Cboe Global Markets, Inc. Q2 FY2025 Earnings Call

Thank you for waiting. My name is Tina, and I will be your conference operator today. I would like to welcome everyone to the Cboe Global Markets Second Quarter Earnings Call. It is now my pleasure to turn the call over to Ken Hill, Head of Investor Relations. You may begin your conference.

Good morning, and thank you for joining us for our second quarter earnings conference call. On the call today, Craig Donohue, our CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Dave Howson, our Global President, will provide some comments as he hands his responsibilities to Chris Isaacson, our Chief Operating Officer; and Cathy Clay, our Global Head of Derivatives, who will join us for Q&A. We will conclude our prepared remarks with Jill Griebenow, our Chief Financial Officer, who will provide an overview of our financial results for the quarter as well as discuss our 2025 financial outlook. Following their comments, we will open the call to Q&A. I would like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we'll make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise after this conference call. During the earnings call, we will be referring to non-GAAP measures as defined and reconciled in our earnings material. Now I'd like to turn the call over to Craig.

Good morning. Thank you for joining us today to discuss our second quarter results. Having assumed the CEO role in early May, I have been impressed by the outstanding results Cboe delivered while navigating an evolving macro landscape as well as a variety of corporate developments. During the second quarter, Cboe grew net revenue 14% year-over-year to a record $587 million and adjusted diluted EPS by 14% to $2.46. These results were again driven by robust volumes across our derivatives franchise, both in multi-list and proprietary index option products, strong new sales growth in our Cboe Data Vantage business, resilient industry volumes in our cash and spot markets, and disciplined expense management. Building on a theme we've seen gain traction in recent quarters, the second quarter strength was broad-based. All three categories, Derivative Markets, Cash and Spot Markets, and Data Vantage produced double-digit net revenue growth on a year-over-year basis contributing to record first half results for the firm. Taking a closer look at the second quarter trends, our Derivatives franchise delivered a record quarter with organic net revenue increasing 17% year-over-year. Options volumes increased on the back of heightened market volatility as investors used options to help manage risk in a quarter marked by both sharp sell-offs and even sharper rebounds. In our multi-list options business, net transaction and clearing fees revenue was up a robust 32% given higher industry volumes and positive pricing trends. In our proprietary products, SPX options volumes jumped 21% year-over-year to a new record average daily volume of 3.7 million contracts, while many SPX options average daily volume rose 50% to a record 108,000 contracts. Even more importantly, the second quarter demonstrated the full utility of our S&P 500 volatility toolkit as well as the resilience of our diverse customer base. As volatility surged in April, traders gravitated to our established SPX and VIX contracts for liquidity and market depth with SPX options setting a single-day record of 6 million contracts on April 4. Much of the increase in April came from institutional investors using index options to hedge particularly longer-dated options, which saw the biggest increase relative to other tenors. While institutional activity was robust in April, retail traders pulled back as evidenced by decreasing share of 0DTE volume in April. While retail investors tend to step back when volatility jumps unexpectedly as it did in April, they typically reengage once volatility moderates, which is what we observed in May and June. SPX 0DTE volumes rebounded to new highs ending June with a new record monthly ADV of 2.2 million contracts. We've highlighted the resilience of SPX 0DTE trading in the past and it's encouraging to see it reaffirmed once again last quarter. In the past year alone, we've seen the VIX Index hit a high of 60 twice and SPX intraday volatility jump to a post-global financial crisis high. Through it all, SPX 0DTE options have continued to grow propelled by wider adoption and new use cases. In Q2, they made up a record 57% of overall SPX options volume. Looking ahead, we remain positive about the growth potential of options as an asset class and our proprietary index options franchise. Continued uncertainty regarding monetary and trade policy is expected to support the continued use of options to dynamically manage risk. Structural factors such as increasing retail participation and international expansion should provide further tailwinds. Anecdotally, we see encouraging signs from international brokers. They continue to expand access by extending trading hours and by increasing functionality for complex and simple orders across Cboe's proprietary index product set and a greater number of symbols. These efforts are well aligned with Cboe's initiatives to deliver education and local market intelligence to a global audience. Moving to Cash and Spot Markets. Second quarter net revenue was up a strong 11% as our European cash equities business continued to drive robust performance for the category. Led by the strength in Europe, our Europe and Asia Pacific segment delivered the strongest year-over-year percentage growth of any Cboe segment for the fourth quarter in a row achieving an impressive 30% increase. The increase was driven by a 39% year-over-year growth in net transaction and clearing fees, resulting from strong industry volumes and solid market share gains in Europe across our portfolio of products. Higher nontransaction revenues in the segment also contributed to the growth with revenue up 21% year-over-year. In other areas of global equities, last week, we announced the decision subject to consultation with regulators to close our Japan equities business on August 29. This will include the Cboe Japan proprietary trading system and Cboe BIDS Japan business. This decision reflects our philosophy of directing resources to the highest potential return activities across our organization, specifically exiting the equities business and redeploying time, energy, and investment dollars to supporting Japanese customers through our derivatives and market data capabilities. We continue to see great demand from Japanese market participants for access to international markets, U.S. and European market data, and our global derivative products. To support these efforts, Cboe will maintain a presence in Japan focused on sales and client engagement. Turning to our Data Vantage business. Net revenue for the category improved by 11% on a year-over-year basis. During the second quarter, we saw a positive contribution from all three major components of Data Vantage with subscription-based data, analytics, and index products producing strong year-over-year gains. Looking more closely at the second quarter dynamics, international demand remains a key driver of new data sales with roughly 45% occurring outside the U.S. in the second quarter. We are looking to accelerate that growth with new hires to lead our market data sales as well as our analytics and indices businesses in the Asia Pacific region. Beyond strengthening our sales capabilities, we're leveraging new technologies and developing new products to enhance our offerings. We're accelerating the migration of our Derivatives data to the cloud and actively exploring new global access points where we see growing demand. On the product front, we're leaning into the secular trend in derivatives-based ETFs while leveraging our expertise to create indices and partnerships with our index providers and issuers. On access, our Dedicated Cores offering, which provides superior performance and determinism continued to perform well as we see the benefits of reallocating resources to revenue-enhancing activities. The interconnectedness and importance of the Data Vantage business at Cboe should not be understated. Each enhancement to our market access layer, subscription-based data sales, and even real-time values from the index business provides an ecosystem benefit to Cboe in the form of better customer engagement and improved activity levels for our trading businesses. Before I conclude this portion of my remarks, I want to take a moment to sincerely thank Dave Howson for his contributions during his time here at Cboe. While we'll miss Dave, I also could not be more pleased to elevate Chris and Cathy, both of whom are strong and proven leaders here at Cboe. Cboe is on solid footing, and we are well positioned to deliver on the opportunities ahead.

Thank you, Craig. I just wanted to briefly take the opportunity to express my gratitude to all of my colleagues here at Cboe and our customers that have taught me so much over the years. I am proud to have been part of such transformational change over the last 12 years as part of the Cboe and Bats management team, and in particular, the last three years as President. Over which time we've expanded our global presence through establishing a unified Cboe mindset. The firm's success has been a collective achievement as we've managed through a tremendous amount of change while laying the foundation for future success. I am grateful to be able to hand things off to such capable leaders in Chris and Cathy as I return home to be closer to my family. I have known Chris and Cathy for 12 and 8 years, respectively. They are not only both long-time close partners but seasoned leaders and respected market practitioners with a track record of driving innovation in the industry. And before I hand it over to Jill for the financial update, I want to say a heartfelt thank you to the analyst and investor community. I have enjoyed engaging with you all on earnings calls and numerous conferences over the years and will truly miss our interactions.

Thanks, Dave. Cboe posted another strong quarter with adjusted diluted earnings per share up 14% on a year-over-year basis to $2.46. I will provide some high-level takeaways from this quarter's operating results before going through segment results. Net revenue increased 14% versus the second quarter of 2024 to finish at a record $587 million with each of our categories producing healthy year-over-year growth. Specifically, Derivatives Markets net revenues grew 17%. Data Vantage net revenues grew 11% and Cash and Spot Markets net revenues grew 11%. Adjusted operating expenses of $213 million were up 8% on a year-over-year basis. Adjusted operating EBITDA of $387 million grew 19% and adjusted operating EBITDA margin expanded by 2.3 percentage points to 65.8% versus the second quarter of 2024, reflecting strong performance across our businesses as well as disciplined expense management. Turning to the key drivers by segment. Our press release in the appendix of our slide deck includes information detailing the key metrics for our business segments, so I'll provide some highlights for each. The Options segment delivered its fourth consecutive quarter of record net revenue, with 19% year-over-year growth. Total options ADV was up 20%, with a 17% increase in index options volume and a 22% increase in multi-listed options volume. North American Equities net revenue was roughly flat on a year-over-year basis. Access and capacity fees increased 16% compared to the second quarter of 2024, and industry volumes supported the transaction side of the businesses. Europe and APAC produced another quarter of record net revenue with a 30% year-over-year increase, reflecting particularly strong growth in Europe. Net transaction and clearing fees for the segment were up 39%, while non-transaction revenues were up a combined 21%. Futures net revenue decreased 14% from the second quarter of 2024, primarily due to lower volumes. And finally, our global FX segment also achieved another quarter of record net revenue, with 19% year-over-year growth, driven by a 17% increase in average daily notional value. Looking at our Cboe Data Vantage business. Net revenues were up 11% on an organic basis in the second quarter. Net revenue growth continued to be led by strong new subscription and unit sales, which accounted for roughly three-quarters of the total net revenue growth for the quarter. The remaining growth was attributable to pricing changes, which continue to play a more modest role in our Data Vantage growth strategy. As Craig mentioned, we remain focused on scaling our product set by leveraging our advanced technology and differentiated product offerings. We believe these additions, combined with ongoing brand investments and a sharpened focus on sales outcomes, position Data Vantage for sustained long-term growth. Turning to expenses. Total adjusted operating expenses were $213 million for the quarter and up 8% on a year-over-year basis. Higher compensation and benefits, depreciation and amortization, and technology support services expenses were partially offset by a year-over-year decline in travel and promotional as well as professional fees and outside services expenses. Moving to our 2025 guidance. We are lowering our full-year expense guidance range to $832 million to $847 million from $837 million to $852 million. This decrease reflects our year-to-date operating discipline and the impact from our decision to close our Japanese equities business, partially offset by higher incentive compensation. Regarding the wind-down of our Japanese equities business, we expect to record an estimated pretax charge of approximately $5 million in the third quarter of 2025, primarily related to non-cash impairment of indefinite-lived intangible assets and technology-related software. This charge is expected to be excluded from adjusted operating expenses. From an expense savings perspective, we expect the impact on adjusted operating expenses to be in the range of $2 million to $4 million in 2025. Going forward, savings are expected to be in the $10 million to $12 million range on a normalized annual basis. Partially offsetting some of the lower expense components mentioned, our updated guidance also factors in a higher bonus accrual given both our strong year-to-date revenue trends as well as our healthy expectations for the second half of the year. In addition, we anticipate some reacceleration in marketing spend throughout the remainder of 2025. Overall, we believe our expense guidance range provides flexibility to invest in the business while also positioning us to deliver on our shareholder return objectives. Looking at our full-year guidance more broadly, we are increasing our full-year total organic net revenue growth guidance range to high single digits from mid- to high single digits given our strong first half results. We are reaffirming our Data Vantage organic net revenue growth range of mid- to high single digits, following solid year-to-date trends and a steady outlook for the second half of 2025. Our full-year guidance range for CapEx remains at $75 million to $85 million, and we are lowering our expectation for depreciation and amortization to $53 million to $57 million from a range of $55 million to $59 million. We continue to expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% for the full year. And while we don't provide formal guidance on interest income or interest expense, we expect that interest expense net of interest income will be approximately $1 million in the third quarter of 2025. On the capital front, we remain pleased with the health of our financial position, exemplified by the $1.2 billion of adjusted cash on our balance sheet, an attractive debt profile, and a leverage ratio of 1.0x. In the second quarter, we repurchased $35 million in shares, bringing year-to-date repurchases to $65 million. Alongside our share repurchase activity, we returned $66 million to shareholders in the form of a $0.63 dividend during the quarter. Looking ahead, we remain focused on effectively allocating capital while leveraging our flexible balance sheet and free cash flow profile to produce sustainable shareholder value. Lastly, I want to provide an update on our investment in the 7RIDGE funds holding Trading Technologies. This week, Trading Technologies announced an investment transaction that is expected to result in Cboe fully exiting its investment in the 7RIDGE fund that currently owns Trading Technologies. The transaction is expected to close in the fourth quarter of 2025 after regulatory clearance. Cboe expects the transaction to result in the gain recorded against the June 30, 2025 carrying value of its investment in the 7RIDGE fund. While I cannot provide any incremental details around the potential gain until the transaction is complete, I will note that consistent with our historical treatment of minority investment gains and losses at sales, we anticipate adjusting out any future impact incurred with the exit of this investment from our non-GAAP metrics. Now I'd like to turn it back over to Craig for some closing comments before we open it up to Q&A.

Thank you, Jill. While I have only been in the CEO role at Cboe for a few months, I wanted to leave you with some of my early impressions of the company and what you can expect from me and our senior leadership team moving forward. First, I have been impressed by the power of Cboe's suite of cash, data, and derivatives products, our global presence, and our market-leading technology, all underpinned by a highly capable management team and associate base. As reflected in today's results, our portfolio of businesses is performing at a very high level. At the same time, with the continued guidance and support of our Board, we are an organization that remains committed to improving, adapting, and positioning ourselves to deliver more value to shareholders over time. This not only means exploring organic and inorganic investment opportunities around key capabilities but optimizing the growth and profitability in our core businesses. We are committed to bringing rigorous financial discipline to how we allocate capital, both dollars and people across the firm. Our decision to close our Japanese equities business was representative of that thought process in action. Moving forward, we remain committed to continually assessing our business portfolio to produce the best long-term returns for shareholders. As I mentioned, several areas at Cboe are performing exceptionally well from cash to data to derivatives. The second quarter was an outstanding one, and the record first half results showcase the power of the business. Heading into the second half of the year, I am energized by the opportunities ahead. I'd now like to turn the call back over to Ken for questions and answers.

At this point, we'd be happy to take questions.

And our first question comes from Patrick Moley with Piper Sandler.

Yes, Craig, welcome. I’m really looking forward to working with you. I was hoping you could share one or two key priorities you have as you step into this role and how they might differ from past leadership. Additionally, Fred mentioned a willingness to consider significant M&A opportunities. Given your experience with larger-scale M&A, how do you see the potential for inorganic growth at Cboe moving forward?

Okay. Thanks, Patrick. I would say coming into the role, first of all, I'm very impressed with the team and the strategy that we have had in place. And I think that strategy is producing great results for the company. I'm going to continue to work with the team to be very focused on optimizing growth in our core and leaning into the secular trends that are supporting, I think, fantastic growth dynamics in our proprietary and multi-list derivative products as well as our Data Vantage businesses. In terms of M&A, and even though I have obviously a strong background in that, I guess what I would say is that's something that we'll be working on as a team over time. Anything that we choose to do is going to be something that has to be compelling from both a strategic and a financial rationale perspective. There's nothing that we need to do right now. We've got a very flexible balance sheet. But my feeling is we should look at all of our growth opportunities, focus on optimizing the core, look at things we can do to grow around and outside of our core, but we'll remain opportunistically focused on whether there are also opportunities for us to consider growing inorganically. But that's something that we'll work on over time.

And your next question comes from the line of Dan Fannon with Jefferies.

Great. Craig, welcome back to the quarterly earnings cycle. Just to follow up on your previous comments here, just optimization, you've mentioned a few times, and obviously, you've already proactively made the changes with Japan. But where are you and just kind of the evaluation of the businesses in your footprint? And how should we think about greater optimization or more changes like you've already done in the near term?

Well, I think, obviously, we've got really great dynamic growth across our whole business portfolio. But I'm working with the team to look at everything that we're doing. We're doing that in a rigorous way. We're trying to make sure that the end goal is to just make sure that we're allocating all of our capital, both financial and especially human capital, to taking advantage of our best growth opportunities. And I've been impressed so far and I think the Japan equity business exit is an example of that. People are being rigorous and thoughtful about where we can best redeploy our capabilities. So that's something that we're going to keep doing. We have a very broad business. There have been a lot of things that Cboe has tried to do over the last 5 or 6 years, and we're just going to stay focused on that because I want to make sure that all of our resources are focused on our best growth opportunities.

Our next question comes from the line of Ben Budish with Barclays.

I have a question regarding the Data Vantage guidance for the year. The sequential increase in Data Advantage revenues appears to be quite strong this quarter. If the upcoming quarters continue in a similar vein to the last few, it seems possible that the guidance could be conservative. I am interested in understanding if there are any considerations regarding the revenue model. Is there any reason that revenues shouldn't keep increasing sequentially? Could you also remind us of the various components and key drivers, such as new unit sales, pricing, and other factors as we refine our models?

Yes, happy to, Ben. This is Cathy. We remain confident in our full-year guidance, just recognizing that quarterly results will fluctuate, some landing above and some below the expected range. But we are on track to deliver against our full-year objectives. Regarding Q2, you may recall that last year's first half performance created a favorable comparison for Q1 and Q2 of this year. Our business has started out on a strong footing. There's no denying that across all of our verticals of data and analytics and our index business, but it has been further supported by the momentum of the newer initiatives that Craig talked about, a dedicated course, for example, which is really starting to bear fruit. Looking ahead, we do believe that Data Vantage is well positioned for sustained long-term growth, and we continue to invest in our global access and expand where we do business. And we are seeing about 45% of new recurring sales from outside of the U.S. We're really leaning into our new distribution channels like Cboe Global Cloud, where 85% of our sales are from international clients and we're leaning into strengthening our sales and execution, making sure that the Derivatives team and the Data Vantage team across the globe are really working hand in hand because we know that the data sales are often a precursor, a leading indicator of the derivatives volumes that we might enjoy. So we're really just leaning into additional distribution capabilities, new product suites, and our technological capabilities going forward. So very confident in the full guide that we give.

Your next question comes from the line of Eli Abboud with Bank of America.

I wanted to drill down into the long-term growth algorithm for index options volume. When 0DTE starts to reach maturity whenever that may be, what new themes, geographies, or products do you have the most conviction can provide that next leg of growth?

Good question. 0DTE, we continue to just be confident that these volumes are quite sustainable. When we think about our expansion with retail broker-dealers, both in the U.S. and abroad, we feel that there's still a lot of surface area of opportunity here. Retail traders tend to start trading in other products, and then as their sophistication level rises, they move into the index option complex, primarily for the benefits of index options in general, the cash settlement, the European exercise potential, tax treatment benefit. So we really think as we continue to partner more with our retail broker-dealer clients, and that means co-marketing agreements where we actually get a little better view into the data that comes from those partners of ours as well as really we're in very early innings in the Asia Pacific region where we see incredible demand for our products and our data, including we really think that this is early innings to sustain the 0DTE complex. And if you look at really just some of the numbers in the SPX options in general, we got three daily records this year, two in April and just one recently on July 31. So we really think the secular tailwinds for this space are strong, but appetite from the regional traders to move up in the curb. We really think both of these things really drive future sustainability and growth.

Your next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Maybe just a question on the competitive environment of single stock 0DTE and how that's evolving? And what does it mean for the SPX index options going forward?

We actually see the single stock 0DTEs as not cannibalistic to the index option 0DTE more for the ETF 0DTE space. We really feel that the difference between single stock options, the things I just talked about, cash settlement, European exercise, really they're completely different animals. And we see a lot of retail traders coming into the single stock or the ETF options and then migrating into the index option space as that level of sophistication of that trader continues to grow. And we're very optimistic as we see new entrants come into the option space, but then begin that journey of sophistication through ever-increasing new data and analytics that these retail broker platforms are providing them. It's no surprise that the retail broker-dealer platforms are investing heavily in new analytics and new functionalities to really court that active retail trader segment. So that's a great development for us to partner with the retail broker-dealers as they really try to secure additional engagement from their active trader base.

Your next question comes from the line of Alex Kramm with UBS.

Craig, welcome. We look forward to working with you again. It's been a while. Look, in terms of strategic priorities, one of the most important relationships that Cboe has is probably the one with S&P Global on your index relationship, which obviously is a big part of your business. I know the renewal of that is still several years out. But since you just stepped into the new role, just wondering how you view that relationship and to what degree you should have appetite to maybe change the structure a little bit longer term to make it a bit longer term since you don't want to go through this habit of having to renew this every few years. So just wondering how you view that whole relationship and how you could change it.

Yes. Thank you for the question, Alex, and good to hear from you. I would say just philosophically, I mean, I have the same view here at Cboe as I did at CME, which is S&P is a really long-term and deeply valued partner. I think we've had a long and very successful relationship. We see the world the same way, and I think we have a lot of the same goals and objectives when it comes to how to successfully grow the franchise. So that's something that we'll be continuing to work on with them. I don't really have a lot to say at this point on that, other than I think applying that same long-term commitment to making sure that our relationship is mutually beneficial and that we can grow together and that we bring innovation and growth to our segment of the S&P landscape is critical from their perspective as well as ours. So we'll continue to work on it. I mean, obviously, as much as possible. We've been together for more than 40 years. I'd like to see that continue for at least another 40 years, and we have to find the way to do that with our partners at S&P.

The next question comes from the line of Owen Lau with Oppenheimer.

Could you please give us an updated thought on attacking the globalization theme? Is there anything you would do differently over the next 12 months? And how do you plan to capture this opportunity here?

Owen, this is Chris Isaacson. If I understand your question about globalization, Cathy addressed this in her response to the Data Vantage question. We believe the biggest global opportunities lie in enhancing our import-export activities, particularly bringing flows from outside the U.S. into our markets, especially in U.S. markets and our derivatives products. Data is typically the starting point for this. Cathy did a great job highlighting that we are currently seeing 45% of sales coming from outside the U.S. and 85% of Cboe Global Cloud originating from outside the U.S. I hope that answers your question, Owen. If it doesn’t, please feel free to ask again.

Your next question comes from the line of Brian Bedell with Deutsche Bank.

Welcome back, Craig. I'm excited to collaborate with you. From a broader perspective, could you share your thoughts on how the securities exchange industry has changed and how you anticipate it will continue to evolve? Specifically, I'd like to understand your views on retail client engagement—do you see it as traditionally cyclical, or do you believe there are stronger structural trends at play? Additionally, what are your thoughts on the shift towards 24/7 trading and the potential for tokenization? How significant do you think the challenge is for U.S. regulators to implement these changes? Finally, if you believe in these trends, how are you planning to position yourself to take advantage of them?

Thank you for the question. What we've observed over the past several years is that the retail trend appears to be a long-term development rather than a cyclical one. There's ongoing growth and sophistication in this area, and we believe this trend will persist. We plan to continue to engage with it actively. The environment is quite dynamic, and exchange companies have become diverse, representing a wide range of businesses. We are also focused on remaining relevant and competitive, seeking growth opportunities beyond our traditional core. Areas like digitization, tokenization, events, and prediction markets are increasingly intersecting with our traditional business due to the rise in retail activity. We are considering these aspects as we assess our position but cannot provide a specific direction just yet. We are aware of the broader landscape and the significant changes occurring, and we aim to compete effectively and deliver value amid this evolving environment.

Your next question comes from the line of Kyle Voigt with KBW.

So Craig, I echo the comments of everyone else looking forward to working with you. We're at much later stages of direct exchange consolidation, at least relative to the last time you were an exchange CEO. And since then, many of your peer exchanges have since turned towards other non-trading businesses such as information services as a pathway for inorganic growth. I guess, what are your thoughts on that strategy of diversifying away from trading-oriented businesses as an exchange operator, and is a move towards non-transaction revenues a part of the larger goal in terms of inorganic growth for you? Or kind of how do you view that as a part of your inorganic strategy?

Yes, I appreciate your question. This is my third or fourth month in this role, so there's a lot of work for my team and me to consider regarding potential inorganic growth through mergers and acquisitions. I'm not ready to answer that question fully today, but I understand the landscape you've described. The exchange company sector has matured and evolved over the past 15 years, and some of our peers have successfully expanded beyond traditional operations. They have diversified their business and revenue streams in compelling ways. We are aware of this and are considering it broadly, but I want to emphasize that we have a solid core business that is growing, and there is still significant potential for further growth. We are in a strong position, but we will approach any inorganic growth strategies with discipline, rigor, and caution, ensuring that we are thoughtful and meaningful in our actions.

Our next question comes from the line of Michael Cyprys with Morgan Stanley.

I wanted to circle back to some of the commentary on tokenization and blockchain. More of an industry, bigger picture-focused question. Just given all the advancements that we're seeing in technology and the evolving regulatory backdrop, I'd just be curious your views around tokenization and blockchain. What use cases do you find to be most compelling? What are some of the hurdles, roadblocks as you think about implementation across the industry that could ultimately, if resolved, overcome, how that might be overcome that may lead to broader adoption as this technology has been around for many years. So curious your views around what the big unlock might be? And then what implications might this have for the industry?

Michael, I appreciate your question. It’s a very relevant topic right now. Tokenization has been a discussion point for some time, but it appears to be gaining more attention, especially in relation to U.S. equities and its potential applications. There were earlier questions regarding increased access and the possibility of more constant trading. If tokenization can facilitate greater access or enable 24/7 trading, we would support that. However, there are challenges to address, such as counterparty restrictions, Know Your Customer (KYC) regulations, and Anti-Money Laundering (AML) requirements. It’s important to recognize that these are still securities, and there have been extensive conversations with regulators indicating that even if something is tokenized, it can still qualify as a security. We need to consider what issues tokenization is addressing and if those issues are applicable to highly liquid assets like U.S. equities that already trade efficiently. The real potential here lies in increasing access and encouraging more participation from international investors in the U.S. market.

Your next question comes from the line of Chris Allen with Citigroup.

Craig, welcome back. I wanted to revisit the topic of single stock 0DTE. Based on our internal discussions, there is a push in the industry and an expectation that it will likely be launched early next year. Do you think there is potential for changes in the structure to address some of the issues Cathy mentioned earlier? Are there any specific challenges that could hinder the launch? Additionally, how much impact do you expect on SPX 0s, especially on days when major stocks are announcing earnings?

Yes. It is a hot topic just like tokenization when we think about expanding access to 0DTEs in single stocks. And the industry is kind of digesting what this means in terms of how to do basic things like how do we process corporate actions, how do we make sure that the end investors is safe for additional earnings announcement type activity. So there is definitely an appetite to expand into more expiries for single stocks. And we're all for that. We believe, again, that when we bring retail traders into products that they want to trade because they like the name or they're interested in the theme, they eventually grow in that journey of sophistication and find their way to index options. And so we compete in the multi-list space in all of these initiatives for the single stock. We're watching very closely as the industry gets through these conversations about how do we do this in a proper way so that we have broad adoption and participation from all the market participants that would need to have access and need to feel safe in this new environment. But we're there. And when they come to life, we'll list on day one, and we'll be there as well.

Our next question comes from Eli Abboud with Bank of America.

I believe the changes to the OCC margin model become effective this fall. How material are you anticipating that event to be? And in particular, do you think the margining changes will affect the growth trajectory of 0DTE?

Great question. A hot topic really of last year about what the impact of the OCC new margin requirements were going to be. I have to commend the OCC for really taking the time and listening to industry participants. They did that really well, giving everyone a little bit more opportunity to understand what the full impact of those OCC changes would be, and the industry has had time to really think about what they need to do to minimize the impact. And so I think we're in a really good position in a different position probably from this time last year, where I think the estimate was about a 5% capital requirement impact down to about a 1% of the new estimation. So when we talk to market participants where this was a really put out the fire issue last year, we're not hearing that. We believe market participants have adjusted and digested and are ready for the changes that are coming this fall at OCC.

And with no further questions in queue. I will now turn the call back over to the management team for closing remarks.

Great. I just want to thank everybody for joining us today. It is good to be back. I'm enjoying working with the team and looking forward to a great last half of the year, and we'll see you next time.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.