CBOE to Launch Stock Exchange

The Chicago Board Options Exchange wants to find out whether the nation needs another stock market. The CBOE, the leader in trading “put” and “call” options on stocks, said Thursday that it planned to launch a stock exchange early next year.

The move is the latest sign of the shake-up in the once-clubby world of stock and commodity trading, which has been swept by increasing competition.

Also Thursday, NYSE Group Inc., owner of the New York Stock Exchange, said second-quarter profit more than quadrupled from a year earlier after its merger with Archipelago Holdings Inc. boosted electronic-trading revenue.

The CBOE said it would launch its stock exchange in partnership with Interactive Brokers Group and with three firms that are market makers, or trading specialists, on the NYSE: LaBranche & Co., Susquehanna International Group and VDM Specialists.

The CBOE -- which is privately owned but hopes to go public -- aims to have trading start in mid-January. It wants to trade 2,500 stocks, mainly issues that now change hands primarily on the NYSE and on Nasdaq.

The CBOE said it would use the same combination of computer- and floor-based trading that it uses to trade put and call contracts, which give investors the right to buy or sell a stock at a set price within a set period.

“The real challenge will be whether they are able to create a trading model so that people want to go there,” said Larry Tabb, president of consulting firm Tabb Group. “It will be a matter of how good the technology is and what incentives there are for people to send orders and how expensive it is to execute.”

Trading fees will be “highly competitive” with other markets’ fees because the CBOE doesn’t need to invest in new technology to run the exchange, CBOE Chairman William Brodsky said.

Richard Herr, who covers exchanges for Keefe Bruyette and Woods Inc. in New York, said he believed there was “definitely an appetite to have more venues and not less” for trading. “It’s one more check on the New York Stock Exchange raising prices.”

NYSE Group said Thursday that second-quarter profit surged to $61.2 million, or 39 cents a share, from $13 million, or 11 cents, a year earlier, when it was still a private firm. Revenue rose 63% to $659 million.

The results included the first full quarter of transaction fees from Archipelago’s electronic equity and options markets.

NYSE Chief Executive John Thain engineered the marriage with Archipelago this year to exploit growing investor demand for trades that can be executed in less than a second on electronic networks, as opposed to on the NYSE floor.

Still, NYSE Group’s share of trading in stocks listed on its own market was 75% in June, down from 76.2% in February, a month before it bought Archipelago. That shows the inroads competing exchanges are making, analysts said.

NYSE Group shares rose $2.66 to $64.50 before the results were announced.