CBOE Holdings, Inc. Third Quarter Earnings Conference Call November 3, 2011 p. 1 p. 1 CBOE Holdings, Inc .
Agenda Strategic Review William Brodsky Chairman and CEO Financial Review Alan Dean Executive Vice President CFO and Treasurer Questions and Answers William Brodsky Alan Dean Edward Tilly President and Chief Operating Officer p. 2 p. 2 CBOE Holdings, Inc .
Forward Looking Statements This presentation may contain forward-looking statements, within the meaning of the ► Private Securities Litigation Reform Act of 1995. Forward-looking statements are those statements that reflect our expectations, assumptions or projections about the future and involve a number of risks and uncertainties. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause actual results to differ materially from that expressed or implied by the forward-looking statements, including: legislative or regulatory changes; changes in law or government policy; increasing competition; loss of our exclusive licenses; decrease in trading volumes; an inability to introduce competitive new products and services; competitive pressures on our existing products, services and trading access fees; changes in price levels and volatility in the derivatives and equity markets; economic, political and market conditions; increases in our fixed costs and expenses; loss of existing customers; difficulty developing strategic relationships and attracting new customers; increased costs related to, or the loss of, intellectual property; rapid technological developments; increases in trading volume and order transaction traffic that we cannot accommodate; our ability to maintain our growth effectively; damage to our reputation and brand name; loss of market data revenue; detrimental changes to our fee structure; failure to effectively monitor and manage our risks; customer consolidation; and changes to the tax treatment for options trading. More detailed information about factors that may affect our performance may be found in ► our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2010 and other filings made from time to time with the SEC. p. 3 p. 3 CBOE Holdings, Inc .
Strategic Review William Brodsky Chairman and CEO p. 4 p. 4 CBOE Holdings, Inc .
Record Financial Results for 3Q11 ► Operating Revenues • $143.6 million, up 35% ► Adjusted Operating Margin • 52.2%, up 890 bps • Highest ever ► Adjusted Net Income Allocated to Common Stockholders • $44.7 Million, up 69% ► Adjusted Diluted EPS • $0.50, up 92% ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” p. 5 p. 5 CBOE Holdings, Inc .
Options ADV Up 46% in 3Q11 vs 3Q10 CBOE Holdings Quarterly Options ADV (in millions) Includes May 6 “Flash Crash” 5.42 5.29 5.04 4.55 4.40 4.23 3.71 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 p. 6 p. 6 CBOE Holdings, Inc .
Options Volume Trending Up YOY Total Monthly Options Average Daily Volume (in millions) May 6 “Flash Crash” Source: Company Data p. 7 CBOE Holdings, Inc .
Leading Across Markets – 3Q11 CBOE Excl. Dividend Trades Total Industry Volume C2 PHLX ISE 27.0% 27.5% NYSE/Amex NYSE/Arca NOM BOX BATS Index Options Equity Options¹ ETF Options¹ Source: Options Clearing Corporation and CBOE ¹Excludes Dividend Trades p. 8 CBOE Holdings, Inc .
Consistently Leading the Market 27% 20% 19% 13% 12% Source: Options Clearing Corporation and CBOE p. 9 CBOE Holdings, Inc .
Sep-11 p. 10 582,022 Jun-11 30-Aug-11 463,793 Mar-11 26-May-11 Dec-10 22-Feb-11 Sep-10 16-Nov-10 An Evolving Market with Room to Grow Jun-10 13-Aug-10 334,016 Mar-10 11-May-10 Dec-09 4-Feb-10 Sep-09 29-Oct-09 Jun-09 28-Jul-09 Mar-09 23-Apr-09 Dec-08 16-Jan-09 156,489 Sep-08 VIX Index - Daily Closing Values 13-Oct-08 Jun-08 10-Jul-08 VIX Options - Average Daily Volume Mar-08 7-Apr-08 Dec-07 31-Dec-07 Sep-07 26-Sep-07 155,484 Jun-07 22-Jun-07 March 2006 - October 2011 20-Mar-07 Mar-07 11-Dec-06 Dec-06 7-Sep-06 Sep-06 5-Jun-06 Jun-06 CBOE Holdings, Inc . 1-Mar-06 Mar-06 100 80 60 40 20 0 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
VIX Trading Continues to Set New Highs VIX options increased 127% ► in 3Q11 versus 3Q10 VIX futures increased 320% ► in 3Q11 versus 3Q10 ¹ ¹YTD through 10/31/11 p. 11 CBOE Holdings, Inc .
SPX Drives Strong Index Volume SPX Most Actively Traded Cash Index Option SPX 2011 Monthly ADV (in thousands) SPX Trading Averaging 794,000 Contracts Per Day YTD p. 12 CBOE Holdings, Inc .
SPXpm Successfully Launched Oct. 4 Market makers on C2 doubled since launch of SPXpm ► Steady volume growth ► Activated paired orders and complex orders in mid-Oct. ► Increased participation guarantees for SPXpm orders ► p. 13 CBOE Holdings, Inc .
Actively Raising Awareness Ads present differences between SPXpm and other S&P 500 contracts p.14 CBOE Holdings, Inc .
A Product Already in Demand Expect SPXpm to be embraced by a diverse group of customers Liquidity providers currently trading SPX ► Active retail investors and traders seeking larger notional value ► contract OTC users seeking exchange-traded alternative ► p. 15 CBOE Holdings, Inc .
Complements the Trading of SPX SPX on CBOE and SPXpm on C2 = Two Deep Pools of Liquidity p.16 CBOE Holdings, Inc .
C2 Achieving Steady Growth ► Averaged 255,000 contracts per day in 3Q11, up 34 percent from 2Q11 ► Adjusted market model on Nov. 1 to maximize market depth and liquidity Implemented new maker-taker fee Nov.1 – highest maker credit • Modified the matching algorithm to pro-rata, with not priority or entitleme nts • p. 17 CBOE Holdings, Inc .
Regulatory Environment Update ► SEC remains focused on writing rules for Dodd-Frank ► Expect U.S. regulatory reform will eventually result in most OTC-types of trades being traded on exchanges and/or centrally cleared ► Well positioned to benefit from OTC-type opportunities p.18 CBOE Holdings, Inc .
2011 Initiatives CBOE’s unique focus on options and volatility products leaves us ► well-positioned to take advantage of long-term secular growth trends Key Priorities: ► • Drive investor awareness of the benefits of SPXpm • Expand product offerings, including VIX product line • Build on success of C2 platform • Position CBOE to benefit from regulatory reform Strong operating cash flow and debt-free balance sheet provide us ► financial flexibility • Invest in innovation • Reward stockholders p. 19 p. 19 p. 19 CBOE Holdings, Inc .
Financial Review Alan Dean Executive Vice President CFO and Treasurer p. 20 p. 20 CBOE Holdings, Inc .
Record Third Quarter Financial Results¹ 3Q11 3Q10 $ Change % Change (in millions, except RPC and EPS) Total Operating Revenues $ 143.6 $ 106.0 $ 37.6 35% Total Adjusted Operating Expenses 68.6 60.1 8.5 14% Adjusted Operating Income 75.0 45.9 29.1 63% Adjusted Operating Margin Percentage 52.2% 43.3% N/A 890 bps Adjusted Income Before Income Taxes 74.6 45.7 28.9 63% Adjusted Net Income 45.6 27.0 18.6 69% Adjusted Net Income Allocated to Common Stockholders 44.7 26.4 18.3 69% Adjusted Diluted EPS $0.50 $0.26 $0.24 92% Total Contracts Per Day 5.48 3.73 N/A 47% Rate Per Contract (RPC) $0.313 $0.306 $0.007 2% ¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.” p. 21 p. 21 p. 21 CBOE Holdings, Inc .
Operating Revenues up 35 percent Key Drivers: Operating Revenues (in millions) 3Q11 3Q10 $ CHG % CHG ► Transaction Fees Transaction fees $ 109.8 $ 72.9 $ 36.9 51% • 47% increase in trading volume Access fees 16.9 18.5 (1.6) -9% • 2% increase in RPC to $0.313 ► Access Fees Exchange services and other fees 4.5 3.9 0.6 15% • Reflects implementation of Market data fees 4.9 4.9 - 0% sliding fee scale for market maker trading permits Regulatory fees 5.3 3.4 1.9 56% ► Regulatory Fees 2.2 2.4 (0.2) Other Revenue -8% • Higher trading volume and rate $ 143.6 $ 106.0 $ 37.6 Total Operating Revenues 35% increases versus last year p. 22 p. 22 CBOE Holdings, Inc .
Transaction Fees Driven by Volume and Rate Per Contract Overall Transaction Fee per Contract (RPC) Overall Transaction Fee per Contract (RPC) RPC up due to higher mix of index options RPC up due to higher mix of index options and futures and futures and lower volume discounts Thousands RPC 6,000 $0.320 5,000 $0.300 4,000 $0.280 $0.260 3,000 2,000 $0.240 1,000 $0.220 0 $0.200 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 ADV (000s) 4,479 4,715 4,488 4,350 4,555 5,310 3,725 4,262 5,081 4,447 5,481 $0.292 $0.273 $0.266 $0.278 $0.300 $0.281 $0.306 $0.293 $0.285 $0.308 $0.313 RPC ($) p. 23 p. 23 CBOE Holdings, Inc .
Options Trading Volume Mix RPC Increased due to Mix Shift to Higher-Margin Index Options and Futures p. 24 p. 24 CBOE Holdings, Inc .
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