As Cboe Global Markets has been growing consistently in relevance in the exchange world by adding asset classes to its leading position in equity options, Ed Tilly has been there, taking on more responsibility and growing along with it.
Like many exchange leaders Tilly began his career in the trenches as a trading floor clerk. He went on to become a member and floor trader before joining the management team in 2004 as vice chairman. Tilly was named president and chief operating officer (COO) in 2011, CEO in 2013 and chairman and CEO in February 2017 after the completion of its acquisition of Bats Global Markets.
Tilly’s progression through the ranks occurred at a time of expanding competition in the equity options world and overall disruption in the exchange space, and Tilly helped to navigate Cboe through these transitions and maintain its leading position in equity options while expanding into other market sectors.
During this period, most of Cboe’s equity options competitors were partnering up with larger exchange players and there was constant speculation as to who Cboe would partner with or be acquired by. Cboe was open to, but not in any hurry, to make a deal, and struck when it saw the best opportunity in 2016.
Tilly says Cboe’s growth prospects were strong prior to the Bats transaction but have grown exponentially since. “We were strongly attracted to Bats’ broad global reach, its equity, [exchange trade-fund] and FX product lines, which were new areas of business for us,” he says. “These pieces complemented our existing business. We’ve brought together the largest U.S. options market with the largest stock exchange in Europe and the second largest U.S. stock exchange operator.”
While the acquisition is less than a year old, Tilly says it is already reaping synergies. “The deal combines Bats global equities trading, global ETP trading, listing venues and global FX platform with CBOE’s robust group of index services, index options, futures, multi-asset volatility products and educational and market data resources. The results produced a more diverse product offering.”
Like everything related to trading, acquisition of technology was a major benefit of the deal. “Our plan to transition Cboe products to Bats’ state-of-the-art proprietary trading system remains on track,” he says. “When finished, trading will be offered in U.S. and European cash equities, global ETPs, options, futures, volatility and FX products on a single state-of-the-art platform. As for technology synergies, we are working very closely with customers on the progress of our technology migration, and their feedback remains positive.”
Tilly has not only managed the merger of two major exchanges but a generational transition, as many long-time Cboe executives retired shortly after the acquisition closed, or will soon retire. Tilly himself replaced Bill Brodsky who had led Cboe since 1997; a period that included forced multiple listings of equity options, exchange demutualization, Regulation NMS, an explosion in competing options exchange and for-profit exchanges.
“Change is natural in any dynamic organization, and we’ve gained some remarkable new talent, thanks to (former Bats Chairman and CEO) Chris Concannon, our President and COO,” Tilly says. “We’ve also said goodbye to some exceptional long-term executives, who frankly were ready to retire in the last year. We’re fortunate that the two companies have brought together two incredibly deep benches of talent that we can draw from and this is reflected in the look of our new leadership team.”
Managing such a large, transition is a huge responsibility in itself, but Cboe is also working on introducing a much anticipated new class of futures products: Futures on cryptocurrencies.
“Cryptocurrencies have really captured the attention of our end-users,” Tilly says. “The rapid rise of digital asset markets and strong customer demand we’re seeing couldn’t be ignored. Giving customers exposure to digital assets in a lit market that’s regulated was key to our development of a product that we will be comfortable listing on the Cboe Futures Exchange (CFE).”
It should not be a surprise that Cboe is the first major exchange to announce bitcoin futures as the most recent game-changing derivatives product is arguably futures and option on the Cboe Volatility Index (VIX) and the suite of volatility products that have followed.
Cboe has not been the flashiest player in the field, but has been a model of stability and innovation. “Stability comes from an enduring commitment to growth through product innovation,” Tilly says. “That commitment and ability to bring new innovations to market has never been greater. This is an exciting, energizing time in Cboe’s history, and I wouldn’t want to miss it.”
Tilly hasn’t missed it, he has led it. “Our bitcoin futures contract is designed with a hedger in mind, a true trader, and we took time to get that right,” Tilly says. “We used the model that we have for VIX futures and options. A trader who trades bitcoin futures on CFE will have the ability to replicate a position on the Gemini exchange. The settlement price on Gemini is the result of an auction process using actual trades to set a single settlement price, similar to the way our VIX settlement is conducted.”
The VIX model is a successful one. “VIX has become the world’s barometer for equity market volatility,” Tilly says. “Creation of the index, bringing listed options and futures to the marketplace and designing a suite of VIX-related benchmark indexes has propelled the growth of volatility into a new asset class.”
When CME Group announced that it also would list futures on bitcoin, some of the major business networks failed to note that Cboe had already announced a roll out. While there are a lot of skeptics of bitcoin and the potential for successful derivatives based on them, it would be a mistake to dismiss their potential and a mistake to dismiss that success resting at Cboe.
“I’m not going to speculate on which exchange will get the most trading volume,” Tilly says. “The fact that other exchanges plan to trade bitcoin futures validates our efforts and our belief in the future of cryptocurrency trading. Over time, we envision bringing ETFs to market, once the regulated futures market is built up and liquid. So we’re encouraged by the opportunity to build a trading ecosystem in the digital asset space.”
Cboe has already built an ecosystem for equity options and volatility products, so no one should doubt Tilly.