Cboe Sees Need to Move Fast” on Crypto After IPO

Cboe Sees Need to Move Fast” on Crypto After IPO

Cboe Global Markets has completed its acquisition of institutional cryptocurrency exchange ErisX, with executives at the newly combined company saying they intend to integrate quickly as 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. The company will be renamed Cboe Digital and operate as a subsidiary of ErisX CEO Thomas Chippas.

ErisX, a company with 55 employees at the time of the acquisition, will now leverage Cboe's broader resources, Chippas told Blockworks.

“We are finding crossover opportunities and product development opportunities to expand the existing Cboe customer base, but [we have] complete freedom to pursue new digital asset products here at ErisX,” Chippas said.

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

“We will only integrate where it makes sense, but we know we need to move quickly in this asset class,” he told Blockworks. “Maintaining this agility with this wholly owned subsidiary is a great step.”

Cboe operates the largest options exchange in the United States. An average of $86.5 billion is traded daily on Cboe's stock exchanges. The average number of US options contracts and US futures contracts traded daily is approximately 9.8 million and 213,000, respectively.

Product plans

Matt Trudeau, chief operating officer of ErisX, said the top priority for the company in the near future is adding margin capabilities to its clearinghouse. There is an application pending with the Commodity Futures Trading Commission (CFTC) to offer margin crypto futures that are both physically and cash-settled.

The soon-to-be Cboe Digital will now also look to expand its spot offerings beyond Bitcoin, Bitcoin Cash, Litecoin and Ether.

Across the board, Cboe is uniquely positioned to offer products such as basis trading and exchange for physical transactions, spanning both the spot and futures markets, Trudeau told Blockworks.

“One of the things we expect is that we can offer these products more efficiently from an operational and cost standpoint than anyone else that has a standalone cash-settled futures market or a standalone cash market,” he said.

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

Bridging TradFi and Crypto

Isaacson said part of the appeal of buying ErisX was the company's "agent-friendly platform." The deal was valued at $400 million, according to M&A advisory firm Architect Partners. The companies did not provide any information about the selling price.

“This will allow traditional financial players, who are increasingly powerful and ready to adopt digital assets, to now take over the asset class,” he said.

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

“As the crypto sector evolves, consolidation through acquisitions will continue as traditional players continue to choose the buy-over-build option,” McCulloch wrote. “ErisX is not the largest crypto derivatives exchange, but their focus throughout development on robust regulatory compliance is a key value driver for traditional financial players like Cboe.”

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

“There are many people today who want to access these products but are unwilling to open an asset class account with a specific provider,” he said. “They want to access these products through the traditional middlemen.”

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The post Cboe Sees 'Need to Move Quickly' in Crypto Following Exchange Acquisition is not financial advice.