As part of the recently announced IIAwards, in which we celebrate innovations in the fintech and crypto industry, today we will analyze Chicago Board Options Exchange taking into account different aspects.
Founded in 1973 as the Chicago Board Options Exchange, the CBOE is the world's largest options market with contracts focusing on individual equities, indexes and interest rates. It was the first exchange to list standardized, exchange-traded stock options. The exchange began its first day of trading on April 26, 1973. The CBOE is regulated by the Securities and Exchange Commission.
Products & Services - (5/5)
The exchange offers access to many diverse products, including put and call options on thousands of publicly traded stocks, as well as on ETFs and ETNs. Investors typically use these products for hedging and income production through the selling of covered calls or cash-secured puts. CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds (ETFs). There are options available on stock and sector indexes, including the Standard & Poor's 500, S&P 100, Dow Jones Industrial Average, Russell indexes, selected FTSE indexes, Nasdaq Indexes, MSCI indexes and sector indexes including the 10 sectors contained within the S&P 500.
The exchange offers social media indexes and specialty indexes covering several options strategies, such as "put write," butterfly and collar. Finally, the VIX index, which is the premier barometer of equity market volatility. This Index is based on real-time prices of near-the-money options on the S&P 500 Index (SPX) and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility. Traders call the VIX Index the "fear gauge" because it tends to spike to very high levels when investors believe the market is very bearish or unstable.
Technological advancement - (4/5)
CBOE operates a Hybrid Trading System, combining electronic and open outcry trading. CBOEdirect, CBOE's proprietary, electronic platform, also supports CBOE Futures Exchange (CFE), CBOE Stock Exchange (CBSX) and OneChicago. In 2003, CBOE introduced this system. Hybrid believed that customers should be allowed to choose whether their orders are represented in the face-to-face open outcry marketplace or submitted to the electronic environment. In the electronic environment, CBOE Hybrid can also provide price improvement opportunities through features like Automated Improvement Mechanism (AIM) and Complex Order Auction (COA).
CBOE Hybrid lets market makers submit real-time, streaming quotes reflecting their individualized trading interest. CBOE disseminates the best bid and offer from all market participants, resulting in tighter, deeper markets that can be accessed electronically by customers. According to the exchange, liquidity is enhanced by remote participants - Electronic Designated Primary Market Makers (e-DPMs) and Remote Market Makers (RMMs) - as these market participants are allowed to stream quotes and trade electronically from remote locations. On February 28, 2018, CBOE announced the successful migration of CBOE Futures Exchange to its Bats proprietary technology platform.
Trading characteristics - (2/5)
Cboe Global Markets, Inc. ranked as the world's fifth-largest derivatives exchange by contract volume in 2018, according to the annual Futures Industry Association's survey of the world's leading derivatives exchanges. Cboe Global Markets recorded its 11th straight year of volume over 1 billion contracts in 2018 with 2.05 billion contracts traded on its exchanges: CBOE, BATS Exchange C2 Options Exchange, EDGE Options Exchange and Cboe Futures Exchange. This data implies that the trading floor is dedicated exclusively to professional and experienced traders who have developed a thick skin in the craft. Put simply, novices are at a serious risk of losing their savings when competing against these more experienced traders.
Regulation - (3/5)
CBOE is regulated by the Securities and Exchange Commission (SEC). In December 2014, CBOE announced they would cede their self-regulatory duties to the Financial Industry Regulatory Authority (FINRA) starting Jan. 1, 2015. CBOE also hired FINRA to take over its regulatory duties for the Options Regulatory Surveillance Authority (ORSA), which the US options exchanges established in 2006 to collaborate on insider trading surveillance and investigations. CBOE employees continue to oversee the Cboe Futures Exchange.
CBOE also launched its European trading venue in Amsterdam, on October 1, 2019, with all European Union stocks. The move was in response to Brexit, but CBOE will continue to operate its United Kingdom trading venue for UK and European stocks.