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CBOE Holdings Inc. (CBOE-Q) quarterly profit jumped more than expected, and CEO William Brodsky sought to assure investors that the operator of the oldest U.S. stock options market has the edge over rivals pairing up in mega-mergers.
The disclosure on Wednesday that Germany's Deutsche Boerse AG was in advanced talks to buy NYSE Euronext (NYX-N) to create the world's largest financial exchange company sent shares of CBOE soaring on rekindled investor hopes that it would be a takeover target.
The announcement came on the heels of a tie-up between the London Stock Exchange Group Plc and Canadian stock market operator TMX Group Inc (X-T).
Brodsky, on a conference call with analysts on Thursday, appeared to steer investors away from expectations CBOE would follow suit.
"We look at every opportunity for growth," he said in reply to an analyst query about M&A prospects, but "our primary focus continues to be running our day to day business."
Brodsky said he was "cautiously optimistic" trading volumes will continue to rise, and predicted the company would withstand competitive pressures. CBOE had a 27-percent share of the U.S. stock-options trade in January, far less than the 40-percent share that a combined NYSE Euronext-Deutsche Boerse represents.
"We have the industry's most unique products, including proprietary and exclusively traded products, which continue to grow faster than others in our industry," Brodsky said. "These factors will continue to differentiate CBOE in the options marketplace, regardless of any business combinations among other exchanges."
Overlapping market models at the two companies raises the question whether the combined market share will "stick," CBOE chief financial officer Alan Dean said. "Does one and one equal two? I just don't know," he said.
Dean also sought to tamp down fears that access fees -- a key driver of fourth-quarter profits-- would fall this year.
The company said in a statement that access fees will rise this year to between $65 million to $68 million -- up from $41.4 million collected in 2010. But this will be a decline from the pace set last quarter, after the company changed its market-maker permit fees to a sliding scale.
"I didn't intend to be guiding down," Dean said, noting that if volume does rise, so will transaction fees, a bigger portion of overall revenue than access fees.
Hurting the immediate outlook was slower than expected progress with CBOE's newly launched electronic exchange, aimed at bringing in high-frequency traders that do not use the Chicago Board Options Exchange's face-to-face trading floor. The new market, called C2 won less than 1 percent of total U.S. stock-options trading in January.
Investors anticipate a burst of activity on C2 once CBOE lists its exclusive -- and profitable -- Standard & Poor's 500 Index options on the exchange.
Brodsky said that a longer-than-expected approval process by the U.S. Securities and Exchange Commission for rules to govern the trading may force the delay of the electronic listing until next quarter.
Net income in the fourth quarter rose to $30.9 million US, or 32 cents a share, from $21.3 million US a year earlier, when the company was privately held.
Operating revenue rose 17 percent to $113 million. Figures were adjusted for items including accelerated stock-compensation expense.
Analysts on average had expected earnings of 29 cents a share, according to Thomson Reuters.