Securities and Exchange Commission Historical Society

The Institution of Experience: Self-Regulatory Organizations in the Securities Industry, 1792-2010

Governing a New Market

Indexes to Institutions

- 1995 Chicago Board Options Exchange

As the contest on the floor continued, the rise of index options remade the market. In 1982 the Chicago Mercantile Exchange introduced futures based on the Standard & Poor's 500. In March 1983 the CBOE followed suit with options trading on the S&P 100 index. These index options were popular, as they allowed traders to speculate or hedge on the movement of the entire market.

Within a year, S&P 100 index options accounted for about 42 percent of the CBOE's daily volume. By the end of the decade they were the most actively traded options in the United States. Index options on the S&P 500, introduced a few months later, had a slower start but eventually proved similarly successful.85

Index options were not an unqualified blessing. During the 1980s, professionals increasingly turned to program trading, employing computers to bet on the spreads between index options, index futures, and their underlying stocks. The result was an unprecedented level of volatility across all of the markets. On October 19, 1987, the Dow Jones Industrial Average plunged by more than 22 percent. Market makers were hard hit as the index options swung wildly. Program trading based on derivatives was widely considered the main cause of the break. For the CBOE, a few traumatic days were succeeded by months of discouragement as options fell out of favor and the market lost more than half its volume.86

CBOE leadership seized this opportunity to make overdue reforms. The CBOE converted market makers to a "designated primary market maker" arrangement, which was—despite its name—a traditional specialist system, and implemented measures that made the exchange more hospitable to institutional business. It was this institutional volume that helped the CBOE return to former trading levels in 1994.87

<<Previous Next >>


(85.) Wall Street Journal, April 3, 1984; Wall Street Journal, December 14, 1987, and January 8, 1988; CBOE Annual Reports, 1991 and 1993; New York Times, April 24, 1988.

(86.) February 1988 The October 1987 Market Break: Report by SEC Division of Market Regulation, 8.1-8.23.

(87.) CBOE Annual Reports, 1975, 1989, 1990, and 1994.

Related Museum Resources


October 11, 1984
image pdf (Courtesy of the Chicago Board Options Exchange Archives)
October 22, 1984
image pdf (Courtesy of the Chicago Board Options Exchange Archives)
February 1988
The October 1987 Market Break: Report by SEC Division of Market Regulation

(Courtesy of Alton Harvey)


(Courtesy of Chicago Board Options Exchange )

Permission for Use

The virtual museum and archive is copyrighted by the SEC Historical Society. The Society reserves the right to restrict access to or use of the museum by any user at any time.

Users are prohibited from sharing or downloading any material for publication or commercial purposes without written permission from the Executive Director. Requests for permission must be submitted by email and specify the material requested and for what purpose.

Material used with the Society's permission should be credited to: