Cboe Plans Comeback in Crypto Markets

Cboe Global Markets plans to make a comeback in the crypto space, after shelving its bitcoin futures contracts in March of last year.

The exchange had experienced several failed attempts to gain approval from the US Securities and Exchange Commission (SEC) to allow digital exchange-traded funds (ETFs) to be listed and traded on its platform. 

Speaking at a Cboe briefing on January 14, CEO Ed Tilly said of the exchange’s plans: “We are not done with the broader crypto space,” adding: “We will be back.” 

Cboe was the first exchange to launch bitcoin futures contracts in December 2017, but put the brakes on the project due to lagging trading volumes compared to its rival, CME.

Reflecting on the abandoned project and the regulatory approach to crypto assets for institutional trading, Tilly said: “We actually thought the ecosystem would have evolved a bit faster, meaning [the development of] derivatives—futures, ETFs and structured notes using future contracts or physical [settlement]. The SEC did not give us any indication that we would be moving quickly; and without that ecosystem, it wasn’t providing the marketplace that we thought it would.”

The SEC is responsible for regulating securities trading in the US, including exchange-traded products. The Commodity Futures Trading Commission (CFTC) regulates most derivatives markets (with the exception of securities-based swaps, which are within the purview of the SEC). Compared to the SEC, the CFTC has generally been more accepting of crypto products and has approved licenses to Cboe, CME and Intercontinental Exchange subsidiary Bakkt, allowing them to offer bitcoin futures on their platforms.

Cboe now plans to relaunch crypto products for derivatives trading, but Tilly did not give a precise timeline as to when. 

This time around, the exchange will re-evaluate its market share and continue working with the SEC to approve several filings allowing Cboe BZX Exchange to list shares of crypto ETFs. One filing is the proposal led by VanEcks and SolidX that would allow bitcoin ETFs to be listed and traded on the Cboe exchange. After several failed filing attempts, Cboe finally withdrew the submission in September 2019, which was due for review in October by the SEC.

Tilly tells WatersTechnology that the exchange remains at the forefront of several filings pushing to gain approval to allow for the trading of exchange-traded products such as ETFs and notes on its platform.

“By no means do we think that the regulators are wrong,” he adds. “They need to be certain that they’re protecting customers and retail [investors]; that is their mandate. And so if they’re not comfortable surveying over them [crypto securities], I get it. I just thought the industry would move a lot faster. But we will be back.”

Cboe is not the only exchange expressing interest in the crypto markets this week. On January 13, CME launched options on its bitcoin futures. Each contract, evaluated in US dollars, represents five bitcoin, which are centrally cleared and cash-settled. 

“Options provide a slightly different risk management and hedging tool where you can hedge or trade with specific strikes and price levels at very specific points in time,” says Tim McCourt, global head of equity products at CME. “A future is a linear product; you’re going to be exposed to both that upward and downward price movement, and options allow you to manage that very specific price related to bitcoin risk.”

ICE’s Bakkt also went live with bitcoin options and cash-settled futures contracts in December last year.