First Quarter 2014 Earnings Presentation May 6, 2014
Agenda Strategic Review Edward Tilly Chief Executive Officer Financial Review Alan Dean Executive Vice President, CFO and Treasurer Questions and Answers Edward Tilly Alan Dean Edward Provost President and Chief Operating Officer CBOE HOLDINGS 2
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: the loss of our right to exclusively list and trade certain index options and futures products; increasing price competition in our industry; compliance with legal and regulatory obligations and obligations under agreements with regulatory agencies; decreases in the amount of trading volumes or a shift in the mix of products traded on our exchanges; legislative or regulatory changes; increasing competition by foreign and domestic entities; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to accommodate trading volume and order transaction traffic without failure or degradation of performance of our systems; our ability to protect our systems and communication networks from security risks, including cyber-attacks; economic, political and market conditions; our ability to maintain access fee revenues; our ability to meet our compliance obligations; our ability to attract and retain skilled management and other personnel; our ability to maintain our growth effectively; our dependence on third party service providers; and the ability of our compliance and risk management methods to effectively monitor and manage our risks. 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, 2013 and other filings made from time to time with the SEC. CBOE HOLDINGS 3
Strategic Review Edward Tilly CEO
Options Market is Fundamentally Different than Cash Equities Market Key differences include: Dark pools do not exist in options market Maker-taker transaction pricing model is not the dominant fee structure in the options market Customer orders primarily trade against quotes that are supplied by dedicated liquidity providers CBOE’s size -based matching algorithm primarily rewards larger sized bids and offers, not the fastest bids and offers CBOE does not house its primary data center in a CBOE-owned building for which we can derive significant revenue via co-location Our rulebook makes clear that CBOE employs very traditional options order types and does not offer particularly exotic or complicated orders in our marketplace CBOE HOLDINGS 5
Record Revenue and Earnings in 1Q14 Double-digit volume increases across each product category CBOE HOLDINGS 6
Remain Focused on Core Mission and Strategic Initiatives Leverage and Develop Proprietary Products Optimize Revenue in Create value for stockholders Commoditized by generating industry-leading Products profit margins and growth rates through a diversified portfolio of risk management products Broaden Customer and services. Base Provide Highest Standards in Market Regulation and Compliance CBOE HOLDINGS 7
Broadening our SPX Customer Base Continue to see significant opportunities to further grow trading among likely SPX users Intensifying educational and marketing efforts in 2014 Targeted user groups include: Users of SPY options and SPY Weeklys Institutional investors – OTC users – Pension funds – Asset managers – Insurance companies Overseas investors CBOE HOLDINGS 8
Strong Growth from S&P 500 Index (SPX) Product Line Volume gains in SPX options driven primarily by growth in SPX Weeklys SPX ADV up 8% in 1Q14 versus 1Q13; up 7% versus 4Q13 SPX Weeklys up 59% in 1Q14 versus 1Q13; up 33% versus 4Q13 SPX Weeklys appeal to a growing base *includes SPX Weeklys of retail and semi-pro customers ¹Through March 31, 2014 CBOE HOLDINGS 9
VIX Trading Continues to Achieve Strong Growth Posted all-time volume records in VIX options and futures in 1Q14 VIX options ADV up 35% in 1Q14 versus 4Q13; up 22% versus 1Q13 VIX futures ADV up 32% in 1Q14 versus 4Q13; up 33% versus 1Q13 Volatility space poised for growth ¹Through March 31, 2014 CBOE HOLDINGS 10
VIX Futures and Options are Preferred Means for Managing Volatility Growth in VIX trading consistent with early stages of other ground-breaking product lines Vega – refers to how the price of an • Equity Options option can move in response to a one 1973 percent change in its implied volatility • Index Options VIX options and futures enable 1983 investors to isolate and trade pure vol VIX trading averages 200 to 250 • VIX Futures and million dollars vega daily Options 2006 10 times vega traded in OTC vol swaps 1.5 to 2 times daily vega traded in listed SPX options CBOE HOLDINGS 11
Seeing New Users and Strategies for Trading VIX Futures and Options VIX universe of users continues to expand A major investment group that principally trades energy and interest rates products recently became a trading privilege holder at CFE European investors trading VIX products against VSTOXX Banks in Brazil using VIX products for macro hedging Still in early stages of developing VIX customer segments globally, such as: Hedge funds Commodity trading advisors Proprietary trading firms Institutional investors CBOE HOLDINGS 12
Responding to Growing Demand for Education in Volatility Trading Investor education goes hand in hand with new products Options Institute classes and webinars in high demand Options Institute curriculum heavily weighted toward VIX futures and options and SPX trading Social media programs reflect strong interest in VIX-related online chatter and blogs CBOE HOLDINGS 13
CBOE RMC Attracts Most Active and Sophisticated VIX Customers Boosting awareness of CBOE’s proprietary products CBOE’s 2014 RMC drew more than 320 participants Content-rich program focused on options and VIX-related strategies and trends Third annual RMC Europe to be held Sept. 3-5 CBOE HOLDINGS 14
Broadening Our Customer Base Extending trading hours for VIX futures Phase 1 Phase 2 Phase 3 June 22, 2014 October 28, 2013 November 4, 2013 • • • Plan to extend hours to nearly Added a 45-minute trading Added another five hours to 24 hours a day, five days a the trading day session after current close of week, pending regulatory VIX futures • review Allows European-based • customers to access VIX Meets demand from U.S. • Allows customers around the customers for a post futures during their local world to trade VIX futures trading hours settlement trading period virtually around the clock and • to react immediately to events Trading begins at 2:00 a.m. affecting global markets CT; aligns with open of London markets • Trading week will begin each Sunday at 5:00 p.m. CT and end Friday at 3:15 p.m. CT; CFE will close between 3:15 p.m. and 3:30 p.m. CT on Monday through Thursday CBOE HOLDINGS 15
Increasing Access to VIX Futures Trading Through Extended Trading Hours YTD 7.4% of VIX futures trading outside of regular U.S. trading hours, through April 2014 June 22 plan to extend trading hours to nearly 24X5, pending regulatory review Plan to add trading hours for VIX and SPX options later this year, pending regulatory approval Initial launch 2:00 am to 8:15 am CT Monday through Friday CBOE HOLDINGS 16
Expanding Suite of Volatility Products Launched Futures on Short-Term Volatility Index (VXST) on February 13 th – Options on April 10 th Leverage most compelling features of SPX Weeklys and volatility products Short-term VIX uses SPX options that expire in one week versus SPX monthly options Trading opportunities: Pinpoint volatility around economic releases, geopolitical events Spread between VIX and VXST Capture time value decay on shorter- term index CBOE HOLDINGS 17
Expanding Volatility-Related Products and Benchmarks Diversifying VIX product line across asset classes provides growth opportunity Plan to launch futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN Index) later this year, pending regulatory review Began disseminating index values in May 2013 We view interest-rate volatility as an exciting new frontier in the volatility marketplace CBOE HOLDINGS 18
Optimizing Revenue and Market Share in Multiply-Listed Options Focused on being among the leaders in options market share In March 2014: CBOE & C2 accounted for 29.5% of 28.0% industry volume CBOE total market share of 28.0% 22.8% - - - - - - - CBOE multiply-listed market share of 20.8% Maximize market share in multiply- listed options ¹Market share stats exclude dividend trades CBOE HOLDINGS 19
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