Difference between revisions of "Chicago Board Options Exchange"

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=== Demutualization ===
 
=== Demutualization ===
  
In January 2007, CBOE filed an S-4 plan for demutualization with the Securities and Exchange Commission. When the demutualization is complete, one plan considered is to go public. One issue facing demutualization remains, however, and that is the issue of CBOT members’ exercise right privileges. The issue is still pending with the SEC, which CBOT outside counsel contends does not have the responsibility or expertise to decide the matter. The Delaware court, where the issue now resides, has not issued a decision.
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In January 2007, CBOE filed an S-4 plan for demutualization with the Securities and Exchange Commission. When the demutualization is complete, one plan considered is to go public. One issue facing demutualization remains, however, and that is the issue of CBOT members’ exercise right privileges. The issue is still pending with the SEC, which CBOT outside counsel contends does not have the responsibility or expertise to decide the matter. The Delaware court, where the issue now resides, has not issued a decision.<ref>{{cite web|name="In the Catbird Seat"|url=http://www.pionline.com/apps/pbcs.dll/article?AID=/20070723/PRINTSUB/70720032/1031/TOC|org=PIonline.com|date=November 5, 2007}}</ref>
  
 
== Products on Options Exchange ==
 
== Products on Options Exchange ==
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<references />
 
<references />
[[SFO Magazine]], "Three Decades of Options," Gail Osten (April 2003)
 
  
PIonline.com, "In the Catbird Seat." Isabelle Clary, (July 23, 2007) [[http://www.pionline.com/apps/pbcs.dll/article?AID=/20070723/PRINTSUB/70720032/1014]]
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== See Also ==
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*{{cite web|name="Three Decades of Options and the World is A-Changin'"|org=[[SFO Magazine]], [[Gail Osten]]| url=http://www.sfomag.com/articlepaiddetail.asp?ID=1401441491|date=November 5, 2007}}
  
 
[[Category:Exchanges]]
 
[[Category:Exchanges]]

Revision as of 22:02, 5 November 2007

Chicago Board Options Exchange
Cboe logo.gif
Founded April 1973
Headquarters Chicago, Illinois
Key People William Brodsky, chairman
Products Options on equities, equity indexes, ETFs and interest rate products (+futures and stock exchange)
Website www.cboe.com

The Chicago Board Options Exchange was founded in April 1973 as the first U.S. options exchange offering standardized, listed options. As one of six options exchanges in the United States, CBOE is the oldest and largest in total annual trading volume. Template:Infobox Midpage Need Sponsor Right CBOE today offers options on 1900+ equities, 28 broad-based indexes and sector-based indexes, 96 ETFs, and options on four interest rate products. It is regulated by the Securities and Exchange Commission (SEC).

  • CBOE trading volume in 2006 totaled a record 675 million contracts, a 44% increase over 2005.
  • Volume on CBOE’s equity options, an area in which CBOE has established a foothold over the years, rose 42% in year-against-year figures.
  • The exchange’s most actively traded product is the S&P 500 Index (SPX), which in 2006 recorded a 104.3 million contract-volume record.

History

Launched in April 1973, the Chicago Board Options Exchange was conceived of by the Chicago Board of Trade (CBOT). At the time of conception, futures volume was flagging, and the CBOT looked for new avenues to supplement revenues. Exchange-traded options was the answer. Shortly after CBOE was launched, grain trading volume took off as grain and oilseed prices rose to record levels on international buying. Were the CBOT to have known about this eventual extended market rally and subsequent transactional profits, some question whether CBOE would have made it onto the CBOT’s drawing board.

According to an article which chronicles the introduction of listed options,[1] the “birthing room” for CBOE was in the former smoking lounge of the CBOE, “a windowless, little room at the southeast corner of the then-120-year old grains exchange.”

Early trading volume averaged around 1,000 calls a day, and puts were not introduced for another four years. A year after launch, CBOE trading volume had grown 40-fold, allowing the exchange to move onto its own trading floor. This was facilitated by double-decking the CBOT trading floor at 141 West Jackson, with CBOE on the top floor and CBOT below.

Two years after CBOE launched options,The Options Clearing Corporation was formed, and further standardization was made with the addition of the Black-Scholes pricing model.

Launch of indexes

One of the most noteworthy milestones for CBOE was the launch of stock index options. In March 1983, CBOE introduced its first proprietary index, the CBOE-100 Index, later renamed the S&P 100 Index (OEX). Four months later, options trading on the S&P 500 Index (SPX) was launched.

Options on interest rate products were added at CBOE in 1989, and the next few years saw creation of more new products and indexing tools, such as Long-term Equity AnticiPation Securities (LEAPS) (1990), FLEX options and the VIX volatility index (both in 1993), the Dow Jones Industrial Average index (DJX) in 1997, and the VXN Volatility Index (VXN) in 2001. In 2002 the CBOE S&P 500 BuyWrite Index (BXMSM) was introduced as the first major benchmark for options performance in a study by a Duke University professor.

New building in 1984

In 1984, CBOE moved from the upper "deck" of the Chicago Board of Trade into its current ten-story building. Annual volume in that year exceeded 100 million contracts for the first time. Also during the year, CBOE launched its Retail Automatic Execution System (RAES) to facilitate electronic order execution.

The Options Institute

The Options Institute, the educational arm for CBOE, debuted in 1985, to educate investors about options. Over the years, Options Institute has added a comprehensive listing of live and online curricula taught by trading industry professionals. In 1992, the Options Industry Council was formed as an industry body devoted to the expansion of investor education, representing all U.S. options exchanges. Nonetheless, CBOE’s Options Institute continues as a strong source voice of options education.

At 25 years

In 1998, its 25-year anniversary, CBOE annual volume surpassed 200 million contracts for the first time. Subsequent years brought more changes in trading technology, such as the Designated Primary Market Maker system, the Rapid Opening System, and CBOEdirect.

CBOE Hybrid trading system and linkage

In 2003, in response to expanding technology needs of users, CBOE introduced its CBOE Hybrid Trading System to provide customers a blended solution of both screen-based and open outcry trading models. Also during 2003, CBOE and the other options exchanges successfully completed their Option Intermarket Linkage Plan, the culmination of CBOE’s 2000 proposal to the SEC to adopt a plan to link U.S. options markets.

Addition of futures and stock exchanges

Shifting the emphasis of CBOE’s corporate business model from a membership association to a for-profit model has driven the Exchange to seek new business opportunities. CBOE offers futures through the CBOE Futures Exchange, which opened for trading in 2004 focussing on volatility and variance contracts, and in 2006 the CBOE Stock Exchange (CBSX) was launched. Both the futures and stock exchange are fully electronic.

Also in 2006, CBOE forged an alliance with HedgeStreet, Inc., an all-electronic futures exchange, for the joint development of new products, sharing of technology services, and marketing and support for HedgeStreet’s binary options and futures products.

Demutualization

In January 2007, CBOE filed an S-4 plan for demutualization with the Securities and Exchange Commission. When the demutualization is complete, one plan considered is to go public. One issue facing demutualization remains, however, and that is the issue of CBOT members’ exercise right privileges. The issue is still pending with the SEC, which CBOT outside counsel contends does not have the responsibility or expertise to decide the matter. The Delaware court, where the issue now resides, has not issued a decision.[2]

Products on Options Exchange

CBOE offers options on 1900+ equities, on 28 broad-based indexes and sector-based indexes (see CBOE index options) and on 96 ETFs, and on four CBOE interest rate products.

Large-cap indexes

  • Options on S&P 500® Index (SPX®)
  • Options on Dow Jones Industrial Average (DJX)
  • Options on NASDAQ-100® Index (NDX)
  • Options on Mini-SPX Index (XSP)

Small-cap indexes

  • Options on Russell 1000® Index (RUI)
  • Options on Russell 2000® Index (RUT)

Micro-cap indexes

  • Options on iShares® Russell 2000® Index Fund (IWM)
  • Options on iShares Russell Microcap

Awards

  • 2007 Leader in information technology -- CIO 100 award: CIO Magazine for operational and strategic excellence in information technology (IT)
  • 2007 Exchange Leader in Fund Innovation for "Most Proactive Exchange for ETF Derivatives—The Americas": Third Annual Global ETF Awards® dinner
  • 2006 Exchange of the Year Award, North America for excellence and innovation: Structured Products magazine.
  • 2006 Leader in Exchange Performance Award for World's Best Derivatives Providers: Global Finance magazine
  • 2006 Leader in Options Innovation, Options on the CBOE Volatility Index for Most Innovative Index Derivative Award: 2006 Super Bowl of Indexing Conference
  • 2004 Leader in Benchmark Index Innovation for the CBOE S&P 500 BuyWrite Index (Most Innovative Benchmark Index): 2004 Super Bowl of Indexing Conference
  • 2004 Leader in Futures Innovation for the CBOE Volatility Index Futures (Most Innovative Index Derivative Award): 2004 Super Bowl of Indexing Conference
  • Award-winning Web site: Forbes "Best of the Web," five years running

News

  • On Oct. 31, 2007, CBOE reported that a CBOE seat had traded at an all-time high of $2.9 million, surpassing the previous record $2.75mm set on October 24, 2007. As of Oct. 31, a total of 81 seats had changed hands on the exchange in 2007. The record price of $2.9mm is an increase of 66% from the $1.75mm price paid at the close of 2006.[3]
  • On Oct. 18, 2007, CBOE released its third-quarter financials. Revenues for the period totaled nearly $97 million, a 53-percent over 2006, on record trading volume Of 260 million contracts.[4]
  • On September 27, 2007, CBOE began trading options on the CBOE Nasdaq-100 Volatility Index (VXN) and the CBOE Russell 2000 Volatility Index (RVX). These two new contracts expand the suite of volatility products offered exclusively at CBOE and the CBOE Futures Exchange (CFE). CBOE will now offer options on three of CBOE's volatility benchmarks, as VXN and RVX options will join the CBOE Volatility Index (VIX) options.
  • On August 28, 2007, CBOE began trading Basket Credit Event Binary Options (Basket CEBOs). Two of these are based on specific industry sectors (automobile and homebuilder) and the third as a high-yield composite basket. Basket CEBOs are call options based on a basket of reference entities (the basket components). The options automatically pay out a cash amount each time a credit event is confirmed in any of the basket components during the life of the contract.

References

  1. www.sfomag.com. SFO Magazine, April 2003.
  2. "In the Catbird Seat". PIonline.com.
  3. "CBOE SEAT TRADED TODAY AT A NEW RECORD PRICE; SALE FOR $2.9 MILLION TOPS LAST WEEK'S RECORD". Chicago Board Options Exchange.
  4. "CBOE ANNOUNCES 2007 THIRD QUARTER FINANCIAL RESULTS". Chicago Board Options Exchange.

See Also