Chicago Board Options Exchange

The Chicago Board Options Exchange (CBOE) is where most options trade. The CBOE is also a self-regulatory organization (SRO) that maintains regulatory power over the options market.

The CBOE’s market structure is a hybrid of the NYSE and NASDAQ. Similar to a DMM, the Designated Primary Market Maker (DPM) is responsible for maintaining a fair and orderly market. They can act in an agency or principal capacity depending on the momentum of the market. The DPM is hired by the CBOE to perform its duties, just like DMMs are hired by the NYSE.

In addition to the DPM, there are dozens of private market makers that add additional liquidity to the options market. These organizations act solely in a principal capacity by buying options into or selling options from their inventory.

Floor brokers also exist on the CBOE and work in a similar capacity to floor brokers on the NYSE. They represent the customers of financial firms and typically facilitate large options trades. Floor brokers can execute trades with the DPM, a market maker, or even another floor broker.

There are many rules enforced by the CBOE to ensure a fair market for all participants. These topics were already covered in the Options chapter. In particular, it’s important to understand the CBOE enforces these rules:

• Protocols of assignment (exercise)
• Options contract adjustment rules
• Position & exercise limits