Cboe reports strong Q2 but misses target for data and access business

Despite posting record quarterly results of $974 million overall, revenue for equities and derivatives exchange operator Cboe’s data and access solutions business fell short of the exchange’s expectations in the second quarter of 2024. 

The business line, which includes sales of market data, analytics, indices, order entry systems, and execution platforms, was projected to grow by 7 to 10% compared to $135.3 million in Q2 last year. Instead, it grew 5% to $142.1 million in Q2, falling short of expectations and standing out on an otherwise record balance sheet.

Global president of Cboe, Dave Howson, cited long sales cycles, customer consolidation, diversion of tech resources to post-M&A migrations, and a one-time backfill payment closed in last year’s second quarter as reasons for the slower growth in the segment’s second quarter results. Cboe still anticipates the data and access solutions business to hit the lower end of its 7 to 10% guidance rate for 2024.

The exchange says it has plans to develop new analytics products and invest more in DnA (data and access) technology in the back half of 2024. On the access solution side, officials say Cboe is improving its exchange access layer, and expanding its recently launched Dedicated Cores hosted order entry port service aimed at reducing latency and increasing throughput—which is currently live serving its US equities markets—to more of its markets globally. 

Data and access, often referred to as the “non-transaction” business at exchanges, is an increasingly competitive space. Exchanges have made acquisitions and developed new products to diversify revenue beyond IPOs and towards market data and technology sales.

This quarter, 40% of the company’s sales for the division came from outside the US, with a “notable” uptick in sales of Cboe One equities data in Canada. Cboe Global Cloud, a data streaming service released in 2021 with AWS, saw 80% of its sales come from outside the US.

Many of the factors that drove Cboe’s overall growth—globalization of capital markets, heightened uncertainty, growth of retail, and boom in options–are slated to drive growth in data and access in the back half of 2024, according to the exchange. “When you think about the macro uncertainty for the rest of the year, we certainly see more demand for accessing capacity and for data,” Howson said.

In response to an analyst question from Jeffries, Cboe CEO Fredric Tomczyk said the company has been making “substantial investments” in DnA technology. In the second half of 2024, he said that Cboe plans to roll out a new access architecture for one its four markets and hopes to do so in other markets in the quarters to come. Cboe also released improved market data at the end of July and is investing in selling more insights and trading analytics to customers, Tomczyk said, adding that the exchange is also investing in sales of its Silexx order execution management system, acquired in 2017.

“We aim to have high-value, cost-effective datafeeds, but we will perform price comparisons and review where we think we’re undervalued,” said Howson.

Over the past year, the exchange has filed several notable rule changes with the SEC which, if approved, would help drive revenue for its data and access business. The first was a filing aimed at improving sales of its lower cost Cboe One Options data in November 2023. The rule change would remove requirements to purchase the Options Price Reporting Authority public feed in addition to private alternatives. The second has attempted to remove regulatory red tape around Silexx which faces stricter regulatory requirements than competitors because of its association with an exchange.

Despite the data and access solutions business missing its target, revenues from the sale of the exchange’s market data rose 10% year-on-year. Executive vice president and chief financial officer Jill Griebenow says the exchange expects more international demand as it expands in “new geographies” and places more attention on Cboe Global Cloud, expanding Dedicated Cores, enhancing the exchange access layer, and increasing US options data and access products as it reallocates technology resources from integrations towards “revenue generating” streams.

In its trading business, the exchange will launch options on VIX futures in October and S&P variance futures in September, both subject to regulatory review. In Europe, the exchange is investing in building out retail trading and has brought on Interactive Brokers and IMC Trading to build out the offering.

“We anticipate being able to shift greater resources to the development of DnA opportunities as we move from the integration efforts with our technology resources to revenue enhancing capabilities in our data and access solutions category, particularly as it relates to enhancements around US options in the quarters ahead,” Howson said.