Cboe Agrees to Acquire ErisX, Entering Digital Asset Space with Spot, Derivatives and Clearing Platform
We are delighted to share that this morning, Cboe Global Markets announced that it has entered into an agreement to acquire ErisX, a U.S.-based exchange and clearing house operator that offers both cryptocurrency spot and futures on a single platform.
Upon completion, this complementary combination will enable ErisX to accelerate and scale our crypto spot and derivatives marketplaces with the support of Cboe. As part of this acquisition, Cboe plans to create a new subsidiary, Cboe Digital, to operate the digital asset business, positioning Cboe as a leading provider of global market infrastructure and tradable products with a digital-first exchange and clearing house. Our CEO Tom Chippas and Cboe COO Chris Isaacson appeared on the On the Brink podcast to discuss the acquisition with Matt Walsh.
A Principled, High-Integrity, Regulatory-First Strategy
This is a watershed moment for ErisX and the crypto industry. We took a high-integrity, regulatory-first approach to launching a U.S.-based cryptocurrency spot and regulated futures market, borrowing the best building blocks from established capital markets. We did not cut corners, seek to circumvent the rules, or compromise on our principles of transparency, trust, and compliance. We believed, and continue to believe, that this approach is the right one and is necessary for crypto to reach its full potential. Doubly so in the large and globally important U.S. capital markets. Being acquired by a marquee publicly traded, world-class global exchange operator speaks volumes about our approach.
The complementary combination of ErisX and Cboe, to form Cboe Digital, will leverage ErisX’s digital-first spot and regulated futures tech stack, licenses and operations with the support of Cboe’s resources, relationships, global operations and distribution to achieve our shared vision of a mature, scaled market for both traditional and digital assets.
A market needs a diverse mix of participants and Cboe has secured support from a broad range of well established retail brokers, crypto-leading firms, and sell-side banks, who are expected to form a Digital Advisory Committee tasked with advising Cboe on the ongoing development of the spot and derivatives market. Cboe Digital has committed engagement from industry partners including DRW, Fidelity Digital Assets, Galaxy Digital, Interactive Brokers, NYDIG, Paxos, Robinhood, Virtu and Webull to take a proactive approach to growing the crypto markets by developing an industry best standard with regulators.
A Moment to Reflect
At the beginning of the year we took stock of our milestones reached in 2020, and opportunities in 2021. While we did not include an acquisition by a global exchange operator in our 2021 outlook, it has given us a moment to reflect on the hard work, dedication and effort it took to get us here.
On regulation, we take great pride in having focused our energies on engaging with regulators and doing the work to successfully navigate the U.S. regulatory environment. We acquired more than 51 authorizations and approvals, Money Service Business (MSB) and Money Transmitter Licenses (MTL), including the “Bitlicense”, required to run a spot market. We also hold both the Designated Contract Market (DCM), and Derivatives Clearing Organization (DCO) licenses required to run a CFTC-regulated futures exchange and clearing house. Add in our comprehensive market surveillance program and participants can be assured there is proper oversight to keep their assets safe and protect them from fraud, manipulation, “front-running”, and other abuses. ErisX may be the most well-licensed crypto company in the U.S.
Technology: We developed proprietary exchange and clearing house technology that maintains performance, determinism and uptime even during periods of extreme market volatility. We subjected our platform to rigorous testing to ensure our Members experience consistent performance and reliability.
Our matching engine is deployed in a premier financial services data center, offering the ability to cross connect. The architecture is designed to handle extremely high transaction loads and throughput, with throttles and safety procedures that protect from runaway algorithms and abusive messaging rates.
Our clearing system is one of the only newly designed and built platforms for futures clearing in decades. We are proud to have developed a non-stop, 24 x 7 crypto and fiat clearing system that reconciles with every event in real time and maintains customer segregated accounts. Unburdened by legacy code and designs, ours is the only system that can clear spot, swaps and futures on all commodities, including crypto, in a modern stack built to the technology standards of today.
Product: ErisX introduced spot trading in crypto commodities — BTC, BCH, ETH, LTC — and the USDC stablecoin. As the only U.S. firm to offer spot and futures on a single platform we also introduced physically-settled futures and Bounded Futures contracts on cryptocurrencies, including the first CFTC-regulated ETH futures. We offer an open and transparent platform available through a suite of access options including our simple Quick Ticket, more advanced Trading User Interface including The Algo Machine, and FIX/websocket APIs for the most advanced trading firms, ISVs, and intermediaries. Our ErisX Member Portal offers a full suite of account management and reporting capabilities.
Account funding: We offer a state and federally licensed, compliant fiat on and off ramp that supports wire transfers, instant and scheduled ACH transfers, and crypto deposits and withdrawals. All customer assets are segregated from ErisX’s own and we are integrated with the BMO Harris Bank, Silvergate Bank, and Signature Bank; ErisX is one of the few crypto firms to have established relationships with traditional banks.
Membership and vendors: We have proven our intermediary enabling strategy with TradeStation Crypto and Fidelity Digital Assets, onboarded thousands of direct individuals and institutions, established relationships with 14 IRA providers to enable crypto investments via self directed retirement accounts, and are collaborating with more than 20 independent technology vendors and service providers across market data, trading, tax accounting, and analytics.
Audit and attestation: In addition to the substantial independent audits ErisX is subject to by both state and federal regulators, we have gone a step further to secure the SOC 2 Type II certification.
In summary, we have built and accomplished a lot. Cboe, as a markets-native operator, had the experience and insight to fully appreciate what we have built, and the vision to see the value of these assets as the world experiences a generational shift in financial markets.
The precise path we will walk to the future is uncertain, but we know that digital has matured beyond version 1.0 demo and the worlds of digital and traditional finance are rapidly converging. Each will benefit from aspects of the other and firms without capabilities in both will struggle to compete. We also believe that derivatives will play an important role in the growth of the market, the “next leg of the crypto trade”, and aim to both catalyze and capture a sizable share of that growth.
ErisX’s product suite is complementary to Cboe’s existing global market infrastructure and tradable products offerings. The combined business will be well positioned to serve the entirety of clients’ crypto asset services needs, across trading, data, clearing and settlement.
We want to thank our investors, Members, IRA provider partners and vendors for their early support of ErisX’s vision to create a transparent, trustworthy crypto market. Additionally, we’d like to thank our advisors on this deal, Broadhaven Capital Partners, and Katten Muchin Rosenman LLP. A special thanks goes out to our board members and observers who have provided support and counsel. We are lucky to count luminaries from both traditional and digital finance including Don Wilson, independent board member Cristobal Conde, Matt Walsh, Vivek Pattipati, Tejas Shah, and former board members Joe Lubin and Antonio Gracias. Finally, we offer a thank you to our team. As with any successful organization, no one person is responsible for what we have accomplished. Centuries of accumulated experience were brought to bear over the past three years to build all you have just read about. That experience, coupled with unwavering dedication and effort, came together to build ErisX and will catalyze the launch of Cboe Digital. We look forward to working with you and earning your ongoing support as we transition to become Cboe Digital. We are committed to being the premier global exchange and clearing house for investors and traders seeking access to digital assets and look forward to continuing to provide our Members with industry-leading solutions.