The Chicago Board Options Exchange (CBOE) announced that its unaudited pre-tax profit for the three-month period ending June 30, 2007 was $32.2 million, compared to pre-tax profit of $23.7 million during the same period a year ago.
Net income for the second quarter was $18.7 million, compared to $14.2 million during the second quarter in 2006. CBOE's average daily volume during April, May and June was 3.5 million contracts, compared to 2.9 million contracts during the same three-month period of 2006.
Year-to-date, CBOE is reporting a pre-tax profit of $62.5 million on average daily volume of 3.4 million contracts per day. During the same period last year, CBOE reported a pre-tax profit of $32.0 million on average daily volume of 2.7 million contracts per day.
"We are very pleased with our financial results for the first half of 2007, which show a 95% increase in pre-tax profits compared to the same period last year, and a 26% increase in volume. We are also especially gratified with the significant volume increase in CBOE Volatility Index options, which added more than 7.7 million contracts to CBOE's total volume during the first six months of the year," said CBOE Chairman and CEO William J. Brodsky. "As we maintain our focus on growing our business through new product development, CBOE introduced several new products, including an entirely new line of credit products, Credit Event Binary Options."
During the second quarter of 2007, CBOE recorded revenues of $84.6 million, compared to $70.5 million for the same quarter last year. The $14.1 million increase (20% over Q-2, 2006) resulted from higher trading volumes, which increased transaction fees by $11.3 million.
Year-to-date, gross revenue totaled $162.5 million, compared to $129.7 million for the same period in 2006. The $32.8 million increase (25% over 2006) reflects the higher trading volume in 2007 compared to 2006. Year-to-date, expenses increased 2% and net income increased 89% compared to the same six-month period in 2006.
Expenses totaled $52.4 million for the second quarter compared to $46.8 million compared to the same period one-year ago. Employee costs increased by $3.1 million as a result of severance costs and accrued expense for year-end staff bonuses. Severance expenses increased for the quarter ended June 30, 2007 as CBOE enacted a restructuring in May 2007 that resulted in the elimination of approximately 25 positions, while no such action occurred in the same period in 2006. The increase in the bonus provision is driven by increased profitability.
Working capital (current assets minus current liabilities) increased by $13.6 million to $122.9 million during the second quarter, while cash and investments increased by $3.0 million to $131.5 million at June 30, 2007. These increases are attributable to revenue exceeding cash expenses, less capital expenditures, resulting from high trading volume during the quarter.
During the second quarter of 2007, CBOE made the following announcements:
- On June 19, CBOE began trading Credit Event Binary Options (CEBOs), also known as credit default options, on five individual companies. CEBO's are cash-settled call options that pay $100,000 when the Exchange confirms that a credit event has occurred. If no credit event is confirmed, the option expires with no value.CBOE expects to announce the launch of other credit event products soon.
- CBOE created and began publishing a new benchmark index, the CBOE S&P 500 PutWrite Index (ticker symbol "PUT") on June 20, 2007. PUT measures the performance of a hypothetical portfolio that sells S&P 500 Index (SPX) put options against collateralized cash reserves held in a money market account. PUT is similar in concept to the popular CBOE S&P 500 BuyWrite Index (BXM).
- On July 2nd, CBOE announced that a license was granted giving Ansbacher Investment Management, Inc. the right to use the CBOE S&P 500 PutWrite Index (PUT) as the strategic basis for a new options investment vehicle.
- During June, volume in options on the CBOE Volatility Index (VIX) set a new monthly record with volume of 2,000,936 contracts, an increase of 233% over June 2006 volume of 601,445. Average daily volume was 95,283 contracts, making VIX options the second most actively traded index and the fifth most actively traded product at CBOE. VIX options were launched February 24, 2006.
- Volume during the second quarter of 2007 totaled 220.4 million contracts compared to 183.8 million for the second quarter of 2006, an increase of 20%. Average daily volume during the April, May and June time period was 3.5 million contracts, compared to 2.9 million contracts per day during the same period in 2006.
- For the first six months of the year, volume at CBOE totaled 426.0 million contracts, an increase of 26% over the first half of 2006. Average daily volume for the period was 3.4 million contracts, and CBOE market share was 33.8% at the end of June 2007.
- CBOE memberships, or seats, continued to increase in value with a high price of $2,550,000 for the quarter set on June 5th.The last sale of the quarter, at a price of $2,525,000, was on June 27th. Since the end of the quarter, a new record high price was set on July 12th, when a seat was bought for $2.6 million, an increase of 48% since the end of 2006.