Ed Tilly, Cboe Global Markets CEO, Resigns Over Undisclosed Relationships

Key takeaways

• Cboe’s CEO has resigned over undisclosed personal relationships with colleagues
• Former TD Ameritrade CEO and Cboe board member, Fredric Tomczyk, will take over the role
• Cboe’s share price climbed to an all-time high at the news

Another one bites the dust. Ed Tilly, the CEO of Cboe Global Markets, has unexpectedly left the top job due to undisclosed relationships with colleagues. The announcement comes just days after BP’s CEO left for similar reasons, in a sign clients expect higher ethical standards of their advisors.

Tilly’s sudden departure is a blow to the company, which has seen tremendous growth under his leadership. But Wall Street didn’t seem to mind the change of pace for once, with Cboe’s stock closing at an all-time high on Tuesday.

Let’s get into the details of what exactly Tilly resigned for and why investors didn’t take their usual ‘surprises are bad’ stance.

What’s the Cboe CEO scandal?

Ed Tilly, the CEO and chairman of options exchange firm Cboe Global Markets, has left the helm after a board investigation found he didn’t disclose personal relationships with colleagues. It’s unclear whether the relationships occurred while he was CEO, the nature of the allegations or how many women were involved in the investigation.

The board and outside counsel completed the probe, which concluded Tilly’s behavior had “violated Cboe’s policies and stands in stark contrast to the company’s values”, according to a statement released by the company. Cboe also confirmed the change in leadership doesn’t affect the company’s long-term strategy or financial performance.

Cboe has confirmed one of its board members, Fredric Tomczyk, will take over as CEO, effective immediately. Tomczyk is an experienced player in the arena, having formerly been president and CEO of brokerage firm TD Ameritrade.

Tilly can hold onto some of his pay via his Cboe stock, though regulatory filings show he now needs to give up $10 million worth of equity awards. Tilly also can’t collect $8.8 million worth of severance payments due to the nature of the resignation. His overall remuneration from being CEO at Cboe has been over $70 million, including salary, benefits and equity awards.

Tilly’s time of stratospheric growth at Cboe

Tilly started off on the trading floor in 1987 and rose through the ranks to become CEO in 2013. Before the top role, he’d been COO and president since 2011 and was executive vice chairman from 2006 to 2011.

Cboe claims to be the largest options exchange in the U.S., handling almost a third of all U.S. options trading volume. Under Tilly’s leadership, Cboe’s share price nearly quadrupled from $39 to $157 after a series of strategic acquisitions and partnerships.

Two notable achievements include acquiring Bats Global Markets in 2017 for $3.4 billion, giving Cboe access to new tech, derivatives and equities markets. Cboe also bought Aequitas Innovations in 2021 and crypto company Eris Digital Holdings. In April, Tilly had commented, “We’re not finished expanding into geographies that allow for competition, and want to be there at scale”.

Another successful strategy from Tilly was Cboe negotiating an exclusive contract with Standard & Poor’s 500 stock index through to 2032, giving the company access to a suite of options products. Cboe also owns an options trading franchise focused on the VIX volatility index, trading venues in Europe and Canada and U.S. stock and futures exchanges.

The second scandal in a week

Tilly resigned just days after oil and gas giant BP’s CEO, Bernard Looney, was canned for a similar reason. Looney was forced to tender his resignation after it was found that he hadn’t fully disclosed information about personal relationships with colleagues in an investigation launched last year into his conduct.

Allegations about the personal relationships emerged last year, and BP swiftly launched an investigation into Looney. All were deemed above board at the time after Looney disclosed “a small number of historical relationships with colleagues before becoming CEO”. However, after more allegations resurfaced this year, BP decided enough was enough.

It’s still conducting the second investigation now, but Looney knew the jig was up and announced his immediate exit from the oil and gas company. BP’s CFO
CFO
, Murray Auchincloss, has taken over as interim CEO.

“Mr Looney has today informed the Company that he now accepts that he was not fully transparent in his previous disclosures,” said the BP statement. “He did not provide details of all relationships and accepts he was obligated to make more complete disclosure.” BP’s share price fell 1.3% at the news last week, though the share price has since recovered to $38.82.

In April this year, NBCUniversal’s CEO Jeff Shell was also forced to resign over complaints of inappropriate conduct towards female colleagues.

What was the market reaction?

Cboe’s share price rose as much as 3% during Tuesday’s trading session, closing 2.75% higher at $155.87, which is a record high for the stock going back to 2010.

Why the sudden change of heart? Analysts have speculated a new CEO could usher in a potential acquisition for Cboe, which has long been considered ripe for M&A given its size and the ongoing market consolidation. Cboe has a $16 billion market cap, which could either be seen as challenging or tempting for acquisition, depending on which companies are interested.

Cboe’s share price has also benefited this year from a surge in options trading from retail investors using riskier options to place bets on stocks, with the stock rising 24% since the start of 2023.

Could CME buy Cboe?

News of Tilly’s unexpected departure as CEO might have intrigued the futures exchange CME Group. The company told the Financial Times two years ago that it hadn’t contacted Cboe about an all-stock combination. Since then, CME Group’s stock price has only risen 5% compared to Cboe’s 29% gain.

The market reaction suggests that the markets think Cboe might be looking for a buyer; at 68, new CEO Tomczyk likely isn’t interested in a long stint in the role. CME also makes sense as a buyer: Nasdaq and Intercontinental Exchange are already involved in M&A, and CME’s market cap of over $74 billion dwarfs Cboe.

The two companies’ interests also align. CME dominates the U.S. futures market, while Cboe’s exclusive rights to S&P’s 500 Index options and VIX Volatility Index are valuable assets for CME to gain. It would be easy enough for rumors to swirl again as they did in 2021.

The only fly in the ointment would be a potential regulatory issue. A combined CME and Cboe would have a big hold over the derivatives market, which may catch the eye of U.S. regulatory bodies.

The bottom line

Tilly’s resignation surprises everyone, especially given the announcement’s timing with BP’s CEO departure last week. It’s a sign that big businesses need to smarten up their act, and unprofessional behavior won’t be tolerated by clients or the public eye.

As for the market reaction, it’s entirely possible that Cboe will take this opportunity to consolidate and sell to another company. Whether that’s CME, as rumored a couple of years ago, or another competitor, is yet to be seen, but investors seem optimistic about the future here.