New Position: Volatility Merchant
A less-known, largely uncorrelated trading company that thrives on volatility and has grown FCF at a 25% CAGR since 2017.
By Jack Maxwell, our analyst specializing in financials.
After quite a success with Marex Group, we are pivoting to another capital markets company. This company has been on our radar for a while, and following our meeting with management on July 13, we decided the timing was right to add this compounder.
“If we did not have futures contracts today, we would need to invent them in order to move forward and progress.” — Milton Friedman, speaking to Terry Duffy (CME Group CEO), 2002
The global exchange ecosystem is instrumental to capitalism as we know it. By facilitating the trading of stocks, derivatives and enabling the transfer of risk, exchanges drive global commerce in a massive way.
As a result of their durable and nearly indefinite earnings power (exchanges are among the longest-lived businesses in existence), exchanges have historically traded at rich valuation multiples. However, so far in 2026, the love affair with exchange multiples has cooled off.
Since the recent launch of perpetual futures by crypto trading platform Hyperliquid, dominant U.S. exchanges have faced a rare level of scrutiny from investors. Three of the big four (ICE, CME, NDAQ, and CBOE) are down meaningfully this year as concerns grow around competition from new trading products.
Some investors worry that new trading products like perpetual futures and tokenization could take market share away from traditional exchanges.
Our pick today is smaller and less discussed than the large exchanges, but it has been caught in the same crossfire.
However, the company is not an exchange and we believe its position remains highly secure regardless of perpetual futures adoption or potential tokenization.
The company operates primarily in highly attractive asset classes with very durable long-term growth tailwinds in which it enjoys dominant market share.
Like many trading businesses, incremental margins are very high, but capital requirements are extremely low. The business operates with negative working capital and generated a 30%+ ROE in 2025 when adjusting for non-operating intangible assets on the balance sheet. FCF conversion is also very strong, with margins above 45%. Low capex requirements (~5% of revenue) and a largely fixed cost base drive operating leverage, allowing excess cash flow to be returned through strategic M&A, dividends, and buybacks.
Revenue has grown at a double-digit pace for decades, with no down year since inception. Since 2022, revenue has grown at a 20% CAGR while free cash flow margins expanded, and we believe long-term growth can remain in the low-to-mid teens.
Today the business trades at 22x free cash flow, the lowest valuation it has seen since October 2022. Management is using the decline as an opportunity to repurchase shares at accelerated rate compared with repurchases in prior years:
We think the stock has dislocated from fundamental intrinsic value. Quarter-to-date, we’ve purchased nearly $100M of stock. We have over $400M left on the authorization.” — Company CFO at a conference in June
Table of Contents
A Digital Market Infrastructure Platform
Dominating the Rates Market
Building the Future of Credit Trading
The Economics of the Business
Strategic M&A as a Growth Driver
Valuation: A Compelling Entry Point
What Could Go Wrong
Our Final Take on the Company