CBOE Holdings Management Discusses Q2 2012 Results - Earnings Call Transcript

CBOE Holdings (CBOE)

Q2 2012 Earnings Call

August 02, 2012 8:30 am ET

Executives

Deborah Koopman - Vice President of Investor Relations

William J. Brodsky - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Chicago Board Options Exchange Incorporated and Chief Executive Officer of Chicago Board Options Exchange Incorporated

Alan J. Dean - Chief Financial Officer, Executive Vice President of Finance & Administration and Treasurer

Edward T. Tilly - President, Chief Operating Officer, President of CBOE, President of C2 Options Exchange, Chief Operating Officer of C2 Options Exchange and Chief Operating Officer of CBOE

Analysts

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Howard Chen - Crédit Suisse AG, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

Jillian Miller - BMO Capital Markets U.S.

Presentation

Operator

Good day, everyone, and welcome to today's CBOE Holdings Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. At this time, for opening introductions, I would like to turn the call over to Debbie Koopman, Vice President, Investor Relations.

Deborah Koopman

Thank you. Good morning and thank you for joining us on our second quarter conference call. On the call today, Bill Brodsky, our Chairman and CEO, will discuss the quarter and our strategic initiatives for 2012. Then Alan Dean, our Executive Vice President and Chief Financial Officer, will detail our second quarter 2012 financial results. Following their comments, we will open the call to Q&A. Also joining us for Q&A is our President and COO, Ed Tilly, and our Executive Vice President and Chief Business Development Officer, Ed Provost.

In addition, I'd like to point out that this presentation will include the use of several slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. As a preliminary note, you should be aware that this presentation contains forward-looking statements, which represent our current judgment on what the future may hold, and while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, after this conference call.

Now, I'd like to turn the call over to Bill Brodsky.

William J. Brodsky

Thanks, Debbie. Good morning and thank you for joining us today. It is my pleasure to report another very positive quarter at CBOE Holdings, where we delivered our eighth consecutive quarter of adjusted earnings per share growth and made significant year-over-year gains in market share. Our strong performance in multi-listed products, our ability to leverage proprietary products and a prudent approach to cost management enabled our company to achieve solid financial results despite lower industry-wide trading volume.

CBOE Holdings continues to generate and return enhanced value to our stockholders. We are especially pleased with our board's recent action to increase our quarterly dividend by 25% and to increase our share repurchase program by $100 million. My remarks today will focus on progress made in the quarter on our key strategic initiatives for 2012: product development; optimizing revenue in commoditized products; broadening our customer base; and leveraging our state-of-the-art trading technology.

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.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

Bitcoin Today: Prices Rally Ahead of Chinese New Year, Moody's Weighs in on Risk

Bitcoin Today: Prices Rally Ahead of Chinese New Year, Moody's Weighs in on Risk

Industrial Sector Fundamentals Remain Robust Amid Increased Market Volatility

Industrial Sector Fundamentals Remain Robust Amid Increased Market Volatility

CBOE Stock Is a Buy Despite Worries Over Volatility Products

CBOE Stock Is a Buy Despite Worries Over Volatility Products

Jim Cramer: If There's VIX Manipulation, the Offenders Should Be Prosecuted

Jim Cramer: If There's VIX Manipulation, the Offenders Should Be Prosecuted

Cramer: Total Battleground

Cramer: Total Battleground