Image source: CBOE Holdings.

CBOE Holdings (NYSEMKT:CBOE) saw its third-quarter profits fall as trading volume retreated from all-time highs set last year, but the holding company for the Chicago Board Options Exchange is making a bold move to reignite its growth by acquiring a major stock exchange competitor.

CBOE Holdings results: The raw numbers


Q2 2016

Q2 2015

Growth (YOY)

Operating revenue

$156.2 million

$187 million


Operating income

$65.6 million

$101.1 million


Earnings per share




Data source: CBOE Holdings Q3 2016 earnings press release. YOY = year over year.

What happened with CBOE Holdings this quarter?

Operating revenue fell 16% to $156.2 million, due mainly to a 23% decrease in transaction fees to $112 million.

Total trading volume declined 12% year over year to 296 million contracts, or 4.63 million per trading day. Average revenue per contract (RPC) also decreased 12% to $0.378 as trading in CBOE's higher-margin RPC index options and futures contracts fell to 40.7% of trading volume, down from 44.6% in Q3 2015.

"Although trading volume was down this quarter compared to last year's record third-quarter volume, CBOE posted solid financial results, while continuing our efforts to efficiently manage our resources and expenses," said CFO Alan Dean in a press release.

Total operating expenses increased 5% to $90.6 million. Core operating expenses -- which exclude volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense, and unusual or one-time expenses -- were $51.6 million, up 1% compared to the year-ago period. And volume-based expenses, which include royalty fees and order-routing fees, declined 11% to $19.9 million because of lower trading volume in licensed index and futures products.

All told, operating income -- adjusted to exclude acquisition-related expenses and other special items -- fell 26% to $74.8 million. Adjusted net income to common stockholders decreased 25% to $47.2 million. And adjusted earnings per share, aided somewhat by share buybacks, declined 24% to $0.58.

Bats acquisition

On Sept. 26, CBOE announced that it had entered into an agreement to acquire stock exchange operator Bats Global Markets (NYSEMKT:BATS) for approximately $3.2 billion in cash and stock. The deal is expected to help CBOE expand into stock, ETF, and currency trading while also improving the company's trading technology.

CEO Edward Tilly elaborated:

We are excited about CBOE's and Bats' future as a combined company and look forward to working together to efficiently maximize synergies and revenue opportunities. We believe this combination will enhance our financial strength, accelerate our strategic growth initiatives, and provide new areas of growth to deliver greater value for CBOE shareholders.

Looking forward

CBOE said its full-year core operating expenses and capital expenditures would likely be "slightly below" its prior forecasts of $211 million to $215 million and $47 million to $49 million, respectively.

"Our focus on creating long-term value for our shareholders remains unchanged," added Dean. "The recently announced planned acquisition of Bats is an example of how we are allocating resources in a way that we believe will generate the best returns for our shareholders."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.