Cboe Global Markets (CBOE) could see limited upside to index options volumes following a "greater than expected" de-escalation of China tariffs, Morgan Stanley said in a note Wednesday.

The investment bank said it had upgraded Cboe earlier amid uncertainty following the "Liberation Day" tariff announcement in April, expecting the exchange to benefit from heightened volatility and tail risks.

However, Morgan Stanley said the lower tariffs announced over the weekend prompted a shift in view, citing "lower recession risk" and fading tail risks tied to extreme trade outcomes. The firm also noted that improving macro conditions could lead to better opportunities elsewhere in capital markets, prompting a shift toward more risk-on investments.

It now sees less upside bias to index options volumes and believes there are better opportunities in capital markets names as macro confidence improves.

Morgan Stanley double-downgraded Cboe to underweight from overweight and cut its price target to $215 from $256.

The company's shares were down 2.1% in recent trading.

Price: 215.78, Change: -4.60, Percent Change: -2.09