Best Options Exchange: CBOE

Best Buy-Side Dark Pool: Liquidnet

For exchange operators, market share is the bottom-line gauge of success, failure and all points in between.

If a venue provides market participants with the right liquidity, product choice, pricing and customer service, market participants will trade there; if not, they won’t.

CBOE Holdings walked the walk in 2014, as it led all U.S. options-exchange operators with a market share of about 30%, according to OCC. That comprised 28% from its flagship Chicago Board Options Exchange and 2% from its newer, all-electronic C2 exchange.

“2014 was another terrific year, really from any angle that we can evaluate ourselves,” said Edward Tilly, CBOE Holdings chief executive officer. “We experienced record trading volume at each of our exchanges. We expanded our index complex and continued to diversify our volatility product line. We broadened access to our marketplace with the rollout of nearly 24-hour trading for VIX futures in June. And we enhanced the way that we interact with and educate our customers through our redesigned and a new mobile app.”

In a year broadly characterized by tepid volumes and trading activity, Chicago-based CBOE Holdings reported record overall volume of 1.3 billion contracts, 12% more than in 2013. Average daily volume was 5.3 million contracts across CBOE, C2, and the CBOE Futures Exchange.

Edward Tilly, CBOE

Edward Tilly, CBOE

CBOE Holdings has market share of about 22% in equity options, trailing Nasdaq OMX’s three options exchanges by about 5 percentage points, but the 42-year-old company has a veritable 96% stranglehold in index options, led by its CBOE Volatility Index (VIX Index) product suite.

And the company isn’t standing still. In December, CBOE said it entered into a licensing agreement with MSCI to exclusively offer options trading in the U.S. on several MSCI indexes, including the well-known MSCI EAFE Index and the MSCI Emerging Markets Index.

“We consider the addition of MSCI as one more global hedging tool for our customers,” Tilly told Markets Media. “We’re trying to round out our customers’ ability to hedge their exposures not just to the U.S., but globally.”

The options-exchange business is fiercely competitive, especially in single-stock options, as market-operator heavies IntercontinentalExchange, International Securities Exchange, Nasdaq and Bats tussle to capture and protect market share. CBOE isn’t above the fray, but it does have a competitive advantage in the exclusivity of some of its index products.

For 2015, Tilly said he expects CBOE to “further extend each of the successes of last year, continue to expand the product line and look to build on the recent launches of short-term VIX (VXST), and interest-rate VIX (VXTYN).” The company will continue its push into Europe and Asia with the launch of extended trading hours for SPX and VIX options, which will more closely align with the trading days of those continents.

CBOE extends its educational and business development reach with its annual CBOE Risk Management Conference, which is designed for institutional users of equity derivatives and volatility products. Now in its 31st year in the U.S., the conference is also held annually in Europe and will launch in Asia for the first time later this year. The event is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure, enhance yields and lower portfolio volatility.

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