CBOE Holdings, Inc. is the holding company for Chicago Board Options Exchange,
Incorporated, CBOE Futures Exchange, LLC, C2 Options Exchange, Incorporated
and other subsidiaries.
The Companys principal business is operating markets that offer for trading
options on various market indexes (index options), mostly on an exclusive basis,
and futures contracts, as well as on non-exclusive "multiply-listed"
options, such as options on the stocks of individual corporations (equity options)
and options on other exchange-traded products (ETP options), such as exchange-traded
funds (ETF options) and exchange-traded notes (ETN options). The Company operates
three stand-alone exchanges, but reports the results of its operations in one
reporting segment.
CBOE is our primary options market and offers trading in listed options through
a single system that integrates electronic trading and traditional open outcry
trading on our trading floor in Chicago. This integration of electronic trading
and traditional open outcry trading into a single exchange is known as our Hybrid
trading model. CFE, our all-electronic futures exchange, offers trading in futures
on the VIX Index and other products. C2 is our all-electronic exchange that
also offers trading in listed options, and may operate with a different market
model and fee structure than CBOE. All of our exchanges operate on our proprietary
technology platform known as CBOE Command.
CBOE was founded in 1973 as a non-stock corporation owned by its Members. CBOE
was the first organized marketplace for the trading of standardized, exchange-traded
options on equity securities. In 2004, CFE began operations as a futures exchange.
CBOE Holdings was incorporated in the State of Delaware on August 15, 2006.
In June 2010, CBOE demutualized (see "Restructuring Transaction")
and CBOE, CFE and C2 became wholly-owned subsidiaries of CBOE Holdings. In October
2010, C2, the Companys all-electronic options exchange, initiated operations.
Our primary business of offering exchange-traded options and futures contracts
on financial instruments is part of the large global derivatives industry. Derivatives
are financial contracts whose value is derived from an underlying asset or reference
value. While derivatives exist on a wide range of underlying assets and references,
we currently focus on offering derivatives products on individual stocks, stock
indexes, exchange-traded funds, exchange-traded notes, interest rates, and various
benchmarks related to trading and investment strategies. The global derivatives
industry includes both exchanges and a large over-the-counter market. The most
common types of derivatives are options, futures and swap contracts. These products
allow for various types of risk to be isolated and transferred.
Options and Futures
Options represent a contract giving the buyer the right, but not the obligation,
to buy or sell a specified quantity of an underlying security or index at a
specific price for a specific period of time. Options provide investors a means
for hedging, speculation and income generation, while at the same time providing
leverage with respect to the underlying asset. Most options traded on U.S. securities
exchanges and over-the-counter are on individual equities, market indexes and
ETPs.
Futures are standardized, transferable, exchange-traded contracts that are settled
by the delivery of the underlying asset or in cash by reference to the underlying
asset or reference at a specified price and on a specified future date. Futures
on CFE are settled in cash. Options on futures may also be listed for trading
on futures exchanges.
Trading
In the listed options market, there are currently options contracts covering
approximately 3,900 underlying stocks, indexes and ETPs, among other products.
The presence of dedicated liquidity providers, including market-makers, is a
key feature of the options market. Market-makers collectively provide continuous
bids and offers for all listed options series. Over the past decade, trading
in the options market has migrated from being primarily conducted face-to-face,
or "open outcry," to being primarily electronic.