Bank of America is pushing back against the idea that a new breed of trading contract will upend the established exchange giants. In a note to clients, analysts led by Craig Siegenthaler said Cboe Global Markets, CME Group, and Intercontinental Exchange (ICE) still have a competitive advantage, even as perpetual futures—contracts that never expire—start to creep into traditional markets.
The commentary comes after a rough stretch for Cboe, whose shares fell roughly 30% from mid-May to the end of June. BofA called that drop an “overreaction,” arguing that the company's core equity-options business remains solid and that fears about perpetual futures may be overblown.
What are perpetual futures?
Perpetual futures are a type of derivative that, unlike standard futures, have no expiration date. Traders can hold them indefinitely, rolling their positions without having to close and reopen contracts. They first gained popularity in cryptocurrency markets, where they let traders speculate on bitcoin and other digital assets with leverage around the clock.
Now, these contracts are showing up in more traditional, US-style markets. That has some investors wondering whether newer, nimbler venues could undercut the big exchanges on fees and siphon away trading volume. The concern is that if perpetual futures become mainstream, they could eat into the revenue that Cboe, CME, and ICE generate from their existing futures and options products.
But BofA's analysts argue the incumbents are not sitting still. They point out that CME and ICE have deep liquidity, established clearing infrastructure, and strong relationships with institutional clients—advantages that are hard for newcomers to replicate quickly. The big exchanges also have a track record of adapting to new products and competitive threats.
Why Cboe's slide may be overdone
Cboe's late-spring selloff was steep, but BofA believes the market may be pricing in a worst-case scenario that is unlikely to materialize. The company's equity-options franchise is a key profit driver, and options trading volumes have remained robust. While perpetual futures could eventually compete for some of that activity, the transition is likely to be gradual, not a sudden disruption.
For everyday investors, the takeaway is that exchange operators are not easily displaced. They benefit from network effects: the more traders use a venue, the more attractive it becomes to others, creating a self-reinforcing cycle. That moat has helped CME, ICE, and Cboe generate steady revenue and returns for years.
Still, the rise of perpetual futures is a reminder that the financial industry is constantly evolving. New products can emerge quickly, especially in the fast-moving crypto space, and traditional exchanges must keep innovating to defend their turf.
What it means for investors
For those holding shares of Cboe, CME, or ICE, BofA's view offers some reassurance. The analysts see the recent selloff as a buying opportunity rather than a signal of structural decline. But it's worth remembering that analyst opinions are just one perspective, and markets can stay volatile for reasons beyond competitive threats.
Investors should also consider the broader backdrop. Exchange operators are sensitive to trading volumes, which can be influenced by market volatility, interest rates, and economic conditions. A slowdown in trading activity could weigh on earnings, just as a surge could boost them.
The perpetual futures trend is still in its early days in traditional markets, and it's unclear how quickly it will gain traction. Regulators may also have a say, as new derivatives products often face scrutiny. For now, BofA's stance is that the giants still hold the edge—but the competitive landscape is worth watching.
As always, it's wise to diversify and not put all your eggs in one basket, whether that basket is an exchange operator or any other single stock. The financial markets are complex, and even the most confident analyst calls can be wrong.
For more on how broader market dynamics are playing out, see our coverage of rising borrowing costs and how stocks are reacting to bond moves.
