The Value of CBOE

Summary

The CBOE has been much hyped in some sectors of the press yet the world has changed significantly since the last major exchange IPO. While a terrific underlying business, CBOE may not be destined for as exciting a market debut as was the case for CBOT  and NYMEX during the bubble of 2006-2008.

Analysis

CBOE clearly has a strong monopoly on index products that a legal challenge by ISE appears relatively unlikely to change. Nevertheless, a separate legal challenge from ISE is less easy to pre-judge and then there are significant issues concerning the ‘stickiness’ of volume once the lock-up period ends.

That said CBOE has plenty of room to cut costs through closing the floor now management finally has control of the exchange’s destiny. Still the 600 person head count has a long way to shrink for CBOE to realize a similar lean frame as the ISE for instance.

The implied takeover mania may take some time to emerge as CME, NASDAQ, NYSE and ICE all have key regulatory issues to concern them right now. Deutsche Borse (DBAG) looks highly unlikely to show any interest in a bid as it already owns the much more technologically efficient ISE.

Overall, the CBOE IPO brings an interesting company to market but a large number of questions overhang the issue, as this article outlines. There may yet be a crazed scramble for CBOE stock from day one given the relatively small quantity of shares being offered but at the same time in a very volatile marketplace with exchanges under regulatory threats, there are also be sound reasons for investors not to get overly excited about the CBOE IPO as it looks fully valued.

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