Traders Magazine recently caught up with Adam Inzirillo, Head of North American Equities at Cboe Global Markets, to learn more about what’s happening at the company and in the industry at large.
What sets Cboe apart from other U.S. equities exchanges?
Cboe aims to continuously enhance our customers’ trading experience through our global network and accessibility, unbiased market insights and innovative approach. We take pride in being the source for objective equities markets insights, and evidencing that, Cboe utilizes empirical evidence to make informed decisions. Take for example, the SEC’s recent market structure reform proposals. We leverage data we think would be beneficial to drive conversations with regulators and other industry participants.
We also leverage data to create new trading features and functionalities. We continue to see growth in our innovative order type, Quote Depletion Protection or QDP, which helps mitigate adverse selection. Recognizing the strong customer interest in QDP, we provide data to help our customer effectively utilize this order type and improve performance, whether it’s for their customers or principal trading strategies.
Cboe has grown beyond its U.S. options heritage into a more diversified and expansive company. What opportunities and benefits have been, or will be, realized for its global equities business?
Our breadth, scope and economies of scale differentiate us. With Cboe’s significant growth in recent years, we now operate 26 different markets in five different asset classes and have close to 1,200 listings globally.
On the equities front, we’re able to leverage our extensive global equity transaction network – spanning U.S, Canada, UK, Netherlands, Australia and Japan – and our global listings business to help make our customers more successful.
Technology is key and paramount to our success. Most of our customers, particularly the large banks and brokers and some of the principal market makers, are global and want a seamless experience across all the markets they trade. So, we continuously explore the technologies, features and functionalities that work well for customers in one region and could be deployed to another. For example, Cboe launched Periodic Auctions in Europe to great effect and subsequently brought it to the U.S. market. We continue to get good feedback from clients, who find tremendous value in using Periodic Auctions to source block-sized liquidity on exchange.
In Canada, we’ve continued to expand our footprint by acquiring MATCHNow, the country’s largest conditional trading network, in 2020 and Cboe Canada (formerly the NEO Exchange) in 2022 – which brought to us a corporate listings business that we’re now taking to a global scale. With a strong foundation in place, we are building a one-of-its-kind, global listings offering that leverages our network of stock exchanges around the world.
Turning to market structure and regulatory policy. Which particular aspect(s) of the SEC’s proposals does Cboe support or oppose the most?
First, we applaud the SEC for taking a deeper dive into the markets and trying to figure out ways to enhance them. At Cboe, we’ve always been a proponent of more disclosures and transparency. With regard to the specific reforms on the table, it is important to first illustrate that there truly is a problem.
So, when we think about lowering access fees or changing tick sizes, which is the one reform that we’re most focused on, we think tick size reform should be empirically driven. To that end, we’ve published papers and a joint letter with UBS, State Street, Virtu, and T. Rowe, commenting on leveraging data for tick size changes and using that information to only focus on constrained names.
With access fees and rebates, there’s a perception in the market that brokers route solely based on cost. The only way to prove that is to provide more disclosures and transparency around brokers when they route orders on customers’ behalf. If somebody is trading principally – if they incorporate costs – they have full discretion over those orders. But, when they’re working client orders, whether institutional or retail, and they want to route to particular markets, we need to provide greater disclosure and transparency around that. We believe it should be a more pragmatic and methodical approach and regulators shouldn’t go after fees and rebates just on the perception that firms are routing based on those factors.
As it relates to auctions, Rule 605 and best execution, we have different views on those. With best ex, we think there should be more focus on the digital assets space, and we’ve highlighted this in our comment letter. With auctions, we think certain things can be enhanced. For example, we have a retail price improvement feature in our inverted market. We think providing price and size will help that program, and attract more marketable flow to the public market, as opposed to doing an auction that will change the way retail orders are handled, which includes an auction that may occur every 100 to 300 milliseconds. Individual investors are very accustomed to having their orders executed immediately at or better than the prevailing market.
If the SEC decides to go that route, there’s a lot to learn from the options market. A two-sided auction is important in facilitating the auction. There is a sizable difference between how an exchange and an intermediary operates We really can’t determine the right course of action until there’s a final proposal for all these proposed reforms, and then we’ll evaluate it to determine how we best move forward.
What market trends are you seeing across different customer segments and geographic regions, and how is Cboe meeting evolving customer demands?
In the U.S., retail participation continues to be a theme and makes up 20-25% of the equities market. In the first quarter, we saw sub-dollar names reach 15% of share volume, driven by activity in Bed Bath & Beyond and some regional bank stocks which have since been delisted. But that has retracted a bit more recently. In Canada, we’ve seen volumes subside, to around 850 to 900 million shares daily, also driven by lower retail activity. The big difference between Canada and the U.S. is Canadian investors generally trade on-exchange, whereas in the U.S. you see a sizable amount of retail volume trading off-exchange, via wholesalers and intermediaries.
In Europe, retail trading is lower than in the U.S., and lot of exchanges and market centers are trying to figure out how to attract retail flow. Japan is a fairly sizable retail market, and Cboe Japan has an opportunity to handle retail flow from a routing perspective, considering many best execution obligations in Japan are similar to what we have in the U.S. We also continue to see significant upside in Australia, and Cboe Australia is well-positioned versus the incumbent exchange to gather more order flow.
What is Cboe seeing in pre-market and after-hours trading? Is this retail-driven?
We launched early trading hours on our U.S. equities exchange in 2021 to meet demand from a growing base of individual investors and retail broker-dealers throughout the world that want access to the U.S. equities market.
Not only did we start accepting orders earlier at 2:30 AM ET, we also started early trading at 4:00 AM ET, and we’ve seen sizable volume growth since. It’s not uncommon for Cboe to capture somewhere between 20-30% of the pre-market trading volumes on any given day. When there is news-driven market volatility, pre-market trading also increases. Retail investors from all around the globe are the most active participants during those early morning hours.
How is Cboe and your team specifically working to promote diversity and inclusion within your workforce and the industry at large?
Diversity and inclusion are critical to Cboe’s success. Some of my team’s more recent hires are women or other diverse candidates and bring a different background and thinking to the traditional exchange space. Hiring diverse talent allows us to gain a range of perspectives and create healthy debate that lends to new ideas for product innovation, data and content – which ultimately enables us to serve our clients better.
It’s very important to create a diverse and inclusive workforce, and it’s something we are doing organizationally, not just in equities. Cboe just celebrated its 50th anniversary and when I think about the next 50 years, it’s really taking our talent and harnessing it to create additional opportunities for us to grow with our clients, both here in North America and globally.
