August 2, 2013 2:04 pm

CBOE earnings up as interest rate fears spark market volatility

CBOE Holdings reported a surge in quarterly profits as the options exchange known for its proprietary S&P 500 and Vix contracts benefited from heightened market volatility in the second quarter.

The Chicago-based company said net profits rose 20 per cent to $45.5m on diluted earnings of 52 cents a share, up 8 cents from the same time a year ago. The activity lifted operating revenues by 14 per cent to $150.8m.

A pick-up in volatility in May and June has lifted the exchange sector broadly this reporting season as interest rate uncertainty led traders to enter into record numbers of Vix options contracts.

The Vix contracts, which are proprietary products of CBOE, are known as Wall Street’s “fear gauge” because they measure expectations of US stock market volatility. CBOE is preparing to expand trading in them to 24 hours a day.

“Our strong results were driven by increased trading overall and our successful efforts to expand trading in our higher-margin proprietary products,” said Edward Tilly, chief executive of CBOE.

However a 14 per cent rise in operating expenses, which climbed to $75m, limited the exchange from seeing the full benefits of the increased trading activity. Among those expenses, CBOE claimed an additional $1m in costs from an investigation by the Securities and Exchange Commission that had resulted in a $6m settlement in June for lax oversight of its trading members.

Shares in CBOE traded higher in limited pre-market activity in New York, climbing 4.2 per cent to $52.95.

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