Cboe Global Markets, Inc. Q3 FY2026 earnings call

• Strategic Milestones: Signed a landmark 25-year exclusive licensing extension with S&P Dow Jones Indices through 2051, ensuring continuity and long-term royalty stability. Received SEC approval to offer securities-based KPI event contracts on 23 companies, launching via CBOE Clear US.
• Derivatives Growth Drivers: Record-breaking performance in zero DTE SPX options, where retail accounted for 58% of volume. XSP volumes doubled following the repeal of the Pattern Day Trader Rule. GTH (Global Trading Hours) volume jumped over 130%, with Asian sessions now comprising over 30% of GTH volume.
• Innovation and Product Launch: Launched extended early trading hours for single stock options to facilitate international participation. Targeting a November launch for KPI event contracts, supported by broker partners like Robinhood and Interactive Brokers.
• Clearing Infrastructure: CBOE Clear US (CCUS) received temporary SEC registration to clear securities, expanding beyond its CFTC derivatives mandate. CCUS is also enhancing risk management standards as a Subpart C DCO.
• Operational Efficiency: Adjusted operating expenses decreased 3% year-over-year to $204 million, reflecting cost savings from strategic realignment and reduced travel/promotional spend. Adjusted operating EBITDA margin expanded to 73.3%.

Derivatives: Net revenue increased 22% year-over-year to $402 million, driven by a 24% rise in index options average daily volume (ADV) and strong retail engagement in zero DTE SPX products. DataVantage: Net revenue grew 13% year-over-year, with access and capacity fees up 16%, accounting for approximately 82% of the growth due to new international subscriptions and unit sales. Cash and Spot Markets: Net revenue rose 12% year-over-year to $131 million; North American equities increased 10% due to higher net capture rates, while Global FX surged 23% driven by a 22% increase in notional value. Futures: Net revenue declined 5% year-over-year due to lower VIX futures activity amidst stable volatility.

• 2026 Organic Net Revenue Growth: Revised upward to 'high teens' range, compared to previous 'mid-to-high teens' guidance. Total net revenue growth is also expected in the high teens when factoring in the loss of SIBO Australia revenue.
• DataVantage 2026 Guidance: Revised upward to 'mid-teens' organic net revenue growth, up from previous 'low teens' guidance.
• Operating Expenses: Revised downward to $830–$845 million, primarily due to lower compensation and benefits from strategic realignment. Includes $20–$25 million in 2026 savings, targeting an annualized run rate of $40–$50 million.
• Capital Expenditures: Maintained at $98–$108 million, reflecting continued investment in technology and inflationary pressures on hardware/software.
• Effective Tax Rate: Expected to remain between 27.5% and 29.5%.
• Royalty Impact: The S&P license extension has no impact on 2026 revenues; any fee adjustments begin in 2027 with a de minimis expected impact on 2027 net revenue growth.

• Regulatory Uncertainty: The classification of prediction markets and KPI contracts remains under scrutiny; management emphasizes that their products are structured as securities to ensure investor protection and compliance with SEC jurisdiction, distinguishing them from unregulated alternatives.
• Market Volatility Dependency: Derivatives volumes, particularly VIX options, are sensitive to market stability. Muted VIX activity was observed during periods of low volatility, though recent geopolitical uncertainty has renewed hedging demand.
• Competitive Landscape: Emerging competitors in the prediction market space operate under different regulatory frameworks (e.g., CFTC vs. SEC). Management notes risks associated with 'shadow securities markets' lacking equivalent disclosure and anti-manipulation protections.
• Execution Risks: Launching new clearing capabilities (CCUS) and complex product types (KPIs) involves operational challenges, including market maker readiness and liquidity building, which may initially result in slower adoption or wider spreads.

Q: Analyst asked about pricing levers to offset future S&P royalty increases and customer communication.

A: Rob Hocking explained that the impact is de minimis due to three factors: robust organic volume growth (index options up 24%), optimization of existing fee structures in the SPX complex which haven't been adjusted recently, and strong execution of growth strategies. They have communicated potential pricing changes to members, confident that the strong environment allows for balance without negatively impacting volumes.

Q: Analyst questioned the sustainability of DataVantage growth and key drivers exceeding expectations.

A: COO Scott Johnston noted that excluding Australia, growth was ~16%, driven by access fees (connectivity to options exchanges), market data (new subscriptions/licenses), and analytics. International demand is a major tailwind, with significant growth from Japan, South Korea, and Hong Kong. The company anticipates continued strong growth supported by secular trends of overseas investors accessing US markets.

Q: Analyst asked about market maker readiness for KPI launches and institutional adoption timeline.

A: Rob Hocking stated that market makers are expected to be ready by the November launch, though spreads may start wide before tightening as liquidity builds. Institutional adoption is anticipated to follow retail, similar to zero DTE evolution. Institutions will use these products to hedge specific stock drivers (e.g., chip sales) rather than whole-company earnings events. The goal is to build data sets that eventually allow for consensus indices.

Q: Analyst inquired about the pace of exhausting the $1 billion share repurchase authorization and future capital allocation post-exhaustion.

A: CFO Jill Griebenow clarified that capital allocation priorities remain unchanged: prioritize organic investment, maintain dividend growth (recently raised 19%), and opportunistically repurchase shares. With a strong balance sheet ($2.7B adjusted cash), they have flexibility. M&A is considered only if strategically and financially sound. Specific timelines for exhausting authorization were not provided.

Q: Analyst asked if expanded clearing capabilities (CCUS) could support perpetual futures and cross-margining advantages.

A: CEO Craig Donohue confirmed CCUS is designed as a flexible platform for nascent markets like tokenization and perpetuals. While OCC remains the preferred partner for listed options, CCUS aims to develop cross-margin efficiencies across markets where possible. This would require further market development but is within contemplation to maximize capital efficiency for participants.