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

All right. Hello, everyone. Welcome to our next session here. I'm Ben Budish, Barclays Analyst covering the brokers, asset managers and exchanges. With us for this talk from Cboe, we've got Fred Tomczyk, CEO; David Howson, Global President; and Jill Griebenow, our CFO. Thank you so much for being here.

Maybe just starting out with the macro environment, how are customers behaving as VIX has risen over the last few months? And how do you think about the recent pick up in SPX ADV in particular? What are your expectations coming into the election 2025? What are you seeing? What are your thoughts?

I'll let Dave take this one?

Yes. It's been a tremendous time really for the volatility talk. We talk a lot about the -- the complex of products that we got that offer customers utility throughout volatility regimes and market environment. And so what we saw through this sort of Q3 period so far is a range of known, unknown events, so whether that be a CPI print, FOMC or Fed comments and also some unknown unknowns such as the unwinding of the carry trade as a result of other unexpected catalysts. So we've seen customers really come back to VIX options again this year. We saw all this second highest month on record for VIX options as customers really turn to that convex payout of VIX option products can offer our customers to hedge risk and to monetize those move upwards in volatility. Q3 so far is looking like a #2 record for VIX options, the #3 quarter for SPX options as we go so far. We see broader usage of the complex from more users deploying more use cases across time. And then as we look at the volatility service, the expectation that the options market really tell them about the rest of the year, we see more volatility coming. So obviously, the U.S. election is often a big catalyst for volatility in the marketplace coming throughout the end of the year. And the options market is telling us that customers are positioning both for the upside as well as the downside coming out of the potential events that we'll get in the latter part of this year. And as we see going out into 2025, further uncertainties and further moves in the macro environment, which we think customers will continue to come back to that volatility toolkit to use the appropriate product at the appropriate time to manage those risks and to respond to the unknown and known.

Maybe before we jump to this more, the products, Fred, just to pick on you for a second. You've been in the CEO seat almost a year. When you reflect back on that time, what do you feel good about? Where do you feel like there's more room to be done. Thoughts?

Well, I feel really good about where the company is. So let me just back up, if you went back, say, 2 or 3 years ago versus today, we've already changed a number of things. We stopped all the small M&A which wasn't moving the needle and took up a lot of resources internally. So we've dampened that down. We brought much more expense discipline to the organization and stabilized the margins. And on top of that, we've continued the strong organic growth. We've seen great results from quarter 2 with revenue up about 10% year-over-year and earnings per share up 21% year-over-year. So we've had a good first half. We've had a strong July, a strong August, which are usually the slower months of the year, and we're heading into September where we see lots of opportunities. So I feel really good about that in terms of stabilizing the margins. The balance sheet is in great shape. We click off a lot of free cash flow. And the way I think about it is just after the first quarter of '25, when the Canada migration is done, then all of the tech resources that have been consumed. Migrations are done, and we can unleash the full power of the organization in terms of growing our growth. And I think about us strategically, we don't have an earnings issue. Our margins are the top 10 of the S&P 500. So our focus is not so much in terms of driving them from 67% to 75% or 80%, but our challenge as a management team is to continue to find avenues for growth. And we see good opportunities there in terms of what's next to do. We'll maintain the discipline on expenses. We'll be very disciplined about capital allocation. but we see lots of opportunities to align and Cboe's well positioned with the secular trends. If you think about it, the U.S. equity capital markets are almost half of the world's equity capital markets, and we have great position there and a great brand there. Number two is if you go around the world and talk to people, yes, they want us to bring innovation and options into the market, and we'll do that on a selective basis as we see appropriate. But everybody wants access back to the U.S. as well. And there's now $14 trillion invested of foreign holdings of U.S. security. So there's a big market there. There's a big demand. As you go around the world, governments and regulators are encouraging -- are sort of taking away a lot of the restrictions to invest more globally, where that be in the pension funds, whether that be in retirement accounts for retail investors, it's causing this demand back to the U.S. And if you went back 10, 20, 30, 40, 50 years, if you've invested in the U.S. market, you've done well versus investing in other parts of the world. So all that's very strong. Options volumes continue to grow globally and probably the fastest growth area is Asia Pacific. So we see opportunities across there. And on top of that, the S&P 500 is $16 trillion is indexed to that benchmark. And we have a good presence. And if you're in a foreign country, you want to invest into the U.S., that's a great product. We have a good product for you, combined with the option overlay strategy that you're seeing more promise. So there's a lot of good things here in terms of lining up behind secular trends. So now the management team's focus is going to be very much on using our tech resources, our internal resources and our capital to capitalize on those secular trends that we see.

Well, maybe that's a good pivot into this kind of first question here. Index options growth has been very robust over the last several years, flowed in the first half of the year, picked back up more recently in response to broader macro volatility. Is the first half of the year -- is this a pause from rapid growth? Is it a sign that index options have reached some level of maturity? It sounds like the answer is perhaps no. And maybe talk a little bit more about your confidence in the longer-term growth. How do you think about the TAM for index options in particular?

Yes. As Fred described, there's a number of confluence of secular trends coming into play here. If you take a step back, the options industry is on track for its fifth record year in a row. And so what we see really is a new phase. A new phase of usage for the volatility complex we have new users and new use cases coming to the market. When we think about that upward trend that we're seeing, if you look at this year alone, May, which was the lowest ADV month was 12% below the ADV for the rest of the year. But actually, it was 9% above the ADV in 2022 and 2023 and 100% higher than in 2021. So you can see that new growth there. We talk about new users and new use cases all of the time. And when we think about that, we see new customers coming to the complex, and that includes major liquidity providers throughout the specialization of other asset classes coming into the index options complex. And then we also see existing users using a greater diversity of functionality. That includes, for example, Flex options. And we see asset managers deploying new defined outcome products all of the time. So really, it's a new phase of usage and usage patterns, which has been much more resilient seeing higher highs and higher lows of adoption in the complex. And I mentioned in the opening remarks that SPX is on track for the third highest quarter on record. VIX options on track for the second highest, very close to third highest quarter on record. So the complex is growing and diversifying. And we interestingly find customers finding new use cases that we weren't quite expecting. An example I'd give you is really on 0DTE when we introduced more granular capability to manage portfolio -- to manage risk of loss portfolios, we didn't fully expect the level to which our liquidity providers would find utility in hedging the risk they've been put into in 0DTE back into the 0DTE complex. That was a use case that we haven't fully planned on, but actually had really turned out to really enhance the complex. So there's network effects of that deep pool of liquidity that Fred was describing, the ability to find new utility and use case in that is a real opportunity for us and in particular, as we think about adding new products around that core.

Maybe just kind of following up on your comments on especially institutional users. It sounds like maybe you've half answered the question I want to ask. But one of the narratives we've been hearing from you is that with 2 full years of data, you're seeing increased consumption of that data, which is being used to train -- trading strategies. To what extent is that like coming to fruition. From where we sit, it's hard to know, is this a reaction to the environment, volatility is picking up? Are new users, new hedge funds, new trading firms joining the platform. So what are you seeing in that regard?

You hit it on the head, really, particularly, if you look at, say, for example, almost the fifth, we saw a real much greater proportion of institutional engagement on that particular day. As you know, the Nikkei was down at 12% price for the U.S. open. Institutional customers really managing risk across the curve there. In terms of the data that we're able to provide to customers, that's also expanding as well, 2 years of 0DTE that means that we see sell-side banks, QIS desk coming forward with more systematic products that can now be trained off the back of that 2 years' worth of data and something that's also interesting as well as Fred mentioned, the horsepower of our technology resources are incrementally freeing up. And this year, we saw the capability to bring a new access layer architecture to our core trading platform, and that's a trading platform that runs all of our equities and derivatives markets around the world. That innovation really then opened up not just a monetization opportunity for that access layer architecture itself, but it refined the trading platform to the extent that we could add new instrumentation, new data and new insights, which those institutional customers really come to us actually to ask for every day of the week say, is there a new insight? Is there a new data that you're producing that I don't have I need in order to train and optimize my training activity. So as we evolve and innovate over time, there's more and more opportunities, more data sets for the institutional community in how you want.

What about on the retail side? So we -- Robinhood has just talked for some time about adding index options at some point in the future. And clearly, they made quite a splash in options in general. How do you think about the revenue opportunity, maybe specifically from that platform, adding the XSP and SPX. How long do you see the tail of additional retail platforms not yet offering those sorts of products in the U.S. and elsewhere?

Certainly, there's a gravitational effect of a major player in the market publicly adding index options. There's a fair missing out, and we see that in the U.S. And we actually also see that internationally, we have some great traction. In Korea, we're adding a few new retail brokers this year, and that's really created a pull for the rest of the market to want to add the capability for index options. Specifically on Robinhood, very excited that Robinhood with 24 million or so [ funded ] accounts will be coming online later this year. It will be a journey. It will be an event as they continue to roll that out, but what's really exciting was Robinhood is we are strategically aligned in 2 key areas. The first is that global view that actually the international investing community want access to their local market, but also particularly to the U.S., that's really an aligned strategic goal with Cboe. And then secondly, the focus that Robinhood on the active user -- the active trader space is really important for us. The active trader typically wants to trade in a manner that is really conducive to using cash settled index options. They want to trade all day. So the cash settled nature of a cash settled index option means that retail brokers allowed me to trade belt about whereas with a physically settled contract you might be cut off some point before we close. As an active trader, you want to trade spreads. European exercise is critical for that because you can't have 1 leg of that spread all the way from you and with the need to manage that. And then as Fred mentioned, the overwriting strategy of the active trader will eventually want to look at. The 60-40 potential capital gains treatment of a cash-settled index option really, really in that sweet spot. So overall, the products that we have are in that sweet spot of that active trainer base. From our part, we'll be really investing in incremental sales and marketing aligned with Robinhood and other retail brokers. And so then internationally, I mentioned Korea is a recent area we've been enjoying some success. And also in the U.S., there's a couple of handfuls still of retail brokers that don't offer cash settled index options that are in our target base and in our pipeline.

Great. Maybe one more question kind of on the index options complex. So a few months ago, the OCC proposed an updated intraday margin rule in response to the 0DTE margin trading. So based on your read the proposal, and it feels like investors are split, some kind of feel like this sort of nothing, some feel like this could be a headwind to index options growth. What do you think the impact could be to options trading activity?

Yes. A couple of things to say. Firstly, now is, of course, for the long term, we really encouraged and are supportive of prudent and robust risk management in -- within the industry to create a resilient and robust marketplace. So far, the OCC has already introduced a couple of new margin treatments focused around the shorter end of the curve. And so far, those changes, we haven't seen any appreciable difference to our overall market share when we look at on a notionally adjusted basis of the S&P 500 complex. There is another new proposal out there, which is receiving comments right now. And as with all proposals, we really do need to look at the details of that proposal. I think more carefully about it. The OCC calculations expect that in aggregate, there's less than a 5% increase in overall margin requirements. But as I said, we'll be commenting to the to the effect that we do want and really think there needs to be more time to digest and dissect this proposal to ensure that overall, it achieves the objectives of the marketplace and ensures the ability for participants to gainfully take a view and participate within the marketplace.

Great. Appreciate that. Maybe now pivoting to your international business. We talked about the international adoption of the U.S. options complex, but you've also done a lot of M&A. And over the last few years, you focused on bringing those international pieces under one roof Australia, Japan, those integrations are now complete. You've been clearly growing market share in those regions. You've talked about flywheel effects between cash, derivatives, data, maybe high-level next several years as all those platforms come under one roof with one to come at the beginning of next year. How do you see that opportunity unfolding? What is the opportunity for Cboe in the next couple of years?

Maybe I'll start and then give Dave some here. But if you listened to my comments earlier, so we definitely do see. We're starting increasingly to think about things in terms of an import business and an export business. On the import business, that is getting access and being the facilitator of this demand for access to the U.S. capital markets through utilizing Cboe. So we see that as a good opportunity for us. And so we'll continue to push on that, and we've seen lots of strong demand, particularly in APAC for that. But we also see opportunities on the export side, which is us taking what we do in the U.S. putting it into that local market. Now each market is different, so you have to be a little bit careful and be thoughtful about it all. But one of the advantages that Cboe has is once we have everybody on one technology stack, that will be very unique. I don't know another exchange that has that ability that we can build it in one market. And as it works and we learn, we can take that without a lot of cost and take it to another market, where as opposed to having to rebuild it and a whole different technology stack, we have this ability to sort of try and deploy in different markets, which is unique to Cboe. And we see -- when you're doing the export business, that takes time and so you have to have a longer view. Do you want to add anything to that?

Yes, absolutely. The point to make there also is that it's lower friction effort for us and a lower cost effort for us to deploy functionality around the world, but that also means that it's a lower friction and lower cost for our customers, which is very important. Customers are increasingly global with global priority list and the ability to offer to their own customers and new functionality set in a new region with a low effort to add that to the [ algo ] world is really, really quite powerful and really great for the traction we've seen. We've added 500 basis points of market share in Australia and doubled market share in Japan since we've taken possession of the asset. And from here, it's early innings. We've only just replatformed the technology. And so here that the ramp begins from now.

Great. So maybe just same topic is the last technology migration, which will happen next year. But maybe unlike in Australia and Japan, you've got a very strong incumbent in the Canadian market. So how do you see the opportunity for Cboe there? Does competition look different? Is the market share opportunity more limited? Or what are your ambitions?

Maybe just to start, I mean, I don't see Canada as much different than Australia. I mean we have a large established incumbent in both countries. And there was a lot of similarities between Canada and Australia. So -- but as you bring competition and you're breeding technology in and better access and lower latency and things like that, things just start to happen. And people still -- and between Canada and the U.S. has those two economies are pretty integrated in many respects. And so there's lots of opportunities where we call a North-South business there. But we do see -- and one of the unique things we have in Canada that we don't have in other markets is a listings business. So that's an opportunity for us as well.

Got it. Maybe kind of your last major geography, Europe. You've recently added single stock options with SEDEX, and you saw the first equity options trade, I think, earlier this year. So maybe talk about how activities trended there? How big do you think the total opportunity could be for that product specifically?

Yes. This is an exciting opportunity for us to export market structure into the European environment. We've got a real long view in Europe, and we were able to build on top of what is already a profitable and scaled infrastructure in Europe, owning a clearinghouse as well as having the largest cash equity stock exchange in Europe is a really powerful basis for us. With the introduction of single stock options, that then brought a single unit of offering. You've got single stock options, and you've got index futures and options as well, all in that same capital pool with a U.S. style market structure, transparent on exchange capability support from local market participants and global participants is very important when you're looking for a long view to change market structure. We're really pleased to bring on board interactive brokers as well as IMC in the second quarter of this year. The volumes have continued to trend upward since the addition of interactive brokers, more market maker liquidity providers are looking to come on to the platform to really enhance that profile that we've seen. So trading activity has increased with a summer lull in August, given the particular kind of concentration we have in retail activity at this point in time on the platform. And from here, it's really about continuing to innovate the product side as well as bring to bear the power of our global derivatives at Salesforce to be able to talk to those U.S. volatility and index funds and actually showed initial interest back in 2019 in coming into the European market.

Great. So maybe digging back to Canada, Australia, Japan. So when these integrations are done, what comes next? Is there more international expansion in your sites? Or is there more to do in these current geographies?

Well, we don't see a lot of international, not more geographic expansion. I mean, I think everybody in the market would love to be in India. I mean what's happened, the size of the economy, the demographics, the growth, the growth in the option side, but that's not easy as we've looked at it, we continue to look at it and see if we can find a way and to participate in that market. But other than that, I mean, basically, we're pretty comfortable with where we are globally. We did make a small investment in Japan. We'd like to be bigger in Japan. We have a good position in Australia, and we have a good position in the U.S., obviously, and we have a decent position in Canada. So I think it's more now taking all of the stuff that we've built over the last, say, 4 or 5 years. And once we've got all of this technology platform, as I said, it's unleashing all of our technology resources, our people resources and our capital sort of leverage up on this import and export concept that we've come up with that will drive growth going forward because there's -- continues to be everywhere I go anyway, when you talk to customers worldwide, they do want access to the U.S. market. They do want options in their market. And so there's lots of opportunities here for us over the longer term.

As we went through the strategic review, is more users, more use cases and coming -- focusing back into the core, focusing around derivatives. We think we've got a good runway of users and use cases around the globe to be able to innovate around the core and really lean into the power of the derivatives complex. And then on the data and access solutions business itself, we think we've got a solid runway of being able to sell data, [indiscernible] internationally of the growth in Data & Access Solutions came internationally in both Q1 and Q2 of this year. So we're really focusing back around our core and the real growth engine of the business is one of the priorities that we come out from the strategic review process.

And the growth of the retail investor. I mean I know it's very big in the United States, but it's going on everywhere.

Well, you kind of answered my next question, not just now, but in the last many earnings calls. But just in terms of incremental M&A, how do you feel about build versus buy? It sounds like you're pretty happy with the solution set and the plans to kind of lean in, but you did the small acquisition in Japan or took a stake in Japan next. So how do you think about M&A kind of going forward from here?

Well, there will be less. I mean, so we've learned that when you do a lot of small M&A, it can consume the organization and all of your technology resources, which is so important in the market. And all of our customers are thrilled we are focusing back on technology data and product innovation. So that will continue. So it be fewer M&A that's not to say there will be no M&A, but they'll be more strategic and with a strong strategic and financial rationale and probably more substantive that, that can actually make a difference for Cboe. Having said that, we will consider smaller M&A in certain spots that are strategically important to us. So one would be an in-market geographic acquisition that increases our scale to get us up while it's not an acquisition, I mean we do have ambitions in Japan. We see it as a big country that is changing. And so we'd like to have a solid position there, and we would have ambition over time to be the #2 player in that market. Secondly, we will look at market infrastructure around derivatives, in particular, with a particular focus on options. That's our bread and butter. That's what we're known for. That's our mainstay. So if we can build around market infrastructure for option trading and derivative trading, we would be interested in that. And last would be on the data and analytics side. We -- our DnA business, 2/3 of it is actually access, and we do a great job on access and some of the products that they talked about. Now the technology resources are out there in terms of the new access layer architecture, which is being received very well. And we'll now take that into the option market. But we still think we have room to run in terms of data and analytics. So those are areas that we would consider.

So I want to maybe ask about some of the new products and features, but maybe just in terms of pivoting from M&A to more organic growth, maybe for Jill, how should investors think about margin expansion with sort of these integrations largely complete? How do you think about the use of OpEx in terms of fueling again, geographic expansion, product -- new product out, things like that. How should we think about that trajectory?

I think the real focus is on margin stabilization is probably the key. And as Fred and Dave alluded to, we were very acquisitive over the past few years. And as we were integrating those acquisitions, it came with a step up in the cost base, which did cause some margin compression. So we have messaged that we are focused on, again, stabilizing that margin. If you take a look at our results for the first half of 2024. In the second quarter, our operating margin was up to 67%. So again, as Fred said, we are in the top 10% of the S&P from a margin perspective. Not looking to expand that to 75%, 80%, Rather, the focus is on disciplined expense management, but continuing to drive and grow that top line. I think there've been many illustrations referenced this morning as to how and where we see value to unlock, and again, grow that top line, contain the expense growth, which will then continue to stabilize the margin.

Got it. And as you complete these integrations, how do you think about, again, like the use of OpEx? Like does that free up more internal capital for new products? Is that the right way to think about it?

Yes, that's a fair way of thinking about it. The technology talent is just another good example. That's freeing up from the acquisition from the integration on the technology build. We are redeploying that into revenue-generating opportunities.

And then from a capital perspective, M&A lower on the list. How do we think about capital return? I think you did $180 million in repurchases in the first half of the year. I assume you want to be opportunistic to some extent, but how do we think about use capital in that way?

Correct. I think as we look at the pecking order of where we will allocate our capital, we have seen very high returns on organic investments. So again, we will continue to invest in the business, especially where high conviction, high-growth areas. Not all of them will strike gold and that's okay because these aren't hundreds of million dollar investments. These are some nominal investments for where we see a promise for organic growth. Dividends is another avenue. So again, we did announce a 15% increase to our dividend rate back in August. And then share repurchases have messaged that we'll be opportunistic. You have seen us be opportunistic in the first half of the year. And then just I think the balance is just maintaining some dry powder for potential M&A. Again, it's not that we are close-minded to it, just really those various valves, I would say, first, the organic investment. Again, as mentioned, the dividend rate share repurchases opportunistically and then just a bit of dry powder.

Great. Maybe pivot into some new products. I think on the Q2 call, you highlighted plans to launch options on VIX futures, variant futures. Can you maybe talk about these 2 products, in particular, how do they add to the current product suite?

Absolutely. The all product intervention at Cboe is customer led. It's about customer-driven solutions and serving the needs of the marketplace. And one of the many themes under need to cover though is about broadening our access and bringing more users and more use cases to that core complex. And the VIX options and futures and the various futures products are two great examples of that. Briefly on VIX options on futures, that's because it's an option on the future, it opens up a new customer segment to be able to trade volatility. It opens up a new customer segment to those that don't trade into security-based accounts, but have future space accounts. So that, in particular, for the international customer base, particularly interesting. The second thing that's interesting about VIX option and future is that because of the construct, we can actually offer an expiring every day of the week. And that is something that we've had significant demand for from customers to be able to do that for VIX options. So two great opportunities there. It will be a build like all product launches and all new customer segments you look to penetrate, it will take time, but very interesting product. We're very pleased to have that out before the U.S. election. Another product we're pleased to have out before the U.S. election is the Variance futures. Variance futures briefly are really the opportunity to capture the difference -- a pure play the opportunity to capture the difference between implied and realized volatility. Why is this interesting to us, one of the other objectives of the product development team at Cboe is to bring to simplify the complex and bring the OTC on exchange. The variance swap market has been really under heavy pressure from capital requirements, the bilateral capital requirements required to do the trade, which has really squeezed it more to the pulse of the capability of the larger institutions out there. By bringing future to the market, it's standardized. It's transparent and listed. It's cleared so that counterparties can be fungible. You don't have to just trade with the same counterparty. So what's the outcome there? The outcome is that small and midsized volatility hedge funds can now access this trade and this capability. The liquidity providers could now take part in the marketplace that was once OTC. And also, those large participants that participate OTC can now access this pool of liquidity as it grows as another alternative source for hedging. And then to bring it all back together, both of these products bring the need and the opportunity for customers to hedge back into that core complex. If you think of the center of gravity that core liquidity complex that we've got, adding these products around the outside, create their own network effects but also bring the -- grow the entire core market as a whole at the same time. Both will be journeys, both a time to take hold, but a very interesting product launches for this year.

Great. Maybe just in general, too, how do you think about products and how additive or important they are to growth relative to geographic expansion, education, other initiatives? I feel like it's something investors always struggle with, especially because such successful products, it's hard to see how much is this one going to be additive. But how do you think about the importance to your growth from product innovation?

Yes, it's always hard to tell. And as Jill said, not everyone will turn to gold. So we have a diverse kind of product innovation pipeline. And we talk to customers to really try and give any product we launched the best chance of success. So it's always going to be a mix and a blend. And if you look at history, any new product that's successful today did take time to germinate and take hold. There are a few exceptions to that, such as a Tuesday and Thursday, explorations that they are the exception rather than the norm. So product innovation, an absolutely critical part of our strategy, but it's not the only part of our strategy broadening access to core complex as part of the strategy in retail, international growth is also in there. So it's really a blend of all those things that you mentioned.

Maybe moving to the DnA business for a minute. So on the last earnings call, you noted that after first half performance, you now expect growth to be at the low end of the 7% to 10% range for 2024. What gives you confidence you can still hit the low end of the range at least for this year?

Yes, confidence remains in the low end of the range today. That's driven by a number of things, from sales, pricing as well as the new technology innovations, which diversify products. Sales, ACV in Q2 was double that -- ACV sales in Q2 with double that of Q1. Pricing, we had a variety of pricing changes coming through into this quarter, which will take hold through the rest of the year into next year. And importantly, that transition of the technology resource focus back into the call. We're already seeing early fruits of that labor from the access architecture that we're bringing into play. And then beyond 2024, the extra instrumentation we can put into the core platform creates new data, new insights that customers really want to avail themselves of.

We talked earlier about the kind of international flywheel with Canada set to be completed early next year, do you see that also as a driver for DnA acceleration in 2025?

We've seen that with other platform migrations. The year after the Australian migration DNA sales were up 11% and so it's a reasonable expectation that once on the same technology platform, a uniform data, that uniform format, the uniform access can bring new opportunities. Interestingly, in Canada, we have a number of customers that have been waiting for us to put the technology onto that common technology platform before engaging in the marketplace and then combine that with the listings business that we have in Canada makes for an interesting set of differentiated data for customers to think about once it's on that platform. Once we get it on to Cboe cloud for customers to take a packaged and bundled manner anywhere in the world.

And then what about longer term? We talked in the beginning of our chat about the longer term kind of TAM for index options. So how do we think about that for the DnA business. Does it simply follow the growth in options trading activity. People want to consume more data to mirror the trading. And to what extent is this within your control to come up with new data sets, new analytics tools? How important is access relative to the analytics? And what other factors should we be aware of as we're thinking through this?

Yes, certainly a very -- as you just articulated a very complex equation to try and dissect. But for our job is to run markets that customers want to connect to, driving access to drive market share and new interesting product capabilities, driving demand for that data. And then when you think about it, there's 27 venues around the world, that unique footprint that we have really gives us the opportunity to think about how can we curate new data sets and insights and how can we think of new benchmark products, new indices that customers might be interested in to really monetize that data set. So that's really the ongoing endeavor that we'll be looking at as we go throughout time.

With a couple of minutes left, maybe I'll kind of wrap 2 questions into one. So some of your peers are quite vocal about their cloud transformations. So curious where Cboe is in this process or how you think about it. And then at the same time, how do you think about the use of generative AI in the business, either in terms of cost savings or revenue-generating initiatives will kind of roll those 2 into 1.

So maybe I'll start and Jill or Dave can jump in here. So I think on the cloud, we're using the cloud quite a bit for sort of giving local access to data. But we haven't seen the demand from clients yet and say, well, I want my trades to go through the cloud. I just thought the way they think about it. They just want low latency and fast trading. And so from our point of view, there has to be a reason you're putting the cloud in. We use it. We continue to be interested. We continue to explore on it. But it's much more on the data side and taking that into the local markets that if you're in Japan or Australia, we'll have a cloud service there, that'll give you the data you need to sort of make your trading strategies work. But we'll continue to evaluate it, but it has to have -- it has to make sense from our point of view. And one of the unique things we have with options is that the trading volume, like the quote volume going through our systems is so high that you really do need a robust trading engine. And that's probably not best operated through the cloud at this point. I'm not saying it won't change over time, but today, that's not true. So we see that. In terms of AI, we are using it internally. We've done it on our development systems development side. So we are seeing some good traction there in terms of -- I think it's called Microsoft Copilot. And interesting now, we're trying to introduce it through the organization. We're running a program we call the AI Olympics, right? Basically people in the organization can come in groups and give us ideas of how they could use AI internally. So we're much more focused internally at this point as we learn the technology and get our people to learn the technology and how to utilize it. And that eventually will think about using it externally. But right now, it's much more internally focused until we get really comfortable with it.

And are there big cost save opportunities? I mean, it seems like you guys have really turned the focus around. Jill, if you come back in 4 or 5 years and kind of pick on you for the margins not being 75%, how should we think about the top line versus OpEx save potential?

I think at this stage, I wouldn't foresee much in the way of OpEx savings because we do run a fairly lean efficient organization assets. However, what I think it's going to do is make us -- I mean, the ability to automate more accurate, the efficiency, I think it's going to better enable us to continue to drive that top line net revenue growth. So again, time will tell a few years from now, continue to evaluate, but I think it's more about the enablement it gives us on the top line.

Well, we're just about of the time here. So we'll leave it there. But Fred, Dave, Jill, thank you so much. Pleasure to have you.

Thank you.