CBOE plans to launch stock exchange
(Crain’s) - The Chicago Board Options Exchange said Thursday that it plans to launch a stock exchange in January, adding equities to its stable of options and futures products.
The No. 1 options exchange in the U.S. will add both electronic and open-outcry trading on the 2,500 most active stocks on U.S. exchanges, pending approval of the venture by the Securities and Exchange Commission. The effort puts the CBOE in direct competition with the largest stock exchanges in the U.S.: the New York Stock Exchange (NYSE), the Nasdaq Stock Market, and the American Stock Exchange.
“There are many different options trading strategies that involve using the (stock) market, and much of that volume now heads to New York,” says James S. Ginsburg, a managing member of exchange investor Vernon & Park Partners LLC in Chicago. “I imagine the CBOE believes that they could keep a portion of that volume on their own exchange.”
Four trading firms are investing cash in the Chicago Board Options Exchange’s (CBOE’s) stock trading venture: Interactive Brokers Group LLC, Susquehanna International Group LLP, LaBranche & Co. and VDM Specialists LLC. CBOE will hold a 46% stake in the new exchange, which will be called CBOE Stock Exchange LLC, or CBSX.
“We are throwing our hat in the ring,” said CBOE CEO William Brodsky at a press conference Thursday. “We believe this is the time for CBOE to get into the business.”
The new exchange will use CBOE’s existing Hybrid Trading System, which gives customers the option of entering orders electronically or through a phone call to the trading floor. The CBOE will manage the new exchange and provide its technology infrastructure, while its partners each put up cash “in seven- and eight-figure” amounts, according to Mr. Brodsky, who did not disclose exact numbers.
“We have proven technology, we have a hybrid system that works, and we have partnered with firms that are at the very core of the New York Stock Exchange’s market structure,” Mr. Brodsky said in an interview. “We have a system that we’ve already built, and we spent the money and we control it.” LaBranche and VDM are two of the largest specialist firms on the floor of the NYSE.
“It’s interesting that two organizations that have very strong ties to the NYSE would become a part of this new stock exchange,” noted Mr. Ginsburg.
CBOE has gained marketshare in options trading this year, allaying fears that the upstart International Securities Exchange and its all-electronic options trading platform would usurp the Chicago exchange’s position as the leading U.S. options marketplace.
Mr. Brodsky said he would consider the stock exchange a "huge success" if it captured 5% of U.S. stock trading volume.
Also on Thursday, the exchange said its board of directors voted to file a form with the SEC to convert from a membership organization into a for-profit corporation. The long-expected filing, which Mr. Brodsky said will probably occur in August, could be a precursor to an initial public offering.
The CBOE today named Edward Tilly, 42, to the position of executive vice chairman. Mr. Tilly will oversee business development and strategic planning. He currently services as member vice chairman on the exchange’s board of directors. That position will be filled by John Smollen, 46, a CBOE board member. |
