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CBOE and S&P Dow Jones Extend Contract

Zacks Equity Research

Yesterday, CBOE Holdings Inc. (CBOE), the holding company for Chicago Board Options Exchange (CBOE) and S&P Dow Jones Indices, a subsidiary of The McGraw-Hill Companies Inc. (MHP), confirmed an extension of their licensing agreement.

Previously, the contract between CBOE and S&P Dow Jones was scheduled to expire in 2022. With the amendment, the agreement will now allow CBOE the exclusive rights to list security options, computed and published by S&P Dow Jones Indices through 2032 and the non-exclusive rights through 2033.

Following the amendment, CBOE can consistently trade in the exchange’s S&P 500 index options contract (:SPX). SPX is the most widely used U.S. index option with about 7 million contracts traded daily.  

CBOE’s association with S&P Dow Jones dates back to 1983 when S&P included CBOE in S&P 500 index options. This partnership initiated the trend of using index options to access the broader stock market through a single transaction. The alliance has benefited both the companies over the years by mutually complementing the other’s operations.

For 30 years, the partnership has enabled CBOE to use its Volatility Index (:VIX) complex, which uses S&P 500 options and also other S&P index options products for index calculation. This has constantly improved the financials of CBOE Holdings by contributing to its revenues. The extension of the contract is expected to further augment CBOE scores and facilitate its shareholders.

On the other hand through the liaison, CBOE allowed S&P Dow Jones to license third parties to use CBOE’s indexes, proprietary index methodologies, related marks and data. As per the agreement, CBOE also pays royalties on S&P 500 options and CBOE VIX options to S&P Dow Jones Indices. The contract extension is expected to bolster the revenue of S&P Dow Jones by allowing CBOE to list more options on the stock market indices using S&P index options products.  

Another exchange company, Nasdaq OMX Group Inc. (NDAQ) announced the merger of its Global Data Products and Global Index businesses to form a new reporting segment – Global Information Services in Jan 2013. The change will be implemented retrospectively from the beginning of the year.

CBOE currently carries a Zacks Rank #3 (Hold). Among others from the industry, NYSE Euronext Inc. (NYX) carries a favorable Zacks Rank #2 (Buy) and is worth noting.

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