Cboe Acquires ErisX in Return to Crypto Derivatives Market

The Chicago Board Options Exchange (Cboe) is acquiring crypto spot and derivatives marketplace ErisX, the companies announced Wednesday.

The move gives Cboe, which was the first U.S. company to launch bitcoin futures in 2017 before later shuttering the product, a new set of crypto derivatives offerings through ErisX’s bitcoin and ether futures products, as well as spot crypto trading.

Under the terms of the deal, Cboe will acquire ErisX, which will operate as Cboe Digital, and retain its different subsidiaries. These include Eris Clearing, ErisX’s registered derivatives clearing organization (DCO), Eris Spot Market and Eris Exchange, its registered designated contract market (DCM). The subsidiaries allow ErisX to offer its different services.

The transaction is expected to conclude in the next four to six months, ErisX CEO Thomas Chippas told CoinDesk. While the companies have already begun engaging with regulators such as the Commodity Futures Trading Commission (CFTC), they will need approval from the CFTC and around 40 different state regulators to finalize.

The financial terms were not disclosed, though Cboe intends to use both cash and increased debt.

“What Tom and team have built is a great foundation, built on great vision that we are going to embrace,” Cboe Executive Vice President and Chief Operating Officer Chris Isaacson told CoinDesk. “And with one transaction we get a spot market, who will produce data with derivatives, and a clearinghouse all in one.”

Both Isaacson and Chippas pointed to ErisX’s different regulatory approvals as part of the reason for the acquisition.

“That’s what really attracted us to ErisX: The regulatory-first approach, and all the work that Tom and team have done with the state regulators at the CFTC for derivatives,” Isaacson said. “They’ve just done it the right way, and therefore we have a great foundation to build on.”

ErisX launched in 2018 with financial support from TD Ameritrade, DRW Holdings and Virtu Financial.

Chippas said he believed the regulatory understanding of crypto has been “quite clear and straightforward,” but the actual process of securing different state and federal licenses is a lot of work.

“You have to go to all these different states, you have to apply for different licenses, but it’s work that you put your back into and you do it and you’re done,” he said. “And you know that once you’ve done it you have an obligation to maintain it.”

The companies might look to new products, such as margined figures, which Cboe Digital hopes to launch pending regulatory approval.

Cboe is creating a digital advisory committee to work with Cboe Digital on continuing development of the different spot and derivatives markets. Fidelity Digital Assets, Galaxy Digital, Interactive Brokers, Paxos, Robinhood, NYDIG, Virtu Financial, DRW and Webull are joining, and some of these companies will take minority stakes in Cboe Digital.

Beyond the development of existing products, Cboe hopes to begin providing market data for clients interested in specific crypto execution prices.

“Bringing these partners, it just opens up the door for access to these products to people that don’t have it today and it’s hard to believe if you’re in crypto every day, how hard can it be to buy bitcoin or ether,” Chippas said. “We’re not asking people to do tricky stuff, they can go on to any variety of platforms and buy crypto today, but most people have complex financial lives.”

Tom Jessop, president of Fidelity Digital Assets, said in a statement that his company is looking forward to working with the new entity.

“The Cboe-ErisX combination represents an attractive opportunity to collaborate with a global exchange operator who can bring increased regulatory proficiency, resilient technology and product expertise to digital asset markets,” he said.

Cboe was among the first companies to try listing bitcoin futures in the U.S., taking its cash-settled futures product live at the end of 2017 just days before CME launched a similar product. The company later shuttered the product, saying at the time it did not intend to pursue any new crypto derivatives products.

“That was an early entry and looking back at it, it was, it was a good entry … we tend to iterate on products and usually the first iteration of a product is not perfect,” Isaacson said. “That was our evaluation of that product. What excites us so much about ErisX … is that we actually have a spot market.”

DRW founder and CEO Don Wilson said the acquisition would “accelerate” ErisX’s vision of supporting a market that traditional financial institutions would be willing to participate in.

“We’re going to have the spot market, the data products and the ability to build on top of it so that as people’s sophistication in using these products grow, we’re going to be able to add the things that they and their advisers and portfolio managers need in order to build out well-rounded products that include crypto and crypto derivatives,” Chippas said.

Interest has been growing in these products from institutional investors for some time, with even more expressing interest recently, Chippas said.

“The time is now for this asset class,” Isaacson said. “We believe that, we’ve believed that for quite a few years, but there’s a confluence of events right now [and] we’re there, it’s an inflection point.”