Document and Entity Information(USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Jun. 30, 2011
Entity Information [Line Items]
Entity Registrant Name
CBOE Holdings, Inc.
Entity Central Index Key
0001374310
Current Fiscal Year End Date
--12-31
Entity Filer Category
Large Accelerated Filer
Document Type
10-K
Document Period End Date
Dec. 31, 2011
Document Fiscal Year Focus
2011
Document Fiscal Period Focus
FY
Amendment Flag
false
Entity Common Stock, Shares Outstanding
88,768,885
Entity Well-known Seasoned Issuer
No
Entity Voluntary Filers
No
Entity Current Reporting Status
Yes
Entity Public Float
$2.2
Condensed Consolidated Balance Sheets(USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current Assets:
Cash and cash equivalents
$134,936
$53,789
Accounts receivablenet allowances of $304 and $108
37,578
37,746
Marketing fee receivable
5,195
7,815
Income taxes receivable
6,756
5,537
Other prepaid expenses
4,152
4,510
Other current assets
1,065
537
Total Current Assets
189,682
109,934
Investments in Affiliates
14,305
12,615
Land
4,914
4,914
Property and Equipment:
Construction in progress
1,264
1,729
Building
60,917
60,917
Furniture and equipment
252,905
240,711
Less accumulated depreciation and amortization
(238,288)
(221,273)
Total Property and EquipmentNet
76,798
82,084
Other Assets:
Software development work in progress
6,168
1,131
Data processing software and other assets (less accumulated amortization of $121,173 and $107,770)
36,001
43,434
Total Other AssetsNet
42,169
44,565
Total
327,868
254,112
Current Liabilities:
Accounts payable and accrued expenses
46,071
40,084
Marketing fee payable
5,765
8,349
Deferred revenue
351
280
Post-retirement medical benefits
100
103
Total Current Liabilities
52,287
48,816
Long-term Liabilities:
Post-retirement medical benefits
1,781
1,782
Income taxes payable
12,185
3,165
Other long-term liabilities
3,906
3,993
Deferred income taxes
21,439
20,482
Total Long-term Liabilities
39,311
29,422
Total Liabilities
91,598
78,238
Stockholders Equity:
Preferred stock, $0.01 par value: 20,000,000 shares authorized, no shares issued and outstanding at December 31, 2011 and December 31, 2010
0
0
Additional paid-in-capital
55,469
42,858
Retained earnings
232,121
133,087
Treasury stock at cost 2,012,337 shares at December 31, 2011 and no shares at December 31, 2010
(51,329)
0
Accumulated other comprehensive loss
(899)
(972)
Total Stockholders Equity
236,270
175,874
Liabilities and Stockholders Equity
327,868
254,112
Unrestricted Common Stock [Member]
Stockholders Equity:
Common Stock, Value, Issued
908
518
Common Class A2 [Member]
Stockholders Equity:
Common Stock, Value, Issued
$0
$383
Condensed Consolidated Statement of Income(USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Operating Revenues:
Transaction fees
$373,065
$330,264
$314,506
Access fees
68,693
41,384
45,084
Exchange services and other fees
18,181
16,845
22,647
Market data fees
19,906
21,343
20,506
Regulatory fees
19,243
15,315
15,155
Other revenue
9,056
11,953
8,184
Total Operating Revenues
508,144
437,104
426,082
Operating Expenses:
Employee costs
104,454
106,243
84,481
Depreciation and amortization
34,094
29,891
27,512
Data processing
17,933
19,501
20,475
Outside services
27,310
31,245
30,726
Royalty fees
47,822
41,353
33,079
Trading volume incentives
14,239
21,294
28,631
Travel and promotional expenses
9,812
9,569
10,249
Facilities costs
5,400
5,801
5,624
Exercise Right Appeal Settlement
2,086
Other expenses
5,448
4,866
5,634
Total Operating Expenses
266,512
269,763
248,497
Operating Income
241,632
167,341
177,585
Other Income/(Expense):
Investment income
142
475
1,607
Net loss from investment in affiliates
(811)
(2,297)
(1,087)
Interest and other borrowing costs
(879)
(896)
(875)
Total Other Income/(Expense)
(1,548)
(2,718)
(355)
Income Before Income Taxes
240,084
164,623
177,230
Income tax provision
100,678
65,227
70,779
Net Income
139,406
99,396
106,451
Undistributed Earnings Allocated to Participating Securities
2,824
1,230
Net Income Allocated to Common Stockholders
136,582
98,166
106,451
Net income per share (Note 4):
Earnings Per Share, Basic
$1.52
$1.03
$1.17
Net Income (Loss) Available to Common Stockholders, Diluted
$136,582
$98,166
$106,451
Diluted
$1.52
$1.03
$1.17
Weighted Average Number of Shares Outstanding, Basic
89,994
95,754
90,733
Weighted average shares used in computing income per share:
Diluted
89,994
95,754
90,733
Condensed Consolidated Balance Sheets Parenthetical(USD $)
Dec. 31, 2011
Dec. 31, 2010
Current Assets:
Accounts receivable, allowances (in dollars)
$304,000
$108,000
Other Assets:
Data processing software and other assets, accumulated amortization (in dollars)
$121,173,000
$107,770,000
Shareholders' Equity:
Preferred stock, par value
$0.01
$0.01
Preferred stock, shares authorized
20,000,000
20,000,000
Preferred stock, shares issued
0
0
Preferred stock, shares outstanding
0
0
Treasury Stock at Cost
2,012,337
0
Unrestricted Common Stock
Shareholders' Equity:
Common stock, par value (in dollars per share)
$0.01
$0.01
Common stock, shares authorized
325,000,000
325,000,000
Common stock, shares issued
90,781,222
51,786,717
Common stock, shares outstanding
88,768,885
51,786,717
Common Class A2
Shareholders' Equity:
Common stock, par value (in dollars per share)
$0.01
$0.01
Common stock, shares authorized
45,366,690
45,366,690
Common stock, shares issued
0
38,297,994
Common stock, shares outstanding
0
38,297,994
Consolidated Statement of Comprehensive Income(USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Net income
$139,406
$99,396
$106,451
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
73
(171)
23
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
139,479
99,225
106,474
Preferred Stock Dividends and Other Adjustments
(2,831)
(1,228)
  
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$136,648
$97,997
$106,474
Condensed Consolidated Statements of Cash Flows(USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Income Taxes Paid
$93,224,000
$70,289,000
$61,495,000
Cash Flows from Operating Activities:
Net income
139,406,000
99,396,000
106,451,000
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization
34,094,000
29,891,000
27,512,000
Other amortization
90,000
69,000
213,000
Provision for deferred income taxes
940,000
21,000
1,367,000
Stock-based compensation
12,618,000
20,801,000
0
Loss on disposition of property
1,225,000
139,000
  
Equity in loss of affiliates
352,000
677,000
899,000
Impairment of investment in affiliate
459,000
1,620,000
188,000
Changes in assets and liabilities:
Accounts receivable
168,000
(7,309,000)
(959,000)
Marketing fee receivable
2,620,000
1,156,000
(1,068,000)
Income taxes receivable
(1,219,000)
(3,954,000)
7,864,000
Prepaid expenses
704,000
535,000
462,000
Other receivable
  
2,086,000
(2,086,000)
Other current assets
(528,000)
(85,000)
99,000
Accounts payable and accrued expenses
5,784,000
(3,334,000)
(8,155,000)
Marketing fee payable
(2,584,000)
(1,437,000)
460,000
Deferred revenue
(16,000)
(12,000)
(25,928,000)
Post-retirement benefit obligations
(4,000)
(9,000)
(1,000)
Income taxes payable
9,020,000
350,000
(240,000)
Settlement with appellants
  
(3,000,000)
3,000,000
Access fees subject to fee-based payment
  
(2,688,000)
2,688,000
Net Cash Flows provided by Operating Activities
203,129,000
134,913,000
112,766,000
Increase (Decrease) in Restricted Cash
  
26,157,000
Cash Flows from Investing Activities:
Capital and other assets expenditures
(29,143,000)
(23,556,000)
(37,997,000)
Other
112,000
(998,000)
1,500,000
Net Cash Flows used in Investing Activities
(30,281,000)
(32,544,000)
(10,340,000)
Cash Flows from Financing Activities:
Payments for debt issuance costs
  
(23,000)
(119,000)
Payment of quarterly dividends
(40,372,000)
(19,661,000)
  
Purchase of restricted stock from employees
(4,339,000)
  
  
Purchase of unrestricted common stock
(46,990,000)
  
Exercise right privilege payable
  
(300,000,000)
  
Net proceeds from issuance of unrestricted common stock
  
301,238,000
  
Payment of special dividend
  
(113,417,000)
  
Net Cash Flows used in Financing Activities
(91,701,000)
(432,310,000)
(119,000)
Cash and Cash Equivalents at Beginning of Period
53,789,000
383,730,000
281,423,000
Cash and Cash Equivalents at End of Period
134,936,000
53,789,000
383,730,000
Non-cash activities:
Change in post-retirement benefit obligation
(90,000)
289,000
(51,000)
Unpaid liability to acquire equipment and software
1,537,000
2,744,000
2,313,000
Due to Affiliate, Noncurrent
3,833,000
Other Liabilities, Noncurrent
3,906,000
3,993,000
Due to Affiliate, Current
1,250,000
Non-cash transaction, Exercise Right Privilege Payable
300,000,000
Investment in Signal Trading [Member]
Cash Flows from Investing Activities:
Investment in Signal Trading Systems, LLC
  
(7,990,000)
  
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures
  
7,990,000
  
Investment in IPXI [Member]
Cash Flows from Investing Activities:
Investment in Signal Trading Systems, LLC
1,250,000
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures
(1,250,000)
Common Class A2 [Member]
Cash Flows from Financing Activities:
Purchase of unrestricted common stock
(149,595,000)
Treasury Stock
Cash Flows from Financing Activities:
Purchase of unrestricted common stock
  
Class A-1 and A-2 [Member]
Cash Flows from Financing Activities:
Purchase of unrestricted common stock
  
(1,257,000)
  
Class A-1 Common Stock [Member]
Cash Flows from Financing Activities:
Purchase of unrestricted common stock
  
$(149,595,000)
  
Condensed Consolidated Statements of Stockholders Equity(USD $)
In Thousands
Total
Class A Common Stock [Member]
Class A-1 and A-2 [Member]
Class A-1 Common Stock [Member]
Class B Common Stock [Member]
Common Class A2 [Member]
Members' Equity [Member]
Preferred Stock
Unrestricted Common Stock [Member]
Additional Paid-in Capital
Additional Paid-in Capital
Class A Common Stock [Member]
Additional Paid-in Capital
Class A-1 Common Stock [Member]
Additional Paid-in Capital
Class B Common Stock [Member]
Additional Paid-in Capital
Common Class A2 [Member]
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Income (Loss)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest Beginning of Period at Dec. 31, 2008
$381,660
$0
$0
$19,574
$0
$0
$2,592
$360,318
$0
$(824)
Net income
106,451
106,451
Post-retirement benefit obligation adjustments- net of tax expense
23
23
Exercise Right Privilege Payable
(300,000)
(300,000)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest End of Period at Dec. 31, 2009
188,134
0
0
19,574
0
2,592
166,769
0
(801)
Net income
99,396
99,396
Post-retirement benefit obligation adjustments- net of tax expense
(171)
Stock Issued During Period, Value, New Issues
0
744
163
(19,574)
18,830
(163)
Payments of Dividends, Common Stock
(113,417)
(113,417)
Conversion of Stock, Amount Converted
(21)
21
Proceeds from Issuance Initial Public Offering
301,238
113
301,125
Automatic Conversion Of Shares In Unrestricted Common Stock And Sale Of That In IPO
(886)
886
Dividends, Common Stock, Cash
(19,661)
(19,661)
Tender Offer For Common Stock
(149,595)
(59)
(60)
(149,536)
(149,535)
Conversion of Class A-1 Common Stock
0
(384)
384
Other Stock Purchases
(1,257)
(1,257)
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
20,802
20,802
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest End of Period at Dec. 31, 2010
175,874
0
383
0
518
42,858
133,087
0
(972)
Net income
139,406
139,406
Post-retirement benefit obligation adjustments- net of tax expense
73
73
Automatic Conversion Of Shares In Unrestricted Common Stock And Sale Of That In IPO
0
(383)
383
Dividends, Common Stock, Cash
(40,372)
(40,372)
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
12,618
12,618
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures
0
7
(7)
Purchase Of Unrestricted Common Stock
(51,329)
(51,329)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest End of Period at Dec. 31, 2011
$236,270
$908
$55,469
$232,121
$(51,329)
$(899)
Condensed Consolidated Statements of Stockholders Equity Parenthetical(USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Post-retirement benefit obligation adjustment, tax expense
$17,000
$118,000
$28,000
Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Notes)
Significant Accounting Policies [Text Block]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business—CBOE Holdings, Inc. ("CBOE Holdings" or the "Company") is the holding company of registered securities exchanges, subject to oversight by the Securities and Exchange Commission (the "SEC") and as a designated contract market under the jurisdiction of the Commodity Futures Trading Commission ("CFTC"). Our principal business is providing a marketplace for the trading of options on individual equities, exchange-traded funds and various indexes.
Basis of Presentation—The consolidated financial statements include the accounts and results of operations of CBOE Holdings and its wholly-owned subsidiaries: Chicago Board Options Exchange, Incorporated ("CBOE"), C2 Options Exchange, Incorporated ("C2"), CBOE Futures Exchange, LLC ("CFE"), Market Data Express, LLC, Chicago Options Exchange Building Corporation, CBOE, LLC and DerivaTech Corporation. Inter-company balances and transactions have been eliminated in consolidation. The Company reports the results of its operations in one reporting segment.
Concentrations of Credit Risk—The Company's financial instruments, consisting primarily of cash and cash equivalents and account receivables, are exposed to concentrations of credit risk. The Company places its cash and cash equivalents with highly-rated financial institutions, limits the amount of credit exposure with any one financial institution and conducts ongoing evaluations of the creditworthiness of the financial institutions with which it does business. Accounts receivable are primarily collected through the OCC (formerly the Options Clearing Corporation) and are with large, highly-rated clearing firms; therefore, concentrations of credit risk are limited.
Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and reported amounts of revenues and expenses. On an ongoing basis, management evaluates its estimates based upon historical experience, observance of trends, information available from outside sources and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.
Revenue Recognition—The Company's revenue recognition policies comply with ASC 605, Revenue Recognition ("ASC 605"). On occasion, customers will pay for services in a lump sum payment. When these circumstances occur, revenue is recognized as services are provided. Deferred revenue typically represents amounts received by the Company for which services have not been provided.
Revenue recognition policies for specific sources of revenue are discussed below:
Transaction Fees:    Transaction fee revenue is considered earned upon the execution of a trade and is recognized on a trade date basis. The Company's C2 exchange uses a maker-taker pricing model for its multiply-listed exchange traded options in which orders that take liquidity from the marketplace are charged a transaction fee, dependent on origin type, and orders that provide liquidity to the marketplace may receive a rebate for doing so, dependent on origin type. Transaction fee revenue from C2 is recorded net of the maker rebate.
Transaction fee revenue is presented net of applicable volume discounts. In the event liquidity providers prepay for transaction fees, revenue is recognized based on the attainment of volume thresholds resulting in the amortization of the prepayment over the calendar year.
Access Fees:    Access fee revenue is recognized during the period the service is provided. On July 1, 2010, the Company began charging monthly fees to Trading Permit Holders under the new trading access program. Under the program, the Company charges monthly access fees to all Trading Permit Holders. Prior to July 1, 2010, access fees represented fees assessed to Temporary Members and interim Trading Permit Holders for the right to trade at CBOE and dues charged to Members.
Exchange Services and Other Fees:  Exchange services and other fees are recognized during the period the service is provided. Exchange services and other fees include system services, trading floor charges and application revenue.
Market Data Fees:    Market data fee revenue includes Options Price Reporting Authority ("OPRA") income and Company market data services. OPRA is a limited liability company consisting of representatives of the member exchanges and is authorized by the SEC to provide consolidated options information. OPRA income is allocated based upon the individual exchanges relative volume of total cleared options transactions. The Company receives monthly estimates of OPRA's distributable revenue (See Note 5). Company market data service fees represent fees charged for current and historical options and futures data. Market data services are recognized in the period the data is provided.
Regulatory Fees:    Regulatory fees are assessed primarily based upon customer contracts cleared and are recognized on a trade-date basis.
Concentration of Revenue:    At December 31, 2011, there were approximately one hundred CBOE clearing firms, two of which cleared a combined 48% of our billings collected through the OCC in 2011. The next largest clearing firm accounted for approximately 5% of our billings collected through the OCC. No one affiliate of either of the top two clearing firms represented more than 15% of that revenue in 2011 or 2010. Should a clearing firm withdraw from CBOE, we believe the affiliate portion of that firm's trading activity would likely transfer to another clearing firm.
The two largest clearing firms mentioned above clear the majority of the market-maker sides of transactions at CBOE, C2 and at all of the U.S. options exchanges. If either of these firms were to withdraw from the business of market-maker clearing, and market-makers were unable to make new clearing arrangements, this could create significant disruption to the U.S. options markets, including ours.
Trading Volume Incentives—Trading volume incentives consist of market linkage expenses incurred to send certain orders to other exchanges. If a competing exchange quotes a better price, we route the customer's order to that exchange and pay certain of the associated costs. Regardless of whether the transaction is traded at our exchanges, the order flow potential enhances our overall market position and participation and provides cost savings to customers. Market linkage expenses vary based on the volume of contracts linked to other exchanges and fees charged by other exchanges. Costs incurred to send certain orders to other exchanges are passed-through to the original order sending firm.
Advertising Costs—Advertising costs, including sponsorships with local professional sports organizations, print advertising and production costs, product promotion campaigns and seminar, conference and convention costs related to trade shows and other industry events, are expensed as incurred or amortized over the professional sports organization season. The Company incurred advertising costs of $5.5 million, $5.5 million and $5.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Cash and Cash Equivalents—Cash and cash equivalents include highly liquid investments with maturities of three months or less from the date of purchase. There are no redemption restrictions on the Company's invested cash balances.
Accounts Receivable—Accounts receivable consists primarily of transaction and regulatory fees from the OCC and the Company's share of distributable revenue receivable from OPRA. The Company has no financing related receivables.
Prepaid expenses—Prepaid expenses primarily consist of prepaid software maintenance and licensing expenses.
Investments in Affiliates—Investments in affiliates represent investments in OCC, Signal Trading Systems, LLC ("Signal Trading"), IPXI Holdings, LLC ( "IPXI") and CBOE Stock Exchange, LLC ("CBSX").
The investment in OCC (20% of its outstanding stock) is carried at cost because of the Company's inability to exercise significant influence.
We account for the investment in Signal Trading under the equity method due to the substantive participating rights provided to the other limited liability company member, FlexTrade Systems, Inc. ("FlexTrade"). The Company received a 50% share in Signal Trading in return for its contributions.
The investment in IPXI is accounted for under the cost-method of accounting for investments. The Company, through DerivaTech Corporation, a wholly-owned subsidiary, received an initial 6.25% share in IPXI in return for its contribution in December 2011. The Company's share of IPXI is expected to increase to 10% in June 2012 based on the achievement of certain deliverables outlined in the agreement with IPXI which will result in an additional payment by the Company. We expect the achievement of the deliverables and have accrued for the additional payment as of December 31, 2011.
The Company received a 50% share in CBSX in return for non-cash property contributions. The Company currently holds a 49.96% equity interest in CBSX. In December 2011, CBSX acquired the National Stock Exchange, Inc. ("NSX"), a registered national securities exchange that trades stocks. The acquisition by CBSX did not have an impact on the Company's equity interest in CBSX.
Investments in affiliates are reviewed to determine whether any events or changes in circumstances indicate that the investments may be other than temporarily impaired. In the event of impairment, the Company would recognize a loss for the difference between the carrying amount and the estimated fair value of the equity method investment.
Property and Equipment—Property and equipment are carried at cost, net of accumulated depreciation. Depreciation on building, furniture and equipment is provided on the straight-line method. Estimated useful lives are 40 years for the building and five to ten years for furniture and equipment. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining term of the applicable leases.
Long-lived assets to be held and used are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company bases the evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present that would indicate that the carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through the use of an undiscounted cash flow analysis of assets at the lowest level for which identifiable cash flows exist. In the event of impairment, the Company recognizes a loss for the difference between the carrying amount and the estimated fair value of the asset as measured using quoted market prices or, in the absence of quoted market prices, a discounted cash flow analysis.
Property and equipment—construction in progress is capitalized and carried at cost in accordance with ASC 360 Property, Plant and Equipment ("ASC 360"). Projects are monitored during the development stage to ensure compliance with ASC 360 and accordance with project initiatives. Upon completion, the projects are placed in service and amortized over the appropriate useful lives, using the straight-line method commencing with the date the asset is placed in service.
Software Development Work in Progress and Data Processing Software and Other Assets —The Company accounts for software development costs under ASC 350, Intangibles—Goodwill and Other ("ASC 350"). The Company expenses software development costs as incurred during the preliminary project stage, while capitalizing costs incurred during the application development stage, which includes design, coding, installation and testing activities. Estimated useful lives are five years for data processing software and generally are five years or less for other assets.
Deferred Financing Fees—Costs associated with the Company's senior revolving credit facility were capitalized. The deferred financing fees were amortized to interest expense on a straight-line basis over three years to match the terms of the facility. Deferred financing fees were none and $0.3 million at December 31, 2011 and 2010, respectively. The credit facility expired on December 23, 2011 and was not renewed.
Income Taxes—Deferred income taxes are determined in accordance with ASC 740, Income Taxes ("ASC 740"), and arise from temporary differences between the tax basis and book basis of assets and liabilities. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be reversed. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. The Company files tax returns for federal, state and local income tax purposes. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized.
If the Company considers that a tax position is "more-likely-than-not" of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex, and the Company often obtains assistance from external advisors. To the extent that the Company's estimates change or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest and penalties, if any, are recorded within the provision for income taxes in the Company's consolidated statements of income and are classified on the consolidated balance sheets with the related liability for unrecognized tax benefits.
See Note 11 for further discussion of the Company's income taxes.
Employee Benefit Plans—The funded status of a postretirement benefit plan is recognized in the Consolidated Balance Sheet and changes in that funded status are recognized in the year of change in other comprehensive income (loss). Plan assets and obligations are measured at year end. The Company recognizes changes in actuarial gains and losses and prior service costs in the year in which the changes occur through accumulated other comprehensive loss.
Evaluation of Subsequent Events—For the period ended December 31, 2011, management has evaluated all subsequent events through the issuance of financial statements.
Commitments and Contingencies—Litigation—The Company accrues loss contingencies when the loss is both probable and estimable. All legal costs incurred in connection with loss contingencies are expensed as service is provided.
Recent Accounting Pronouncements—In June 2011, the Financial Accounting Standards Board released an update for Accounting Standard Concept 220 Comprehensive Income ("ASC 220"). ASC 220 is intended to improve the overall quality of financial reporting by increasing the prominence of items reported in other comprehensive income (“OCI”), and additionally align the presentation of OCI in financial statements prepared in accordance with US GAAP with those prepared in accordance with International Financial Reporting Standards ("IFRS"). An entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of its approach, the entity is expected to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted ASC 220 and included separate consolidated statements of comprehensive income.
Settlement Agreement
Settlement Agreement [Text Block]
SETTLEMENT AGREEMENT
On August 23, 2006, CBOE and its directors were sued in the Court of Chancery of the State of Delaware (the "Delaware Court") by the Board of Trade of the City of Chicago, Inc. ("CBOT"), CBOT Holdings Inc., the parent corporation of CBOT ("CBOT Holdings"), and two members of the CBOT who purported to represent a class of individuals ("Exercise Member Claimants") who claimed that they were, or had the right to become, members of CBOE pursuant to the Exercise Right. "Exercise Right" refers to the grant under Paragraph (b) of Article Fifth of CBOE's Certificate of Incorporation when CBOE was a non-stock corporation to members of CBOT of the right to be members of CBOE without having to acquire a separate CBOE membership. We refer to this lawsuit as the "Delaware Action."
In the Delaware Action, the plaintiffs sought a judicial declaration that Exercise Member Claimants were entitled to receive the same consideration in any proposed restructuring transaction involving CBOE as all other CBOE Members, and the plaintiffs also sought an injunction to bar CBOE and CBOE's directors from issuing any stock to CBOE Members as part of a proposed restructuring transaction, unless the Exercise Member Claimants received the same stock and other consideration as other CBOE Members.
On June 3, 2009, the Delaware Court entered an order approving the Settlement Agreement, while reserving ruling on whether certain objectors were eligible to participate in that settlement. After subsequently ruling on those objections, the Delaware Court, on July 29, 2009, entered an order of approval and final judgment approving the Stipulation of Settlement (the "Settlement Agreement"), resolving all open issues about the settlement and dismissing the Delaware Action. While several appeals from the order of approval were filed, on November 30, 2009, CBOE reached a settlement with the appealing parties under which CBOE agreed to pay approximately $4.2 million. Separately, CME Group Inc. agreed to pay $2.1 million to CBOE in connection with CBOE's payments to the settling appellants. On December 2, 2009, the Delaware Supreme Court approved the dismissal of all appeals, and as a result, the Delaware Court's order of approval and final judgment is final and is no longer subject to appeal.
The Settlement Agreement approved by the Delaware Court included a non-opt out settlement class, which meant that anyone in the settlement class was bound by the Settlement Agreement and did not have the right to pursue separate claims against CBOE. The settlement class consists of two groups: Group A and Group B. Group A is defined as all persons who, prior to August 22, 2008, simultaneously owned or possessed at least one CBOT B-1 membership, at least one Exercise Right Privilege ("ERP") and at least 27,338 shares of CBOT stock or, after the CME acquisition of CBOT, 10,251.75 shares of CME Group stock (collectively, a "Group A Package"). Group B is defined as all persons who owned an ERP as of 5:00 p.m., central time, on October 14, 2008 (excluding Exercise Right Privileges that were used as components of Group A Packages and their transferees and assigns). In order to receive consideration under the Settlement Agreement, the members of Group A and Group B must have met certain other eligibility and procedural criteria contained in the Settlement Agreement and have been approved by the Delaware Court.
As a final resolution of the claimed ownership interests in CBOE, qualifying members of the settlement class received a share of the $300 million cash pool that was paid upon the completion of the Company's restructuring transaction. Group A members received $235,327 for each approved Group A Package. Group B members received $250,000 for each approved Group B Package. In addition, the approved members of Group A collectively received an equity interest that was equal to 21.9% of the total equity interest issued to the CBOE Seat owners in the conversion of the CBOE Seats in the CBOE restructuring transaction. "CBOE Seat" refers to a regular membership that was made available by the CBOE in accordance with its Rules and which was acquired by a CBOE Member.
Based on the final, non-appealable resolution of the Delaware Action pursuant to the Settlement Agreement, the Company, in December 2009, recorded a $300.0 million current liability in settlements payable and a $300.0 million reduction in retained earnings in the Consolidated Balance Sheet for the year ended December 31, 2009. The Company considered the payment to be a redemption of claimed ownership interests of CBOE, and thus, the liability for the payment was accounted for as an equity transaction. The $300 million represented the cash payment required to be made by the Company under the Settlement Agreement. The final payment related to the Settlement Agreement was made on June 18, 2010 (See Note 9).
Conversion, Dividend Payment and Initial Public Offering
Conversion,DividendPaymentandInitialPublicOffering [Text Block]
CONVERSION, DIVIDEND PAYMENT AND INITIAL PUBLIC OFFERING
On June 18, 2010, after receiving required approvals, CBOE converted from a non-stock corporation owned by its Members into a stock corporation that is a wholly-owned subsidiary of CBOE Holdings. In the restructuring transaction, each Exchange Seat owned by a CBOE Member on June 18, 2010 converted into 80,000 shares of Class A common stock of the Company. Exchange Seat owners received a total of 74,400,000 shares of Class A common stock of the Company in the restructuring transaction. In addition, certain persons who satisfied the qualification requirements set forth in the Settlement Agreement received a total of 16,333,380 shares of Class B common stock of the Company.
Immediately following the issuance of the Class A and Class B common stock, the board of directors of the Company declared and paid a special dividend of $1.25 per outstanding share of Class A and Class B common stock, or $113.4 million in the aggregate.
The initial public offering of 13,455,000 shares of unrestricted common stock, including 2,085,744 shares of unrestricted common stock sold by the selling stockholders, for a price of $29.00 per share, was completed on June 18, 2010. Net proceeds to the Company after deducting underwriter's fees and commissions and other related expenses were $301.2 million. Costs directly associated with the Company's initial public offering were recorded as a reduction of the gross proceeds received in arriving at the amount recorded in additional paid-in capital.
Upon consummation of the initial public offering, shares of Class A and Class B common stock not converted into unrestricted common and sold in the offering automatically converted into 44,323,803 shares of Class A-1 common stock and 44,323,803 shares of Class A-2 common stock.
Following the restructuring transaction, access to CBOE was and continues to be made available through trading permits rather than through memberships.
In the consolidated statements of income of CBOE Holdings for the years ended December 31, 2010 and 2009, net income per share is calculated by dividing historical net income for each of the periods presented by the weighted average number of common shares as if the restructuring transaction were consummated at the beginning of each respective period.
Investment in Affiliates
Investments in and Advances to Affiliates, Schedule of Investments [Text Block]
INVESTMENT IN AFFILIATES
At December 31, 2011 and 2010, the investment in affiliates was comprised of the following (in thousands):
 
2011
 
2010
Investment in OCC
$
333

 
$
333

Investment in Signal Trading
11,472

 
11,822

Investment in NSX
—

 
460

Investment in IPXI
2,500

 
—

Investment in Affiliates
$
14,305

 
$
12,615


In May 2010, CBOE acquired a 50% interest in Signal Trading from FlexTrade for $11.5 million, consisting of $7.7 million in cash and $3.8 million due to FlexTrade and contributed property and equipment of $0.3 million. The purpose of the joint venture is to develop and market a multi-asset front-end order entry system, known as "Pulse," which has particular emphasis on options trading. The Company assists in the development of the terminals and provides marketing services to the joint venture which is accounted for under the equity method.
In December 2011, the Company, through DerivaTech Corporation, a wholly-owned subsidiary, acquired a 6.25% interest in IPXI for $2.5 million. The Company contributed cash of $1.3 million and has accrued a liability of 1.2 million, which based on the achievement of certain deliverables, will become due in June 2012 and will increase the Company's share of IPXI to 10.0%. IPXI is creating a marketplace for a unique portfolio of financial products and services that facilitate investment in and risk management of intellectual property assets, helping buyers and sellers efficiently allocate intellectual property rights. The Company accounts for its investment in IPXI using the cost-method.
Related Parties
Related Party Transactions Disclosure [Text Block]
RELATED PARTIES
The Company collected transaction and other fees of $542.8 million, $455.5 million and $447.7 million in the years ended December 31, 2011, 2010 and 2009, respectively, by drawing on accounts of CBOE and C2 market participants held at OCC. The amounts collected for CBOE included $93.7 million, $101.3 million and $126.2 million, respectively, of marketing fees during the years ended December 31, 2011, 2010 and 2009. The Company had a receivable due from OCC of $35.6 million and $38.2 million at December 31, 2011 and 2010, respectively.
OPRA is a limited liability company consisting of representatives of the member exchanges and is authorized by the SEC to provide consolidated options information. This information is provided by the exchanges and is sold to outside news services and customers. OPRA's operating income is distributed among the exchanges based on their relative volume of total cleared options transactions. Operating income distributed to the Company was $12.9 million, $15.6 million and $19.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. The Company had a receivable from OPRA of $3.3 million and $4.1 million at December 31, 2011 and 2010, respectively.
The Company incurred re-billable expenses on behalf of CBSX for expenses such as employee costs, computer equipment and software of $5.1 million, $3.5 million and $3.9 million during the years ended December 31, 2011, 2010 and 2009, respectively. These amounts are included as a reduction of the underlying expenses. The Company had a receivable from CBSX of $0.5 million and $0.2 million at December 31, 2011 and 2010.
Options Regulatory Surveillance Authority ("ORSA") is responsible for conducting insider trading investigations related to options on behalf of all options exchanges. CBOE is the Regulatory Services Provider under a plan entered into by the options exchanges and approved by the SEC to administer ORSA. The Company incurred re-billable expenses on behalf of ORSA for expenses such as employee costs, occupancy and operating systems of $2.0 million, $2.0 million and $1.9 million, during the years ended December 31, 2011, 2010 and 2009, respectively. These amounts are included as a reduction of the underlying expenses. The Company had a receivable due from ORSA of $0.6 million and $1.0 million at December 31, 2011 and 2010, respectively.
The Company incurred immaterial administrative expenses for its affiliate, the Chicago Board Options Exchange Political Action Committee (the "Committee"), during the years ended December 31, 2011, 2010 and 2009. The Committee is organized under the Federal Election Campaign Act as a voluntary, not-for-profit, unincorporated political association. The Committee is empowered to solicit and accept voluntary contributions from the Company's executive and administrative personnel and all of its stockholders ("shareholders" as defined by Federal Election Commission regulations) and to contribute funds to the election campaigns of candidates for federal offices.
Accounts Payable and Accured Liabilities
Accounts Payable and Accrued Liabilities Disclosure [Text Block]
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 2011 and 2010, accounts payable and accrued liabilities consisted of the following (in thousands):
 
2011
 
2010
Compensation and benefit related liabilities
$
18,349

 
$
15,455

Royalties
10,795

 
8,198

Data processing related liabilities
496

 
1,255

Facilities
2,229

 
2,150

Legal
962

 
1,017

Accounts payable
1,877

 
5,000

Linkage
1,653

 
2,310

Other
9,710

 
4,699

Total
$
46,071

 
$
40,084

Marketing Fee
Marketing Fees [Text Block]
MARKETING FEE
The Company facilitates the collection and payment of marketing fees assessed on certain trades taking place at CBOE. Funds resulting from the marketing fees are made available to Designated Primary Market-Makers and Preferred Market-Makers as an economic inducement to route orders to CBOE. Pursuant to ASC 605-45, Revenue Recognition—Principal Agent Considerations, the Company reflects the assessments and payments on a net basis, with no impact on revenues or expenses.
As of December 31, 2011 and 2010, amounts assessed by the Company on behalf of others included in current assets totaled $5.2 million and $7.8 million, respectively, and payments due to others included in current liabilities totaled $5.8 million and $8.3 million, respectively.
Deferred Revenue
Deferred Revenue Disclosure [Text Block]
DEFERRED REVENUE
The following tables summarize the activity in deferred revenue for the years ended December 31, 2011 and 2010.
(in thousands)
Balance at
December 31,
2010
 
Cash
Additions
 
Revenue
Recognition
 
Balance at
December 31,
2011
Liquidity provider sliding scale
$
—

 
$
40,021

 
$
(40,021
)
 
$
—

Other, net
280

 
3,256

 
(3,185
)
 
351

Total deferred revenue
$
280

 
$
43,277

 
$
(43,206
)
 
$
351


(in thousands)
Balance at
December 31,
2009
 
Cash
Additions
 
Revenue
Recognition
 
Balance at
December 31,
2010
Liquidity provider sliding scale
$
—

 
$
44,671

 
$
(44,671
)
 
$
—

Other, net
207

 
280

 
(207
)
 
280

Total deferred revenue
$
207

 
$
44,951

 
$
(44,878
)
 
$
280



The liquidity provider transaction fee sliding scale was implemented in 2007. Liquidity providers are required to prepay an entire year of transaction fees for the first two levels of the sliding scale in order to be eligible to participate in reduced fees assessed to contract volume above 1.4 million per month. The prepayment of the 2011 and 2010 transaction fees totaled $40.0 million and $44.7 million, respectively. These amounts are amortized and recorded as transaction fees over the respective year.
Settlement Payable
SettlementPayable [Text Block]
SETTLEMENTS PAYABLE
The final cash payments for the Exercise Right privilege payable, settlement with appellants and access fees subject to fee-based payments were made on June 18, 2010 following the completion of the restructuring transaction.
Employee Benefits
Postemployment Benefits Disclosure [Text Block]
EMPLOYEE BENEFITS
Employees are eligible to participate in the Chicago Board Options Exchange SMART Plan ("SMART Plan"). The SMART Plan is a defined contribution plan, which is qualified under Internal Revenue Code Section 401(k). The Company contributed $4.5 million, $3.5 million and $3.5 million to the SMART Plan for each of the years ended December 31, 2011, 2010 and 2009, respectively.
Eligible employees may participate in the Supplemental Employee Retirement Plan ("SERP"), Executive Retirement Plan ("ERP") and Deferred Compensation Plan. The SERP, ERP and Deferred Compensation Plan are defined contribution plans that are nonqualified by Internal Revenue Code regulations. The Company contributed $1.3 million, $1.6 million and $1.8 million to the above plans for the years ended December 31, 2011, 2010 and 2009, respectively.
The Company also had a Voluntary Employees' Beneficiary Association ("VEBA"). The VEBA was a trust, qualifying under Internal Revenue Code Section 501(c)(9), created to provide certain medical, dental, severance and short-term disability benefits to employees. Contributions to the trust were based on reserve levels established by Section 419(a) of the Internal Revenue Code. The trust was terminated as of December 31, 2010, so no contributions were made in 2011. The Company contributed $3.7 million and $5.6 million for the years ended December 31, 2010 and 2009, respectively.
The Company has a postretirement medical plan for certain current and former members of senior management. The Company recorded immaterial postretirement benefits expense for the years ended December 31, 2011, 2010 and 2009, resulting from the amortization of service costs and actuarial expense included in accumulated other comprehensive loss at December 31, 2011, 2010 and 2009.
Income Taxes
Income Tax Disclosure [Text Block]
INCOME TAXES
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, 2011, 2010 and 2009 is as follows:
 
2011
 
2010
 
2009
Statutory federal income tax rate
35.0
%
 
35.0
%
 
35.0
%
State income tax rate, net of federal income tax effect
5.5

 
4.0

 
4.4

Other permanent differences, net
1.4

 
0.6

 
0.5

Effective income tax rate
41.9
%
 
39.6
%
 
39.9
%

The components of income tax expense for the years ended December 31, 2011, 2010 and 2009 are as follows (in thousands):
 
2011
 
2010
 
2009
Current:
 
 
 
 
 
Federal
$
76,637

 
$
51,502

 
$
57,660

State
23,101

 
13,704

 
11,752

Total current
99,738

 
65,206

 
69,412

Deferred:
 
 
 
 
 
Federal
(48
)
 
3,470

 
1,862

State
988

 
(3,449
)
 
(495
)
Total deferred
940

 
21

 
1,367

Total
$
100,678

 
$
65,227

 
$
70,779


At December 31, 2011 and 2010, the net deferred income tax liability approximated (in thousands):
 
December 31,
2011

 
December 31,
2010

Deferred tax assets
$
21,586

 
$
21,853

Deferred tax liabilities
(43,025
)
 
(42,335
)
Net deferred income tax liability
$
(21,439
)
 
$
(20,482
)
The tax effect of temporary differences giving rise to significant portions of deferred tax assets and liabilities at December 31, 2011 and 2010 are presented below (in thousands):
 
2011
 
2010
Deferred tax assets:
 
 
 
Intangibles
$
510

 
$
1,158

Accrued compensation and benefits
8,286

 
7,781

Property, equipment and technology, net
887

 
3,161

Investment in affiliates
8,431

 
8,684

Other
3,472

 
1,069

Total deferred tax assets
21,586

 
21,853

Deferred tax liabilities:
 
 
 
Property, equipment and technology, net
(38,962
)
 
(38,441
)
Investment in affiliates
(1,596
)
 
(1,796
)
Prepaid
(968
)
 
(1,129
)
Other
(1,499
)
 
(969
)
Total deferred tax liabilities
(43,025
)
 
(42,335
)
Net deferred tax liabilities
$
(21,439
)
 
$
(20,482
)

The net deferred tax liabilities are classified as long-term liabilities in the Consolidated Balance Sheets at December 31, 2011 and 2010.
A reconciliation of the beginning and ending uncertain tax positions, including interest and penalties, is as follows (in thousands):
 
2011
 
2010
 
2009
Balance as of January 1
$
3,165

 
$
2,815

 
$
3,055

Gross increases on tax positions in prior period
9,186

 
205

 
495

Gross decreases on tax positions in prior period
(2,215
)
 
(876
)
 
(1,808
)
Gross increases on tax positions in current period
2,768

 
1,136

 
1,092

Lapse of statue of limitations
(719
)
 
(115
)
 
(19
)
Balance as of December 31
$
12,185

 
$
3,165

 
$
2,815


As of December 31, 2011, 2010 and 2009, the Company had $11.4 million, $2.5 million and $2.3 million, respectively, of uncertain tax positions excluding interest and penalities, which, if recognized in the future, would affect the annual effective income tax rate. Reductions to uncertain tax positions from the lapse of the applicable statutes of limitations during the next twelve months are estimated to be approximately $0.1 million, not including any potential new additions.
Estimated interest costs and penalties are classified as part of the provision for income taxes in the Company's consolidated statements of income and were $0.1 million, $0.1 million and $0.5 million for the periods ended December 31, 2011, 2010 and 2009, respectively. Accrued interest and penalties were $0.8 million, $0.7 million and $0.5 million as of December 31, 2011, 2010 and 2009, respectively.
The Company is subject to U.S. federal tax, Illinois, New Jersey and New York state taxes and Washington D.C. taxes, as well as other local jurisdictions. The Company’s tax returns have been examined by the Internal Revenue Service through 2009 and the Illinois Department of Revenue through 2008. For New Jersey and Washington D.C., the open years are 2008 and forward. The Company is currently under audit by the State of New York for the 2007-2009 tax years.
Senior Revolving Credit Facility
Debt Disclosure [Text Block]
SENIOR REVOLVING CREDIT FACILITY
On December 23, 2008, the Company entered into an unsecured senior revolving credit facility with three financial institutions. The credit agreement expired on December 23, 2011 and was not renewed by the Company. Borrowing under the facility became available upon the final, non-appealable resolution of the Delaware Action pursuant to the Settlement Agreement (See Note 2). As part of the Settlement Agreement, the Company was required to pay qualifying class members $300 million in cash at the completion of the restructuring transaction. The Company secured this line of credit to ensure that it had adequate funds available to meet this obligation. As of December 31, 2011 and 2010 and during the years ended December 31, 2011 and 2010, there were no borrowings against the credit facility.
Fair Value Measurements
Fair Value Disclosures [Text Block]
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk.
 
The Company applied Financial Accounting Standards Board ("FASB") ASC 820, Fair Value Measurement and Disclosure (formerly, FASB Statement No. 157, Fair Value Measurements), which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:
 
•
Level 1—Unadjusted inputs based on quoted markets for identical assets or liabilities.
 
•
Level 2—Observable inputs, either direct or indirect, not including Level 1, corroborated by market data or based upon quoted prices in non-active markets.

•
Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in valuing the asset or liability.
 
The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of December 31, 2011 and 2010. The Company holds no financial liabilities that are measured at fair value on a recurring basis.
(amounts in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 
 
 
 
 
 
 
Money market funds
$
126,000

 
—

 
—

 
$
126,000

Total assets at fair value at December 31, 2011
$
126,000

 
$
—

 
$
—

 
$
126,000



(amounts in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 
 
 
 
 
 
 
U.S. Treasury securities
$
25,000

 
$
—

 
$
—

 
$
25,000

Money market funds
26,000

 
—

 
—

 
26,000

Total assets at fair value at December 31, 2010
$
51,000

 
$
—

 
$
—

 
$
51,000



In March 2011, the Company revalued its investment in NSX Holdings, Inc. as a result of an other-than-temporary impairment. The investment is classified as Level 3 as the fair value was based on both observable and unobservable inputs, resulting in a full impairment totaling $0.5 million, which represented the remaining carrying value of the investment.
During 2010, the Company revalued its investment in OneChicago as a result of an other-than-temporary impairment. The investment is classified as Level 3 as the fair value was based on both observable and unobservable inputs, resulting in a full impairment totaling $1.6 million, which represented the remaining carry value of the investment.
Commitments and Contigencies
Commitments and Contingencies Disclosure [Text Block]
COMMITMENTS AND CONTINGENCIES
As of December 31, 2011, the end of the period covered by this report, the Company was subject to the various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, the ultimate resolution of any of our current legal proceedings or claims is not expected to individually or in the aggregate materially affect our financial condition, results of operations or cash flows.
Index Options Litigation
On November 15, 2006, the Company, The McGraw-Hill Companies, Inc. ("McGraw-Hill") and CME Group Index Services, LLC (substituted for Dow Jones & Co.) ("Dow Jones") asserted claims in the Circuit Court of Cook County, Illinois against ISE and its parent company ("ISE"), seeking a declaration to prevent ISE from offering SPX and DJX options and to prevent OCC from issuing and clearing such options. ISE filed a lawsuit on November 2, 2006 in the United States District Court for the Southern District of New York, seeking a declaration that the rights asserted by McGraw-Hill and Dow Jones are preempted by federal law. The New York action is currently pending, but has been stayed in light of the Illinois action. The Illinois court has permanently restrained and enjoined ISE from listing or providing an exchange market for the trading of SPX and DJX options and enjoined OCC from issuing, clearing or settling the exercise of such ISE options. ISE and OCC appealed this ruling and oral argument was heard before the Illinois Appellate Court on September 22, 2011. CBOE is now awaiting a decision from the court.
Patent Litigation
ISE
On November 22, 2006, ISE filed an action in the United States District Court for the Southern District of New York claiming that CBOE's Hybrid trading system infringes ISE's U.S. Patent No. 6,618,707 ("the '707 patent"). On January 31, 2007, CBOE filed an action in federal court in the Northern District of Illinois seeking a declaratory judgment that the '707 patent was not infringed, not valid and/or not enforceable against CBOE. The New York case was transferred to the Northern District of Illinois on August 9, 2007.
The Court issued a construction of the claims of the '707 patent, on the basis of which CBOE has filed a dispositive motion for noninfringement. On March 2, 2011, the Court granted CBOE's summary judgment motion and entered judgment in favor of CBOE. ISE has appealed this decision, and oral argument was heard before the Federal Circuit on February 6, 2012. CBOE is now awaiting a decision from the court.
On October 8, 2010, C2 filed a complaint in federal court in the Northern District of Illinois against ISE seeking a declaratory judgment that ISE's '707 patent, which is directed towards an automated exchange for trading derivative securities, is not infringed, not valid and not enforceable against C2. The action was dismissed without prejudice pending the outcome of the ISE v. CBOE appeal discussed above.
Realtime
In July 2009, Realtime Data, LLC filed a complaint in the United States District Court for the Eastern District of Texas claiming that CBOE, certain other exchanges and OPRA infringed four Realtime patents by using, selling or offering for sale data compression products or services allegedly covered by those patents.
Additionally, on May 11, 2010, Realtime filed a complaint in the same federal court against CBOE, OPRA and certain other exchanges claiming that they infringe another Realtime patent by using, selling or offering for sale data compression and decompression products or services allegedly covered by that patent. On August 17, 2010, Realtime filed a complaint in federal court against CBOE, OPRA and certain other exchanges alleging that they infringe an additional Realtime patent by making, using, selling, and/or offering for sale, one or more financial data compression and decompression products and/or services allegedly covered by that patent. These lawsuits have been consolidated with the prior pending case.
The case has been transfered to the Southern District of New York and a trial date has been set for November 2012.
Last Atlantis Litigation
On November 7, 2005, a complaint was filed by certain market participants against CBOE, three other options exchanges and 35 market maker defendant groups (the "Specialist Defendants") in the United States District Court for the Northern District of Illinois. The complaint alleged that CBOE and the other exchange defendants allowed the Specialist Defendants to discriminate against the plaintiffs' electronic orders, allowed the Specialist Defendants to violate CBOE's Rules and the rules of the SEC, and falsely represented and guaranteed that electronically entered orders would be executed immediately. Plaintiffs sought unspecified compensatory damages, related injunctive relief, attorneys' fees and other fees and costs.
The Court has dismissed the claims against CBOE and entered judgment in favor of it. The Court, however, has continued the litigation with respect to certain of the plaintiffs and some of the Specialist Defendants. The plaintiffs will be able to appeal the dismissal of their claims against CBOE after the disposal of the remaining claims.
Other
As a self-regulatory organization under the jurisdiction of the SEC, with respect to CBOE and C2, and as a designated contract market under the jurisdiction of the CFTC, with respect to CFE, we are subject to routine reviews and inspections by the SEC and the CFTC.
The SEC is investigating CBOE's compliance with its obligations as a self-regulatory organization under the federal securities laws. The Company is cooperating with the investigation, which is ongoing, and is conducting its own review of its compliance.
We are also currently a party to various other legal proceedings including those already mentioned. Management does not believe that the outcome of any of these reviews, inspections or other legal proceedings will have a material impact on our consolidated financial position, results of operations or cash flows.
Leases and Other Obligations
The Company leases facilities with lease terms remaining from 8 months to 68 months as of December 31, 2011. Total rent expense related to these lease obligations, reflected in data processing and facilities costs line items on the Consolidated Statements of Income, for the years ended December 31, 2011, 2010 and 2009, were $3.2 million, $3.2 million and $3.4 million, respectively. In addition, the Company has contractual obligations related to certain advertising programs and licensing agreements with various licensors. The licensing agreements contain annual minimum fee requirements that total $13.3 million for the next five years and $1.5 million for the five years thereafter. Future minimum payments under these non-cancelable lease and advertising agreements are as follows at December 31, 2011 (in thousands):
Common Stock
Common Stock [Text Block]
COMMON STOCK
The following provides a description of the common stock activity in stockholders' equity during the years ended December 31, 2011 and 2010:
Class A Common Stock and Class B Common Stock
On April 26, 2010, the Company filed Amendment No. 7 to the Form S-4 Registration Statement with the SEC setting forth the details of its restructuring transaction. A special meeting of the voting Members of CBOE was held on May 21, 2010, at which the adoption of an Agreement and Plan of Merger was approved by the affirmative vote of 89.6% of the memberships outstanding and entitled to vote at the special meeting. The Agreement and Plan of Merger provided for the restructuring of CBOE pursuant to which it converted from a non-stock corporation owned by its Members into a stock corporation that is a wholly-owned subsidiary of CBOE Holdings. In the restructuring transaction, each Exchange Seat owned by a CBOE Member on June 18, 2010, the date of the restructuring transaction, converted into 80,000 shares of Class A common stock of CBOE Holdings. Exchange Seat owners received a total of 74,400,000 shares of Class A common stock of CBOE Holdings in the restructuring transaction.
Immediately following the restructuring transaction, certain persons who satisfied the qualification requirements set forth in the Settlement Agreement received a total of 16,333,380 shares of Class B common stock of CBOE Holdings.
Unrestricted Common Stock
On June 18, 2010, the Company converted 1,698,000 shares of Class A common stock and 387,744 shares of Class B common stock into 2,085,744 shares of unrestricted common stock in connection with the sale of such shares by the selling stockholders in the Company's initial public offering.
The initial public offering of 13,455,000 shares of unrestricted common stock, including 2,085,744 shares of unrestricted common stock sold by the selling stockholders, for a price of $29.00 per share, was completed on June 18, 2010.
Class A-1 and Class A-2 Common Stock
Upon consummation of the initial public offering, the Class A and Class B common stock not converted into unrestricted common stock and sold in the offering automatically converted into 44,323,803 shares of Class A-1 common stock and 44,323,803 shares of Class A-2 common stock.
Tender offers
On November 29, 2010, the Company completed two concurrent tender offers for 5,983,713 shares of Class A-1 common stock and 5,983,713 shares of Class A-2 common stock at a purchase price of $25.00 per share. The purpose of the tender offers was to allow our Class A-1 and A-2 stockholders to obtain liquidity for a certain portion of their shares. The net proceeds received from our initial public offering were used to purchase the shares of Class A-1 and A-2 common stock in the tender offers. Subsequent to the closing of the tender offers and automatic conversion of Class A-1 common stock 31,723 shares of unrestricted common stock and 18,746 shares of A-2 common stock were purchased by the Company due to clerical adjustments.
Conversion into unrestricted common stock
The Class A-1 and Class A-2 common stock had all the same rights and privileges as the unrestricted common stock; however, they were subject to certain transfer restrictions that applied until December 15, 2010 and June 13, 2011, respectively.
On December 15, 2010, and June 13, 2011, respectively, each share of Class A-1 and Class A-2 common stock issued and outstanding, totaling 38,340,090 and 38,297,994, respectively, converted into one share of unrestricted common stock, totaling 76,638,084 shares.
Unrestricted common stock purchases
On August 2, 2011, the Company announced that its board of directors approved a share repurchase program that authorizes the Company to purchase up to $100.0 million of its unrestricted common stock. Through the period ended December 31, 2011, the Company purchased 1,836,000 shares of unrestricted common stock at an average cost per share of $25.59 totaling $47.0 million in purchases under the program.
In 2011, the Company purchased 176,337 shares of unrestricted common stock at an average cost per share of $24.61 totaling $4.3 million to satisfy employees' tax obligations upon the vesting of restricted stock.
Stock-Based Compensation
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
STOCK-BASED COMPENSATION
Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of estimated forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period.
On January 13, 2010, the board approved the Amended and Restated CBOE Holdings, Inc. Long Term Incentive Plan (the "LTIP"). The board amended and restated the LTIP, effective upon receiving stockholder approval, which was received at the May 17, 2011 annual meeting of stockholders. The LTIP provides that an aggregate of 4,248,497 shares of the Company's common stock are reserved for issuance to participants under the LTIP.
The Compensation Committee of the Company's board of directors administers the LTIP and may designate any of the following as a participant under the LTIP: any officer or other employee of the Company or its affiliates or individuals engaged to become an officer or employee and non-employee directors of the Company. The LTIP permits the granting of non-qualified stock options, restricted stock, restricted stock units, incentive compensation awards or any combination of the foregoing. The Compensation Committee has the authority and complete discretion to prescribe, amend and rescind rules and regulations relating to the LTIP, select participants and to determine the form and terms of any awards.
There were no non-qualified stock options or restricted stock units granted during the year ended December 31, 2011. On June 15, 2010, the Company granted 2,217,911 shares of restricted stock to certain officers, directors and employees of CBOE Holdings at a fair value of $29.00 per share, which is equal to the initial public offering share price. The shares granted have a four-year vesting schedule in which 25% of the shares granted vest each year on the anniversary of the grant date. Vesting accelerates upon the occurrence of a change in control of CBOE Holdings. Unvested portions of the restricted stock grants will be forfeited if the participant terminates employment prior to the applicable vesting date, except in limited circumstances.
For the years ended December 31, 2011 and 2010, the Company recognized $12.6 million and $20.8 million, respectively, of stock-based compensation related to restricted stock. In 2010, the Company recorded $13.0 million to recognize the remaining fair value of stock-based compensation awards granted to Messrs. Brodsky and DuFour, as well as Edward J. Joyce, our former President and Chief Operating Officer, due to provisions contained in their respective agreements regarding employment. The Company also accelerated stock-based compensation for three members of the board of directors that left the board in May 2011 based on the determination by the board of directors on December 15, 2010, to decrease its size by three directors. The expense related to accelerated stock-based compensation is included in employee costs in the consolidated statements of income.
The activity in the Company's restricted stock for the year ended December 31, 2011 was as follows:
 
Number of Shares
of Restricted
Stock
 
Weighted Average
Grant-Date Fair
Value
Unvested restricted stock at January 1, 2011
1,712,780

 
$
29.00

Granted
—

 
—

Vested
(443,962
)
 
29.00

Forfeited
(16,579
)
 
29.00

Unvested restricted stock at December 31, 2011
1,252,239

 
$
29.00


As of December 31, 2011, the Company had unrecognized stock-based compensation expense of $29.9 million related to outstanding restricted stock. The remaining unrecognized stock-based compensation is expected to be recognized on a straight-line basis over a remaining service period of 2.5 years, based on a June 15, 2010 award date. The Company is projecting a forfeiture rate of 5%. The total fair value of shares vested during the year ended December 31, 2011 was $10.7 million.
Net Income per Common Share
Earnings Per Share [Text Block]
NET INCOME PER COMMON SHARE
The unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of net income per common share pursuant to the two-class method. Our restricted stock awards granted to officers, directors and employees on June 15, 2010 qualify as participating securities.
The Company computes net income per common share using the two-class method, which is an allocation formula that determines the net income for common shares and participating securities. Under the authoritative guidance the presentation of basic and diluted earnings per share is required for each class of common stock and not for participating securities. As such, the Company will present basic and diluted net income per share for its one class of common stock.
The computation of basic net income allocated to common stockholders is calculated by reducing net income for the period by dividends paid or declared and undistributed net income for the period that are allocated to the participating securities to arrive at net income allocated to common stockholders. Net income allocated to common stockholders is divided by the weighted average number of common shares outstanding during the period.
The dilutive effect of participating securities is calculated using the more dilutive of the treasury stock or the two-class method. Diluted net income per common share is calculated by dividing net income allocated to common stockholders by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
The weighted average number of common shares outstanding for both basic and dilutive for the first and second quarters of the year ended December 31, 2010 and the year ended December 31, 2009 were calculated as if the restructuring transaction was consummated at the beginning of the period.
The following table reconciles net income applicable to common stockholders and the number of shares used to calculate the basic and diluted net income per common share for the for the years ended December 31, 2011, 2010 and 2009:
(in thousands, except per share amounts)
2011
 
2010
 
2009
Basic EPS Numerator:
 
 
 
 
 
Net Income
$
139,406

 
$
99,396

 
$
106,451

Less: Earnings allocated to participating securities
(2,824
)
 
(1,230
)
 
—

Net Income allocated to common stockholders
$
136,582

 
$
98,166

 
$
106,451

Basic EPS Denominator:
 
 
 
 
 
Weighted average shares outstanding
89,994

 
95,754

 
90,733

Basic net income per common share
$
1.52

 
$
1.03

 
$
1.17

Diluted EPS Numerator:
 
 
 
 
 
Net Income
$
139,406

 
$
99,396

 
$
106,451

Less: Earnings allocated to participating securities
(2,824
)
 
(1,230
)
 
—

Net Income allocated to common stockholders
$
136,582

 
$
98,166

 
$
106,451

Diluted EPS Denominator:
 
 
 
 
 
Weighted average shares outstanding
89,994

 
95,754

 
90,733

Dilutive common shares issued under restricted stock program
—

 
—

 
—

Diluted net income per common share
$
1.52

 
$
1.03

 
$
1.17


For the year ended December 31, 2011, 1,252,239 shares of restricted stock were not included in the computation of diluted net income per common share because to do so would have an antidilutive effect.
Quarterly Data
Quarterly Financial Information [Text Block]
QUARTERLY DATA (unaudited)
Year ended December 31, 2011 (in thousands)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Year
Operating revenues
$
124,042

 
$
120,290

 
$
143,604

 
$
120,208

 
$
508,144

Operating expenses
66,507

 
63,838

 
68,638

 
67,529

 
266,512

Operating income
57,535

 
56,452

 
74,966

 
52,679

 
241,632

Net income
$
32,871

 
$
33,401

 
$
41,327

 
$
31,807

 
$
139,406

Net income allocated to common stockholders
$
32,089

 
$
32,609

 
$
40,597

 
$
31,287

 
$
136,582

Diluted—net income per share to common stockholders
$
0.36

 
$
0.36

 
$
0.45

 
$
0.35

 
$
1.52

 
Year ended December 31, 2010 (in thousands)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Year
Operating revenues
$
101,081

 
$
112,618

 
$
106,015

 
$
117,390

 
$
437,104

Operating expenses
62,352

 
70,792

 
71,082

 
65,537

 
269,763

Operating income
38,729

 
41,826

 
34,933

 
51,853

 
167,341

Net income
$
22,676

 
$
24,890

 
$
20,454

 
$
31,376

 
$
99,396

Net income allocated to common stockholders
$
22,676

 
$
24,804

 
$
20,001

 
$
30,685

 
$
98,166

Diluted—net income per share to common stockholders
$
0.25

 
$
0.27

 
$
0.20

 
$
0.31

 
$
1.03



•
In the first quarter of 2011, the Company revalued its investment in NSX Holdings, Inc. as a result of an other-than-temporary impairment. The investment is classified as Level 3 as the fair value was based on both observable and unobservable inputs, resulting in a full impairment totaling $0.5 million, which represented the carrying value of the investment.
•
In the first and second quarter of 2011, the Company recognized $0.5 million of accelerated stock-based compensation for three members of the board of directors that left the board in May 2011 based on the determination by the board of directors on December 15, 2010 to decrease its size by three directors.
•
In the third quarter of 2011, the Company recognized $4.2 million of income tax expense to reserve for potential additional tax liabilities as a result of an advisory opinion from New York state taxing authorities which attempted to extend the state's taxing power over certain electronic transactions and other fees of out-of-state exchanges going back to 2007.
•
In the fourth quarter of 2011, the Company recognized $3.7 million of expense due to the departure of a senior executive pursuant to his employment agreement with the Company.
•
For the first and second quarters of 2010, the weighted average number of common shares is calculated as if the restructuring transaction were consummated at the beginning of each respective period.
•
In the third and fourth quarter of 2010, the Company recognized as operating expenses $11.0 million and $2.0 million, respectively, of accelerated stock-based compensation for certain executives due to provisions contained in their agreements regarding employment.
•
In the fourth quarter of 2010, the Company recognized as operating revenue $4.4 million of prior period fees incorrectly coded by a CBOE participant. The coding error was identified through a regulatory examination.
•
In the fourth quarter of 2010, the Company recognized as total other income/(expense) an impairment on our investment in OneChicago of $1.6 million.
Subsequent Events
Subsequent Events [Text Block]
SUBSEQUENT EVENTS
On February 7, 2012, the Company's board of directors declared a quarterly cash dividend of $0.12 cents per share. The dividend is payable on March 23, 2012 to stockholders of record at the close of business on March 2, 2012.
Summary of Significant Accounting (Policies)
Use of Estimates, Policy [Policy Text Block]
Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and reported amounts of revenues and expenses. On an ongoing basis, management evaluates its estimates based upon historical experience, observance of trends, information available from outside sources and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.
Revenue Recognition
Revenue Recognition—The Company's revenue recognition policies comply with ASC 605, Revenue Recognition ("ASC 605"). On occasion, customers will pay for services in a lump sum payment. When these circumstances occur, revenue is recognized as services are provided. Deferred revenue typically represents amounts received by the Company for which services have not been provided.
Revenue recognition policies for specific sources of revenue are discussed below:
Transaction Fees:    Transaction fee revenue is considered earned upon the execution of a trade and is recognized on a trade date basis. The Company's C2 exchange uses a maker-taker pricing model for its multiply-listed exchange traded options in which orders that take liquidity from the marketplace are charged a transaction fee, dependent on origin type, and orders that provide liquidity to the marketplace may receive a rebate for doing so, dependent on origin type. Transaction fee revenue from C2 is recorded net of the maker rebate.
Transaction fee revenue is presented net of applicable volume discounts. In the event liquidity providers prepay for transaction fees, revenue is recognized based on the attainment of volume thresholds resulting in the amortization of the prepayment over the calendar year.
Access Fees:    Access fee revenue is recognized during the period the service is provided. On July 1, 2010, the Company began charging monthly fees to Trading Permit Holders under the new trading access program. Under the program, the Company charges monthly access fees to all Trading Permit Holders. Prior to July 1, 2010, access fees represented fees assessed to Temporary Members and interim Trading Permit Holders for the right to trade at CBOE and dues charged to Members.
Exchange Services and Other Fees:  Exchange services and other fees are recognized during the period the service is provided. Exchange services and other fees include system services, trading floor charges and application revenue.
Market Data Fees:    Market data fee revenue includes Options Price Reporting Authority ("OPRA") income and Company market data services. OPRA is a limited liability company consisting of representatives of the member exchanges and is authorized by the SEC to provide consolidated options information. OPRA income is allocated based upon the individual exchanges relative volume of total cleared options transactions. The Company receives monthly estimates of OPRA's distributable revenue (See Note 5). Company market data service fees represent fees charged for current and historical options and futures data. Market data services are recognized in the period the data is provided.
Regulatory Fees:    Regulatory fees are assessed primarily based upon customer contracts cleared and are recognized on a trade-date basis.
Concentration of Revenue:    At December 31, 2011, there were approximately one hundred CBOE clearing firms, two of which cleared a combined 48% of our billings collected through the OCC in 2011. The next largest clearing firm accounted for approximately 5% of our billings collected through the OCC. No one affiliate of either of the top two clearing firms represented more than 15% of that revenue in 2011 or 2010. Should a clearing firm withdraw from CBOE, we believe the affiliate portion of that firm's trading activity would likely transfer to another clearing firm.
The two largest clearing firms mentioned above clear the majority of the market-maker sides of transactions at CBOE, C2 and at all of the U.S. options exchanges. If either of these firms were to withdraw from the business of market-maker clearing, and market-makers were unable to make new clearing arrangements, this could create significant disruption to the U.S. options markets, including ours.
Trading Volume Incentives
Trading Volume Incentives—Trading volume incentives consist of market linkage expenses incurred to send certain orders to other exchanges. If a competing exchange quotes a better price, we route the customer's order to that exchange and pay certain of the associated costs. Regardless of whether the transaction is traded at our exchanges, the order flow potential enhances our overall market position and participation and provides cost savings to customers. Market linkage expenses vary based on the volume of contracts linked to other exchanges and fees charged by other exchanges. Costs incurred to send certain orders to other exchanges are passed-through to the original order sending firm.
Advertising Costs, Policy [Policy Text Block]
Advertising Costs—Advertising costs, including sponsorships with local professional sports organizations, print advertising and production costs, product promotion campaigns and seminar, conference and convention costs related to trade shows and other industry events, are expensed as incurred or amortized over the professional sports organization season. The Company incurred advertising costs of $5.5 million, $5.5 million and $5.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Cash and Cash Equivalents, Policy [Policy Text Block]
Cash and Cash Equivalents—Cash and cash equivalents include highly liquid investments with maturities of three months or less from the date of purchase. There are no redemption restrictions on the Company's invested cash balances.
Investments in and Advances to Affiliates [Table Text Block]
Investments in Affiliates—Investments in affiliates represent investments in OCC, Signal Trading Systems, LLC ("Signal Trading"), IPXI Holdings, LLC ( "IPXI") and CBOE Stock Exchange, LLC ("CBSX").
The investment in OCC (20% of its outstanding stock) is carried at cost because of the Company's inability to exercise significant influence.
We account for the investment in Signal Trading under the equity method due to the substantive participating rights provided to the other limited liability company member, FlexTrade Systems, Inc. ("FlexTrade"). The Company received a 50% share in Signal Trading in return for its contributions.
The investment in IPXI is accounted for under the cost-method of accounting for investments. The Company, through DerivaTech Corporation, a wholly-owned subsidiary, received an initial 6.25% share in IPXI in return for its contribution in December 2011. The Company's share of IPXI is expected to increase to 10% in June 2012 based on the achievement of certain deliverables outlined in the agreement with IPXI which will result in an additional payment by the Company. We expect the achievement of the deliverables and have accrued for the additional payment as of December 31, 2011.
The Company received a 50% share in CBSX in return for non-cash property contributions. The Company currently holds a 49.96% equity interest in CBSX. In December 2011, CBSX acquired the National Stock Exchange, Inc. ("NSX"), a registered national securities exchange that trades stocks. The acquisition by CBSX did not have an impact on the Company's equity interest in CBSX.
Investments in affiliates are reviewed to determine whether any events or changes in circumstances indicate that the investments may be other than temporarily impaired. In the event of impairment, the Company would recognize a loss for the difference between the carrying amount and the estimated fair value of the equity method investment.
At December 31, 2011 and 2010, the investment in affiliates was comprised of the following (in thousands):
 
2011
 
2010
Investment in OCC
$
333

 
$
333

Investment in Signal Trading
11,472

 
11,822

Investment in NSX
—

 
460

Investment in IPXI
2,500

 
—

Investment in Affiliates
$
14,305

 
$
12,615

Property, Plant and Equipment, Policy [Policy Text Block]
Property and Equipment—Property and equipment are carried at cost, net of accumulated depreciation. Depreciation on building, furniture and equipment is provided on the straight-line method. Estimated useful lives are 40 years for the building and five to ten years for furniture and equipment. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining term of the applicable leases.
Long-lived assets to be held and used are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company bases the evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present that would indicate that the carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through the use of an undiscounted cash flow analysis of assets at the lowest level for which identifiable cash flows exist. In the event of impairment, the Company recognizes a loss for the difference between the carrying amount and the estimated fair value of the asset as measured using quoted market prices or, in the absence of quoted market prices, a discounted cash flow analysis.
Property and Equipment Construction In Progress [Policy Text Block]
Property and equipment—construction in progress is capitalized and carried at cost in accordance with ASC 360 Property, Plant and Equipment ("ASC 360"). Projects are monitored during the development stage to ensure compliance with ASC 360 and accordance with project initiatives. Upon completion, the projects are placed in service and amortized over the appropriate useful lives, using the straight-line method commencing with the date the asset is placed in service.
Internal Use Software, Policy [Policy Text Block]
Software Development Work in Progress and Data Processing Software and Other Assets —The Company accounts for software development costs under ASC 350, Intangibles—Goodwill and Other ("ASC 350"). The Company expenses software development costs as incurred during the preliminary project stage, while capitalizing costs incurred during the application development stage, which includes design, coding, installation and testing activities.
Income Tax, Policy [Policy Text Block]
Income Taxes—Deferred income taxes are determined in accordance with ASC 740, Income Taxes ("ASC 740"), and arise from temporary differences between the tax basis and book basis of assets and liabilities. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be reversed. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. The Company files tax returns for federal, state and local income tax purposes. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized.
If the Company considers that a tax position is "more-likely-than-not" of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex, and the Company often obtains assistance from external advisors. To the extent that the Company's estimates change or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest and penalties, if any, are recorded within the provision for income taxes in the Company's consolidated statements of income and are classified on the consolidated balance sheets with the related liability for unrecognized tax benefits.
See Note 11 for further discussion of the Company's income taxes.
Pension and Other Postretirement Plans, Nonpension Benefits, Policy [Policy Text Block]
Employee Benefit Plans—The funded status of a postretirement benefit plan is recognized in the Consolidated Balance Sheet and changes in that funded status are recognized in the year of change in other comprehensive income (loss). Plan assets and obligations are measured at year end. The Company recognizes changes in actuarial gains and losses and prior service costs in the year in which the changes occur through accumulated other comprehensive loss.
Commitments and Contingencies, Policy [Policy Text Block]
Commitments and Contingencies—Litigation—The Company accrues loss contingencies when the loss is both probable and estimable. All legal costs incurred in connection with loss contingencies are expensed as service is provided.
Investment in Affiliates (Tables)
Investments in and Advances to Affiliates [Table Text Block]
Investments in Affiliates—Investments in affiliates represent investments in OCC, Signal Trading Systems, LLC ("Signal Trading"), IPXI Holdings, LLC ( "IPXI") and CBOE Stock Exchange, LLC ("CBSX").
The investment in OCC (20% of its outstanding stock) is carried at cost because of the Company's inability to exercise significant influence.
We account for the investment in Signal Trading under the equity method due to the substantive participating rights provided to the other limited liability company member, FlexTrade Systems, Inc. ("FlexTrade"). The Company received a 50% share in Signal Trading in return for its contributions.
The investment in IPXI is accounted for under the cost-method of accounting for investments. The Company, through DerivaTech Corporation, a wholly-owned subsidiary, received an initial 6.25% share in IPXI in return for its contribution in December 2011. The Company's share of IPXI is expected to increase to 10% in June 2012 based on the achievement of certain deliverables outlined in the agreement with IPXI which will result in an additional payment by the Company. We expect the achievement of the deliverables and have accrued for the additional payment as of December 31, 2011.
The Company received a 50% share in CBSX in return for non-cash property contributions. The Company currently holds a 49.96% equity interest in CBSX. In December 2011, CBSX acquired the National Stock Exchange, Inc. ("NSX"), a registered national securities exchange that trades stocks. The acquisition by CBSX did not have an impact on the Company's equity interest in CBSX.
Investments in affiliates are reviewed to determine whether any events or changes in circumstances indicate that the investments may be other than temporarily impaired. In the event of impairment, the Company would recognize a loss for the difference between the carrying amount and the estimated fair value of the equity method investment.
At December 31, 2011 and 2010, the investment in affiliates was comprised of the following (in thousands):
 
2011
 
2010
Investment in OCC
$
333

 
$
333

Investment in Signal Trading
11,472

 
11,822

Investment in NSX
—

 
460

Investment in IPXI
2,500

 
—

Investment in Affiliates
$
14,305

 
$
12,615

Accounts Payable and Accrued Liabilites (Tables)
Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]
At December 31, 2011 and 2010, accounts payable and accrued liabilities consisted of the following (in thousands):
 
2011
 
2010
Compensation and benefit related liabilities
$
18,349

 
$
15,455

Royalties
10,795

 
8,198

Data processing related liabilities
496

 
1,255

Facilities
2,229

 
2,150

Legal
962

 
1,017

Accounts payable
1,877

 
5,000

Linkage
1,653

 
2,310

Other
9,710

 
4,699

Total
$
46,071

 
$
40,084

Deferred Revenue (Tables)
Deferred Revenue, by Arrangement, Disclosure [Table Text Block]
The following tables summarize the activity in deferred revenue for the years ended December 31, 2011 and 2010.
(in thousands)
Balance at
December 31,
2010
 
Cash
Additions
 
Revenue
Recognition
 
Balance at
December 31,
2011
Liquidity provider sliding scale
$
—

 
$
40,021

 
$
(40,021
)
 
$
—

Other, net
280

 
3,256

 
(3,185
)
 
351

Total deferred revenue
$
280

 
$
43,277

 
$
(43,206
)
 
$
351


(in thousands)
Balance at
December 31,
2009
 
Cash
Additions
 
Revenue
Recognition
 
Balance at
December 31,
2010
Liquidity provider sliding scale
$
—

 
$
44,671

 
$
(44,671
)
 
$
—

Other, net
207

 
280

 
(207
)
 
280

Total deferred revenue
$
207

 
$
44,951

 
$
(44,878
)
 
$
280

Income Taxes (Tables)
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, 2011, 2010 and 2009 is as follows:
 
2011
 
2010
 
2009
Statutory federal income tax rate
35.0
%
 
35.0
%
 
35.0
%
State income tax rate, net of federal income tax effect
5.5

 
4.0

 
4.4

Other permanent differences, net
1.4

 
0.6

 
0.5

Effective income tax rate
41.9
%
 
39.6
%
 
39.9
%
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]
The components of income tax expense for the years ended December 31, 2011, 2010 and 2009 are as follows (in thousands):
 
2011
 
2010
 
2009
Current:
 
 
 
 
 
Federal
$
76,637

 
$
51,502

 
$
57,660

State
23,101

 
13,704

 
11,752

Total current
99,738

 
65,206

 
69,412

Deferred:
 
 
 
 
 
Federal
(48
)
 
3,470

 
1,862

State
988

 
(3,449
)
 
(495
)
Total deferred
940

 
21

 
1,367

Total
$
100,678

 
$
65,227

 
$
70,779

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
At December 31, 2011 and 2010, the net deferred income tax liability approximated (in thousands):
 
December 31,
2011

 
December 31,
2010

Deferred tax assets
$
21,586

 
$
21,853

Deferred tax liabilities
(43,025
)
 
(42,335
)
Net deferred income tax liability
$
(21,439
)
 
$
(20,482
)
The tax effect of temporary differences giving rise to significant portions of deferred tax assets and liabilities at December 31, 2011 and 2010 are presented below (in thousands):
 
2011
 
2010
Deferred tax assets:
 
 
 
Intangibles
$
510

 
$
1,158

Accrued compensation and benefits
8,286

 
7,781

Property, equipment and technology, net
887

 
3,161

Investment in affiliates
8,431

 
8,684

Other
3,472

 
1,069

Total deferred tax assets
21,586

 
21,853

Deferred tax liabilities:
 
 
 
Property, equipment and technology, net
(38,962
)
 
(38,441
)
Investment in affiliates
(1,596
)
 
(1,796
)
Prepaid
(968
)
 
(1,129
)
Other
(1,499
)
 
(969
)
Total deferred tax liabilities
(43,025
)
 
(42,335
)
Net deferred tax liabilities
$
(21,439
)
 
$
(20,482
)
Summary of Positions for which Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Table Text Block]
A reconciliation of the beginning and ending uncertain tax positions, including interest and penalties, is as follows (in thousands):
 
2011
 
2010
 
2009
Balance as of January 1
$
3,165

 
$
2,815

 
$
3,055

Gross increases on tax positions in prior period
9,186

 
205

 
495

Gross decreases on tax positions in prior period
(2,215
)
 
(876
)
 
(1,808
)
Gross increases on tax positions in current period
2,768

 
1,136

 
1,092

Lapse of statue of limitations
(719
)
 
(115
)
 
(19
)
Balance as of December 31
$
12,185

 
$
3,165

 
$
2,815

Fair Value Measurements (Tables)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Fair Value, Measurement Inputs, Disclosure [Table Text Block]
The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of December 31, 2011 and 2010. The Company holds no financial liabilities that are measured at fair value on a recurring basis.
(amounts in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 
 
 
 
 
 
 
Money market funds
$
126,000

 
—

 
—

 
$
126,000

Total assets at fair value at December 31, 2011
$
126,000

 
$
—

 
$
—

 
$
126,000

Fair Value, Measurement Inputs, Disclosure [Table Text Block]

(amounts in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 
 
 
 
 
 
 
U.S. Treasury securities
$
25,000

 
$
—

 
$
—

 
$
25,000

Money market funds
26,000

 
—

 
—

 
26,000

Total assets at fair value at December 31, 2010
$
51,000

 
$
—