14 th Annual Financial Services Forum February 14, 2013 Edward Tilly, President and Chief Operating...

14th Annual Financial Services ForumFebruary 14, 2013

Edward Tilly, President and Chief Operating Officer

Credit Suisse

2CBOE HOLDINGS

Forward Looking Statements

This presentation may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those statements that reflect our expectations, assumptions or projections about the future and involve a number of risks and uncertainties. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause actual results to differ materially from that expressed or implied by the forward-looking statements, including: the loss of our exclusive licenses to list certain index options; decreases in the amount of trading volumes or a shift in the mix of products traded on our exchanges; legislative or regulatory changes affecting the options markets; increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities; increasing price competition; our ability to maintain access fee revenues; economic, political and market conditions; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to accommodate increases in trading volume and order transaction traffic without failure or degradation of performance of our systems; our ability to protect our systems and communication networks from security risks, including cyber attacks; our ability to attract and retain skilled management and other personnel; our ability to maintain our growth effectively; our dependence on third party service providers; and the ability of our compliance and risk management methods to effectively monitor and manage our risks.

More detailed information about factors that may affect our performance may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2011 and other filings made from time to time with the SEC.

3CBOE HOLDINGS

At a Glance

Leading Brand and Market Position

Leading U.S. options exchange

CBOE and VIX are industry’s leading brands

Well positioned to benefit from secular growth

Leading Product Innovator

Exclusive index franchise differentiates CBOE

Volatility suite provides strong growth potential

High Performance Trading Technology

CBOE Command™ - proprietary, state of the art electronic platform; built and maintained in-house

Powers CBOE, C2, CFE, CBSX and OneChicago

4CBOE HOLDINGS

Well Positioned for Growth

Record Financial Results for 2012

Leveraged proprietary products

Higher growth rate in proprietary products drove increase in RPC

Effectively managed resources

Invested in future growth initiatives

Returned increased value to stockholders

Well positioned to continue to grow and shape options and volatility space

5CBOE HOLDINGS

Source: OCC and CBOE

Large and Growing U.S. Options Market

2000 – 2012 CAGR: 15%

(ADV in thousands)

6CBOE HOLDINGS

Demand for Options Use Increasing

Studies and research point to increasing demand for options across a variety of customer segments

Macro drivers of growth

Return of greater retail participation

Increased standardization of the OTC market

“Futurization” of swaps

Increased globalization

7CBOE HOLDINGS

Leading and defining the options industry for 40 years

Product Development

Trading Technology

Investor Education

Translating Our Mission into Value

8CBOE HOLDINGS

Undisputed Leader in Innovation for 40 Years

1970s 1980s 1990s 2000s 2010s

1.1 million in 1973 >1.1 billion in 2012

• First marketplace for trading options

• Introduced LEAPS

• Devised methodology for VIX

• Began Hybrid trading model

• Began trading VIX options

• Opened CBOE Futures Exchange

• Introduced Index Options

• Established

Options Institute

• Launched C2 and SPXpm

• Introduced CFLEX 2.0

• Launched CBOE Command

• Opened London Hub

Industry Leader in Product Innovation

Total Annual Options Contract Volume

9CBOE HOLDINGS

Strong Contribution from S&P 500 Index Product Line

S&P 500 Index product line:

SPX, SPXpm & SPX Weeklys

S&P 500 Index product line has highest options RPC

Volume down 7% in 2012 versus 2011

Strong growth in SPX Weeklys

Volume up 69% in 2012 versus 2011

Moving SPXpm to CBOE from C2

Unites all SPX products on a single platform

Exposes SPXpm to a broader user base, providing ease of access -- both open outcry and electronic trading

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

020,00040,00060,00080,000

100,000120,000140,000160,000

2008 2009 2010 2011 2012 2013YTD¹

% o

f a

ll S

PX

SP

X W

ee

klys

AD

V

Chart Title

SPX Weeklys ADV Weeklys % of All SPX

Total ADVTotal ADVTotal ADVSPX AM SettledSPX Weeklys

¹YTD through January 2013

10CBOE HOLDINGS

VIX options ADV up 14% in 2012

Sixth consecutive annual record

VIX futures ADV up 99% in 2012

Third consecutive annual record

Momentum carried over into 2013

VIX futures ADV up 241% in January YOY

VIX options ADV up 85% in January YOY

Growth increasingly driven by a broader user base

Record Growth in Volatility Trading

¹Through January 2013

Strong Growth Amid Low Volatility

11CBOE HOLDINGS

Broadening Customer Base

Growth in VIX products now being driven by a broader user base

Increase in number and types of participants using VIX products

Proprietary trading firms

Hedge funds

CTAs

Pension funds

Endowments

Registered investment advisors

12CBOE HOLDINGS

Fueling Growth Through Education

CBOE is world’s go-to source for options education

13CBOE HOLDINGS

Institutional Buy-Side Opportunity

Number of funds using CBOE index options strategies increasing

CBOE S&P 500 BuyWrite Index (BXM)

Introduced 10 years ago

First major benchmark index for options investment performance

14CBOE HOLDINGS

OTC Opportunity

OTC participants poised to drive increased options and volatility trading

Traditional OTC participants seeking exchange-traded alternatives

Introduced new CFLEX 2.0, customized trading technology

Enables more convenient access to FLEX options, using same CBOE computer interface

Introduced new products aimed at OTC users

S&P 500 Variance Futures launched on CFE

15CBOE HOLDINGS

Focus for 2013: Establishing Traction in Variance Products

CFE introduced S&P 500 variance futures in December 2012

Customized to meet the needs of the OTC variance swaps market

Expertise in volatility puts CBOE in a unique position to attract OTC variance swap business

Working with customers to ensure specifications are aligned with the OTC variance market

OTC Opportunity

16CBOE HOLDINGS

International Opportunity

Expect continued demand for U.S. options from European institutional investors

Tabb study estimates 10% of U.S. listed options volume from Europe

CBOE estimates 15-20% of its volume comes from outside U.S.

SPX enables overseas investors to take a position in or to hedge the broader U.S. equity market with a single transaction

VIX index serves as proxy for worldwide equity market volatility

Growing interest in VIX options and futures globally

17CBOE HOLDINGS

International Opportunity

Intensifying our international marketing focus

Opened CFE London Hub February 1, 2013

Expanding VIX futures trading to virtually 24 hours a day, five days a week in May 2013

Pending regulatory approval

RMC continues to showcase VIX options and futures trading

Second annual European RMC to be held in Sept. 2013

18CBOE HOLDINGS

Operating revenues up 1%

Adjusted operating margin of 48.7%, up 30 bps

Adjusted diluted EPS of $1.69, up 6%

¹Adjusted to reflect the impact of certain items. See Appendix for “Non-GAAP Information.”

‘07-’12 CAGR 8%

Strong Financial Performance

Focused on driving revenue growth and controlling expenses

‘07-’12 CAGR 13%

19CBOE HOLDINGS

Enhancing Stockholder Value

Strong cash flow generation, improving stockholder returns

Returned nearly $700 million to stockholders since IPO

Deploy capital opportunistically

Fund growth in business

Steady growth in dividend payout

Share repurchases

’07 – ’12 CAGR 12%

20CBOE HOLDINGS

Confident in Long-Term Growth Prospects

Questions & Answers

Appendix Materials

23CBOE HOLDINGS

2012 Financial Overview

Adjusted Basis¹(in millions, except EPS and RPC) 2012 2011 $ Change % Change

Operating Revenues $512.3 $508.1 $ 4.2 1%

Adjusted Operating Expenses 262.9 262.4 0.5 -

Adjusted Operating Income $249.4 $245.7 $ 3.6 2%

Adjusted Operating Margin % 48.7% 48.4% 30 bps

Adjusted Net Income Allocated to Common Stockholders $147.5 $143.1 $ 4.4 3%

Adjusted Diluted EPS $ 1.69 $ 1.59 $0.10 6%

Total ADV 4.54 4.83 -6%

Rate per Contract $0.315 $0.307 $0.008 3%


24CBOE HOLDINGS

Quarterly Adjusted Operating Income and Margin¹ ($ in millions)


Well Positioned to Gain Additional Leverage

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Operating Income Margin

25CBOE HOLDINGS

Increasing Market Share – 2012

Total Industry Volume

Equity Options¹ Options on ETPs¹ Index Options¹

Excl. Dividend Trades¹ CBOE

CBOE C2

ISE

NASDAQ PHLX

NASDAQ NOM

NAASDAQ NOBO

NYSE AMEX

NYSE ARCA

BOX

Source: Options Clearing Corporation and CBOE ¹Full-Year 2012. Excludes Dividend TradesMay not add to 100 percent due to rounding

29.0%27.8%

BATS

26CBOE HOLDINGS

CBOE Holdings Quarterly Options ADV (contracts in millions)

Quarterly Options ADV

27CBOE HOLDINGS

Trading Volume Mix 2012 vs 2011

RPC Increase Reflects Shift in Mix of Trading Volume

28CBOE HOLDINGS

Trading Volume Mix 4Q12 vs 4Q11

RPC Increase Reflects Shift in Mix of Trading Volume

29CBOE HOLDINGS

Proprietary Products Account for Growing Percentage of Transaction Fee Revenue

Index options and futures contracts increased to 71.3% of transaction fee revenue in 4Q12 versus 58.5% in 4Q11

30CBOE HOLDINGS

CBOE Holdings Rolling 3-Month RPC

2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecEquities $0.151 $0.128 $0.110 $0.112 $0.117 $0.123 $0.124 $0.122 $0.118 $0.121 $0.124 $0.134Indexes 0.640 0.651 0.658 0.667 0.673 0.677 0.680 0.684 0.682 0.675 0.670 0.670Exchange-traded products 0.206 0.188 0.171 0.172 0.176 0.180 0.177 0.177 0.177 0.180 0.183 0.186 Total options average 0.297 0.275 0.261 0.267 0.279 0.288 0.289 0.286 0.287 0.294 0.309 0.322Futures 1.474 1.610 1.697 1.655 1.650 1.607 1.598 1.626 1.606 1.573 1.473 1.442 Total average transaction fee per contract $0.308 $0.289 $0.280 $0.290 $0.304 $0.314 $0.316 $0.315 $0.317 $0.326 $0.342 $0.355




31CBOE HOLDINGS

Quarterly Core Operating Expenses¹

4Q 2012 % rev 3Q 2012 % rev 2Q 2012 % rev 1Q 2012 % rev 4Q 2011 % revTotal Operating Expenses $70,325 54% $67,458 53% $66,480 50% $63,977 53% $67,529 56%Less: Depreciation and amortization 6,210 5% 8,634 7% 8,320 6% 8,320 7% 7,506 6% Accelerated stock-based compensation 149 - - - - - 194 - - -

Severance expense pursuant to executive employment agreement -

-

- - - - - - 3,709 3%Estimated liability related to SEC investigation 5,000 4%

Volume-based expense: Royalty fees 11,639 9% 11,304 9% 12,001 9% 11,191 9% 12,346 10% Trading volume incentives 1,027 1% 1,423 1% 1,176 1% 2,649 2% 2,440 2%Core Operating Expenses (non-GAAP)¹: $46,300 36% $46,097 36% $44,983 34% $41,623 34% $41,528 35%

Less: Continuing stock-based compensation (3,151) -2% (3,082) -2% (3,027) -2% (2,745) -2% (3,010) -3%

Core Operating Expenses excluding continuing stock-based compensation (non-GAAP)¹: $43,149 33% $43,015 34% $41,956 32% $38,878 32% $38,518 32%

Core Operating Expense Detail: Employee costs $26,291 20% $27,166 21% $25,300 19% $25,096 21% $24,560 20% Data processing 4,707 4% 5,070 4% 4,927 4% 4,899 4% 4,263 4% Outside services 10,790 8% 9,075 7% 9,265 7% 7,170 6% 6,657 6% Travel and promotional expenses 1,988 2% 2,548 2% 3,303 2% 2,167 2% 3,345 3% Facilities costs 1,269 1% 1,268 1% 1,226 1% 1,303 1% 1,426 1% Other expenses 1,255 1% 970 1% 962 1% 988 1% 1,277 1% Total $46,300 $46,097 $44,983 $41,623 $41,528

Number of full-time employees at quarter end 605 596 618 601 596

May not foot due to rounding

¹Please see our disclaimer regarding Non-GAAP financial measures.

32CBOE HOLDINGS

2012 % rev 2011 % rev 2010 % rev 2009 % rev 2008 % revTotal Operating Expenses $268,241 52% $266,512 52% $269,763 62% $248,497 62% $229,473 55%Less: Depreciation and Amortization 31,485 6% 34,094 7% 29,891 7% 27,512 7% 25,633 6% Accelerated stock-based compensation 343 - 453 - 12,968 3% - - - - Severance - - 3,709 1% - - - - - - Estimated liability related to SEC investigation 5,000 1% - - - - - - - - Exercise Right Appeal Settlement - - - - - - 2,086 1% Volume-based Expense: Royalty Fees 46,135 9% 47,822 9% 41,353 10% 33,079 8% 35,243 8% Trading Volume Incentives 6,275 1% 14,239 3% 21,294 5% 28,631 7% 15,437 4%Core Operating Expenses (non-GAAP)¹: $179,003 35% $166,195 33% $164,257 38% $157,189 39% $153,160 37%Less: Continuing stock-based compensation (12,005) -2% (12,166) -2% (7,833) -2% - - - - Core Operating Expenses excluding continuing stock-based compensation (non-GAAP)¹: $166,998 33% $154,029 30% $156,424 36% $157,189 39% $153,160 37%

Core Operating Expense Detail (excluding stock-based compensation): Employee Costs $91,848 18% $88,126 17% $85,442 20% $84,481 21% $83,140 20% Data Processing 19,603 4% 17,933 4% 19,501 5% 20,475 5% 20,556 5% Outside Services 36,300 7% 27,310 5% 31,245 7% 30,726 8% 27,370 7% Travel and Promotion Expenses 10,006 2% 9,812 2% 9,569 2% 10,249 3% 10,483 3% Facilities Costs 5,066 1% 5,400 1% 5,801 1% 5,624 1% 4,730 1% Other Expenses 4,175 1% 5,448 1% 4,866 1% 5,634 1% 6,881 2%

Number of Full Time Employees 605 596 581 597 576

May not foot due to rounding

¹Please see our disclaimer regarding Non-GAAP financial measures.

($ in thousands)

Annual Core Operating Expenses¹

33CBOE HOLDINGS

2013 Full-Year Guidance

As of February 8, 2013 ($ in millions) 2012 Actual 2013 Guidance

Core operating expenses $ 179 $189 to $194

Continuing stock-based compensation¹ $ 12 $18

Core operating expenses excluding stock-based compensation $ 167 $171 to $176

Adjusted tax rate 39.7% 39.5% to 40.0%

Depreciation and amortization $ 31 $37 to $39

Capital expenditures $ 30 $35 to $40

34CBOE HOLDINGS

Estimated 2013 Stock-Based Compensation by Quarter

Quarterly breakout of estimated continuing stock-based compensation for 2013

1Q13 2Q13 3Q13 4Q13 Total

Continuing stock-based compensation¹ $3.7 $5.5 $4.4 $4.4 $18.0

Accelerated stock-based compensation¹,² $3.2 $ 3.2

¹All stock-based compensation is reported in employee costs²Excluded from core expenses; included in non-GAAP reconciliation

35CBOE HOLDINGS

Weighted Average Shares Calculation

Shares Days

Outstanding Total Days Weighted Avg Shares

Days Outstanding

Total Days Weighted Avg

Unrestricted common stock 88,768,885 92 92 88,768,885 88,768,885 366 366 88,768,885 Vesting of participating securities (restricted stock) on various dates 374,189 various 92 374,189 374,189 various 366 204,544 Treasury share purchases (various dates) (1,871,424) various 92 (1,871,424) (1,871,424) various 366 (1,513,906)

Total weighted average shares - basic and diluted 87,271,650 87,459,523

Participating securities for the period 991,424 991,424 1,204,241 1,204,241

Weighted average shares including participating securities 88,263,074 88,663,764 Percentage of net income allocated to participating securities 1.12% 1.36%

Net income allocated to common stockholders equals net income less the percentage of net income allocated to participating securities.

GAAP EPS is calculated by dividing net income allocated to common stockholders by the total weighted average shares outstanding during the period for basic and diluted.

4Q 2012 YTD 2012

36CBOE HOLDINGS

NOTE: May not foot due to rounding

GAAP to Non-GAAP Reconciliation For 2012

GAAP to Non-GAAP Reconciliation

(in thousands, except per share amounts)

1Q12 2Q12 3Q12 4Q12 FY2012

Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP

GAAP net income allocated to common stockholders 32,863$ 37,903$ 45,243$ 39,246$ 155,255$

Add: Accelerated stock-based compensation 194 149 343

Add: Estimated liability related to SEC investigation 5,000 5,000

Income tax benefit/(expense) related to the items above (80) (63) (143)

Add: Income tax provision adjustment (7,654) (5,415) (13,054)

Net income allocated to participating securities - effect on reconciling items (2) 86 4 109

Adjusted net income allocated to common stockholders 32,975$ 37,903$ 37,675$ 38,921$ 147,510$

Reconciliation of GAAP Diluted EPS to Non-GAAP

GAAP diluted earnings per common share 0.37$ 0.36$ 0.52$ 0.45$ 1.78$

Per share impact of items above - - (0.09) - (0.09)

Non-GAAP diluted earnings per common share 0.37$ 0.36$ 0.43$ 0.45$ 1.69$

Reconciliation of GAAP Operating Margin to Non-GAAP

GAAP operating revenue 121,392$ 132,549$ 128,319$ 130,077$ 512,338$

Non-GAAP adjustments noted above

Adjusted operating revenue 121,392$ 132,549$ 128,319$ 130,077$ 512,338$

GAAP operating income 57,415$ 66,069$ 60,861$ 59,752$ 244,097$

Non-GAAP adjustments noted above 194 - - 5,149 5,343

Adjusted operating income 57,609$ 66,069$ 60,861$ 64,901$ 249,440$

Adjusted operating margin 47.5% 49.8% 47.4% 49.9% 48.7%

For further information go to cboe.com/Investor Relations

May not add due to rounding and/or change in shares outstanding

37CBOE HOLDINGS

NOTE: May not foot due to rounding

GAAP to Non-GAAP ReconciliationFor Years 2009, 2010 and 2011

GAAP to Non-GAAP Reconciliation

(in thousands, except per share amounts)

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 FY 2009 FY2010 FY2011

Reconciliation of GAAP Net Income Allocated to Common Stockholder to Non-GAAP

GAAP net income allocated to common stockholders 20,020$ 30,687$ 32,089$ 32,609$ 40,597$ 31,287$ 106,451$ 98,166$ 136,582$

Less: Recognition of deferred access fee revenue (24,086)

Less: Recognition of prior-period revenue (4,406) (4,406)

Add: Exercise right appeal settlement 2,086

Add: Accelerated stock-based compensation 10,965 2,004 340 113 12,968 453

Add: Severance expense pursuant to an executive employment agreement 3,709 3,709

Add: Impairment change 1,620 460 1,620 460

Income tax benefit/(expense) related to the items above (4,461) 291 (337) (46) (1,478) 8,786 (4,034) (1,861)

Add: Income tax provision adjustment 4,223 (322) 3,901

Net income allocated to participating securities - effect on reconciling items (144) 11 (11) (2) (75) (32) (76) (109)

Adjusted net income allocated to common stockholders 26,380$ 30,207$ 32,540$ 32,674$ 44,745$ 33,164$ 93,237$ 104,238$ 143,134$

Reconciliation of GAAP Diluted EPS to Non-GAAP

GAAP diluted earnings per common share 0.20$ 0.31$ 0.36$ 0.36$ 0.45$ 0.35$ 1.17$ 1.03$ 1.52$

Per share impact of items above 0.06 - - - 0.05 0.02 (0.14) 0.06 0.07

Non-GAAP diluted earnings per common share 0.26$ 0.31$ 0.36$ 0.36$ 0.50$ 0.37$ 1.03$ 1.09$ 1.59$

GAAP operating revenue 106,015$ 117,391$ 124,042$ 120,290$ 143,604$ 120,208$ 426,082$ 437,104$ 508,144$

Non-GAAP adjustments noted above (4,406) (24,086) (4,406)

Adjusted operating revenue 106,015$ 112,985$ 124,042$ 120,290$ 143,604$ 120,208$ 401,996$ 432,698$ 508,144$

GAAP operating income 34,933$ 51,854$ 57,535$ 56,452$ 74,966$ 52,679$ 177,584$ 167,341$ 241,632$

Non-GAAP adjustments noted above 10,965 (2,402) 340 113 - 3,709 (22,000) 8,562 4,162

Adjusted operating income 45,898$ 49,452$ 57,875$ 56,565$ 74,966$ 56,388$ 155,584$ 175,903$ 245,794$

Adjusted operating margin 43.3% 43.8% 46.7% 47.0% 52.2% 46.9% 38.7% 40.7% 48.4%

For further information go to cboe.com/Investor Relations

Reconciliation of GAAP Operating Margin to Non-GAAP

38CBOE HOLDINGS

In addition to disclosing results determined in accordance with GAAP, CBOE Holdings has disclosed certain non-GAAP measures of operating performance. The non-GAAP measures provided in this presentation include core operating expenses, adjusted operating revenue, adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted effective tax rate, adjusted net income, adjusted net income allocated to common stockholders and adjusted diluted earnings per share.

Management believes that the non-GAAP financial measures presented in this presentation, including adjusted net income and core operating expenses, provide useful and comparative information to assess trends in our core operations and a means to evaluate period-to-period comparisons. Non-GAAP financial measures disclosed by management, including adjusted diluted EPS, are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies.

Core operating expenses is the company’s operating expenses after excluding (i) volume-based expenses, (ii) depreciation and amortization expense, (iii) accelerated stock-based compensation expense and (iv) other unusual or one-time expenses.

Non-GAAP Information

CBOE400 South LaSalle StreetChicago, Illinois 60605www.cboe.com

14 th Annual Financial Services Forum February 14, 2013 Edward Tilly, President and Chief Operating...

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