CBOE Profit Beats Street View on Lower Expenses

* CBOE 3Q adjusted net 26 cents; Street view 22 cents

* Trading volume down 17 pct; rev up 8 pct on access fees

* Sees growth from newly launched second options exchange

CHICAGO - CBOE Holdings Inc, which operates the biggest U.S. market for stock and stock-index options, said quarterly profit rose 41 percent, exceeding Wall Street expectations on lower expenses.

The Chicago-based company also reported higher-than-expected revenue as it began charging traders fees to use its markets, more than offsetting a decline in transaction fees from lower trading volume.

Before the company's June IPO, traders used memberships to use the exchange, and did not pay access fees.

"The headline beat is certainly encouraging," UBS analyst Alex Kramm said.

Analysts expect revenue to move higher after the company last week launched a second, all-electronic exchange to capture business from high-frequency traders, who account for a growing proportion of options trading.

"We are optimistic about the early results we are seeing from C2," CBOE CEO William Brodsky said on an conference call, referring to the new exchange. More broadly, he said, "we remain cautiously optimistic about recent signs that point to stronger trends in volume."

Trading at CBOE last month was down 6 percent from a year earlier, better than the 17 percent decline in the third quarter.

CBOE shares were down 3 cents at $23.97 in morning trading on the Nasdaq.

They are still well below the $29 they fetched at CBOE's June initial public offering, reflecting longer-term pressures including an erosion in CBOE's market share and fading expectations of a takeover by a bigger rival.

But with CBOE now trading at 16 times 2011 earnings, just 2 percent more than its value based on its standalone business, the company may again be a tempting takeover target, according to Diego Perfumo, an analyst at Connecticut-based advisory firm Equity Research Desk.

"CBOE is facing intense competition, but its valuation now is attractive," Perfumo said. "The CBOE will ultimately be acquired and the exchange will fetch a premium over its current price."

The new C2 exchange will begin offering CBOE's popular options on the Standard & Poor's 500 Index in the first quarter of 2011, a move analysts expect to boost volume exponentially, as often happens when contracts are moved to an electronic trading platform from a face-to-face arena.

S&P 500 index options are among CBOE's most profitable products.

CBOE said net income climbed to $27 million, or 26 cents a share, from $19.2 million, or 21 cents, in the year-ago quarter, when the CBOE was not publicly traded.

The adjusted profit excludes stock-based compensation expenses connected to the IPO that the company said should have been included in the prior quarter's results. Adjusted expenses fell 8 percent.

Without adjustments CBOE earned $20.5 million, or 20 cents a share.

Analysts expected earnings of 22 cents a share, according to Thomson Reuters I/B/E/S.

Revenue in the quarter rose 8 percent to $106 million, versus an expected $105 million.