Cboe at ‘Critical Inflection Point’

Digital assets

Isaacson described the pending acquisition of ErisX as Cboe’s  latest ecosystem play.

“In one step, we acquire spot trading, derivatives and clearing with exceptional partners committed to help us define the digital asset class for the future,” he added. “It leverages all our core competencies.”

Isaacson continued that the digital asset market is at a critical inflection point with strong retail demand, institutional interest and mainstreaming, even in traditional financial firms.

“As a leading provider of global market infrastructure and tradable products, we can bring the knowledge structure and transparency of our trusted markets to the digital asset space,” said Isaacson.

Cboe said the digital asset market is conservatively expected to grow at an annual rate of at least 25% over the next five years and it expects turnover to reach more than $1 trillion per day by the end of the decade.

In addition to transactions, Cboe said there is also tremendous potential to generate and provide benchmark crypto data that is currently opaque and untimely.

Data

Cboe anticipates that organic revenues in Data and Access Solutions will grow at between 7% and 10% annually over the next three to five years.

Cathy Clay, global head of Data & Access Solutions, said the business has made revenues of $422m so far this year, which is just 1% of the total addressable market.

Cboe estimated that the total addressable market is $37bn, including a $33bn annual spend on financial market data and more than $4bn annual spend on indices. The market is estimated to have a compound annual growth rate of between 4% and 6% to reach between $45bn and $50bn by 2025.

“Advances in big data and scale computing are creating opportunities for greater efficiencies in the financial markets,” said Clay. “Regulation has also created new data requirements from customers as they conform to the ever changing, ever more complex landscape.”

The business builds on the foundation of Cboe’s global exchange data with proprietary analytics and indices, with  products built on an integrated core technology stack which allows new asset classes and geographies to be added quickly. Clay said this allows Cboe to move nimbly as new client demands or market trends emerge.

“Our index business is built in a way that allows us to respond to the rapidly changing investment landscape, where we expect to see high growth in ESG and thematic indices as well as new indices and benchmarks,” she added.

Data revenues are currently highly concentrated in the US but Clay believes Cboe has a tremendous opportunity to grow into EMEA and APAC in the next few years and distribute the product portfolio globally.

“The next step is to bring all the data from all our exchanges into our data products, analytics and indices,” Clay added. “We are already in motion to bring the new EU derivatives marketplace into our products so that more market participants can gain access to that market.”

Derivatives

Tilly described the recent rise in engagement from retail customers as unprecedented. To cater to this audience, Cboe is launching Nanos, an options contract designed to simplify trading. The first Nanos on the S&P 500 Index is due in the first quarter of 2022.

Tilly said Nanos are targeting the 150 million retail customer accounts, of which only 30% currently use options.

“We are very excited about the many initiatives in the works with the derivatives franchise,” he added. “We anticipate that collectively they will contribute 2% to 4% of total organic net revenue growth over the next three to five years.”

Arianne Criqui, head of derivatives and global client services, said Cboe will enable auctions for retail customers in SPX options to improve execution. In addition, at the end of next year Cboe will deliver options on futures.

Rob Hocking head of derivatives strategy, said Cboe will be focussing on capital efficiencies for customers through initiatives such as customer portfolio margin compression and exploring cross-market clearing relationships.

Ade Cordell, president, of Cboe Netherlands, said the European derivatives business – which launched on September 6 – provides an annual revenue opportunity of €25m over a three-year horizon as it provides a single point of access to European markets which were previously fragmented.

“We are bringing US market structure and on-screen trading to Europe and allowing market participants to trade a range of pan-European benchmarks on one venue,” Cordell added. “Clearing is in one silo which brings margin offsets and efficiencies.”

Equities

Howson said Cboe has been able to build an unrivalled presence in all of the highest value markets open to competition across the world.

“Our customers are increasingly global and looking for coherent global offerings,” he added. “There is a real opportunity for us to unlock incremental value by bringing uniformity to customers – uniformity of access to markets and products; access to data and trading protocols.”

For example, periodic auctions are being introduced to the US think about from Europe and the BIDS network will be extended into Canada and Asia Pacific.

Revenue growth

Cboe has increased its target of growing medium-term organic total net revenue growth for the group to between 5% and 7% annually, from the pervious goal of between 4% – 6%.

Tilly said: “The company believes that by expanding its global presence to the highest value markets, increasing access to its differentiated products and solutions and accelerating its growth with recurring non-transaction revenue, Cboe is positioned to drive long-term shareholder value.”

Cboe is also introducing a return on invested capital (ROIC) target of greater than or equal to 10% over a three to five years.