On The Brink with Castle Island - Tom Chippas (ErisX) and Chris Isaacson (CBOE) on CBOE's Acquisition of ErisX (EP.252)

Episode Date: October 20, 2021

Tom Chippas, the CEO of ErisX and Chris Isaacson, Executive Vice President and Chief Operating Officer at Cboe Global Markets join the show. In this episode we discuss: CBOE's acquisition of ErisX Details of the acquisition and the rationale for the deal CBOE's current and future plans in the digital assets industry The market structure implications for the broader digital assets ecosystem and why this combination provides for a catalyst for broader institutional adoption Views on the regulatory landscape and how CBOE and ErisX are approaching the market Future products that may be on the horizon Broader views on the spot market, and discussion of Matt Trudeau's, "The Next Leg of The Crypto Trade" The landscape for exchange traded digital asset products    

Hey everyone. Today on the podcast, we're joined by Tom Chippus, the CEO of ErisX, a repeat guest of the podcast, as well as Chris Isaacson, EVP and chief operating officer at Cebo Global Markets. This is a very exciting episode because we are announcing that CBOE has acquired ErasX. We're going to get into the details of the transaction, what it means for the industry, and get Chris's and Tom's perspectives on the Go Forward Plan. So without further ado, here's my conversation with Tom Chippis and Chris Isaacson. by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The Federal Government Loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis.

The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentive Easing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Okay, so this is a very exciting episode of On the Brink. I think it's the first one where we're announcing a transaction. We're joined by Tom Chippis. He's the CEO of ErisX, as well as Chris Isaacson from CBOE.

Chris, you have not been on this podcast. So maybe before we get into the exciting details, we'd love to hear your quick introduction. Yeah, great. Thanks, Matt, for having us on. Very exciting to be on with Tom and yourself this morning. Yeah, so I'm Chris Isaacson. chief operating officer of Sibo Global Markets, the founder of the listed options market in the U.S. I was originally one of the founders, one of the founding employees of BATS global markets

and then came to Sibo Global Markets in 2017 as part of that transaction and integrated the two companies and now very excited about the transaction that we'll talk about today with ERISX. And Chris, I always ask people how they got into crypto. So I won't let you off the hook here even though you're coming on with some exciting news, but how did crypto assets get on your radar both personally and professionally? Well, personally and professionally, they both came actually about the same time when we, CBO was actually the first exchange to have a cash settled Bitcoin future that we launched on our CBO futures exchange. And that was back in late 2018. So right before the CME did. So about the same time as when really took up interest, both personally and professionally.

So you weren't one of these guys that was on the Silk Road in Mount Cox. We got some of those stories. Sounds like it was a little bit of a different time. I don't. I don't know. I was not. Well, this is an exciting day. So, Chris, why don't we start off with you?

And maybe you could summarize the transaction that you've announced this morning. Yeah, I was super excited to have this transaction announced. I've been very excited about to join with Tom. Tom and team at AirSX. Why we're excited about this transaction is that CBO has historically been, you know, we have 21 markets around the world, trading equities, options, futures, FX, all over the world. But we have, as I said, we did have a cash settled Bitcoin future back in 2018.

We actually stopped trading that in the last year or so, what needed to go back to the drawing board. as we've had the pattern of doing in Cebo. While we're excited about this is because with a single step, with the purchase of Erisax and Tom and the team coming on, we have one step being able to get into spot crypto, data, derivatives, and clearing. And what Tom and team have built is tremendous. We think those that are going to embrace regulation in this space

and help define this new asset class in somewhat similar ways to other asset classes we're already in, but also recognizing how it's different and nuanced will be ultimately successful. We also have a long history of dealing with regulators and all sorts of jurisdictions all over the world. And clearly right now where crypto is at is trying to find its footing and become a legitimate asset class in so many ways. So it's very exciting, given what Tom and team have built to be announcing this today. Well, it's certainly a legitimizing just step forward for the industry to have CBOE hop in so aggressively here. Tom Chippis, from your perspective, why did this combination make sense and talk a little bit about the transaction from your side? Sure. Thanks, Matt. And great to be back on again. Thanks for having us.

You know, from our perspective, much of what Chris said is sort of the opposite side of the coin, right? We've been cranking away for three years. And when I think about the vision for AirSX, when we first put the company together and launched, it's always been about innovating within the market structure and regulation and trying to create an environment where more traditional providers of financial services, those that provide access to products for trading, those that provide investment management services, etc., could get in and offer crypto products to their customers. And if you look back from 2018 to now, that thesis has played out. Maybe not exactly on the timeframe we had thought when we launched a company and we first launched our spot market back in April of 2019. But we're here today.

And the foundation of elements of our regulatory structure, all the licenses that we have, our technology and operations and the people have have really come together to build a platform that we think is really what the market's looking for. And by joining in this transaction with CBO, we now are part of a firm that is global and innovative in the exchange space that is looking to capitalize on the previous experience and expand into crypto and really offer that combination of spot and derivatives in a cleared platform that they know the market's looking for. We know the market's been looking for. And now we're just aligned with a bigger, more powerful organization that shares that vision. That's super exciting. I mean, I remember back to 2014-15 when I was working at Fidelity, and we were looking at this through the context of what could you do from an institutional perspective in the crypto market? And we looked at it and said, you know, all right, well, you don't have qualified custodian, so you can't hold it anywhere. You don't have trade

execution platforms that you can trust, and you don't even know what the price of the asset is. So you probably can't do too much. But when I look at this RISX-C-CBO combination, there's a lot that unfolds from a market structure perspective that kind of gets unlocked. for more than just you guys. So maybe you could both give a little bit of perspective on what that market structure on Locke really is. And I remember seeing you in that office, they're mad at Fidelity and being able to pay with Bitcoin in the cafeteria,

I think back then at the Fidelity Commissary. I remember that was a, I don't know if anybody actually did, but I remember it was a payment option. Some expensive coffee. Some expensive coffee. So I think, you know, let's first think about the market structure, right? Obviously, you know, the hot topic today and this week, has been about ETFs and what have you, and those are really access products. So access really

defines a lot of what we think about. How do the various folks that want to deploy capital into acquiring crypto assets do that? Today, there's obviously making purchases directly on a centralized exchange. There's the ability to transact where you can in decentralized exchanges. There's peer-to-peer transactions. There's reward programs. There's really no lack of weight. for people to get exposure, but none of those ways really have functioned in the traditional sense where, hey, I have a portfolio of assets. And within that portfolio of assets, whether I'm an individual, whether I'm a registered investment advisor, I'm a retirement advisor, or I am operating a fund structure, I'm probably doing something more than simply investing in a single asset.

So today, when you think about individuals engaged in the marketplace, they tend to do that through intermediaries. And that's not because intermediaries are the only way to do things, but intermediaries provide a value-added service. If I want to buy some equities and I want to rebalance my bond portfolio and I also want to open up a retirement account, a college savings account, what have you, you go to one of these intermediaries, a broker-dealer typically, and those folks provides you those services and tools you need to do that conveniently. Those folks need some clarity. And that clarity, some of the things you mentioned at the onset that we're missing back in the Bitcoin for Coffee Fidelity days you were mentioning, right?

Which is, hey, where can these assets be safely held? What can I as an intermediary do? What are my obligations if I'm an FCM to offer physically subtle Bitcoin derivatives, what have you? Many of these things, we've certainly worked very hard at Erasex to clarify over the last few years. You know, fall of last year, we worked really hard with the CFDC and helped to get clarification on what can an FCM do when it comes to physically back to Bitcoin? contracts and we got that clarity out of the CFTC and I think that's been really helpful to the FCM community. We know there's an active debate and dialogue going on with the with the SEC and in Congress about what does custody and good control mean. We also know that many broker dealers

today are part of BHC, FHC, bank holding company, financial holding company groups and within those constructs they need some clarity from the Fed about whether or not they can offer these products. All these are good questions that actually have good answers, but taking together, this is market structure. It's not just about having inventory and a matching engine and Fiat rails. You have to answer these other questions and you have to answer them with respect to the intermediary counterpart that wants to participate in your market. I think we have good answers for a lot of these questions at ErisX. And CBO has a great track record of innovating a product here and working constructively regulators so we can help fill the gaps for those gaps exist. And Chris, what would you add to that?

And I'd be particularly keen on getting your sense of just the regulatory enablement side of this as well as the market structure side. Yeah, I think, you know, as we looked at the crypto space or digital asset space overall, I think what we see is despite all the good innovation that's happened and how much uptake there's been around the world, there remains a trust transparency and data gap that we want to fill here with this transaction. And that's in consultation and working with the regulators. And Tom and team did a great job of setting up, you know, designated clearing organization, designated contract market with the CFTC. Embracing regulation were required and were needed. That was actually part of our diligence here as part of the transaction. It's just what sort of relationships does ErisX have with regulators, which is very positive.

We view this as, you know, a great transaction because we can add. further product. Tom mentioned that Cebo has a long history of innovative products and we think, you know, something missing in this space is, uh, is potentially, you know, margin futures, uh, further derivatives like options, but, uh, based on physically settled, um, physically, you know, based on the actual underlying. So we have a ton of experience at CBO and in creating derivatives, uh, in ways that are, are efficient and transparent, uh, and trustworthy. for customers and investors. That makes a ton of sense.

And Chris, as you know, I mean, a lot of the early crypto exchanges really started as just web interfaces, just kind of online offshore brokerages really in the early days of the industry. Obviously, that was never going to scale to institutional capacity. And so how do you guys think about technology and the aspects of integrating some of the crypto-native sides of the technology into CBOE on a go-forward basis? Well, again, that's one of the great parts of this combination, I think, is that Tom and team from the beginning brought the history that many of them had in other asset classes with needing institutional grade systems and technology, but then building the platform so that it is crypto-native with the matching engine and clearing and fully funded being fully funded futures being, you know, it being completely connected in the way that built the technology, but at scale. As you said, a lot of these started out as

these exchanges started out as websites and now I've needed to upgrade in many ways and some to a lesser degree than others have, but didn't build from the ground up understanding what institutions would require what sort of requirements are needed technically. So what we found through diligence

and not surprising is that Erisex is built in a tremendous technical foundation that is, you know, crypto-native in the way that it's built, that will allow us to scale this business as we bring on partners that are very excited to join us. Tom, I get a chuckle out of this because I think you and I have been talking about institutional adoption for crypto assets dating back to the 2014. It's coming that. It's a wave on a wall.

It's coming. It's been coming for a long time. And I think a lot of people in the industry have just started to not think it's coming and just focus on the retail. But I guess the question is why now? And talk maybe a little bit about, you know, the institutional interests that we're seeing just in the broader market and how that's growing. Yeah, I mean, a little bit is the classical frog boiling and the pot analogy, right?

It isn't a wall or a wave is where I've arrived. It's just happening. It's just happening. And I know it's very popular in sort of crypto-tweeted circles that gradually then suddenly conversation, right? And I think we've hit that tipping point where all the effort and everything that's been happening has been moving to this point where it's just obvious that now institutions are coming in. And it maybe wasn't obvious 18 months ago or even a year ago, but I certainly know from our conversations and the folks that have come on to our platform and the conversations we've

been having that it's been happening. And certainly some things are more public than others with respect to new fund launches, with respect to corporates putting Bitcoin on the balance sheet, and then even, you know, sovereign nations adopting Bitcoin as acceptable tender for transactions. So I think the now is really a culmination of many things. It's one just the overwhelming desire for individuals to get exposure in that way I've described as part of a multi-asset portfolio and investment strategy. It is the fantastic progress that we've seen on the regulatory side, whether it's things happening at the state level, as we've seen, you know, in Wyoming or whether it's in

happening in Congress with Cynthia Lumens and others pushing forward the conversation around these, or even to the extent that I realize this, you know, some people may disagree with this, but the active dialogue, the CFTC has been a fantastically engaged regulator on this front. I've been very fortunate to be a part of the CFTC's Technology Advisor Committee and the virtual currency subcommittee. This was the TAC as organized and operated by former Commissioner Quintends for many years. there's been a multi-year focus and conversation on this. It never happens as fast as people at a startup developing perhaps outside of a regulatory framework

wanted to happen, but it's been happening. And now we have engagement. And I know people may not like all that we have engagement on the SEC side as well too, but it's engagement. It's a dialogue. It's a conversation. All these things are coming together with the interest and with the demand from institutions and individuals at this point in time that this transaction makes sense because we do have

the tools, we have the licenses, now we have, you know, additional resources and the backing of CBO to help push us forward at this very special point. It's something I always think about, too, in the sense of you also need to have a buyside kind of catalyst or an investment thesis for why these assets are interesting to hold. And so I guess you could argue that back in 2014-15, it just wasn't clear that Bitcoin was a digital gold proxy and kind of the overall investment case for owning crypto assets in an institutional context probably just wasn't as strong back then. Yeah, like we we don't need to have like a economics discussion here.

But I think one of the other things that are happening at this point in time are obviously the you know, massive infusion of fiat into the economy has caused everyone to look around and say, what can I do about that? Because I don't like the inflationary effects of all of that. And you know, having programmable money, having a fixed supply and at least in Bitcoin, those are great attributes of a positive answer. to that what do I do question. So I think certainly capitalizing on that is helpful, but it's not the only factor of driving it right now, in my opinion. Chris, as you mentioned,

CBOE has been very active in this market for a while. Why now in terms of the further advancement and going forward with this transaction and moving into space in a much bigger way? Yeah, I think I'd echo a lot of what Tom said. There's just a confluence of events that make is this an inflection point in this asset class where it's it's coming to the point of legitimacy. I mean, Sibo was actually one of the, was the first exchange to have a Bitcoin ETP filing back in 2016. And then we, and that was disapproved at that time because they said, well, there's no, there's not a sufficient liquid regulated market to base it upon. And here we are five years later. And so we've taken a keen interest for many years, in addition to

the cash settled Bitcoin future. But it's the confluence of events that Tom talked about. And I do think, you know, the macroeconomic events of the last couple of years and the massive increase in money supply is driving, you know, bona fide interest from, I guess you would say, you know, investors that normally wouldn't have taken an interest in this asset class are looking for an inflation hedge. They're looking for inflation protected assets.

And those are somewhat hard. defined. So and then, you know, should there be an ETP approval this week, as it appears there is or will be, that will open up a whole new vein of access to investors in a very interesting way. So it's, it's a fascinating time in this asset class as the demand, real demand from customers and then the real adoption from institutions. And that adoption from institutions, I think we found as we were talking to those institutions and different players, as you can read about in the press release, the amount of interest was actually overwhelming to us about how much they agreed with our vision for this asset class and how much interest they have in helping shape and define it. I'd add one other thing, too, if I could.

It's very popular to talk about the decline of U.S. supremacy and capital markets and other things because we're so slow, and everyone's moving faster and we can't get anything done here. You know, I think I bear something in mind. You know, when I reflect upon my experience in traditional trade five, which I know is probably a bad thing for some listeners, but when I reflected on that experience, you know, when I was a global head of quantitative prime services at Berkeley is I dealt primarily with systematic trading fund managers,

primarily, you know, different arbitrageors that had different types of strategies. And those funds operated globally. They traded everything globally. We offered access to 100 plus markets. It was an amazing platform. But that gave me a lot of data to look at, a lot of insight. And those assets were deployed globally, but the decision making around where those assets were deployed were made here in the U.S. In some cases, over 80-some-odd percent of those asset deployment decisions were made in the U.S.

for a globally traded product. So I'm not saying that crypto doesn't rewrite that, and perhaps that balance doesn't shift back in another way. But I also think that it makes a point that there's a massive amount still of influence on how portfolios are allocated for institutions and the advice given individuals that come out of the US. So everyone likes the tech analogies. The last time I checked oftentimes, the 2.0 version of something, I'll perform as a 1.0 because it doesn't have.

have the anchoring concerns that the 1.0 platform has. And I think this is a bit of a two a dollar moment for the U.S. And when we enable all these customers coming through these more traditional channels to access these assets, I think people will see the power that the U.S. market brings to bear in other assets that will bring to bear in crypto markets as well. It's a great point. And I know you and I could talk for hours about how some of this technology could really be a key enabler for the U.S. foreign policy interests if you look at stable coins and you look at some of the things that are possible here. So it's great to see the U.S. regulators starting to lean in a little bit more. Chris, I want to build on something that you

mentioned at the end just around the partners and how this is actually going to be brought to market. So I guess a question for either of you. Could you talk a little bit about the partners, who else is involved in this, and what's the go forward plan? The partners are a broad-based partners. CS. You have Crypto First partners, partners like Galaxy and Nidig and others, and you have retail firms like Robin Hood and Weble and other firms that you can see in the press release. And then even some sell side banks that you saw that, you know, Goldman Sachs was quoted in the press release and other traditional firms, more traditional firms, like Fidelity like you were who has been a long, long embracing this, but historically has been, you know, part of the original financial services firm. So that's what I was talking about in that the amount of interest in helping us with Eris X define this new asset class in a way that embraces, appropriately embraces regulation, but brings trust and transparency has been tremendous.

And they're going to be part of a digital advisory committee, but also, you know, a certain subset of them, you know, through syndication will also will likely be putting in equity. interests here to help us define this market and have a keen interest in helping us grow, not just the spot market, but the derivatives market and the products, the new products we can launch as a result of that. Tom, this sounds great. And obviously, it sounds like the original sort of go-to-market strategy here. So from your perspective, talk a little bit about this strategy versus the original strategy. Yeah, well, I think there's definitely a lot of parallel to it, right? History doesn't repeat, but it rhymes.

And I think that in this case, for all the things we've talked about here, about why now, a lot of these firms are recognizing the why now. There's a lot of introspection going on now on what is good market structure. How do we know we're getting the best price for a customer? How do we build a market that's surveilled and looked after by professionals with good regulatory relationships that can provide the explicit and implicit assurance that people need? I think a lot of what we did at ARSX when we said, hey, there isn't a great market structure for spot markets, but there's a great market structure for derivatives.

So we're going to set up a derivatives market. And by the way, we're going to copy paste that rulebook and run that for spot. You know, if I were to have our chief commercial officer on right now, John Denza, he and I would tell you about how many times we've had to explain to people what that means. And they said, well, why did you do that? And why is that important? I think people have just come to it now. So, you know, I could look back and say, well, gosh, we came up with this idea in 2018. Why now?

Quite differently to say, yeah, we came up with this idea in 2018. We put our back into it for the last three years. The timing is right for all the reasons we've talked about. We have a fantastic partner here with Sibo that sees it the same way and wants to help give us the rocket fuel we need to get moving. And these partners are all part of that story. You know, being right early is maybe a moral victory. Being right with the right group of people at the right time is a better place to be. my opinion. So there are a lot of parallels, but things have changed, and those things that have

changed are very positive about the interest in the partners. So great, we're ready to go. You know, the table is set. Come on in. You know, dinner is going to be served. So we're excited to get the people in. And when you guys think about partners, obviously in any marketplace business, getting partners on board early to build up the market makes a lot of sense. But what else do these partners bring to the table? These partners bring, I'm not just, you know, obviously they bring a ton of amount of expertise from different markets they've been in, different experiences they've had. They also have their own, a lot of them have their own crypto businesses, and that they may find Erasax to be the place, or CBO Digital to be the place that they want to transact,

because it's the most trusted, transparent place with the best data they can, they can find that helps them facilitate their trading. You know, given the history I have with Bats, helping found Bats in 2005, we've seen story play out many of times, but especially, you know, in my history, having those partners from the beginning that helped shape the exchange, shape the market with us, and could guide and direct us, not just with order flow, but guide and direct us in how we can define the market in a way that's beneficial for all parties was vital. And I expect that they'll help us with advice, with order flow, and really with helping define the regulatory landscape as well,

which there's so much unknown right now. There's so much confusion. And bringing clarity to what is confusing now will be vital for this asset class. I'd throw it so other things, too, if I could, Matt. The first would be that that's the 1.02.0 analogy. you know, crypto from the early days has been all about vertical integration because the providers had no choice. And what that sets up is a path for a bit of conflict, right? If you are a retail broker dealer, you're an intermediary and you want to provide access to crypto for your customers,

it's a little bit challenging if one of your sources of liquidity is a firm that is really in direct conflict with you in your attempt to solicit customers and provide them services. And if they're not in conflict today, the worry that there might be in the future. The construct of what we built at RISX, and if you look at what Sibo does is they service investors globally across multiple asset classes is it's an exchange. And now we're an exchange in a clearinghouse. That's a very defined role and a role that is not in conflict with that of intermediaries and others looking to source liquidity. So I think there's a place in a proper regulatory. structure for what each entity does and it allows each entity to really focus on innovation in

what they do well as opposed to vertically integrating and attempting to own the whole stack. I think unlike a pure technology play, most regulators aren't looking for that whole vertical integration because it lends itself to other challenges over time that we've seen play out at different points in time and history. The other thing I'd say is, you know, Chris talked about his time at Bats and the innovation that they've seen. If you think about some of the players' name on the partner side as well, too, you know, some of them have seen the evolution from pre-electronic trading to fully electronic trading. They have the benefit of taking a long-term view of how to catalyze, you know, generational shifts in the use of technology and investing. And again, I know it's not the speed of crypto-Twitter about everything should be done overnight, and that's the only way to do things.

I think you're going to see an enormous number of participants under the market because these intermediaries are now going to have access to a market like ours in a way that they desire. And they're going to be able to flex their strengths in building out platforms and products that they want to offer their customers. And they've done it before with other asset classes. It's a really interesting point on competition, Tom. And so if you think about the basis for competition for brokerages and exchanges in the crypto space to date, I mean, you have spot versus derivatives. You have competition just based on the types of assets that are offered. Some exchanges or brokerages offering much longer tail exposure, some offering Bitcoin only. How do you think about competitive landscape going forward given this transaction?

Oh, wow. I mean, I think others are going to be hard pressed to match what we're doing, right? So hats off to the AirSX team on the product innovation side, right? I know we haven't hit it on the park in futures with volume. I'm happy to talk about why that is, but we were the first to get a physically delivered Bitcoin future approved. We did a huge amount of the yeoman's work in getting ETH approved. We have a lot more in store beyond simply cash settled versions of cryptos and what have you. We've been thinking about the ecosystem.

We've been thinking about mine. We've been thinking about hash rate. When I start to think about all those products and I reflect back to my time on the sell side, If you have the spot market, if you have the derivatives market, if you have these other derivatives that relate to the broader ecosystem of everyone involved in crypto, you now start to have the bases to build structured products in unique products for your customers. So whether that's in fund structures that people can access, and there's certainly funds out there today where you can buy or sell volatility in a fund, that's a complex thing to do in a fund, but those products exist. If we now have all these things, spot exposure, derivatives exposure, things like mining difficulty futures or hash rate swaps or what have you, now you can build really interesting funds, but you can also do customized products for your customers who want a specific exposure or cash flow or what have you. I don't think anyone's going to be able to offer the potpourri of what we're going to be able to offer and is an effective way on an efficient platform with the transparency, surveillance, and regulatory auspices that we can. it's going to be really tremendous.

That's what excites me about what comes next. Chris, how did you think about that from your perspective when you look at the competitive landscape? I think I'll just harp back to what I mentioned at the beginning, which is just the uniqueness of the AirSX asset is that you have spot data, derivatives, and clearing all in one, which allows us to do the things that Tom mentioned about with new product innovation. If you think about also, you know, we have many filings with ETI, CEP issuers that they're trying to get approved and listed on CBO's listing exchange.

It's a good open up potential new listing opportunities as well for us across other businesses. This just uniquely positions us in this space, I think, in comparison to the competitors. It also fits so well with our strategy at CBO. If you think about we have this virtuous cycle for us, we try to get into the spot market first, the most competitive place, and we think we're efficient can really win there. That creates a bunch of data that helps drive the market and fuel the market. Then we go to derivatives, and then eventually we go to clearing. If you see what we've done in other asset classes, I'll use Europe as an example.

We started in this spot equity market, but we bought a clearing entity. We've gone to derivatives. We have great data there. That's a virtuous cycle for us. Well, with Harris X, we do that all in one. to create Cibo Digital, which gives us that unique competitive position. And I'll echo what Tom said there on being unconflicted. Our goal, you know, our strategy is not disintermediation here.

We do want to interact with customers, but we don't view intermediaries as a hindrance necessarily. We think they have some unique benefits to offer to customers, and we want to access as many people as possible. but recognizing that we're not going to do that completely on our own. It makes a lot of sense. It's great to hear crypto assets in the context of broader asset classes that CBOE has been so dominant in over the years. What will it take in order to put this product in market from a regulatory approval perspective, Chris? Tom mentioned a lot of this is, you know, we need CFTC approval of this.

Obviously, the futures market and the clearing entities is under CFTC regulation. There's a whole bunch of state approvals as well, 40 plus state approvals that we'll need to go through, which is why we've said this. We expect this to close sometime in the first half. There's just a natural life cycle that we need to go through for those approvals. That makes sense. Well, I wouldn't let this opportunity go by with two experts on the call. to talk about exchange traded products in the crypto space.

And so we'd love to just get both of your perspectives on sort of where we are right now as it relates to exchange traded crypto asset products, specifically around Bitcoin futures, ETFs, and where we're going, what this combination unlocks potentially for that category. Maybe we could start with you, Tom Chippis. Sure. And this is where the fun of when does the podcast get released, when do people listen to it and what's happened, sort of intersect. I mean...

Assume that we have a future. or Z-GF maybe? I don't know. Yeah, I don't know. One with a fun ticker symbol as well, too, maybe. But look, our CMO, Matre d'O wrote a really great piece on our blog about the virtuous cycle that it gets created as these products come out. And it's a reflection upon a number of factors. But the primary one being that when you create these products, there's a process that kicks off. And that process involves the market makers that are actually making the market. markets on these products, whether it's an ETF or an ETP or what have you, they have to acquire the

underlying product and they need to hedge the exposure. And they essentially go through what's called a creation and redemption process. That process is going to kick off a lot more trading on the spot side of things. It's going to create a lot more access to people that otherwise couldn't access the spot market by manufacturing the derivative product and by derivative or not referring to a futures contract under the Commodities Exchange Act and referring to something that is basing its price off the underlying spot market there, so in the generalist context. So I think that whether the market starts off now with a futures-based product,

I think that's a great start. I think pointing to a cash settled index is not a bad place to start, but it certainly isn't the ultimate destination. I think being able to have products that are backed by and priced off of the underlying spot market is a superior place to be. Let the futures market do what it does, which is sort of set the forward price. There are products today in the equity space and others that utilize futures, and they're fine.

I'll let academics concern whether or not those products are good indicators or not so good indicators of price. But I think if we start off with the futures base ETF to now, great. There's a lot of pen-up demand. Let's get the products out there. Let's learn. Let's see what people want. Let's let's let's let regulators get more informed and ask more questions. But I think the direction of travel is very clearly having those products underpin by the spot market.

Chris, what would you add to that? I just maybe a bit of history here, obviously with CBO's history, we're well known for VIX. The VIX index was first created. And then there were VIX futures that were created. But really, VIX futures didn't start trading very much at all until there were VIX. based ETPs. And with that new access method, there was a lot of this virtuous cycle that Tom talked about within any asset class is really when VIX started taking off and there

were VIX options. And that took about 15 years, 15, 17 years before it really, really happened. We think that only that long, but I think this will, the cycle will be much shorter. It may be still measured in a year or two or something like that. But as Tom said, This is a good place to start. Future space ETPs are a good place to start, but having ETPs based on the underlying, ultimately, once we've learned, there's already filings before the SEC for those sorts of ETPs.

Some issuers that we're working with have them. So we want to help those issuers and fund managers with regulators to find this market, and it's coming. But let's learn and move, move as fast as the regulators allow. That makes sense. And I guess we're just talking about Bitcoin for now, but do you envision that other assets will follow the Bitcoin playbook

as it relates to these approvals and how they're understood by the regulators? For sure. They have to. I'm very proud of the work we did on Ether to get that approved. There's so many other assets out there that people are going to want. I mean, again, we're dating ourselves here. But I just saw, for example, you know, Grayscale's launching a Z-cash product, right?

That was not on my Bingo card. So it's great to see that, that innovation happening without a doubt. It's certainly going to be less than 15 to 17 years. And there's certainly going to be more than just Bitcoin and E. Those two things I'm very certain of. Really on the limb with those, but yes. That makes a lot of sense. And will you guys still plan on offering margin on futures as part of this new combination?

Absolutely. Absolutely. Yeah. I mean, I think that's part of it for us, Matt, right? We've been pushing on that. It's a process we've been going to. the CFTC, I think rightfully so now that with this transaction out there, you know, the, the construct of who we are and how we go about offering that and the resources to do so are going

to look a little bit different. And I think they're all very, very positive. So we're looking forward to, you know, engagement in the CFTC on that dialogue we've been having and refreshing it for, you know, how we look now as part of CIPO Digital. Tom, I guess as we move to wrap it up here. I've been lucky enough to be along for the ride on this RSS journey with you. Curious just to get your reflections on the road. And there's been a lot of, you know, speed bumps, have been a lot of great moments, have been a lot of people that we thought were going to connect that didn't connect. The timing was faster in some ways and slower in some other ways, just general reflections on the road and then the road ahead. Well, you know, even a flight

to a holiday destination might encounter some turbulence, but you're happy once you're on the beach with a layer on your neck and a drinking your hand. Not to suggest we're on the beach because we're not, but it's another chapter in the book, without a doubt, a book that hopefully no one reads, but in my mind I'm writing, which is that, yeah, it never works out exactly the way you thought it would. We've certainly had a share of challenges.

There were some people that thought they would be there early, and the people with their hands on that project did everything in their power to try and get there, but things beyond their control interceded. And for that, I'm disappointed, but I don't blame anyone because it's not their fault. They did great work and things they don't control came up. I would say that what I'm most pleased is that by and large,

the AirsX team is intact. We've had a little bit of turnover in the three years, but by and large, it is that core team. We have hanging in our office an AirSX hoodie. And on the day we launched a spot market back in April 2019, Everyone that was there signed that hoodie and it's framed and it's hanging up in our office. And we have a we have a little CD in there of the 1.0 version of the platform, the source code for that hanging in there as well too.

And I think the thing that I'm most proud to reflect upon is how the majority of the people that signed that hoodie are all still with us. And those that haven't are still friends of the firm and life happens and people move on and do things for different reasons. So I'm going to focus on that. It's a tremendous team that's put its back into everything we've done. And we've had to pivot and change. We've done it. But we're here now. And I'm super excited that everyone's coming along for the ride and that they are excited about what comes next.

So I'm really proud of all that and proud of the team. And that's why I'm going to take away from the last three years is what a great group of people we have. And that's what's enabled us to do what we've done. I love that. And Chris, maybe I'll end it with. you, I think this transaction in this move by CBOE has the potential to be one of the biggest inflection points in the crypto asset financial services community. It's the type of thing that you could imagine looking back 20 years from now and saying, well, that's really when

the space, you know, hit the gas pedal. So what are you the most excited about as you move to close this transaction over the next year? Well, I think you're right, Matt. I think this is market defining potentially a decade or two from now. We'll look back at this and say this was the inflection point, given all this going on. And I will echo what Tom said there. I think we feel like this is the realization and the expansion of the original vision of Aresex. Now is part of CBO Digital because, frankly, the market's ready. All the intermediaries are ready.

The stars of the line, timing plays its part here. The time is right for us to enter this market to bring trust, transparency and data to a market that wants it in a regulated way that is appropriate with a team that is fantastic and committed to the mission and vision of Sivo Digital. And frankly, Sibo as a global company. I mean, our purpose is to operate a trusted, inclusive marketplace around the world so people can define sustainable financial futures. Like, that is, that's what we do. And so this fits so well into who we are and what we do every day, just in a new asset class with a tremendous team that, as Tom said, we're excited that they're coming along to the ride and going to help

us do this together. If you look at our history at Cebo, and I'm, you know, I guess I'm, I'm living evidence of it. I didn't start at Sebo. I came to Sebo in 2017. It was one of the founders of that. So we have a history of being able to keep a large portion. of the people through transactions because we want it to be an entrepreneurial place to work where we get to define markets, not just fight for market share, but we get to define new things and grow them for the betterment of investors around the world. So hopefully you can sense my genuine excitement here about helping define a brand new asset class and take it to the next level. Well, that's awesome. I think that's a great place to leave it. This is definitely a super

exciting day for CBOE. It's a super exciting day for RSS, but it's also an exciting day for the industry. So thank you both for coming on the podcast, breaking some news this morning. Thanks, Matt. Thanks for having us. Thank you, Matt. Appreciate it.