Two years ago, Cboe Global Markets announced a rare dual acquisition of risk analytics provider Hanweck and FT Options, a portfolio management system combining risk and volatility analytics, then shortly thereafter rounded off its buying spree with the purchase of Trade Alert, a real-time alerts and order flow analysis provider.

The businesses, along with previous acquisitions of LiveVol in 2015 and Silexx in 2017, completed what was then known as Cboe’s Information Solutions Group. This has been rebranded into the Risk and Market Analytics (RMA) Group under the umbrella of Cboe’s Data and Access Solutions Group.

Over the past two years, Cboe has finished integrating the five businesses and their products with one another, getting rid of overlap while fusing multiple tech stacks into one.

While the purchases of LiveVol, which provided aggregated equity and derivatives market statistics, and Silexx, a front-end, multi-asset order execution management system, helped Cboe organize and warehouse all the exchange’s market data and make it accessible to the public, the group had lacked a strong risk component. And in 2020, with the Covid-19 pandemic generating unprecedented market volatility, “risk” was at the forefront of Cboe’s concerns, says Catherine Clay, EVP and global head of Data and Access Solutions at Cboe.

“That risk component was missing from that product offering. What was happening was that we were having a fragmented experience with our clients, who might be sitting behind the Silexx execution terminal but then swivel-chairing over to more sophisticated risk analytics provided by other vendors or sometimes built internally,” Clay says.

FT Options brought in advanced portfolio risk modeling in real time; Trade Alert added a notification system to alert traders of selling and buying pressures and market sentiment; Hanweck offered valuable options IP such as its Borrow Intensity Indicator, which provides transparency for securities lending rates by the millisecond, its volatility-fitted surfaces and Greeks, and model-fitted theoretical pricing. Using Hanweck, Cboe last year created a new benchmark, the Cboe 3-Month Implied Correlation Index, which provides a three-month, constant maturity representation of implied correlation for the S&P 500 Index.

“[Integration] is not for sissies,” Clay says. “We basically use those model-fitted views to power all our analytics across RMA. Where you had five different companies using five different models, we’ve now integrated the Hanweck model—the best-in-class across all of the product portfolio we now offer—[and created] a single source of truth. You’re going to get one set of vols and Greeks, one set of theoretical values—it’s all the same … We’ve taken the best from every one and released them.”

At the start of 2021, derivatives risk took an even greater share of the spotlight, as a Reddit forum called r/wallstreetbets triggered a short squeeze in brick-and-mortar video games retailer GameStop’s stock, setting off a meme stock frenzy. Cboe pivoted some of its product strategies to address the rise of the retail trader, by developing a learning center with market insights and Cboe’s alert system.

As exchanges strive to position themselves as technology companies, not just marketplaces, acquisitions become a necessary tactic. They allow exchanges to offer the services and tools more quickly by purchase rather than by building them internally. Oftentimes, in addition to the IP, they get a team of content and tech experts that make managing new products a smoother process. But all that value-add often comes to fruition only after a lengthy and sometimes difficult integration.

Like all market infrastructures, exchange groups must balance their complex security, regulatory and data privacy issues against the need to innovate and drive revenue by offering clients broader and more comprehensive data and analytics solutions, says Monica Summerville, head of consultancy Celent’s capital markets practice. While interoperability helps combine different solutions into new or bundled offerings, there’s also a need to ensure data lineage and governance supports those security, regulatory, and privacy requirements.

The London Stock Exchange famously bought London-based market data giant Refinitiv, the integration of which has been challenging, according to the Financial Times. It also recently bought Tora, a buy-side, multi-asset OEMS and portfolio management system. In the digital asset space, acquisitions are becoming increasingly more common. Cboe, for its part, in October bought ErisX, which operates a US-based digital asset spot market, a regulated futures exchange and a regulated clearing house. Intercontinental Exchange, which itself bought the New York Stock Exchange, recently took an ownership stake in T-Zero, a tokenized securities venue.

“These deals are in line with other exchange groups who are looking beyond their core traditional revenue models, which relied on listings and exchange transaction revenues. Many exchange groups are looking to leverage their unique position in the market to meet client demands for enhanced data and analytics but also wish to build a revenue base that is more insulated from market volatility,” Summerville says. “They’re looking for scale, volume and diversification.”