The Dow Jones Industrial Average is a very stupid measure of the stock market for at least two reasons, which are (1) it is an average of only 30 big stocks and (2) it is weighted by share price, an entirely arbitrary number, rather than market cap or equal weighting or anything at all sensible. Was Mr. Dow an idiot? Probably not? He was just a guy inventing indices in 1896, when computers couldn’t fit in your pocket and were pulled by horses.1 Back then, to get a stock market average, some schmuck had to actually go look at a ticker tape for each stock price and then do the averaging on a … I’m gonna say an abacus? (Slide rule? HP 12C?) So “add up 30 stock prices and divide by 30″ seemed like a good plan; “take the float-adjusted market-cap-weighted average of 500 stock prices” did not. You can’t really fault Mr. Dow for the choices he made at the time he made them.
It is now 117 years later and nobody really uses the Dow anymore except, like, everybody, but people do use the S&P 500 index, which has the advantage that it’s a reasonable enough index of the thing it is an index of. But as with the Dow, a certain sense of “ooh the clerk is working so hard to calculate all these averages” still clings to the S&P, even though that’s obviously false. The clerk is a computer and it’s so bored calculating stock indices that it’s mining bitcoins on the side just to feel something.
I think that has something to do with this CBOE vs. International Securities Exchange dispute over S&P 500 (and DJIA!) index options. The CBOE lists such options; the ISE doesn’t but wants to. So the CME and McGraw-Hill, which together own the S&P 500 index, and the CBOE, which licenses it for options trading, sued in Illinois courts and got an injunction saying nobody else could use the index to list options. And today the CBOE finally totally won its case when the Supreme Court refused to hear it, leaving the Illinois court’s injunction in place, and thus leaving CBOE with a monopoly over derivatives on the S&P 500.2 Here’s CBOE’s gloating.
There’s no opinion from the Supreme Court and there’s a lot of goofball copyright preemption law involved; the Illinois court decided the case not on (federal) copyright law, but on … I dunno, this: Read more »
The CBOE is going to move a little less expeditiously on extending the trading day to avoid further unplanned truncations of the trading day. Read more »
CBOE Holdings Inc. technology staff knew of software issues in the hours before the largest U.S. options exchange suffered a three-hour outage, according to people briefed on discussions among CBOE officials.
Staffers at the company, which operates the Chicago Board Options Exchange, were confident they could fix the issues, CBOE executives have told colleagues and others outside the company. One area of focus by CBOE Thursday and Friday has been whether the exchange should have moved to a backup system to be safe, the people briefed on the discussions said….
The CBOE suffered a drop in its market share in some contracts Friday. One trader likened the volume drop to the company being sent to the “penalty box.” Read more »
This may surprise you, but CBOE CEO Bill Brodsky wasn’t exactly predicting yesterday’s little incident. Or, as he’d prefer to think of it, “a learning experience.”
The software glitch that shuttered the Chicago Board Options Exchange for several hours on Thursday “cropped up unexpectedly,” CBOE Holdings CEO Bill Brodsky told CNBC television on Friday.
And that’s pretty much all he’s got to say about the matter. Read more »
We hope you had no pressing need to trade on the Chicago Board Options Exchange this morning, as it was rendered impossible by one of the more spectacular recent exchange-technology glitches. Read more »
The Chicago Board Options Exchange is clearing out the last vestiges of its past as a mutually-owned operation. While it was A-OK to have traders running the place before it went public in 2010, it seems having them on the board is now a conflict of interest attracting unwanted attention. Read more »
Our German friends are issuing walking papers to a whole bunch of Houston-based power and gas traders, part of cuts that have also claimed the bank’s commodities chief. More than 50 jobs are being cut. Read more »
So says the head of the country’s biggest options exchange, Bill Brodsky:
“There are micro-market structure issues – flash orders, short-selling, high-frequency trading – that are being wrapped up into financial regulatory reform in a way that has a lot of political overtones,” he said. “This is something regulators should be dealing with without undue political pressure from Congress.”
So what should Congress be doing? (Nothing is an unacceptable answer; these, people have to get reelected, Bill!)
Read more »
Years after every other securities exchange that matters gave up on the quaint idea of mutual ownership, the Chicago Board Options Exchange will finally be able to join them.
After agreeing to pay the last seven Chicago Board of Trade holdouts $4.2 million to settle their ownership claims–the CBOE settled with the CBOT, now part of the CME Group, last year–the options exchange is free to list itself or find a buyer.
But can it ever get over the fact that even the American Stock Exchange beat it to the punch?
CBOE settlement could clear way for IPO or merger [Crain's Chicago]