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Brodsky to resign as CEO of CBOE Holdings; Tilly to replace him

William Brodsky chairman chief executive officer Chicago Board Options Exchange. | Provided photo

William Brodsky, chairman and chief executive officer, Chicago Board Options Exchange. | Provided photo

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Updated: January 14, 2013 7:17AM



William Brodsky, a prominent executive in the Chicago financial markets for 30 years and one of their foremost advocates, said Wednesday he will relinquish his role as CEO of the Chicago Board Options Exchange.

Brodsky, 68, said he expects to continue as executive chairman of the company’s board after the annual shareholder meeting in May. He will hand off day-to-day leadership to Edward Tilly, currently president and chief operating officer.

The changeover will end Brodsky’s 16-year dual run as the CBOE’s chairman and CEO. He oversaw huge popularity growth in the options market as traders and financial firms became more versed with its tools.

It also stoked speculation that CBOE will be acquired by a larger operator of exchanges, such as CME Group Inc., owner of the Chicago Mercantile Exchange and the Chicago Board of Trade. With Brodsky easing himself out, an acquirer wouldn’t need to make room for him or pay him an exit package.

“When I heard, my first thought was, ‘They’ve got a deal or they’re close to one,” said veteran Chicago trader Jacob Morowitz. He said he had no specific knowledge of a sale, but he noted that CBOE’s stock has held up well this year despite setbacks in the business.

Trading volume this year has declined throughout the industry, cutting into CBOE’s profits. It still ranks as the largest and most profitable options market in the United States, but it relies heavily on contracts tied to the Standard & Poor’s stock indexes that it can list exclusively.

On a conference call with analysts and reporters, Brodsky called his decision “the right move at the right time personally for me and the CBOE.” Before becoming leader of the options exchange, Brodsky worked at the Chicago Mercantile Exchange for 15 years, where he was its president and CEO.

He praised Tilly, who has been president and chief operating officer since November 2011 but has had leadership roles at the CBOE for years. Tilly, 49, formerly held the highest trader-elected position at the CBOE. He also helped Brodsky steer the CBOE to an initial public offering that it completed in June 2010.

“The whole idea here is to provide not only a good transition but real continuity of leadership,” Brodsky said. He said grooming a successor was a priority for him after the IPO.

“We are making way for the next generation but I’m not leaving the building,” Brodsky said.

He did not raise any prospects for a sale. CME Group declined to comment on any interest in the CBOE.

Thomas Caldwell, chairman of Caldwell Investment Management and an owner of more than 1.5 million CBOE shares, said Brodsky’s decision “puts CBOE on the front burner. There will be people looking at it just because there’s a change.”

His firm has amassed a stake in the exchange in hopes of profiting from an acquisition.

Tilly said he will continue the exchange’s priorities of developing its own products that it can list exclusively, such as its lucrative franchise in the VIX volatility indexes. Succeeding Tilly as president will be Edward Provost, 60, the chief business development officer.

The CBOE was among the last of the old-style member-owned exchanges to go public. It was prevented from going that route by a legal dispute with some members that took years to settle.

By the time of its $29-a-share IPO in 2010, a feeding frenzy in which financial exchanges were going public and buying each other had largely abated because of tough economic times. But the parent company, CBOE Holdings Inc., still faces the issue of whether to buy competitors or be bought out.

Brodsky said he will serve as executive chairman for at least a year, beginning next spring. Asked if he was contemplating a move to Washington to take a job as in industry regulator, Brodsky said, “I have been focused on the transition for months now and, quite frankly, my plan is to stay at the CBOE at this point in time.”

Caldwell said Brodsky has “done a great job in terms of innovating while maintaining market leadership.”

The stock has struggled to hold its IPO level. The shares ended Wednesday’s trading at $30.10, up 19 cents on the day.

Under terms of transition agreements the CBOE reported to federal regulators, Brodsky will be paid $1 million a year through 2013 and $600,000 for 2014 service through that year’s annual meeting. He also will be eligible for bonuses of up to $1.5 million for 2012 and 2013 and will get restricted stock grants worth $2.5 million in 2013 and 2014.

The CBOE said Tilly’s annual salary will be raised to $800,000 from $640,000. He will get restricted stock valued at $2 million and be eligible for a “cash incentive” under a contract that expires at the end of 2015, but it will be renewed automatically unless Tilly or CBOE give notice.

Provost will get annual pay of $530,000 and be entitled to a one-time stock grant worth $500,000.



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