3Q26 Preview: Double Upgrade CBOE to OW; More Durable Than Feared

Morgan Stanley's 3Q26 preview for North America Brokers, Asset Managers & Exchanges. We double upgrade CBOE to Overweight (from Underweight): the S&P DJI license extension through 2051 removes a key overhang, options growth has proved more durable than feared, and index options volumes rose 24.4% y/y in 3Q. We raise '27/'28 EPS by 16%/18% with a new $358 price target (+27% upside), and new company-specific KPI prediction market contracts are upside not in our estimates. We downgrade GEMI to Underweight as scale and competitive challenges may not be resolved. We expect a healthy quarter: we revise 3Q EPS by -2.3% on average (leaving us +2.5% vs consensus), with 2027-28 estimates +5.4% on average (+4.8% vs consensus). Higher rates support broker cash yields/NIM, while AI can expand advisor capacity and lower cost-to-serve. We prefer LPLA (Top Pick), SCHW and HOOD among Brokers; CME, NDAQ and CBOE among Exchanges.