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Derivatives - Equity

Outstanding Contribution Award: William J. Brodsky

Bill Brodsky’s career in derivatives spans the birth of some of the pivotal products that are now taken as basic derivative building blocks. He was lured to the Chicago Mercantile Exchange in 1982 as Windy City futures officials were planning the first equity index futures. Bookending that, is the VIX suite of derivatives: on his watch as chairman and ceo of the Chicago Board Options Exchange volatility derivatives have become a key part of the trading and investing landscape.

  • 03 Jul 2013
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Bill Brodsky’s career in derivatives spans the birth of some of the pivotal products that are now taken as basic derivative building blocks. He was lured to the Chicago Mercantile Exchange in 1982 as Windy City futures officials were planning the first equity index futures. Bookending that, is the VIX suite of derivatives: on his watch as chairman and ceo of the Chicago Board Options Exchange volatility derivatives have become a key part of the trading and investing landscape.

William J. Brodsky
William J. Brodsky

His involvement in those products and his efforts in industry and regulatory initiatives have led the editors of Derivatives Week to name him this year’s recipient of the Outstanding Contribution Award.


The Index & VIX Revolutions

Ask Brodsky whether he had any inkling of the momentous changes in the offing when he arrived in Chicago and his response is disarming, “No. Are you kidding?” He landed in the Windy City at the behest of CMEchiefs Leo Melamed and Jack Sandner, who were looking for a securities guy to spearhead a move into equity index futures. Melamed recalls it took him two attempts to convince the New Yorker to come to Chicago, but the CME knew its expertise lay outsideequities and to launch equity index futures it needed Brodsky’s equity know-how. “More important perhaps than knowing [the equity market] was knowing the people,” Melamed says. Brodsky, whose father Irwin had a notable career in New York with firms like Model, Roland & Co., was a highly regarded executive v.p. with the American Stock Exchange and fitted the bill.

From today’s perspective, it can be difficult sometimes to get a handle on just how revolutionary the index future was. This was a time when the futures industry could still be looked down on as agricultural in tone and to some degree not part of the mainstream. Brodsky, who was hired as executive v.p. coo at the CME, recalls attending events in the early days of the equity index contract. “They’d look at you as being some sort of wild man, trading stock index futures,” he said. The product of course begat a new way of investing. “Indexation is a revolution that is still going on. It will continue to go on, primarily because it’s so efficient and can be used in so many ways,” he added.

Mary Shapiro“VIX has become very important and an enormously watched metric during the financial crisis and ensuing years. It has become very much part of the lay of the land ”
Mary Schapiro

The CBOE’s VIX contracts have had a similarly important impact—and also met a somewhat skeptical audience. Bob Birnbaum, a CBOE director when the contracts were launched and a former president of the New York Stock Exchange, said he initially had doubts about what people were going to do with the contract. The volume numbers now speak for themselves: CBOE saw average daily volumes for 2012 of 95,000 VIX futures, against about 9,800 contracts in 2004. For options the growth is sharp as well: 443,000 option contracts in 2012 versus just 24,000 in 2006. Aside from the flow growth, the index and the contracts have established themselves as market barometers. “VIX has become very important and an enormously watched metric during the financial crisis and ensuing years. It has become very much part of the lay of the land,” said Mary Schapiro, the former Securities and Exchange Commission chairman who is now a managing director at consulting firm Promontory Financial Group.


Sandy Frucher

“[Brodsky] has been the pied piper of equity options and indexes.”
Sandy Frucher

Brodsky, who arrived at the CBOE in 1997 from CME to take the chair and ceo role,outlines what was a long road for the VIX. Volatility was an asset class difficult to trade before he and his team introduced the contracts. They also had to create a futures exchange on which to trade the instrument. “I don’t think any of us could ever imagine that these things would become so successful because you’re starting from a blank piece of paper. And I think one of the most important things is that you have to have economic utility, you have to have liquidity and you have to educate. And if you don’t have all those working together, it just doesn’t happen,” he reflected. Sandy Frucher, vice chairman of NASDAQ OMX Group and a competitor and friend of Brodsky’s for 20 years, noted that Brodsky himself is one of the effective people at going out and selling these products. “[Brodsky] has been the pied piper of equity options and indexes,” Frucher said.


‘Something Special In The Water’

The walls outside Brodsky’s office at 400 S. LaSalle are lined with his collection of original prints and photos of equity and derivative exchanges around the globe and through the ages. From an 1871 print of the “American Market” in the streets outside of the London Stock Exchange to a photo of the Hanoi Stock Exchange. He’s immensely proud of his collection. But, this is no harking to places and times he’d rather be. Brodsky makes a compelling case for Chicago as a unique platform from which to innovate. “I always say there is something special in the water in Chicago. There has been a willingness to really innovate and take risks and risk failure,” he said.

That’s what lured Brodsky to the city from AMEX, where he’d been head of options trading before becoming executive v.p. for operations from 1979-1982. “People didn’t look at me as a traitor, but they said, ‘Why would you do it? Why would you leave New York, the home of capital markets and the stock market?’ The reason I was able to do it was I had had enough exposure—having run the option business at the AMEX—to some of the really bright people in the Chicago futures markets that I knew these people understood innovation in the way New Yorkers didn’t.”

The Long Haul

Brodsky frequently cites the long-term horizon when talking about initiatives he’s been involved in and changes for which he has pushed. The VIX index debuted in 1993. Trading of VIX options began in 2006. The importance of VIX today isn’t hard to discern: indexes accounted for 34.4% of contracts traded on CBOE in the first quarter of 2013. Of that, 14.4% was attributable to the VIX, up from the 8.8% mark in the first quarter of 2012.

His career is dotted with these types of long-term plays. During John Thain’s tenure as the head of the New York Stock Exchange, Brodsky was working on getting portfolio margining green lighted for futures traders. “I remember saying to him, ‘I’ve been working on this for three years.’ And he said, ‘Why do it if it is taking so long?’ And I said, “because it has to do be done.” I always had a long view that if something had to be done, even if it took a long time, if it was worth doing, it was worth fighting for.”

Only The Paranoid Survive

Brodsky’s sees his philosophy as based on competition and innovation, as might be expected from someone who has made his home at the center of the brutally competitive world of exchanges. He cites the ex-Intel chief Andy Grove’s phrase as being apt: only the paranoid survive. “I never accepted that because we were number one that we had a right to be number one,” Brodsky reflected.

That view has driven product innovation. It’s also driven automation, which is an area Brodsky is also particularly proud of. When the International Securities Exchange was formed and deployed OM technology, the CBOE was facing a tough competitor that had none of the vested interests to satisfy that the CBOE did. “They basically borrowed that technology and had only upside. They had no downside. We understood that they were coming on. This was even before they launched. We said, “We better have an alternative.” That’s how the hybrid floor electronic trading system was born. I teamed up with Ed Tilly, who is now our new ceo. He was a member at the time and we said, “We have to save the place. But, we can’t throw out everything and just put in electronics. How do we do it?” So we figured out a way to combine the best of the floor with the best of the screen.”

Leo Melamed

“He has a very good grasp of who is who.”
Leo Melamed

That ability to work with others is an often-cited quality by observers of Brodsky. Melamed says Brodsky has a gift for finding common threads with people he meets. “He has a very good grasp of who is who.” Birnbaum agrees, adding people like to work for Brodsky because he’s a leader who also spreads around the credit to his team. “Clearly, he’s the best exchange executive in the country,” says Birnbaum. “He has all the qualities you look for in a ceo. He’s very smart, very dedicated and he works like a dog.” Frucher also zeroes in on that team-based approach—whether in the wider derivatives industry or close to home in product development. “Bill fosters an environment of creativity,” Frucher noted.


“He has all the qualities you look for in a ceo. He’s very smart, very dedicated and he works like a dog.”—Bob Birnbaum

The other asset that comes across clearly in person is his energy.“He sits right on the edge of his chair and his energy is apparent,” said Schapiro.


The Future

Brodsky became executive chairman of CBOE Holdings and the Chicago Board Options Exchange in May, giving up the ceo slot. Speculation about his next move has included attention on his friendships within the Obama administration. Brodsky downplays the notion of a move to D.C. at the moment. He’s busy on CBOE issues, chair of Northwestern Memorial Hospital and plans are afoot for an initiative for Chicago Mayor Rahm Emanuel. “I am very happy at the moment to stay active in Chicago.”

  • 03 Jul 2013

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 21 Jul 2014
1 JPMorgan 206,119.24 768 7.99%
2 Barclays 197,009.75 660 7.64%
3 Deutsche Bank 185,589.88 731 7.20%
4 Citi 180,289.40 670 6.99%
5 Bank of America Merrill Lynch 168,848.11 598 6.55%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 22 Jul 2014
1 BNP Paribas 30,619.52 128 7.74%
2 Credit Agricole CIB 22,088.50 82 5.58%
3 HSBC 19,705.60 104 4.98%
4 UniCredit 19,229.33 92 4.86%
5 Commerzbank Group 18,774.69 107 4.75%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 22 Jul 2014
1 JPMorgan 19,623.08 89 9.25%
2 Goldman Sachs 19,369.43 59 9.13%
3 Deutsche Bank 18,401.12 61 8.68%
4 UBS 16,522.25 60 7.79%
5 Bank of America Merrill Lynch 16,020.48 53 7.55%
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