--NYSE Euronext and CBOE gain exclusive rights to list Russell
2000 options
--Highlights growing importance of index and exchange
partnerships
--Adds Russell to CBOE's portfolio of exclusive rights on
S&P 500 and Dow Jones Industrial Average index options
(Updates with details throughout.)
By Kaitlyn Kiernan and Jacob Bunge
NEW YORK--NYSE Euronext (NYX) and CBOE Holdings Inc. (CBOE) are
getting exclusive rights to list options on Russell Investments'
stock indexes, the two exchange operators and the indexing company
announced Friday.
The dual-listing partnership will begin in April, allowing the
options exchanges of NYSE Amex and Arca and the Chicago Board
Options Exchange to list options tied to Russell indexes, including
contracts on the widely followed Russell 2000 index of
small-capitalization stocks. Russell Investments is part of Russell
Investment Group, a subsidiary of Northwestern Mutual Life
Insurance Co.
Index options are contracts that allow investors to wager on the
rise and fall of stock indexes. Rather than being tied to shares,
the contracts are "cash settled," meaning if options are profitable
at expiration, investors receive the cash difference between the
option "strike" price and the current value of the index. Such
options are commonly used as porfolio hedges in case of broad
market declines.
Russell Investments Chief Executive Ron Bundy, NYSE Euronext
head of U.S. options Steve Crutchfield and a spokeswoman for CBOE
declined to comment on the licensing fees or other financial terms
of the agreement.
The deals between Russell and CBOE and Russell and NYSE Euronext
were negotiated separately, according to a person familiar with the
process. The agreements highlight the continued importance of
indexes to exchanges, which have jockeyed to partner with or buy
index providers in recent years. Close ties with indexes allow
exchanges to build franchises in trading derivatives linked to
stock benchmarks and tap revenue from a growing roster of tradable
funds tied to indexes.
Options on the Russell 2000 were previously listed on several
U.S. exchanges. Over the past month, index options on the Russell
2000 traded an average of about 74,000 contracts daily. That
compares with about 832,000 daily contracts tied to the Standard
& Poor's 500-stock index and 4,300 contracts tied to the Dow
Jones Industrial Average.
The deal follows previous alliances Russell has struck with
exchanges to trade and distribute products built around its
small-cap benchmark. In January, NYSE Euronext secured the right to
broadcast Russell stock-index data to traders, moving the systems
calculating the valuation of the Russell 2000 and other indexes to
the Big Board parent's New Jersey data center.
"Each of the two exchange operators bring their own strengths to
the table, and we expect those strengths will help build volume,"
said Mr. Bundy. "By increasing the focus and concentrating the
trading in fewer exchanges, we expect to see deeper, more-liquid
markets that will benefit traders and investors."
The deal also follows NYSE Euronext's December agreement to be
taken over by fellow exchange operator IntercontinentalExchange
Inc. (ICE) in a roughly $8.2 billion cash-and-stock deal. ICE
already maintains exclusive rights to trade futures linked to the
Russell 2000 index, a contract it won from larger rival CME Group
Inc. (CME) in 2007.
CBOE maintains exclusive rights to list options on the Dow Jones
Industrial Average and Standard & Poor's 500-stock index. The
S&P 500 contracts are CBOE's most popular products and are
still traded mostly on the exchange's Chicago-based floor.
That exclusive partnership with McGraw-Hill Cos.'s (MHP) S&P
Dow Jones Indices has been the subject of legal battles with
Deutsche Boerse AG's (DBOEF, DB1.XE) International Securities
Exchange in past years. ISE has in court contested the CBOE's
exclusive listings of options linked to the two widely followed
U.S. indexes.
An Illinois court in November blocked ISE from listing options
similar to CBOE's contracts on the S&P 500.
A spokesman for the ISE declined to comment.
On Friday, about 35% of Russell 2000 index options traded on the
ISE, while another 16% traded on Nasdaq OMX Group Inc.'s (NDAQ)
PHLX trading venue in Philadelphia. The remaining volume was split
between the Amex, Arca and CBOE exchanges.
"A healthy chunk of business currently takes place on other
exchanges, but that is good news for us," said Mr. Crutchfield,
head of U.S. options at NYSE Euronext. "We are confident both our
exchanges will offer a strong value proposition to win
business."
NYSE Euronext's U.S. futures platform also has an agreement to
trade futures linked to indexes compiled by MSCI Inc. (MSCI).
Trading in MSCI-linked contracts on NYSE Euronext's platform last
year reached a record average of 20,000 contracts a day, a 67%
increase over 2011, the exchange reported in January.
-Saabira Chaudhuri contributed to this article
Write to Kaitlyn Kiernan at kaitlyn.kiernan@dowjones.com and
Jacob Bunge at jacob.bunge@dowjones.com