down from his role as the Chicago Board Options Exchange’s CEO and become executive chairman of the board. The CBOE has seen steady growth in trading volumes from 2000-2011; average daily volume was down seven percent in 2012, but that was after the exchange hit a record high in 2011, and the 2012 number was an increase over 2010. “We had a good year in what was a relatively bad year for the financial industry,” Brodsky told a group of reporters at a press lunch Tuesday.  He also said the secular trend of options market growth was “unmistakable.” “When I left New York City to go to Chicago, people thought I’d lost my mind – going from a stock exchange to a derivatives exchange,” he said.  And now, derivatives have become so important that the IntercontinentalExchange (ICE), which didn’t exist 15 years ago, is focusing on opportunities in the derivatives markets in its merger with NYSE Euronext.  (ICE’s CEO Jeffrey Sprecher said as much in an interview with Maria Bartiromo on CNBC.) Brodsky also said that the ICE deal would not change the competitive field for the CBOE. “We’ve been competing with NYSE Arca and NYSE Amex for years,” he said.  “The deal has dramatic consequences for clearing, equity markets, and the smaller exchanges in Europe. But our situation is the same as it has always been.” The exchange owes much of its success to its volatility-related products based on its proprietary VIX index, which have become hugely popular among a wide range of market participants. “We are the only US exchange not really comparable to the others because we have a unique product, the volatility products,” Brodsky said. “The volatility complex is the most dynamic derivative product in history.” 2012 was the busiest year ever for the CBOE Futures Exchange, where futures on the VIX are traded. VIX futures volume set an annual volume growth record in 2012 when 23.79 million contracts traded, up 98 percent from 2011. Jay Caauwe, the CBOE’s director of business development, mentioned that, surprisingly, the record volumes and open interest in VIX products came in a year of very low volatility.  And the interest in the VIX products has broadened to a wider variety of market participants, including interest-rate traders, CTAs and funds.  Another instrument CBOE introduced relatively recently, weekly options on the SPX, has seen tremendous growth. Volume in the Weeklys has skyrocketed from 23,000 ADV the year of their launch in 2006, to 443,000 in 2012. Ed Tilly, currently CBOE’s president and COO, said the exchange had originally planned to trade the weekly options on its new all-electronic exchange C2, along with all-electronic pm-settled SPX options. However, the exchange had to wait too long for SEC approval of the SPXpm contracts, so it decided to launch Weeklys on the CBOE’s hybrid trading system rather than delay them. CBOE holdings also plans to restructure its board by replacing three directors who run trading firms with existing independent directors, the Wall Street Journal has reported, and Brodsky confirmed. The move is in response to an ongoing investigation by the SEC into CBOE’s market regulatory responsibilities. “When I first came to the exchange,” he said, “there were 21 board members and only three were independent directors. Now, the exchange wants a board with independence, with members who do not necessarily come from the industry the exchange is a part of.”  The restructuring move is at the CBOE’s own initiative; it was not ordered by the SEC. Brodsky will step down from his position as CEO at the next Annual Meeting in May, and Edward Tilly will become the exchange’s new CEO. *   *   *   *   *

LEAD STORIES


CBOE Plans to Exclude Trading Executives From Board of Directors
By Nina Mehta, Bloomberg
The operator of the Chicago Board Options Exchange plans to exclude trading-industry directors from its board.
Three members who run brokerages and had been designated as “representative directors” will leave and eventually be replaced by executives from outside the trading industry, memos on CBOE Holdings Inc. (CBOE) website show.
http://jlne.ws/W0D7Lw CBOE’s Brodsky: No merger plans for now
Lynne Marek – Crain’s
Chicago options exchange company CBOE Holdings Inc. sees the benefits of industry consolidation, but it’s still taking a pass on a merger for now, CEO Bill Brodsky told reporters at an annual meeting with media.
http://jlne.ws/11z1nrC VIX ETFs Still Flopping as Small-Caps Hit Fresh High
ETF Trends
The iShares Russell 2000 (NYSEArca: IWM) rose to a new all-time high on Tuesday before pulling back somewhat in afternoon trading.The U.S. small-cap index logged another record price level with the CBOE Volatility Index lingering near lows last seen in 2007.
http://jlne.ws/W0LyXf Stock Pickers Shaking Macro Shackles
Marketbeat
As corporations prep to post quarterly earnings in the weeks ahead, stock pickers are in the best position in years to capture market moves based on fundamental factors unique to each company, according to a key metric in the options market.
http://jlne.ws/W7s6F9 Major Trading of VIX Put Spreads
Andrew Giovinazzi, OptionsInsider
The CBOE Volatility Index (VIX) is trading up a .10 to 13.62.   VIX is trading near 52-week lows.Paper traded a block of the VIX Feb 13 Weekly 14/17 put spreads for 1.73 on 25,000 contracts. 
http://jlne.ws/W7sinR

EXCHANGES


Wells Fargo Securities Joins CME Group for Clearing of Listed Futures and Options
Fort Mill Times
Wells Fargo & Company (NYSE:WFC) announced today that its subsidiary Wells Fargo Securities, LLC has joined the CME Group, the world’s leading and most diverse derivatives exchange and clearing house, as a direct listed futures and options clearing member.
http://jlne.ws/W0FMoq Direct Edge to Seek Brazil Exchange License in ‘Weeks’
By Reuters
Direct Edge Holdings plans to apply for a license to operate a Brazilian exchange in “a matter of weeks.”
http://jlne.ws/W0GCSb Israel markets increasingly unmoved by crises, says BoI
New “fear” index finds local financial markets react less to unhappy events, in part because they’ve been there before, done that.
The Israeli economy has developed immunity to political and security-related crises, a Bank of Israel study concludes based on a “fear” index it created. The central bank’s new index is rather akin to the Chicago Board Options Exchange’s VIX volatility index, better known as the “fear index” – it t racks the state of trepidation in the marketplace.
http://jlne.ws/W0EycW  

TECHNOLOGY


NYSE Reveals Brief Order Routing Hiccup
NYSE Euronext issued an alert saying that between 9:30 a.m. ET until 9:34 a.m. ET on Wednesday its NYSE and NYSE MKT exchanges “experienced a brief issue” routing orders to three exchanges: Direct Edge’s EDGA and EDGX exchanges and a platform run by the Chicago Board of Options Exchange (CBOE).
http://jlne.ws/W0DPs9
FXCM Sees Currency Brokerages Failing as Revenue Declines
By Lucy Meakin, Bloomberg
The foreign-exchange industry will see many brokerages close or be bought out as they struggle to cope with a decline in business, according to Brendan Callan, chief executive officer for Europe at FXCM Inc. (FXCM)  “Small firms won’t survive” as low volatility levels cut volume and revenue, Callan said at a briefing in London today. FXCM, an online currency broker, expects to be “very aggressive” in acquisitions, he said. JPMorgan Chase & Co.’s G7 Volatility Index, derived from premiums on foreign-exchange options, dropped to the least since 2007 last year as record-low central-bank interest rates and exchange-rate controls damped rewards of currency trading. 
http://jlne.ws/W0EYjp

STRATEGY

Videocast: Cheap insurance in VIX
Optionmonster
http://jlne.ws/W0DqWt

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