Inside the World's Largest Options Exchange: Where Milliseconds Mean Millions

Introduction to Cboe Global Markets and the Importance of Resilience

Michael Krigsman: Today on CXOTalk Episode 885, we explore the world of global financial exchanges with Chris Isaacson, Chief Operating Officer and Executive Vice President of Cboe Global Markets. We will discuss real-world examples of market resilience, the strategic balance between institutional and retail investors, the role of technology such as generative AI and ultra-low latency systems, and much more.

Chris Isaacson: Cboe Global Markets is one of the leading derivatives and securities exchanges in the world. We operate 27 markets around the world, including the largest options exchange in the world.

We have bellwether products like the SPX and the VIX index that you have likely heard of before. I am the Chief Operating Officer, as Michael mentioned, overseeing all of technology, operations, and risk for Cboe, as well as four business lines that we run.

Building Resilient Systems, Teams, and Processes

Michael Krigsman: You talk about resilience. Explain that to us. Tell us why that is so important for you.

Chris Isaacson: Our purpose is building trusted markets, and resilience and trust go directly together. Most people do not understand the exchanges because they are behind the front door. Investors usually interact with the market through an application on their phone or an application on the desktop, but they do not really think about how the exchange operates.

We match buyers and sellers in a fully electronic way, and they expect that that is just going to work 100% of the time. Resilience is part and parcel with how we operate our exchanges every day. It just has to work all the time, every time.

Therefore, we design and engineer our systems so that when things do fail, which any system that has ever been created has failure scenarios, you first assume that something can go wrong. You plan for those so that you can fail over very, very quickly and make it seamless to the users so they do not even recognize if a failure has occurred in the system.

When we think about our systems, they need to be fault-tolerant in order for them to be resilient for the investors and for the markets, especially during the most volatile times.

Michael Krigsman: This issue of resilience, and let's face it, you have to be up, obviously, right? If you go down, that is very expensive for a lot of people. When you talk about resilience, is it primarily technology? Are there cultural dimensions behind the scenes? Every time a pager goes off, does everybody in the company jump and say, "Oh, my God, we have to respond instantly"? How does that work?

Chris Isaacson: It is not just the platforms or the systems. It is the people and the processes we have in place. It is even the places where we work. We are always thinking about how to build and run resilient teams, and those resilient platforms come from resilient people.

The process we put in place demands that we operate in a resilient way. We need to have fail-safe systems. We need to have automatic failures, of course, that are engineered from the start. We also have very rigorous incident management protocols for our people, and we have very rigorous change management protocols we run through.

We run consistent testing of all the backup systems, both in our primary sites and our secondary sites. On weekends, there is really consistent testing through many, many different layers that are engineered and run by people, and then bolstered by processes that serve the people on the platforms to make us resilient.

Resilient people build resilient platforms using resilient processes. That is the way we think about it holistically. It is a mindset as much as it is a technology platform.

Michael Krigsman: You are Chief Operating Officer, which means that you are ultimately responsible for these operations. Can you describe the kind of behind-the-scenes demands that this places, both on the technology as well as on the people, and how you think about this, how you manage this? Is it the same or is it different from managing a business where there is less real-time pressure?

Chris Isaacson: It is different than managing a business where there are not mission-critical systems. We consider these mission-critical, systematically important infrastructure that we are operating around the world in different countries. It does require a different level of intensity and intentionality.

It forces you to have very, very good communication, both electronically and person-to-person, to make sure that everyone is in the loop immediately when any issue comes up, because things will go wrong. When they go wrong, you need to ensure that you have very rigorous playbooks that you can follow, and you can systematically and consistently follow them to solve whatever problem might come up.

It is a very fast-paced environment because, in the markets, seconds and nanoseconds count. Whenever anything comes up, we want to address it immediately and in a way that is as seamless to customers as possible.

That is actually part of the fun of running markets. Markets and technology are very, very dynamic. Over the last 20 to 30 years, you have seen the electronification of markets from trading pits to really fully electronic. We still have one trading pit that is quite active, but the rest of our 26 markets are fully electronic, and therefore, they are operating at the speed of light.

When something goes wrong, it can go wrong very quickly. Therefore, we are very quick in our response and in our communications. It also requires a level of monitoring and observability around each one of our exchanges and each one of our platforms. We have it instrumented in a way that we can see not just the front door, but every aspect of that system. The alerting is so dynamic and so pointed that it can highlight the exact issue that might be going on, which we need to address in a very precise way at the point of issue.

Michael Krigsman: Tell us about the training that you do of these folks. The folks that are doing this monitoring, I have to assume, are very, very experienced and have that intuition of how to respond in case of whatever type of blip or issue that may arise.

Chris Isaacson: We operate 27 markets around the globe, and the way in which we train our associates is based on a globally consistent platform. We operate a platform called Cboe Titanium, which runs all of our equities, options, and futures markets around the world.

I mention that because when you are training great associates and great colleagues, it increases the ability to train them in a consistent way on a consistent platform. Somebody sitting in Sydney, Australia, or Chicago, or New York, or London is looking at a very, very similar platform that is globally consistent but locally optimized to the nuances of that country, region, or market.

We can train them on the common aspects of a global platform, and then they can learn the nuances of their specific market. Now, that allows us to have a follow-the-sun model where somebody out of region, when the sun is up for them but not for us in the US, can know the market, know the technology, and respond very quickly in an appropriate way. We have invested a lot over the last three or four years in making sure that we do not just have somebody at the end of the line, but somebody who really knows what they are doing in an immediate way if something were to come up.

Michael Krigsman: I assume that all of this falls into that category of resilience that you were talking about earlier.

Chris Isaacson: Absolutely. It is all part of resilient people building resilient platforms using resilient processes.

Michael, I grew up on a farm in Nebraska, and a little personal anecdote here, I was thinking about where the resilience came from. I saw my parents go through ups and downs, and it is a very cyclical business that they are in. Invariably, on the farm, things would go wrong; things would break.

I was also a decathlete in college. You run 10 events over two days, and you have to think, "Okay, did the last event go well? It does not really matter. I have to get to the next event, and I have to be resilient through that next event and be focused and keep calm and carry on in the moment." We try to hire people that are really humble, hungry, and smart, and are willing to really stay cool and calm during crazy times in the market.

Michael Krigsman: I want to make sure everybody knows that you can ask questions. If you are watching on Twitter/X, use the hashtag #CXOTalk. If you are watching on LinkedIn, just pop your question into the chat.

Handling Market Volatility and Preparing for Extreme Scenarios

Michael Krigsman: We have some questions that are coming in. But Chris, tell us about volatility and how you respond to market volatility.

Chris Isaacson: It is a very broad and expansive topic. At Cboe, we actually created the VIX Index decades ago. If you are watching financial news, you will see the VIX, and you will see it across Bloomberg and other tickers you might see. We have measured volatility, created an index for it, and we trade futures products on the VIX Index. There is a whole volatility ecosystem of product and trading around it.

Your question is around how we handle volatility in volatile times in the market. I want to mention even recent history. In April, there was a lot of tariff war talk. There was Liberation Day. There was an incredible amount of volatility that occurred at the beginning of April.

You do not prepare for volatility during volatility. You prepare for market volatility and the stresses that will come to your exchanges and platforms in the quiet times, well before it arrives. That goes into the engineering discipline we have. We are always building our systems to handle at least 2X what we have ever seen on the largest day.

At a more micro level, we handle much multiples of that on a second timeframe or a minute timeframe so that you are ready when the market bursts very episodically. The way the markets work is that there are a lot of times where there is low volatility. The messaging is roughly directly related. The messages we must handle, such as orders, quotes, and trades, are roughly directly related to how volatile the market is.

During times of extreme volatility, when the VIX goes above 50, 60, 70, or even 80 during COVID, you would see extreme messaging traffic as firms, customers, and investors are trying to manage their risk. You must be prepared beforehand.

That is where we are testing on a very regular basis at multiples of what we have ever seen. I am extremely grateful to the team that I get to lead. Everything we do here is a team effort; there is no single person who does it all. Because of all their great preparation, in April, we were able to handle things without issue. We had prepared for months and really years of engineering discipline in advance to handle, on a single day in April for instance, more than a trillion messages without issue.

It is very rare to be in a business where you can talk in trillions of messages managed in a day. I am very grateful for the team that we made it through, as did, frankly, the market ecosystem, other exchanges, and clearing houses. While there was great volatility, the market infrastructure handled it well.

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Role of a COO in Maintaining Market Stability

Michael Krigsman: To what extent do you see your role as being at least partially responsible for maintaining market stability during periods of extreme volatility?

Chris Isaacson: I view my role as COO of an exchange operator, and really overseeing exchanges, to be a steward of the markets and to operate fair and orderly markets as much as it depends on us.

We do not trade. Our customers, who are broker-dealers, they trade. They are the ones who put in the orders, the bids, and offers, and so they determine the price. Our job is to steward the markets, to create fair and equal access, and then to operate fair and orderly markets and to put trading mechanisms and safeguards in place so that if prices get dislocated, they do not get dislocated for very long or too far.

Lessons from Market Crises and Risk Management

Chris Isaacson: In my history in the markets, which is now 20-plus years long, I have been through a lot of different points of crisis and volatility, from the great financial crisis to the flash crash to COVID to recent tariff wars. Each time, the collective market, not just Cboe, learns lessons and then we apply those.

For instance, the flash crash, which occurred in 2010 in the US, really had to do with how electronified the markets had become. There were not quite enough safeguards in place to avoid runaway prices going too high or too low. After that, limit up/limit down was implemented in the US equities market, and that has been incredibly effective since then in avoiding stock prices in the US going awry beyond certain trading limits.

It was an idea, frankly, that was borrowed and copied from the futures market, this limit up/limit down. That is just one example of good trading risk management measurements and improvements that have been taken. Also, market-wide circuit breakers have been put in place so if the S&P 500 goes down a certain amount, I believe it is 7%, 13%, or 20%, the markets will take a pause overall and not keep trading to give people a chance to catch their breath and then come back with a more cool head. Then the market can decide what the right price is.

It has been rewarding to be part of those changes in the market because I view our role as a steward of the market to create fair and orderly markets for the good of investors.

Michael Krigsman: You are creating the context or the container, if you will, within which the markets can operate. Your job, as you are describing it, is to make sure that that context, that environment is fair, balanced, and works no matter what. Is that an accurate way to put it?

Chris Isaacson: I think you are spot on, Michael. That is exactly right. We need to create a fair and equal playing field for all investors and trading participants to operate and to come and trade. The rules need to be very fair, open, and transparent, and the playing field needs to be level. We take that with incredible seriousness.

Generative AI and Risk Controls in Financial Markets

Michael Krigsman: We have two questions. The first two questions are very similar, relating to generative AI with a little bit of a twist in each case. Let me take the first one. This is from Anthony Scriffignano, who is the former Chief Data Scientist of Dun & Bradstreet. He has been a guest on CXOTalk and now does all kinds of interesting things that he is not allowed to talk about, so I know well enough not to even ask. Anthony says this: "Particularly in times of disruption and geopolitical volatility, small perturbations can cause significant short-term market effects. Please share your thoughts on the need to detect gen AI introducing disinformation, allowing malefactors to capture short-term gains."

Chris Isaacson: The use of generative AI in financial markets is not new. Our customers, we do not have full visibility into how they are using generative AI to inform their trading decisions or investment decisions. We are using generative AI to help as a productivity multiplier primarily. We formed an AI Center of Excellence and have 1,200 of our associates that have been trained.

As I think about answering your direct question on how we avoid small changes from Gen AI having an outsized impact on the market, I think it goes back actually to those maybe less interesting but very important risk controls that we have in place.

Regardless of how the order was generated or how the order was informed, the risk controls are really important to make sure that if an algorithm goes amok because of generative AI, the risk controls are going to stop it from going too far awry. We have seen those risk controls that have been added over and over and over, that have stopped bad things from happening, where you might have an algorithm or whatever cause an issue in the market.

That is not maybe as sexy as you would expect to hear from an answer. But I think it is the truth. Good risk controls like limit up, limit down, like drill-through protection, like market-wide circuit breakers, et cetera, help prevent runaway algorithms from having an outsized impact on the market.

Michael Krigsman: Let's go to LinkedIn now. This question is very similar.

Managing Risks in AI-Driven Trading

Michael Krigsman: It is from Preethi Narayan. She says, "Given the rapid rise of generative AI and trading strategies, how is Cboe preparing to manage the risk of herd behavior where multiple market participants may act on similar AI-generated signals?"

Chris Isaacson: Preventing that is probably impossible. We can see the effect of it if there is herd behavior. The effect of it would be that price movements are outsized for whatever the triggers in the market might be.

That goes back to how the risk controls within the trading firms are set. All trading firms have chief risk officers, and this is their day-to-day work, thinking about what orders go out the door to the exchange. There are multiple layers of controls.

Within the exchange, there are risk controls as well to say how much of a price movement is allowed before the order is rejected that might be generated by AI. Then if for some reason orders get out there that become clearly erroneous or are obvious errors, there are actually rules and securities law in the US and elsewhere that define what is an erroneous trade.

That is called obvious error in options or clearly erroneous in US equities. Those are very well-defined criteria. Those trades are adjusted or they are actually taken down as error trades in unique situations. There are multiple layers of controls in order to preserve fair and orderly markets.

Michael Krigsman: Essentially, as you said, you are focused on the activity. You do not worry about the intentionality, what is in the mind of the trader, but you are looking at the actual trade that is made. You have systems to evaluate those trades, the risk and so forth, as you were just describing.

Chris Isaacson: That is right. We look at the effect. Understanding the exact intent or the origination of the order is sometimes not clear to us.

As an exchange operator, we also have an obligation and take it very seriously to do regulation on our exchanges. We do market surveillance of all of our markets, looking for any manipulative behavior or behavior that might be out of order. There are well-worn patterns of what manipulative trading behavior looks like.

Our independent regulatory department, with their separate staff, look at that, and they follow up with trading participants if they see anything that does not look like it is fair or orderly or has the wrong intent. That is a key part of the way that the exchange industry has been created. That was part of securities law put in place at least in the US in the 1930s.

I think it is good regulation that exchanges have market supervision or market regulatory departments that look after the fair and orderly markets from a manipulation perspective to ensure there is none going on. That, again, is independent of our trading platforms and systems. The data flows into the regulatory system, but that is done by separate people that are really focused on making sure that there is no manipulation whatsoever.

Michael Krigsman: How do you divide the regulatory or the evaluation function between the exchange versus external regulators? And really quickly, please, because there are so many questions stacking up now.

Chris Isaacson: We take that responsibility on. In different jurisdictions, there are different stories. In some countries, the prudential regulator will do a lot of the surveillance. In other countries, we do a lot of the surveillance on each market. Then there is shared surveillance sometimes, depending on the market. It varies by country and by region. But one way or another, it is covered either by us, the exchange, or by the prudential regulator.

The Evolution and Limits of Trading Speeds

Michael Krigsman: On Twitter/X, we have a question from Chris Peterson. This is more on the technology side. He is wondering, number one, if you have seen an evolution in trading speeds over time or if it has been big step changes. And number two, do you see any floor where trades just cannot get faster with current technology?

Chris Isaacson: There has been a constant evolution of trading performance and speeds. Latency is going down, throughput is going up, et cetera, with data rates always increasing. But there have been a few times where there have been step functions in performance.

Twenty-plus years ago when I started in the industry, a few tens of milliseconds mattered, and that was state-of-the-art. Now, single-digit or tens of nanoseconds is really what matters to people. That has been a constant evolution.

There have been times when technology has had a step function forward, with the introduction of field-programmable gate arrays (FPGAs) that most highly sophisticated trading firms use. I think that really had a step function on how fast our customers can respond to our market data to enter orders.

Also, the different vendors we use—network equipment vendors, server vendors, switch vendors, et cetera—have made step functions at certain times that allow for much more deterministic and fast delivery of market data or inbound messaging. It has been a constant evolution and has been actually really fun to be part of.

Your second question, I think, was how... Is there a limit to how fast things can go? The real answer is yes, of course, because the speed of light is the speed of light. Are we approaching that? I would say yes, but there will always be an incentive to get faster.

It would just be that the marginal improvement or reward from being faster, I think, will decrease over time. But what we have seen is, as I said, the timescales have gone from milliseconds or seconds down to nanoseconds. Those nanoseconds matter enough that trading participants will continue to invest very heavily to ensure they can respond.

Other people might have different opinions about whether or not fast markets are good, but the fact of the matter is fast, efficient markets create good competitive prices for investors. On the whole, I think this evolution has been great for investors.

Michael Krigsman: Lizabeth Shaw has an add-on question to this. She says, "When is speed not your friend?"

Chris Isaacson: Speed can not be your friend if the market is moving super fast. If you are not trading, if you are investing, I think speed does not necessarily matter that much to you. If your time horizon is days or weeks or years, which frankly I will tell you I am an investor and not a trader, then speed does not really matter as long as I can log into whatever app I might have, with whichever broker, and I can get a fill whenever I need it within a few seconds.

I would say that in that way, it does not really matter. It may not be my friend, but it does not matter as much. If I am a trading participant where my timescale is very, very tight, then I think it can be your friend or your enemy depending on whether or not the trading participant has invested enough in their technology infrastructure to be competitive.

Leadership During Market Turbulence

Michael Krigsman: Let's grab another question here. This is from Twitter, from Tyshiana Johnson, who says, "You talked a lot about resilient people. What is something you have found helpful when leading during turbulent times?" And I am going to add, not just turbulent times, but what have you found helpful in leading when the market is melting down?

Chris Isaacson: It is easy for people that are not familiar with the markets to be overcome by the moment when it is very volatile and things can be moving very fast. But I have had the great pleasure of working with incredible people for 20-plus years in the market. Many of the people I work with today, I have worked with for more than a decade.

They have learned to keep their calm and think very clearly during times of stress when the market is going quite crazy. That calmness, to keep calm and carry on, I think is absolutely vital. I think it is vital if you are investing, if you are trading, but also if you are running exchange platforms. You need to keep your head, keep composure, and keep poise to make clear, quick, concise decisions that are in the best interests of the markets and investors.

I have seen the team that I get to work with do that consistently, always thinking about what is the best for the market and on what timeframe do we need to make this? You need to prioritize the things that have to be done immediately and do it with excellence.

Michael Krigsman: Sounds like the airline pilot model. Have you ever heard airline pilots talk during times where there is some problem going on? Air traffic controllers. It is extraordinary the level of calm rationality that they have as literally their world is potentially ending.

Exploring 24/5 and 24/7 Trading in Financial Markets

Chris Isaacson: Yes. I think that is a great analogy, a great example. Clearly, the stakes are higher there because people's lives are at risk. Here, people's lives are thankfully not at risk in the markets, but it is very important because people's livelihoods and their financial wellbeing are. We take that seriously, and we need to make great decisions with clear minds and not be ruled by emotions or hysteria.

Michael Krigsman: On Twitter/X again, Craig Dorchester says, "Speaking on market volatility, he has heard a lot about 24/5 trading. How does Cboe view the practicality of moving to it, and are there any hurdles you would anticipate with this shift?" And I am also curious about not just 24/5, but 24/7, because we have all been in situations where we see trading happening outside of normal hours, and us investors are twiddling our thumbs as either the market is shooting up or the market is tanking, and we cannot do anything about it.

Chris Isaacson: 24/5 trading is here, and for the markets that do not already offer it, is going to come even more. Cboe already offers 24/5 trading, or nearly 24/5 trading, in our futures market. VIX Futures and other futures products, as well as SPX and VIX options, and our FX markets, all trade 24/5 today, or nearly 24/5.

I think your question may be more specifically about the equity markets, or more specifically about the US equities markets. Today, on exchange, we are open from 4:00 A.M. to 8:00 P.M. Eastern, and there is a lot of industry chatter and good discussion about making that 24/5.

We at Cboe will be ready for 24/5 trading as soon as the industry plumbing is ready, which includes the consolidated tapes as well as the DTCC, which is where all trades are cleared in US equities. As soon as the industry infrastructure is ready, we will be ready to offer that.

I think it is good. You can trade off-exchange 24/5 today, but I think investors really want a more stable, transparent way to trade between those hours that are not covered today, which would just be 8:00 P.M. Eastern to 4:00 A.M. Eastern. That is the eight-hour window which we plan to close. We have the technical capability to do it, but the industry needs to be ready, because there are a lot of industry processes that depend upon some sort of change window: the trading day rollover, cash movements, margin movements.

There is a lot of stuff that goes on overnight, for instance, in the US, or whatever overnight might mean in that country, that needs to be re-engineered to make sure that trading can be seamless. Because we want the investor experience to be good. When they sell, we want them to get their cash when that trade settles. When they buy, we want to make sure they get the security in their account. All that back-office stuff needs to be worked through very clearly.

Now, 24/7. Clearly, digital assets have been trading 24/7 for years now. We actually have a clearing system, Cboe Clear US, that can clear transactions 24/7. That is where I eventually think a lot of asset classes will go, but what does not happen on the weekend is, right now at least, you have Fedwire windows and banks. The banking system, traditional finance, a lot of that is closed on the weekend.

Are you going to have a huge margin call on Friday to make sure there is enough capital in a clearing house to trade over the weekend and handle any volatility that might happen over the weekend? I think there is probably a place for stablecoins or tokenized assets to play in truly getting to an efficient 24/7 market. But in this way, I think digital assets are probably leading, and we will probably get there over time with more standard equities.

Michael Krigsman: Very interesting, the influence of digital assets, digital cryptocurrencies on existing markets. That is a fascinating connection, I think.

Chris Isaacson: Yes, it is. I think there is a lot to be learned both ways. You see now the proper and good connection of traditional finance with digital assets or decentralized finance, and a bit more clarity coming to what is a digital asset and how it should be regulated. We welcome the greater clarity so that, under proper regulation, all assets that customers really want to trade and invest in can be done in a seamless and consistent way.

Michael Krigsman: Folks, now would be a very good time to subscribe to the CXOTalk newsletter so we can keep you up to date on shows that we have coming up. You are part of our community. You guys are awesome, and we love your questions. Go to cxotalk.com right now, and sign up for our newsletter, and that way you can join us every time we do this. It is really fun. Okay, let's go to another question.

Leadership and Building a Global Team Culture

Michael Krigsman: I am just taking these in order. On Twitter/X, Tishiana Johnson comes back and she says, "How do you manage and build culture among teams that are spread out across multiple countries and time zones?"

Chris Isaacson: For me, one of my passions is leadership development. I help sponsor the Cboe Lead the Way program with our head of HR here at Cboe. I am just really passionate about building leaders, because as leaders get better, then everybody gets better, and the culture gets better.

From the very beginning of my career, I have read a bunch of leadership books. It is a discipline. Leadership is a discipline that people can get better at. Leaders set culture.

Here at Cboe and across my career, I have really wanted to work with people that are humble, hungry, and smart. That comes from a book. Patrick Lencioni wrote a book called The Ideal Team Player, and I just really enjoy reading his books, amongst others, and try to live those values here at Cboe, amongst other values about being better together.

If you find people that are humble, hungry, and smart, that live our values, and are competent, then they can connect in a distributive fashion around the world. In-person collaboration is also very important. We fly around the world a fair amount in order to have those really critical in-person connections, especially to do intensive training in different regions so they can learn that common platform but then be able to execute when the time comes.

It is a continual investment to build culture. I think culture is as or more important than strategy. Even though this is a highly technology-driven business, I believe it starts and ends with people. I care deeply for people and I want people to be led by great leaders doing great things that are humble, hungry, and smart.

Navigating Market Volatility and Personal Reflections

Michael Krigsman: This is from Anthony Scriffignano who comes back and he says, "Your decathlete background is perfect for your role. It is definitely not a sprint. Crisis and volatility also demand the ability to pivot immediately. What skills do you rely on to get others to move with you quickly, but thoughtfully during uncertainty that demands action?"

Chris Isaacson: I think this is built with experience. We have folks that have been in the markets for decades, that have learned you have to be agile in the way you think, because the market is new every day. No market is the same as it was an hour ago or a day ago or a year ago. They need to be agile in their thinking.

As we hire young people out of college, they learn how to deal with the dynamism of the market and to respect humbly that this is going to be a different situation. We are never going to see two situations that are exactly the same. With that humility, you say, "Okay, we are just going to learn. We are going to apply what we have learned from past experience, and then we are going to modify it as need be to deal with whatever might come in new market conditions." That is what I would say from a how to handle new dynamic situations.

Michael Krigsman: Andie on Twitter/X says, "It sounds like you have a tough job as there has been so much volatility in the markets lately, putting additional stress on financial market systems. What do you enjoy most about your role and what do you enjoy the least?"

Chris Isaacson: What I enjoy most is dealing with really smart, humble, hungry people that are super dedicated and committed to building trusted markets. They believe in our purpose, and they believe in what we are doing, that building trusted markets helps people eventually, and ultimately, invest their capital, and it is about their financial wellbeing. That is by far the best part, working with great, great people.

It can be stressful, but being a former athlete, I like the intensity that comes with the market. At times it can be a bit much, in the most stressful of times, but I do really like an intense work environment. I think it is a very competitive work environment. One of our guiding principles is competitive team spirit, so we can match the intensity of the markets together.

Michael Krigsman: I love the questions that come in, and I always try to prioritize questions from the audience over my questions.

Efficiency and the Role of Data in Financial Markets

Michael Krigsman: This is now from Arsalan Khan, who has an interesting question. He said, "What processes should be abolished to make things more efficient?" He also wants to know the role of data in all of this.

Chris Isaacson: The markets need to continue to evolve to make things more efficient. You have seen in the last couple of years, there has been a settlement cycle in the US and other countries that has taken two, maybe three days, and that has been the standard practice for many, many decades for settlement of trades to happen.

That has now gone to T+1, so on a T+1 basis. I just think there is a lot of disruption and re-engineering to be done on the post-trade side to ensure that there is even more timely clearing and settlement of transactions that will allow for easier movement and access to capital in a very capital-efficient way around the world. I would look for more disruption and re-engineering there.

Michael Krigsman: Arsalan is asking about the role of data, and I am sure that is a big important topic, obviously.

Chris Isaacson: Yes. You can imagine, Arsalan, with at least a trillion messages in a day, we have an enormous amount of data that is growing within our enterprise. It is highly sensitive, confidential data from our trading participants.

We have built a unified data platform where we put all the data that comes from our exchanges around the world. It happens to be running Snowflake on AWS on the cloud. We are giving access to our data analysts and our data engineering team, and creating insights from that that we can use to inform our discussions with trading participants about how they might trade better, to inform them, or maybe to educate them of what we are seeing that they may not see yet.

We are also using that data to then provide insights to them and saleable products, like time-stamping services and other market data products, to give them insights into how they might trade better on our exchanges. Data is incredibly important to us and to our customers. In many ways, data is the fuel of the markets. The sale of data or the use of data is a precursor to people trading on our markets and in our products. We definitely want to get our data closer to customers in the formats they can use.

Managing Risk and Educating Investors in Derivatives Trading

Michael Krigsman: Derivatives like options and futures can lead to tremendous gains and losses very quickly. You touched on this, but how do you manage risk to Cboe, your platforms, partners, and customers from derivatives trading that goes wrong, that goes awry?

Chris Isaacson: I might actually disagree with you on this point. I think derivatives, while any asset can be misused, were really created to manage risk and reduce risk if used correctly. We are very intent on the education of investors, both retail and institutional, in the proper use of options.

For instance, Cboe created the listed options industry in 1973, 52 years ago, and the Options Institute was created about 40 years ago by Cboe, because we are passionate about education. Derivatives, especially options, are actually there to reduce risk, enhance income, and cap your risk while changing your return profile. The goal is that you can actually increase your risk-adjusted returns without increasing your risk.

An example of that is something that has been talked about in the news: zero days to expiry options that have really taken off in the last few years and retail investors have used heavily. The level of sophistication of those retail investors has come along, and what we found is that 90% of those trades have capped risk, either simply capped at the cost of the premium or they are complex trades that are multi-leg, so they have capped their offset. We think that is a really healthy indication of the ecosystem, that if derivatives are used correctly, they reduce risk.

For those very rare situations where people are misusing them, we have all sorts of risk controls in place to cap them or to reject their orders, as do the brokerages themselves and the trading systems that they offer their customers.

Michael Krigsman: You used the phrase, "used properly," and I think we all know examples of retail investors who were told by their broker, "Buy these options." The investor relied on the broker, did not have an understanding of these complex trades, and therefore, lost very significant amounts of money. To what extent is, or what role does Cboe play in helping ensure that that kind of thing does not happen?

Chris Isaacson: That is where the Options Institute comes in. Our customers are the broker-dealers or the retail brokerage platforms around the world that connect directly to our exchanges. They themselves have pretty substantial education programs that we then seek to help augment with the Options Institute and investor education.

Education is never done, and it is never uniform across every single last investor. I will say there is good regulation and controls in place, too, around know your customer and the level of education or sophistication you must have before you can get an options account.

For instance, when you sign up for a brokerage account, usually what happens is you can only trade equities or stocks. Before you would get anything on margin, before you would be able to trade options, and before you would be able to trade futures, you have to progress in your maturity and sophistication. I think that is good practice. Again, education and sophistication are not uniform, but there are a lot of controls in place.

Michael Krigsman: This is again from Andie who says she or he is a retail trader and uses Cboe's SPX options. "What are your views on the growth of retail trading in general? Anything Cboe is doing to expand market access and products?" I will just ask more broadly, how do you balance the needs of institutional versus retail investors, including maintaining the fairness that you have spoken about?

Chris Isaacson: It actually leans directly into some multi-decade secular trends we have seen. The growth of the retail investor is one of those major trends. The retail investor, at least in the US, has been growing in importance and number since the late '90s at least, with the electronification of markets and the enablement of technology.

The growth of retail investors is one. Something that is very connected to that is the growth of options. Finally, the desire of access to the US markets, which are still the leading financial markets in the world as far as size and access to liquidity.

Those three all speak to the retail investor, and we view that as a very positive development. Look back 20 or 30 years ago, a lot of the products, services, and systems that were available to institutional investors—sophisticated tooling, sophisticated risk controls—were only available to institutions. Now they are really at the fingertips of the retail investor. As I mentioned previously, that retail investor is much more sophisticated because of those tools and because of that education. We are very excited about that, and we are here to serve the needs of all types of investors. They have different needs, they have different profiles, and we want to offer them products and markets that can satisfy them all.

Future of Markets: Cross-Asset Trading, Digital Assets, and AI

Michael Krigsman: We have a question from Chris Peterson. "Cboe runs many markets. Are there any moves towards mixing asset classes, for example, crypto plus legacy, within markets, or markets merging or breaking national or regional boundaries? And more or fewer markets over time?" And, obviously, your view towards the future of where this is all headed.

Chris Isaacson: There are examples where we have cross-asset order types, for instance, where you have an options trade with a futures leg, or an options trade with a cash equity leg today on certain order types. I think we will see more of that within each country or region over time, to the extent it does not already exist.

Connecting markets globally, across jurisdictions, I think is more difficult, potentially, outside of digital assets. That is more difficult because of the regulatory structures and jurisdictions that are in place. More cross-asset, maybe more cross-geography, but that will take coordination amongst government authorities or regulators within those countries.

Michael Krigsman: Any thoughts on where digital assets and cryptocurrencies are going?

Chris Isaacson: They will become more mainstream, as you have seen in the last year or two. Assets under management will continue to grow. I would mention a couple of things. The introduction of crypto ETFs, of which Cboe listed six of the first 11 in January of 2024, I think was a milestone moment in digital assets, where people that normally just invest in equities then would have access to digital assets through the ETF wrapper.

I think that has opened up a whole new level of users. We have indices on digital assets. I think there will be more and more indices and more and more access to digital assets, at least for the top few names or digital assets out there.

Michael Krigsman: Any final thoughts on what we, as investors and technologists and people listening, really need to know about exchanges like Cboe that we probably do not know because it is hidden behind the scenes?

Chris Isaacson: Building trusted markets is a passion for us. As an investor, for retail investors, I would mention that because it is a passion for us, which I think ends in a good result for investors, institutional and retail alike.

If I look back to when I started in this industry in the early 2000s, the access that investors had to different tradable products and how long it took for them to trade, that took quite a while. It would be measured in seconds, sometimes minutes, and the commissions were very, very high.

If you look at how things have changed over time, you have near-immediate access to almost any asset you want to trade or invest in at an incredibly low cost with very low friction, which I think is incredible in this industry. Retail investors have the tools and sophistication at their fingertips like institutional investors did 20 or 25 years ago.

Michael Krigsman: On that topic, Arsalan Khan has jumped in with a last question that is a really interesting one. He says, "Do we need humans when AI can do options?" But let me turn that question around and say, should we as people be relying on our judgment when we can use machines, data, and AI to make trading decisions that can analyze more data faster than we ever possibly could?

Chris Isaacson: Humans will always be needed, and humans need to be in the loop, at least during different timeframes and at least in developing those strategies. Over time, of course, markets will continue to evolve and strategies will evolve, and the level of human involvement will vary based on the strategy. But I think humans will always be needed. Humans will need to embrace AI in order to harness it and use it for our benefit.

Michael Krigsman: Fair enough. With that, we are out of time. A huge thank you to Chris Isaacson, Chief Operating Officer and Executive Vice President of Cboe Global Markets. Chris, thank you so much for being here with us.

Closing Remarks and Gratitude

Michael Krigsman: I am very grateful to you.

Chris Isaacson: Thank you, Michael, and thank you to all of your followers for all the great questions. It has been my pleasure.

Michael Krigsman: Folks, before you go, subscribe to the CXOTalk newsletter. Go to cxotalk.com. You are part of our community, and we want you back. You guys are awesome. Such great questions. There is no show next week, but the following week, we are back into it. We have amazing shows coming up. Check it out, and we will see you again next time. Take care, everybody.