Cboe Sees ‘Need to Move Quickly’ in Crypto Following Exchange Acquisition

Acquired business seeks to offer margin crypto futures, expand its spot offerings, executives say


Source: Cboe Global Markets


key takeaways

  • ErisX, operator of crypto spot market, futures exchange and clearinghouse, to be rebranded as Cboe Digital
  • Cboe is uniquely positioned to offer basis trading and exchange for physical transactions down the line after the acquisition, the company said

Cboe Global Markets has closed its acquisition of institutional cryptocurrency exchange ErisX, with the newly combined company’s executives saying they intend to integrate quickly while digital asset markets remain hot. 

Chicago-based Cboe first announced the deal six months ago.

ErisX operates a US-based digital asset spot market, as well as a regulated futures exchange and clearinghouse. Set to be rebranded as Cboe Digital, the business will function as a subsidiary run by ErisX CEO Thomas Chippas.

A company of 55 people at the time of acquisition, ErisX will now leverage Cboe’s more ample resources, Chippas told Blockworks. 

“We get to find crossover opportunities and product development opportunities to grow the existing Cboe customer base, but [we have] complete freedom to continue new digital asset products over here at ErisX,” Chippas said.  

Cboe Chief Operating Officer Chris Isaacson called the acquisition “super complementary,” adding it gives the company its first presence in the digital assets sector.

“We’ll integrate only where it makes sense, but we realize that in this asset class we need to move quickly,” he told Blockworks. “Keeping that agility with this wholly-owned subsidiary is a great move.”  

Cboe operates the largest options exchange in the US. An average of $86.5 billion is traded on Cboe’s equities exchanges daily. The average number of US options contracts and US futures contracts traded each day total roughly 9.8 million and 213,000, respectively. 

Product plans

ErisX Chief Operating Officer Matt Trudeau said the highest priority for the company in the near term is adding margin capability to its clearinghouse. It has an application pending with the Commodity Futures Trading Commission (CFTC) to offer margin crypto futures that are both physically settled and cash settled.

The soon-to-be Cboe Digital will also now look to expand its spot offerings beyond bitcoin, bitcoin cash, litecoin and ether.

Down the line, Cboe is uniquely positioned to offer products, such as basis trading and exchange for physical transactions, that involve both the spot and futures markets, Trudeau told Blockworks.

“One of the things we expect to be able to do is offer those products more efficiently from an operational and cost standpoint than anybody who’s got a standalone cash-settled futures market or a standalone spot market,” he said.

Cboe also intends to develop a benchmark data stream — based on actionable bid and offer prices from the spot crypto market — to help market participants evaluate the appropriateness of crypto execution prices, the company said in a statement.

Bridging TradFi and crypto

Isaacson said part of the attractiveness of buying ErisX was the company’s “intermediary-friendly platform.” The deal was estimated at $400 million, according to data by M&A advisory firm Architect Partners. The companies did not disclose the sale price. 

“It will allow for traditional finance players that are more and more capable and ready to adopt digital assets to now come on and adopt the asset class,” he said.

Ryan McCulloch, an investment banking associate at Architect Partners, said in a research note that the need for traditional financial players to have crypto exposure has become “table stakes.” He likened the Cboe-ErisX deal to other so-called “bridge transactions” between companies, such as Deutsche Borse Group and Crypto Finance; Mastercard and Cipher Trace; and PayPal and Curv.

“As the crypto sector develops, consolidation via acquisition will continue as traditional players continue to choose the buy over build option,” McCulloch wrote. “ErisX isn’t the largest crypto derivatives exchange, but their focus throughout development on robust regulatory compliance is a major driver of value to traditional financial players such as Cboe.”

Many traditional institutions are already getting involved in crypto, Chippas said, adding that there is a massive opportunity to grow the pie.  

“There are lots of people today that want to access these products that are unwilling to open an account for one asset class at one particular provider,” he said. “They’re looking to access these products via the traditional intermediaries.”

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