Exchange operator CBOE hit by North America equities revenue fall

By Mehnaz Yasmin and Laura Matthews

(Reuters) -CBOE Global Markets recorded lower fourth-quarter revenue from North America equities on Friday, overshadowing an increase in the exchange operator’s quarterly profit.

Net revenue from North America equities fell 10% in the quarter to $86.3 million, while CBOE’s options segment also reported a lower market share of 33.5% from 34.1%.

Shares in CBOE fell more than 3% before the bell, and were seen down 1.80% at $181.4 after a call with analysts.

Overall, CBOE saw net revenue for the quarter rise 9% year-over-year to a record $499 million. This was boosted in part by record trading volumes across derivatives and growth in its data and access solutions business, where revenue was up 7% to $137.5 million, compared to a year ago.

“We’ve seen an increasingly diverse set of market participants turning to shorter-duration options across our SPX complex, continuously hedging and repositioning on a day-in and day-out basis, not just during times of market volatility,” CBOE CEO Fredric Tomczyk said on an analyst call.

Average daily volumes in options increased to a record 14.9 million contracts, thanks to a 24% increase in index options.

Volumes in options also saw record volumes with fourth quarter ADV increasing 22% year-over-year to 3.3 million contracts. Meanwhile, options linked to the volatility index increased 33% year-over-year.

Options contracts opened on the same day they expire, or 0DTE (zero-days-to-expiry), made up 45% of SPX activity in 2023 and has since grown to 50% in January.

Net revenue from CBOE’s options was $314.5 million, up 15% when compared to a year ago.

Exchange operators have been grappling with a drop in new listings due to geopolitical pressures and the U.S. Federal Reserve’s aggressive interest rate hikes to curb inflation.

Some investors are expecting a turnaround in capital markets on mounting bets of a soft-landing, with social media firm Reddit, cloud security company Rubrik and software startup ServiceTitan expecting to go public this year.

CBOE’s revenue per contract increased 20% in the fourth quarter, while total average daily volumes rose 2%.

Strong demand for its derivatives products led the company to report a 21% jump in revenue from futures as traders rushed to secure their positions amid economic volatility that triggered massive market swings across asset classes.

On an adjusted basis, CBOE posted a profit of $218.8 million, or $2.06 per share, in the fourth quarter, compared with $192.2 million, or $1.80 per share, a year earlier.

Tomczyk said CBOE is focused on its strategic objectives and will continue to analyze the secular trends driving the market such as globalization and the rise of retail customers, which he said will increase its customer base and open up opportunities to leverage its global scale and technology.

“We believe what has transpired in the U.S. market will evolve to other global jurisdictions as those markets typically follow a similar evolution,” he said.

“This new generation of retail investors is here to stay and becoming more sophisticated as they increase their use of options to help execute their trading and investing strategies.”