July 31, 2020 / 12:09 PM / 12 days ago

UPDATE 2-Exchange operator Cboe's profits rise as retail trading surges

(Adds details from conference call, CEO quote)

By John McCrank

NEW YORK, July 31 (Reuters) - Exchange operator Cboe Global Markets reported higher second-quarter earnings on Friday, driven by a surge in retail investor participation in the markets that boosted stock and options trading volumes, offsetting lower institutional demand.

The Chicago-based company hit record trading volumes in U.S. cash equities and multi-listed options during the quarter ended June 30, fueled by the spike in Main Street trading activity, Cboe Chief Executive Officer Ed Tilly said on a call with analysts.

That helped lift Cboe's net income to $113.3 million, or $1.03 cents per share, from $87.6 million, or 78 cents per share, in the year-earlier quarter.

But demand for Cboe's proprietary products, such as the VIX volatility index, also known as Wall Street's fear gauge, was muted, as concerns over the COVID-19 pandemic drove many large investors onto the sidelines.

"You need to see the end of the event that's causing the uncertainty, and there's no end in sight, quite honestly. We don't know how this pandemic ends," Tilly said.

The failure to contain the coronavirus in the United States, recent increases in unemployment and historic declines in gross domestic product, among other key events, are driving the elevated levels of market uncertainty, he said.

Cboe's options trading revenues rose 7% in the quarter versus a year earlier, while U.S. stock trading revenues were up 22%. The company also runs the largest pan-European stock exchange, where equity trading revenues were down 6%. Futures revenues fell 36%.

Stripping out onetime items like acquisition fees, Cboe earned $1.31 per share, topping analysts' estimates by 8 cents, according to IBES data from Refinitiv. The beat was driven by lower-than-expected expenses, Daniel Fannon, an analyst at Jefferies, said in a note to clients.

Total revenues rose 5% to $296.9 million. (Reporting by John McCrank; editing by Jason Neely, Nick Zieminski and Jonathan Oatis)

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