Cboe Restructures Crypto Biz Amid Regulatory Haze

Cboe Global Markets is overhauling its digital asset operations, discontinuing its digital spot market and integrating digital asset derivatives trading into its Global Derivatives and Clearing businesses. Amidst regulatory uncertainty and as part of its strategic review, Cboe Digital Spot Market will close in Q3 2024, with Bitcoin and Ether futures moving to Cboe Futures Exchange in 2025.

Cboe Global Markets Reorganizes Digital Asset Trading Operations Amidst Lack of Regulatory Clarity

Chicago, Illinois, March 14, 2023 - Cboe Global Markets, a leading equity exchange network, has announced a major reorganization of its digital asset trading operations, citing the lack of regulatory clarity in the digital asset space. The move includes the closure of its digital spot market and the integration of digital asset derivative trading into its Global Derivatives and Clearing businesses.

Strategic Shift Amidst Regulatory Uncertainty

In a statement, Cboe highlighted that the changes are part of its strategic review and align with its long-term strategy. The company acknowledged the lack of regulatory clarity in the digital asset space, which it believes has hindered the growth and maturity of the market.

"These changes are being made as part of Cboe's strategic review, taking into consideration the lack of regulatory clarity in the digital space, and are aligned with Cboe's longer term strategy," the exchange said.

Integration of Digital Asset Derivatives into Global Derivatives Business

Effective immediately, digital asset derivative trading will be removed from Cboe Digital and integrated into Cboe's Global Derivatives and Clearing businesses. This move will enhance Cboe's ability to offer a comprehensive suite of derivative products across various asset classes, including digital assets.

"We expect to continue to see greater demand for exchange-traded [digital asset] derivatives to help manage crypto exposures, hedge risk and enhance capital and operational efficiencies," said David Howson, Global President of Cboe Global Markets.

Closure of Digital Spot Market in Third Quarter of 2024

Cboe's digital spot market, which facilitates the trading of physical digital assets, will close in the third quarter of 2024. The exchange will move cash-settled Bitcoin and Ether futures contracts from the Cboe Digital Exchange to the Cboe Futures Exchange in the first half of 2025, subject to regulatory review and certain corporate approvals.

Alignment of Clearing Operations

Cboe Clear Digital, the clearing arm of Cboe Digital, will be aligned with Cboe Clear Europe under the unified leadership of Vikesh Patel, President of Cboe Clear Europe. This alignment will streamline Cboe's clearing operations and leverage the expertise of Cboe Clear Europe, a leading European clearer of digital asset derivatives.

Cost Savings and Improved Efficiency

Cboe expects to realize significant cost savings from the closure of its digital spot trading arm. The company estimates savings of $2 million to $4 million in 2024, which it considers an "immaterial impact" on its 2024 net revenue. However, ongoing savings are projected to reach $11 million to $15 million annually.

Cboe's Acquisition of ErisX

The reorganization comes after Cboe's May 2022 acquisition of ErisX, a leading digital asset exchange and clearing platform. The timing of the acquisition coincided with the onset of the crypto winter, which has impacted the performance of the digital asset market.

In August 2022, Cboe declared a $460 million goodwill impairment in its second-quarter earnings results due to the acquisition of ErisX. Goodwill impairment reflects the loss incurred when the value of an acquired asset declines below its purchase price. In November 2022, Cboe Digital brought on 13 investor partners to support its business.

Conclusion

Cboe's reorganization of its digital asset trading operations reflects the challenges and uncertainties surrounding the regulatory landscape for digital assets. The company's strategic shift towards derivatives and its focus on cost efficiency demonstrate its commitment to navigating the evolving digital asset market. As regulatory clarity emerges, Cboe will continue to adapt and innovate to meet the evolving needs of its customers.