Financial Instruments and Markets: A Casebook

31

The Chicago Board Options Exchange (CBOE)

On a late afternoon in June 2004, William Brodsky, Chairman and CEO of the Chicago Board Options Exchange (CBOE) and Richard DuFour, Executive Vice President for Corporate Strategy, looked down from the visitor's gallery onto the CBOE's 45,000 square foot trading floor and considered what was about to happen.

The floor had changed substantially during Brodsky's thirty-six years in the industry and DuFour's twenty-four. The introduction of technology into the open outcry marketplace had transformed the pits into a massive trading arcade. Only ten years earlier, traders would have been wading ankle deep in paper by this time of day. Now, very little clutter covered the green tiled floor. Members, who previously would have yelled their bids and offers and gestured in the Chicago method of hand signals, were now glued to the screens of their laptops and handheld computers. Connected to the CBOE's main trading engine, they adjusted their positions and risk parameters with the click of a mouse and traded, sometimes all day, in near silence.

Introducing electronic trading to the CBOE, in large part through the exchange's Hybrid market model, had been but one step in the CBOE's competitive-driven evolution. Overall though, the growth of electronic trading in the options market had reached a critical point for the floor-based CBOE. Now, with Brodsky leading the charge, the exchange was about to take its next step with Hybrid 2.0, a step that ...