CBOE Holdings Inc. (CBOE): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are upgrading our recommendation on CBOE Holdings to Neutral given its commendable recovery in volumes and controlled expense guidance. The third-quarter earnings also topped the Zacks Consensus Estimate, driven by improved transaction and market data fees. These were partially offset by lower rate per contract, while higher expense restricted margins' growth. Absence of long-term debt and low capital requirements limit balance-sheet risks, while improved operating cash flow facilitates effective capital deployment. A diversified product portfolio and core competencies fuel future growth prospects raise optimism. However, industry volatility and sluggish credit quality, amid intense competition and challenging regulations keep us on sidelines.

Overview:

Based in Chicago, Illinois, and founded in 1973, CBOE Holdings Inc. is a leading derivative exchange in the U.S. trading in stock or equity options, index options, exchange traded-products (ETP) including exchange traded- funds and notes (ETF and ETN) options and futures products.

CBOE Holdings became a Delaware corporation in 2006 and went public in Jun 2010. The demutualization in Jun 2010 brought into effect three stand-alone exchanges with CBOE Holdings as the parent. These include:

Chicago Board Options Exchange Inc. (CBOE): This is the primary exchange for trading of listed options through both electronic trading and open outcry under a hybrid trading model.

C2 Options Exchange Inc.: This is the all-electronic exchange for trading options executed on a separate fee model. C2 became functional in 2010.

CBOE Futures Exchange LLC (CFE): This is the all-electronic futures exchange regulated by the Commodity Futures Trading Commission (CFTC), while all trades are cleared by the Options Clearing Corp. (OCC). It is operational since 2004.

CFE particularly trades in the CBOE S&P 500 Volatility Index (VIX Index) futures (VX), Mini-VIX (VM) futures, S&P 500 Variance (VA) futures, CBOE Nasdaq-100 Volatility Index (VXN) futures (VN), CBOE Gold ETF Volatility Index (GVZ) security futures (GV), CBOE Crude Oil ETF Volatility Index (OVX) security futures (OV), CBOE Emerging Markets ETF Volatility Index (VXEEM) security futures (VXEM) and CBOE Brazil ETF Volatility Index (VXEWZ) security futures (VXEW).

Overall, CBOE Holdings derives its operating revenues from transaction fees (69% of total operating revenue in 2013), access fees (11%), exchange services and other fees (7%), market data fees (4%), regulatory fees (6%) and other revenues (3%). The company had staff strength of 650 employees at the end of Dec 2013.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: ETP , CBOE , OCC , VA , GV

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