The Benefits of Regulated Exchanges
The year 2008 was an extraordinary time in the financial markets. The worldwide financial crisis exposed dangerous cracks in the nations regulatory apparatus and uncovered incomprehensible levels of financial
wrong doing, but also highlighted the benefits of regulated exchanges.
Faced with formidable challenges, CBOE, along with the exchange industry, performed extremely well, fulfilling its role as a transparent, liquid marketplace and disseminating prices without interruption for the essential functions of capital formation and risk management.
Despite the economic turbulence, CBOE experienced record volume and financial results in 2008. This record pace was established before the onset of the turmoil that gripped the markets by years end. Throughout the year, CBOE solidified its leadership position within the industry through new product innovation, concerted systems development, and investor education and advocacy efforts. CBOE also made significant progress on a strategic priority working toward the completion of its demutualization,
whereby the Exchange plans to convert from a non stock corporation owned by its members to a holding company organized as a stock corporation owned by its stockholders.
One of the significant issues pertaining to CBOEs proposed demutualization has been the resolution of the exercise right allegedly held by Chicago Board of Trade members. After lengthy negotiations and litigation in Delaware, a settlement agreement was reached that allows certain persons who claimed to be Board of Trade members a level of participation in CBOEs proposed demutualization.
At press time, CBOE was awaiting a ruling from the Delaware Court on whether it will approve the settlement. For CBOEs demutualization to occur, it also must be approved by the CBOE membership.
If the demutualization occurs, the Exchange will have many different options to consider post demutualization.
Regardless of which path CBOE chooses to follow, the Exchange is well positioned for the future.
Three years ago, CBOE shifted its organizational philosophy to a for-profit model, emphasizing building the value of its business. With 12 consecutive quarters of double digit growth in revenues and earnings increases, CBOE has a proven track record of delivering positive financial results.
The end of 2008 brought cataclysmic changes to the financial industry, and CBOE, like all exchanges, expects an extremely challenging environment into 2009 and beyond. The fact that exchanges worked amidst the crisis does not insulate CBOE from the current downturn in the market. Yet the recent initiatives instituted by the Exchange have it positioned to meet the demands of this evolving landscape. CBOE’s leadership role in innovation, education and advocacy makes the Exchange well suited to serve all types of investors, while the Exchanges Board, management, members and staff
remain dedicated to serving our customers.
Going forward, the Exchange is committed to building value by leveraging the economies of scale inherent in its business model, prudently managing expenses, and strategically investing in growth opportunities.
The new market environment is full of uncertainty, but CBOEs business model is sound, its products unique, and its systems strong and flexible. Indeed, for all it has contributed to the industry and for what it represents to investors, CBOE stands as a vital necessity in the options marketplace and the securities industry.
