Cboe Global Markets, Inc. (Cboe: CBOE) — The Toll Booth Survived Its Stress Test

Date: August 7, 2026 Coverage status: UPDATE — follow-up to my report dated June 7, 2026 Price reference: ~$286.58 (August 7, 2026); ~105.0M diluted shares; market cap ~$30.1B; net cash ~$0.7–0.8B Sector / GICS: Financials — Financial Exchanges & Data (Capital Markets) Fiscal year: December 31 · CIK 0001374310 · HQ Chicago, IL

⚡ Claude’s Take

This block is the author’s own subjective opinion. It is general information, not investment advice, and no recommendation should be inferred from anything else in this article. The analysis that follows (Sections 1–15) takes no position and carries no price target. This opener is the one place a directional call appears.

Verdict: UPGRADE to BUY / accumulate — from HOLD in the June 7 report. Conviction: Medium-High. Accumulation zone ≈ below ~$300, with the fat part of the pitch under ~$270; a defensible fair-value band is ~$310–360 (≈ 22–25× a FY2026 adjusted EPS of ~$14.00–14.50, discounted for the 2032 license cliff). Above ~$380 you are paying for terminal value you cannot underwrite. At today’s ~$286.58 — 21.7% below the May high and 18.8× forward earnings — the risk/reward has genuinely improved since June.

Tag: “The market ran the bear case as an experiment. It failed.”

Two months ago I called this a HOLD because the price embedded too much confidence that 2025’s volatility-fed volumes were permanent, and I named the single test that would flip me: does SPX/0DTE volume roll over when the VIX rolls over? That test has now been run — not by me, by the market — and the answer is no. Mean VIX fell from 20.49 in Q1 to 18.34 in Q2 to 16.87 quarter-to-date, with an August 7 close of 14.90. Over the same stretch index-options ADV went 6,136k → 6,208k → 5,990k in July, the last of those +34% year over year in a 17-handle-VIX month, with 0DTE hitting a record 66.2% of all SPX volume and index RPC rising 3% to $0.953. Meanwhile a permanent regulatory change I did not have on June 7 — the SEC-approved elimination of the Pattern Day Trader rule, effective June 4, 2026 — removed the $25,000 account minimum that had gated exactly the small retail accounts that trade 0DTE; management measured an immediate 11% month-over-month jump in SPX 0DTE ADV and retail’s share of it going from 53% to 57%. That is a structural demand shift, not a volatility cycle. Management raised the FY organic net-revenue guide twice, now to mid-to-high teens, and Q2 adjusted operating margin printed 70.4% against ~66% for FY2025. And the multiple fell while the price rose 1.7%, because TTM adjusted EPS went from ~$11.90 to $12.97: 22.1× trailing and 18.8× forward, the cheapest forward multiple in the exchange complex, for the fastest grower in it.

What produced the opportunity was a genuine scare, and I want to be precise that it is not nothing. On May 29 the CFTC approved Kalshi’s bitcoin perpetual future and issued a policy statement classifying digital-asset perpetuals as futures rather than swaps; CBOE fell 9.8% and then 8.4% on June 1–2, worse than every peer, and TD Cowen named it the most exposed. The literal product is irrelevant to Cboe — Futures is 4.2% of net revenue and its transaction fees were flat. The precedent is not: a regulator willing to bless 24/7, retail-facing, cash-settled instruments on vertically integrated venues outside the exchange perimeter is a regulator that could one day permit S&P-500-like exposure to be synthesized without an S&P DJI license, which is the substitution risk I flagged in June as the more insidious of the two. But that is a multi-year terminal-value question that got priced as a one-week event, and Cboe’s answer — Cboe Predicts binary options on XSP launched June 23, plus a filed suite of company-KPI event contracts targeting a September/October launch — puts prediction markets inside its own licensed, OCC-cleared perimeter rather than watching them grow outside it. Framing: this is neither a crowded momentum trade nor a falling knife. FactorsToday assigns CBOE zero loading on both Momentum and Value, a −0.29 beta, a +0.22 LowVolatility loading and a staples-like sector profile, with 30% idiosyncratic volatility against a 16% model R² — 84% of its variance is its own news. This is a low-beta defensive compounder that repriced 37% on resolvable, company-specific regulatory noise. That is the setup where a two-year fundamental horizon has an actual edge.

Conviction: Medium-High. The one thing that keeps it from High is capital allocation, and it is a real blemish: the stock fell to $231.51 on June 29, the CFO said on the call that management “would have welcomed the opportunity to be more aggressive, particularly given what we viewed as a notable discount,” and the company bought $32.6 million — 4.4% of half-year net income — at an average of $256.61, while sitting on $2.28B of cash at 0.7× leverage. Not one insider bought a share in the open market during a 37% drawdown. What flips me bearish: a disclosed S&P DJI renegotiation on worse terms or any signal S&P is internalizing index derivatives; a large non-core crypto/tokenization acquisition (Donohue said management is “open to a lot of things” on inorganic clearing expansion — the ErisX scar is $461M deep); or two consecutive quarters of index ADV declining year over year. What flips me to High conviction: index ADV holding up through a genuine sub-15 VIX quarter, plus an early license renewal, plus evidence the buyback authorization has been re-armed with a pre-sized 10b5-1 plan.

📈 Stock Price Action — Five-Year Event Map

Over five years CBOE has compounded from a $99.22 low (May 18, 2022) to a $365.93 all-time high (May 13, 2026) and now sits at $286.58 (August 7, 2026) — 21.7% below that peak, inside a 52-week range of $230.18–$365.93. The remarkable feature is not the trend but its recent character: prior to 2026 the largest single-day move in five years was −5.6%. In the last hundred days the stock has printed a +9.0%, a −9.8%, a −8.4% and a −9.4% session. A stock the factor model classifies as a negative-beta, low-volatility defensive spent the summer trading like a biotech.

Cycle narrative. (1–2) The 2022 trough and the two-year recovery that followed were an industry-wide repricing, not a Cboe story: the 0DTE product cycle turned a mature options exchange into a growth business, and the market paid for it in stages. (3) 2025 was the year the debate crystallized — the company set records while the tape kept asking whether an April VIX of 52.33 had borrowed volume from the future. (4) The January-to-May 2026 melt-up resolved that debate in the bulls’ favour prematurely; the May 1 Q1 beat produced a +9.0% day, the largest up-move in five years, and the stock made its high twelve sessions later. (5) The June 1–2 collapse is the single most important event on this map and it was regulatory, not operational: the CFTC’s May 29 approval of Kalshi’s bitcoin perpetual future, together with a policy statement re-classifying digital-asset perpetuals as futures rather than swaps, was read as opening a route for retail-facing, cash-settled, 24/7 derivatives outside the national-securities-exchange perimeter — and CBOE fell hardest in the group, roughly double Nasdaq and triple CME. (6) Two weeks later a tentative US–Iran peace agreement took the VIX down sharply on the same day SpaceX options launched across rival exchanges, letting the market run the volatility-cyclicality and the share-erosion arguments simultaneously. (7) By June 29 the stock had lost 36.7% from its high in seven weeks. (8) The July 31 print answered both arguments with data — record net revenue, record index volumes, index RPC up, guidance raised — and the stock recovered 34% in a month. (9) The August fade tracks the VIX rather than anything Cboe did. Every price move above is a Fact taken from the AZI adjusted price history; every attributed cause is an Interpretation.

1. Executive Summary

Cboe Global Markets operates the largest US options exchange complex and the world’s pre-eminent volatility franchise. The economic engine is narrow and deep: the proprietary, single-listed S&P 500 (SPX) options and VIX complex, which no other exchange may list, supported by an exclusive licence from S&P Dow Jones Indices running to December 31, 2032 (full licence to 2033) and by the proprietary VIX methodology. Around it sit four other segments — North American Equities, Europe & Asia Pacific, Futures, Global FX — plus Cboe Data Vantage, the recurring market-data and access business. The structural thesis established in the June 7, 2026 report is unchanged: this is two businesses in one ticker, a contract-protected monopoly tier earning roughly 15× the revenue-per-contract of a commoditized, fungible tier that is losing share to a supply boom of new venues.

What changed in the eight weeks since that report is the evidence, not the structure — and it changed in the bulls’ favour on the one question that mattered most. The prior memo’s central reservation was that ~24× trailing earnings capitalized too much of 2025’s volatility-fed volume as permanent, and it named the explicit falsification test: sustained low volatility with SPX/0DTE ADV rolling over. Mean VIX has fallen from 20.49 in Q1 2026 to 18.34 in Q2 to 16.87 quarter-to-date, closing at 14.90 on August 7. Index-options ADV over the same stretch went 6,136k (Q1) → 6,208k (Q2, a record) → 5,990k in July, the July figure +34.0% year over year. 0DTE reached a record 66.2% of SPX volume in July. Index RPC rose 3% year over year to $0.953. The volumes did not follow the VIX down.

A second development, absent from the prior report, explains a large part of why. The SEC approved FINRA’s elimination of the Pattern Day Trader rule on April 14, 2026, effective June 4, 2026, removing the $25,000 minimum-equity requirement that had constrained frequent trading in small retail margin accounts. Management measured the effect immediately: SPX 0DTE ADV +11% month over month in June, retail’s estimated share of that volume rising from 53% to 57%, simple orders up over 40% in SPX and nearly 75% in XSP, Robinhood options ADV up nearly 80% year over year. This is a permanent widening of the addressable retail base for the exact product that drives the crown jewel.

Q2 2026 results were correspondingly strong: net revenue $731.6M (+25%), a second consecutive quarterly record; GAAP operating margin 65.1% and adjusted operating margin 70.4% against ~66% for FY2025; GAAP diluted EPS $3.35 (+50%) and adjusted $3.56 (+45%); adjusted operating expenses up just 1.6% against 25% revenue growth. Management raised the FY2026 organic net-revenue growth guide to mid-to-high teens from low-double-digit to mid-teens, and Data Vantage to low teens. The realignment is delivering — Cboe Australia was sold to TMX on August 2, cutting $11M from the opex guide, and management reaffirmed $40–50M of annualized realignment savings.

The offsetting new risk is real. On May 29 the CFTC approved Kalshi’s bitcoin perpetual future and issued a policy statement classifying digital-asset perpetuals as futures rather than swaps. CBOE fell 17.4% over the following two sessions, worse than any peer. The direct product exposure is negligible — Futures is 4.2% of net revenue with flat transaction fees — but the precedent is a live version of the substitution risk the prior memo identified: exposure economically equivalent to SPX synthesized outside the licence perimeter. CME has sued the CFTC to void the approval; the case is unresolved. Cboe’s response has been to build inside its own perimeter, launching Cboe Predicts binary options on Mini-SPX (XSP) on June 23 and filing for company-KPI event contracts on 23 large-cap US names, targeting a late-September/early-October launch.

Two nuances should temper the enthusiasm. First, capital allocation executed poorly at the moment it mattered most: with the stock down 36.7% and the CFO describing “a notable discount,” the company repurchased $32.6M at $256.61 — 4.4% of first-half net income — and no insider bought a share in the open market. Second, reported cash flow is not what it appears: 1H 2026 operating cash flow of $1,456.8M includes +$943.2M of clearing-float movement; core operating cash flow was roughly $514M for the half.

Valuation has de-rated on an unchanged price. TTM adjusted diluted EPS is now $12.97 versus ~$11.90 at the prior report, putting the stock at 22.1× trailing and 18.8× forward — the lowest forward multiple in the exchange complex (ICE 17.1×, NDAQ 20.2×, CME 20.4×) for the fastest-growing member of it. Against its own decade, the P/E percentile has fallen to the 30th from the 44th, while P/B (88th) and P/S (82nd) remain near highs — the signature of structurally expanded margins rather than an expensive stock.

This memo takes no position and sets no price target; it frames valuation as embedded expectations and scenarios. The defining risks remain the S&P licence cliff and the durability of retail 0DTE demand — but the balance of evidence on the second has shifted materially since June 7.

1.5 Changes Since the June 7, 2026 Report

This is an update to my June 7 report. That report’s thesis, verdicts and structural framework are the baseline; what follows is the diff. Where its conclusions still hold, they are carried forward rather than re-derived.

The prior report’s bull falsification test was run and failed to falsify. The June 7 memo stated: “a sustained sub-16 VIX stretch in which SPX/0DTE ADV rolls over with the VIX — i.e., the volumes were cyclical, not structural — would break the bull case.” Since then the VIX has fallen steadily (Q1 mean 20.49 → Q2 18.34 → Q3-to-date 16.87; August mean 15.64; August 7 close 14.90) and index ADV has not rolled over: Q2 set a record at 6,208k and July printed 5,990k, +34.0% YoY. The test is not yet fully complete — we have not had two clean quarters below a 16 mean — but the directional evidence is unambiguous and on-point. Status: bull case strengthened.

The prior report’s bearish flip-triggers have not fired. No S&P DJI renegotiation, no disclosed licence discussion, no S&P index-derivatives internalization signal, and no large non-core acquisition. The nearest approach is management’s stated openness to inorganic clearing expansion including tokenization and crypto infrastructure — directionally the ErisX risk, but with no transaction, no LOI and no capital committed. Status: not triggered; monitor.

A new structural demand driver appeared that the prior report did not contain. The elimination of the Pattern Day Trader rule (SEC approval April 14, 2026; effective June 4, 2026) is a permanent regulatory change that removes the $25,000 account floor for frequent trading in margin accounts. It landed three days before the prior report was published and its effects were not yet observable. They are now: 0DTE ADV +11% MoM in June, retail share of SPX 0DTE 53% → 57%, XSP ADV +37% in June alone and +80% YoY. Status: new, material, favourable.

A new risk appeared that the prior report anticipated in principle but not in fact. The CFTC’s May 29 Kalshi/BTCPERP approval and perpetual-futures policy statement made the “economic substitution outside the exclusivity perimeter” risk concrete. CBOE repriced −17.4% in two sessions. My June report named this risk, in the competitive-position discussion, as the more insidious erosion path; it is no longer hypothetical. Status: new, material, unfavourable — but slower-moving than the price reaction implied.

The prior report’s characterization of guidance was overtaken by events. The June memo described “management’s own 2026 guide of mid-single-digit organic growth” as “a quiet admission that the run-rate isn’t the trend.” That framing no longer holds: the FY2026 organic net-revenue guide has been raised twice and now stands at mid-to-high teens, with Data Vantage at low teens. Whatever the guide implied in February, management’s current view of 2026 is the opposite of a deceleration signal.

Earnings stepped up and the multiple compressed on a flat price. TTM adjusted diluted EPS rose from ~$11.90 to $12.97 (+9%) over eight weeks as two weak 2025 quarters rolled out of the trailing window. At $286.58 versus $281.91, the price is +1.7% and the trailing multiple is ~22.1× versus ~24×; forward is 18.8× versus ~20–22×.

Margins re-based higher. Q2 adjusted operating margin was 70.4%, versus the ~66% FY2025 level the prior report used as the franchise’s structural level, on adjusted opex growth of 1.6% against 25% revenue growth. The prior report’s bull case required “margins expand toward ~70% on the realignment”; that has now happened, at least for one quarter.

One prior-report characterization needs softening. The June memo called the cash-equities tier a “melting ice cube.” Q2 shows that is too simple: on-exchange US equities share fell to 9.4% from 10.5%, but Cboe’s off-exchange (BIDS/ATS block) share rose to 18.8% from 14.9% at a net capture of $0.058 per 100 touched shares versus $0.019 on-exchange — roughly 3× the economics. N.A. Equities net revenue rose 17% and its net transaction fees rose 37% on falling lit share. The commodity tier is being repositioned, not simply melting.

Capital allocation delivered a genuine negative datapoint. See the capital-allocation section. The June drawdown was the best repurchase window since 2022 and the company deployed $32.6M into it.

Net effect on the thesis. The two variables the prior report identified as decisive — 0DTE durability and the licence — moved in opposite directions: the first materially toward the bulls with hard operating data, the second unchanged but with a new adjacent substitution risk crystallizing. On balance, and with the multiple lower and the earnings base higher, the risk/reward is better than it was on June 7. The body below argues that case section by section; the directional conclusion is confined to Claude’s Take.

2. Business Overview

2.1 What Cboe does

Cboe Global Markets — founded 1973 as the Chicago Board Options Exchange, the first US listed-options market, renamed in 2017 — operates regulated exchanges and trading venues across options, cash equities, futures and FX in North America, Europe and Asia-Pacific. It earns money two ways:

1. Transaction and clearing fees, charged per options contract, equity share, futures contract or FX trade matched on its venues and cleared where Cboe operates clearing. This is the cyclical, volume- and volatility-sensitive majority.
2. Cboe Data Vantage, recurring subscription revenue for market data plus access and capacity fees (connectivity, ports, terminals, co-location), Cboe Global Indices, and risk/market analytics. This is the structural-growth, lower-cyclicality engine. Data Vantage is not a separate reporting segment; its revenue is distributed across the five operating segments.

2.2 The gross-versus-net revenue distinction, and why it got worse this quarter

Cboe reports total (gross) revenues and, separately, “revenues less cost of revenues” (net revenue). The gap is enormous and it just widened for a reason worth understanding. In Q2 2026 gross revenue was $1,442.8M and cost of revenues $711.2M — liquidity payments $453.7M (maker-taker rebates routed straight back to liquidity providers), routing and clearing $20.8M, regulatory fees $153.9M, and royalty fees and other $82.8M (paid to S&P DJI and other index licensors). Net revenue was $731.6M, roughly 51% of gross.

The regulatory-fee line jumped from $85.3M in Q2 2025 to $153.9M in Q2 2026, and Section 31 fees payable on the balance sheet went from $0.2M at December 31, 2025 to $155.5M at June 30, 2026. The SEC’s Section 31 rate, which had fallen to $0 in May 2025, has come back. Section 31 fees gross up revenue and cost equally with essentially zero margin effect — but they make any gross-revenue comparison across periods, and any price-to-sales ratio, actively misleading. Net revenue is the only meaningful top line, and every figure in this memo uses it unless explicitly stated. This also means ROIC.ai’s EV/TTM-sales of 4.85× is computed on a gross-sales base of $5,061.3M and should not be compared to a peer whose pass-throughs are structured differently.

2.3 Net revenue bridge and segments

Two structural observations. First, the mix is concentrating further into the moat: Options rose from 63.0% of FY2025 net revenue to 64.8% in Q2 2026, and Options plus Futures is 69.0%. Every quarter of index-volume outperformance mechanically increases the share of revenue earned in the tier with no competitor. Second, Futures is now conspicuously the dead segment — +2% year over year, with net transaction and clearing fees flat, entirely carried by market-data fees. Since Futures is where VIX futures and the retained crypto-derivatives business sit, this is worth noting against the Kalshi narrative: the segment the market panicked about in June is 4.2% of net revenue and was not growing before the panic.

By revenue caption, Q2 gross revenue splits as Derivatives markets $680.9M, Cash and spot markets $580.3M, and Data Vantage $181.6M (+14.7% YoY; 1H $362.9M, +16.8%). Management disclosed on the call that roughly two-thirds of Data Vantage growth came from access-related revenue — connectivity demand driven by the same options-volume boom — with international now roughly 50% of data sales.

2.4 Revenue per contract — where the money is, and it widened

The single most important operating statistic Cboe discloses is RPC, net transaction fees divided by contracts traded.

The two tiers are moving in opposite directions, which is exactly what a real moat looks like under a demand surge. Index RPC rose to an all-time high of $0.953 while multi-listed RPC fell 5.9% to $0.064. Where there is no on-exchange competitor, Cboe raised price into a volume boom; where products are fungible across roughly eighteen US options exchanges, price was competed down even as industry volume grew 27%. Note the multi-listed RPC series is genuinely noisy quarter to quarter ($0.055 to $0.080 over five quarters, driven by rebate mix and volume tiers) and should be read as a trend, not a point.

2.5 Recurring versus non-recurring

Roughly 73–75% of net revenue remains transaction and clearing — recurring only insofar as volumes are. Data Vantage at $181.6M is 24.8% of Q2 net revenue, marginally below its FY2025 26.2% share purely because transaction revenue grew faster. This is worth stating plainly: the recurring mix ratio fell this quarter for a good reason. Data Vantage grew 14.7%; it was simply outgrown by a 30% Options segment. The FY guide of low-teens organic growth for Data Vantage, raised from low-double-digit, means the recurring layer is compounding faster than it was, not slower.

Verdict. A capital-light, two-tier exchange whose economics are dominated by a single proprietary product family, and whose mix is concentrating further into that family. The model is well understood. What has changed since June is that the growth is now visibly coming from the protected tier rather than being carried by an unusually volatile tape — index ADV +32% YoY in Q2 and +34% in July, at rising price, against a falling VIX. The revenue quality of this business improved in the quarter, not merely its revenue quantity.

3. Industry Dynamics

3.1 Structure: a vertically integrated oligopoly, now with an outsider

The global exchange industry remains an oligopoly of vertically integrated operators, each with a defensible centre of gravity: CME in interest-rate, equity-index, FX and commodity futures with owned clearing; ICE in energy futures, NYSE listings and fixed-income/mortgage data; Nasdaq in listings, market technology and anti-financial-crime software; LSEG in data and clearing; Deutsche Börse in Eurex and data; Cboe in US listed options and the volatility complex, plus cash equities, FX and Data Vantage.

What is new in 2026 is that a credible outsider has been admitted to the perimeter by regulation rather than by competition. Kalshi, a CFTC-designated contract market built as a retail prediction-market venue, received approval on May 29, 2026 for a bitcoin perpetual future, accompanied by a CFTC policy statement classifying digital-asset perpetual contracts as futures rather than swaps and setting out how future perpetual submissions will be reviewed. Coinbase received comparable treatment. The incumbents’ reaction was not subtle: CME sued the CFTC and its chairman in federal court in June, seeking to void both the approval and the policy statement on the grounds that perpetuals are swaps under Dodd-Frank and that the CFTC bypassed public comment. A CFTC spokesperson called the suit “frivolous.” The case was unresolved as of late July 2026.

For an industry whose profit pools rest on regulatory perimeters, a regulator that redraws a perimeter unilaterally is a first-order structural event. It is also, for now, a narrow one: what has actually been approved is a bitcoin perpetual future.

3.2 Barriers to entry: high at the operator level, asymmetric at the product level

The structural analysis from the prior report carries forward intact and is not re-derived here. In summary: operating a national securities exchange requires SEC registration and ongoing SRO obligations; operating a futures exchange or clearer requires CFTC oversight. These are real barriers to becoming an operator. They do not protect any individual multi-listed product, because the Options Clearing Corporation is the sole clearer for all US listed options, which makes a multi-listed contract fungible across venues at essentially zero switching cost. Order flow routes to whichever venue offers the best price or rebate. New entrants therefore win share simply by paying more.

This is why options exchanges proliferate. Cboe’s four options markets compete with roughly fourteen others; MIAX runs four, and MEMX’s second exchange (MX2) launched in Q2 2026. On the equities side Cboe’s four venues compete with thirteen other exchanges and twenty-five-plus ATSs. Q2 2026 confirms the mechanism is still running: Cboe’s multi-listed share fell to 23.5% from 24.0% and its US equities on-exchange share to 9.4% from 10.5%.

The Marathon capital-cycle reading is unchanged and was, if anything, validated: record industry profitability continues to pull capital and supply into the commodity tier, and the predictable consequence — fee and rebate compression — showed up precisely where theory says it should, in a 5.9% year-over-year decline in multi-listed RPC during a quarter when industry options ADV grew 27%. The proprietary tier sits outside the capital cycle: regulation plus an exclusive licence suspend the supply response, so capital cannot enter to compete SPX and VIX rents away. Index RPC rose 3.3% in the same quarter. The two revenue-per-contract series above are the cleanest empirical demonstration of a capital cycle operating in one half of a company and being suspended in the other that this analyst has seen in a single filing.

3.3 The structural driver, quantified — and the reason to revise upward

The prior report identified 0DTE as the dominant structural driver and flagged its durability through a normal-volatility regime as “the single biggest open question in the thesis.” Eight weeks of data have gone a long way toward answering it.

Read the two columns together. Mean VIX fell 10.5% sequentially from Q1 to Q2 2026 and index ADV rose to a record. It fell a further 6.5% in July and index ADV was still +34% year over year. Compare 3Q 2025 — a genuinely quiet quarter at a 15.96 mean — where index ADV was 4,864k; July 2026, at a 17.15 mean, ran 23% above that. This is not proof of immunity, and honesty requires stating what would be: two full quarters at a sub-16 mean with ADV flat or higher. We are not there. But the relationship between the VIX level and index volume has visibly weakened, and there is now a mechanism to explain why rather than merely a hope.

0DTE penetration and the retail base are that mechanism. 0DTE reached a record 66.2% of total SPX options volume in July 2026, up from roughly 59% for full-year 2025. Mini-SPX (XSP) set a monthly ADV record of 238k contracts with a record 138k of 0DTE. The customer is increasingly a retail account using capped-risk structures on a daily cadence — a behaviour, which is far more persistent than a hedging response to a volatility shock.

3.4 The regulatory change the prior report missed

The most consequential regulatory development for Cboe in 2026 is not the Kalshi approval. It is the elimination of the Pattern Day Trader rule.

FINRA proposed scrapping the rule in January 2026 and replacing it with intraday-exposure-proportional margin standards. The SEC approved on April 14, 2026. The rules eliminating the PDT designation and the associated $25,000 minimum-equity requirement took effect June 4, 2026, with broker phase-in permitted until October 20, 2027. Broker-dealers are no longer required — or permitted — to classify customers as pattern day traders; retail traders with small accounts can now day-trade in margin accounts without a fixed dollar floor.

The effect on Cboe’s core product was immediate and measurable. Management disclosed on the July 31 call: SPX 0DTE ADV rose 11% month over month in June; the estimated retail share of SPX 0DTE volume rose to 57% from 53% in April and May; simple orders rose over 40% in SPX and nearly 75% in XSP; XSP ADV rose 37% in June alone and over 80% year over year; Robinhood options ADV rose over 30% versus May and nearly 80% year over year, with Webull up 36% month over month and 100% year over year.

Two caveats. These are management’s attributions on a company earnings call, and should be treated as hypotheses; no independent dataset yet isolates the PDT effect from the coincident June market moves. And the phase-in runs to October 2027, so brokers are adopting at different speeds — the volume effect should build rather than step. But the direction is not seriously in doubt: a rule whose entire purpose was to prevent small accounts from trading frequently has been removed, and the product that benefits most from small accounts trading frequently is 0DTE index options, which Cboe lists exclusively.

This asymmetry deserves emphasis. The regulatory news that moved the stock 17% in two days concerned a product class representing under 4% of net revenue. The regulatory news that structurally expanded the customer base for roughly 60% of net revenue moved the stock not at all, because it took effect three days before the last report and its effects were not yet visible.

3.5 The Kalshi precedent, assessed properly

The bear reading deserves a fair hearing because it is not stupid. The threat is not bitcoin perpetuals. It is that the CFTC has demonstrated willingness to authorize novel, cash-settled, 24/7, retail-facing instruments on vertically integrated venues that sit outside the national-securities-exchange perimeter and outside OCC clearing. If that path stays open, an S&P-500-linked payoff can eventually be synthesized — via event contracts, index-referencing perpetuals, or successors not yet named — without any S&P DJI licence, because the licence governs the right to list S&P-branded index options, not the right to offer an economically similar payoff. The prior report named this as the more insidious erosion risk than the 2032 cliff itself. It has moved from theoretical to demonstrated.

The counter-arguments are substantive:

• Product structure. Roughly 95% of Cboe’s 0DTE volume is in defined-risk structures, with 50–55% being spreads. A linear, leveraged, no-expiry perpetual is a different instrument serving a different need. Convexity and defined risk are the product, not incidental to it.
• Fungibility and cross-margining. Because all US listed options clear through OCC, a position opened on one venue can be offset against a position on another. A closed, vertically integrated silo cannot offer that. For any customer with an existing listed-options book, the capital efficiency of the incumbent ecosystem is a hard economic advantage — Donohue’s “closed silo” argument and Hocking’s risk-offset argument are, unusually for management commentary, mechanically verifiable.
• Scale of the incumbent flow. Kalshi is building a retail venue. Cboe’s index franchise runs 6.2M contracts a day at a $0.953 RPC and is growing 32%.

The honest limit of the counter-argument is that it protects the institutional and cross-margined portion of the flow best, and the fastest-growing portion of the flow is retail — 57% of SPX 0DTE and rising — which is the cohort least likely to value cross-margining. That is the genuine soft spot, and it is where Cboe has chosen to fight rather than defend.

3.6 Cboe’s counter-move: Predicts and KPI contracts

On June 23, 2026 Cboe launched Cboe Predicts, the first products of a prediction-markets suite: binary option contracts on the Mini-S&P 500 Index (XSP), symbols XSPBW and XSPBX, OCC-cleared, with Charles Schwab preparing a client rollout. On the Q2 call management disclosed an SEC filing for company-specific KPI event contracts covering 23 major US companies — contracts on granular metrics such as NVIDIA data-centre revenue or Microsoft cloud revenue — targeting a late-September or early-October 2026 launch pending approval. CFO Griebenow: “We haven’t incorporated anything notable into the forward-looking guidance for 2026 related to this.”

The strategic logic is good. By building event contracts on XSP, Cboe places prediction-market products inside its exclusive, licensed perimeter and inside OCC clearing, converting a substitution threat into a product extension and bringing its ~50-million-retail-client distribution network to bear. KPI contracts on single names are outside the index licence entirely and represent a genuinely new market. Hocking’s expectation that adoption will “follow a similar path to how zero DTE developed, with the market starting heavily weighted towards retail” is a hypothesis, and it should be treated as one — Cboe’s record on new-market entry includes ErisX. But the capital at risk here is a rounding error against a $461M crypto write-off, the products sit on existing infrastructure, and nothing is in guidance.

3.7 Other developments in the window

• SEC approval (announced May 28, 2026) for extended trading hours on select multi-listed single-stock options, launched July 13, 2026 — accrues to the fungible tier, so revenue-positive but margin-dilutive at the mix level.
• SpaceX (SPCX) options began trading June 16, 2026 on Cboe and Nasdaq simultaneously; Cboe expected to list SK Hynix US options two business days after its Nasdaq debut (Reuters, July 10). High-profile, but multi-listed and therefore competitively contested.
• Cboe Clear Europe announced expansion of Securities Financing Transactions clearing into fixed income on August 6, 2026 — EU, Swiss and UK government and corporate bonds, plus US Treasuries and US corporates for non-US participants — launching August 24, building on the 2025 equities/ETF launch. A credible adjacency in a genuinely under-cleared market.
• Cboe Clear US filed for temporary SEC registration as a covered clearing agency, with full registration targeted at the end of an 18-month period. This is the strategic infrastructure bet, and it is why capex guidance rose to $98–108M from $73–83M.

Verdict — structurally GOOD, still sharply BIFURCATED, and the bifurcation is now working in shareholders’ favour. The proprietary tier is a regulated, contract-protected franchise that raised price 3.3% into a 32% volume surge. The multi-listed and cash-equities tier is a commoditizing rebate scrum that cut price 5.9% into a 27% industry volume surge. A single industry verdict remains misleading; the only verdict that matters is the mix, and the mix moved toward the good tier this quarter. The new element is regulatory two-sidedness: the same regulatory apparatus that removed a demand constraint worth an immediate 11% step-up in 0DTE volume also opened a perimeter that could, over years, admit substitutes. Both are real. Only one of them has shown up in the numbers.

4. Competitive Position

4.1 The moat, named precisely — unchanged mechanism, refreshed evidence

Cboe’s moat is an intangible-asset advantage — the exclusive S&P DJI licence plus the proprietary VIX methodology and the “VIX / fear gauge” brand — fused with economies-of-scale and liquidity captivity in the single-listed products. In Greenwald’s taxonomy this is the strongest and most durable advantage class: demand-side captivity (no fungible substitute venue) reinforced by a supply-side intangible (exclusive IP and licence) and by scale, since liquidity begets liquidity in a single order book.

The contractual facts, verified in the FY2025 10-K, are unchanged: the licence with S&P extends through December 31, 2033, with exclusive rights to trade S&P 500 Index options through December 31, 2032; exclusive US rights also cover S&P 100, S&P 500 ESG and S&P Select Sector indices. The VIX is calculated from real-time SPX option quotes, creating a closed, self-reinforcing ecosystem in which SPX liquidity feeds the VIX calculation and VIX futures and options drive SPX hedging flow back into the SPX book. Cboe holds exclusive proprietary rights to the VIX methodology itself — owned IP rather than a lease, and therefore arguably the more durable of the two levers. “The loss of our right to exclusively list and trade certain index options and futures products” remains the first-listed risk factor, and it was restated verbatim as the first item in the Q2 2026 earnings release’s forward-looking-statements caution.

No development in the reporting window touched the licence. No 8-K, no 10-Q disclosure, no press release, no call commentary. In update mode, silence on a contract with a six-year fuse is neutral-to-mildly-positive information: the prior report’s bearish trigger did not fire.

4.2 Does the moat show up in financial outcomes? More so than in June

This is the test that matters, and Q2 sharpened every measure of it.

• Pricing power. Index RPC $0.953 versus multi-listed $0.064 — 14.9×, wider than FY2025’s ~14×. Index price rose 3.3% year over year while the competed product’s price fell 5.9%, in the same quarter, in the same asset class, at the same company. It is difficult to construct a cleaner natural experiment for the existence of a moat.
• Margins. Q2 GAAP operating margin 65.1% (up 7.4pp YoY); adjusted operating margin 70.4% (up 6.7pp); adjusted Operating EBITDA margin 72.2%. Against FY2025’s 60.4% GAAP and ~66% adjusted, the franchise has re-based materially higher, driven by mix into the proprietary tier plus the realignment.
• Operating leverage. Net revenue +25%; total operating expenses +3%; adjusted operating expenses +1.6%. Incremental margin on the $144.3M of additional net revenue was roughly 95% on an adjusted basis.
• Returns. Annualizing 1H 2026 net income of $738.8M against average equity of roughly $5.4B implies ROE of about 27%, up from ~23% in FY2025. Return on tangible capital is far higher: goodwill and intangibles of $4,231.6M against equity of $5,625.8M leave tangible common equity near $1.4B, on which the franchise earns extraordinary returns. Tangible ratios are not meaningful here precisely because the moat is intangible — use ROE and ROIC.

If SPX and VIX exclusivity disappeared, index RPC would collapse toward the multi-listed rate. On Q2 volumes that alone is roughly $0.89 of RPC across 6.2M contracts a day — on the order of $1.4B of annualized net revenue at near-100% incremental margin. That is the moat tied to a financial outcome that would deteriorate without it. It is a moat tied to a financial outcome that would deteriorate without it — the only test that matters.

4.3 Where the moat does not protect — and where the prior report was too pessimistic

The first four rows are the capital cycle grinding on exactly as the prior report described, and the Greenwald share-stability test continues to fail in the fungible tier. The fifth row is what the prior report missed, and it changes the characterization.

Cboe’s off-exchange block business (BIDS) grew ATS block share from 14.9% to 18.8%, with off-exchange ADV of 237.5M touched shares versus 125.5M — up 89% year over year — at a net capture of $0.058 per 100 touched shares against $0.019 on-exchange. That is roughly three times the economics per share. On-exchange capture also improved, from $0.012 to $0.019. The result: N.A. Equities net revenue rose 17% and net transaction and clearing fees rose 37% while lit-market share fell 1.1pp.

The prior report called this tier a “melting ice cube.” That is too simple. Cboe is trading low-value, rebate-competed lit share for high-value block flow at triple the capture, and the segment’s economics are improving while its headline share deteriorates. Anyone tracking this business by on-exchange share alone would have concluded the opposite of what the P&L says. The lit-equities business is still structurally unattractive and still has no barrier; but the segment is being actively repositioned toward a niche where Cboe has genuine differentiation, and it is working.

One further point in the same direction: total industry options ADV grew from 57,203k to 72,838k (+27%), so Cboe’s absolute multi-listed volume rose 24% (12,615k → 15,654k) despite losing 0.5pp of share. In a growing pie, share loss and revenue growth coexist. That is a real mitigant, and also a real warning: it works until the pie stops growing.

4.4 Pressure-test: durable moat, or an expiring lease?

Honestly, still both — but the balance of near-term evidence improved. On-exchange competition in SPX and VIX remains impossible; the licence is a genuine monopoly grant and Cboe demonstrably exercised pricing power under it this quarter. Against that stand two erosion paths:

1. The 2032/2033 cliff. A renewable contract with a counterparty (S&P Global) that has its own index-derivatives ambitions and undisclosed renewal economics. Nothing changed in the window. As the date approaches without a disclosed renewal, this should progressively weigh on the terminal multiple — and arguably part of the current 18.8× forward multiple already reflects it.
2. Economic substitution outside the perimeter. SPY options, mini and cash-settled index products, and now — concretely — CFTC-blessed event and perpetual instruments on venues like Kalshi. The 10-K named this class of risk; the CFTC’s May 29 action made it real.

The VIX methodology, as owned IP rather than a lease, remains the more defensible of Cboe’s two intangibles, and is one reason the volatility complex may outlast any single licensing arrangement.

Verdict — a DURABLE, contract-protected advantage in the proprietary franchise, materially better evidenced than in June; a CROWDED but actively and successfully repositioned commodity tier. The moat mechanism is unchanged. What changed is that it was tested twice in eight weeks — once by a falling VIX and once by a regulator opening an adjacent perimeter — and in the quarter that followed it delivered record volume at a record price with a widening RPC gap. The concentration and contractual finiteness remain the real vulnerabilities, and neither has been resolved.

5. Growth History and Forward Opportunities

5.1 The trajectory, restated

Net revenue: 2019 ~$1.11B → 2020 $1.27B → 2021 $1.476B → 2022 $1.742B → 2023 $1.918B → 2024 $2.072B → 2025 $2.429B → 1H 2026 $1.460B (+26.7% YoY). Adjusted diluted EPS: 2019 $4.73 → 2021 $6.05 → 2023 $7.80 → 2024 $8.61 → 2025 $10.67 → 1H 2026 $7.26 (Q1 $3.70 + Q2 $3.56). On a TTM basis, adjusted diluted EPS is $12.97.

The 2026 acceleration is real and it is broad: every segment except Futures grew double digits in Q2, and the FY organic net-revenue guide has been raised twice — to mid-to-high teens from low-double-digit to mid-teens, which itself was up from the earlier framing. This is the opposite of the deceleration the prior report expected from the February guide.

5.2 Organic versus acquired

The 2017–2021 step-change in the base was overwhelmingly acquired: Bats (2017), then Hanweck, Trade Alert, MATCHNow, Chi-X Asia Pacific, EuroCCP, NEO/Cboe Canada and ErisX. Post-2022, growth has been predominantly organic — the SPX/VIX/0DTE complex and Data Vantage — and management now guides explicitly to organic figures. The candid read is unchanged and worth repeating: Cboe bought a diversified global platform, then the home-grown core became the actual growth driver, and management is now unwinding much of the bought-in periphery. Cboe Australia was sold to TMX on August 2, 2026; Canada divestiture was announced in October 2025; Japan, CEDX, and US/European corporate listings are being discontinued. The organic growth guide excludes Australia from both the 2025 and 2026 bases, so the reported acceleration is not a divestiture artefact.

5.3 Forward vectors, stress-tested

SPX / VIX / 0DTE — upgraded from “mature” to “still compounding.” The prior report described 0DTE as “increasingly mature: already ~59% of SPX.” It is now 66.2%, and total index ADV is still growing 32–34% year over year. The maturity argument was premature. The reason is that penetration and the addressable base grew simultaneously: 0DTE took share within SPX while the PDT repeal expanded the pool of accounts able to trade it frequently. Remaining runway includes further 0DTE penetration (33.8% of SPX volume is still non-0DTE), XSP (retail-sized, up 80% YoY and setting records), and daily-expiration extensions into other indices.

Data Vantage — cleanest secular story, guide raised. $181.6M in Q2, +14.7%; 1H $362.9M, +16.8%; FY organic guide raised to low teens from low double digits. Roughly two-thirds of Q2 growth was access-related — connectivity and capacity demand driven by the options boom — with international now ~50% of data sales. The access component is somewhat volume-correlated and should not be treated as fully independent of the transaction cycle; the subscription data component is the genuinely recurring layer.

24×5 and extended hours. SEC approval for extended hours on select single-stock options (May 28), launched July 13, 2026. Global Trading Hours volumes are already meaningful — XSP GTH ADV 224k and SPX GTH ADV 197k in July. This is the mechanism for giving Asian and European investors access to the crown jewel in their own time zone, and it dovetails with the fact that international is now half of data sales.

Prediction and event markets — real optionality, appropriately excluded from guidance. Cboe Predicts (June 23) and the filed KPI contracts on 23 companies (targeting late September/early October). Management has put nothing in guidance. Donohue: “We’re building something we believe will define the next chapter of growth at Cboe.” That is a claim, not a fact, and the ErisX history argues for scepticism about management’s assessment of new markets. But the structural positioning — inside the licence perimeter, OCC-cleared, distributed through platforms reaching 50 million-plus retail clients — is materially better designed than ErisX was.

Cboe Clear US and clearing adjacencies. Temporary SEC registration filed as a covered clearing agency, full registration targeted at 18 months; capex guidance raised $25M to fund it. Owning clearing is what lets Cboe list products that OCC will not clear, extend to 23×5, and pursue tokenization — it is infrastructure for the next decade’s product set rather than a near-term revenue line. Cboe Clear Europe’s SFT expansion into fixed income (launching August 24) is the same strategy on the other side of the Atlantic, and securities lending is a genuinely under-cleared, high-friction market.

5.4 Are the durable franchises also the growing ones?

Yes, and more emphatically than in June. The two fastest-growing parts of the business — index options (+30% segment net revenue) and Data Vantage (+14.7%, guide raised) — are also the two most defensible. The eroding parts are the ones being divested, discontinued, or repositioned. The alignment between moat and growth is the strongest structural pillar of the bull case, and the Q2 mix shift (Options from 63.0% to 64.8% of net revenue) means it strengthens mechanically each quarter the index franchise outgrows the rest.

The remaining caveat has narrowed but not vanished. Some portion of 2026’s index growth still rides an above-average tape: Q1 2026 had a 25.60 mean VIX in March. But the July datapoint — +34% YoY at a 17.15 mean — is the cleanest available separation of structural from cyclical, and it favours structural.

Verdict — high-quality growth, and less cyclically amplified than the prior report assessed. The structural drivers are genuine, aligned with the moat, and now demonstrably operating through a declining-volatility stretch. The prior verdict said to “normalize before extrapolating”; the correct normalization level is higher than it looked in June. The honest caveat is that neither this analyst nor management has yet observed this franchise through a full multi-quarter sub-15 VIX regime, and the retail cohort now driving the marginal contract has never been tested through a sustained drawdown in its own account equity.

6. Financial Quality

6.1 Profitability and margins

*FY22 operating income was depressed by the $460.9M ErisX/Digital goodwill impairment. **1H 2026 net income annualized on average equity.

The margin trajectory is the story. GAAP operating margin on net revenue has gone 53.0% (FY24) → 60.4% (FY25) → 67.2% (1H26), and adjusted operating margin printed 70.4% in Q2 against ~66% for FY2025. Three forces are behind it, in descending order of durability: mix (index options growing 30% while low-margin lines shrink or are divested), operating leverage (adjusted opex +1.6% on revenue +25%), and the realignment ($40–50M annualized savings; Cboe Australia’s sale removing $11M from the opex guide). The first two are structural. The third is a one-time re-basing that will not repeat.

The reader should discount somewhat: 70.4% is a peak-quarter figure on peak volumes. A reasonable through-cycle adjusted operating margin for this business is now probably 66–69% rather than the ~66% that looked structural in June — a genuine but smaller upgrade than the headline suggests.

6.2 Quality-of-earnings flags — one improved, one unchanged, one new

(a) The GAAP-versus-adjusted relationship normalized. FY2025’s oddity — adjusted EPS exceeding GAAP because adjustments stripped ~$96.8M of one-time investment gains — has largely reverted. In Q2 2026, adjusted EPS ($3.56) exceeds GAAP ($3.35) by $0.21, driven by conventional add-backs (intangible amortization, realignment/severance) net of a $12.8M net gain on investments and a $9.9M gain on minority investments in the 1H cash-flow reconciliation. The gap is modest and well-disclosed. Rating: clean.

(b) Operating cash flow remains badly distorted by clearing flows — unchanged and still the biggest trap in these financials. Reported 1H 2026 operating cash flow of $1,456.8M includes +$943.2M from “Restricted cash and cash equivalents and customer bank deposits (included in margin deposits, default fund, and interoperability fund)” — a balance-sheet flow belonging to Cboe Clear Europe’s clearing members, not to Cboe’s shareholders. The margin-deposit liability rose from $1,618.2M at year-end to $2,542.3M at June 30, matched by restricted cash on the asset side. Core operating cash flow ex-clearing-float was roughly $514M for the half. Anyone annualizing the reported $1.46B and computing a free-cash-flow yield of 9% is wrong by roughly a factor of two.

© NEW — working capital was a large genuine drag, independent of the clearing float. Within the same reconciliation: accounts receivable −$195.7M (record volumes billed but not yet collected) and accounts payable/accrued liabilities −$282.0M (prior-year bonus and realignment payouts), partly offset by Section 31 fees payable +$155.3M. Net income of $738.8M converted to roughly $514M of core operating cash — a 70% conversion rate that is poor for an exchange and is understated by timing rather than by earnings quality. The receivable build is a good problem (it is growth); the payable unwind is a timing reversal of FY2025 accruals. Expect conversion to normalize in 2H.

(d) The tax rate benefited from a non-recurring item. Q2’s 28.6% effective rate (28.5% adjusted) versus 29.7% a year ago is attributed to “reduced interest related to the resolution of uncertain tax positions with state and local taxing authorities.” Management reaffirmed the FY guide of 27.5–29.5% on adjusted earnings, so this does not extrapolate. It contributed a few cents to the quarter.

6.3 Cash flow, capex, SBC

• Capex: 1H 2026 $52.3M versus $35.0M (+49%); FY guide raised to $98–108M from $73–83M. This is a deliberate step-up for Cboe Clear US infrastructure and hardware procurement ahead of anticipated inflation. Even at the top of the range, capex is ~4% of net revenue — this remains an extraordinarily capital-light business. But it is a 35% increase in the capex base and it should be watched: infrastructure builds have a way of becoming permanent.
• Normalized free cash flow: on ~$1.25–1.45B for FY2026 (core OCF normalized for working-capital timing, less $98–108M capex), the free-cash-flow yield on a ~$29.4B EV is ~4.3–4.9%.
• Stock-based compensation: $28.5M in 1H on $1,460.5M net revenue — 1.95%. Genuinely low, and among the cleanest SBC profiles in financial technology. Share count is roughly flat to slightly down.

6.4 Balance sheet

Cash and equivalents $2,276.2M; company-defined adjusted cash $2,346.8M; total debt $1,443.8M ($1,580.3M including finance leases), of which $649.6M is now current with management intending to repay the $650M 2027 maturity from cash. Net cash roughly $0.7–0.8B. Leverage ~0.7×. Total assets $10,609.3M against equity $5,625.8M — but note that $2,542.3M of the liability side is clearing-member margin, matched by restricted cash; the corporate balance sheet is far smaller and far cleaner than the totals suggest. Goodwill $3,047.6M and intangibles $1,184.0M, both down slightly on the Australia held-for-sale reclassification and FX.

Both credit facilities were refinanced in the window without incident — a Third Amended and Restated Credit Agreement (July 24) and an amendment and restatement of Cboe Clear Europe’s facility (June 23). Investment-grade access is intact.

Verdict — economics improve materially with scale, and the incremental margin is now demonstrated rather than asserted. A 25% revenue increase against a 1.6% adjusted-expense increase produced roughly 95% incremental adjusted operating margin. ROE stepped from ~23% to ~27%. Accounting is conservative, SBC is minimal, leverage is trivial. The two things a careful reader must do are (1) strip the clearing float out of operating cash flow — the single most important adjustment in these financials — and (2) treat the 70.4% adjusted operating margin as a peak-quarter figure, not a run-rate.

7. Capital Allocation

7.1 The quarter’s return of capital — and its execution failure

For 1H 2026: dividends $151.5M, open-market repurchases $75.3M (including commissions and excise tax), total $226.8M against net income of $738.8M — a 31% payout. A further $30.0M went to repurchases from employee stock plans, which is net-share-settlement of vesting equity, not a return of capital.

This is the weakest element of the entire update, and it deserves to be stated bluntly. Between May 13 and June 29 the stock fell from $365.93 to $231.51 — a 36.7% drawdown, the deepest since 2022, in a company generating record earnings with net cash and 0.7× leverage. Into that window Cboe deployed $32.6 million, roughly 4.4% of first-half net income, at an average price of $256.61. The CFO said on the call: “Had we had greater flexibility in the open market, we would have welcomed the opportunity to be more aggressive, particularly given what we viewed as a notable discount in the stock.”

Take that sentence seriously. Management is stating that it believed the stock was materially undervalued and that mechanical constraints prevented it from acting. Those constraints — blackout windows around the quarter-end and the earnings preparation period — are entirely foreseeable. The standard institutional solution is a pre-sized Rule 10b5-1 repurchase plan with price-contingent tranches, adopted outside the blackout, precisely so that a company is not a spectator to its own dislocation. Cboe evidently did not have one sized to the opportunity. With $2.28B of cash on the balance sheet and $536.8M of authorization, the constraint was not capital and it was not authorization; it was preparedness.

Compounding it: no officer or director filed a Form 4 open-market purchase (code P) during the drawdown. The only insider disposition in the window was a director’s 1,223 shares at $358.09 on May 18 under a 10b5-1 plan adopted in February — pre-planned, and therefore not a signal in either direction. But the absence of buying, when management was simultaneously telling the market the stock was at a notable discount, is a mild but real negative on the alignment between stated conviction and personal capital.

To be fair on the other side: a 31% payout ratio with the balance sheet building cash toward a $650M 2027 maturity repayment is defensible capital preservation, and the buyback was not paused on a valuation misjudgement — management got the valuation call right and the execution wrong. That is a better failure mode than the reverse. But it is the difference between a good capital allocator and an excellent one, and it is why the conviction on this name is Medium-High rather than High.

7.2 The realignment: promises converted to evidence

The prior report credited CEO Craig Donohue (in seat since May 2025) with a credible course-correction toward core derivatives. Eight weeks later that is no longer a promise:

• Cboe Australia sold to TMX Group, completed August 2, 2026 (now TMX Australia Exchange), reducing FY2026 adjusted opex guidance by $11M and removed from the organic-growth base for both 2025 and 2026.
• Cboe Canada divestiture announced October 2025, still in guidance on a business-as-usual basis pending completion.
• Discontinued: US and European corporate listings, CEDX, Cboe’s Japanese equities business; planned cost reductions in US/European ETP listings and several smaller risk and market-analytics businesses.
• $40–50M of annualized expense savings from realignment actions, per management, with FY2026 adjusted opex guidance reaffirmed at $838–853M despite absorbing higher compensation, return-to-office costs and growth investments.

The results are visible in the margin line: adjusted operating margin 70.4% versus ~66% for FY2025. This is a management team that said it would narrow the business to its core and has been selling, closing and cutting on schedule for four consecutive quarters. Credit is due.

7.3 M&A posture — the trigger that has not fired but is worth watching

The prior report’s stated bearish flip-trigger was “a return to large, non-core ‘growth’ M&A that revives the ErisX-style empire-building that already cost shareholders ~$461M.” On the Q2 call, Donohue said management is “open to a lot of things” regarding inorganic opportunities to expand clearing capabilities, with nothing specific to announce. COO Scott Johnston referenced “looking across the spectrum of potential opportunities” including tokenization and crypto market infrastructure.

This is directionally the trigger and it should be logged as such. Three mitigants: no transaction, no letter of intent, and no capital committed; clearing-adjacent M&A supporting Cboe Clear US is a materially better strategic fit than a crypto spot exchange ever was; and the same management team has spent a year selling non-core assets, which is evidence about revealed preference. The ErisX write-off was $460.9M within months of closing — the scar is real and should keep any shareholder alert to the words “crypto market infrastructure” appearing in the same sentence as “open to a lot of things.” Status: monitor, do not yet count.

7.4 Investment in the franchise

Capex guidance rose to $98–108M from $73–83M to fund Cboe Clear US infrastructure. This is the right kind of spending — owned clearing is what enables 23×5 trading, products OCC will not clear, KPI event contracts, and tokenization — and at ~4% of net revenue it does not threaten the capital-light character of the business. It is nonetheless a 35% increase in the capex base, funding an 18-month regulatory registration process with no committed revenue attached, and management has explicitly excluded event-contract revenue from 2026 guidance. Investors are being asked to fund optionality. Given the track record on the core franchise this is a reasonable ask; given the track record on new markets it is not free.

7.5 Incentives

No change in the reporting window. The 2026 annual equity grants were made May 14, 2026 under the Third Amended and Restated Long-Term Incentive Plan, vesting in three equal annual instalments — standard, appropriately long-dated for a business of this type. SBC at 1.95% of net revenue is low; dilution is minimal; the share count is roughly flat with the buyback offsetting vesting.

Verdict — management has allocated capital intelligently at the strategic level and poorly at the tactical level. The strategic record over the past year is genuinely good: divest the periphery, cut $40–50M of cost, refocus on derivatives and clearing, keep leverage at 0.7×, keep SBC at 2% of revenue. The tactical record in this specific quarter is poor: the best repurchase window in three years arrived, management publicly identified it as such, and $32.6M went to work. On balance the verdict is positive but qualified — and the qualification is the single most legitimate argument for a lower multiple than the growth and margins would otherwise support.

8. Changes and Headwinds — Last Two Years

The two-year view is unchanged from the prior report and is not re-derived; what follows compresses it and then details the eight-week window in full.

8.1 The 2024–2025 baseline

Leadership transition to Craig Donohue (ex-CME, ex-OCC) in May 2025 and the subsequent strategic realignment: exit of the crypto spot business (Cboe Digital wound down 2024, with the Digital segment folded into Futures effective Q1 2025), the ~20% headcount reduction, and the decisions to divest Canada and Australia and discontinue Japan, CEDX and corporate listings. Regulatory: the SEC withdrew the proposed Order Competition Rule and Regulation Best Execution in June 2025 (removing an equities overhang); tick-size and access-fee reform under Rules 610/612 (adopted September 2024, upheld October 2025, compliance from ~November 2025) compressed cash-equities net capture. FY2025 was the sixth consecutive record year for US options, with a 52.33 VIX close on April 8, 2025.

8.2 The eight weeks since June 7, 2026 — a dense window

8.3 Headwinds that persist

• Multi-listed and lit-equities share erosion. Options share 30.0% (from 30.2%), multi-listed 23.5% (from 24.0%), US equities on-exchange 9.4% (from 10.5%), European equities 24.4% (from 25.1%). Partly offset by off-exchange block gains (see the competitive-position section), but the lit trend is one-directional.
• Multi-listed RPC compression. $0.064 versus $0.068, −5.9% year over year, in a quarter when industry volume grew 27%. This is the capital cycle working.
• The 2032/2033 licence cliff. Six years out, undisclosed renewal economics, first-listed risk factor. Unchanged.
• The Kalshi/CFTC precedent. New, real, slow-moving, unresolved in litigation.
• US equities industry volumes turned down. July on-exchange US equities ADV was 1.569B shares, −12.4% year over year — the first clearly negative industry volume datapoint in the window, in Cboe’s weakest segment.
• Capex step-up and an 18-month clearing registration with no committed revenue attached.
• Buyback execution. See the capital-allocation section.

Verdict — the window’s developments strengthen the thesis on net, and by a wider margin than the June price action implied. The single largest new negative (the Kalshi precedent) is a terminal-value risk with a multi-year fuse that was priced in seven weeks. The single largest new positive (the PDT repeal) is a permanent structural demand expansion for the highest-margin product in the portfolio, and it is already measurable in the volume statistics. Add a raised guide, a re-based margin, a completed divestiture, and a franchise that grew index volume 34% year over year against a falling VIX, and the balance is clearly favourable — with capital-allocation execution the one genuine deterioration.

9. Risk Analysis

9.1 Risk matrix

9.2 The two risks that actually matter

Everything above ranks below two items, and it is worth being explicit about how they interact.

The licence cliff (row 1) is the only risk that can permanently destroy the thesis rather than dent it. It is six years out, undisclosed, and slow. Its practical consequence today is a discount on the terminal multiple, not on near-term earnings — and part of the current 18.8× forward multiple is almost certainly that discount. The danger is that it is unhedgeable: no operating performance short of an announced renewal resolves it, and the counterparty has every incentive to reveal nothing until it must.

Substitution outside the perimeter (row 2) is the risk that got repriced in June, and it is the more interesting one because it interacts with row 1. If exposure economically equivalent to SPX can be manufactured on a venue that does not need an S&P licence, then the licence’s renewal terms matter less — but so does the licence’s value. The two risks are, to a degree, substitutes for each other rather than additive: a world in which perimeter substitution is easy is a world in which S&P has less pricing leverage in 2032. That is a genuine, under-discussed hedge inside the risk structure, and it is one reason the June reaction — treating the Kalshi approval as purely additive risk — was probably an overreaction even on its own terms.

Row 4 is the risk this analyst would most want to underwrite better and cannot. The strength of the bull case now rests substantially on retail behaviour: 57% of SPX 0DTE, a cohort newly enlarged by the PDT repeal, trading defined-risk structures daily. The evidence that this survives a low-VIX regime is now good. There is no evidence at all on whether it survives a regime in which those accounts lose a large fraction of their equity. 0DTE volume held up through April 2025’s VIX 52.33 spike — but a spike is not a grind. This is the honest gap in the bull case.

Verdict. The risk profile improved on the cyclical axis and deteriorated on the structural axis. That is a favourable trade for a long-horizon owner, because cyclical risk is what compresses a multiple and structural risk is what the price already reflects — but only if the structural risk stays slow. The single event that would invalidate that framing is an approved, retail-distributed, index-referencing product outside the exchange perimeter that gains real volume. Nothing like that exists today.

10. Valuation Discussion (Embedded Expectations)

No price target and no recommendation in this section. It frames what the price implies.

10.1 Current multiples (≈$286.58, August 7, 2026)

• Market cap ~$30.1B on ~105.0M diluted shares; cash $2,276.2M against total debt $1,443.8M ($1,580.3M including finance leases), so net cash ~$0.7–0.8B and EV ≈ $29.3–29.4B.
• TTM adjusted diluted EPS $12.97 (2H’25 $5.71 + Q1’26 $3.70 + Q2’26 $3.56); TTM GAAP diluted EPS ~$12.84.
• Trailing P/E ≈ 22.1× adjusted / 22.3× GAAP. Forward P/E ≈ 18.8×.
• EV/TTM EBITDA ≈ 15.1–15.7× (TTM EBITDA $1,875.5M per ROIC.ai).
• Normalized FCF yield ~4.3–4.9% on ~$1.25–1.45B of normalized FY2026 free cash flow; dividend yield 1.00%; 1H payout 31% of earnings.
• Own-history percentiles (AZI valuation_index vs. the trailing ~10 years, as of August 6): P/E 30.4th, P/B 88.0th, P/S 82.3rd, composite 66.9th.

10.2 The most important valuation fact in this update

The multiple de-rated on a rising price. At the prior report the stock was $281.91 at ~24× trailing and ~20–22× forward. It is now $286.58 — 1.7% higher — at ~22.1× trailing and ~18.8× forward. The entire compression came from the earnings base: TTM adjusted EPS moved from roughly $11.90 to $12.97 as Q1 2025’s $2.50 and Q2 2025’s $2.46 rolled out of the trailing window and Q1 2026’s $3.70 and Q2 2026’s $3.56 rolled in. Two quarters replaced two quarters at 47% higher earnings.

The own-history percentiles confirm it: the P/E percentile fell from the 44th to the 30.4th — CBOE is cheaper on earnings than it has been for roughly 70% of the past decade. Note that the AZI feed’s TTM EPS input of $11.77 appears to lag the Q2 print; on the correct $12.97 the percentile would be lower still.

The P/B (88th) and P/S (82nd) percentiles look contradictory and are not. They are the arithmetic consequence of structurally expanded profitability: a company earning 27% ROE on a book that is 75% goodwill and intangibles, at a 70% adjusted operating margin, should trade at a high multiple of book and sales relative to its own history when that history includes years at 18% ROE and 53% margins. For an asset-light exchange, P/B is close to meaningless — tangible common equity is ~$1.4B against a $30B market cap — and P/S is distorted by the gross-versus-net pass-through problem (see the gross-versus-net discussion). The P/E percentile is the meaningful one, and it says the stock is not expensive against its own record.

10.3 Peer comparison (yfinance, August 7, 2026)

CBOE now carries the second-lowest forward P/E in the group and the lowest among the large-cap derivatives franchises, while delivering by a wide margin the fastest growth: Q2 net revenue +25% and adjusted EPS +45%, with the FY organic guide raised to mid-to-high teens. The comparisons that matter:

• Versus CME — the closest business analogue and, per FactorsToday, CBOE’s nearest factor twin at 0.88 similarity — CBOE trades at an ~8% forward discount (18.8× vs 20.4×) and a 25% EV/EBITDA discount (15.1× vs 20.3×), while growing net revenue 25% against CME’s mid-single digits. CME is also the party currently in federal litigation against its own regulator.
• Versus ICE, CBOE is a ~10% forward premium for roughly triple the growth rate and a materially higher margin structure.
• Versus NDAQ, CBOE is a ~7% forward discount with better margins and a narrower, higher-quality revenue core.

Price-to-sales is not comparable across this group because of differing gross-revenue pass-throughs; on net revenue CBOE trades ~10.3× sales.

10.4 Embedded expectations — the analytical inversion since June

The prior report concluded: “the price embeds optimism about the permanence of peak-cycle volumes.” At ~24× trailing for a business ~74% volume-driven, that was defensible.

That conclusion no longer holds, and the reversal is the single largest analytical change in this update. Consider what 18.8× forward earnings requires. For a business with:

• a contractually protected monopoly generating ~65% of net revenue at 14.9× the revenue-per-contract of its competed products;
• a 70.4% adjusted operating margin and ~95% incremental margin;
• ~27% ROE, net cash, 0.7× leverage, 2% SBC;
• a management-guided mid-to-high-teens organic net-revenue growth rate;
• and a 24.8%-of-revenue recurring data business guided to low-teens growth —

…18.8× forward earnings is not a multiple that capitalizes peak volumes as permanent. It is a multiple that embeds material deceleration, a terminal-value haircut, or both. A reverse-DCF sanity check makes the point: to justify 18.8× on forward earnings, a business of this quality needs only mid-single-digit long-run EPS growth. Management is guiding to roughly triple that for the current year.

So what is the market actually pricing? Three candidates, and the honest answer is a blend:

1. Volume normalization. Some deceleration from a +25%/+32% pace is certain — these are exceptional comparisons and 2H 2025 was already strong. But the guide raise says management sees the current year finishing mid-to-high teens, not decelerating to mid-single digits.
2. The 2032 licence cliff. As the date approaches without a disclosed renewal, the terminal multiple should compress. This is a legitimate and probably growing component of the discount.
3. The Kalshi/perimeter-substitution risk. Priced hard in June and only partly recovered. The stock is still 21.7% below its May high despite two subsequent quarters of record results and two guidance raises.

The most defensible reading is that the market is discounting (2) and (3) — terminal risks — while under-crediting (1)'s upside. That is a rational thing for a market to do with a six-year contractual fuse and a regulator behaving unpredictably. It is also the structure of a mispricing for an owner whose horizon is shorter than the fuse, and it is precisely why the multiple compressed while the operating results accelerated.

10.5 Sum-of-the-parts framing

The right way to think about this business remains two earnings streams:

1. Durable/recurring — Data Vantage ($181.6M in Q2, growing 14.7%, guided to low teens) plus the structurally growing SPX/VIX/0DTE franchise. This deserves a premium multiple — high-20s to ~30× — given the monopoly, the 70%+ margins, and secular growth. It is now roughly 75–80% of net revenue and rising.
2. Cyclical/volume-sensitive — multi-listed options, cash equities, FX, and whatever portion of index volume is genuinely volatility-driven rather than behavioural. This deserves a mid-teens multiple.

The blended 18.8× forward is below the weighted average those two components imply on any reasonable split, which is another way of stating the embedded-expectations conclusion above. The clearest single change since June is that the durable bucket got both larger (mix shift into Options) and better evidenced (index volume growth against a falling VIX).

10.6 Scenarios (illustrative, financials only — not a target)

• Bull. Retail 0DTE adoption proves behavioural and compounds with the PDT repeal’s phase-in through October 2027; 0DTE penetration extends beyond 66% of SPX and XSP scales; Cboe Predicts and KPI contracts convert the prediction-market threat into a revenue line; Data Vantage compounds low-teens; adjusted operating margin holds near 70%; an early licence renewal removes the terminal overhang. In this path 18.8× forward proves materially too cheap and the multiple re-rates toward CME/NDAQ’s ~20×+ on a higher earnings base.
• Base. Growth decelerates from the current exceptional pace to high-single/low-double-digit organic as comparisons harden; margins settle at 66–69% adjusted; index volumes hold but stop surprising; the licence remains undisclosed and the terminal discount persists. Total return approximates earnings growth plus the ~1% dividend, with the multiple range-bound in the high-teens to low-20s.
• Bear. A genuine multi-quarter sub-15 VIX regime arrives and the newly enlarged retail cohort deleverages after a drawdown in its own equity, so index ADV finally rolls; multi-listed and lit-equities erosion continues without the off-exchange offset scaling; a CFTC-blessed, retail-distributed index-referencing substitute gains real volume; the 2032 cliff approaches without a renewal. Earnings stagnate and the multiple de-rates toward the low-to-mid teens.

Verdict — the price no longer embeds optimism about volume permanence; it embeds scepticism about terminal value. That is a genuine change from June 7 and it did not come from the share price, which is roughly flat, but from the earnings base, which stepped up 9% in eight weeks, and from the evidence base, which resolved the prior report’s central open question in the bulls’ favour. The most important swing variables, reordered from the prior report: (1) the S&P licence renewal; (2) whether the retail 0DTE cohort is behavioural or leverage-dependent; (3) whether a substitute product outside the perimeter gains real volume; (4) — demoted from first — the durability of index volumes through a low-volatility regime, on which the evidence is now substantially reassuring.

11. Variant Perception

11.1 What consensus believes

The sell-side and the tape currently hold a position that is, unusually, internally inconsistent — and the inconsistency is the opportunity.

Consensus is bullish on the near term. Zacks upgraded to Buy on July 16 and has repeatedly listed CBOE among top growth names; the July 31 print beat consensus ($3.56 vs $3.45); estimates have been revised upward repeatedly; the company raised guidance twice. A CNBC screen in mid-July flagged CBOE explicitly as a stock where “profit expectations are growing while valuations get cheaper.”

Consensus is unresolved on the terminal value. The same tape marked the stock down 36.7% in seven weeks on a bitcoin-perpetual approval that touches under 4% of net revenue, and has left it 21.7% below its high after two record quarters. TD Cowen’s position — that the Kalshi approval could “weigh on multiples for selected exchanges,” Cboe most exposed — is the tell: the argument is explicitly about multiples, not earnings. Consensus is happy to raise its estimates and unwilling to pay for them.

That is a coherent state of the world only if the terminal risk is large and near. The evidence says it is large and far.

11.2 The strongest bull case

Cboe owns a regulated monopoly on the world’s most-traded index-option complex, and the demand for that complex has just been structurally expanded by a permanent regulatory change. The PDT repeal removed the $25,000 barrier that gated frequent trading in exactly the accounts that buy 0DTE; retail is already 57% of SPX 0DTE and the broker phase-in runs to October 2027, so the effect builds rather than steps. 0DTE is at a record 66.2% of SPX volume with 33.8% still to convert. Index volumes grew 32–34% year over year through a declining-volatility stretch, refuting the cyclicality objection with data rather than argument. Pricing power is intact and widening — index RPC up 3.3% while competed RPC fell 5.9%. Operating leverage is extreme: 25% revenue growth on 1.6% adjusted expense growth. The realignment is delivering ~70% adjusted operating margins and ~27% ROE. Data Vantage compounds at low-teens with international at half of new sales. Prediction markets and Cboe Clear US are unpriced optionality, explicitly excluded from guidance. And the whole thing trades at 18.8× forward — a discount to CME, which grows a quarter as fast.

11.3 The strongest bear case

You are paying 18.8× forward earnings for a company whose crown jewel is a lease that expires in 2032, from a counterparty with its own index-derivatives ambitions and no disclosed renewal terms, and whose regulator has just demonstrated that it will authorize competing structures outside the perimeter when it feels like it. The growth you are extrapolating is the highest-quality quarter in the company’s history and is running against comparisons that will harden sharply. The marginal contract is now bought by a small retail account that was legally prevented from trading this way ten weeks ago — a cohort with no track record through a drawdown in its own equity, and whose behaviour under stress is the entire question. The fungible half of the business is losing share every quarter with no barrier and falling price. And management, which correctly identified its own stock as a “notable discount” at $256, bought $32.6 million of it while holding $2.3 billion of cash — so do not assume the capital allocator will be there for you at the bottom.

11.4 The three-to-five assumptions that actually matter

1. The retail 0DTE cohort is behavioural, not leverage-dependent. If daily defined-risk index trading is a durable habit, the franchise compounds. If it is a bull-market artefact enabled by margin, it unwinds with the accounts. This is now the central assumption of the bull case, and it is untested.
2. The S&P licence renews on economically similar terms. Unknowable until disclosed. A renewal announcement would be the single largest positive catalyst available.
3. No index-referencing substitute gains real volume outside the exchange perimeter. The CFTC has opened the door; nobody has walked through it with an S&P-like product.
4. The index/multi-listed RPC gap holds at ~15×. It widened this quarter. If it ever compresses, the moat is being arbitraged and the thesis is over regardless of volume.
5. Management does not do a large crypto/tokenization acquisition. ErisX cost $461M. The words on the Q2 call were “open to a lot of things.”

11.5 The factor-positioning read

FactorsToday’s model is unusually informative here because of what it does not find. Across all four nested models, CBOE carries zero loading on Momentum and zero on Value (both L1-zeroed), with Growth at −0.037 — effectively nil. What it does carry is a BetaFactor loading of −0.29 to −0.33, LowVolatility +0.19 to +0.22, Sector: Consumer Staples +0.23 to +0.26 and Industry: Broker-Dealers +0.26. Reported beta is −0.235 with alpha 0.332. Whole-model R² is only 16% against 30.0% annualized idiosyncratic volatility.

Three conclusions follow. First, this is not a crowded trade in either direction — the market is not long CBOE for momentum and is not short it for value; there is no factor-flow overhang to unwind, in contrast to the crowded-momentum setups where a good print produces no return. Second, 84% of the return variance is stock-specific, which means the June repricing was genuinely idiosyncratic information (Kalshi, the VIX collapse, the print) rather than factor rotation — and idiosyncratic risk in a company with resolvable regulatory questions is the kind that a fundamental investor can actually underwrite. Third, the related-stocks list is telling: after CME at 0.88 similarity, the nearest factor neighbours are minimum-volatility ETFs (USMV, VFMV, ACWV, SPLV) and staples compounders (Compass Group, Philip Morris, Nestlé, RELX). The market treats CBOE as a bond-like defensive compounder. A security with that factor signature falling 36.7% in seven weeks is behaving badly out of character, and the risk-adjusted record supports the point: three-year annualized return +28.9% at a 1.06 Sharpe, but a trailing quarter at −14.5% raw (−46.4% annualized) on 49.3% realized volatility.

The correct framing is therefore neither “momentum trade” nor “falling knife.” It is an event-driven dislocation in a structurally low-beta compounder — the setup in which a two-year fundamental horizon has the clearest edge over a tape reader.

11.6 Where consensus is most likely offsides

Consensus has correctly raised its earnings estimates and incorrectly left its multiple at a terminal-risk discount that is being applied now for a risk that resolves in 2032. The June evidence is that the market will discount a perimeter risk to the tune of 17% in two sessions on a product touching 4% of revenue, and will not re-rate for a permanent structural expansion of the addressable retail base for the product touching 65% of it. Between those two asymmetries sits the variant perception: the market is pricing the terminal risk and refusing to pay for the near-term compounding, when the near-term compounding is measurable and the terminal risk is six years out and partially self-hedging (a world of easy perimeter substitution is a world in which S&P has less licence-renewal leverage).

The way this thesis loses is not the way the market currently fears. It is not that the VIX falls; that has been tested. It is that the newly enlarged retail cohort — 57% of the crown jewel’s volume, admitted by a rule change ten weeks old — turns out to be a leverage phenomenon rather than a behavioural one.

12. Fact vs. Interpretation

13. Open Questions

1. Is the retail 0DTE cohort behavioural or leverage-dependent? 57% of SPX 0DTE volume is retail, in a base newly enlarged by the PDT repeal. There is good evidence this cohort persists through a low-VIX regime and no evidence on how it behaves after a large drawdown in its own account equity. This is the most important unanswered question in the thesis. Resolvable only by observation.
2. What are the S&P DJI licence renewal economics, and when will they be disclosed? Six years to expiry, no disclosed terms, no commentary in the window. An early renewal would be the largest single positive catalyst available; continued silence is a compounding discount.
3. How much of the June 0DTE step-up is genuinely PDT-driven? The 11% month-over-month figure and the 53%→57% retail-share shift are management attributions on an earnings call, coincident with unusual June market moves. No independent dataset isolates the effect. The October 2027 broker phase-in means the answer will emerge gradually.
4. How does CME v. CFTC resolve, and what does it mean for Cboe? An adverse ruling for the CFTC would blunt the perpetual-futures precedent; a favourable one entrenches it. Cboe is a bystander with asymmetric exposure and has not joined the suit — which is itself a datapoint worth understanding.
5. Will Cboe Predicts and the KPI contracts get SEC approval, and will they trade? Targeting late September/early October, nothing in guidance. The 23-company KPI suite is a genuinely novel product with no volume precedent.
6. Has the buyback authorization been re-armed with a pre-sized 10b5-1 plan? $536.8M remains. Whether management has fixed the mechanism that left it a spectator in June is a direct test of whether the criticism above was heard.
7. What is the through-cycle adjusted operating margin? 70.4% is a peak-quarter figure on peak volumes with realignment savings landing. 66–69% is this analyst’s estimate; management has not framed a structural level.
8. How much of Data Vantage’s 14.7% growth is volume-correlated access revenue versus genuinely recurring subscription data? Management said roughly two-thirds of growth was access-related. If access is effectively a transaction derivative, the “recurring 25%” of net revenue is less recurring than it looks.
9. Does the off-exchange block capture advantage scale, or is 18.8% ATS share near a natural ceiling? The economics are ~3× lit; the growth was +89% year over year. Whether this is a durable niche or a cyclical share grab is unresolved.
10. What does “open to a lot of things” on inorganic clearing expansion mean in practice? Size, asset class, and whether crypto infrastructure is genuinely on the table.

14. What Must Be True

Bull case — for the current price (or higher) to be justified:

• Retail 0DTE demand is behavioural and durable, compounding as the PDT repeal phases in through October 2027, rather than a margin-enabled artefact.
• Index options volumes hold or grow through a genuine sub-15 VIX regime, extending the decoupling already observed from Q1 to Q3 2026.
• The index/multi-listed RPC gap holds near 15×, confirming that pricing power in the protected tier is intact.
• Data Vantage compounds at low teens and the off-exchange block business continues to offset lit-equities erosion at ~3× capture.
• Adjusted operating margin settles at or above 66–69%, retaining most of the realignment gain.
• The S&P licence renews past 2032 on economically similar terms; no index-referencing substitute gains real volume outside the exchange perimeter.
• Management avoids a large non-core acquisition and re-arms the buyback with a pre-sized plan.
• Falsification test: two consecutive quarters of year-over-year decline in Cboe index-options ADV, particularly if accompanied by a fall in retail’s share of SPX 0DTE back toward the low 50s. That combination would demonstrate the volume base is neither structural nor behavioural, and would break the bull case regardless of the multiple. A disclosed licence renegotiation on worse terms, or a CFTC-approved retail index-referencing product outside the perimeter achieving meaningful ADV, would do the same by a different route.

Bear case — for the stock to de-rate materially:

• The newly enlarged retail cohort deleverages after a drawdown in its own equity, taking 0DTE volume with it — the mechanism the low-VIX test did not rule out.
• Volatility mean-reverts to a sustained sub-15 regime and, this time, index ADV follows it down.
• Multi-listed and lit-equities share erosion continues while the off-exchange block offset stalls; industry volume growth turns (July US equities industry ADV was already −12.4% YoY).
• The 2032 licence cliff approaches without a disclosed renewal, compressing the terminal multiple year by year.
• A CFTC-blessed, retail-distributed, index-referencing instrument outside the exchange perimeter gains real volume.
• Management commits large capital to crypto or tokenization infrastructure, repeating the ErisX pattern.
• Falsification test: an announced S&P DJI licence renewal extending exclusivity materially beyond 2032 on comparable economics, combined with two further quarters of index ADV growth at a sub-16 mean VIX and no meaningful volume in any outside-perimeter index substitute. That combination would remove both the terminal-value discount and the cyclicality objection simultaneously, and would refute the bear thesis outright.

The symmetry has shifted. In the June report both cases hinged on the same two variables — 0DTE durability and the licence — pointed in opposite directions. One of those has now been substantially adjudicated: 0DTE volumes did not follow the VIX down, and a permanent regulatory change expanded the buyer base. The debate has consequently narrowed to a different pair: the licence (unchanged, unknowable, six years out) and the retail cohort’s behaviour under stress (new, untested, and the real centre of the bull case). That is a narrower and more honest disagreement than the one this memo inherited, and it is why the risk/reward reads better than it did eight weeks ago.

15. Source Appendix

See Appendix B — Source Appendix below for the full citation list. Primary sources: Cboe Global Markets Form 10-Q for the quarter ended June 30, 2026 (filed July 31, 2026); Form 8-K and Exhibit 99.1 dated July 31, 2026 (Q2 2026 results); Forms 8-K dated June 26 and July 28, 2026 (credit agreements); Forms 3/4 filed May–July 2026; FY2025 Form 10-K; and my own prior report dated June 7, 2026. Company operating data from Cboe’s monthly volume reports (June and July 2026) and press releases. Regulatory sources: CFTC Press Release 9240-26; FINRA/SEC Pattern Day Trader rule change. Quantitative cross-checks via SEC EDGAR (authoritative), the ROIC.ai MCP, AZI price and valuation-percentile feeds, the FactorsToday factor model, and yfinance — all third-party and reconciled to filings. Earnings-call quotations are sourced from secondary transcript coverage of the July 31, 2026 call and are labelled as such; every number quoted from the call was cross-checked against the earnings release.

This article contains no buy/sell recommendation and no price target outside the labelled “Claude’s Take” opener, which is explicitly the author’s own view. It is general information and independent fundamental research, not investment advice.

APPENDIX A — Standard Diligence Questionnaire

Cboe Global Markets, Inc. (Cboe: CBOE) — August 7, 2026 (UPDATE)

A supplement to the analysis above. Answers are labelled Fact / Interpretation / Assumption where the distinction matters. Where a question does not map to an exchange operator’s business model, the correct sector analogue is given.

General

What thoughtful questions have other investors asked about this company?

The intelligent questions on the Q2 2026 call clustered on exactly the right issues, which is itself a signal that this is a well-followed and well-understood name where edge comes from judgement rather than information.

• Barclays (Ben Budish) asked whether perpetual futures could displace options. Management’s answer was structural: over 95% of Cboe’s 0DTE volume is defined-risk, 50–55% of it spreads, versus a linear leveraged perpetual — different instrument, different need. Interpretation: the answer is good for institutional flow and weakest precisely where growth is fastest, in retail.
• Goldman Sachs (Alex Blostein) challenged the moat against broker internalization. Management leaned on the open, all-to-all market structure and OCC fungibility — a position opened on one venue can be offset against another, which a vertically integrated silo cannot replicate. Interpretation: mechanically verifiable and genuinely strong, but it protects cross-margined customers, and the marginal customer is a retail account that does not cross-margin.
• Multiple analysts pressed on the clearing timeline and crypto opportunity and received no specifics — management reaffirmed strategic commitment without dates.

Beyond the call, the standing investor questions on this name are: (1) how much of index volume is cyclical; (2) what happens in 2032; (3) whether Data Vantage’s “recurring” revenue is really recurring given the access-fee component; and (4) after ErisX, whether this management team can be trusted with new markets. This article addresses all four; the honest answer to (2) is that nobody outside Cboe and S&P Global knows.

Cyclicality & Earnings Nature

Are earnings at a cyclical high or low?

Fact: Q2 2026 was an all-time record — net revenue $731.6M, adjusted operating margin 70.4%, adjusted EPS $3.56 (+45%) — and the fifth consecutive quarter of records. On any mechanical reading, earnings are at a cyclical high.

Interpretation, and the central analytical point of this update: the more relevant question is whether they are at a volatility-cycle high, and the evidence says less so than it appeared eight weeks ago. Mean VIX fell from 20.49 (Q1 2026) to 18.34 (Q2) to 16.87 (Q3 to date, with an August 7 close of 14.90) while index-options ADV went 6,136k → 6,208k → 5,990k in July, the last +34% year over year. Records were set as volatility declined. What is unambiguously cyclically elevated is industry volume overall (industry options ADV +27% YoY) and the comparison base; what is less cyclical than it looks is the index franchise’s own volume.

Driven by the external environment or internal actions?

Both, and the split is unusually clean. External: elevated but declining volatility; a 27% increase in the industry options pool; and — decisively — the SEC’s elimination of the Pattern Day Trader rule effective June 4, 2026, which removed the $25,000 account minimum gating frequent retail trading. Internal: the strategic realignment (~$40–50M annualized savings, exits from crypto spot, Japan, CEDX, corporate listings, and the sales of Australia and Canada), which drove adjusted operating margin from ~66% in FY2025 to 70.4%; deliberate index-product pricing (index RPC +3.3% YoY); and the repositioning of US equities toward off-exchange block flow at ~3× lit capture. Interpretation: roughly, the volume is external and the margin is internal.

How stable are revenues?

Bifurcated. Approximately 73–75% of net revenue is transaction and clearing fees — recurring only insofar as volumes recur — and 24.8% is Data Vantage (market data plus access and capacity). Fact: management disclosed that roughly two-thirds of Data Vantage’s 14.7% Q2 growth was access-related, i.e. connectivity demand driven by the options boom. Interpretation: the genuinely subscription-like layer is therefore smaller than the 25% headline; call it 15–18% of net revenue that is truly volume-independent. Stability is improving at the margin — index options are the most defensible transaction revenue in the industry, and the mix is shifting toward them (Options rose from 63.0% of FY2025 net revenue to 64.8% in Q2) — but this is not a subscription business and should never be valued as one.

Outlook for products/services?

Fact: FY2026 organic net-revenue growth guidance raised to mid-to-high teens from low-double-digit to mid-teens; Data Vantage organic growth raised to low teens from low double-digit; adjusted opex reaffirmed at $838–853M (reduced $11M for the Australia sale); adjusted tax rate 27.5–29.5%; capex raised to $98–108M from $73–83M. Fact: 0DTE reached a record 66.2% of SPX volume in July, leaving 33.8% still to convert. New products — Cboe Predicts (XSP binaries, launched June 23) and company-KPI event contracts on 23 large caps (targeting late September/early October) — carry no revenue in guidance.

How big will this market be — growing, shrinking, domestic or international?

Growing, and internationalizing faster than the revenue mix suggests. Fact: US industry options ADV grew from 57,203k (Q2 2025) to 72,838k (Q2 2026), +27%. Fact: international is now roughly 50% of Data Vantage’s data sales, up from 35% a year earlier, and Global Trading Hours volumes are material (July: SPX GTH ADV 197k, XSP GTH 224k). Fact: Cboe operates European equities (24.4% share), Cboe Clear Europe (expanding SFT clearing into fixed income August 24, 2026), and Global FX ($61.1B ADV in July, +25.9%).

Interpretation: the addressable market for the crown jewel is being expanded on three axes simultaneously — product penetration (0DTE share of SPX), customer base (the PDT repeal), and time zone (extended and global trading hours). That combination is why a mature-looking franchise is growing 32% and it is the strongest structural argument in the file. Working the other way: Fact: July US on-exchange equities industry ADV was −12.4% year over year, the first clearly negative industry print in the window, in Cboe’s weakest segment.

Business Quality & Competitive Moat

Is the industry getting more or less competitive?

More, and asymmetrically. Fact: Cboe’s four options exchanges compete with roughly fourteen others (~18 total US options exchanges), with MEMX’s second venue (MX2) launched in Q2 2026 and MIAX operating four. On the equities side, four Cboe venues compete with thirteen exchanges and twenty-five-plus ATSs. Fact: Cboe’s multi-listed options share fell to 23.5% from 24.0%, US equities on-exchange share to 9.4% from 10.5%, European equities to 24.4% from 25.1%. Fact: multi-listed RPC fell 5.9% to $0.064 in a quarter when industry volume grew 27%.

Fact, and the counterpoint: in the single-listed index complex there is no on-exchange competitor at all, and index RPC rose 3.3% to an all-time high of $0.953 in the same quarter. The index-to-multi-listed RPC ratio widened from ~14× (FY2025) to 14.9×.

Interpretation: this is a textbook Marathon capital cycle operating in one half of a company and suspended by regulation and contract in the other. The new competitive vector is regulatory rather than commercial: the CFTC’s May 29, 2026 approval of Kalshi’s bitcoin perpetual future and its accompanying policy statement opened a path for retail-facing instruments outside the exchange perimeter. CME has sued to void it; unresolved.

How profitable is the business (ROIC, ROE)?

Fact: annualizing 1H 2026 net income of $738.8M against average equity of ~$5.4B implies ROE ≈ 27%, up from ~23% in FY2025 and ~18% in FY2024. Fact: Q2 GAAP operating margin 65.1%; adjusted operating margin 70.4%; adjusted Operating EBITDA margin 72.2%.

Interpretation on ROIC: conventional ROIC is a poor tool here and should be handled carefully. Goodwill and intangibles of $4,231.6M (mostly the 2017 Bats acquisition) against equity of $5,625.8M leave tangible common equity near $1.4B; return on tangible capital is therefore extraordinary and largely meaningless, because the moat is the intangible. Return on invested capital including goodwill — the honest measure of whether the acquisitions earned their price — is roughly 20–22% on 1H annualized NOPAT against ~$7.2B of total capital. That comfortably clears any plausible cost of capital and is the right number to quote.

How profitable is the industry — how many competitors, what barriers to entry?

Highly profitable at the top and structurally unprofitable at the margin — the classic signature of a market where barriers exist at the operator level but not at the product level. Fact: operating a national securities exchange requires SEC registration and ongoing SRO obligations; a futures exchange requires CFTC oversight. These are genuine barriers to becoming an operator. Fact: the Options Clearing Corporation is the sole clearer for all US listed options, which makes multi-listed contracts fungible across venues at essentially zero switching cost — so no individual multi-listed product is protected, and new venues win share by paying richer rebates. Interpretation: this is exactly why roughly eighteen US options exchanges exist and why RPC in that tier deflates during volume booms.

Can the business be easily understood?

Yes at the mechanism level, no at the accounting level. The mechanism is simple: Cboe matches trades and charges per contract, and it charges roughly fifteen times more where nobody else may list the product. The traps are two, and both catch careful readers: (1) gross versus net revenue — Q2 gross revenue was $1,442.8M against net revenue of $731.6M, with the difference being liquidity rebates ($453.7M), Section 31 regulatory pass-throughs ($153.9M, up from $85.3M as the SEC rate came back off $0), routing/clearing and index royalties; any price-to-sales or gross-revenue-growth comparison is meaningless; and (2) operating cash flow — reported 1H 2026 OCF of $1,456.8M includes +$943.2M of Cboe Clear Europe margin/clearing-float movement, so core OCF was roughly $514M.

Can it be undermined by foreign low-cost labour?

No. This is a regulated, network-effect, IP-licensed domestic market infrastructure business. Labour arbitrage is irrelevant; roughly the opposite risk applies — Cboe competes for scarce quantitative, exchange-technology and regulatory talent, and compensation and benefits rose to $154.7M in Q2 from $127.9M, partly on performance accruals.

Do brands matter?

Unusually, yes — and in a way that is financially load-bearing rather than cosmetic. VIX is the world’s recognized “fear gauge,” a brand and a proprietary methodology owned by Cboe, calculated from real-time SPX option quotes. SPX is the reference index for the world’s most-followed equity benchmark. Interpretation: the brand is inseparable from the liquidity: institutions hedge in SPX because everyone hedges in SPX, and the VIX complex feeds back into SPX order flow. This is one of the few cases where “brand” and “network effect” are the same asset.

What is the nature of competition?

Two entirely different games. In multi-listed options and lit cash equities, competition is a rebate auction — venues bid for order flow with maker-taker economics, and price is competed to the marginal router’s indifference point. In the index complex there is no competition, because no other venue may list the product; competition there is against substitutes (SPY options, mini and cash-settled products, and now CFTC-authorized event and perpetual instruments) rather than against venues.

Customers’ switching costs?

Fact: essentially zero in multi-listed options and lit equities — OCC fungibility means an order can be routed anywhere with no customer cost, which is why share erodes 0.5–1.1pp a year. Fact: effectively infinite in SPX and VIX — there is no alternative venue to switch to. Interpretation: the meaningful switching cost is at the ecosystem level: a customer holding a listed-options book gets cross-margin offsets across the OCC-cleared universe that a closed, vertically integrated silo (a Kalshi-style venue) cannot replicate. That is real and quantifiable for institutions. It is worth much less to a retail account trading a single defined-risk spread — and retail is now 57% of SPX 0DTE volume.

Financial Condition & Balance Sheet

Assets not fully recognized on the balance sheet?

Yes, and they are the whole business. The S&P DJI exclusive licence (SPX exclusivity to December 31, 2032; full licence to 2033) is carried at essentially nothing but generates index RPC of $0.953 against a competed rate of $0.064 — on Q2 volumes, roughly $1.4B of annualized net revenue at near-100% incremental margin is attributable to exclusivity. The VIX methodology is owned IP, similarly uncapitalized. The liquidity network effect in the SPX order book is not an accounting asset at all. Interpretation: the correct way to read this balance sheet is that ~$4.2B of goodwill and intangibles represents what Cboe paid for assets (mostly Bats), while what it owns that matters most cost nothing and appears nowhere.

Off-balance-sheet liabilities?

Fact: operating lease right-of-use assets of $101.6M with corresponding liabilities are on balance sheet. The material contingent exposure is the clearing default waterfall at Cboe Clear Europe: $2,542.3M of member margin deposits, default fund and interoperability fund sits on the balance sheet, matched by restricted cash, and in a member default Cboe Clear Europe can access the defaulting member’s margin. The residual mutualized exposure beyond the waterfall is the genuine off-balance-sheet risk. Fact: Cboe Clear US has filed for temporary SEC registration as a covered clearing agency, targeting full registration in 18 months, which will add a second such exposure. Fact: non-current unrecognized tax benefits of $23.4M.

How conservative is the accounting?

Conservative. Fact: the GAAP-to-adjusted gap in Q2 2026 was $0.21 per share ($3.35 GAAP vs $3.56 adjusted), driven by conventional add-backs — acquired-intangible amortization and realignment/severance — net of investment gains. Fact: stock-based compensation was $28.5M in 1H on $1,460.5M of net revenue, 1.95%, among the lowest in financial technology. Fact: the company took a $460.9M goodwill impairment on ErisX within months of closing and a Cboe Japan impairment in Q2 2025 — it writes down bad acquisitions promptly rather than nursing them.

The one item requiring active adjustment is the clearing float in operating cash flow (see the discussion of cash flow above). That is a presentation consequence of GAAP for clearing houses, not an accounting choice, but it is disclosed clearly enough that a careful reader can correct it — and it is the single most common way this business is mis-analysed.

How CapEx-hungry is the business?

Barely. Fact: 1H 2026 capex was $52.3M on $1,460.5M of net revenue — 3.6%. FY2026 guidance was raised to $98–108M from $73–83M, still roughly 4% of net revenue at the top of the range. Interpretation: the raise is a deliberate step-up to build Cboe Clear US infrastructure and to pre-buy hardware ahead of anticipated inflation, funding an 18-month regulatory registration with no committed revenue attached. At 4% of revenue it does not threaten the capital-light character of the business, but a 35% increase in the capex base for optionality deserves monitoring — infrastructure spend has a way of becoming permanent.

Capital Allocation & Management

How much FCF does the business generate, how does management use it, and what is the philosophy?

Fact: core operating cash flow ex-clearing-float was roughly $514M in 1H 2026 — depressed by a $195.7M receivable build (record volumes billed) and a $282.0M accrual unwind (prior-year bonus payouts), partly offset by $155.3M of Section 31 fees payable. Interpretation: normalized FY2026 free cash flow is approximately $1.25–1.45B after capex, a 4.3–4.9% yield on the ~$29.4B enterprise value.

Fact: 1H uses of cash were dividends $151.5M, open-market repurchases $75.3M, and a further $30.0M of net-share-settlement on employee equity — $226.8M returned against $738.8M of net income, a 31% payout. Cash rose to $2,276.2M and management intends to repay the $650M 2027 maturity from cash. Interpretation: the philosophy is conservative — a growing dividend (compounded for roughly fifteen years), opportunistic rather than programmatic buybacks, minimal leverage at 0.7×, and a balance sheet built to absorb the clearing build-out.

Significant acquisitions recently?

No. The flow has run the other way for a year: Cboe Australia sold to TMX Group, completed August 2, 2026 (removing $11M from the FY opex guide); Cboe Canada divestiture announced October 2025 and pending; Japanese equities, CEDX, and US/European corporate listings discontinued; the crypto spot business wound down in 2024 after the $460.9M ErisX impairment.

The forward risk, flagged: on the Q2 call CEO Craig Donohue said management is “open to a lot of things” regarding inorganic expansion of clearing capabilities, and COO Scott Johnston referenced looking “across the spectrum of potential opportunities” including tokenization and crypto market infrastructure. Interpretation: this is directionally the pattern that produced the ErisX write-off. Three mitigants — no transaction, no LOI, no capital committed; clearing-adjacent M&A supporting Cboe Clear US is a materially better strategic fit than a crypto spot exchange; and this management team’s revealed preference over four quarters has been to sell, not buy. Monitor closely.

Buying back shares?

Fact: Q2 2026 repurchases were $32.6M, ~127,000 shares at an average of $256.61, with $536.8M of authorization remaining. 1H open-market repurchases were $75.3M.

Interpretation, and this is the weakest point in the file: between May 13 and June 29 the stock fell from $365.93 to $231.51 — a 36.7% drawdown — and the company deployed roughly 4.4% of half-year net income into it while holding $2.28B of cash at 0.7× leverage. CFO Jill Griebenow said on the call: “Had we had greater flexibility in the open market, we would have welcomed the opportunity to be more aggressive, particularly given what we viewed as a notable discount in the stock.” Management got the valuation judgement right and the execution wrong. The standard remedy — a pre-sized Rule 10b5-1 repurchase plan with price-contingent tranches adopted outside the blackout — exists precisely so a company is not a spectator to its own dislocation, and it was evidently not sized to the opportunity. Whether it has since been re-armed is an open question and a direct test of whether the criticism was heard.

Issuing large amounts of new shares to insiders?

No. Fact: SBC of $28.5M in 1H is 1.95% of net revenue. The 2026 annual grants (May 14, 2026) were routine — e.g. 530 restricted stock units each to Chairman Fredric Tomczyk and director Erin Mansfield — under the Third Amended and Restated Long-Term Incentive Plan, vesting in three equal annual instalments. Diluted share count is roughly flat, with buybacks broadly offsetting vesting.

Compensation policy of directors/management?

Fact: equity awards vest in three equal annual instalments (e.g. the SVP/Chief Accounting Officer’s May 2026 grant vesting May 2027/2028/2029) — appropriately long-dated for a business whose key risks resolve over years. Fact: Q2 compensation and benefits rose to $154.7M from $127.9M, attributed to severance from the realignment and to accrued bonuses on strong performance. Interpretation: incentive structure is conventional and not abusive; the low SBC ratio means shareholders are not paying a hidden equity toll for the growth.

Motivations of management?

Interpretation, evidence-based. Craig Donohue (in seat since May 2025; formerly CME CEO and OCC executive chairman) is executing a narrowing strategy with unusual discipline: four consecutive quarters of divestitures, closures and cost reduction, delivering ~$40–50M of annualized savings and a re-based adjusted operating margin of 70.4%. That is a management team optimizing for return on capital rather than for empire. The counter-evidence is the “open to a lot of things” language on inorganic clearing expansion and the tokenization/crypto references — the same institutional instinct that produced ErisX under prior leadership. The mild negative on alignment: no officer or director filed a Form 4 open-market purchase during a 37% drawdown in which the CFO publicly described the stock as trading at a notable discount. The only insider disposition in the window was a director’s 1,223 shares at $358.09 on May 18 under a Rule 10b5-1 plan adopted in February — pre-planned, and therefore no signal either way.

Valuation & Market Data

Is the stock an ADR, MLP, or K-1 issuer?

No. Cboe Global Markets, Inc. is a Delaware corporation and a US domestic filer (CIK 0001374310), taxed as a C-corporation and issuing a Form 1099-DIV. Its common stock is listed on Cboe BZX Exchange — the company lists on its own venue, which is a small but genuine curiosity: it is both issuer and listing market. No K-1, no ADR structure, no pass-through complications.

Dividend policy?

Fact: $0.72 per share quarterly, unchanged in the reporting window, $75.7M paid in Q2 and $151.5M in 1H; trailing yield ~1.00%. The dividend has compounded for roughly fifteen years. Interpretation: at a 31% total payout including buybacks, the dividend is heavily covered and the company is retaining cash — partly to repay the $650M 2027 maturity from the balance sheet, partly to fund the clearing build-out. This is a capital-return profile weighted to growth and balance-sheet strength rather than to income; anyone buying CBOE for yield is buying the wrong security.

How profitable is the business?

Answered above in detail: Q2 adjusted operating margin 70.4%, adjusted EBITDA margin 72.2%, net income margin 48.1% (GAAP, on net revenue), ROE ~27% annualized, incremental adjusted operating margin ~95% on the quarter’s revenue growth. These are among the highest margins in public financial services, and they are a direct read-out of the proprietary franchise rather than of cost discipline.

Is net income diverging from cash from operations?

Fact: 1H 2026 net income was $738.8M and reported operating cash flow $1,456.8M — apparently a 197% conversion. Fact: that figure includes +$943.2M from clearing-member margin, default fund and customer bank deposit movements at Cboe Clear Europe. Core operating cash flow was approximately $514M — a 70% conversion of net income.

Interpretation: so the answer is yes, materially, and in both directions depending on which number is used. The apparent over-conversion is clearing float that belongs to members, not shareholders. The genuine under-conversion (70%) is working-capital timing — a $195.7M receivable build on record volumes billed but uncollected, and a $282.0M unwind of prior-year bonus and realignment accruals — not earnings quality. Neither is a red flag, but a reader who annualizes reported OCF will overstate free cash flow by roughly a factor of two, and a reader who anchors on the 70% conversion will understate the business’s steady-state cash generation. The correct normalized figure is ~$1.25–1.45B of FY2026 free cash flow.

Risks & Downside

What factors would cause the stock to decline?

In descending order of impact-weighted likelihood:

1. Two consecutive quarters of year-over-year decline in index-options ADV, particularly with retail’s share of SPX 0DTE falling back toward the low 50s — the stated bull falsification test.
2. A deleveraging of the newly enlarged retail cohort after a drawdown in its own account equity. This is a different risk from low volatility, and the low-VIX evidence does not address it. It is the untested centre of the bull case.
3. Any signal on the S&P DJI licence — a renegotiation on worse terms, or evidence S&P Global intends to internalize index derivatives. The licence is the first-listed risk factor in the 10-K for a reason.
4. A CFTC-blessed, retail-distributed, index-referencing product outside the exchange perimeter achieving real volume. The May 29, 2026 Kalshi approval and the accompanying perpetual-futures policy statement opened this route; nobody has walked through it with an S&P-like product yet.
5. A large non-core acquisition in crypto or tokenization infrastructure, repeating the ErisX pattern.
6. Continued lit-share erosion if the off-exchange block offset stalls, especially with July US equities industry ADV already −12.4% year over year.
7. Compression of the index/multi-listed RPC gap from ~15×, which would indicate the moat is being arbitraged regardless of volume.

Observed precedent for how violently this can happen: on June 1–2, 2026 the stock fell 17.4% in two sessions on a regulatory approval touching under 4% of net revenue, and reached $231.51 on June 29, 36.7% below its May 13 high.

Risk of a catastrophic loss?

Low but non-zero, and it does not come from the operating business. The two genuine catastrophic vectors are: (1) a clearing default cascade at Cboe Clear Europe (or, prospectively, Cboe Clear US) that exhausts the default waterfall and reaches mutualized or corporate resources — remote, but the $2,542.3M of member margin on the balance sheet indicates the scale of what is being intermediated; and (2) a catastrophic technology or cyber failure in the SPX complex during a volatility event, which in a single-venue product would be reputationally and competitively severe in a way it would not be for a fungible multi-listed product. Neither has occurred; both are named risk factors.

Chance of a total loss?

Negligible on any reasonable horizon. Fact: net cash of roughly $0.7–0.8B, leverage of 0.7×, investment-grade credit access demonstrated by two uneventful refinancings in the window (July 24 and June 23, 2026), a 31% payout ratio, ~70% adjusted operating margins, and a contractually protected revenue core running to at least 2032. Interpretation: the realistic bear outcome for this security is a de-rating to the low-to-mid-teens multiple on a stagnant earnings base — painful, but a permanent impairment of capital would require the simultaneous loss of the licence, the failure of the substitution defence, and a clearing accident. The risk here is valuation and terminal value, not solvency.

Recent News & Events

Has the business environment changed recently?

Yes — materially, twice, in opposite directions, within a single week at the end of May 2026.

Fact (favourable): the SEC approved FINRA’s elimination of the Pattern Day Trader rule on April 14, 2026, effective June 4, 2026, removing the $25,000 minimum-equity requirement that gated frequent trading in small retail margin accounts, with broker phase-in permitted to October 20, 2027. Management measured an immediate effect: SPX 0DTE ADV +11% month over month in June, retail’s estimated share of that volume rising from 53% to 57%, simple orders up over 40% in SPX and nearly 75% in XSP, XSP ADV +37% in June alone and +80% year over year.

Fact (unfavourable): on May 29, 2026 the CFTC approved Kalshi’s BTCPERP bitcoin perpetual future and issued a policy statement classifying digital-asset perpetuals as futures rather than swaps. CBOE fell 9.8% and 8.4% on June 1–2 — worse than every peer; TD Cowen named it the most exposed, RBC called the threat “manageable.” CME Group sued the CFTC and Chairman Selig in June to void both the approval and the policy statement; unresolved.

Interpretation: the asymmetry in market reaction is the variant perception. The change that structurally expanded the customer base for ~65% of net revenue moved the stock not at all; the change touching under 4% of net revenue moved it 17% in two sessions.

Significant acquisitions?

None. Divestitures instead: Cboe Australia sold to TMX Group, completed August 2, 2026; Cboe Canada pending. See “Capital Allocation” above for the forward M&A risk.

Change in accounting policies?

None disclosed. Two presentation matters worth noting: Fact: the SEC’s Section 31 fee rate has come back off $0 (it fell to zero in May 2025), so regulatory-fee cost of revenues rose to $153.9M in Q2 2026 from $85.3M, and Section 31 fees payable went from $0.2M at year-end to $155.5M at June 30. This grosses up revenue and cost approximately equally with no margin effect but renders gross-revenue and price-to-sales comparisons across periods misleading. Fact: Cboe Australia was classified as held for sale at June 30 ($31.7M of liabilities held for sale; $70.3M of cash and $6.1M of restricted cash within assets held for sale) ahead of the August 2 completion.

Recent changes — new markets, facilities, management?

New markets and products:

• Cboe Predicts launched June 23, 2026 — binary option contracts on the Mini-S&P 500 Index (XSP), symbols XSPBW and XSPBX, OCC-cleared, with Charles Schwab preparing a client rollout.
• Company-KPI event contracts on 23 major US companies filed with the SEC, targeting a late-September/early-October 2026 launch; no revenue in guidance.
• Extended trading hours for select multi-listed single-stock options — SEC approval announced May 28, launched July 13, 2026.
• SpaceX (SPCX) options listed June 16, 2026 (simultaneously on rival venues); SK Hynix US options expected two business days after its Nasdaq debut.
• Cboe Clear Europe SFT clearing expanded into fixed income — EU, Swiss and UK government and corporate bonds plus US Treasuries and corporates for non-US participants — launching August 24, 2026.

New infrastructure: Cboe Clear US filed for temporary SEC registration as a covered clearing agency, full registration targeted at 18 months; FY capex guidance raised to $98–108M from $73–83M to fund it.

Management: Boudewijn Duinstra hired as EVP and Chief Risk Officer (announced May 26, 2026) — a sensible appointment given two clearing houses and a third registration in flight. No other executive changes; Craig Donohue (CEO since May 2025), Jill Griebenow (CFO), Rob Hocking (Global Head of Derivatives), Heidi Fischer (Global Head of Equities and Spot Markets) and Scott Johnston (COO) all presented on the Q2 call.

Financing: Third Amended and Restated Credit Agreement executed July 24, 2026 (replacing the February 2022 facility); Cboe Clear Europe’s facility amended and restated effective June 26, 2026. Both routine; investment-grade access intact.

APPENDIX B — Source Appendix

Cboe Global Markets, Inc. (Cboe: CBOE) — August 7, 2026 (UPDATE)

All sources accessed August 7, 2026 unless otherwise stated. Primary sources are listed first. This is an update to earlier coverage; sources establishing the durable structural framework were compiled in the June 7, 2026 report and are cross-referenced rather than re-listed in full.

1. Primary — SEC filings (authoritative)

Full filing enumeration since 2026-05-01 obtained via scripts/edgar.sh since CBOE 2026-05-01 (SEC EDGAR submissions API, CIK 0001374310), retrieved 2026-08-08. Excludes 424B*/FWP/144 noise as filing noise. No 424B or FWP filings occurred in the window; one Form 144 (2026-05-18) corresponds to the Froetscher 10b5-1 sale at P6.

2. Primary — company operating data and press releases

Note: monthly volume reports are company-reported operating data, not audited filing figures, and are labelled as such throughout the memo.

3. Primary — regulatory sources

4. Management commentary — Q2 2026 earnings call (July 31, 2026)

Sourcing caveat (important). The primary transcript could not be retrieved: the ROIC.ai MCP rejected the plain CBOE identifier and, while CBOE:CBOE resolved for fundamentals, the transcript tools returned no match; Seeking Alpha and Motley Fool both returned HTTP 403/404. Management quotations are therefore taken from secondary transcript coverage and are attributed as such. Every numerical figure quoted from the call was cross-checked against the earnings release (P1) or the July volume report (C1). All management commentary is treated as hypothesis, not evidence, and no verdict in the memo rests on a quotation alone.

5. Market data and quantitative sources (third-party; reconciled to filings)

Authority note: AZI, ROIC.ai, FactorsToday and yfinance are third-party aggregated or modelled data, not primary. For this US filer, EDGAR and the 10-Q/8-K remain primary; every material number in the memo reconciles to P1 or P2. FactorsToday outputs are statistical estimates: the loadings, returns and drawdowns are reportable facts; any forward inference from them is labelled interpretation.

6. Press and analyst commentary (secondary; used for event attribution and consensus reading)

7. Prior coverage

8. Analytical frameworks applied

• Competition Demystified (Greenwald & Kahn) — barriers to entry as the dominant question; the moat named in the taxonomy as an intangible-asset advantage (exclusive S&P DJI licence plus owned VIX methodology) fused with economies of scale and demand-side liquidity captivity; the market-share-stability test applied separately to each tier (passes absolutely in single-listed index products at 0% on-exchange competition; fails in the fungible tier at −0.5pp to −1.1pp per year); the moat validated against financial outcomes (index RPC $0.953 vs multi-listed $0.064; 70.4% adjusted operating margin; ~27% ROE).
• Capital Returns (Marathon Asset Management) — supply-side capital-cycle analysis. Record industry profitability is pulling capital and supply into the fungible tier (≈18 US options exchanges, MEMX MX2 launched Q2 2026), with the predicted consequence visible in a 5.9% year-over-year decline in multi-listed RPC during a quarter when industry volume grew 27%. The proprietary tier sits outside the cycle because regulation and contract suspend the supply response — index RPC rose 3.3% in the same quarter. The two RPC series in a single filing constitute an unusually clean natural experiment in capital-cycle theory.

9. Reconciliation and data-integrity notes

1. TTM adjusted EPS build. FY2025 adjusted diluted EPS $10.67 (per FY2025 disclosure). Q1 2025 adjusted $2.50 and Q2 2025 adjusted $2.46 are implied by the disclosed +48% and +45% year-over-year growth to Q1 2026’s $3.70 and Q2 2026’s $3.56 (P1 and the Q1 2026 release). Therefore 2H 2025 adjusted = $10.67 − $4.96 = $5.71, and TTM adjusted diluted EPS = $5.71 + $3.70 + $3.56 = $12.97. TTM GAAP diluted EPS = $10.42 − $4.59 + $7.01 ≈ $12.84. Both are cross-checked against yfinance’s independently reported trailing P/E of 22.3× at $286.58, which implies TTM GAAP EPS of ~$12.85.
2. Enterprise value. ROIC.ai’s EV of $24.56B is computed on the June 30 market cap of $25.37B — i.e. at the drawdown low, not the current price — and must not be read as today’s EV. At $286.58 on ~105.0M diluted shares, market cap is ~$30.1B and EV ≈ $29.3–29.4B.
3. AZI TTM EPS lag. The AZI valuation_index uses a TTM EPS of $11.77, which appears to predate the Q2 print. The reported P/E percentile of 30.41 is therefore, if anything, overstated; on the correct $12.97 the stock screens cheaper still against its own history.
4. P/B percentile caveat. At the 88th percentile, P/B looks expensive and is close to meaningless here: tangible common equity is roughly $1.4B (equity $5,625.8M less goodwill $3,047.6M and intangibles $1,184.0M) against a ~$30.1B market cap, because the moat is an intangible that cost nothing. The P/E percentile is the meaningful own-history measure.
5. P/S caveat. Price-to-sales and EV/sales are not comparable across periods or peers because of gross-revenue pass-throughs, and the distortion worsened this quarter: regulatory-fee cost of revenues rose to $153.9M from $85.3M as the SEC Section 31 rate came back off $0, with Section 31 fees payable rising from $0.2M at year-end to $155.5M at June 30.
6. Operating cash flow. Reported 1H 2026 OCF of $1,456.8M includes +$943.2M of restricted cash / margin deposit / default fund / customer bank deposit movement at Cboe Clear Europe (P2, statements of cash flows). Core OCF ex-float ≈ $514M for the half. This is the single most important adjustment in these financials.
7. FactorsToday m3 figure. The m3_return of −0.4638 is annualized, per the model’s convention. De-annualized: (1 − 0.4638)^(1/4) − 1 ≈ −14.5% raw over the trailing quarter — consistent with the AZI price path from ~$335 in early May to $286.58 on August 7, and not a data error.
8. Management attributions. The PDT-repeal impact figures (SPX 0DTE ADV +11% MoM; retail share 53% → 57%; simple orders +40% SPX / +75% XSP; Robinhood and Webull volume growth) are management’s attributions on the Q2 call. No independent dataset isolates the PDT effect from coincident June market moves. Labelled as company-reported throughout.