The Chicago Board Options Exchange

The Chicago Board Options Exchange was founded in 1973 as the first U.S. options exchange. In the intervening years since its inception, trading has grown from 911 contracts on the first day of trading to an average of 4.7 million contracts per day in 2008. Throughout its history, the CBOE has been known as an innovator. It introduced computerized price reporting and adopted the Black Scholes model for option pricing in the middle part of the 1970s. The rapid growth of derivative securities through the 1970s forced the Securities and Exchange Commission (SEC) to place a moratorium on options expansion pending a review of the derivative securities market in 1977.

CBOE and Midwest Stock Exchange

The Chicago Board Options Exchange and the Midwest Stock Exchange consolidated their options businesses in 1980, a sign of things to come for the CBOE. The Exchange moved in 1981 and again a few years later in response to rapid growth. The CBOE 100 Index was launched in 1983; an index that was later renamed the S&P 100 Index. By the mid 1980s, annual volume began to exceed 100 million contracts. By 2008 that annual figure was well beyond a billion contracts. The CBOE has enjoyed continual rapid growth and expansion throughout its history [1].

The Chicago Board Options Exchange is the largest U.S. options exchange with annual trading volume that is now well over a billion contracts per year. The CBOE offers options for buyers on thousands of companies, a few dozen stock indexes, and dozens of ETFs (exchange traded funds).

The Chicago Board Options Exchange was founded in 1973 by the Chicago Board of Trade. Its opening day was celebrated on April 26 of that year in recognition of the 125th anniversary of the Chicago Board of Trade. The CBOE is regulated by the Securities and Exchange Commission (SEC).

Operations of the CBOE

The operations of the Chicago Board Options Exchange are cleared by the Options Clearing Corporation (OCC). The financial exchanges occurring at the CBOE and at other exchanges are phenomenal. Derivatives markets, which include futures, swaps, options, and other exchanges, far outpace stocks in their monetary value these days. The CBOE is a major world player in the financial scene, having opened the CBOE Stock Exchange (CBSX) in 2007 in order to compete with the NYSE, NASDAQ, the American Stock Exchange, and other exchanges of that variety.

The CBOE Hybrid Trading System

One of the most unique features that set the CBOE apart from other exchanges is its Hybrid system, which customers tend to love. Trading at the Chicago Board Options Exchange is carried out using this system, which allows customers to choose how their trades will be handled. They have two options, to have their orders handled electronically or through an open outcry on the floor of the exchange. A huge percentage of orders nowadays are handled electronically, but the open outcry option is often utilized for particularly large orders for the simple reason that it allows skilled traders on the floor work for more financially advantageous terms on behalf of the buyer. These are often complex orders as well, so open outcry is preferable since these floor brokers are intimately familiar with the wishes of the buyer and are thus ideally suited to carry out the orders personally and directly.

Having launched a public offering in the spring of 2010, the Chicago Board Options Exchange continues to innovate and grow with the same enterprising spirit that marked its beginning in the early to mid 1970s. The exchange is expected to continue to grow unabated.

[1] http://www.cboe.com/AboutCBOE/History.aspx Retrieved 2010-05-30.

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