Image source: CBOE Holdings.

CBOE Holdings (CBOE -0.70%) reported fourth-quarter results on Feb. 3. The holding company for the Chicago Board Options Exchange saw its revenue and profits hampered by lower market volatility, and a sharp drop in options trading volume.

CBOE Holdings results: The raw numbers


Q4 2015

Q4 2014

Growth (YOY)

Operating Revenue

$156.0 million

$166.5 million


Operating Income

$75.9 million

$87.0 million


Earnings Per Share




Data source: CBOE Holdings Q4 2015 earnings press release.

What happened with CBOE Holdings this quarter?
Adjusted operating revenue, which excludes certain one-time items, fell 8%, to $154 million, as trading volume plunged 25%, to 4.25 million contracts per day amid a less-volatile market environment during the fourth quarter. Somewhat offsetting the volume decline, average revenue per contract (RPC) increased 20% year over year, to $0.408. Fee adjustments, lower volume discounts and incentives, as well as a shift in the mix of products traded toward higher RPC index options and futures contracts, all contributed to the increase in RPC during the quarter.

Total operating expenses increased 3%, to $80.1 million. Combined with CBOE's lower fourth-quarter revenue, this resulted in a 540 basis-point decline in adjusted operating margin, to 48%.

Core operating expenses -- which exclude volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense, and unusual or one-time expenses -- were $49.7 million, up 7% compared with the year-ago quarter, primarily due to higher outsourced regulatory fees. Volume-based expenses, which include royalty fees and order-routing fees, decreased 10%, to $18.1 million, due to lower trading volume in licensed index products.

All told, net income to common stockholders -- adjusted to exclude the recognition of a tax benefit -- fell 9%, to $48.9 million. And adjusted earnings per share, helped somewhat by share buybacks, declined 8%, to $0.59.

Looking forward
CBOE issued its full-year 2016 expense outlook. Core operating expenses are expected to be in the range of $211 million to $215 million, which would represent a year-over-year increase of 8% to 10%.

Higher costs associated with regulatory services, and CBOE's recent acquisition of options analytics company Livevol, were cited as reasons for the increase; but management noted that they would also help to offset these higher costs by contributing to revenue. In addition, capital expenditures are projected to be in the range of $47 million to $49 million, due to CBOE's ongoing investments in trading technology.

Management also said during its conference call (source: Thomson Reuters) that CBOE is benefiting from more-volatile market conditions so far in 2016. "Elevated volatility, and less certainty in the marketplace going into 2016, have driven dramatic increases in VIX trading," said CEO Edward Tilly. "In January, VIX options and futures trading was up 34% and 19%, respectively, over January 2015."

With fear returning to the markets, CBOE's management has reason to be optimistic. "We are energized by the early year-to-date momentum and by the significant opportunities in 2016 to write the next great chapter in CBOE's ongoing growth story," added Tilly.