Cboe Global Markets, Inc. (CBOE) Earnings Call Transcript & Summary

Welcome back to the Piper Sandler Global Exchange and Financial Technology Conference. We have the panelists. One of the highlights of our conference every year is the equity market structure panel. It seems like every year, there's something very interesting to debate. This year, we're pleased to welcome Chris Isaacson of the Cboe; Joe Mecane of Citadel; Brett Redfearn of the SEC; and Enrico Cacciatore from Voya. So we're trying to get a representative from a market maker, regulator, the exchange as well as the buy side.

So fascinating year with changes, not only a pandemic, but regulatory changes in the mix as well. So I guess, the first question, just due to time constraints I want to jump in on the pandemic period, which we're still -- for equity markets, we're still seeing the elevated volumes and volatility. So I guess, if we could first just get your views, and we'll let anybody speak first, but your views on the pandemic period, how the markets perform. It looks from my standpoint, an outsider standpoint, pretty flawlessly. And could you just talk briefly about what you attribute it? And what you're -- from your perspective, excuse me, what worked from your vantage point in the marketplace? And I'll add, I will turn it over to Joe to start on this.

Me? Sure. Yes, sure, I'm happy to start. I think everyone will probably make a similar comment along the lines of just how well the markets worked, and people have talked about that for the last couple of months. So I don't think there's anything surprising there. I do think that for the last few years, there's been such a focus on robustness and stability, that the industry was well set up for what we ended up seeing. I still think most people were surprised things worked, in general, as flawlessly as they did. So I'll echo what I think a lot of people will say. The other thing that is probably similar across the panelists, but we've had about 90% of our employees working remotely since mid- to late March. I would say that also exceeded expectations. There were a lot of functions on the trading and sales trading type side where I'm not sure we would have predicted those roles could have been performed remotely. So I would say that piece also worked very well and continues to this day. It has forced us at Citadel, and I think more broadly everyone, to think about working differently. And so the way that we engage with clients, the idea of hopping on Zoom calls with clients never would have frankly happened 3 or 6 months ago. So in a way, this just forced a new way of thinking. And I do think, especially for managing existing businesses and the path forward, it's worked very well. I'm not sure it's a perpetual state that we could continue like this in terms of innovation or thinking about new ways to interact, but it certainly worked very well thus far. The last thing I'll mention is that I also think it's been surprising this could be a Citadel securities comment, but I'll say it more broadly, I think a big part to why the markets held up well and a big part of the volumes that we've seen, I think we're going to talk about retail in a few minutes, but speaking for the market-making community, I do think this was a time where the market-making side of the market had a very strong performance, continued to perform. In our case, we performed at the same levels of market share that we do on a normal basis. I think there's always a criticism of whether the market-making side of things disappears when the markets get very volatile or unpredictable, and I do think that a lot of the business models have evolved in a way where everyone was much more stable and part of the market than perhaps things were historically. So I'll pause there, but those are sort of my general observations.

And Chris, he brings up a good point. Not only you had elevated volumes and volatility, but you have a stay-at-home environment and, in your case, foreclosures. So could you just expand on what you went through during this period?

Yes, absolutely, Rich. I think Joe covered a lot of this, but -- and the additional complication for us was we made the hard decision to close our C1 trading floor, our largest options exchange trading floor, for March 16. And I think another thing that worked extremely well here, I'll give kudos to Brett and team, we needed to make some rule changes to go all electronic in order to close our trading floor, and there were the collaboration, cooperation amidst the crisis or the height of this crisis was -- is truly excellent. I think an example on a model for how well regulators, market participants, exchanges can work together in a time of crisis to ensure the markets run really well. And I'd just say, I think, 10 years worth of work post-flash crash really paid off in the last, basically, for the entirety of this crisis. We had fourth market-wide circuit breakers, limit up, limit down, worked exactly as we would expect. Reg SCI, well, potentially onerous to those entities, have proved out the resiliency through this was quite excellent. So the trading floor closure, we did it seamlessly. We made a decision on Thursday night and had a test on Saturday, and by Monday, all things were operating as we would expect. There are certain trades that are highly complex. I think more than 6 legs, complex options trade. Are really highly risky, and we're finding that might be slightly harder in all electronics, but overall, it went extremely well. So I think the entire market should be patting itself on the back given none of us really seen something like this.

Enrico, from a buy-side perspective, I guess, you'd be the beneficiary of a lot of how seamlessly this all work? Was that the case? I'm not the experienced.

Yes. Definitely, I mean, I was a market maker. I've seen that technology crash, right, in 2008 and this. And I think this is -- can really be attributed to all upstream, all systematic from the buy side, creating a lot more low touch, greater than 50% low touch automated strategy. Broker-dealers having to invest in their low-touch algo strategies, purchasing direct feeds, right? And then the exchanges, too, having the technology. And then I'd say a big contributor, just like Joe said, is the market makers. They're here. They did well. They stood up. And I think from a buy side, especially as transaction cost analysis becomes important and optimization becomes important, and as we interact with the marketplace, it's much more systematic. And what that does is smooth out a lot of the bump. So when the NYSE turned off d-orders or d-quotes, you saw prices correct efficiently, right? Cost volatility spreads much higher, right, but as expected. So everything was expected and the entire infrastructure held up because we pushed for whether it's a BCP, working-from-home on the buy side. At Voya, we've been doing it for years, and so we're prepared for that, so working remotely. And then the volatility of this year, we were -- everything worked as expected, and access to liquidity because a lot of it became automated in how we interact, allowed for controlled volatility in expected spreads. So kudos to everyone.

Right. I heard -- and we heard this term before, collaboration and crisis. We've heard it from the number of -- I mean, I think we might have an exchange-regulator love affair going on here? Maybe not. But it certainly has been echoed across the board about the responsiveness of the regulators to the request that the exchanges had to go through to do some of the things they did, but I'll let you expound on that,

I guess. And I'll just say that, yes, the communication and the cooperation throughout this process was pretty remarkable. I think it was great to be able to pick up the phone and get in touch with anybody about what were they seeing, what were the issues they were experiencing, what do they need from us, what do we want to know from them. So I think that, that was very, very healthy. Certainly, with [ Tivo ], when they decided that they were going to go fully electronic, we got on the phone with them very quickly, and they came with a very thoughtful, very together package. So it was kind of easy to be able to be responding to that quickly. Certainly, some of the issues that we had to address there. It was important that just because you went fully electronic, you couldn't do certain types of complex trade or you would have members who would have issues with dealing with margin or other things. And so what was important to us to try to facilitate that both for the market and the market participants. I would just also add that the communication in the official sector was phenomenal. The conversations we were having with the CFTC and the Fed and the Board and the Treasury and other governmental sectors was fluid throughout this whole process. We were on calls in the morning, and sometimes multiple calls during the day as we were having some of the more interesting and more volatile days. So that was also great. And the last thing I would say is, I think -- and Chris made mention of this, but since the flash crash and since other events in the market, we clearly had periods of time where there were more glitches and more outages and more problems, more fat-finger errors, if you will. And during this period, there are a series of regulatory mechanisms in place, whether it's Reg SCI for systems compliance and integrity, to market access rule, the limit up, limit down rolls, the market-wide circuit breakers, even Reg SHO, right? There were a lot of these things that have been put in place post-financial crisis, post-flash crash that worked, they did -- there's always room for improvement somewhere, but basically, they served their function and we didn't run into some of the issues that we might have seen in the past.

Yes. I mean it appears from the outside exactly what you said, it worked. I do want to just get a couple of comments. We still run at these elevated volumes here, $10 billion-plus a day. We've seen other -- the derivative markets, namely futures fall back. So I guess, and I know Joe has a view on it, but sort of what's -- I think we sort of alluded to retail volume, the TRF market share. But just briefly, could we go through -- do we think that these volumes could stay elevated for a reasonable period of time, whether that be 3, 6 months, year-end or so? I'll turn it to Joe first.

Yes, sure. I'm happy to start. I mean the future question is an interesting one. Just backing up from what we see, and we have a fairly good sense, I think, of what overall retail activity is just from our retail market-making business because we know our market share percentage and we could gross it up and take an educated guess on what we think retail volumes are. And Rich, I've seen you write some similar things. What we see from our standpoint is elevated retail volumes clearly contributing to some of the volume increases, where retail, generally, we would estimate to be about 15% of the market. We've seen it routinely in excess of 20%. So that's a contributing factor. Another thing we see, this is from more public data, but Enrico may have a view on this, too, is it seems, at least, on a relative basis, if you look at either ATS activity or you look at the amount of TRF activity coming from more traditional bank channels or even if you look at closing volume, which is off by a pretty significant percentage in the last couple of months, it looks like more traditional institutional-type activity is down, at least relative to retail. So my guess is that will normalize over a longer period of time. How long that period of time is hard to say. I mean there's a lot of theories about what's driving the retail activity between 0 commissions clearly playing a role, people being home clearly playing a role. So over time, as things normalize, you'd expect that to maybe come down to a certain extent, but hard to say. But certainly interesting and a different mix than we've traditionally seen in the market?

Enrico, could you speak to maybe your institutional volumes, in general? How -- are they still elevated? Or is it being mainly driven by the retail component that Joe was talking about.

From my vantage point, it's -- and if you look at the data, it's retail driven, right? I think during the crisis, obviously, institutions are positioning themselves, whether we do fundamental active as well as passive strategy. So we've got a good breadth of that. And a lot of, say, the asset allocation strategies are having to reposition based on returns. So that's, obviously, going to drive up a lot of volume. But that's now from a continuation of these elevated volumes, I think it continues to be more retail oriented. And I think going forward, I mean, we're still having a lot of this macro noise. And I think that macro noise is keeping volatility higher, in a sense, than norms. And I would say the one thing, with Joe's point, I think some of the closing strategies not being available, kind of one thing causes people to not use the closing auction as much as they would before. But also, I think the opportunity cost, right? And that gets back to sort of systematic -- people understanding what -- how to optimize cost and risk, right? And so trading earlier in the day, because you just see the opening volume stayed consistent, but the first half hour or the first 2 hours of the day, much higher levels and then weaning off because they're wanting to trade early and not waiting toward the end of the day because of exposure to volatility. So I think that sort of impacted the end-of-the-day line that you're probably saying that it's coming back now. But retail has been, from my vantage point, the biggest influence. And you can look at the -- I mean, if you look at a chart of ATS institutional volume and the TRF that's flowing through like the Virtus and the Citadels, I mean there's exponential growth on that side that were -- the ATS is flat and even lower. So I think that's very indicative of what's going on.

Okay. I want to get into more of the funds, so to speak. Brett, I guess, can you go through -- I know there's been a lot of debate or a lot of discussion about the SIP governance changes as well as the rural proposals that are still out there. I guess, could you talk about the rural changes that were made already? And sort of give us -- I know you really can't talk about an ongoing comment period, but at least give us a time line on some of the other events related to the Reg NMS rules, et cetera?

Right. So look, Rich, as you know, the -- on May 6, the commission issued an order requiring exchanges in FINRA and to submit a new single national market system plan that will deal with governing consolidated equity market data. That plan is to be submitted by August 11. So it's just over 2 months away. Our thought is that the time frame for that is reasonable because this plan is really going to be largely incorporating a lot of the governance provisions that are outlined in the order. And the operational aspects of this are not necessarily changing, right? So this is -- there was some confusion at one point saying all 3 plans and all the SIPs will just become one SIP? No, that's not. This is taking multiple plans and creating one plan. The operational aspects of this would, in fact, stay basically the same. So the operational aspects of what's happening with the CTA, CTA/CQ and UTP plans can largely be imported into this. And then the other issues associated with governance and voting and the other things that are in there, those are pretty clearly specified. Once we receive those plans, at that point, the commission is still going to have to put the plan out for comment. And then we based upon that comment period as to whether or not we would ultimately approve a final plan. It is possible that we could receive more than one plan as well, which could make it more interesting. I would expect that we'd be able to publish the new NMS plan on plans later this year. The infrastructure proposal is separate. And I guess, you could say related in some way. The infrastructure proposal addresses other aspects of the SIP. So this is where you get into some more of the operational issues. Governance orders really only addressing the governance side, and I'll talk about the infrastructure one in a second. But just in terms of the timing of it, we have 43 comment letters so far, at least one of them is over 60 pages long, so there's a lot of material to go through. There tends to be people who still bring them in after the deadline, so we expect that we might see a few more coming in as well. But ultimately, I'm hopeful that we'll go through the comments and we'll figure out what to do, and we'll bring something to the commission, and I'm hopeful that we will act on this proposal sometime later this year. In terms of what we're doing, it's interesting because I had a call with some of the folks from Europe recently. And they had asked questions about, what is -- what about the SIPs in the U.S. and the plans and could this work for Europe? And it was interesting because at one point I have said that, in fact, the way that the plans are now isn't necessarily the ideal situation. And the things that are -- some of the shortcomings, and these are some of the things that we're trying to address, is recognizing that, look, any of the plans were -- these were initially put in place in the '70s, right? And some of this stuff was changed or modified during Reagan's amends in 2005 when that was approved. But for the most part, there's a lot of antiquated stuff here. The first is that the current SIPs, while it is very useful with the top of book, right, so with the best bid, the best ask at each market and the last sale, it's no longer enough. It's not enough to trade, right? And by the way, one thing I just realized is, at the beginning of this, I forgot to say, the views today are mine and mine alone and not on the commission, the commissioners or any the staff, so let me just get that in now. But they lack content, right? So there's no odd line. And as you know, there's a lot of expensive stocks and a lot happening inside that 100 share quote. There's very little auction related information. And as was mentioned earlier, auction is extremely important, especially in the world we have now, all the ETFs trading and the expirations and everything else. So there's little auction information. There's no depth of book, so there's a content issue. There's a slowness issue. There's significant latency in the SIP, right? And part of this has to do with the fact that they're consolidated in one location. So if you want to get a quote in the New York Stock Exchange, you have to get it from Mahwah. And so the quote on the BATS market in Secaucus has to go to Mahwah and has to be aggregated in Mahwah. Then it has to go to somebody potentially trading in Carteret, and this geographic trip around the in New Jersey actually has a significant amount of geographic latency -- and so they're slow, and the technology has generally been lacking what has transpired in the proprietary data world. Third thing is they're exclusive, right? So the SIPs are exclusive. They're basically monopolies, right? And so when you have monopolies, do you have the level of innovation and the evolution in technology and even price competition that you would have otherwise? Maybe not. And so that's another issue that we're thinking about and looking to address. And then, of course, the governance issue, right? And again, the governance -- we have a governance model where the SIPs are controlled solely by the SROs or the exchanges. Again, that was something that was come up with in the late '70s. Back then, the exchanges were mutualized not-for-profit entities. So they're basically membership organizations, and a lot of change, right? Today, there -- we have publicly-traded companies, and they're looking to maximize shareholder value as well they should. And there selling and the big exchange groups are selling, competing proprietary data products, which are great products. But if you're running this core data and at the same time, selling competing proprietary data products, there's a conflict there. And so part of what we're trying to do in the governance order is address this conflict and bring in additional participants around the table, so you have a diversity of view, so that you can get a better representation in terms of the voting. And so we can address some of the material conflicts of interest that are in place. So with that model, it's not surprising that the SIPs have lagged so much against the proprietary world, but we have an obligation under the Act -- under the Exchange Act with respect to the SIPs, and we are looking to sort of bring this into the present era.

Thank you, Brett for another view on that. I'll switch -- go to my exchange person, Chris, comment on -- I'll leave it up to you.

Thanks, Rich. Yes. So Brett and I have talked about this ad nauseam over the years. And frankly, back in the back stage and even now in our CEO days, we've been advocates of improvements to the SIPs, both governance, content and delivery. In fact, if you look at our market structure principles, we talked in there about some governance changes, especially distributed SIPs. There is a geographic latency issue that we've been advocating for having a SIP in each major location, each major data center for all securities. I think it's -- the devil's in the details here. From a governance perspective, we were actually one of the first exchanges to invite advisers on. And so having more balanced governance, there's positive changes there. And I think if you look at from a perspective of -- these are all -- if we get the fees, though, these are -- all these fees have already been approved by the commission on our existing plans. You're going to have to refile all those fees under a much different plan, potentially, and a much different governance. I think you have issues. And I think the operating committee also has been working on conflicts of interest and confidentiality. We actually had rule filings before Brett and team for many months. So it's not like they've been sitting on this. Some of those ideas were incorporated within the governance proposal, not all of them. And I would say, while some conflicts have been addressed, let's, not be naive to think that they're not -- the parties that are being added to the governance plan, they also have conflicts as consumers of the data. It's not just the producers of the data. So that's kind of it on governance from our perspective. The content delivery, as I said, distributed SIPs we're in favor of. And so we think we get a lot of the lion's share of the benefit from a distributed SIP, where you have a -- you could have both the existing SIPs that are handling all the securities in each data center, that's not a problem. If you have competing SIPS, one of the nuances of this proposal is that they're no longer critical infrastructure. And this relates to our first topic about how well did the market operate during these unprecedented times. And I think if you have apprised competition of who's going to argue against competition. However, these SIPs we've seen, if they go down, it's a mess for the market. And if you categorize them as not critical infrastructure, and people go to the least common denominator and what they're going to pay for and they have a problem, yes, there might be competing SIPS, but people aren't taking all of them. And there's a big chunk of the market that doesn't have a good SIP at that time. It's going to create a problem. And so while I think there's some truth to maybe a lack of innovation -- actually, in recent years, the SIPs have improved dramatically from a technical perspective. There's still this geographic latency thing, which should be dealt with, but we think that we can solve this problem with distributed SIPs rather than competing SIPs, which just add unnecessary complexity. And then further, kind of on the -- I don't plan of going on forever on this, but on the content delivery, we have some pretty major concerns around the differentiation between a protected BBO and NBBO and having those things be different. It's going to create a fair amount of traffic that may or may not get on the SIP. And what -- we could have the argument about order protection rule, but this feels like reg NMS 2.0 that's being really put into a SIP infrastructure rule, about content delivery. A pretty fundamental rule that I think if you read many of the comments we've put in our comment letter. It's a real sticking point for us.

No. Okay. I think -- and Joe, you've commented brief -- if you want to just comment briefly on [Technical Difficulty] I knew we weren't going to have a perfectly flawless day. So I'm not sure why. Why don't we skip and come back to Joe, if it's you, I'm not sure. Enrico, do you have an opinion or...

I definitely do. And I think Chris made a lot of great points. And I look at how successful we were in these troubling times, and we continue to have troubling times. I think I want to look at it from like efficiency, transparency and equitability, right? Those are -- I think those are like the key components, right? And so what is the purpose of the SIP, really? It should be a utility. If we're trying to add additional data that multiplies the amount of data distribution over the SIP which just basically cause more latency, I think the SIP, in my view, should purely be a utility top-of-book, so I know what's the best bid and best offer. And then I love the idea of distributed -- the distributed SIP, that totally makes sense. And then I totally agree with -- from a governance, a voting redistribution, so to make sure other partners have a say in it. I mean look at [ NYMEX ], [ NYMEX ] is essentially a way for firms like Virtu and Citadel, they get a seat at the table. So it totally makes sense. And I think we need to be patient in how we -- especially from the SIP standpoint, patient of what we do from a technology and data redistribution. I know like -- I capture -- I listened to a little bit Doug Cifu on the previous call, and I know market data is a big thing, and it gets under transparency. I think the exchanges will need to do a better job at communicating with their clients on what -- how is the cost derived. And I think that will help much more than just forcing tax on market data. So that's what my points are.

I think I'm good now. Sorry about that. So just briefly, I sort of agree with pieces of everything everyone said. I would say broadly, we agree with the direction and everything that Brett and the SEC are trying to do in terms of modernizing and governance and so forth. So I'll echo a lot of the general themes. The 2 things that we've focused on, which Chris mentioned and Enrico mentioned, are we're very supportive of expanding core data. We're very supportive of the idea of getting odd lots into the public quote. I do think that some of the complications that come out of having a difference between a protected quote and the displayed quote are better solvable by just having a consistent definition. And we've also highlighted that while the competitive purpose of competing SIPs, it makes sense, you also get a lot of implementation questions and operational potential issues from having multiple gold standards, for lack of a better term, out there. So some of that is operational, but, I'd say, those are the 2 things that we've focused on in implementation.

Okay. Should we move on? Or are there any other comments? Brett, we can't hear you, unfortunately. Okay. We will move on and come back to you, Brett.

Can you hear me now?

Yes. With that echo again.

It seems like it was working a minute ago. I didn't change anything.

Okay. Why don't we move on, and we'll let you chat and fix the issue. This is a virtual first, we're working out some of the kinks. It's been pretty flawless. We're rivaling the elevated volume flawless movement here. We'll let Brett come back to us.

Let's see.

Are you connected by phone as well, Brett? Let's move to our next question, and we'll come back to Brett on that issue. Another thing I want to talk about -- if you want to give one more shot, Brett?

Can you hear me now?

Yes. Loud and clear.

Okay. So I hung up the phone line and I plugged in the headset. My apologies for that. I don't know what happened. I didn't change anything, but I will just say a couple of things. So first, I was saying, we really appreciate the dialogue on this issue. It's a tough one. Like market data issues have been around for a long time. And Chris is right, we've been talking about this for years and it's hard to solve. I mean go back to the concept released years ago on market data. So it's -- this is a tough nut to crack. On the distributed SIP, we thought a lot about that. I mean the actual operating committees had a distributed SIP subcommittee in front of it for a long time. Unfortunately, that just didn't go anywhere. Nothing happened. They were unable to bring it across the line. I don't really know what happened, but it didn't move. And there were real concerns in the marketplace about, if you don't introduce competition and you have the same providers who are selling competing products, is there really the incentive there to bring it to the level that market participants need? So we really thought competitive forces was an important thing, and bringing that in there and letting multiple providers get in the game is important. That's actually the way it is today. So if you look at -- if you said -- and Chris can probably tell you the number, but the number of market participants who are there today who are using proprietary data feeds are essentially using vendors, many of whom would potentially be these competing consolidators. So when you look at Enrico, when you look at the success through the month of March, the very providers who were actually running the trading systems and running the data and all the things that were feeding this actually weren't the SIPs. People don't use the SIPs to trade, the SIP has become a backup system, and it's something that people might use for eyeballs, but it really isn't used for trading systems. All the trading systems are the very same sorts of private vendors who are out there who are, in fact, aggregating fast data in different locations today. So the idea that -- this sort of idea I've heard out there about being multiple quotes in different locations, it's exactly how it is today for any -- probably -- I don't know, Chris would tell me, it's got to be like 95% of the volume on the market today is going to be from people who aren't trading using SIP. So you have that issue. And then there is a big issue about protection, right? So we did come up with this new round lot idea because we saw a lot of quotes, and we have expensive stocks. You look at the [ FUNC ] stocks and other names, there are a lot of names that are trading at over $100, $500, $1,000. And the liquidity that exists inside, the 100 share a round lot, is significant. And it's not transparent, and it's not necessarily always available to investors. And so we're trying to solve that. We came up with a proposal that didn't initially protect a new round lot with the idea being: a, it's kind of what's happening today. Any broker-dealer who's taking in direct data feeds is actually getting feeds that have all the odd lot information. So they're seeing that. They're making best execution and optimization decisions about when do they trade with that and how do they deal with protected quotes. So it's kind of -- we're kind of leaving out on change, right? You have odd lot information, trade with it, optimize it, but we're not going to force you to do it because if somebody has to share quote, it might be better off hitting the 10,000 share offer before you hit the 50 offer, and potentially lose that 10,000 share quote. So we wanted to give a little flexibility there. Still very open to talking about all of these issues in the comment period and the protection issue. But I do appreciate all the comments, and I'm sure that we're going to have a much more robust discussion going forward in the coming weeks.

Rich, can I just add a couple of comments here at the end. I'd just say while I agree with a lot of direct market data feeds and per vendors performed well during this crisis. If you look at like the market-wide circuit breakers, everybody was depending upon the SIPs for those critical messages, for auctions. The SIPs are a gold standard. And when they go down, it creates material issues for a lot of people. And it would have been awful if the SIPs were not working on those days. And so the standard is very, very high. And just on the odd lot thing, if you're going to add it with the SIP, we just -- we question whether or not -- why not -- what improvement are we trying to make if we're not going to make them protected. I think that's the debate. So I guess, overall, the patient. We'll argue on the edges here. I really think the market is exceptionally healthy. And so do we -- should we be doing major surgery to a very, very healthy patient?

Okay. We certainly won't solve this problem. But these issues, these are going to be Brett's issues to sort of come to an agreement with comments and so forth. We only have about 5 minutes left. One that I think is getting a lot of attention, I don't know how impactful it is overall, but it's the floor closures. So on top of elevated volumes, stay-at-home, you successfully closed floors. The question I really have, though, is there's been some -- at least some discussion on each about like for the NYSE, the percentage of orders, where they really do need the floor to close, that the price didn't vary as much the closing price, also the greater percentage matched. And I'd say on the Cboe, there was, Chris, I think has a better explanation, but they talked about a lot of price improvement that retail got on the [ SPS ]. I believe there's a sort of hybrid solution there somewhere. But the overall question is, and we get a limited amount of time, but floor closures, did we learn anything? Or are they that important? Or are they more symbolic in sort of a justification for business cases to support other items?

Yes. Rich, I'll start there and give my just two cents here. I'd say we quickly migrated all electronic. We expected that there would be some attrition of volume from highly complex or very high-risk trades and options, as I said. I think 6 legs or more, very, very complex trades. And we saw some of that. Thankfully, our customers -- the market is very, very adaptable, and they've started to use our AIM auction very well, and we've seen a lot of demand in our primary proprietary products, especially SPX. And we've seen growing demand from retail. So there's -- they've enjoyed the experience. And so we're looking at do we allow AIM to be on for a small or max size? That's more a retail tailor. I'd also mention we have a proprietary product called XSP, that is 1/10 the size of SPX. That has had AIM on for a long time and we'll continue to have it on. So in short, we see a lot of value in the floor that has been validated since the floor has closed for highly complex and high-risk trades. Now as long as our customers find value in it, we're going to continue to have it open, but we're also looking at, in the long term, other ways to further automate these highly complex and risky trades.

I'll just jump in. On the NYSE side, obviously, I don't want to speak for NYSE, but we interact in a number of different ways, including being the largest designated market maker on the floor. So I would say that on the one hand, the transition went very well. And back to the first conversation we had, the technology transition flawlessly, for the most part, we continue to perform the same functions that we do in terms of meeting our market-maker obligations, handling the auctions, but just doing it in a remote fashion. So things worked well. On the other hand, I would also say there were definitely situations -- we handled a large number of IPOs, I think, 12 or 13 IPOs over the last couple of weeks remotely. There were a number of different auctions, to Enrico's point, auction volumes are definitely down. So people were definitely using it less. But there were some dislocations where I think we generally think the floor and a manual sort of environment might have helped, especially on some of those very big dislocation days with some of the banks. So I mean, our general view is where things should go electronic, they should, but there are still circumstances where that manual process and that human involvement makes sense. I'll also echo Chris' point on SPX and retail, and it's a testament to the strength of the AIM auction. We saw in the retail business some really meaningful levels of price improvement kick in through the AIM auctions for retail-sized SPX orders. So I think that was -- I don't want to speak for Chris, but from our standpoint, from our client standpoint, that was clearly a lesson learned in terms of maybe a mechanism that Cboe has built that delivers a lot of value, that could also apply in the case of SPX.

Rich, we -- if you -- very quickly, we're doing an analysis of some of these points, and we continue to look at the study. It is interesting that when something changes like that, there are -- does take a little bit of time for behavioral changes to kick in and for people to learn how to respond to that. And one of the other things that we've seen is just the technology functionality isn't really fully built out yet in either case for what would be a fully electronic trading model if they wanted to do it, right? So I'm sure, like Chris, we came in with a whole bunch of things to do, how do we make it work? So we have a bunch of short-term things that are in place to sort of facilitate things that happen on the floor that could happen in a fully electronic world. But they're not yet built or designed for if you really were going to do this, how it would look. And the same is true on the New York Stock Exchange. So as you know, right, the floor brokers aren't there. They don't participate, there's not d-quotes. The way their auction information is put out to the marketplace varies. So there's a lot of things that have changed that if somebody were to truly explore a non-floor-based market, there would be other things that would be put in place and built out. And obviously, there would be a time for market participants to figure out how to use it efficiently. But nonetheless, we do have a few data points that should be helpful in learning some points.

Well, guys, we are out of time. This was more of the most -- it was more reasonable discussion here than normally in the speculative structure panel. And we still have, at least, the topic of 2 that's still pretty debatable, put it that way or at least people have strong feelings about it. So I do want to thank -- we have some regulators that have done this panel. It is a hallmark of the conference. And I thank each of you, from Brett to Joe to Chris and Enrico, for representing your facets of the industry [indiscernible] . So that's it. Thank you. For the investor audience, our next panel will be Tradeweb, and will be at 3:30. We have about a 12-minute break, so I hope to see you all there. Again, Joe, Chris, Enrico and Brett, thank you very much, and we'll sign off there.

Thank you, Rich.

Thank you, all. Thank you. Good day.

Bye-bye.

Welcome back to Piper Sandler's Global Exchange and Financial Technology Conference. We're moving through the exchange groups and a little bit of hiccups here. But as you can see, we persist. So it's my pleasure to introduce the CEO of the CBOE, Ed Tilly; as well as his COO, Chris Isaacson. So Chris participated in the market structure panel yesterday. So the CBOE is actually celebrating, I think, within the month, its 10-year anniversary as a public company. So congrats, Ed and Chris, and that will go to my first question.

Ed, when you took the helm, and we've lost track of when you took over, when you took the helm of the CBOE Europe, former floor trader, man on of sort of a -- man on the floor, but the CBOE was singularly focused on option tradings. Today, it's multiple asset classes, equities, European equities, ForEx and expanding even further. So what's it like to run a firm of the operational complexity that the CBOE is today, I guess, to start off? So Ed, to you, welcome.

Thanks. And Rich, thanks for having us. It's great to be here. Although virtual, it's still great to be able to share some ideas and get caught up. So a great question, and thank you for recognizing CBOE's 10-year of being public. It does seem like just yesterday that we went public and that was under Bill Brodsky. So it has been an incredible journey, and you've identified exactly our progression. We were a U.S.-focused exchange in the U.S. derivative space. And while the unique product set allowed for interest across the globe into our products, we have expanded. And U.S. equities now, European equities, FX, you're right on futures. And we're growing into clearing in Europe, as you know, and then derivatives in Europe and just announced our expansion into Canada. So it's been a gradual process. So I think that not as complex as you would think because it wasn't overnight. It's been a journey, an incredible one and only possible because of the entire team, and starting with the executive team. So with the acquisition of Bats, one of our -- the great additions to the team, Chris Isaacson is joining us today, but there are many, many others. And it starts at the roundtable of this executive team and it goes throughout the entire organization. There is nothing that I believe we can't accomplish. I think we're proving that through this very unique moment in time as we work from home and make adjustments, and CBOE continues to move forward in our -- both organic growth story and our M&A. We're firing on all cylinders, Richard.

Great. When you talk about this transition during this time, it truly has been a transition with your pit as well, with the S&P, the SPX pit. I know we've talked a lot about it. The volume that -- the complex option volume is best suited for that environment. But I guess the question is, we've also heard that there's been some actually uplift in retail trading or good price improvement in regards to the retail side of it. So I guess, again, it's been talked a lot about, but is there where you can incorporate some of the benefits of the retail side had into the solution as you move forward, I think, it's do raise?

Yes, a couple of good points there, Rich. I think if you look at the rally, it's been really led by retail, institutional traders tend still to be on the sidelines. We've seen that in certainly the SPX complex. And then in multi-list, we've certainly seen the incredible volumes that are coming from retail, and it is a retail-led rally. But with that, as far as your reference to price improvement and that the customer -- retail customers' experience in the SPX, it's been terrific. It's been a growing segment of the SPX business since we've moved to all electronic. And we want to continue to have the customers enjoy -- retail customers enjoy the price improvement that they've received. So we are making modifications to SPX for handling in a little different way. Now these are all proposals of the SEC. So anything we're proposing, any changes to market structure or the customers' experience is subject to SEC approval. But that said, we have recognized that small retail has had a really, really good experience in an electronic SPX trading. We also recognize there have been, to your reference, some very complex trades in the SPX that have been frustrated by an all-electronic experience. So we're looking forward first to reopen the trading floor. And second, making sure we can close those gaps between functionality that the floor has offered and the electronic shortcomings for those most complex orders. So all of that's coming for CBOE, and we're going to define how we look at the markets going forward and the experience of both institutional customers and retail.

I'm sure Chris has his work cut up for maybe the potential -- the differences -- upgrades that might come with the new platform over time, over time.

Rich, on that point, I'd just say, we're -- we have learned a lot since the floor, which has been closed, we were forced to make that decision. And one of those primary learnings is the positive experience of retail, as Ed mentioned, and you asked about. The other thing is just how can we better facilitate those highly complex trades and as automated fashion as possible. So we're going to continue along those efforts and try to facilitate even more efficient trading of the most complex and highly risky trades.

Got it. Got it. It's really been phenomenal how much retail participation there has been. But we'll get back to that. I guess one of the questions that has come up to me from investors is CBOE has been always viewed as a clear beneficiary of volatility embedded in the mix in -- proprietary product of yours. But I guess the question is, and you've spoken a lot, Ed and Chris, about sort of the, we're in this limbo right now, where the people don't really have a strong view of volatility up or down like, I guess. But I guess the question is, is this whole vision of CBOE being a beneficiary of volatility, is it more nuanced than that? Do we -- it seems like we learned something every spike in volatility? And when will investors, you think, get back to the risk on and out of this limbo state?

Rich, I'm glad they're asking you because you've been following us for so long. You've seen the ebbs and flows and the recoveries from spikes and volatility, the uncertainty in the marketplace. And this time is no different. And we are a beneficiary of volatility. Our first quarter was phenomenal. And not unlike shock events in the past, there's a recovery time where institutional users step back, evaluate risk going forward, look at the event that caused the spike in volatility, reassess and redeploy. That's been the cycle. You've lived that with us for 10 years now. This is not different. The difference in the action and the return to trading is that the event that caused the spike has not been clearly defined. No one. No one that I know can tell us when the pandemic will be over. And to be clear, the event doesn't have to end. There needs to be an end date that investors can see. And we can look over the volatility term structure and see that while it's no longer at its high of 82, when we were certainly at the most concerned about the market going forward in this -- in the 20 range -- the 20 to 30 range, it still is very elevated. And that's out over time. So the market's telling us that risk -- the price of risk is flat, and it's still uncertain. And when there's more clarity around moving forward and moving through the pandemic, then we will see institutional investors return to a normal trading pattern. But we've seen in the past, Rich, you've seen us with us in the past, and this is really no different.

Understood. I guess, again, this has been -- you take questions on this over and over and over again. But the one question is it appears that the VIX futures have been impacted by this sort of limbo state. Can you just -- again, not to belabor this, but how that VIX future fits into the, I guess, this product suite of volatility from the SPX and the VIX options?

Yes. Sure. VIX futures and options are really the ideal hedge for the unknown, unknown. And that paid off in a very, very big way, monetizing that -- those positions in March. And those -- that was the big bang for hedging dollar as it were. And then if you look at the market since then, realized volatility, as it's priced against implied, has been at a discount. So the inter-market daily moves have been huge, and we see that show up in SPX trading. So that strike hedging in the SPX has been a better use of hedging dollars than pure VIX or VIX options. Not unusual, we've seen those cycles in the past. And what's happened in the proprietary stack, as we've said on many calls and many one-on-ones, Rich, is that our users are so sophisticated. They pivot instantly to the hedge that they perceive is the best for their view of risk going forward. And right now, it's in the S&P 500.

Understood. Understood. I want to -- I'll use a fancy word, the pivot, I guess, to Chris a little bit and just to get him involved. But Chris, thank you for very graciously participating in our market structure panel yesterday with Brett, with the SEC Redfearn. He outlined this whole new -- the proposal for the Reg NMS and market structure issues. You were very congenial, so to speak. I guess my questions are, it appears that it's very prescriptive. It could be complex. Some of the market participants that I've talked to, the outcomes could be complex. And then finally, I guess, I think, as you put out, what's the benefit as well. But I guess, could you give your comments, again, we were in a panel. We couldn't all air -- have everybody expound, but more the CBOE's view on this update from the SEC on market data in the SIP?

Rich, as I said, Jester, let me start with -- we've just gone through an unprecedented time as a market, and I have to give kudos to the SEC, again, that their cooperation amidst that crisis was tremendous. We had to shut our trading floor, we changed some of our rules. They've just been a great collaborator amidst this crisis to ensure stability in the markets. And so while the world is very uncertain, and these times of uncertainty continue, the markets have operated extremely well. And so when we look at the markets as a market structure, we view that patient as very, very healthy. And therefore, we think about incremental improvements rather than fundamental improvements to the market structure, which specifically talking about or changes to one of the fundamental things is the SIP. And there's a couple of proposal, one that's been approved now about governance, and then the other about infrastructure, which really about content delivery. We, for a long time, have been about improving -- we want to improve the governance content and delivery of the SIPs. We've -- I myself have said on that committee in the past. We've been for improvements around the performance or the technical performance of the SIPs. It's just the manner and the prescription way in which these are being put forward, they give us pause, especially when the prescription around what can or can't be charged and the ownership of the data. So what I would say is, we're for governance changes where they make sense. We were one of the first to actually invite advisers onto the operating committee. And we think the conflicts of interest as well as the confidentiality needs to be addressed. On content delivery, that's a 600 -- or let's call this SIP infrastructure proposal. That's a 600-page proposal the SEC put out. They just finished their comment period. There's been many, many comments across the industry. It feels more to us like a Reg NMS 2.0 with very fundamental changes to the SIPs, that fundamental changes to the market structure regarding protected and nonprotected quotes, odd lots and the like. So we're concerned that this is a fundamental change in the market, right after coming through what's been an unprecedented time of volatility where the markets performed very, very well. And the SIPs were vital to that function during -- we had 4 market-wide circuit breakers in March, and the SIPs were the mechanism through which the entire market got those messages. So we just think we need to proceed with care for these proposals, especially. And to the extent the SEC wants to impose price or have an operating committee have an opinion or actually jurisdiction over what exchanges can charge for data, we think that is beyond their jurisdiction, frankly. So we will -- we'll be adamant against it, where we don't think it's -- it matches what should happen.

I think a lot of market participants, I'm really willing to step up and say what you said about it. Even people that aren't say, per se, exchanges as well. Ed, I just hope you saw the -- did you get a chance to see the fire?

For sure, Rich. It's always burning. I'm warmed by it actually.

Just so you know that you are truly participating it again in a fireside chat.

Love it.

So anyway, we will move on. The next question is M&A. You've been very active in M&A with most recently MATCHNow, the Canadian -- potentially, giving you an entrance to the Canadian market. And I guess, you've talked about it being, I guess, the seventh largest equity market, I believe you said. So I guess could you outline the plans in still -- there's a different market structure, and you do have a dominant exchange there that hasn't really -- it hasn't been opened too much to competition. But what do you see as your opportunity there?

Well, I think you laid it out, Rich. And the legacy Bats mentality loves attacking the dominant exchanges, not just in the U.S., but certainly across Europe. We're good at it. And there is -- it's right for competition. What MATCHNow has built is a terrific off-exchange venue. The management team is amazing. Bryan Blake will be joining us. He's the current CEO. So he will join a North American equities team led by our team in New York. So we'll take the lessons learned in other jurisdictions and subject to regulatory approval in Canada, hit the ground running and attack that seventh largest equity market in the world, starting at a 7% market share. So while not at scale yet for CBOE, we'll use that 7% as our launching pad and off to the races, Rich.

And other exchanges have bought assets like exchange is going to be on shortly, but haven't really invested a lot of effort to gain share. So I guess do you think -- well, do you think there's still an opportunity, even others have chosen not to aggressively go at it?

Absolutely. We tend to look at the markets differently. We're really lean operators. And as I say, starting with 7% and a team that knows Canada and then supplemented in the backstop of our U.S. equities team, a lot of common customers, Rich. A lot of Canadians with U.S. exposure and if -- a lot of our customers have a presence in Canada. So using our scale, we think that we will be successful in growing from the 7%. That's not a place where CBOE wants to rest. So yes, we do think we're going to be successful moving into Canada.

Another thing that we've seen, Ed and Chris, is -- well, you are experiencing, but there's been a retail engagement, and we've talked about it earlier. I think we can clearly see it in the retail darts to 0 commissions. The multi-listed option volumes are high, running still high. So those are the things that have held steadily. So I guess is there a way to -- do you expect that to stay elevated from what you're seeing because of the retail drive? How resilient is that? Or do you expect it as volatility, we suspect, will inch its way down or do whatever it's going to do that, that volume will come back to earth or because of this retail drive could stay higher than prior?

It's really the same question reversed that you've asked on institutions. So it's really a factor that we're observing today of the current market conditions. Retailers were the first ones in that led this rally. If you look at yesterday, day before, just this week, the amount of call buying is near record highs. That's extremely speculative, and retailers have been paid for stock picking. And that's not always the case, and it won't always be the case. But for now, it's been quite a rewarding trade for retailers who have been able to successfully pick stocks and take positions in uncertainty. So can it continue? Sure, but that really is a question, as I say, in reverse of when this market finds its path, a certain path. And institutional investors, whether or not they join the rally or sit back and take a more cautious step. But for now, we're pleased to see the retail engagement and look forward to that continuing. And in the short term, I don't see why it wouldn't.

Rich, I might add, I mean that the whole 0 commission world retail finds itself in is, we do think is a persistent long-term tailwind. I don't -- we don't know if the volume levels continue at the current pace, but certainly, that's going to be a tailwind in the long term. One statistic you should be aware of we just announced in May, about 88 million shares a day we're trading in retail priority on our [indiscernible] exchange. So it's a new mechanism we brought to U.S. equities, and we're hitting almost 100 million shares every day. So, Rich, we're benefiting from that retail participation.

Yes. I think you have a number of ways you can benefit that besides multi-listed options, but good point, Chris. The CBOE has been a leader and focused on education. I guess, Ed, the question is now that you have retail engagement, again, multi-listed options aren't a big revenue source, but that engagement is unique. Is there any way to transform them or transition them to some of the proprietary products?

Sure. That's definitely the goal, Rich. We've had -- you pointed out the retail engagement in the SPX complex, which has been phenomenal. It's, again, one of the most -- the growing segments of business over the past couple of months. We have a retail version, a Mini-SPX XSP, which has all the benefits of SPX at 1/10 the size, but still cash settled. And so it has all the benefits of 60-40 tax treatment for customers who can enjoy a blended rate. So part of the message getting out is, if you've had a good experience in SPX or if you're a spider trader and haven't made the move yet into SPX, we've got a small retail version for you. But it's that messaging, Rich, and it has to happen now in a different environment. And we're focused on how we can communicate, both with retail and institutions in a whole new world. So our investments of this year in really information solutions is focused on getting the message out in different ways to our users, whether they're sophisticated retail or they're real institutional users at every level. So we've been in the pre and post trade business and education for quite some time. And now with Hanweck, FT and Trade Alert, we're at the at trade business of sharing information. So we really think we have a unique solution to engage with customers and make sure that in any environment, our customers know where they are, they know the value of what they're seeing on screens, and they're able to act, while others will still be looking around trying to figure out what's going on in the marketplace. So it really has been well before this pandemic that we were thinking of how to best arm both institutions and sophisticated retail in any market environment, so they can continue to trade and have an advantage over the ones that are still looking around trying to figure out what's trading.

That's helpful, Ed. We got 2 minutes, maybe 1 to 2 minutes. But sort of the wrap-up question, it seems like you're in a next phase with acquisitions. It seems like the leadership, you upgraded Chris'. [indiscernible] Chris...

Yes. I don't know what he's doing. He's still on fixed income for dummies book. I don't think he's finished it.

But it seems like leadership is semi on -- you've done -- you got, I'd say, frankly, the depth of the team has been impressive, CFO transition as well. So I guess what the question is, as you move through the next -- this next phase, what's your emphasis to the team? Because it seems like it's on auto pilot here. I don't know we only have a minute or 2, I apologize.

Real simple. The team can get through and accomplish anything, M&A included. More importantly to us is the organic story. We're staying on track on organic. Work from home was a minor blip in that. We're back at it. But from a management team, the businesses we've bought, we've been able to attract either the founder or the CEO. And that is really, really an incredible endorsement and that we're very proud of that these entrepreneurs want to continue with CBOE and our acquisitions of late reflect all of that. So we're picking up incredible talent along the way. I couldn't be more proud of the existing team, and all of those entrepreneurs will agree to stay with us.

That's a wrap. Ed, thank you, and Chris, for participating. Just like you've transitioned your pit to a virtual environment, we've transitioned -- and thank you for the help and transition the conference to a virtual environment as well. So thank you, Ed and Chris.

Thanks, Rich.

With that, that will end this session. We look -- in 5 minutes, we'll have our private exchange panel here at 9:30. So thank you all for tuning in. And again, one last thanks to Ed and Chris.

Thank you.