Session. I'm Ben Budish. I cover the U.S. brokers, asset managers, and exchanges. With us for our next chat is Craig Donohue, new CEO at Cboe. Craig, welcome. Thanks so much for joining us. Thank you. Good to be here. Just getting started, you're new to the CEO seat. I think starting this past spring, Cboe's strategy has shifted a bit over the past few years. You've come out of a period of heavy acquisitions to recently a sharper focus on things like index options, data. So for you coming into this role, can you talk about your assessment of Cboe thus far? How do you think about the growth strategy? Where do you see the biggest opportunities? Yeah. No, I'm happy to. So coming into the role, I had the opportunity to talk a lot with Fred, who was my immediate predecessor. And Fred and the management team had already undertaken and done a lot of work to really kind of start to look at the business. As you pointed out in your question, Cboe had gone through a phase of doing a lot of very small acquisitions, expanding the footprint globally in Japan and Australia, Canada, and elsewhere. And so I was certainly benefited from kind of coming into the organization well prepared for how the board and the management team was beginning to look at things. Obviously, from my perspective, I want to make sure that the organization is very focused on the right growth opportunities. Everybody's had a very open mind looking at all of the things that we've tried to do over the last six or seven years, so we're continuing to go through that process right now. We made the decision, as you're aware, to exit our Japanese equities business, and we're continuing to look at all the other different facets of the business, but I would say the most important thing is that we're looking at it with a lot of financial rigor, trying to make sure that it can deliver the kind of growth that our shareholders expect, so there's not a lot more that I can say about it other than it's a bias toward decision making, a bias toward action, and part of that is that I want to make sure that we have a lot of talented people in our company. I want to make sure that they're focused on the things that will drive growth and financial performance in the next five to 10 years. And so if we have people that are working on things that are not really delivering the results and the growth that we had hoped for, then we want to pivot and move toward new things. So that's a big focus. We're working very hard on that as a team. Everybody's approaching it with a real open mind. But we want to make sure that we stay focused on optimizing our core business, looking at ways that we can grow around the core that leverage what we're great at, what our human capital knows, where our infrastructure and technology and product development capabilities are. And so that's what our focus is. Just kind of a more near-term macro question. It's been a very volatile year. I think the VIX had its third highest level in the last 20 years, with the only other exceptions being peak COVID and the peak of the GFC. What are you seeing from customers? How are they behaving on the retail institutional side? How are they using the Cboe product suite to the evolving market? Well, I mean, the macro environment obviously is great for our company. There's tremendous global uncertainty on almost every level, not just fiscally, but monetary policy, interest rates, geopolitical landscape. So all of those things are helpful because we are where people come to manage their risk. We continue to see really strong outperformance across all of our customer segments, both institutional and retail. But retail has been especially resilient. And I think the way we think about it is it's really structural. It's secular. It's not cyclical. The only time it's cyclical is when we have, as you pointed out, sort of like a spike in volatility. You may see some real retail pullback. But as soon as the VIX has dissipated, you see retail coming back in. And so we're focused on what we believe is the long-term sort of secular trend. We have $130 trillion in personal financial wealth, half of which is invested in equities. We just continue to see more and more retail traders migrating toward options, products, options, strategies. We see tremendous continued growth in retail brokerage platforms, new accounts, average daily volume. That's a good segue into the next couple of questions on the retail segment. So there's been a number of retail brokerage firms bringing index options to their platforms, Robinhood more recently, more mature platforms like Interactive Brokers seeing a lot of healthy ongoing adoption, Charles Schwab as well. And all of these have pretty fairly active trader bases. So how big of a TAM would you say there is for retail trading index options in particular? How much growth is there to come from new-to-platform brokers versus existing retail clients kind of doing more with what they're already doing? I think it's pretty substantial. I mean, I think Robinhood has said that of their 27 million accounts, like 4% are actually authorized and able to trade options, and so I look at that as creating a lot of opportunity and upside for us, and so we partner with our retail brokerage platforms to help expand access. One of the things we're really good at is investor education, creating awareness, helping people understand the range of strategies and ways in which they can use options for a variety of different purposes that are beneficial to them, so I think there's plenty of room for increased adoption, increased opportunity, and we also see opportunity for continued growth internationally. One of the ways that we're focused on growing is through education, sales, marketing in Asia-Pacific in particular, and also partnering with the Robinhoods in the six countries that we're focused on, which are Japan, Australia, South Korea, Taiwan, Hong Kong. So those are all places that we're looking to establish the same kind of partnerships and then layer in the same kinds of things that I was talking about. Well, you answered half of my next question, which was going to be on your international expansion on APAC in particular. But maybe digging a little bit deeper, talk about where you are in that journey. There are countries where you are focused. You have some partnerships. What does retail engagement with options look like in those geographies relative to the U.S.? And maybe what other regions could at some point be attractive for deeper retail penetration? Yeah, I'm actually very excited about that. I'm still acclimating to Cboe and getting my feet on the ground. But I would say we're in, for us, very early stages versus what I remember doing when I was at CME, when we were really trying to focus on expanding kind of our brand, our products, our distribution, sales and marketing, people on the ground, people who are helping bring people into our markets. And I would say we're still in sort of the very early stages of doing that. But in Asia in particular, that's a very sophisticated client base. And it's a somewhat different culture that I think lends itself naturally to options products and certainly some of the more recent innovations in terms of zero DTE and many XSP options. So the way that we're looking at that is we're going slow, but we're putting people on the ground. We're starting to partner with retail brokers in those areas. And I think that'll provide a lot of continued growth to us. Great. All right. Maybe digging a little more into index options in particular. XSP has seen some really strong growth over the past several months. Can you talk about the drivers of growth for that product in particular? And how do you think about the growth in the mini suite more broadly versus your kind of flagship SPX product? Yeah. No, we're super happy with the growth there. I think year over year, in July, it was like up 40-something%. And in August, it was double that. And so it's doing very well. And part of what we think is going on there is we see people adopting and moving away from SPY into the mini options. And I think part of that is the fact that it's a cash-settled product. Part of that is European exercise. And I think also there's a tax driver because it's eligible for 60/40 tax treatment. And so we see a migration happening there. And then, of course, our retail brokers are also helping us propel growth in that product. Great. In terms of shorter dated options, I mean, that's also been very popular with the retail cohort, and we've seen over the last several years zero DTE really expanding as an overall% of SPX in particular. How much further growth do you think there is for short dated options? How do you think about zero DTE relative to total SPX or other kind of products where you're offering that sort of short dated exposure? Right. Well, I mean, zero DTE has become a huge part of overall SPX volumes and continues to grow. It's hard for me to know exactly how much more growth there is in that. But I look at even what's happening in sort of event and prediction markets and looking at the growth that we see there, different type of product configuration. But it would tend to suggest that there's a lot more room for opportunity in these kinds of contracts where the risk is really effectively capped, and yet you can gain tremendous exposure on a very economic basis. Got it. Maybe kind of high level, we talked about XSP specifically, but SPX is your biggest contract and the most lucrative for Cboe. That has also continued to grow year over year, even against some pretty tough comps. What do you think are the key drivers, maybe more broadly, of SPX index options going forward? It felt like in August in particular, looking across some of the other exchanges, commodities, we saw a bit of a slowdown that did not happen for options. So is it just ongoing retail adoption? Is it ongoing volatility? How do we think more kind of high level about these longer-term drivers? Right. Well, I mean, we've had, as I said, just episodic levels of volatility. For the most part, we're not in a high volatility environment. But I think a lot of the macroeconomic things that are happening in the world are continued drivers for growth in that. But again, retail is a huge part of that. I mean, we've had five straight years of increased growth. I think there's a lot more opportunity for the reasons that we talked about earlier. But we see continued growth, as I said, in private wealth, assets benchmarked to indexes, people using these products. And maybe one last question on the short dated side. So earlier this year, a competitor applied to list, I think, Monday, Wednesdays for a number of single stocks, which would make them available for expiry every day, Mag 7, a couple of other names. How do you think short dated single stock equities would affect the overall market? Are these competitive threats to Cboe's index options franchise? Or is there an eventual opportunity for Cboe? Is it all kind of symbiotic? How do you think about that? I think it's most likely the latter. I think there's some challenges with bringing those products to market. That's not to say that we're opposed to it. It's just that they present slightly different risks in terms of physical settlement and regulatory compliance risks. But I think the industry will work through that. I think they will be additive. But I think if there is any kind of substitutability, I think it's more likely to be in the single stock options arena more than it would be in the index area. Got it. All right. Maybe switching gears to the data side. So Data Vantage has been, I think the growth has been accelerating over the past couple of quarters. It was over 10% in Q2, which is ahead of your medium-term guide. I guess maybe thinking more tactically short term, what's been driving that acceleration and what prevented you from increasing the guide for the rest of the year? It looks like things are set up pretty nicely for you to beat your expectations. Yeah, well, I think we're comfortable with our guidance on that, but yeah, we've had great performance there, 45% growth internationally. Something like 85%-90% of our incremental revenues are coming from international. That's a huge focus for us, and continuing to focus on access, distribution, data is a huge part of what we're trying to do and trying to leverage that. Again, that sort of focus on sales and marketing and boots on the ground in Asia-Pacific is a really important part of furthering that growth. What are the key growth drivers more particularly? Does it simply grow with users, the number of individuals trading that need to consume options data? Is it the number of retail brokerage partners? Are there pricing opportunities? I think Cboe's line has always been growth first, maybe pricing later. Are there new product opportunities there? How do you think about all those pieces? We're working on that right now. We're looking at that. I think it's a lot of the things that were embedded in your question, obviously. So it's developing new and even better data products. It is retail brokers in Asia-Pacific. It's education, sales, marketing. So it is all of those things. But we're looking at ways that we can continue to innovate data products that people can use as an adjunct to their trading activity. Great. Maybe switching gears a little bit, thinking about newer opportunities. The industry has a large focus on crypto, digital assets, tokenization. Do you have a view on where tokenization or blockchain technology more broadly could fit into Cboe's business? Where are the opportunities as you see them? Yeah. That's an interesting question. And it sort of makes me laugh a little bit because when I retired from CME, of course, everybody was focused on blockchain. And by now, it was going to totally change financial markets. And it hasn't yet. But actually, I was just reading this weekend, the White House has put out a report on all things crypto, digital, blockchain, tokenization. It's actually a good read if you can find it. And what it really shows is the push that this administration has toward, let's call it legitimizing, creating a safe haven for innovation in all of those areas, providing brighter lines of clarity around regulation versus kind of coming after the fact and trying to apply enforcement to determine what's permissible, what's not permissible. So we're looking at that. We're paying attention to those things. I would say that I think wide-scale implementation of blockchain concepts in our business are probably not in the near term. I think it definitely has a significant application. But I think for the most part, in central counterparty clearing, there's still a lot of advantages to having all of the positions in a single pool where you can offset the risk characteristics and basically bring down capital and margin requirements and drive capital margin and payments efficiencies. So it's a pretty efficient system. It works. It's safe. It's secure. It's heavily regulated. So it's not an argument against that. It's just a recognition that I think it may have less near-term application than what we do. Got it. What about other newer types of technologies, new types of trading? We see a lot of interest in prediction markets from the other retail brokers that I'm sure you're partnering with on the options side. Is there a role for Cboe to play on that side of things? I think so. We're looking at that. We haven't made any decisions on that yet. But we're certainly very cognizant of it. There's been exponential growth in that area. Some of that is driven by sports. But putting sports aside and looking at the growth, there's a lot of people who are interested in trading event and prediction contracts that are based on daily settlement index values or corporate KPIs, leading economic indicators, a broad range of things that have economic and financial consequences. And so I think those are legitimate. I think that those are interesting areas of growth for us. And so we're looking at ways in which we can do that. And we're open-minded. We're looking at that in ways in which we can both list and clear contracts, where we can just list but clear elsewhere certain contracts, and also ways that we may be able to leverage our own clearing capabilities to provide horizontal clearing services to other market participants, particularly in areas where we may be less likely to be successful or where the focus may be different than what our focus would be. Got it. Another kind of new product question. I think on your last earnings call, you talked a little bit about derivatives-based ETFs. And maybe talk a little bit about what you're currently doing there. How do you think about that opportunity? Yeah, we're excited about that. I mean, we think of that as basically an entry portal into derivatives markets and gaining derivatives exposures, and so we're working with a variety of different partners in that area. We think FLEX Options in particular is a great way for us to address that market. We see a significant amount of growth there, and so more to come, but that's something that we're quite interested in. Great. Maybe a regulatory question. Given the changing regulatory environment, new leadership at the SEC, how do you think about either opportunities? Crypto is kind of an obvious one that you talked about or potential threats, things like potential Rule 611 repeal changes to the OCC margin model. What's your kind of take on the landscape there? I think in general, the landscape is favorable. We have regulators now who are focused on enhancing innovation, competition, streamlining regulation, making it easier for us to bring products to market more successfully. And that's all to the positive. On the other hand, anytime you have an approach of let a thousand flowers bloom, there's going to be a lot of new entrants coming into the market, people doing disruptive things. So we have to pay attention to that also and make sure that new people coming into the market are being held to the same standards as we are. But in general, I would say it's actually very favorable. And I think all of the stuff I commented on earlier of providing more legal certainty, eliminating sort of ambiguity is really helpful, not just for us, but for all market participants. Got it. On Rule 611, Chris Isaacson, who's here with us, will participate in the roundtable there. I'm sure that will be an interesting discussion. We're very supportive of looking at that and looking for ways to sort of improve the market. But the focus is always going to be on market integrity and making sure that the market is efficient for the end user customer. Makes sense. Maybe switching gears a little bit to M&A and capital allocation. So earlier this year, and after you had started, Cboe announced the wind down of your Japanese equities business. It seemed to have happened pretty quickly after you moved into the seat. Can you talk about that decision in particular? What sort of drove that? As I said, I mean, we're looking at all of our different businesses, trying to take a fresh look and say, are they producing the growth and what we had hoped to accomplish when we did it? We have a higher bar, I would say, in terms of financial discipline and financial rigor for what we expect in terms of return on invested capital and contribution to earnings. Those are tough analyses. Ultimately, they're tough decisions and tough actions. I think that's what we're there to do. I'm mostly focused on human capital. I want to make sure that there's only so many hours in a day. I want to make sure that we have a lot of talented people at Cboe. I want to make sure that they're focused on the best growth opportunities for the next five to 10 years. If we tried to do something five, six, seven years ago, and it's just not working, but it's taking a lot of our time, and it's distracting us from optimizing our core business, expanding around the core and the ways that we've been talking about, then I want to shift people to the new things and the things that will actually generate better returns. Got it. You kind of answered my next question too, which was we talked about Japan. How do you think about the strategic importance of Australia, Canada, Europe? But maybe if you could unpack that a little bit, are there sort of other that's something investors kind of question too. I mean, Cboe is very much an exciting and rapidly growing index options story, retail trading story. How do you think about the strategic importance of those other geographies where maybe in Europe there's much lower levels of penetration of retail and options activity, things like that? Yeah. Well, it's a great question. And without getting ahead of ourselves in terms of what we will decide to do or not do in terms of some of our existing businesses in those places, I just want to be clear that we're still committed to growth internationally. But our tactics may change. It may be that trying to establish a foothold in an alternative trading system in a particular foreign location that's subscale may not really be what will drive growth. It may be that it's partnering with retail brokers. It's derivatives-based education, sales, marketing, and orienting people to our higher growth products. So I think there's a lot that we can do to further globalize our business. That's going to continue to be a huge focus. But I think that's separate and apart from whether some of the businesses that we're in are really performing at the level that they're going to contribute to growth. Understood. Maybe on the flip side, when you were at the CME, you oversaw a period of pretty meaningful consolidation. How does that experience inform how you think about M&A opportunities at Cboe? Are there any obvious sort of capabilities that would make sense to bolster inorganically? And how else are you thinking about capital allocation in that vein? Yeah. I would say in general, for the near term, mergers and acquisitions activity is not at the forefront of what we're thinking about. I'm, as I said, focused on optimizing the core, focused on growing around the core in ways that leverage our human capital, our infrastructure, our technology, our capabilities. But to answer your M&A question, while I've led really significant M&A, I've also done a lot of small things like Cboe has tried to do. And so the learning experience that my Cboe colleagues have had is not dissimilar to my own when we were trying to do some smaller things. The smaller things tend to be just as difficult and occupy as much of your time as the big things. And so I guess what I would say is you won't really find us doing small M&A like you did for a period of years between 2020 and 2022 or 2023. In terms of large-scale M&A, I mean, it's a really different marketplace today. It's far more mature. And as you can see, we're able to deliver tremendous growth just from our core business. And I think there's lots of opportunities to do more there. I do think there's a lot of exciting new opportunities that we can take advantage of. So the bar is high. Anything that we do has to be strategically and financially valuable to our shareholders. And for the long run, it may be that we'll identify things that make sense. But for the near term, I think the focus is on what I said. Got it. Maybe just one more question on M&A. We've seen a number of exchange peers move much more in the direction of recurring revenue, software-like businesses. How do you think about what may make sense for Cboe? It feels like, obviously, on the options side, the transaction-based business has been growing very nicely. At the same time, are there things you could do on the data side, things that maybe get you closer to retail, things that give you more analytics capabilities, things like that? How do you think about or is that part of your consideration, the mix? Or does it meet ROIC hurdles? Does it fit strategically, that sort of thing? Yeah. Well, your question almost answers itself. But I think certainly we're aware of that. I mean, different exchange companies have taken, I think, different strategies to how they're approaching their whole business as well as how they're driving their business composition through mergers and acquisitions activity. And so we're looking at that. I don't have any sort of preconceived ideas about that. Obviously, if there's something that we can do that is adjacent to what we're great at and it makes sense and there's actual demonstrable synergies from it, would I like to have some better blend of recurring versus transaction-based revenues? Probably. But it has to make sense. And it has to have synergies that are actually realizable. Got it. Maybe before my last kind of question on the P&L profile of the company, one more question on the kind of transaction-based side. We didn't talk about this earlier. But outside of the index options business, on the multi-listed side, on the cash equity side in the U.S., it feels like there's been a pickup in competition more recently. Investors are really scrutinizing fee rates versus market share. How do you think about the importance of volume, revenue growth, kind of prioritizing? And how would you describe the current state of competition in those sort of more competitive exchange businesses that you have? It's intense. I mean, there's no question about it. Although I should point out that in European equities, I mean, we've had tremendous growth, so we're seeing really great results there. It's a different, and we think better, market environment. Here in the U.S., in terms of equities, we have the challenges of so much of the market has moved away from traditional lit exchange markets into so-called dark markets and private rooms. We're hoping that we can find a way to be more competitive and participative in that sort of non-lit segment of the market, and we've got some thoughts that we're working on with our regulators that will hopefully allow us to do that and bring more competition to the equities market. In multi-listed options, we're still the leader. We still have the dominant position there. When I talk about, sorry, optimizing the business, that's an example of what I'm talking about. We're looking at ways that we can drive more market share and drive revenue growth and maintain margin. Got it. Maybe one final question on the P&L profile. So your Cboe's earnings are. We drank that water, but somebody else drank it. This one's unopened. Thanks. So your margins are among the highest of any publicly traded company. And yet you run a very high incremental margin business that's growing. So how do you think about balancing margin expansion, if any, with sort of investing for growth? It always surprised me. Even a couple of years ago, investors would complain about the very high rapid rate of operating cost growth despite having 60% plus margins. But how do you think about that trade-off? Yeah. Well, I hear them on that. And I understand it. I mean, what we're trying to do is we're trying to create and run a great business. And so I don't think about margin expansion as sort of the goal. But I think there are further opportunities for us to be more efficient as an organization. And so it's possible that by getting through our business review process and taking a hard look at whether we have the right size organization, that we could see operating margin expansion. But I'm not doing that to expand the margin. If I'm doing that, I'm doing that because I want to make sure that we're as efficient as we can be and we're as effective as we can be. And I also want to make sure that, as I said, we pivot and we focus people's attention on high growth opportunities. But I think Jill has done a great job of already, before I got there, starting to really kind of reduce that expense profile for the organization. I think there's more opportunity there. Great. We're nearly out of time. So we can leave it there. But Craig, what about? Thank you. That was like speed dating. Yeah. What a pleasure to have you. And hopefully, we have you back here next year. We'll see. Thank you. My pleasure. It's great to be here. Thank you. Thank you so much.