CBOE mulls major revamp to ensure survival
By Jeremy Grant in Chicago
Published: December 15 2002 23:32 | Last Updated: December 15 2002 23:32
The Chicago Board Options Exchange is considering reforming its membership structure and becoming a "for profit" company in a bid to ensure its survival in the increasingly cut-throat global options industry.
The world's largest options exchange is also planning a significant expansion of electronic trading technology in a bid to stave off competition from its electronic trading rivals. Both developments come as the loss-making CBOE continues to suffer from falling stock markets and the possibility of additional competitive threats.
Although the US has five options exchanges, a sixth jointly owned by the Boston Stock Exchange, the Bourse de Montreal and Interactive Brokers Group is expected to start trading early next year.
Bill Brodsky, CBOE chairman and chief executive, said that allowing a "significant step" towards electronic trading and adopting a shareholding structure would strengthen the exchange and allow it to take part in industry consolidation.
"What we're looking at is whether we should change from being a seat-based exchange to a stock-based exchange. It gives us flexibility to do other things, to merge, to do whatever you want to do. We're starting to look at the legal and business aspects of it right now," he said in an interview.
Although the largely "open outcry" CBOE continues to dominate trading of stock exchange index options, it has lost market share in equity options to the International Securities Exchange, which started trading in 2000 and is the only fully electronic options exchange in the US.
In another sign of the CBOE's declining fortunes, the value of its trading seats - which allows the buyer the right to trade on the exchange - has fallen from $735,000 per seat in 1998 to $150,000 currently.
The CBOE's plans come after the Chicago Mercantile Exchange, the largest US futures market, earlier this month sold about 10 per cent of its shares in an initial public offering, after demutualising in 2000.
Members of the Chicago Board of Trade are expected in January to vote on a restructuring plan that would turn it into a shareholder enterprise - although an IPO has been ruled out for now.
Asked whether he was considering an IPO for the CBOE, Mr Brodsky said: "It would be absurd to rule it out, but premature to talk about it."
Mr Brodsky said that the exchange's CBOE Direct electronic trading platform - currently only used on an experimental basis after normal trading hours - would be fully introduced by early next year.
He said he expected "dramatically more" of the CBOE's trades to be conducted electronically as a result. "The new system would allow the electronic accessibility of a screen-traded system along with the depth and liquidity of the floor. It's our response, quite frankly, to ISE," Mr Brodsky added. |
