Cboe Sees ‘Perfect Time’ to Re-Enter Digital Asset Market
On October 20 Cboe said it had agreed to acquire Eris Digital Holdings. ErisX operates a U.S. based digital asset spot market, a regulated futures exchange and a regulated clearing house. Cboe plans to operate the digital asset business as Cboe Digital.
Ed Tilly, chairman, president and chief executive of Cboe Global Markets, said on the third quarter results call that the past two weeks have been a watershed moment for the digital asset industry as the first bitcoin futures exchange-traded funds started trading in the US.
“As the appetite for ownership in digital assets continues to grow, we believe Cboe can play a guiding role in shaping the trajectory of this revolutionary market,” Tilly said. “Today we are at a critical inflection point.”
He continued that the deal is being supported by group of industry leaders with different perspectives and expertise.
Cboe intends to form a digital advisory committee to provide advice on developing the Eris spot and derivatives markets. Members of the committee will include DRW, Fidelity Digital Assets, Galaxy Digital, Interactive Brokers, NYDIG, Paxos, Robinhood, some of whom intend to acquire minority stakes in Cboe Digital. Virtu Financial and Webull are committed to ongoing engagement with Cboe Digital.
Tilly said: “I’m confident that together Thomas Chippas, CEO of ErisX and his team and our incredible partners, we can not only meet the growing demand for institutional and retail trading but also push the boundaries of digital asset innovation.”
Cboe had launched the first bitcoin futures in 2017, before withdrawing the contract in 2019. Meanwhile, CME Group is currently trading bitcoin futures and has reached record open interest in the contract.
“We’ve had our eye on the ecosystem in the digital asset space and we thought it would have evolved a bit quicker,” said Tilly. “We’ve always had an eye on getting back into the space.”
Cboe was attracted to Eris X because it offers a live platform with regulatory approval for crypto spots trading, clearing and derivatives and has significant users, including some members of the new digital asset committee. The exchange will work with the CFTC to gain approval for margin futures and other derivatives products.
Tilly said: “This will be game-changing for the industry as investors cannot currently settle into physical coin in an integrated spot clearing and futures and derivatives platform.”
Cboe Global Cloud, a new real-time cloud based market data streaming service in collaboration with Amazon Web Services, is launching on November 1. Data will be more accessible as users just need an internet connection.
Tilly said: “Cboe Global Gloud is expected to help further extend Cboe data to new users and geographies and is an important step towards broadening investor access to our proprietary content and market data globally.”
Cboe Global Cloud will initially provide access to Cboe US equities exchange data, Cboe futures exchange data and Cboe Streaming Market Indices (CSMI) data. The data will initially be available through AWS in the US, UK and Hong Kong but Cboe expects to eventually bring together pan-European, Canadian, Japanese, and Australian equities market data.
Cboe Europe Derivatives (CEDX), a new pan-European futures and options marketplace in Amsterdam, began trading on September 6.
Tilly said: “We are very pleased with initial progress as trading and clearing is running smoothly as we slowly build volume. Over the coming months we plan to introduce additional products and onboard new participants.”
Cboe management said they had modest expectations for European derivatives this year as they add members and products but will set three-to-five year targets for the business.
In addition, average daily notional value traded in the European equities business increased 29% in the third quarter.
“Cboe LIS, powered by BIDS, continues to see positive momentum and for the first time in its history became the largest block trading platform in Europe for the month of August,” added Tilly.
Cboe plans to expands BIDS to Canada early next year and then into Asia Pacific following the closure of its acquisition of Chi-X Asia Pacific, an alternative market operator, in June this year. Tilly said the Chi-X acquisition is making good progress and the platform will migrate to Cboe technology in 2022.
To complement Cboe’s entry into Asia Pacific, it plans to extend global trading hours for its S&P 500 Index (SPX) options and Cboe Volatility Index (VIX) options to nearly 24 hours each business day from November 21.
Tilly said there are now more than 150 million retail brokerage accounts between the top four retail broker platforms but exchanges had done little to attract this market.
As a result Cboe has announced plans to launch Nanos, an options contract designed to simplify trading for retail investors, in the first quarter of 2022.
“Increased retail participation has fuelled record trading across the industry and many of these accounts are too small to take advantage of the potential benefits certain options contracts can offer,” said Tilly.
Cboe reported revenue growth across each business segment which Tilly said was driven by higher volumes in index options and volatility products, increased demand for data and access solutions and growth and trading.
Brian Schell, chief financial officer and treasurer at Cboe Global Markets, said on the call: “Third quarter net revenue increased 27% setting a new quarterly record with year-over-year growth in all our segments.”
Net revenue in the third quarter was $369.5m and adjusted EBITDA was $240m, an increase of 25% from a year ago.
Options net revenue of $192.2m was up 30% from the third quarter of 2020, as a result of higher trading volumes and rate per contract in both index and multi-listed options, as well as increases in access and capacity fees and market data fees.
In US equities net revenue grew 13% to $85.6m due to higher transaction and clearing fees, proprietary market data fees, and growth in access and capacity fees. The 2020 acquisitions of BIDS Trading and Canada’s MATCHNow contributed $8.5m in net revenue for the quarter.
Europe and Asia Pacific net revenue of $48.5m increased by 53%, primarily reflecting the addition of Chi-X Asia Pacific and growth in European equities and clearing.