Cboe CEO Ed Tilly Rose From the Trading Pit to Exit in Scandal

When Ed Tilly walked onto the Chicago Board Options Exchange floor in 1987 — where trading pits teemed with sweaty men barking orders and flashing signals — the recent college graduate was hooked.

(Bloomberg) — When Ed Tilly walked onto the Chicago Board Options Exchange floor in 1987 — where trading pits teemed with sweaty men barking orders and flashing signals — the recent college graduate was hooked. 

More than two decades later, he was running the place, overseeing a spate of deal-fueled expansion that ushered Cboe into the electronic age, transforming it from a small options exchange into a global powerhouse offering everything from the fear index, VIX, to zero-day options.

By Saturday, it had all unraveled.

Tilly’s career with the Chicago institution ended when he submitted his resignation letter over the weekend, after failing to disclose personal relationships with colleagues. The news, announced Tuesday, shocked industry participants who knew him as a level-headed Cboe stalwart. It also sparked questions about the company’s future without the 60-year-old executive at the helm after years of explosive growth.

Cboe was quick to assure its market-making clients of a smooth transition, immediately offering up new leader Fredric Tomczyk, a current board member and a former TD Ameritrade chief executive officer, for introductory calls, according to people familiar with the matter.

“An incident like this raises more questions about compliance and disclosures,” Oppenheimer & Co. analyst Owen Lau said in an interview. Still, with the Cboe board acting quickly, “this is a cleaner breakup compared to this type of situation at other companies.”

The exchange said it began investigating the matter in late August, determining just weeks later that Tilly’s failure to disclose those relationships violated Cboe’s policies and stood “in stark contrast to the company’s values.” 

Cboe declined to comment on the investigation and the number of women involved. The company’s original statement referred to relationships, using the plural. Tilly couldn’t immediately be reached for comment.

As part of Tilly’s agreement, he can hold on to some of his pay in the form of Cboe stock, though filings show he has to forfeit equity awards worth about $10 million. He also was ineligible to collect $8.8 million of severance and as much as $892,000 of other benefits, which could have been his if the resignation had happened under different circumstances. Tilly has taken home more than $70 million in pay from Cboe over the past decade, including his salary, bonuses and the value of vested equity awards, filings show.

The abrupt resignation followed another sudden departure just days earlier. BP Plc CEO Bernard Looney resigned last week after failing to disclose past relationships with colleagues, both underscoring changed expectations for standards of personal behavior within corporations following the #MeToo movement. 

Trading Pit

To many, Tilly was the face and voice of Cboe. But unlike the stereotypical loud pit traders, he rarely yelled or lost his cool, according to people who worked alongside him at the time. 

He started on Cboe’s trading floor in 1987 as a clerk, taking orders for stocks from market-makers and phoning them back to the stock desk at Fossett Corp. Later, he became a Cboe member and market-maker himself. The statistical and risk-based nature of trading appealed to the ambitious Tilly, according to a profile on the website of Northwestern University, his alma mater.

“What was so exciting about the trading floor was the atmosphere,” Tilly said in an April interview with the Option Strategist newsletter. “It was like a pro sporting event every day. The energy, the enthusiasm, the competition. Every day was game day, and you needed to be ready to go when the opening bell rang to vie for trades.”

On slower days, competition on the floor shifted away from markets and into other forms, including how many White Castle sliders someone could eat, Tilly said. 

Read More: Cboe CEO Says Firm Can Go After Deals in Open Jurisdictions

Cboe has evolved from its days as a trading pit to an electronic platform. It has also expanded beyond Chicago, buying companies in Europe, Asia and North America. Among the largest was its $3.4 billion acquisition of Bats Global Markets in 2017, which gave Cboe new technology and put it on the map as an exchange, not just in derivatives but in equities as well.  

Other purchases included Aequitas Innovations, the parent of Toronto-based NEO Exchange, in 2021. It also added new asset classes with the addition of cryptocurrency company Eris Digital Holdings. Just in April, when Cboe was celebrating turning 50, Tilly said in an interview with Bloomberg that it had further ambitions. 

“We’re not finished expanding into geographies that allow for competition, and want to be there at scale,” Tilly said at the time.

‘Fresh Air’

The aggressive pace had some questioning if that momentum will continue.

“While the resignation will not impact the near-term financial outlook, it will certainly impact the business strategy and culture of the firm,” Andrew Bond, an analyst at Rosenblatt Securities, said in a note. “The management changes will likely take time for the market to digest as we await an update on longer-term plans for the executive suite.”

In the immediate aftermath, investors found little reason to panic. The stock recovered from an initial drop in early trading Tuesday to close at a record high. 

That may be due in part to the appointment of Tomczyk, 68, who led TD Ameritrade for eight years through late 2016, and previously served as vice chairman of TD Bank Financial Group. Citigroup Inc. analysts called the new leader a “safe pair of hands” while Rosenblatt’s Bond pointed to the strength of the existing leadership team and called out David Howson as a potential successor in the future. 

“The company will survive and move on — even the markets are indicating that it’s potential fresh air,” Kevin Heal, an analyst at Argus Research, said in an interview. “Tilly had been there quite awhile, grew the company — but maybe it’s time for another leader.”

–With assistance from Isis Almeida and Anders Melin.

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