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00:00Copyright (c) 2013 Microsoft Corporation. All rights reserved. Let's start with the current trading environment. Like where are we now? I mean, we've seen so much of movement over the last few years. How do you see the current space? Well, I think today's investor obviously has more uncertainty in front of them than I can remember. We were in the green room preparing and we're looking at the market and we're like, gosh, it's the spouse have only moved 20. And in my day when I started investing, that would have been a year's move or certainly 1/2 a year's move and we don't think much of it. And processing that amount of uncertainty and volatility that it's the tools in the background and the preparation that today's investor needs to be up on. So I remember you know the the the days of 2008 910 when the market volatility was so high, you know, Citigroup was up 2030% down in a day sometimes. Then a few years later we you know saw the pandemic which had unbelievable volatility again, you know how do you help your clients navigate. This new normal of increased volatility I think it's again is in preparation and education and we're really trying to teach after 50 years of running an exchange in a global exchange now is really the tools that are out there at every investors, at every investors fingertips are really and derivatives and the ability to predict and to plan for any eventuality, any outcome changing the P & L from a 45 degree line of the derivatives. And outcome based or defining the outcome and investment is really quite easy and in this environment there is a strategy for every possibility. So you mean you you mentioned derivatives and I go back again, you know perhaps during the financial crisis there was a lot of UN cry about derivatives and how some of those were written. How's your world change, you know perhaps either from a technology point of view or maybe even compliance point of view in in you know for that particular instrument. Well, I think the instrument itself is quite simple but the strategies and the complexity is really investor driven and again it's with preparation, so there's suitability for every investor. There are products, there's packaged products, there's notes and funds, and it's looks quite confusing until you take a step back. Every note, every fund has a prospectus, it has a a designed outcome, so wrappers work for quite a few. For me, I like to look at my own strategies and I have a prediction, I have a direction in the market and using derivatives allows me to, as they say, shape that PNL curve differently. So this is usually, you know, thought about it for the institutional investor, but you know where are we now in terms of the Gen. Z getting into investing. How's that different in your opinion what than what you have seen over the last let's say you know, the in, in the previous generations really the access to information. We've seen a trend. I started investing in the late 80s, but the amount of information at your fingertips, fingertips and look at where we are right now the, the, the availability from Bloomberg. In and of itself as a source of information is second to none. The Gen. Z Investor has the same information professionals had years ago. It is one source, so I encourage all new investors and Gen. Z investors. Taken multiple sources of information, every source is a good source. There's a source of information for trend investing, for long term investing, for just day trading, and depending on your strategy and direction. Each are suitable, but each have valuable information in and of themselves. So once again I'll go back to the, you know, the whole me mania of a few years ago and perhaps, you know, you know from your vantage point, how did it happen? What was the pluses or minuses in your view and my obvious you know, one of the things I you just mentioned my biggest objection in some cases was that I couldn't trust the source of information that was coming through. You know what advice do you give to investors on that and, you know I'd love to hear your take on it track record if a meme investment. Or pick your favorite social media outlet for information. The information, if you don't trust it, is still very, very valuable. Fade the information, then it may be right for moments in time. Those are traits, not necessarily investments. So depending on the purpose, that source of information is extremely valuable. And it could be for moments in time and those are traits and that's OK. But for long term investment, I don't think I would necessarily source my long term strategy from a post that may or may not have at its heart the long term sustainable investor. And that's OK, but it's still very good information. You know, I'll portray the same question in a different way. So during the meme mania there were certain companies and I won't name them, but if you looked at the business model. Says no sane investor would be, you know, logically putting any money on it in it and then, you know, stock kept on going up every few days. And so purely because of a push, you know, as somebody who's so senior in the, you know, the, the trading area. How do you counter some of that stuff? How do you sell that because at the end of the day people need to have confidence in the market that they are pricing you know assets properly. How do you, how do you manage the two? What's your thought about both those things? I think there was a probably completely overweight in the attention that maybe investing got. That is really not the typical investor and when I say investor that's really what a sibo through our again our 50 years of running 26 markets around the world. That's not where we're focused our focus. This is unsustainable investing and I only use the meme reference as a point of information. And and and part of the process of developing what might be a short term strategy. But for us we we certainly don't encourage chasing trends. Those might be good trades but that is not an investment. Ours is really out of measured sustainable investing year day in, day out, year in, year out. So if you look at you know the the technology framework things have developed so much over the past few years from you know cell phone to cloud computing etcetera. How have trading platforms changed in that? Framework and how have they changed based on the different demographics. I think trading when growing up and watching the business evolve, the technology where we find ourselves today and running lit transparent trusted markets around the globe, it's really table stakes. And I say that from an exchange operator and most of my fellow exchange operators view that the same way. We need to be a source of certainty, the risk and trading should not be the platform and the exposure that an exchange. Has so rather we just shrug our shoulders as trusted operator and saying you must you you have an expectation and our job is to deliver the exposure that you all seek and not and take the exchange out of it. You just have to trust that we are there operating regulated and will be there the next day. And you know you're a global company, how have you seen the the differences between different geographies? I would love to hear some anecdotes as to how trading is different in the US versus Australia versus Europe or any of the market that you know stands out to you. The amount of retail accounts are certainly up over the years and I think of the pandemic was a great catalyst there, but the engagement is certainly different by geography in the US and APAC region. Many, many more engaged daily investors and traders and Europe not so much. And it is in developing those markets as one of our keys is to make sure that the experience from an investor's depend no matter the geography or the asset class needs to be the same. So when we look into new regions, it's how can we replicate the incredible experience a US investor has in different geographies as we look across the globe. So emerging markets has always been a big area and discussion point and you know, China has been, you know, off in the last couple of years. But before that it was the place to be for everybody. How are you navigating that part of the world? Really it's any market that is open for competition. What I mean by that is there are incumbent national treasure exchanges around the world, but regulators around the world see that competition from exchange operators brings lower cost. And better technology. So we chase those geographies that allow for competition, so APEC and in particular. We operate a PTS in Japan and we are an exchange operator in Australia. Very important for us that those regulators see the benefit of competition on behalf of their their customers very important for us. I'm going to take a couple of questions from the audience. You know CBOE has been a strong acquire lately. What does the future look of CBOE look like, more of an exchange or more of a data provider? Well, data is the data that we have. The exhaust from running an exchange is extremely valuable in its pure sense. That means in real time the data from the top of the market, the data from the last trade, the data from the size of the market and the bid *** is extremely valuable. But what is really important for us is enhancing, enhancing that data. So we can take that raw data and we can show you risk profile across the globe. That's very, very important. As investors have a choice as to where to deploy their capital. So for us, it's not just the pure raw data from running 26 different venues, but what can we do with that data? How do we teach you? How do we give you more information than just the raw data coming off of a trade or coming off of the top of the market? Fair point. This expectations and access to info information involved higher. How are you managing new market players? What role should regulation play in this regulation? I think we've learned lessons of late and it's not new to exchange operators who have been in this business for years is oversight and regulation is key running trusted markets, our partners, our regulators in every geography. The trust that comes out of highly regulated transparent markets, I think we've seen examples of one that's not the case. So for us, again, we just take regulation. Oversight is is part of the game. In the US, we have two regulators, the SEC and the CFTC, very unusual if we look across the globe, but every one of our markets is regulated and we embrace and look forward to that regulation because it brings trust to the process. And then as an exchange operator, how are you combating the increased prevalence of naked short selling failures to deliver and the prevalence of synthetic shares? Great insightful question from an exchange operator that is really the role of your broker dealer or introducing broker or apcm. We do not, are not in the business of the suitability whether it's from the short side, the uncovered short of the hard to barrel side that is really a level removed from us that's we don't, we don't go direct to customer. Unlike the newest asset class crypto, we actually rely on our partners to make sure the investments for retail and institution are suitable for their need and purpose, and that includes the points in the question. Said, you had mentioned a few minutes ago in the green room that you know during the pandemic you bought a lot of companies you acquired I think 8 or 9 companies you mentioned. Would love to learn a little bit more about it as to what was the rationale behind, I mean any one of them and how do you plan to integrate them to your current offering. I think the pandemic was just interesting from a process and diligence perspective. We found the tools like all of you found, we adapted quickly and we're not going to allow the change in our day-to-day. To affect the path and the direction that SIBO set out to do and that was to build the world's largest network of trusted markets. So again back to the theme in geographies and asset classes that will open for competition. We were full throttle and we did not let the pandemic slow us down. We found very effective ways to run diligence and when the process now of integrating those markets so that we have a common platform across the globe that our customers they plug into us. In London and New York. Amsterdam, Tokyo, Australia, in Toronto, they're all the same experience that we're building on and migrating the same technology platform. So that's consistent. It's trusted, it's lit and it's regulated. And most recently we're into the crypto space. We bought an exchange here in Chicago called Air SACS, which is now Sebo digital, and we're extending this same experience, the same trust, to the crypto and tokenized exposure. Crypto. Let's talk about crypto. We made it a long time without bringing it up. I was waiting for the last five minutes. And what's your take on it? I mean, I'm, I'm very curious about it going back to, you know, all the way from the concept of crypto to the ability for people to, you know, trade it with trust. I mean, the headlines we have seen over the last couple of months is just, you know, probably the tip of the iceberg. We're going to probably see more of that. For me, just teach us what happened in this particular case or, you know, your take on this entire concept. Well, I think the the observations, I don't have any insight that's different than perhaps what you and what what Bloomberg would cover or or the opinions that you've you've heard. But from an exchange operator's perspective, you know, it's head scratching to us that the conflicts that exist, not just day-to-day with customer funds but the lack of government governance and oversight is unthinkable first in a public company. That operates globally, but from an exchange operator who is highly regulated and views regulation as partnership. The concepts in the the conflicts are unthinkable. So moving into the space and we were actually well down the road long before the problems that are in the headlines today. With crypto and tokenized exposure of of air, sex, onboarding, and it's just for us, the model didn't change. We wanted to extend into the new asset class the same trust so that you can. If you want exposure of crypto. The risk is not in the operator. Again back to the theme, the risk should be in your perception of being long or short a given token, not whether or not SIBO is going to open up its digital platform the next day or if your funds. Were misused. So our model relies very much on our trusted partners and introducing brokers in FCM. It's very friendly that way and the direct to customer, while an interesting concept, the amount of risk, oversight and value add from the traditional approach is still what CBO aims to deliver for customers. You see, while I don't understand crypto as much but you know I have some idea about blockchain. How are you embedding that in your operations or it's already there? But you know any any comments on that. So from an exchange operator, the speed of transaction right now the DLT would be challenged to deliver, but there's post trade technology that might be more suitable in a shorter time frame. But we are very much listened to our customers and our customers, not retail institutional liquidity providers who are not asking us to pivot from the technology that they're used to today on to DLT for day-to-day transactions. So we'll listen, we'll learn. And as technology cuts down that latency, that that might be a conversation for the future. I'm just curious because I've always thought a good database should do exactly what blockchain would would, you know, take care of. Have you ever done any back testing as to would it save you some error rate, some costs if you ever go down that rate? Or the way it works is good both for accuracy and speed? Right now it's speed, so the latency, which is not. Able to support the amount of transactions and processing in today's derivatives world, which is multiples of of the equity space. So technology will catch up. We know that technology has proven itself to catch up. So it is a quite definitely a question for the future. Another question from the audience, are you planning to release more crypto trading products? We are. We're very mindful in the US of the debate between the CFTC, the SEC and now the Hill on oversight and in particular whether some tokens represent securities exposure or not. And as that debate unfolds, our goal is to receive CFTC approval for margin futures. We have state by state approval to run an exchange. In the US, and we will be taking this slowly as the SEC and the CFTC debate jurisdictional oversight. But our goal is, of course, to offer more and more exposures than the current 5 tokens that we do today. Fairpoint, another question. How are you shifting your operations to the cloud? What are the benefits to your customers? So for right now, it's data. So our data and source to the cloud is really on distribution and being able to access data anywhere in the world. So our first big move on behalf of our customers was really in the data space. And we do want to make sure that anyone has access to see those data as they say. That is the first step. That is how we backtest. That's how you all learn. That's how we were able to enhance data. So the first move was with data to the cloud fair, do you foresee the development of a blockchain based carbon credits exchange? And for people like me who don't know what a carbon credit is, it's the offset environmental impact by making environmental positive into a product. Yeah, I don't think I'd answer as specific as just an offset for carbon credits, rather the tokenization of things that we know and making those tokens and allowing the boundaries. That we are currently forced with delivery for example boundary lists, I think tokenization and and moving assets you know on to token will be a trend over the next year. So not just credits but I think much more broadly than that.

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Cboe’s CEO on Trading With New Technologies

Ed Tilly, Chairman & CEO, Cboe Global Markets speaks with Bloomberg Intelligence’s Anurag Rana about the evolution of trading, the impact of new technologies on next gen investors, and his big picture outlook at Bloomberg’s The Future Investor: Tech-Powered Portfolios. (Source: Bloomberg)