CBOE executive chairman discusses the options trading revolution

Bill Brodsky, executive chairman of the Chicago Board Options Exchange, spoke to Northwestern University undergraduate students on Feb. 27 in Evanston.
CBOE Executive Chairman Bill Brodsky spoke to Northwestern University undergraduate business students this week.

Perseverance. That’s what Bill Brodsky, executive chairman of the Chicago Board Options Exchange and CBOE Holdings Inc. said helped him steer the largest U.S. options exchange during a period of rapid change.

Former CEO and chairman of the CBOE [[CBOE]] from 1997 to 2013, Brodsky oversaw the electronic trading revolution in the options markets and the transformation of the previously member-owned exchange to a publicly traded company.

Brodsky spoke to undergraduate students at Northwestern University in Evanston on Feb. 27 about the attributes that can help them succeed in business, using his experience with the CME Group, where he once held the position of president, and CBOE as a backdrop.

The CBOE enjoyed a near-monopoly in equity options trading until the late 1990s, Brodsky said, when a start-up electronic exchange, the International Securities Exchange, prepared to launch in the U.S.

“The board gave me $50 million to build the best electronics system in the world,” Brodsky said, after he approached the board with his concerns about the ISE’s electronic platform. “The problem was that the exchange was owned by the traders.”

In 1999, CBOE members gave their permission to build the electronic trading system on the condition that another membership vote take place before the system was turned on.

Traders were fearful of the impact the system would have on their own careers and on the trading floor, Brodsky said, and many sported buttons that read “Brodsky must go.”

“[Traders] didn’t want to turn it on because they realized that they would get intermediated,” Brodsky says. “It’s what happened to travel agents. Who calls travel agents now? People realized they can cut out the middle man and book trips online themselves.”

Traders and members were reluctant to take a vote, but the CBOE was watching its market share erode month by month. This is where perseverance played a part, Brodsky says. He knew that if they did nothing, he would watch the CBOE fall to dust, so he modified the existing order-routing system to ensure that orders could come directly to the trading floor.

“When I started working at the CBOE, there were 9,000 traders on the floor. Now, I would be surprised if there are even 1,000.” Electronic trading revolutionized the markets, Brodsky says. It has allowed customers to access the markets directly, and it makes them more transparent.

Taking the CBOE public proved more difficult amid a years-long legal battle with members of the then-Chicago Board of Trade over membership rights. Finally, the exchange went public in June 2010. Over the ensuing years, the stock has skyrocketed 73 percent and currently trades just over $54 as of the Feb. 28 stock market close.

The exchange has seen strong increases in volume and earnings amid rising stock volatility. In the fourth quarter 2013, net income rose 17 percent to $45.6 million, or 52 cents per diluted share, compared with $39.2 million, or 45 cents per diluted share in the same quarter a year ago.

Brodsky urged the students, many of them minoring in business at N.U.’s Kapnick Business Institutions Program, to work hard and to succeed in every position they hold, even if it isn’t their dream job.

He also urged greater financial literacy in higher education and told the students to learn about retirement savings through 401ks and IRAs now, so they are well-prepared for the future.

“One of the ways we could have prevented the financial crisis of 2008 was if people knew what they were doing with their finances,” Brodsky says. “People were buying homes without having the money” to pay for them.

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