Chicago Board Options Exchange: Purpose, Jurisdiction & Authority

Instructor: LEROY (Bill) RANDS

Bill has taught college undergraduate and MBA classes in finance, economics & management, 40 years of finance experience and has a MBA degree.

The Chicago Board Options Exchange (CBOE) is the largest trading exchange for options and operates options trading exchanges across the world. This lesson discusses what the CBOE is.

The Chicago Board Opitions Exchange

George has an ambition to trade options, so he's applying for a license to trade on the Chicago Board Options Exchange, as it is the largest options market available.

The Chicago Board Options Exchange (CBOE) was founded in 1973 as a market exchange focusing on option trading. In 2010, CBOE converted to a publicly traded corporation and rebranded as Cboe Global Markets. The U.S. options exchange is now the primary asset of that public holding company.

The CBOE has trading exchanges in the U.S. and in a number of foreign companies. It is the largest option trading exchange in the U.S., the second largest market exchange in the U.S. and the largest trading exchange in Europe.

Mission and Purpose

The Chicago Board Options Exchange started primarily to provide a market for the trading of options as options became a larger investment market and therefore more attractive to investors. However, the creation of the holding company, CBOE Global Markets, in 2010 was the center of its focus to be a world leader in creating investment products and markets.

The CBOE has research staffs analyzing the direction of the investment markets and creating new products for an evolving investment landscape. It defines its mission to create more value for its marketplace, customers, investors and employees.

As George got more familiar with CBOE, he found that he could trade in European and foreign stocks as well. He liked that he could take as much risk as he wanted with his trading activity on CBOE.

Products

The Chicago Board Options Exchange started out as a market exchange trading in options on U.S. equities only. However, it now offers trading for multiple asset securities as well as across the world. Some of the securities traded include:

  • options
  • U.S. equities
  • foreign equities
  • futures
  • exchange-traded products
  • global foreign exchange
  • market-asset volatility products

Mike, an research analyst at ABC Financial, likes the Votatility Indes (VIX) that the CBOE produces and publishes daily. Based on inputs from the S&P 500 index options, the VIX projects the expectation of the volatility of the securities market for 30 days in the future.

Mike likes the street name for the index - the Fear Gauge. Like other analysts, portfolio managers and investors, Mike uses the index to understand future market trends.

Jurisdiction

The Chicago Board Options Exchange now has jurisdiction for trading in the following countries:

  • British Virgin Islands
  • Cayman Islands
  • Croatia
  • Czech Republic
  • Gibraltar
  • Hong Kong
  • Indonesia
  • Ireland
  • Israel
  • Isle of Jersey
  • Korea
  • Luxemburg
  • Mauritius
  • Netherlands
  • Poland
  • United Arab Emigrates
  • United Kingdom
  • United States

Some of the locations might seem unusual, but the CBOE has operations in all countries that are bank havens for investors around the world.

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