CBOE’s Brodsky says niche is not only option

By Reuters
Posted Feb. 23 at 4:08 p.m.

CBOE Holdings Inc.’s focus on equity derivatives has kept it competitive against larger rivals, but remaining a niche player “may not be the only way that we will succeed,” CEO William Brodsky told Reuters in an interview on Wednesday.

Germany’s Deutsche Boerse AG agreed last week to buy NYSE Euronext in a $10.2 billion deal, the biggest tie-up in a recent wave of global mergers that has also brought together the operators of the Toronto and London exchanges and the Australian and Singapore exchanges.

The deals have sparked speculation over what exchange could be the next takeover target.

Brodsky’s comments, in an interview in his office above the Chicago Board Options Exchange trading floor, appeared to leave the door open to the biggest U.S. options market joining the M&A fray, though he did not suggest any particular deal was under consideration.

At a February 8 board meeting, a day before news of the most recent mega-mergers broke, CBOE management told directors that it would not be opposed to a transaction, though no specific possibilities were outlined, according to a source with direct knowledge of the matter.

All three exchange deals face regulatory hurdles and do not immediately change the landscape for independent exchanges like CBOE, Brodsky told Reuters.

Indeed, he said, even if regulatory hurdles prove surmountable, “it’s too early to tell” whether another bidder could come in to disrupt Deutsche Boerse’s takeover of NYSE Euronext.

Nasdaq OMX is considering a bid for NYSE Euronext so as not to be left out of the global exchange merger frenzy, according to a person familiar with the situation.

“From our view, we are just going to stay focused, because what we’ve done, particularly with our unique products, has been very successful, and they happen to be growing faster than anything else in the options business,” Brodsky said, referring to CBOE’s exclusive index options.

“If we do what we do well, we are better for our shareholders independent, and could conceivably be better for our shareholders in a consolidation.”

Brodsky, whose office walls are hung with drawings, paintings and photographs of financial exchanges worldwide, declined to speculate on the future of the latest round of exchange consolidation. Many of the exchanges depicted in his collection no longer exist, victims of an industry that has undergone several waves of consolidation.

“The marketplace will continue to evolve, and I don’t think there is a specific endgame here,” he said. “What happens normally in industries is when two big players consolidate, there’s always speculation on who is going to be next. I can’t speculate on how this is going to be nine months from now or 12 months from now.”

Combined, Deutsche Boerse and NYSE Euronext handle about 40 percent of all U.S. options trading, eclipsing CBOE’s market share. What those figures hide, Brodsky said, is that much of CBOE’s business is in exclusive options, like those on the Standard & Poor’s 500 Index, that are much more profitable than contracts listed on other exchanges.

“Right now, we view ourselves as a niche player in the fastest growing segment of exchanges and markets,” Brodsky said.

Asked if he intends to remain a niche player, he said, “I certainly am not uncomfortable with the idea, but I am also not so unrealistic to say that that may not be the only way that we will succeed.”

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CBOE Holdings

CBOE Holdings Inc. claims it is the largest option exchange in the United States. The company, in addition to its core options trading business, provides marketplaces for trading futures contracts...

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