Cboe CEO: Sports Prediction Not a Focus Right Now

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00:00And we're keeping an eye on the broader markets, but also on shares of SIBO, which are on their

00:03longest winning streak since 2019, fueled by optimism around the trading platform's return

00:08to its core options business. We spoke with SIBO CEO Craig Donahue earlier today about the strategy

00:14refresh, prediction markets, and whether more M&A is on the table under his leadership.

00:19Here's part of that conversation.

00:23We just have such, you know, dynamic growth in our core business. I want to make sure that all

00:29of our people are focused on capturing all of that growth, making sure that we're facilitating

00:35more distribution, more access, more customer onboarding. And so that's our focus. The other

00:42focus is, you know, paying attention organically to growth outside of the core. And the things

00:49that we're interested in there are event and prediction markets and digital and crypto and

00:53futures markets. But that's all stuff that's not very capital intensive and things that we can do

01:00that are within our so-called sweet spot in terms of our talents, our expertise, our platforms and

01:06our customers. But, you know, we're not really focused on mergers and acquisitions right now.

01:13If there was something that was strategically and financially compelling, would we look at it?

01:17Probably, but it's not really a priority.

01:19Let's talk a little bit more about prediction markets, one of those areas where you're looking

01:23to grow organically. We've seen some of your competition, of course, make big moves, big

01:28investments in that space. And I know that it's an area that you identified, especially on the

01:33earnings call, as a potential opportunity for growth for your business. And I wonder what the

01:38potential timeline is there for realizing some of that ambition, given that this space does seem to

01:44be moving quite quickly. Yeah, it is moving quickly. But at the same time, I also think it's still early

01:53stages. You know, our focus right now is on our own organic efforts, which I hope will come to fruition in

02:00the next several months. You know, I want to make sure that, you know, we develop our own products that

02:07we list and clear them on our own exchanges and through our own clearing houses and clearing house

02:13partners. You know, the way I think about partnerships is our distribution channel

02:19partnerships. And we've got, you know, great partnerships with, you know, a broad array of

02:24retail brokers and obviously institutional brokers as well. And so those will be the focus of our

02:31partnerships. And our focus will be different than I think many of the other people in the market

02:37place. You know, we want to make sure that we're focused on financial and economic contracts,

02:43ones that are relevant to our core products, relevant to our customer base. You know, I think

02:49in some ways, I would say CBO was actually the innovator in these kinds of markets. When we developed

02:55zero DTE options, you know, we provided much more access to customers who are interested in shorter

03:02term contracts that have, you know, most of them in the way that they trade capped risk. So I view that

03:10as sort of an easy connectivity point as we focus on event and prediction products based on economic

03:17and financial risks. Those customers will graduate into our options products. Well, Craig, just to follow

03:23up on that point, does that imply that you're not looking at sports games, for example, as you explore this

03:28prediction market? Yeah, it's really not a focus of ours. You know, I'm sure that and I watch all this

03:36stuff. I pay attention to it. I know there's explosive growth there. I know that there's probably the

03:42potential to make money there. It's also fraught with lots of, you know, litigation and regulatory risks

03:50as well. So that's, I think, for other people. But for CBO, we're going to remain focused on things that have

03:57financial and economic implications. And that's where we're going to choose to, you know, play.

04:03I am curious about the scale back that we've seen with regard to some of the international operations,

04:07Australia as well, Canada, and I guess some trimming in the European business. There's been a lot of talk

04:13about a refocus, not so much on the domestic market, but the idea that you can operate internationally

04:19with a footprint that is, to a certain extent, singular in the U.S., and particularly Chicago.

04:24Well, just to, you know, say, we have a footprint that is global. I mean, we have offices around the

04:33world. We have, you know, sales, marketing, and education resources throughout the world. And,

04:40you know, that's the way in which we'll continue to try to globalize. We can offer globally relevant

04:47product. We have exchanges and clearinghouses in both the U.S. and in Europe. And, you know,

04:53a lot of the growth that we're seeing is in Asia Pacific. We have a lot of brokers that are

04:59interested in gaining connectivity to all of our markets. And so we're trying to drive growth by

05:05facilitating that. I don't feel that we need to have an actual exchange presence in a place like

05:12Canada or Japan in order to, you know, drive that global growth. You know, U.S. equities are now

05:20probably 74 percent of global market capitalization. So everybody around the world certainly wants to

05:26have access to our equity and equity index and equity derivative products.

05:32Well, Craig, to that point, one of the initiatives that you announced on your earnings call in this

05:37restructuring was that you're going to sell SIBO Australia and SIBO Canada. You're going to

05:41discontinue your U.S. and European corporate listing efforts. And then this caught my eye as well.

05:46You said that you would cut costs in your U.S. and European ETP listings business, which is

05:53interesting because this is an area where you've made inroads. You actually surpassed NASDAQ when it

05:58comes to market share of ETP listings. So give me a little more context on what cutting costs

06:03in that business means. Does that mean you're not going to pursue ETP listings going forward?

06:09No, we're going to continue to pursue ETP listings. But, you know, one of the things we need to focus

06:17on is profitability also. And so, you know, having the largest number of ETP listings doesn't always

06:24translate into the bottom line and profitability. So, you know, I think the big takeaway in terms of,

06:32you know, our cost reduction efforts is not that we're abandoning those businesses. We're trying to be

06:37more disciplined in how we grow those businesses and how we maintain profitability in those businesses.

06:45And so it's really a more disciplined approach. So rather than trying to do sort of five things or

06:52ten things, you know, let's pick the one or two things that we think have the highest potential

06:57to be valuable to our customers, drive growth in the business, and obviously create positive

07:02financial results. So it's not an exit. It's really a more disciplined approach to how we grow.

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