Cboe’s exit shows Australia needs Regulation NMS

Cboe’s decision to sell its Australian exchange is a disappointing outcome for the local market and a moment for reflection.

For many investors and ETF issuers, Cboe Australia represented competition, innovation, and a genuine effort to modernise Australia’s market structure.

Over the past decade, Cboe had built goodwill within Australia’s institutional trading community. It invested heavily in technology and market integrity, introduced global best practices, and played a quiet but meaningful role in promoting the growth of ETFs and other exchange-traded products.

Globally, Cboe has a strong pedigree. In the United States, its BATS subsidiary was instrumental in the extraordinary rise of the ETF market, providing a modern trading infrastructure that allowed issuers to list products efficiently and investors to trade them at tight spreads. The same ambition existed here in Australia, to create a more dynamic and competitive market.

For that reason, Cboe’s exit represents more than just a business decision; it’s a signal that something isn’t quite right with our market structure.

A leadership transition – but deeper issues remain

The sale comes not long after Craig Donohue became Cboe’s global CEO in May. New leaders often take a few months to review their portfolio of businesses before setting a new strategic direction, and October–November marks about that six-month point.

While leadership transitions can help explain the timing, they don’t fully explain the outcome. The truth is that Cboe faced structural headwinds in Australia that few companies, regardless of calibre, could easily overcome.

Running an exchange is not just about technology; it’s about participation. To succeed, an exchange needs brokers to connect and route client orders through its systems. Without that connectivity, liquidity doesn’t build. And investors don’t see better prices.

Historically, exchanges were created by brokers, for brokers. In some parts of the world, like Switzerland’s SIX exchange, that cooperative model still exists. But in Australia these days, the broker mutual model is well and truly gone.

Why market structure matters

The key difference between Australia and the United States lies in one simple rule: the “best price” requirement.

Under the US Regulation NMS framework, brokers must obtain the best available price for their clients, even if that price is on a competing exchange. This rule forces brokers to connect to all venues, which deepens liquidity, enhances transparency, and makes competition genuinely effective.

Australia doesn’t have an equivalent rule.

As a result, the same ETF can trade at slightly different prices on different exchanges at the same time. If an investor’s broker is only connected to one venue, that investor might not receive the best price available in the market.

For a new entrant like Cboe, that’s a formidable barrier. Even with excellent technology and a global reputation, the lack of a formal “best price” protection makes it difficult to gain traction. Cboe’s market share in cash equities had hovered around 20% for years, despite its consistent effort and investment.

ETFs and exchanges – a symbiotic relationship

ETF issuers and exchanges are partners in a broader ecosystem. Exchanges provide the venue and infrastructure; ETF issuers bring the listings, liquidity, and trading activity that make those venues vibrant.

Looking ahead

Australia’s capital markets remain world-class, but there is room to evolve. If policymakers and regulators want to capture the full benefits of competition, tighter spreads, deeper liquidity, and more innovation, then a national conversation about “best price” protection may be worth having.

Such reform would not be about favouring one exchange over another. It would be about ensuring that investors consistently receive the best possible execution, regardless of venue.

Cboe’s exit is a reminder that even world-leading operators can struggle in markets where structural incentives aren’t aligned. It’s an opportunity to reflect, and perhaps to build a stronger, fairer foundation for Australia’s next chapter of market innovation.