The Chicago Board Options Exchange (CBOE) today reported record revenues and pre-tax earnings for the three-month period ending September 30, 2008, with unaudited totals of $120.1 million and $60.7 million, respectively.The third quarter of 2008 was the eleventh consecutive quarter of double-digit comparable revenues and earnings growth for the Exchange.
Third quarter 2008 revenues rose 24 percent from the same period a year ago fueled by the highest trading volume ever in a quarter. Revenues totaled $120.1 million this year compared to $96.8 million last year.This new high mark eclipsed the previous quarterly revenue record of $104.3 million reported for first quarter 2008.CBOE's average daily trading volume during July, August and September grew 29 percent, averaging 5.3 million contracts, compared to 4.1 million contracts during the same three months in 2007.Total trading volume during the third quarter was up 31 percent, with 341.8 million contracts traded this year against 260.0 million contracts during last year's third quarter. Year-to-date total revenues rose 24 percent to $322.0 million, up from $259.3 million for the same period in 2007.
CBOE's record revenue led to a 48-percent increase in pre-tax earnings during the third quarter 2008 compared to the same period a year ago.The Exchange's $60.7 million in pre-tax earnings was an all-time high, topping the $41.2 million reported for third quarter 2007 and surpassing the previous high of $52.8 million reported for first quarter 2008.
Quarter
Ended |
Q3 '08 vs Q3 '07 |
Year-to-Date 2008 |
Year-to-Date 2007 |
YTD '08 vs YTD '07 |
||
---|---|---|---|---|---|---|
(In millions) |
9/30/08 |
9/30/07 |
% Change |
thru Sept '08 |
thru Sept '07 |
% Change |
Total Revenues |
$120.1 |
$96.8 |
+24% |
$322.0 |
$259.3 |
+24% |
Total Expenses |
$59.3 |
$55.6 |
+7% |
$164.6 |
$155.6 |
+6% |
Income Before Taxes |
$60.7 |
$41.2 |
+48% |
$157.4 |
$103.7 |
+52% |
Net income |
$35.4 |
$22.7 |
+56% |
$91.4 |
$59.0 |
+55% |
"CBOE continues to demonstrate consistent earnings growth.The record results reported for the third quarter of this year represent the Exchange's eleventh consecutive quarter of double-digit comparable revenue and earnings growth," said CBOE Chairman and CEO William J. Brodsky. "It is especially noteworthy that the third quarter 2008 was marked by extraordinary market conditions and regulatory changes.Our highest priority was to be responsive to our customers and to ensure the orderly functioning of our marketplace, which we were able to accomplish with our breadth of risk management products, a liquid marketplace, our unique Hybrid trading environment and centralized clearing."
By continuing to focus on maximizing profitability, maintaining its strict focus on controlling expenses and leveraging its highly scalable operating platform, CBOE's operating margin for the third quarter was 50.6 percent, an increase of 8.1 percentage points from third quarter 2007.Year-to-date operating margin increased to 48.9 percent, up 8.9 percentage points from the same period last year.
Operating cash flow was $52.3 million for the third quarter of 2008 versus $30.5 million for the 2007 third quarter.CBOE used cash from operations primarily to fund systems improvements and its growth initiatives through capital expenditures of $17.1 million for the third quarter.The majority of CBOE's capital spending supports its ongoing efforts to increase systems capacity and functionality, including hardware and capitalized software.
The higher level of capital spending this quarter primarily was attributable to the development of initial systems requirements for "C2," CBOE's alternative exchange initiative, which was announced to its members on October 21 (see Information Circular IC08-175 on the CBOE website at www.cboe.org/Legal/crclInfo.aspx). This new, all-electronic options marketplace is expected to launch in 2009.The capital investment for C2 is expected to be approximately $25.0 million, with the majority of the systems development and corresponding capital outlay occurring in 2008.
"In our ongoing effort to provide the greatest flexibility in trade execution, CBOE is developing, in-house, an alternative trading solution for market participants.C2, our new all-electronic options marketplace, currently under construction, will complement our Hybrid marketplace by expanding our customer reach, thus enhancing CBOE's competitive position," said Brodsky.
For a more detailed report on the Exchange's third quarter 2008 financials, refer to Information Circular IC08-176 on the CBOE website at www.cboe.org/Legal/crclInfo.aspx.
During the third quarter of 2008, CBOE made the following announcements:
In July:
- CBOE introduced three new Volatility benchmarks - the CBOE Crude Oil Volatility Index (OVX), the CBOE Gold Volatility Index (GVZ) and the CBOE EuroCurrency Volatility Index (EVZ). The launch of these three new Volatility benchmarks extends the Exchange's Volatility franchise into new asset classes, including exchange-traded funds (ETFs) that directly hold commodities.
- CBOE and the Chicago Blackhawks announced a multi-year agreement establishing CBOE as the "presenting sponsor" of Chicago Blackhawks' hockey.The partnership entails extensive in-stadium and external promotion, as well as the sponsorship of two premier-location "CBOE seats," which will be made available for each home game via an online auction.This is the second time this year that CBOE has forged an exclusive partnership with a major Chicago sports team. In March, CBOE and the Chicago Cubs unveiled a similar corporate partnership.
In August:
- On August 20, CBOE announced that a definitive agreement was reached to settle the Exercise Right litigation between CBOE and former members of the Chicago Board of Trade (CBOT).Through the agreement, the parties agreed that there are no longer any persons eligible to become CBOE members pursuant to the Exercise Right. All claims that were brought by plaintiffs in Delaware Court will be dismissed.CBOE will be free to demutualize and will agree to take commercially reasonable steps to demutualize as soon as commercially possible. On September 17, CBOE's membership overwhelmingly approved the settlement agreement by a vote of 779 to 70.The settlement remains subject to Delaware Court approval.
In September:
- CBOE began trading options on the CBOE S&P 500 BuyWrite Index (BXM) -- ticker BXO.The BXO options, based on 1/10th the value of the BXM, will allow flexibility in trading and managing risk in covered call portfolios and structured products.
- CBOE began offering put binary options on the S&P 500 Index (SPX) -- ticker BSZ -- and on the CBOE Volatility Index (VIX) -- ticker BVZ.Binary options have only two outcomes -- a payoff of a set amount or nothing at all.The contracts were initially launched in July, but featured call options only.
Other Highlights:
- CBOE volume during the third quarter of 2008 totaled 341.8 million contracts compared to 260.0 million for third quarter 2007, an increase of 31 percent.Average daily trading volume for the quarter was 5.3 million contracts compared to 4.1 million in third quarter 2007, a 29 percent increase.For the first nine months of 2008, CBOE volume rose 31 percent to 899.6 million contracts versus 685.9 million during the same period a year ago.Average daily trading volume through September 2008 was 4.8 million contracts versus 3.7 million for the same period last year.
- For the quarter, a total of 23 CBOE memberships changed hands. $2,950,000 was the high price for the quarter on July 3, while the lowest price during the three months was $2,400,000 on August 4.Through the end of September, a total of 102 CBOE memberships have been exchanged this year.