Colin Barr

Following the money in banking, economics, and Washington

CBOE shares surge 15% in IPO

June 15, 2010: 11:00 AM ET

The biggest U.S. options exchange is exercising its option to go public, to widespread applause.

CBOE Holdings, the parent of the Chicago Board Options Exchange, priced its $339 million IPO Monday evening at $29 a share, the top of its expected range. The stock surged 15% to $33 and change Tuesday morning when trading opened.

The company will raise $260 million in the offering, while stock-selling CBOE members will take in $56 million. Underwriters led by Goldman Sachs (GS) will get $23 million.

The CBOE becomes the latest U.S. exchange to cash in on the expansion of financial markets with an IPO. It joins NYSE Euronext (NYX), the Nasdaq (NDAQ), and the CME (CME), parent of the Chicago Mercantile Exchange, as onetime member-owned companies now seeking to maximize profits as public companies.

Some observers say this shift set the stage for recent market failures, such as last month's flash crash, by reducing the exchanges' incentives to work together to protect investors.

That aside, exchanges like the CBOE say they are in a market sweet spot as investors flock to products like index options and exchange-traded funds, which are mutual funds that trade like stocks.

Among the CBOE's most popular products are the SPX, which tracks the performance of the S&P 500 index, and the VIX, which some use as a proxy for market fear. There has been a lot of that to track lately, and fees from index options surged 33% from a year ago in the first quarter.

But the other half of CBOE's business -- options on stocks and exchange-traded funds -- has been shrinking, with fees on equities slipping 7% in the first quarter and those on ETFs plunging 26%. The company's profit actually fell from a year ago in the first quarter, to $23 million from $24 million a year earlier.

For now, the CBOE offering is the 20th biggest IPO of the past year, according to data from Renaissance Capital -- and, if early trading is any indication, it's one of the hottest.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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