UPDATE 2-CBOE profit tops estimates as volatility pumps up trading

08/02/2013

* Adjusted profit 54 cents/share vs Street view 51 cents

* Rev up 14 pct, boosted by trading in exclusive contracts

* CFO says to keep stock-options business despite lower fees

* Shares down 1 pct in early trading (Adds executive and analyst comments, background, share move)

By Ann Saphir

Aug 2 (Reuters) - CBOE Holdings Inc, operator of the Chicago Board Options Exchange, reported a higher second-quarter profit, beating analysts' expectations, as stock market volatility climbed and trading in CBOE's lucrative exclusive contracts surged.

The results, announced Friday, underscored the importance of CBOE's proprietary contracts, including options on the Standard & Poor's 500 Index and futures and options on its CBOE VIX volatility index, known as Wall Street's fear gauge.

Revenue rose 14 percent to $150.8 million. CBOE's highest-fee products, its exclusive index options and futures tied to volatility, accounted for 34.7 percent of all trading, up from 28 percent a year earlier.

Adjusted earnings rose to $47.0 million, or 54 cents a share, from $37.9 million, or 44 cents a share, a year earlier. Analysts' average forecast was 51 cents a share, according to Thomson Reuters I/B/E/S.

Nearly 5 million contracts changed hands on an average day in the second quarter, CBOE said.

Late last month CBOE's new chief executive, Edward Tilly, said the exchange was back on track to expand trading hours in some of its exclusive products later this year. Analysts say the plan will help boost trading further by capturing demand from overseas investors.

"We really think that there's terrific upside," Tilly told analysts on a conference call.

CBOE has not done as well in stock-options trading, where it must compete with nearly a dozen other U.S. trading venues. It cut fees earlier this year to stem a loss of market share to competitors.

Two analysts on the conference call, noting the decline in pricing on equity options, suggested dropping the word "options" altogether and instead calling it the Chicago Board Volatility Exchange, or the Chicago Board Indexes Exchange.

But Chief Financial Officer Alan Dean told analysts that CBOE was committed to keeping single-stock options, even at the risk of lower fees, in order to keep its customer base and allow it to charge traders for access.

"Options is in the name of our exchange," Dean said. "It's very important to us to remain the leader in all categories."

Trading in July has been less robust than in the second quarter, with 4.46 million contracts changing hands on an average day, CBOE reported on Thursday.

Adjustments to 2013 second-quarter earnings included $1 million for a settlement with the U.S. Securities and Exchange Commission over a regulatory probe.

CBOE settled with the agency in June, paying a $6 million fine and agreeing to make major changes to its regulatory structure after the SEC found its self-regulatory compliance lacking. CBOE had earlier reserved $5 million for the fine.

CBOE shares were down 1 percent to $50.30 in early trading. (Reporting by Ann Saphir; Editing by Jeffrey Benkoe and John Wallace)



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