Executive Summary / Key Takeaways

• Cboe is executing a strategic realignment that will shrink revenue by roughly 3% but reduce adjusted operating expenses by 8-10%, creating a leaner, higher-margin derivatives and data powerhouse with superior earnings quality.

• Q3 2025 delivered record results with 14% revenue growth and 67.5% adjusted EBITDA margins, driven by a 62% surge in 0DTE options volume and 24% growth in Europe/Asia Pacific, validating the focus on high-margin, technology-enabled franchises.

• The completion of the Cboe Titanium platform migration positions Cboe with a best-in-class technology stack that supports nearly 24-hour trading and complex product innovation, creating a durable moat against larger but slower competitors.

• Regulatory headwinds from the equity access fee cap ruling and CAT funding litigation pose tangible revenue risks, while recent executive turnover creates execution uncertainty that investors must monitor closely.

• The investment thesis hinges on whether Cboe can maintain its technology leadership and market share in derivatives while successfully navigating regulatory challenges and leadership transitions to deliver on its margin expansion promise.

Setting the Scene: The World's First Options Exchange Reinvents Itself

Founded in 1973 as the world's first U.S. options exchange and headquartered in Chicago, Cboe Global Markets has evolved from a single trading floor into a global derivatives and data powerhouse. The company makes money through three primary avenues: transaction fees from derivatives and equities trading, market data licensing across its global network, and clearing services that provide critical infrastructure to financial markets. This business model sits at the intersection of powerful secular trends—explosive growth in retail options trading, institutional demand for risk management tools, and the globalization of U.S. financial products.

The industry structure reveals why this matters. The U.S. options market has grown 63% since 2020, reaching over 12.2 billion contracts in 2024, driven by retail participation and zero-day-to-expiry (0DTE) trading. Meanwhile, European equities markets remain fragmented, offering share gain opportunities, and the crypto derivatives market represents a greenfield expansion. Cboe competes against larger diversified exchanges like CME Group (CME), Nasdaq (NDAQ), and Intercontinental Exchange (ICE), but has carved out a dominant 30% market share in U.S. options through product innovation and superior technology.

The current story looks like it does today because of a deliberate strategic pivot that began in 2023. After acquiring Bats Global Markets in 2017 to build scale, Cboe spent years integrating disparate platforms and expanding geographically. By 2025, management recognized that being a jack-of-all-trades diluted focus from its highest-margin opportunities. The decision to wind down Japanese equities, sell Canadian and Australian cash equities businesses, and discontinue corporate listings represents a classic "shrink to grow" strategy that sacrifices revenue for superior returns on capital.

Technology, Products, and Strategic Differentiation: The Titanium Edge

Cboe's competitive moat rests on the completion of its Cboe Titanium platform migration in Q1 2025, which now powers all 27 global markets across North America, Europe, and Asia. This isn't merely a technology upgrade—it eliminates legacy system fragmentation, reduces operational risk, and enables a unified product development cycle that competitors with patchwork acquisitions cannot match. The platform processed over 1 trillion orders, quotes, and market data events in April 2025 alone, demonstrating scalability that supports Cboe's push into nearly 24-hour trading.

The 0DTE options phenomenon showcases Cboe's product innovation engine. SPX 0DTE average daily volume surged 62% year-over-year in Q3 2025, comprising over 61% of total SPX volumes, up from 48% a year prior. This growth reflects Cboe's distinct advantages in contract design, market structure, and liquidity provision that attract both retail and institutional participants. The upcoming launch of Cboe Magnificent 10 Index futures and options on December 8, 2025, extends this innovation into AI and tech themes, while Bitcoin and Ether Continuous Futures launching December 15 tap the crypto derivatives opportunity.

Research and development spending, while not broken out separately, is evident in the continuous product pipeline and platform enhancements. Management's focus on "disciplined capital and human capital allocation" translates into investments that directly support margin expansion. The migration of Cboe Digital futures to CFE and the closure of the spot market eliminated a drag on profitability, while new timestamping services and Dedicated Cores in Data Vantage drive 12% revenue growth with minimal incremental cost.

Financial Performance & Segment Dynamics: Margin Expansion in Action

Q3 2025 results provide compelling evidence that the strategic focus is working. Net revenue increased 14% year-over-year to a record $605.5 million, with adjusted diluted EPS up 20% to $2.67. The adjusted operating EBITDA margin expanded 3.8 percentage points to 67.5%, driven by a favorable mix shift toward higher-margin derivatives and data businesses. This margin expansion is structural, not cyclical, reflecting the company's deliberate exit from low-margin cash equities businesses.

The Options segment delivered record performance with $616 million in revenue and 72.1% operating margins, driven by 19% growth in index options net transaction fees. The Europe and Asia Pacific segment achieved 24% net revenue growth—its fifth consecutive quarter as Cboe's fastest-growing division—fueled by 35% growth in net transaction and clearing fees from market share gains and higher capture. Data Vantage grew 12% with 90% of growth coming from new sales rather than price increases, demonstrating strong underlying demand for Cboe's proprietary data.

The balance sheet provides strategic flexibility that supports the transformation. With $1.5 billion in adjusted cash and a leverage ratio of 1.0x, Cboe has dry powder for organic investment and opportunistic share repurchases. The company returned $76 million to shareholders in Q3 via dividends and maintains $614.5 million in remaining buyback authorization. Moody's recent upgrade to A2 reflects the strength of this financial profile, which enables Cboe to invest through regulatory headwinds while competitors with higher leverage may pull back.

Outlook, Management Guidance, and Execution Risk

Management has consistently raised guidance throughout 2025, signaling confidence in the strategic pivot. Full-year organic net revenue growth guidance increased to "low double digits to mid-teens" from "high single digits," while the adjusted operating expense range was lowered to $827-842 million from $832-847 million. This combination of higher revenue and lower expense guidance implies meaningful operating leverage, with the strategic realignment expected to reduce net revenue by 3% but cut adjusted operating expenses by 8-10% on a run-rate basis.

The leadership transition from Fred Tomczyk to Craig Donohue in May 2025, followed by Dave Howson's resignation and new appointments for derivatives and data leaders, creates execution risk. While Donohue's experience as former CEO of OCC provides regulatory credibility, the timing of these changes during a major strategic pivot demands seamless execution. Management emphasizes that the realignment allows "incremental flexibility" to invest in higher-growth areas, but investors should monitor whether leadership changes disrupt product launches or client relationships.

The product pipeline offers multiple catalysts. Russell 2000 options will trade nearly 24x5 starting February 2026, while FLEX options in Europe launch in Q1 2026 to serve institutional demand for tailored risk management. These extensions leverage the Titanium platform and existing clearing infrastructure, requiring minimal incremental investment while expanding addressable markets. The key execution variable is whether Cboe can maintain its technology edge while competitors like CME and Nasdaq develop their own 24-hour capabilities.

Risks and Asymmetries: What Could Break the Thesis

The equity access fee cap ruling poses the most immediate revenue risk. The D.C. Circuit's October 2025 decision upholding the SEC's reduction of the access fee cap from $0.30 to $0.10 per 100 shares will limit Cboe's ability to differentiate its fee schedule and compete effectively. This impacts the North American Equities segment, which generated $377.8 million in Q3 revenue, by reducing transaction fee revenue and compressing margins in an already competitive environment.

The CAT Funding Model Order Litigation creates binary risk around promissory note collectability. With the November 29, 2025 deadline for SEC action, Cboe faces potential costs related to historical CAT funding or inability to collect on related promissory notes. While management hasn't quantified the exposure, any adverse ruling could result in a material charge that disrupts the margin expansion narrative.

Executive transition risk is elevated given the scope of change. The departure of Dave Howson, Global President, and the appointment of new leaders for derivatives and data effective October 2025 could create execution gaps. Cboe's competitive advantage relies on deep institutional knowledge of market structure and client relationships; any disruption during the critical Titanium optimization phase could allow competitors to gain share.

Concentration risk remains a structural vulnerability. The Options segment represents Cboe's largest profit driver, with SPX options comprising the majority of index options volume. While 0DTE growth has been explosive, reliance on a single product category for margin expansion creates earnings volatility if regulatory changes or market structure shifts reduce 0DTE appeal. The company's diversification into crypto derivatives and European FLEX options mitigates but doesn't eliminate this risk.

Valuation Context

Trading at $254.72 per share, Cboe carries a market capitalization of $26.68 billion and enterprise value of $26.77 billion. The stock trades at 27.4 times trailing earnings and 17.9 times EV/EBITDA, roughly in line with diversified exchange peers despite superior growth. Nasdaq trades at 32.3 times earnings with 15% revenue growth, while CME trades at 26.5 times earnings but faces declining volumes in some segments. Intercontinental Exchange trades at 29.0 times earnings with just 3% revenue growth.

Cboe's return on equity of 21.6% exceeds all three major peers, reflecting superior capital efficiency from its focused strategy. The debt-to-equity ratio of 0.33 provides balance sheet flexibility that CME (0.13) and ICE (0.68) cannot fully match in terms of acquisition capacity. Operating margins of 32.9% trail CME's 63.4% but exceed Nasdaq's 31.6% and ICE's 49.1%, demonstrating the profitability of Cboe's derivatives-heavy mix.

The valuation multiple expansion potential rests on delivering the promised margin improvement from strategic realignment. If Cboe achieves the guided 8-10% expense reduction while maintaining mid-teens revenue growth, EBITDA margins could approach 70% sustainably, justifying a premium multiple to current levels. Conversely, any regulatory setback or execution misstep that compresses margins would likely result in multiple contraction given the high expectations embedded in the stock price.

Conclusion

Cboe Global Markets is executing a strategic transformation that trades 3% of revenue for 8-10% of operating expenses, creating a more profitable and focused derivatives and data franchise. The Q3 2025 record performance, driven by 62% growth in 0DTE options and 24% expansion in Europe, validates that this focus is working. With the Titanium platform complete and a pipeline of innovative products launching through 2026, Cboe has the technology moat to defend its 30% options market share against larger competitors.

The investment thesis ultimately depends on two variables: management's ability to execute the strategic realignment without disrupting client relationships, and the company's capacity to navigate regulatory headwinds while maintaining its technology edge. If Cboe delivers on its margin expansion promise and continues to innovate in high-growth derivatives categories, the stock's current valuation will appear well-supported by superior earnings quality. If execution falters or regulatory risks materialize, the concentrated nature of the business leaves little room for error.