Cboe Global Markets

Cboe and S&P Global announced they signed a new agreement granting Cboe an exclusive license to offer S&P 500 index options through 2051.

Why it matters: Cboe's shares are trading only modestly higher today, Sept. 29. The market's muted reaction is somewhat understandable: while the extension is major news, the original agreement was slated to last until 2032, and it is unclear how much, if any, uncertainty was priced into the shares. Moreover, the announcement did not include any specific figures on what concessions Cboe made during the renewal process. While a follow-up news release from Cboe suggested the concessions were modest, we will need to wait until quarterly earnings for more detail. That said, we do see this as unquestionably positive news for long-term investors. We estimate that Cboe gets more than half of its net revenue from S&P 500 index options. If it lost the exclusive right to offer these products, the impact to its business would be devastating. The extension pushes this risk out two more decades.

The bottom line: For now, we will maintain our $315 per share fair value estimate for narrow-moat Cboe. We see the shares as modestly undervalued at current prices, as we think the market has been overly concerned with the potential impact of perpetual futures on the exchange industry. We expect the exact impact of the new license agreement on our fair value estimate to become clearer once we have more details on the pricing changes and Cboe's 2027 guidance under the new terms.

We are increasing our fair value estimate for Cboe to $315 per share from $305, which translates into a 2026 price/earnings ratio of 24.7. Approximately $5 of the increase comes from the time value of money. Another $7 comes from higher data vantage revenue growth projections as demand for Cboe's market data continues to exceed expectations. The remainder of the positive adjustment comes from 2026 option volume estimates as market activity has been cyclically high.

We expect Cboe’s revenue to grow at an average rate of around 6.3% over the next five years, with this growth being front loaded, as we project US equity and option trading volume will partially normalize in 2027 and 2028. We expect most of this growth to come from Cboe's index option trading as well as its market data and connectivity businesses. The firm's North American equity and option exchanges face intense competition and as new competitors enter the market, Cboe has had to choose between losing market share or losing pricing power. Additionally, off-exchange trading platforms remain a major competitive force in the equity trading business, with the exchange industry steadily losing share.

We project that Cboe’s index options volume will increase at an 6.1% CAGR during 2025-30, though this comes off the back of an impressive 20% volume growth seen in 2025. This is a significant deceleration from the impressive 21.9% growth rate over the past five years, but it includes our expectation of a period of normalization in 2027 to 2028. Cboe has been a major beneficiary of increased retail interest in option trading and improved liquidity, leading to tighter spreads.

Additionally, the introduction of 24/5 trading and additional expiration days in 2021 and 2022, respectively, provided the firm's short-term zero-days-to-expiration, or 0DTE, options a major boost in adoption. 0DTE options now make up around 60% of the firm's S&P 500 index option volume, up from around 25% at the start of 2022. Cboe should retain most of the option volume growth it has enjoyed in recent years, but we expect these tailwinds to provide much less of a boost going forward.

We project Cboe's proprietary market data and connectivity revenue to increase at an average rate of 10% over the next five years. This is a bit faster than the segment's historical average as market demand growth has accelerated industrywide. The US Securities and Exchange Commission's push to reform market data has largely stalled and is unlikely to regain momentum under the current administration. This removes a potential threat to Cboe's data sales, and the firm retains substantial pricing power.

Under former CEO Edward Tilly, Cboe made an aggressive effort to expand internationally and into digital assets. The wisdom of some of these investments was questionable and led to expense growth in excess of what was necessary to support its main growth drivers, with operating expenses rising at a 13.25% average annual rate during 2020-24.

Following the company's change in management, Cboe has made efforts to rationalize its growth investments, pulling back from its digital asset segment and closing its Japanese exchange. Thanks to the tighter focus on controlling costs and strong revenue growth, Cboe's operating margin rose to 62.3% in 2025 from 56.9% the prior year. We think Cboe will be able to build on this expansion as it reduces its workforce and sells noncore businesses, with our projection for 2030 coming in at 65%.

Cboe has achieved a narrow moat rating as a result of its position as the largest option exchange in the US by both volume and revenue. The company's moat is primarily defended by intangible assets through its exclusive right to offer S&P and VIX index option products as well as the significant recurring revenue it earns through its market data and connectivity offerings. Network effects also play an important role in Cboe's index option and futures businesses, as its ability to create markets for efficient trading relies on attracting both buyers and sellers to its exchanges.

We generally assess the economic moats of financial exchanges as primarily stemming from network effects and intangible assets. As more buyers and sellers utilize a financial exchange, the order book deepens, and bid-ask spreads tighten. More trading volume generally leads to better liquidity, which allows buyers and sellers to enter and exit their positions with less impact on the price of the asset, reducing implicit trading costs and creating network effects for exchanges with existing liquidity.

Exchanges that offer exclusive proprietary derivative contracts, like Cboe's index options or its volatility futures, benefit from stronger competitive barriers than their peers, since traders interested in these products must use the exchange. Cboe received around 50% of its net revenue from proprietary trading products in 2025, giving it strong protection from competitive forces. That said, more than 80% of Cboe’s index option volume in 2025 came from S&P 500 index options, which the firm offers through an exclusive contract with the license holder, S&P Global. The business' long-term future is deeply reliant on Cboe being able to renew its contract with S&P Global before it loses these exclusive rights in 2032.

We do expect S&P Global to have a stronger negotiating position than Cboe as S&P Global ultimately has final control over who can offer these option products. Index providers typically choose one exchange as an exclusive venue and traders go to where that index is, giving the provider stronger leverage. However, Cboe does hold some leverage. Index options are a distinct product from options on an S&P 500 exchange-traded fund, or ETF, with several key differences. Most notably, S&P Global earns royalties on index option trading but does not earn them on ETF option trading, even if the underlying ETF is tracking on its indexes. This means if another exchange offers a higher royalty rate than Cboe but loses market share to ETF options, the end outcome would likely be a reduction in revenue for S&P Global.

Cboe's index option market is structurally different than normal option trading. Cboe's index options are European style, cash settled, and trade nearly 24 hours a day. This means a replacement exchange would need to create an entirely new market for the product instead of just slotting it into its existing trading operations. This creates a real risk that if replaced, the liquidity on Cboe's index option market might not fully transfer over to a new exchange, leading to wider spreads and competitive losses to ETF option markets.

This makes it more likely that Cboe retains its exclusive license for S&P 500 options past the 2032 expiration date. While higher royalty fees seem likely to us as part of any renewal, Cboe's index option business has plenty of room to make concessions and still enjoy strong returns.

As for the rest of its operations, as a stand-alone business we consider Cboe's US equity and nonproprietary option trading to not have an economic moat. The US has national best bid and offer rules, which require brokerages to execute trades at the best possible price available across all trading platforms. This means that while the major exchanges do have a cost advantage against smaller firms, thanks to increased scale against a mostly fixed cost base, their ability to use this to drive market share is severely limited. Meanwhile, the capital requirements for starting a new exchange are low. To make matters worse, the equity exchange industry as a whole faces competitive disadvantages against off-exchange trading platforms, which can provide large firms with less information leakage and narrower spreads. As a result, Cboe has steadily lost market share in equity and nonproprietary option trading for years, a trend we expect to continue.

That said, Cboe can still monetize its no-moat trading businesses through the sale of proprietary market data. While Cboe participates in the common tape system, in which a portion of its trade data is provided to a public entity at an agreed upon price, Cboe is able to sell a more complete data set to investors, including a full view of its order book and historical prices. Because of the size of Cboe's trading volume, this data is necessary for traders to have a complete view of the market, which has historically given the firm pricing power. Cboe's market data is a valuable intangible asset with growing demand but a limited number of suppliers, providing the firm with an economic moat around this part of its business.

Thanks to its partnership with S&P Global, Cboe effectively enjoys a monopoly on index options in the US with over 98% market share. The proprietary nature of these products isolates Cboe from the intense competition typically seen in the US exchange industry, allowing it to enjoy the full benefit of the dramatic increase in US option volume that has occurred since the pandemic. While the contract renewal process for Cboe's S&P 500 index options is a material risk point for the firm's long-term competitive advantage, we think the strength of Cboe's liquidity pools and the potential threat from ETF options leave it in a strong position against its rivals during any bidding process. In our view, Cboe has built a narrow moat around its business supported by the firm's intangible assets and the network effects that drive its markets.

If US option trading volume continues to grow at an accelerated rate, Cboe would be the primary beneficiary as the largest options exchange in the US.

Increased retail adoption of Cboe's index options could prove to be a long-term tailwind to its volume.

Improved financial discipline could lead to more margin expansion than anticipated after years of accelerated expense growth.

Cboe is reliant on an exclusive license agreement for its S&P 500 index options that it may not be able to renew before expiration.

New entrants to the US options industry could be more successful than anticipated, further eroding Cboe's market share.

Cboe's declining equity trading market share may endanger its lucrative proprietary market data business if the firm's trading volume falls too far.