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CBOE Holdings Management Discusses Q2 2012 Results - Earnings Call Transcript

Turning first to product development, we remain keenly focused on our high-margin proprietary products, which include CBOE's S&P 500 options or SPX and options and futures on CBOE's volatility index, VIX. Our S&P 500 Index product line, which includes SPX, SPXpm and SPX Weeklys, carries our highest options rate per contract. Second quarter average daily volume in SPX rose 12% over the prior quarter and 10% over last year's second quarter, while trading in SPXpm increased 17% against the previous quarter. SPX Weeklys continued to be one of the year's fastest-growing product. Through June, in SPX Weeklys, trading is up 46% over the previous year, while the second quarter volume rose 54% over the previous quarter and 65% over the second quarter of 2011.

We continue to design new SPX products to respond to specific customer needs. Last Friday, we launched SPX Variance Strips or V-Strips, which are aimed at qualified professionals, including OTC users. V-Strips are designed to trade a portfolio of SPX options series that replicate implied volatility in a single transaction and employ quoting conventions similar to those used for trading OTC variance swaps. After execution, each V-Strip is broken down into its components, which might include as many as 1,000 SPX contracts, which are then transmitted to and cleared by the Options Clearing Corporation.

As you can imagine, the unique construction of the V-Strip necessitates the support of highly customized trading technology. Our systems teams responded with the creation of a new patent-pending technology called BasketWeaver, which employs reverse engineering to deconstruct the VIX into its component parts. It is a wonderful example of how systems development is leveraging to power product innovation at CBOE.

Moving on to our volatility franchise, trading in options and futures on CBOE's volatility index or VIX continued to provide tremendous growth through the quarter despite relatively low volatility and low marketwide options and futures volume. VIX options volume rose 22% over the second quarter of 2011 and the dramatic growth in trading in VIX futures shows no signs of abating.

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