Why Exchanges Beat the Market | James Davolos

James Davolos is a portfolio manager at Horizon Kinetics, where he has spent nearly 21 years studying exchanges and what the firm calls croupier businesses. These are companies that earn fees on trading volume without putting their own capital at risk. One of his first projects at the firm was the New York Stock Exchange’s reverse merger into Archipelago, and his team later bought exchange seats ahead of demutualizations at the CBOE, the Minneapolis Grain Exchange and others.

This discussion took place live on October 16th, 2026, on the MicroCapClub Community. Join MicroCapClub and unlock the ability to listen and participate live in these discussions - https://microcapclub.com/#join

In this episode, James explains why exchanges have outperformed their local markets over 20 years, why derivatives are the strongest moat in the industry and why inflation and volatility work in exchanges’ favor. He also breaks down MIAX: how it took close to 17% of the multi-listed options market, whether perpetual futures threaten the business and what the Bloomberg futures bet could be worth. The conversation closes with James’s reflections on Horizon Kinetics founder Murray Stahl.

✉️ Share your feedback - david@microcapclub.com

✉️ David’s X (Twitter) - https://x.com/Valuehunte

Chapters

00:00 Intro

02:42 The croupier model

06:30 Why exchanges beat their local markets

08:28 How exchanges make money

13:34 What drives trading volume

17:20 Why inflation helps exchanges

18:29 The worst decade for exchanges

21:29 Buying exchange seats for equity

24:51 Why traders leased their seats

27:41 What MIAX does

31:43 Why traders pay for data

34:50 MIAX’s speed edge

39:59 Can competitors catch up?

43:57 Why MIAX fell from $57

50:32 Can MIAX keep taking share?

52:11 How to value MIAX

54:40 The Bloomberg futures bet

57:30 When we’ll know if it works

59:23 What would prove him wrong

1:02:10 Remembering Murray Stahl

Disclaimer: All content on this channel is for discussion, education, entertainment, and illustrative purposes only and SHOULD NOT be construed as professional financial advice, solicitation, or recommendation to buy or sell any securities, notwithstanding anything stated on this channel. There are risks associated with investing in securities. Loss of principal is possible. Past performance is not a predictor of future investment performance. Ian Cassel and the guests on this channel are not responsible for investment actions taken by viewers. Should you need such advice, consult a licensed financial advisor, legal advisor, or tax advisor. You agree to verify all information yourself before investing. Any past performance discussed during this program is no guarantee of future results. Investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. All views expressed are personal opinions as of the date of recording and are subject to change without the responsibility to update views. No guarantee is given regarding the accuracy of the information on this channel. Releasees undertake no obligation to provide accurate or sound investment statements. You waive any and all duties that may exist flowing from you to any Releasee. You agree not to hold any Releasee liable for any possible claim for damages arising from any decision you make based on information or other content on the Channel.