CBOE’s IPO

The value of the CBOE implied by the last sale of one of its seats may overstate the exchange’s growth potential

CBOE’s exclusive Index options are not growing, while ETFs options, traded on multiple exchanges, are substituting index options -  SPY ETF options have grown faster than S&P500 index options.

The shift to non-exclusive, low margin ETF options is weighting down on CBOE´s RPC.

Furthermore, liquid options are shifting away from quote-driven venues like CBOE and ISE to order-driven venues like NYSE and PHLX as HFTs compete against market makers with tighter spreads.

Market makers’ profits collapse as spreads tighten. Therefore, exchanges like CBOE are forced to extended liquidity payments, bringing down their net revenue capture .

New entrants like BATS will pressure incumbent exchanges’ fees as they did in equity markets.

Given CBOE’s relatively higher P/E, publicly-traded exchanges may present higher return prospects .

Provided By: Equity Research Desk www.erdesk.com