CBOE reopens after more than three-hour delay The Chicago Board Options Exchange opened for trading Thursday after a three-and-a-half-hour delay that prevented investors from trading options on two of the most closely-watched instruments in the financial markets, the Standard & Poor's 500 Index and the CBOE Volatility Index. The failure, which was resolved at 1 p.m. Eastern time when the CBOE got its computer systems back up and running, raised new questions about CBOE's near-monopoly on stock-index options, used by institutional as well as retail investors to bet on and hedge against swings in the overall U.S. stock market. A CBOE executive at an options industry event in Las Vegas said the delay was due to a software glitch and was not a hacking incident. But coming just days after hackers attacked the computers of Charles Schwab Corp. and a false news report on the Associated Press's Twitter account caused the stock market to plunge, the incident also brought attention to the way troubles with technology can roil the markets. Taken together, the three incidents mean "you have the individual and now institutional side both affected by disruptions," said Justin Walters, co-founder of Bespoke Investment Group. Technology can continue to advance, but I think this does show how our market structure is vulnerable, to some degree. The Chicago options exchange is run by CBOE Holdings Inc. The systems outage at CBOE also comes at the same time that U.S. securities regulators are contemplating new rules that would require exchanges to have testing and backup systems in place to deal with technological errors or natural disasters. CBOE has for years successfully fought off attempts by rival exchanges to offer products, winning court backing for its right to list them exclusively. At least one rival lost no time in pressing the point. "This situation brings up a great argument why the regulators should be concerned about single listed products," said Ed Boyle, senior vice president of strategy at the BOX Options Exchange on the sidelines of an options industry event in Las Vegas. An SEC spokesman said before CBOE reopened that the regulator is "monitoring the situation." CBOE licences on S&P 500 Index and VIX options prevent the contracts being offered on other exchanges. Illinois courts have upheld the CBOE's monopoly against past challenges from competitors. But the legal system may not have had its final say in the matter: Citadel LLC, a large Chicago-based hedge fund and one of the biggest market makers in U.S. options, has asked the U.S. Supreme Court to decide the dispute over CBOE's right to exclusively list the stock-index options. More than 50 million of these exclusive contracts - by far CBOE's most lucrative products - changed hands at the CBOE in March. "This raises the question about the viability of any product that is solely listed on one exchange," said Jared Woodard, principal at Condor Options, an options research and advisory firm based in Forest, Virginia. The perception is not great, given the intensity in which they fought to keep S&P 500 options as an exclusive listing. Still, other market participants said traders and investors had alternatives to the CBOE contracts that enabled them to execute their strategies. Trading on ten other U.S. options exchanges continued unimpeded, and traders wanting to hedge positions in the S&P 500 could use exchange-traded, fund-based options known as SPDYR S&P 500 Trust and widely available. "There is no shortage of other venues to trade on," said Steve Sosnick, equity risk manager at Timber Hill, a division of Interactive Brokers Group. The Chicago exchange is the oldest U.S. options market. Most trading of options on individual stocks takes place by computer screen, but dozens of open-outcry traders crowd the areas of the CBOE floor dedicated to CBOE's exclusive stock-index options. "We had some technology problems this morning," Edward Provost, CBOE's executive vice-president and chief business development officer, told participants at the annual options industry conference in Las Vegas. I want to assure anyone out there who saw CNBC saying that this was a hacking type of situation: That's not the case. It was a software glitch. The Securities and Exchange Commission proposed the rules last month following a string of high-profile issues in 2012, from Nasdaq OMX's botched handling of Facebook Inc."s initial public offering and Knight Capital Group's near-collapse from a trading glitch to the shutdown of the public markets during Hurricane Sandy. The SEC's proposal, if adopted, would replace a long-time voluntary standard known as "automation review policies" or ARP. In replacing voluntary guidelines with rules, it means the SEC would be able to take enforcement action against violators.