Cboe Global Markets, Inc.（CBOE） · Exchanges

Cboe Global Markets In-Depth Value Investment Analysis

May 24, 2026·~18 min read

Quick ReadPlain-language overview · read this first

Cboe is a global exchange and market-infrastructure platform, operating U.S. equities, options, and futures exchanges, clearing, and proprietary market data. Its real economic engine is the exclusive SPX and VIX derivatives franchise. The Options segment alone contributes about 76% of companywide operating profit, and the exclusive license for S&P 500 index options runs through the end of 2032.Rating Watch: a good business, but the price already assumes an optimistic scenario.

The tension is not in the business; it is in the cash-flow definition. The reported P/FCF is only 13.7 times, which looks cheap, but TTM free cash flow of 2.724 billion dollars is far above net income of 1.235 billion dollars for the same period. Restricted cash rose to 3.477 billion dollars, and "changes in other operating assets" contributed 1.635 billion dollars. Most of that money is clearing margin and customer funds, and cannot be distributed to shareholders. Under a stricter Owner Earnings framework, true owner earnings are only 10-11 dollars per share. At a 357 dollar share price, that implies 33-36 times rather than 13 times, so there is no margin of safety. A three-case DCF gives 153 dollars in the conservative case, 246 dollars in the neutral case, and 352 dollars in the optimistic case; the current price is already near the top of the optimistic range.

The real risk is not bankruptcy. It is buying at a high valuation and then having long-term returns eaten away by mean reversion. Profit is highly dependent on the exclusive SPX/VIX licenses, which remain contracts in substance. Cboe Digital took a 460 million dollar goodwill impairment, Japan and Canada operations were shut down one after another, and the M&A record is mixed. Two new U.S. options exchanges are also set to enter the market in 2026. The current earnings yield of 3.29% is below the 10-year U.S. Treasury yield of 4.56%, making the odds unattractive. Holding at the current price for 10 years, estimated annualized returns are only -1%~0% / 3%-4% / 7%-8%; a downside repricing of 30%-50% would not be excessive. This is a textbook case of permanent capital loss. The ideal buying range is 230-280 dollars.

Lead
A global exchange and derivatives platform. The Options segment contributes roughly 76% of operating income, while exclusive SPX/VIX authorizations run through 2032/2033. Research rating Watch: at $357.35, the stock is already near the upper end of the optimistic $320-360 range; on owner earnings of 33-36x, there is no margin of safety.

Full report

Prices in the article are as of publication; see the valuation band above for the live price.

Methodology note: For company operations, financials, governance, industry position, debt structure, restructuring, and divestitures, this report relies as much as possible on the company's latest 2025 10-K, Q1 2026 10-Q, 2026 proxy statement, investor-relations releases, and authoritative market and interest-rate data. Owner earnings, DCF, fair buy price, and expected return are my inferences based on those facts. Moat strength, management scoring, and the final rating are my opinions. Where an item cannot be verified with high confidence, I state that directly.

Conclusion First

Here is the conclusion upfront: the investment rating is Watch. One-sentence conclusion: this is a high-quality exchange and market-infrastructure company whose business model I would be willing to study and own for the long term, but at a share price of about $357.35 around May 24, 2026, it looks more like a "high-quality toll road" than a "cheap high-quality toll road"; for a balanced but conservative value investor with a holding period of more than 10 years, the current price lacks an adequate margin of safety.

The core judgment is that Cboe is fundamentally a global market-infrastructure platform that charges market participants for "trading, clearing, data, access, and index/product licensing." Its profit core is not ordinary cash-equity matching, but higher-moat proprietary index and volatility products such as SPX/VIX, access ports, proprietary market data, and clearing networks. In 2025, the company generated $4.714 billion of revenue. On a "revenue less cost of revenue" basis, Derivatives accounted for 55.2%, Data Vantage for 25.6%, and cash/spot markets for 19.2%. By segment, the Options segment alone contributed about 63% of revenue less cost of revenue and about 76% of operating income, showing that this is a company highly dependent on a high-quality derivatives franchise. The business quality is high, the model is capital-light, and ROIC is strong, but the current market price already fully, and perhaps excessively, reflects these strengths.

Is there a margin of safety at the current price? No.

On conventional reported free cash flow, CBOE's current P/FCF of about 13.7x may look cheap. I think that number is clearly misleading for an exchange/clearing company, because operating cash flow in recent years has been heavily affected by fluctuations in clearing margin, restricted cash, and other working-capital items. In Q1 2026 TTM, operating cash flow was $2.80 billion and free cash flow was $2.724 billion, far above net income of $1.235 billion over the same period. At the same time, restricted cash on the balance sheet rose to $3.477 billion on a TTM basis, and "changes in other net operating assets" in the cash-flow statement reached $1.635 billion. This means it is not prudent to treat accounting FCF directly as "cash distributable to owners." On a more conservative owner-earnings estimate, the current price is not a low-teens multiple of cash flow, but closer to 33-36x true owner earnings.

The suitable investor type is a long-term value investor who understands exchanges, derivatives, clearing, and data-fee models, and is willing to wait patiently for a better price. It is not suitable for someone who buys hastily after seeing a low P/FCF.

There are three largest uncertainties. First, how much of reported free cash flow is truly freely distributable to shareholders, rather than working-capital movement related to clearing/client funds. Second, new CEO Craig Donohue has been in the role for less than two years, and the roughly 20% workforce reduction, divestiture of Canadian/Australian businesses, and reinvestment into "new directions" such as event markets and tokenization being advanced in 2026 still need time to prove that they truly improve per-share intrinsic value. Third, one of the company's most important economic moats comes from the exclusive U.S. authorization for S&P index options. That authorization currently runs through 2032/2033, but it is still a contract, not permanent property.

Business, Industry, and Competitive Landscape

This company can be understood, but it is not a radically simple "selling cola" type of business. What it does is essentially operate multiple forms of financial market infrastructure: U.S. equity and global equity venues, options and futures exchanges, clearing services, FX platforms, access ports, proprietary market data, and proprietary index and derivatives ecosystems represented by SPX and VIX. In its 10-K, the company groups its external reporting into three categories: Cash and spot markets, Cboe Data Vantage, and Derivatives markets. Its customers are mainly banks, brokers, market makers, hedge funds, asset managers, proprietary trading firms, and institutional and individual investors who enter the market through brokers. The fee model is also clear: trading and clearing fees, access and capacity fees, proprietary market data fees, and index/product-related fees with a licensing component.

From the perspective of a "long-term business owner," the strength of this business is that fixed costs are high, marginal costs are low, and mature expansion does not require enormous capital. Over the past five years, the company's gross margin rose from 42.2% to 51.5%, and operating margin rose from 23.4% to 32.3%, indicating strong operating leverage after revenue growth. Data, access, and proprietary derivatives in particular usually produce higher-quality incremental revenue than ordinary multi-listed options or cash-equity matching. In Q1 2026, "revenue less cost of revenue" grew 29% year over year, including Derivatives +32% and Data Vantage +19%. Management also raised 2026 organic net revenue growth guidance to the "low double digits to mid-teens." This shows that it has the characteristics of a mature toll road while still retaining some growth.

But this business is not "unconditionally stable." Part of its revenue is recurring, sticky, and relatively predictable, such as proprietary market data, access ports, clearing, and index-related fees. Another part depends heavily on volatility, trading volume, and customer risk-management demand. In other words, it is more exposed to market sentiment than a pure advertising platform or consumer-products company, but more stable than a pure brokerage business, because the core fee rights are held by the exchange and product licensor. In 2025, the company had one customer representing about 10% of total revenue, and its three largest clearing members cleared about 71% of market-maker-side volume in the company's U.S. options markets. This shows that although the industry is fragmented, there is visible customer concentration in key channels.

At the industry level, I define it as a "high-quality niche leader in a mature industry." Exchanges and market infrastructure are not a new high-growth industry, but derivatives, clearing, proprietary market data, and demand for nearly around-the-clock trading have long-term structural growth. In its 10-K, Cboe also focuses its strategy on Index Options, Multi-Listed Options, Futures, U.S. Equities, European Equities, Global FX, and Data Vantage expansion built on those businesses. The issue is that this industry is highly competitive. At the end of 2025, Cboe's four U.S. options exchanges faced 14 other U.S. options exchanges, and the company expected two more to be added in the first half of 2026. The company also explicitly acknowledges that outside its proprietary products, it competes with other futures exchanges, OTC derivatives, SPY options, cash-settled index products, and certain event prediction markets. In other words, the moat is not that "every business is unbeatable," but that "a small subset of businesses is extremely strong and contributes most of the profit."

If the "stock market closed for five years," would I be willing to own this business? The answer is: yes at the right price. The reason is that five years later, investors' needs for hedging, volatility trading, index options, clearing, market data, and connectivity would still most likely exist, and much of that demand would flow to leading platforms. But the premise is not paying too high a price for that certainty. Overall, I score the business 4/5 for understandability and the industry 4/5 for attractiveness.

Moat, Management, and Capital Allocation

Cboe's moat is unevenly distributed. In ordinary cash equities and multi-listed options, it has scale and network advantages, but not necessarily overwhelming pricing power. In SPX, VIX, and their derivative ecosystems, the moat is clearly wider. The company states this plainly in its 10-K: its most actively traded proprietary products include SPX options and VIX options/futures, and it holds exclusive U.S. listing rights for U.S.-listed index options on the S&P 500 Index, S&P 100 Index, S&P Select Sector indexes, and others. The S&P license extends through the end of 2033, and the exclusive trading rights for S&P 500 Index options run through the end of 2032. SPX, as one of the most widely followed equity indexes, provides hedging and yield-enhancement tools for pension funds, asset managers, hedge funds, and other customer groups. VIX is built on real-time SPX options quotes, and in turn reinforces the product network. This "product-liquidity-data-brand-education" loop is Cboe's most valuable moat.

Breaking it down item by item: brand advantage is moderately strong, because in volatility and index options, Cboe/VIX/SPX are themselves category-defining names; scale advantage is clear, because total options market share was about 30.3% in 2025 and about 29.1% in Q1 2026; network effects are strong in proprietary derivatives and clearing, because deeper liquidity lowers market-making and hedging costs and makes customers less willing to migrate; switching costs are moderate in ports, data, system access, and clearing-member relationships, and weaker in ordinary trade matching; regulatory and licensing barriers are very strong, because exchanges, clearinghouses, and cross-regional operations require multiple permissions and ongoing regulatory capital; data advantage is moderately strong, because trading in proprietary products feeds back into the data and index ecosystem; cost advantage exists but is not the main driver, coming more from fixed-cost absorption and scale than from the absolute lowest cost base. Overall, this is neither a software business that anyone can copy nor a pharmaceutical company protected by a single patent. It is a classic license + liquidity + proprietary product + customer-embedding moat.

My judgment on the moat is that the core moat is stable and slightly widening, while non-core business moats are average or even shrinking. Evidence for "stable and slightly widening" is that in 2025, the Options segment generated $2.434 billion of revenue, $1.531 billion of revenue less cost of revenue, and $1.113 billion of operating income, with one segment contributing about 76% of total company operating income. In Q1 2026, the Options segment again generated $467.6 million of revenue less cost of revenue and $359.6 million of operating income. This shows that the real economic engine is not "expanding everywhere," but continuously deepening the moat around high-barrier derivatives. Evidence for "average or even shrinking non-core businesses" is that in 2025 the company decided to sell its Canadian and Australian businesses to TMX for total consideration of $300 million, and shut down and impaired its Japanese equities business, showing that management has already acknowledged that not all international expansion deserves long-term ownership.

On management and capital allocation, my assessment is above average, but not yet at the level that makes me "very comfortable." The positives: the governance framework is fairly standard, management is subject to share-ownership requirements, an anti-hedging policy, and mandatory and supplemental clawback policies. Long-term incentives consist of 50% RSUs + 50% PSUs, and PSUs are assessed over three years using relative TSR and EPS. The company also explicitly prohibits executives from using equity for margin financing, and executives had no such hedges in 2025. In cash use, the company has maintained dividends over the long term, while buybacks have not been aggressive: common-stock repurchases from 2021 to 2025 were about $87.5 million, $109.8 million, $97.8 million, $234.3 million, and $96.5 million, respectively. Diluted shares declined from about 107 million to about 105 million over five years, a "steady but not aggressive" shareholder-return profile.

My reservations are mainly twofold. First, true equity alignment is not strong. As of March 19, 2026, directors, current executives, and other officers together owned only 263,809 shares, less than 1%. New CEO Craig Donohue disclosed direct beneficial ownership of only 2,604 shares. This does not mean he is indifferent to shareholder interests, because he has substantial unvested equity incentives, but it is still far from a "founder owner-operator." Second, the M&A record is mixed. In 2022, the digital-asset-related Cboe Digital business produced a $460.9 million goodwill impairment. In 2024, the former Digital segment recognized another $81 million asset impairment. In 2025, the company continued to impair intangible assets related to Japan and Canada. Management is now correcting past expansion through non-core asset sales, a roughly 20% workforce reduction, and renewed focus on the core franchise. That deserves credit, but it also shows that capital allocation over the past few years was not uniformly strong. Overall, I score moat strength 4/5 and management and capital allocation 3/5.

Financial Quality and Owner Earnings

Start with the "surface-level financial quality." From 2021 to 2025, revenue grew from $3.495 billion to $4.714 billion, a cumulative five-year increase of about 35%. Operating income rose from $819 million to $1.521 billion. Net income attributable to common shareholders rose from $527 million to $1.095 billion. Dividends rose from $1.80 per share to $2.70 per share. ROIC increased from 12.69% to 22.72%, while debt/EBITDA fell from 1.44x to 0.95x. Looking only at these metrics, this is a company with excellent returns on capital, growth that does not rely heavily on capex, and a reasonably sound balance sheet.

Key metric	2021	2022	2023	2024	2025
Revenue	3,495	3,959	3,774	4,095	4,714
Operating income	819	965	1,051	1,185	1,521
Operating margin	23.4%	24.4%	27.9%	28.9%	32.3%
Net income attributable to common shareholders	527	234	758	761	1,095
Operating cash flow	597	651	1,076	1,101	1,753
Reported free cash flow	546	591	1,031	1,040	1,682
Dividend per share	1.80	1.96	2.10	2.36	2.70
Diluted shares	107	107	106	106	105
Debt / EBITDA	1.44x	1.62x	1.30x	1.19x	0.95x
ROIC	12.69%	11.05%	15.58%	16.92%	22.72%

Note: all table figures are in millions of U.S. dollars except ratios. Historical financial tables are from Stock Analysis summaries, whose underlying sources are marked as SEC Filings / S&P Global Market Intelligence. Interpretation of 2022-2025 profits should be combined with company-disclosed goodwill / asset impairments.

But if you care about "real, distributable cash flow," you must drill one layer deeper than this table. Cboe's reported free cash flow looks excellent: $1.682 billion in 2025 and $2.724 billion on a TTM basis through Q1 2026. The problem is that cash flow for exchange/clearing platforms can often be heavily distorted by clearing margin, customer bank deposits, restricted cash, Section 31 fee payables, and other working-capital items. At the end of March 2026, the TTM balance sheet summarized by Stock Analysis showed restricted cash of $3.477 billion, while the company's "changes in other net operating assets" contributed $1.635 billion to operating cash flow over the same period. This kind of cash is not the same as "cash that can be distributed to shareholders today." Therefore, CBOE's accounting earnings are generally real, but reported FCF cannot be directly equated with owner earnings.

Look further at earnings quality. The unusually low net income in 2022 was not mainly because the core exchange business suddenly deteriorated, but was related to items such as a $460.9 million goodwill impairment related to Cboe Digital. In 2024, the former Digital segment recognized another $81 million asset impairment. In 2025, it continued to impair intangible assets related to Japan and Canada. In other words, the company's core operating income is actually smoother than net income and better represents business resilience. But its history of M&A and new-business incubation has not been flawless, which reminds us not to extrapolate recent high growth mechanically into long-term high-quality compounding.

On the balance sheet: as of March 31, 2026, total debt was about $1.443 billion, including $650 million of 3.65% senior notes due January 2027 reclassified into current liabilities. The company also had $500 million of 1.625% notes due 2030 and $300 million of 3.0% notes due 2032. In terms of coverage, interest coverage was about 31.7x and debt / EBITDA was about 0.87x under the current statistical basis, so this is not a financial-stress issue. The real question is not "can it repay debt," but whether management will use proceeds from the Canadian/Australian divestitures, cash on hand, and future cash flow first to improve per-share value, rather than to pursue new experiments with unclear returns.

My conclusion on financial quality is: high quality, but the cash-flow metric must be cleaned up. Looking only at GAAP and reported FCF, the company appears to have "attractive growth and a cheap valuation." If you strip out the impact of clearing/restricted cash through an owner-earnings lens, it remains an excellent business, but it is not cheap. This point is crucial.

Intrinsic Value, Relative Valuation, and Margin of Safety

As of the latest available market data, CBOE's share price was about $357.35, with a market cap of about $37.5 billion and a trailing PE of about 30.5x. On the surface, its P/FCF of about 13.7x and EV/FCF of about 13.5x do not look expensive. But the same page also shows EV/EBITDA of about 20.65x and ROIC of about 25.56%. Combined with the earlier cleanup of reported cash flow, I think the market is actually valuing it as a "high-quality, high-certainty derivatives + data platform," not as a low-multiple cash cow.

Owner-Earnings Discounting Method

My conservative owner-earnings estimate uses the following approach: start with 2025 net income attributable to common shareholders of about $1.095 billion, add back depreciation and amortization of about $122 million, do not treat all SBC as "free" cash, and assume that full-year capex of $71 million is almost entirely maintenance capex. At the same time, conservatively deduct the working-capital tailwind caused by clearing/restricted cash. This produces a conservative owner-earnings range of about $1.05 billion to $1.15 billion, or about $10.0 to $11.0 per share. At the current market cap, the market is not paying 13x owner earnings, but roughly 33-36x. This is the root of my disagreement with many surface-level valuation screens.

On that basis, I use three DCF scenarios, all of which are my inferences: Conservative scenario: initial owner earnings of $1.05 billion, 10-year growth of 4%, discount rate of 10%, terminal growth of 2.5%, implying intrinsic value per share of about $153. Base scenario: initial owner earnings of $1.15 billion, 10-year growth of 6.5%, discount rate of 9%, terminal growth of 3%, implying intrinsic value per share of about $246. Optimistic scenario: initial owner earnings of $1.25 billion, 10-year growth of 8%, discount rate of 8.5%, terminal growth of 3.5%, implying intrinsic value per share of about $352.

The meaning of this valuation set is not "the company is poor." It is: if you use a metric closer to Buffett-style owner earnings rather than reported FCF helped by working capital, the current price is already close to the optimistic value, not the conservative value.

Relative Valuation Method

Comparing CBOE with more comparable market-infrastructure companies: CBOE currently trades at PE 30.5x / EV EBITDA 20.7x / ROIC 25.6%. ICE is about 22.3x / 16.1x / 8.5%, CME about 24.9x / 22.3x / 12.2%, and Nasdaq about 27.4x / 18.8x / 10.0%. If the more "data/index platform-like" MSCI is included, it is about 33.7x / 25.8x / 46.2%. This shows that CBOE's earnings quality and ROIC are indeed better than the median of ICE / CME / NDAQ, so it deserves some valuation premium. But after excluding P/FCF, the metric most distorted by the cash-flow basis, CBOE is no longer cheap on PE or EV/EBITDA. My judgment is that it should sit between "traditional exchange leaders" and "high-quality data/index platforms." A reasonable relative valuation would roughly be 25-29x TTM EPS or 19-21x normalized EBITDA, corresponding to a share price of about $280-340.

Asset or Liquidation Value Method

The asset method is not friendly to CBOE, and it is not very suitable. Its value is not in land, factories, or inventory, but in exchange licenses, intangible assets, clearing and liquidity networks, proprietary products, and brands. At the end of 2025, the company's balance sheet carried goodwill of about $3.151 billion and other intangible assets of about $1.344 billion. The market assigned it a P/TBV of about 41x, meaning that if you insist on looking at "tangible net assets," this company has almost no liquidation cushion. In other words, it is a classic business whose going-concern value is far above liquidation value. The investment thesis can only rest on continuing operations and high returns on capital, not on asset discounts.

Valuation Conclusion and Margin of Safety

Combining the three methods, I arrive at the following ranges: Conservative intrinsic value range: $150-220; Reasonable intrinsic value range: $240-310; Optimistic intrinsic value range: $320-360.

At the current price of about $357, CBOE is mostly at a premium to the reasonable range and approaches "roughly fair" only under the optimistic range. Therefore:

Conservative margin-of-safety judgment: none.
Ideal buy price range: $230-280.
Acceptable hold price range: $280-330.
Clearly overvalued price range: roughly above $350.

The most fragile assumption in the valuation is "to what extent the high growth and high cash flow of the past two years can persist." If growth slows, margins return to more normal levels, or the market multiple returns to a more traditional exchange range, long-term returns for buyers at the current price would be clearly compressed. In other words, this is more like a "good company at a bad price" than a "bad company at a cheap price."

Risks, Bear Case, and Alternative Opportunities

The real concern is not short-term share-price volatility, but permanent capital loss. For CBOE, the largest source of permanent loss is probably not bankruptcy, but buying at a high valuation and then having long-term returns "eaten" by mean reversion. This is especially relevant for a high-quality financial-infrastructure company with low capex, high returns, and a market willing to pay a high multiple. The current earnings yield is about 3.29%, while in late May 2026 the U.S. 10-year Treasury yield was about 4.56% and Moody's Aaa corporate bond yield was about 5.64%. This does not mean CBOE is worthless. It means that buying today requires the combined outcome of "sustained high-quality growth + no multiple compression." For conservative investors, the starting point is not generous.

I think the strongest bear case has five points. First, CBOE is not as cheap as it appears: low P/FCF comes largely from clearing and working-capital items, not stable distributable cash flow. Second, the company's core profit is too dependent on Options / SPX / VIX. If exclusive authorizations, market structure, or substitutes change, the earnings center could be impaired. Third, the company's M&A and new-business trial record is imperfect. The Cboe Digital goodwill impairment and Digital/Japan/Canada-related impairments have already shown that management cannot always turn a "new story" into a high-return asset. Fourth, ordinary multi-listed options, cash-equity matching, and certain international businesses are highly competitive, and the company itself acknowledges that new exchanges will enter the U.S. options market in 2026. Fifth, the focus and workforce reduction being advanced by the new CEO may improve ROIC, but it may also simply "streamline the statements" near a cyclical high. If future volume returns to normal, investors may discover that current peak earnings and the current share price are both unsustainable.

What facts would overturn my investment judgment? The most important are these: if the company loses or materially weakens its S&P / SPX exclusive authorization; if total options share keeps falling below the high-20% range while index options RPC also declines; if Data Vantage slows from double-digit growth to low-single-digit growth and remains stagnant; if future large, low-return, story-driven M&A reappears and causes ROIC to fall back below 15% for an extended period; or if the use of 2027 maturities, asset-sale proceeds, and future cash flow is not prioritized toward per-share value, but is again invested in low-certainty expansion. If these signals appear, I would revise "high quality but expensive" further down to "quality is also deteriorating."

Compared with other opportunities, I view it this way: Compared with the strongest peer, CME, CBOE has slightly better growth and higher ROIC, but CME's futures and rates/commodity products are closer to a "natural monopoly," and its dividend yield is also clearly higher. Compared with ICE and Nasdaq, CBOE has lower leverage, a cleaner balance sheet, and a sharper core derivatives franchise, but its business concentration is higher. Compared with the S&P 500 Index, I do not see CBOE at the current price offering long-term investors an expected-return advantage "clearly above the index." Compared with risk-free and high-grade bonds, it of course offers potential growth as an equity asset, but at the current valuation, expected returns are not far ahead of bond yields. If I could hold only 5 assets, I think CBOE's business quality qualifies it for the long list, but its current price does not qualify it for the short list.

Open questions and limitations: My owner-earnings estimate is deliberately conservative because working-capital factors are heavy in the cash flow of exchange/clearing platforms. This makes my DCF materially lower than models based on reported FCF. If you can further separate client funds, clearing margin, restricted cash, and proprietary cash, you may arrive at a fair value slightly higher than mine. Another limitation is that I partly use Stock Analysis summary pages for peer valuations rather than calculating every peer from original 10-K filings; however, those pages state that their underlying sources are SEC filings / S&P Global.

Investment Checklist and Final Judgment

Investment Checklist

Checklist item	Conclusion
Can I understand this business?	Pass
Does it have long-term stable demand?	Pass
Does it have a durable moat?	Pass
Does it have pricing power?	Partial pass
Can it generate stable free cash flow?	Pass, but the metric needs cleanup
Are returns on capital excellent?	Pass
Is management trustworthy?	Pass, but still needs observation
Is capital allocation rational?	Uncertain
Is the balance sheet sound?	Pass
Is valuation below intrinsic value?	Fail
Is the margin of safety adequate?	Fail
Would long-term ownership make me comfortable?	Pass at the business level, fail at the price level
What key facts would make me sell?	Weaker authorizations, share/RPC decline, ROIC deterioration, repeated low-return M&A
Am I only tempted to buy because the stock has risen or sentiment is strong?	One should be alert to a "yes"

The core message of this checklist is clear: the business mostly passes; the price does not. If I were already a long-term shareholder, I would not necessarily rush to sell. But if I were allocating fresh cash today for a 10-year decision, I would rather place it at the top of the watchlist than buy it immediately.

Final Judgment

【Final Rating】 Watch

【One-Sentence Investment Thesis】 CBOE is a high-quality company with a strong derivatives and market-infrastructure moat, but at the current price, investment returns depend more on optimistic assumptions than on a margin of safety.

【Core Bull Case】 The core franchise around SPX / VIX / Index Options / Data Vantage has a real moat. The revenue model is capital-light with strong operating leverage, and operating margin and ROIC have improved meaningfully over the past five years. The balance sheet is sound, leverage is low, and interest coverage is strong. Management is selling non-core businesses, reducing costs, and refocusing on high-return core operations, which should theoretically help improve ROIC. In an environment of market volatility, active index derivatives, and growing data/access demand, the company still has medium- to long-term growth potential.

【Core Bear Case】 The current price lacks a margin of safety and is not cheap on conservative owner earnings. Low P/FCF may mislead investors, because high reported cash flow may not all be distributable. Management's equity alignment is average, the new CEO's tenure is short, and capital allocation still needs time to prove itself. The history of M&A/new-business experimentation is imperfect; impairments related to Cboe Digital, Japan, and Canada remind us to stay disciplined about "new stories." Company profit is highly dependent on proprietary derivatives authorizations and market structure, and contractual, competitive, and regulatory changes could reshape the valuation center.

【Key Assumptions】 The liquidity and exclusivity of core products such as SPX/VIX are maintained. Data Vantage sustains at least high-single-digit to double-digit growth. The new round of focus and restructuring turns non-core divestitures, workforce reductions, and reinvestment into per-share value improvement, not merely accounting profit improvement. Over the next ten years, the company can still maintain at least mid- to high-single-digit owner-earnings growth. Investors do not continue to mistake large working-capital tailwinds in reported cash flow for sustainable owner earnings.

【Fair Buy Price】 My ideal buy price range is $230-280. For an existing holding, $280-330 is acceptable as a "hold, not add" range. Above $350, I would view it as clearly lacking a margin of safety. This is based on conservative owner-earnings DCF, relative-valuation comparison, and cleanup of reported free cash flow.

【Target Holding Period】 If purchased at a reasonable price, it is suitable for holding for more than 10 years. If the entry price is unreasonable, even a great company may simply become a "long wait for valuation digestion."

【Expected Annualized Return】 Based on the conservative/base/optimistic assumptions used in this report, if purchased at the current price of about $357 and held for 10 years, my estimated conservative/base/optimistic annualized returns are roughly about -1% to 0% / 3%-4% / 7%-8%. This is not because the company is poor, but because the starting price is too high.

【Maximum Loss Risk】 The worst case is not "zero," but this: the market multiple returns to a more traditional exchange level while the growth story stalls, the authorization moat weakens, and owner-earnings growth declines. In that scenario, the stock could undergo a prolonged 30%-50% repricing. For a high-quality but highly valued company, this is the most realistic permanent-capital-loss scenario.

【Tracking Metrics】 I will keep tracking: total options share and index options ADV / RPC; organic growth in Data Vantage; the share of total operating income contributed by the Options segment; whether ROIC remains around 20% or higher; whether the gap between reported OCF and owner earnings narrows; capital use after the Canadian/Australian divestitures; treatment of debt maturing in 2027; whether new-business investment again leads to large impairments; customer concentration and clearing-member stability; developments related to S&P / SPX authorizations.

【Signals That Would Trigger Reassessment】 SPX exclusivity weakens early or renewal terms deteriorate materially; total options share and index RPC continue to decline; Data Vantage growth slows sharply; ROIC falls continuously below the mid-to-low teens; large goodwill / intangible impairments reappear; a new large acquisition requires debt and has unclear logic; post-restructuring profit improvement comes mainly from cost cuts rather than high-quality revenue growth.

【Final Recommendation】 My sober conclusion is: put CBOE on the "high-quality company list," but do not yet put it on the "buy now list." This company deserves respect and long-term tracking. But from the perspective of a long-term business owner rather than a short-term trader, what you lack today is not "a more exciting story," but a better entry price.

This report is based on public information and does not constitute investment advice. Markets carry risk; invest with caution.

Baillie Framework · Ten Questions for Growth Investing

Hunting ten-year five-baggers among great growth stocks — pressing the upside question: "Can it get much bigger?"

How large is its market ceiling? Is it expanding an existing pie, or creating an entirely new market?5/10

The ceiling is limited, and the business is essentially about deepening and thickening an existing mature pie, rather than creating a brand-new market from scratch. This is the first thing to recognize when judging CBOE's growth profile.

Cboe operates exchanges and market infrastructure: index options, volatility products, multiply listed options, futures, clearing, access ports, and proprietary data. These are mature functions that have long existed in the financial system. Demand expands slowly over the long term with market size, volatility, and hedging needs, rather than exploding from zero like a new consumer category. The report's industry characterization is restrained: exchanges and market infrastructure are not a high-growth new industry, and CBOE is positioned as a high-quality niche leader in a mature industry. I agree with that judgment. Baillie Gifford's search for great growth stocks capable of rising 5-fold in 10 years usually starts in a market that is being redefined and can expand almost without limit. The TAM boundary for an exchange business is much clearer.

What CBOE is really doing is taking the higher-quality slice inside an existing pie. Its share is already high: U.S. options total market share was about 30.2% for full-year 2025, and about 29.1% in Q1 2026, versus 31.1% a year earlier. This share is high and has slipped slightly over the past year, which means there is limited room for major expansion by taking more volume. Growth comes more from mix upgrade: shifting revenue toward higher-margin proprietary index options (SPX/VIX), proprietary data (Data Vantage), and access services. The report states this plainly: incremental revenue is higher quality than ordinary multiply listed options or cash matching, but the moat lies mainly not in every business being unbeatable, but in a small part of the business being extremely strong.

There is indeed a hint of creating a new market, but the weight is light and still unproven. SPX and VIX did once make volatility itself into a tradable asset category. That is the real source of the moat. New CEO reinvestment into event markets, tokenization, and other new directions is explicitly classified by the report as an uncertainty that still needs time to prove whether it truly increases intrinsic value per share, not as a second TAM that has already been realized. Treating these early probes as proof that the ceiling has opened up would be dishonest.

One downside risk is worth flagging: on May 29, 2026, the CFTC approved the listing of Bitcoin perpetual futures on Kalshi, and the market worried that new trading products could bypass traditional exchanges. CBOE fell by about 17% at one point that week. This shows that its mature market not only has a limited ceiling; the existing pie itself may also be diverted by new structures.

Conclusion: the business is understandable and demand will exist for a long time, but this is a high-quality tollbooth that refines and deepens a mature market, not a story about creating a new unlimited market. On Baillie Gifford's 5-fold-in-10-years yardstick, the ceiling dimension is not outstanding.

Jun 11, 2026
Can its revenue at least double over the next 5 years? Will growth be driven mainly by volume, price, or new businesses?4/10

A revenue doubling over the next 5 years, or about 15% annualized, is almost unrealistic. A more reasonable expectation is mid- to high-single-digit growth, with good years reaching double digits, driven mainly by price, meaning mix upgrade and pricing power, plus data/access, rather than by a doubling of trading volume.

Start with the company's own framing. In Q1 2026, amid severe market volatility, revenue less cost of revenue rose +29% year over year (Derivatives +32%, Data Vantage +19%, Cash and Spot +34%), and management raised 2026 organic net revenue growth guidance to low-double-digits to mid-double-digits. But this needs caution: the high Q1 growth was largely the result of a concentrated burst of market risk aversion, volatility, and hedging demand at the start of 2026. It was a cyclical high point and cannot be linearly extrapolated into a 5-year norm. The report is clear-eyed about this. It lists how far the high growth and high cash flow of the past 2 years can be normalized as one of the most fragile valuation assumptions, and in its key assumptions it only requires owner earnings growth of at least mid- to high-single-digits over the next 10 years.

Why is the doubling threshold too high? It has to be split into volume, price, and new businesses:

First, volume: share is already high and has even slipped slightly. U.S. options total market share was about 30.2% for full-year 2025 and about 29.1% in Q1 2026. Competition is intensifying: the report notes that by the end of 2025 the company's 4 U.S. options exchanges faced 14 other options exchanges, with 2 more expected in the first half of 2026. The path to doubling revenue by taking volume is narrow.

Second, price/mix: this is CBOE's highest-quality source of growth. Profits are concentrated in proprietary SPX/VIX index options. These products have exclusive licenses and pricing power, and their rate per contract (RPC) is far higher than ordinary multiply listed options. The report discloses that the Options segment alone contributed about 76% of operating profit in 2025. The more the mix tilts toward proprietary index and volatility products, the more valuable each unit of revenue becomes. With operating leverage layered on top (operating margin rose from 23.4% to 32.3% over the past 5 years), single-digit revenue growth can be magnified into higher profit growth. But that magnifies profit; it does not make revenue itself double.

Third, new businesses: Data Vantage, proprietary data, is a high-quality engine with recurring, predictable revenue and room to raise prices. The company has raised its 2026 organic growth guidance for Data Vantage to low-double-digits. Newer directions such as event markets and tokenization are classified by the report as unproven and to be watched. They are not large enough in the near term to double total revenue.

Putting the 3 together, a 5-year revenue doubling would require volume, price, and new businesses to all keep running strongly, without even 1 year reverting to cyclical normality. That conflicts with the report's baseline image: a high-quality leader in a mature industry, growing at mid- to high-single-digits. The honest conclusion is that 5-year revenue is more likely to grow by roughly 40%–60%, depending on the volatility cycle. A doubling is an optimistic tail case, not a base case.

Jun 11, 2026
After 5 years, what will take over as the next growth engine? Does this second curve exist today?5/10

The second curve half exists today: Data Vantage, proprietary data and access, is already running and is a high-quality candidate to take the baton. But the new directions that could truly create another growth pole, such as event markets and tokenization, are still early probes and have not been validated. Honestly, CBOE is not the kind of Baillie Gifford-favored company where the next curve is clearly visible and the imagination space is enormous.

Start with the current main engine and its limits. Today CBOE's profit is almost entirely tied to the first curve: derivatives/options. The report discloses that the Options segment contributed about 76% of operating profit in 2025, and in Q1 2026 the Options segment again generated $467.6 million of revenue less cost of revenue. This curve is strong, but it is mature and highly dependent on the volatility cycle and SPX/VIX exclusive licenses. It cannot replace itself.

The most realistic second curve is Data Vantage, proprietary market data plus indexes. Its appeal lies in recurring, sticky, predictable revenue, and in the product-liquidity-data loop it forms with the core derivatives business, where proprietary product trading itself feeds the data ecosystem. Data Vantage grew +19% year over year in Q1 2026, and management raised its 2026 organic growth guidance to low-double-digits. This is indeed a high-quality increment that exists today and is accelerating. But restraint is needed: even if it grows quickly, its scale is still smaller than derivatives. It is more like a second engine that improves and thickens the main curve, not a new growth pole that can independently carry a 5-fold return over 10 years. The report also treats it only as one of the key assumptions for maintaining at least high-single-digit to double-digit growth.

The real source of imagination for recreating a market is the strategic realignment pushed by new CEO Craig Donohue: selling Canada/Australia businesses, focusing on the core, and reinvesting in new directions such as event markets and tokenization. But the report is very cautious here and explicitly lists this as one of the 3 largest uncertainties: it still needs time to prove whether it truly increases intrinsic value per share. In other words, this potential third curve today is only an intent to position the company. It has neither scale nor evidence of returns, and cannot be valued as an already existing second curve.

There is also a contrary signal that must be included: the first curve itself is facing new structural competition. On May 29, 2026, the CFTC approved the listing of Bitcoin perpetual futures on Kalshi, and the market worried that new product formats could bypass traditional exchanges. This means CBOE needs a powerful second curve even more to hedge the risk in its main business. It does not yet have one.

Conclusion: the second curve equals Data Vantage already running, high quality but not large enough, plus event markets/tokenization as early, unproven probes. The certainty of succession is moderate to weak. This is a relatively thin part of CBOE's growth narrative and should not be elevated into a clear and huge second curve.

Jun 11, 2026
What is its core competitive advantage? Will this moat widen or narrow over the next 3 to 5 years?6/10

The core moat is the proprietary derivatives ecosystem built from exclusive S&P index option licenses, SPX/VIX liquidity depth, and clearing/license barriers. This moat is not evenly distributed: the core is extremely wide, while the periphery is narrower. Over the next 3 to 5 years, I judge it as core stable, periphery under pressure. Overall it is more likely to stay flat, or even narrow slightly at the margin, rather than widen.

Where exactly is the moat strong? The hardest piece of evidence is contract licensing. CBOE holds exclusive listing rights for U.S.-listed index options such as the S&P 500 and S&P 100. The exclusive trading rights for S&P 500 index options extend to the end of 2032, and related licenses extend to the end of 2033. SPX is among the most widely followed equity index options, and VIX is built on real-time SPX option quotes. The product-liquidity-data-brand-education loop is self-reinforcing: the deeper the liquidity, the lower the market-making and hedging costs, and the less willing customers are to migrate. With scale (full-year 2025 total options share of about 30.2%), clearing, and cross-regional license barriers layered on top, this part of the moat is real and converts into profit: the Options segment contributed about 76% of companywide operating profit in 2025, and pricing power shows up in the company's overall operating margin rising to 32.3%. The report gives moat strength 4/5, and I agree.

But the tense matters. These are strong past/current pieces of evidence, while the question asks whether the moat will widen or narrow over the next 3 to 5 years. Looking forward, I see more marginal pressure than marginal widening:

First, the license is a contract, not permanent ownership. The report lists this as one of the 3 major uncertainties: the exclusive licenses extend to 2032/2033, but they are still contracts rather than perpetual property rights. The licenses themselves will not expire within 3 to 5 years, but renewal conditions, price, and exclusivity will hang overhead as S&P Dow Jones' bargaining position changes.

Second, the moat around peripheral businesses is shrinking and competition is intensifying. Ordinary multiply listed options and cash matching do not necessarily have overwhelming pricing power. The report notes that by the end of 2025 the company's 4 U.S. options exchanges faced 14 other options exchanges, with 2 more expected in the first half of 2026. Share has fallen from 31.1% in Q1 2025 to 29.1% in Q1 2026. That is high but slightly declining, not widening.

Third, disruption risk from new product structures has just become visible. On May 29, 2026, the CFTC approved the listing of Bitcoin perpetual futures on Kalshi, raising concern that new trading products could bypass traditional exchanges. CBOE fell by about 17% at one point that week. This does not directly hit SPX/VIX, but it is a reminder that the indispensability of the moat's periphery is being tested by regulators and new structures.

Conclusion: the core moat, the SPX/VIX exclusive ecosystem, is likely to remain stable over the next 3 to 5 years. It is CBOE's most respectable asset. But the peripheral moat is narrowing, competitors are multiplying, and license renewal plus new product structures create marginal headwinds. Overall, the moat is stable but not widening, with the periphery narrowing slightly. It is high quality, but it does not fit Baillie Gifford's favored image of a moat that keeps widening.

Jun 11, 2026
If its core business were disrupted, does it have the DNA to reinvent itself? How does it handle mistakes and bad news?5/10

Separate the answer into 2 layers. On how it handles mistakes and bad news, CBOE has been quite mature and candid over the past 2 years: it has acknowledged mistakes, taken impairments, and contracted. But on the harder DNA question of whether it can reinvent itself if the core business is disrupted, the evidence is weaker. Its advantage is highly specialized in existing proprietary derivatives, and it lacks a historical precedent of jumping to an entirely new main battlefield after disruption.

Start with the way it handles mistakes. It has done this well. Management did not hide the mistakes of the past few years' expansion. It made them real on the books through actual impairments and disposals: a $460.9 million goodwill impairment related to the Cboe Digital digital assets business in 2022; another $81 million asset impairment in the former Digital segment in 2024; and continued impairments of intangible assets related to Japan and Canada in 2025. More importantly, it corrected course in action: in 2025 it decided to sell its Canada and Australia businesses to TMX for total consideration of $300 million, shut down the Japan equities business, launch about a 20% workforce optimization, and focus on the core franchise. The report says management has already acknowledged that not every international expansion is worth holding for the long term, and it views this correction positively. A company willing to admit that a new story did not become a high-return asset, and willing to cut back positions it created itself, deserves credit for governance honesty.

But reinvention DNA is another matter, and the standard should be tougher. What Baillie Gifford really wants to confirm with this question is whether, when the core is disrupted by a new era, the company can leave its comfort zone and create a new main business, as Amazon moved from e-commerce into cloud or Nvidia from gaming into AI. Measured by that standard, CBOE has limitations:

First, almost all of its value is concentrated in a proprietary asset that is difficult to transfer: SPX/VIX exclusive licenses and the liquidity loop. The report discloses that the Options segment contributed about 76% of operating profit in 2025. This single-point strength is precisely what makes reinvention hard. The moat comes from contract licenses and existing liquidity. If the core is replaced by a new structure, these advantages cannot be moved intact to a new battlefield.

Second, its most recent active attempt to reinvent/expand into a new area, digital assets through Cboe Digital, ended in failure and large impairments. This shows willingness to experiment, so there is ambition in the DNA, but it also means the success rate in turning a new story into a high-return asset has not been proven. The new CEO's push into event markets, tokenization, and other directions is explicitly classified by the report as needing time to validate, and cannot be treated as existing reinvention capability.

Third, external disruption pressure is rising. On May 29, 2026, the CFTC approved the listing of Bitcoin perpetual futures on Kalshi, and the market worried that new products could bypass traditional exchanges and create a potential revolution on Wall Street. This is a rehearsal of the core-disruption script. CBOE's current response is more about focusing and defending the core; it has not yet shown a pattern of rebuilding elsewhere after disruption.

Conclusion: CBOE's attitude toward bad news and its own mistakes is healthy, candid, and capable of corrective action. That is a real strength. But the evidence for reinvention DNA after core disruption is weak: the advantage is too specialized, the most recent expansion attempt failed, and external disruption pressure is becoming visible. Honestly, it looks more like a company with strong defensive ability and unproven ability to build a new city. This dimension is not a Baillie Gifford-style strength.

Jun 11, 2026
Does management, especially the founder, have a long-term view and deep alignment with the company? Is it willing to sacrifice current profit for the next 5 to 10 years?4/10

Moderately positive, but not deeply aligned. CBOE is not a founder/owner-operator company, and management and executives hold a very small personal equity stake. This is the clearest gap between CBOE and the long-termists with deep economic alignment that Baillie Gifford prefers. Still, the governance framework is standard, incentive design points to the long term, and the new CEO is indeed making tradeoffs that sacrifice the short term to focus on the long term.

Start with the shortcoming that must be acknowledged honestly: weak equity alignment. As of March 19, 2026, directors, current executives, and other executive officers together held only 263,809 shares, less than 1% of total shares outstanding. New CEO Craig Donohue disclosed direct beneficial ownership of only 2,604 shares. This means their personal wealth is far less in the same boat as the share price than it would be for a founder-led manager. To be balanced, the report also notes that Donohue holds substantial unvested equity incentives, so the inference that he does not care about shareholder interests is not valid. But unvested incentives and buying with one's own money and holding for the long term are not the same thing in risk sharing. The former is granted by the company; the latter puts personal net worth at stake. By Baillie Gifford's standard, this is a deduction.

Governance and incentive design are more positive and point to the long term. The company has management stock ownership requirements, an anti-hedging policy, mandatory and supplemental clawback policies; long-term incentives are 50% RSU + 50% PSU, and PSUs are measured over 3 years using relative TSR and EPS. Executives are explicitly prohibited from using equity for margin financing, and there was no related executive hedging in 2025. This mechanism is not the same as deep shareholder alignment, but it at least ties executive pay to multi-year performance and relative returns, and restrains short-term cash-out incentives.

On willingness to sacrifice current profit for 5 to 10 years out, the new management team has provided positive evidence. Donohue's strategic realignment after taking office, selling Canada/Australia businesses, shutting down the Japan equities business, optimizing about 20% of headcount, and focusing on the core franchise, is essentially about cutting unprofitable international expansion and accepting short-term pain in exchange for long-term ROIC. The report is broadly positive on this and says it is theoretically favorable for raising ROIC. But the report also raises a warning I agree with: this focus and headcount reduction may improve ROIC, or it may simply streamline the financial statements at a cyclical peak. If future trading volume returns to normal, the current profit high and cost optimization may prove unsustainable. In other words, the motive behind the long-term tradeoff looks good, but its quality still needs time to be tested.

Capital allocation is consistent but not aggressive: the company has maintained dividends for a long time and has been restrained with buybacks (common stock repurchases in 2021–2025 were about $87.5 million, $109.8 million, $97.8 million, $234.3 million, and $96.5 million, respectively), while diluted shares declined only slightly from about 107 million to about 105 million over 5 years. The report's view is that the rationality of capital allocation is uncertain, because the past M&A record is mixed, including large impairments at Cboe Digital, and it remains to be seen whether future asset sale proceeds and cash flow will be used first to increase per-share value.

Conclusion: management is trustworthy, governance is standard, incentives point to the long term, and the new CEO is making long-term tradeoffs in the right direction. These are real strengths, and the report's 3/5 score for management and capital allocation is fair. But founder-level deep economic alignment is basically absent (personal ownership <1%), M&A history is imperfect, and the rationality of capital allocation remains to be proven. On this Baillie Gifford question, CBOE is a professionally managed company with good governance, not an owner-operator deeply sharing the company's fate. It is neutral to positive, but not outstanding.

Jun 11, 2026
If it disappeared tomorrow, how much would customers miss it? Is its growth model sustainable and not dependent on harming society or regulation?6/10

There are 2 layers to the answer. On indispensability, CBOE's core products, SPX/VIX index options, would be deeply missed and are almost irreplaceable in the short term. That is a real moat. But on social and regulatory sustainability, its position is becoming more delicate. The growth itself does not depend on harming society, but it is highly dependent on regulatory exclusivity and a stable regulatory environment, and the regulatory wind in 2026 has moved in a direction unfavorable to exchanges.

Start with indispensability, CBOE's strongest side. If its SPX/VIX ecosystem disappeared tomorrow, pensions, asset managers, hedge funds, and market makers would immediately lose a core set of hedging and volatility trading tools. The report notes that SPX is one of the most widely followed equity index options and provides hedging and income-enhancement tools to different customer groups, while VIX is built on real-time SPX option quotes. Together they form a product-liquidity-data loop. Liquidity depth itself is the barrier. If the same contracts moved elsewhere, market-making and hedging costs would rise significantly. Add its embeddedness in key channels (the report discloses that the 3 largest clearing members cleared about 71% of the market-maker side volume in the company's U.S. equities options markets, and 1 customer accounted for about 10% of total revenue), and core customer migration costs are high. This layer would be missed heavily.

But core and whole company need to be separated honestly. The report repeatedly stresses that the moat is not evenly distributed: ordinary multiply listed options and cash matching do not necessarily have overwhelming pricing power, and they face competition from 14 other U.S. options exchanges, with 2 more to be added in 2026. If these peripheral businesses disappeared, customers would have many alternative venues and would miss them less. The truly irreplaceable part is the small SPX/VIX core, which happens to contribute most of the profit (the Options segment accounted for about 76% of operating profit in 2025).

Now turn to social/regulatory sustainability. This is where the question deserves deeper digging, and it is also the area where CBOE currently deserves the most caution.

First, the growth model itself does not harm society. It provides compliant, transparent, regulated tools for risk management and price discovery. Its social utility is positive, and it does not profit by misleading consumers or exploiting externalities. This is better than many businesses whose growth depends on hurting users.

Second, however, its moat depends heavily on regulatory exclusivity, not pure victory in market competition. The most valuable asset is the exclusive listing license for S&P index options, extending to 2032/2033, plus exchange/clearinghouse license barriers. The report explicitly lists licensing as an uncertainty: it is essentially a contract, not permanent property rights. A moat built on a franchise right is naturally more fragile than one built on customers genuinely being unable to leave. It depends on the will of licensors and regulators.

Third, the regulatory environment has just shifted in a way unfavorable to exchanges. On May 29, 2026, the CFTC approved the listing of Bitcoin perpetual futures on Kalshi. The market worried that regulators may allow more asset classes to trade in new product forms and bypass traditional exchanges. CBOE fell by about 17% at one point that week. This shows that regulatory sustainability is not an abstract risk: when regulators start opening doors to new competitive structures, the relative value of CBOE's existing franchise moat is weakened.

Conclusion: the core products would be deeply missed and have strong indispensability. That is a real strength. The growth model does not harm society, which is also positive. But moat sustainability is tied to regulatory exclusivity rather than pure customer dependence, and the 2026 regulatory wind has already loosened in a way unfavorable to exchanges. Overall, CBOE is core-strong, but sustainability hangs on the string of regulation and licensing that it does not fully control. This judgment has bright spots but clear conditions attached.

Jun 11, 2026
How are the unit economics of this business, including gross margin and incremental returns? Do they improve or worsen as scale grows? Where does the money it earns go?7/10

The unit economics are excellent and improve with scale. This is CBOE's most solid dimension and the one most deserving of the label high-quality business. High fixed costs, low marginal costs, and strong operating leverage mean larger scale brings higher margins and higher returns on capital. By Baillie Gifford's yardstick, this is a genuine strength. The only reservation is that the record on where the money goes is mixed and needs continued observation.

Start with hard evidence on gross margin and incremental returns. Over the past 5 years, gross margin rose from 42.2% to 51.5%, and operating margin rose from 23.4% to 32.3%. Margins kept rising after revenue growth, a classic sign of low marginal cost and most incremental revenue dropping into profit. The report summarizes the business well: high fixed costs, low marginal costs, and no need for huge capital after maturity. Data, access, and proprietary derivatives in particular have higher incremental revenue quality than ordinary cash matching.

Scale makes the business better rather than worse, and there is evidence on 2 levels. First, margins themselves rise with scale, as above. Second, returns on capital have improved sharply with scale: ROIC rose from 12.69% in 2021 to 22.72% in 2025, while capital expenditure was extremely low over the same period (the report discloses only $71 million for full-year 2025). This means growth consumes almost no capital. That is the high incremental return, asset-light expansion feature most valued by both Baillie Gifford and Buffett. The report's peer comparison also confirms the superiority of ROIC: CBOE's ROIC is clearly above the median for ICE, CME, and Nasdaq.

The highest incremental returns come from proprietary derivatives. The report discloses that the Options segment alone contributed about 76% of operating profit in 2025, and in Q1 2026 the Options segment generated $467.6 million of revenue less cost of revenue and $359.6 million of operating profit. In other words, each additional dollar of proprietary index options revenue converts into profit very efficiently. This is the real engine that makes scale better.

But this unit-economics question also asks where the money earned goes, and here the temperature needs to be lowered. CBOE generates a lot of cash (reported 2025 free cash flow of $1.682 billion), but the report specifically warns that reported free cash flow is inflated by clearing margin, restricted cash, and working-capital items, and cannot be equated directly with owner earnings distributable to shareholders (Q1 2026 TTM restricted cash rose to $3.477 billion, and changes in other net operating assets reached $1.635 billion). On where the money goes, the record is mixed. On one hand, long-term dividends and restrained buybacks (diluted shares declined only slightly from about 107 million to about 105 million over 5 years) are steady shareholder returns. On the other hand, the company invested money in digital assets and other new businesses in the past, resulting in a series of failures including a $460.9 million goodwill impairment at Cboe Digital. The report therefore judges the rationality of capital allocation as uncertain.

Conclusion: unit economics, meaning high gross margin, low marginal cost, strong operating leverage, high and rising ROIC, and asset-light expansion, are CBOE's hardest strength. Scale clearly makes the business better. By Baillie Gifford's standard, this is a genuinely outstanding item. The only discount is where the money goes: operating cash generation is very strong, but historical capital allocation included expensive experiments. Whether strong cash flow can be persistently converted into per-share value still needs observation.

Jun 11, 2026
What conditions must all hold for it to rise 5-fold in 10 years? Are those conditions realistic? What expectations are embedded in today's share price?2/10

Put directly: a 5-fold rise in 10 years, or about 17.5% annualized, is almost unrealistic for CBOE's business. It is a high-quality tollbooth in a mature industry, not a high-growth stock capable of compounding 5-fold in 10 years. The conditions required for a 5-fold return are too demanding. And although today's share price has fallen from the report's high reference point, it still embeds a somewhat optimistic expectation of sustained high-quality growth and no major multiple compression, not a free margin of safety.

Start by calibrating the price anchor. The report was written on May 24, 2026, using about $357.35 as the base. Since then, the stock price has fallen materially. As of early June 2026, it was roughly in the $280–$301 range (about $280 intraday on June 8 and about $301 at the close on June 10), with market value around $31.5 billion and TTM P/E about 25.7 times. The direct trigger for the decline was the exchange-sector repricing after the CFTC approved the listing of Bitcoin perpetual futures on Kalshi on May 29, 2026, and CBOE fell by about 17% at one point that week. So the following judgment should be measured against about $290, not the report's $357.

What conditions need to hold simultaneously for a 5-fold return over 10 years? Split it into 2 legs: earnings growth × valuation multiple. Both are required:

First, owner earnings would need to compound at a high rate for a long time. The report's conservative owner earnings starting point is about $1.05–$1.15 billion, or about $10–$11 per share. If the valuation multiple remains unchanged after 10 years, a 5-fold return would require per-share earnings to roughly quintuple, which means owner earnings growth of about 17% annualized. But the report's own optimistic scenario assumes only 8% growth over the next 10 years; it lists mid- to high-single-digit owner earnings growth as a key assumption. The gap between 17% and 8% is huge.

Second, the market's accepted multiple cannot compress over 10 years, and preferably would need to expand. In reality CBOE is already not cheap (TTM PE ~25.7x), while ICE, CME, and Nasdaq peers mostly trade at 22–27x PE. The report judges CBOE's reasonable relative valuation at about 25–29x TTM EPS. For a 5-fold return, the multiple not only cannot mean-revert, it may need to rise further. That conflicts with the valuation gravity of a mature exchange.

Third, the moat and licenses must remain intact for 10 years. SPX/VIX exclusive licenses must be renewed smoothly beyond 2032/2033, share must not keep sliding (it has already fallen from 31.1% to 29.1% year over year in Q1 2026), and new products such as perpetual futures must not divert core derivatives demand. Each of these is uncertain on its own. The probability that all 3 avoid problems for 10 years is not high.

These 3 conditions must hold at the same time: annualized earnings growth of ~17%, no multiple compression, and an undamaged moat for 10 years. The realism is low. The report's conclusion is consistent with this: making a 10-year decision at the current price, its conservative/neutral/optimistic annualized return estimates are about -1%~0% / 3%–4% / 7%–8%, with no case close to 17%.

What expectations are embedded in today's share price? Even after the decline to about $290, the market is still pricing CBOE as a high-quality, high-certainty derivatives plus data platform, not as a low-multiple cash cow. The report puts it directly: on a measure closer to owner earnings, the market is not paying 13 times cash flow, but about 33–36 times true owner earnings. In other words, the current price embeds an optimistic combination in which growth and moat both play out for a long time and the multiple does not fall. The lower price has improved the margin of safety from clearly lacking to still tight, but it is nowhere near leaving room for a 5-fold return in 10 years.

Conclusion: the conditions required for a 5-fold return in 10 years are unrealistic, and CBOE does not fit the Baillie Gifford profile on this dimension. Today's roughly $290 price is friendlier than when the report was written, but it still embeds somewhat optimistic expectations. It is more like paying a not-cheap price for a high-quality business than picking up a great growth stock cheaply.

Jun 11, 2026
Why has the market not realized all this yet? Is it because investors do not understand it, look down on it, or do not look far enough? What could become the narrative inflection point?3/10

Frankly, for CBOE the premise that the market has not realized this basically does not hold. It is a large, high-quality company with deep sell-side coverage and fairly full pricing. There is no hidden-growth-stock perception gap. The spirit of this Baillie Gifford question is to find situations where the market misunderstands, disrespects, or fails to look far enough and therefore misprices the company. CBOE is the opposite: the market not only understands its quality, it has already priced that quality, and even somewhat optimistic expectations, into the stock.

Check the 3 possibilities one by one: misunderstanding, disrespect, and short-sightedness.

Misunderstanding? No. It has full sell-side coverage and a clear target-price consensus (recent 12-month average target price of about $328, with RBC and others maintaining around $303). The report itself acknowledges the market's view: the market is effectively valuing it as a high-quality, high-certainty derivatives plus data platform, with TTM PE around 25.7x and a valuation premium versus ICE/CME. This is not misunderstanding; it is understanding it clearly and assigning a premium accordingly.

Disrespect? Also no. The market is giving it a premium, not a discount. The report judges its reasonable relative valuation at about 25–29x TTM EPS, and it has long traded in this range or higher. Stocks that are disrespected are usually low-valuation and ignored. CBOE is the opposite.

Not looking far enough? This is the only angle with a little room, but the direction is questionable. The real difference between the report and the market is not that the market is too pessimistic, but that the market may be too optimistic. The report spends substantial space arguing that the low P/FCF, about 13.7x, is misleading because reported free cash flow is inflated by clearing/restricted cash. On an owner earnings basis, it actually corresponds to about 33–36 times true owner earnings. In other words, if a perception gap exists, the direction is that the market may be overestimating the distributability of reported cash flow, not underestimating growth. That is the opposite of the Baillie Gifford pattern where the market fails to look far enough and undervalues the company.

The more honest framing is therefore: CBOE has no upside perception gap waiting to be discovered; its risk is downward mean reversion. The report says this plainly: the largest source of permanent loss is not bankruptcy, but buying at a high valuation and then having long-term returns eaten by mean reversion.

What could be the narrative inflection point? A fresh, real example has already occurred, and it points negative. On May 29, 2026, the CFTC approved the listing of Bitcoin perpetual futures on Kalshi. The market worried that new trading products could bypass traditional exchanges and create a potential revolution on Wall Street. CBOE fell by about 17% at one point that week, and the share price dropped from about $357 when the report was written to the $280–$301 range. This is a live negative narrative inflection: the narrative shifted from a high-quality tollbooth steadily collecting fees to a question of whether the franchise moat could be eroded by new structures. RBC and other institutions assessed the threat as manageable, but the market repricing has already happened.

Looking ahead, possible narrative inflection points, mostly negative with a few positive, include: negative ones, worsening or weakening conditions for SPX/S&P exclusive license renewal in 2032/2033, total options share persistently falling below the high-20% range, regulators allowing perpetual futures and other new products into more asset classes, or another large low-return acquisition/impairment; positive ones, Data Vantage continuing to deliver double-digit growth and being re-recognized by the market as a data/index platform rather than a cyclical exchange, thereby supporting a higher multiple. These align closely with the report's listed triggers for reassessment.

Conclusion: CBOE does not fit Baillie Gifford's mispriced pattern of the market not yet realizing the story. The market understands it and gives it a premium. The potential perception gap points to possible optimism, not undervaluation. The narrative inflection that is actually happening, the CFTC perpetual futures approval, is negative and has already taken the stock from 357 to ~290. The honest answer for CBOE on this question is that it is not a hidden growth stock. It is a fully priced, high-quality mature leader that has recently faced a negative narrative re-rating.

Jun 11, 2026

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