CBOE
2010 Annual Report
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  • CBOE Holdings
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Unique Products Image of VIX Pit
The new trading space for CBOE’s suite of volatility products, including VIX, opened September 20, 2010.

Since the groundbreaking creation of the CBOE S&P 500 Volatility Index (VIX) in 1993, we have been at the forefront of the volatility space. Our dedication to defining and measuring volatility is leading to the emergence of volatility as a tradable asset class. Today, we offer over two dozen volatility related products, benchmarks and strategies.

 

Volume Highlights

At CBOE, VIX options registered a year-over-year gain for a fourth consecutive year as a record 62.5 million contracts traded, with an average daily volume (ADV) of 247,826 contracts in 2010. In March 2011, a record 10.6 million (ADV of 463,793) VIX options contracts traded, surpassing the previous all-time monthly highs of 7.9 million (ADV of 396,035) contracts in January 2011 and 6.7 million (ADV of 334,016) contracts in May 2010.

At CBOE Futures Exchange (CFE), a record number of VIX futures traded for the sixth straight year, as 4.3 million contracts, with an average daily volume of 17,430 contracts, traded in 2010. VIX futures established several trading records in 2010, including single-day, weekly, monthly and annual volume. The monthly volume record set in November was subsequently eclipsed in January, February and March 2011, when new highs of 777,366 (ADV of 38,868), 788,908 (ADV of 41,521), and 1.0 million (ADV of 46,320) VIX futures contracts traded, respectively. Also noteworthy, in September, CFE introduced Weekly options on VIX futures and in December, began offering extended trading hours for VIX futures, opening one hour and ten minutes before the general market open.

On Tuesday, March 15, 2011, a new milestone was achieved when trading in both VIX options and futures set new single-day records on the same day. In VIX options at CBOE, 1.1 million options traded, while 97,337 VIX futures contracts traded at CFE.

 

New Trading Pit

The Company opened a new trading pit in 2010 to accommodate our ever-increasing suite of volatility product offerings and traders wanting to trade them. The new pit on the CBOE trading floor is triple the size of the old pit, houses over 60 market makers, brokers and support staff, and has infrastructure in place to accommodate an additional 30 traders in the future. The larger space has also allowed us to consolidate all of our volatility products in one location which, we believe, enhances the liquidity in all of those products.

 

New Products and Benchmarks

In December, the Company received regulatory approval to begin trading options on the CBOE Gold ETF Volatility Index (GVZ). The Company plans to launch GVZ options and futures, emulating the successful joint market that co-exists for VIX options and futures. GVZ security futures began trading at CFE on March 25, 2011, with options expected to be introduced by CBOE on April 12, 2011.

In January 2011, the Company introduced three new volatility tools. Launching the next generation of volatility benchmarks, we unveiled volatility measures on five individual equities, allowing investors to track the volatility of individual stocks for the first time. And in March 2011, we filed with the SEC plans to list options on these new “VIX-like” stock benchmarks, with a launch date pending regulatory approval.

We launched a webpage displaying CBOE Volatility Index Term Structure data. The concept of term structure refers to the characteristic differences in the volatility calculated for options of different maturities and is essential to the pricing and trading of VIX futures and options.

And third, the Company introduced a new volatility index, which is different from, yet complementary to, VIX. The CBOE S&P 500 Skew Index is a benchmark measure of the perceived risk of extreme negative moves, often referred to as “tail risk,” in U.S. equity markets. This index offers an important new measure for investors who are concerned about potential “Black Swan Events” or those market moves driven by an unexpected event of large magnitude and consequence.

On March 16, 2011, we introduced six new volatility benchmarks based on highly-active, sector-specific exchange-traded funds (ETFs): iShares MSCI Emerging Markets Index Fund (VXEEM), iShares Trust FTSE China 25 Index Fund (VXFXI), iShares MSCI Brazil Index Fund (VXEWZ), Market Vectors Gold Miners Fund (VXGDX), iShares Silver Trust (VXSLV) and Energy Select Sector SPDR (VXXLE). These new benchmarks, which offer an important new measure for investors wanting to monitor volatility in specific sector ETFs, are designed to measure the expected volatility of the respective ETF options.

Also on March 16, 2011, CBOE submitted a rule filing with the SEC to trade options on the CBOE Crude Oil ETF Volatility Index (OVX), based on United States Oil Fund (USO) options. The CBOE Crude Oil ETF Volatility Index (OVX) has been calculated and disseminated by CBOE since 2008 and, pending approval, will have a tradable contract tied to this benchmark, allowing investors to hedge the risk of volatility in the active oil sector for the first time.

As interest in VIX and VIX-related products gains momentum, we are also working closely with partners to develop new products and strategies tied to volatility. These new products and benchmarks are, in turn, driving volume in related products at CBOE and CFE as traders deploy and hedge their positions.

 

Licensing Agreements

The application of our VIX methodology to non-CBOE product data represents an exciting new volatility frontier for us and, recently, our Company entered into three VIX licensing agreements.

In September 2010, CBOE began disseminating two new volatility indexes it created based on CME Group products—the CBOE/NYMEX Crude Oil (WTI) Volatility Index (OIV) and the CBOE/COMEX Gold Volatility Index (GVX)—and now licenses the use of those indexes to CME. This agreement has allowed CME to create tradable products based on the indexes we created, with our Company sharing in potential trading revenues.

Similarly, in October, through Standard & Poor’s (S&P) we granted a license to the TMX Group, Inc. in Toronto to use our proprietary VIX methodology to calculate a new volatility index based on the S&P/TSX 60 Index options, which are traded on the Montreal Exchange. And in February 2011, along with S&P, we announced an agreement with Hang Seng Indexes Company to create the new HSI Volatility Index (VHSI). The Hang Seng Index is the benchmark of the Hong Kong stock market and one of the best-known indexes in Asia. These three agreements follow several that we already have in place with exchanges in Europe, India, Taiwan and Australia.

In March 2011, CBOE and S&P announced the formation of the “VIX Network,” a global network of exchanges with agreements regarding use of our VIX methodology. The VIX Network was formed to provide an information-sharing venue for current and potential users of the VIX methodology and to promote VIX as the global standard for measuring market volatility.

The performance and increasing appeal of our suite of volatility products continues to be a major success story. The growth of the VIX franchise strengthens the VIX brand, broadens our roster of products, increases trading volume and contributes to the Company’s bottom line.

 

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VIX Options Total Volume
In Millions

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VIX Futures Total Volume
In Millions

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