Q1 2020 Earnings Call

Ladies and gentlemen, thank you for your patience and holding in order to accommodate all parties will be beginning today's conference and approximately two minutes again. Thank you for holding well be beginning today's conference in approximately two minutes.

[music].

Ladies and gentlemen, good day and welcome to the C. I mean group first quarter 2020, <unk> earnings call.

This time I would like to turn the conference over to our first presenter Mr. John feature. Please go ahead Sir.

Good morning, and thank you all for joining us today I'm going to start with the Safe Harbor language and I will turn it over to carry Derrick and John for brief remarks, followed by your question. Other members of our management team well also participate in the killing it.

Statements made on this call and then other reference documents our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance. They involve risks uncertainties assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied.

In any statements more detailed information about factors that may affect ARPU format can be found in our filings with the FCC sure on our website.

Lastly, the final page of our earnings release, you will find a reconciliation between GAAP and non-GAAP measures with that I would like to turn the call over to Terry.

Thank you John and thank you all for joining US. This morning, we hope you and your families are healthy and staying safe.

Today, we have Julie Winkler, joining us along what kind of bromine Julie heads up our global sales in research areas.

And she has taken over our data business kinda is now running or optimization area and our international business Julian Ken are taking on several of Brian during his responsibilities as he transitions to his role as an advisor all star when they have dark salmon.

Make a few comments regarding the energy market at the end of my remarks.

These are obviously extraordinarily difficult in challenging times for all of US the coal that 19 pandemic has taken a devastating coal and human life and created unprecedented uncertainty around the world.

It has also changed our daily lives in the ways that seemed unimaginable only a few weeks ago.

The girls in this crisis or clear arching cure things go out to the entire medical community fighting this disease on that front lines and aggressively working towards the vaccine.

We also want to think that many first responders, who continue to reduce their lives acute safe.

Let's see any group, we remain focused on the health and safety of our entire community. We took early action and where the first in the industry to close our trading floor to protect our employees and market participants who access that facility on a daily basis. We also implemented work from home mandates and travel.

Actions to protect employees across our global offices.

We're proud of the resilience of our team and all they have risen to this new challenge.

Our employees continue to worked incredibly hard.

To help our customers and partners navigate through this challenge.

And it's increased uncertainty and volatility.

With that didn't mine I'd like to highlight a number of metrics that we think reflect our performance this quarter and are important to consider as we look forward.

Our systems and processes performed extremely well with peak order traffic during the quarter and we saw very consistent response times, our highest volume day on record took place in the first quarter, we traded 58 million contracts on February 28.

Aside from the peaks Q1 volume set records across many different private carriers as our global clients manage risk.

Average daily volume for the quarter was 27 million up 45% I'm 2019. In addition, our volume in the first quarter from clients outside the United States was particularly strong.

Averaging 7.3 million contracts per day or up 56% as a result clients continued to be able to manage their risk across all products and all the time zones.

We also maintained our industry, leading clearing function to provide safeguards for every trade.

In response to increased volatility, we raise margins on many products across most asset classes.

These prudent risk management policies were reviewed with ballpark clearing house, risking buddies and our regulators.

Were in daily contract contact with our regulators to ensure the health of our markets. During these unprecedented peaks volatility.

Let me turn to the trading floor from all our options volumes and keep products, especially interest rates in equities that have traditionally relied on the floor have held up well since we closed it.

We successfully assisted many clients who trade on the floor to the screen.

Leveraging our own front end platform in order to quickly register and onboard a significant number of new users over a short period.

And then the five weeks since then interest rate options as a percentage of interest rate futures have remained at roughly the same levels. So far. These volumes are actually ahead, where they were on the last few days the pits were open.

As many of you know we have made a significant effort to increase our global sales presence.

We began to making investments several years ago into deepen our client coverage around the globe.

And that has served us extremely well with our regionally focused sales model.

Today more than half ourselves step is based outside the United States.

We have sales professionals in 19 cities located in 15 countries around the world.

Our sales product management clearing in operation teams have worked closely together to handle client engagement. During this pandemic with client interactions at record high client feedback consistently mentions that our proactive outreach stands out compared to others in our industry.

We believe these efforts will continue to pay off.

We saw broad based strength across all customer groups, including.

Asset managers hedge funds banks.

Up trading firms commercials and retail.

Our retail business was up more than 70% growth, what's gonna suitable strength in the U.S. Europe and Asia.

Last but certainly not least we made considerable progress during Q1 to integrate the next business. We divested next exchange and we integrated our London offices were more than 600 of our employees work.

We completed over 290 cross selling meetings to clients from both our traditional futures business and those are the cash and optimization business. We acquired for reference that compares to 400, though these cross selling meetings during the full year of 29 too.

The largest percentage of these meetings continued it'd be focused on new clients in our interest rate and FX and options businesses.

And we also are seeing success with optimization MBS broker tech and data services.

To summarize it first quarter the market environment was challenging for all of us on the professional and personal level I.

Hi, I'm proud of the dedication of our employee base as they stepped up to the challenge.

We also appreciate the trust that our market participants, having our ability to deliver results.

Looking ahead.

We do not know yet with the long term impact of gold at 19 will be.

But we do know that financial markets are an important part of maintaining our economy and ultimately recovering from this tragedy.

As we move forward do 2020, our strategy remains the same.

Two built strong global benchmark offerings with deep liquidity around the clock to continue to our commitment to offer all of these asset classes on common platforms to deliver a world class risk management and capital efficiencies.

To promote broad participation offer robust distribution and continue developing are strong channel partnerships.

We look forward to answer your question do you have a before that I want to turn the call over to dark salmon dark.

Thank you Terry as Charlie mentioned, the Cobot 19 pandemic has caused increased uncertainty and elevated volatility across all of our asset classes cooney, including our global crude oil markets.

I'd like to take a moment to provide our perspective on what happened in accrued on market landscapes photonics actually use most of these events.

Overall, the WG ice futures market performed as they were designed in a challenging market environment I'll share a few comments on what we saw in the market to illustrate that further.

[noise] continued downward price pressure and a significantly steepening contango upgrading unique challenges for the global oil market over the last few months along with a significant oversupply of oil Theres also been a drastic reduction in global demand within global daily oil consumption decreasing from 100 million barrels a day to 79 barrels a day.

And concerns about storage capacity in U.S. and abroad have intensified the downward pressure in the oil prices as well.

In early April anticipating that these market dynamics may create the potential for negative pricing. She need group proactively informed our regulator are calling firms in the marketplace that our train and risk management systems, we're capable of handling negative prices in the WGS contract should market dynamics require it.

Well test for section Eventuality, we saw W.G. I tried negative on April 20 is driven by the same fundamentals I mentioned, a moment ago oversupply reduced demand and increasingly full U.S. storage [noise].

Our w. CCI contracts are reflected these challenging underlying dynamics on Monday, that's the cash and futures markets, where conversion going into Tuesdays final settlement of R.W.G.I. physically delivered contracts.

I'd also note that well negative price is all where they're not entirely new in energy and power markets using multiple examples of negative price in the energy and power in the U.S. in Germany and the UK.

I'd also like to briefly comment on the strength of WG eyes, and global benchmark today, W.G.I. represents 56% to the global trade in crude oil futures, including more than 60% in April that each guys. The market's choice for managing crude oil exposure and we believe that just because optimal commodity benchmarks are based on physically delivered products physical delay.

At least the gold standard of these contracts because it ensures convergence with the underlying cash market.

Commercial and end user customers, who participate in physical oil markets need the certainty that conversions provides so that they can optically matters are underlined rests W.G.I. future satellite actual transactions that result in physical delivery, that's supposed to other products, which are disconnected from the physical and settled yet assessments.

We're pleased that WGN markets continue to reflect broad participation from all client segments around the world and in every time, so year to date or overall created a fine products volume during the Asian trading hours is up 148% and Europe has increased by 48% Importantly, we also continue to provide our clients with the leading crude oil options.

Sales, which owns 49% and the first of all of them. This year and are particularly important to our clients in times of heightened volatility.

In summary against this backdrop extremely challenging market dynamics, a benchmark physically delivered W.G.I. crude oil futures contracts continues to perform to help our clients hedge and transferred out west in global oil markets.

I'll turn the call up the John.

Thanks, Terry Thanks, Derek as Terry mentioned, the investment in our technology and the dedication of our employees served our clients well during this unprecedented times during the first quarter see me generated more than $1.5 billion in revenue of approximately 29% from last year.

Expenses were very carefully managed and on an adjusted basis were $459 million for the quarter and see me had an adjusted effective tax rate, 23.6% [noise], which resulted in an adjusted diluted EPS in $2.33.

Capital expenditures for the quarter were approximately $38 million.

During the quarter see me paid out $1.2 billion to our shareholders in the form of our annual variable dividend of $2.50 per share in our regular dividend of 85 cents per share, which is up 13% from a year ago seeing these cash at the ended the quarter was approximately $1 billion.

We continued to pay down our debt, we have approximately $100 million of outstanding commercial paper, which we'll pay down by the ended the year.

This quarter, we achieved our one times debt to EBITDA target.

We continue to progress on the integration of our legacy Burger check NBS trading systems, our technology and operations teams continue to work towards the migration of the broker tech platform to blow back in the fourth quarter <unk> 's following 2021.

Our testing environment is up and broker take clients are testing the system.

We'll be working closely with our customers during the next several months, while we navigate the added complexity of remote working environments, but at this time, we continue to target the fourth quarter.

At this point you can you do expect or operating expense for the year, excluding licensees to be in the 1.64 to 1.65 billion dollar range. In addition, our tax on Capex guidance remains unchanged.

Please refer to last page of our executive commentary for additional financial highlights and details.

In summary, we're very pleased with the performance of the company.

Our employees adapted to the challenges of this environment and worked relentlessly on behalf of market participants our global employees along with the investments we made in our technology systems and processes ensured the market's operated well and risk was effectively managed.

In closing I hope you in your families are healthy and save during this difficult time.

We would like to now open up the call for your questions. Please limit yourself to one question, John Peter and I will be available today for any follow ups you might have after the call. Thank you.

[noise]. Thank you, ladies and gentlemen at this time of the Florida. So for your questions. If he would like to ask the question you may do so by pressing star one that now if you are using a speakerphone. Please make sure that your mute function is turned off to allow your signaled to reach our equipment again press star one no.

First question comes from Dan Afinion with Jefferies.

Thanks, Good morning.

I guess, Derek you know just a follow up on your comments, Jim and W.G. I and the relevance of that I guess could you talk about obviously the health of your customers and then you really the utility of the product you know for though for both commercial and non commercial users as we think about what's what's happened here in the last couple of weeks.

With regard to negative pricing and obviously the headlines haven't been good you've seen U P. S change or you kind of rolling forward, but some of the contracts I guess just behaviorally can you talk about how your customers are asking ultimately the utility of the products going forward. If he could you kind of walk through that again as to why you still your.

W.G.I. is the most relevant benchmark within that.

And Dan its Terry Duffy, we afford dirt goes into a answering that question I want to touch on one thing that you referenced because I think it's a little bit in correct. The headlines haven't been good I was hoping to do what you said the headlines were not good on day one.

I think that was a lot because there's a lot of people didn't understand exactly what happened that narrative has changed dramatically I'm sure you've seen so I think that the narrative and the headline associated with what went on in negative pricing is completely different than it was a week ago Monday. So I just want to make sure that were clear on that.

All right Gannett's there. Thanks, sorry, yeah. Thanks, Gerry Thanks to the question. It's it's certainly top Dan So let me start by talking about the utility W.P.I. I mean, that's.

About what doesn't get T is it we firmly believe that be kind of the optimal benchmarks are based on physically delivered contracts as I mentioned in my comments physical deliveries that widely believed to be and we firmly believe the gold standard for exchange commodity contracts sits in choice convergence with the cash market. So when you think about that each on what it represented.

Actually represents expirations on April 21st.

Physically settled W.H.I. contracts under $10 and ones that that as the price at which over 2.4 million barrels words or whether that's priced so when customers are looking for a product that represents the actual underlying physical value of that asset physically different contracts that converts to cash is that standards. So I think it's worth talking about.

What is the difference between WT I had the physically settled product that delivers you'd be actual price of the asset itself versus say Brent for example, and it's worth noting that that financial times. Just ran an article. This morning came out about an hour ago that references that the disconnect that Brent futures are seen right now from the underlying conversion swiftly futures.

The underlying futures.

Our traded or actually the underlying physical cargoes that are being assessed in the in the North Sea right now so that difference between the ice Brent futures as a financially sound contrast, it does not settled the physical delivery what physical barrels are priced on is dated Brent which is trading between five and $7 blow I spent right now so when we focus.

I'm utility the contract to come back to your question Dan contracts to connect the unlike physical market and deliver that actual asset at that price is what our physical end user customers are looking to use our contract for because looking at business year to date on the client side, our fastest growing participants in the revenue side, well corporates and our Buyside Bank participants.

So you see broad based participation from the end user customers, whether it's to buy and hold guys or what is the commercial customers those about our fastest growing participants year to date in this contracts and I would say that the last piece of your question relative to what does this look I kind of going forward basis listen to the market. It seems an unprecedented impacts the.

Oil market right. Now this is not just the U.S. story. This is a global story you actually get the floating storage. It has been utilized it's estimated that about 10% of all flights in the U.S. and global right now is being used for floating storage for oil coming out in the North Sea. So the oversupply story is not just the less story the steepness of the current.

Slide seven W.G. I have simply reflective of the underlying fundamentals of supply demand storage globally, not just in the U.S. and that's what customers use our product support they need to know that their underlying physical risk is linked to the contract and they can deliver at that price. So that's how we think about it that's our customers are using oh products and that's I just want to.

So some context relative to how W.P.I. represents the actual underlying physical barrel and how do you tend to Brent contract that Brent futures contract doesn't converged to stop that's actually priced at about a six or seven dollar premium I believe right now today to bridge the system cargoes.

Thanks, Dark it's actually going.

Thank you were next question comes from Ben Herbert with Citi.

Hi, good morning.

Thanks for taking my question.

Oh I just want to hope you could give us some color on the impact volume strength in the quarter just the progression given you know some of the rolling economic shutdowns and then Reopenings and then also you know any detail you can provide similar on April date. Thank you.

Thanks, Ben I'll ask Ken Roman and Julie when go to make comments, so either kinda really glad I'm sorry.

Sure. Thanks, Terry Yeah, Cedar point, we have seen you know very very strong bought volumes in Asia. Three Q1, we saw that Oh, you know, 73% year over year, which was really good and as we noted you know.

In China and other places this is despite economic shut downs across various countries in Asia.

We do see you know that they're probably in a leading the world in terms of coming back now so.

While we've been able to you know as they come back online we think that growth will continue China. As an example, we saw that up you know just 7% year over year last year with itself, you're given some of the trade wars that work going on.

That that dampened volume, but we do see 80 be growth there for the first time since Q4 2018, and when you take the China story in combination with a greater China, including Hong Kong in Taiwan and becomes an even stronger growth story. So we think you know temporarily these just spoke.

Patients based on the pandemic has had been worked through and we think that's a testament to the investments we've made in terms Oh education in the area marketing, you know technology and infrastructure and and importantly, our our sales team.

He and the work they've done there and seamlessly transition.

Into a more digital outreach and so we think well we've seen volumes the answer the second part of your question.

No move back into.

You know a more normal range or more consistent range with the run rate of 2019 in April we feel good about.

You know the platform that that positions us for.

Gross.

Thanks, Ken.

Thank you Ben.

Thank you.

Thank you weren't next question comes from Alex Kramm with yes.

Hey, good morning, everyone.

Thing to add to switch gears to interest rates for a second obviously.

I don't have been about a zero interest rate environment and what that means for you guys. So just curious if you could provide any color on what you've been seeing out from a client prospectus already as a result of that and I guess the things I would highlight obviously volumes in April in Londonderry soft.

Open interest is down a bit you can you at all futures and I think the open it does the large open interest holders that you often side as a as I guess a indicate off growth I think is also down 13% from the peak. So just any any more in depth color for things that we may not be seeing on the happening underneath the surface.

Great question, Alex So I'm going ask Sean to comment, but as you know the volumes in April bend down pretty much across the global marketplace is including our interest rate complex it with the road hours, but.

There's a lot of things that we've been discussing and talking about on watching fundamentally that Ah I think Sean can give you a little bit of color around that we find very interesting Sean.

[noise] shantale either.

We lived them.

John.

Hi.

Sure.

John till they drop off.

No Sir your line is still connected.

All right. So why don't we come back to that Alex Your question in a second and go to the next one I don't know what watch on can't get through.

Oh good thank you.

Well go right back to Alex on that question I have it nine that John a piece your own patrolled you've heard Alex's question correct.

Yeah, we heard at little Sean is working to get back on the line.

Okay. So.

You know I can give you I mean, John if you want to.

Well.

<unk> all been discussing this.

[noise] challenge that you.

<unk>. It is apparently Sean is he's on the line, but we can't we can't hear him.

So you know I think a I think Alex we can come back when Sean gets on and so we'll go to the next question then and then we'll circle back to this one one so Sean is people to to speak.

Yeah, but just on that point election that we've been talking a little bit about what is going on with a the issuance of debt.

Sean referenced are on our call with US. This the other day you know we're looking at 3.7 trillion dollars of additional debt of which we think we'll see a lot of coupon issuance associated with that against our Treasury complex. So we do believe that that is very optimistic for that business. So you know even lower in Israel rate environment to your point on the short term of Ah.

Your old ours, we are still seeing a lot of activity in the back into the euro dollars along with the options on year olds and across the Treasury complex and again, the more debt were us or something or issuing with coupons. We do feel that people will be needing to manage that debt.

So there's a lot of positives that I'm not sure Sean is going to get back on but I will give you elaborate more on a second so why don't we go to the next question then we'll come back to Alex.

Thank you were next question comes from Brian bundled with Deutsche Bank.

Hi, Brian.

Well.

Oh, Yes. This is Sean might actually I'd be part of his question too, but it's too soon to okay to differ as well and he can answer when he gets back on or if you guys. Maybe you want to take a shot at it. It's just really so long run rate flying but it's just from a different perspective, a it is but your question is.

Due to what extent has the user base change substantially in April versus March obviously, a lot of participation by proprietary trading firms in hedge funds and risk parity strategies. The thesis trades answer the question is that seems.

I I would say my sense dropped off a lot in April so maybe if you can you confirm that as part of the a.

Declined in April versus March in the rates franchising, what you think it will take for those firms to Reengage and begin trading again.

Thank you, Brian I'm not sure Sean drawing back yet so if you didnt Sean either.

Yes, sorry.

Yeah.

Yeah, that's what Gary Sharpe.

Did you go to questions.

I apologize I don't know what happened there no can you repeat the question I apologize.

Sure Yes.

I'm sorry go ahead Brendan.

Oh, yes or no.

Oh, Sue Knutson, Sean or yeah. Thanks for joining back to its about user base a union in the interest rate franchise in April versus March obviously, after we get through a volatility period. We typically do you see a lot of the proprietary trading firms in hedge funds pared down there their risk books.

Maybe if you can come on to what extent that has been a major driver of the volume decline in March to April and what do you think it will take for those firms to.

To reengage in the strategies are again, how long do you think that might might be.

Hi, Thank you for the question and apologies that was cut off somehow earlier.

You know in terms of our volumes.

Short end of the yield curve in particular, the very front contracts, let's say the fund had funds contracts for example, do become less interesting during a time zero interest rate policy and when we do not expect the federal reserve to change right at the upcoming meeting however, our deferred youre at all in future.

Extremely interesting relative to the shape of the curve and the timing of when the fed me might begin to two to become active again.

Most importantly, a you would have seen at the end of last week. The congressional budget office did announce eight or they are estimated at 3.7 trillion dollar deficit for the federal government.

It's year [laughter], obviously completely unprecedented in terms of its size and if you think about 3.7 trillion deficit, that's 3.7 trillion with additional.

Treasury bills notes bonds that will need to be issue. This year that will need to the best match.

If you look at 29 Peanuts for example, the net issuance was 984 billion. So this is obviously multiples of that so we do expect or does he increased activity you know in hedging a a cost the treasury curve with respect to decrease.

Issuance you also saw our business both dramatically.

Between 20 told that 2018 much of that time darn zero in shape policy, but the additional products that we added that allow people to much more accurately.

Manage their risk across the entire Kurt we've also seen huge innovation, we've obviously investing in innovation, we've invested and electronic markets. We've invested in client acquisition, our silver futures doing 50000, a day or ultra bomb teachers doing 233.

It was in contracts today ultra tens doing 293000, topnotch <unk> a day in both spreads doing 148000 topics today, So I do expect.

As you go further out to occur there will be increased uncertainty I do expect with increased treasury issuance that that will also create a much greater demand for mismanagement and I think our innovative products serve our clients well into some bought.

Yeah, just on the user base I'm done that the mix change between March and obviously they were there's lot of proprietary shredded you engaged in March how are you seeing those.

Players in April it looks like they probably dropped off two substantial extent do you think.

Those players come back sooner I guess confirm that hurts you can't confirm that is that large part of the drop off from March to April.

There's there's no question that you tend to see.

You know some reduction or by leverage on in particular and TPH.

You know when you have a very large increase in March in apartments.

We have invested as well in addition to things I mentioned earlier.

In the great margin and capital efficiencies I'm over the years that that help clients out nothing I would mention is in March we reached a new all time.

Portfolio margining efficiency delivered to clients.

When margins increased so 7 billion in March and savings in the month of March with portfolio margin.

We do expect a the customers to come back in.

And to have to manage the increasing issuance by the U.S. treasury as the year Progressive in May as you know or the treasury <unk> well be issuing for the first time in many years, a 20 year bond issue, we will be that will be traded on the board protect platform and it'll be deliverable into a bomb futures.

So we do expect you know to see the scene activity, we've always seen.

With the increased treasury issuance.

Hey, Brian Let me start up is that you know I think we've heard.

For years now with the rates going down to where they're at where are the participants kind of come from we saw them. All show back up in March to your earlier point and then they dissipate a little bit in April we like any other business cannot measure to full year by a couple of weeks. It trading so did the good news is everybody.

He is actively watching our markets. It doesn't mean, they're going directly participate every single day, but I would not get too hung up on a few weeks a trading I think we got that measured this over the longer period, just like we've seen over the last several years and then we sold a record business that we saw that we pointed out.

The first quarter.

Okay.

It's probably coming.

Good.

Sorry to that point I mean, I think when you take a look at the last.

No 10 years April tends to be in the bottom.

Couple of months, a you know our you know in terms of monthly volume in fact, you know when you look at last year.

We did about 15.7 million contracts a day well in rates accounted for more than 50% of that activity. You know enabled rates are accounted for about 38% or the activity. So you know the fact that we've seen some decline is not unusual you know in April you know there's there's.

No. There's no rule you know Easter tends to be in the month of April. So there's no good Friday and Easter Monday, and also just tends to be a period of you know a period of time when there's a spring breaks and the like so you know a bit different environment. This year, but you know a slower April it's not uncommon.

Yeah, again, I don't want to be labor this Brian but at the same time and we're all at the same room. So I don't want to start contradicting everybody that won't because everything we said is true, but we do have to measure this over the long period and there is a different fundamentals in today's market than there was a year ago as we all know there's different fundamentals in today's market than it was six weeks ago and I think.

On clearly pointed out what is happening from a fundamental side and now we're happy to see how that transitions into to help people wonder men's that risk and the value of it needs to be manage and we definitely saw that happened at March.

Yeah no. The thanks for all the great color appreciate it no appreciate it Brian. Thank you break I appreciate it.

Thank you were next question comes from a Chris Allen know Whats Compass point.

Hi, Good morning, guys morning, I'm, just wanted to circle back on crude.

Understood the differences between W.G. a in Britain <unk>, the physical settlement dynamics sort of maybe can you give us some color on the WT, our customer base or maybe roughly size, how it breaks down between commercial speculators.

Market makers, what I'm trying to think through is if we didn't hit full capacity for storage perspective, bolstering is starting to shut in how does that impact.

Commercial base moving forward and how does that filtered through down to the speculative based as well any color there would be helpful.

Okay. Thank you very much Chris and to what we can deliver garik wanting to go ahead and respond the Christmas question.

Yeah. So thanks, Chris good baseline not using the names.

Yeah No. It's good question I think the to Chris you you'd asked us before kind of what that sped it up as I can't give you a percent I can't give me names, but what I can tell you is when you look at the gross in the participation of our energy market overall, and certainly crude as a it's a stronger flex now that is a big part of overall franchise as I mentioned before the fastest growing participants in our energy French.

This year is buyside corporates and banks those are the things fastest growing participants. So do you asked about who's participating more broadly whose extending the utilization its exactly those customers that we focus on for that end user connection to our core product, we haven't seen that changed a in the last couple of weeks and we don't anticipate that changing.

As I mentioned that leaves in them utility other W.P.I. contract being physically delivered is that it convergence directly to those underlying barrels I think the question that your posing as you know if that's contango continues to stay steep the way. It is what's the impact on the go below market well as I mentioned before this is not an issue that's only.

Impacting WT I right now you're seeing the dated Brent traded a significant discount to ice Brent futures right now so exactly the same reasons. So I think it's about a five between five and $7 disconnects right now so global oversupply and a lack of demand and the storage issues globally is impacting the overall oil market. So it's not a function of customers, saying.

Hey, W.T.I. is no longer my physical less because the reason people use WT is once the export ban lifted in 2015, it became the underlying physical assets. They were exposed to if they were in Europe and Asia actually important those products. The reason I mentioned at the top of the call my comments on the button and broadening and accelerated use of parts.

Suspicion or markets and energy crude and refined from Europe, and Asia is explicitly because it's reflective of the globalization. The Terry you alluded to in can spoke to at the top of the columnist significant growth. We've seen in end user participants in our energy market. So no triple digit growth out of Asia, 50, 48% I think 5% growth.

In Europe is indicative of the way in which W.T.I. has become a global benchmark that was the physical risk that people are facing to your point about storage I can't control for that the market can't control for that nobody love. The fact that oil is priced as low as it is right now dated Brent is trading. This morning that I think are and I said about a five.

The $7 discount to ice Brent and it's reflecting exactly what our physical market is reflecting so dated Brent and WT I'd just like the physical ice Brent futures don't have the physical component to it. So it's actually pricing it doesn't reflect a the underlying price of the barrel oil in the North Sea right. Now so you want to be a little bit careful when you look at.

The ice Brent right now because it does not reflect where you can sell a barrel.

Thanks, Don thickness.

[noise]. Thank you were next question comes from Michael Carrier with Bank of America.

Hi, good morning money, you're going to question [noise].

Sure.

Given the high level volatility during the quarter in energy and elsewhere, how how has the clearing house operated Hod scions held up in any significant changes made during the quarter you had given some of the big <unk>.

Thanks, Mike its Terry Duffy the clearing house has done you know as usual and exceptional job managing this risk I spend most of my time, especially over the last six to eight weeks you know tethered to snail, could you know the president of our clearing house and his team as we continue to go through these.

I'm Crescent at times, and it's not just me as many members of <unk> of our management team that are working with its Neil and others to make sure that we're doing everything to be able to manage this risk I think in my opening remarks, you heard me reference about margins. This is a very big component of how we operate see I made to make sure that we have.

Products margin properties, we're not putting this system at risk.

No today, we're holding record amounts of margin on deposit.

Because of the way, we're concerned with the volatility in with the unprecedented times that we live in.

So I have nothing but kudos for the entire clearing house it staff they've done a remarkable job the systems and the operations that.

My C O Julie Holzrichter is put into place one went a personal income a kilometer is second to none. So we're very proud of this we're still working towards our spend to margin methodology, which were so excited about which will be a more advanced on margining.

Going forward, but we'll keep our original system as well so all in all I will tell you and I don't know Nils I was call or not but the the.

The clearing house is operated at the highest level.

And in that 40 years that I've been in the business and 18 half years I've been CEO now chairman Chairman and CEO.

Okay. Thanks, a lot.

Thank you.

Thank you. Our next question comes from Rich Repetto with Piper Sandler.

I really good.

Good morning, and first I hope all to see any team and their families all.

[laughter] and.

Excuse me congrats on it on a phenomenal quarter.

I got to turn back to the W. T I question into Derek again.

It sounds like you know you've made to the case for physical delivery. So it sounds like there's no option to go you know a you know an auction to cash in physical deliver our to move the contract like that so then it comes back to you know the storage issue and I know you said the spread.

It was around seven it's been seven or $8 or you look back over the last year spreads really been around five to six and that David It did price negatively you know the spread was negative you know 50 to 62 girls. So I guess the question is and if you talk to industry participants you know they also a well.

We're of the storage issues [laughter] in Cushing and it's on your improve storage you know in the past five years.

But you know what can you do to improve the storage are going for IZEA capacity to improve distorts. It just doesn't get that why it again.

Hey, rich it's Eric Thanks.

So had dark.

Okay, Let's say listen it's a good question there sleep or overall drivers have changed I think you guys written about definitely people understand this you've got this massive oversupply, but you know, Saudi and Russia pilot and you got this massive disruption on the demand side that I referenced 100 million barrels a day consumption reduced down to 70.

You know the staff and it was on the news last night widely reported air traffic was down 95% miles driven and shapes in states that are shut in either in Europe, or U.S. or is down 75%. So there's just there's no demand is oversupply and then you've got storage issues. So I want to be careful how far I pine on the physical infrastructure on stores, where I can tell you is best.

That there has been a significant expansion of use of floating storage both in Europe and in U.S. and in Asia, I think I mentioned earlier conversation that you know alternative forms of storage Oh, It's funny source you know the lccs or you Lccs, which are the carriers that they carry oil are being.

Increasingly filled up and just sort of this floating storage and docked out a in various places in Europe U.S. right now and the other piece that's going on right now is that as refiners have reduced their runs the crude can't stop as quickly as refiners can run their run. So we have been speaking said multiple folks and all world asking us those questions how can I get involved in.

Physical delivery process and they're seeking to find alternative forms of opportunity with the steepness of the curve right now, which and I said this is true in Dayton brands as well as WT I'd. This is a global phenomenon. So this isn't a function of switching from one product to another product. This is underlying fundamental supply and demand overlaid with the storage issues. So I think we're starting to see slogan stores take.

Got some of that access we are seeing folks you know determining where and how they can they can convert some of those utilities to address the storage, but again, that's that's not what we can control for what we can control for there's how effectively our promise converged on the day of exploration and how our markets reflect the underlying fundamentals and the use of our markets by those end user cost.

The matters too you know in our engagement, particularly the commercial customers recognize the contract did what it need to do which was converge on the day of exploration as I said, a little over 2.4 million barrels of crude gotten deliver then on the base that delivery settlement price on April 21st of $10 and ones that the last thing I'd say is you know.

He would be unprecedented impact of coated 19 across a range. That's those are the markets. We are seen historically high levels of basis differential between cash and futures we've seen it in a bold marked with E. P prices moving out as their concerns about moving gold globally, we're seeing it and some of the cattle market products about wondering how delivery can get gone and held.

As markets our conversion I will tell you every one of our surgical delivered products have converse 'cause they operate effectively to serve the end user needs are those participants.

Thanks, Mark <unk>.

[laughter].

Do you expect.

Do you expect Brent that seaborne delivered do you expect that to trade negatively as well.

Yeah, I can't tell us it depends on how steep that curve goes right now as I said, there's a an F. T piece that came out literally just before we all jumped on this call explicitly calling out the very steep and so the frontend them stayed brinker right now that disconnect I think it was as high as $8 last week. So if we continue to see a demand as well.

It is not return, but here's the beauty of the market, but if you look at the forward curve and they look at the phone because right now that's not the steepness of the contango very front month contract as trading significantly below the second one that's trading a little bit below so it's not that that the market is telling us what the price of the forward curve that but you know probably six nine months out that full improves Leslie flat.

It was out we're just seeing the surface steep us in the front end. So I think the F. T has made some really good points. This morning and points that we've been looking at what are the physical branch what is dated Brent not where ice futures you can't sell a molecule based on the ice futures breast molecules get sold on dated Brent that's the physically delivered product and that's what F. T is pointing out is that is a.

Growing disconnect and it's following the same fundamental drivers WT I is right now to storage issue and issue and it's a demand issue and supply issue. So the good news that there's lots of different opinions how quickly demands gonna return and that's where the volatility in our market. That's why we're still doing 3.5 million contracts or even in April in this environment.

He will help customers natus de risk.

Thanks, Derek and just reconfirm, which we don't need the F T to.

But the fundamentals that we've been seeing in the marketplace for numerous years and everything that Derek and his team are working on a daily basis. So dark. Thank you for your answer it's things for your question.

Hi, Thank you.

Thank you. Our next question that comes from Jeremy Campbell from Barclays.

Hey, Thanks, and thanks to all the great color on the market. So far since some of that's been pretty well traveled I just wanted to ask a little bit about your cross selling efforts that might help what some of the natural volume headwinds you might seem some products I think you mentioned doing 290 cross sell meetings in the first quarter versus.

400 for the full year last year can you just help me think about one you know what the length of this cross selling cycle might look like and then to what the client engagement and feedbacks looks like either from optimization clients may be looking to use futures to lower capital charges or or typical futures cash LTC trade.

<unk> looking to dip their chosen the waters of other products structures.

Thanks, Jeremy I'm going to turn to Julie Winkler and let her respond to that question enough Ken wants to add a little something that optimization, but I really think there's there's more towards julie's area Joy.

Sure. Thank you for the question. So you know this is definitely been a challenging environment, but the client engagement that we've we've been able to driving the cross sell statistics that you mentioned you know are definitely accurate so year to date through the end of April we've seen or sales activity up about 150% versus.

Same period and in 2019, so the outreach has continued even though we've been in this virtual environment. So contacting in call it.

Clients by a calls emails and being a common sense you would expect.

And what we saw with a 290 cross introductions. The biggest monthly had wasn't Feb, where we had 135 more specifically that was driven by an uptick within the buy side in our commercial client segment in the U.S. and this number compared to an all in 2018 week.

<unk> 400 cross introduction meetings.

That largest percentage than we previously reported as well those cross introductions continued to be focused on really new clients in our futures and options both interest strain and FX franchises, but we are seeing successes as you've mentioned across new introduction into our optimization services. So if you can think about.

The environment that work in where clients do you have you know increased need to 10 managed their risk and they are looking at new things like I'm trying to resolve and manage their margin exposure to want to now there as well and data you know, we havent talked about data yet today, but in a period as you know on price.

And then volatility clients need data to be able to put this data within their training models to forecast that or you know feature trading offense and so those cross introductions I would say had the uptick more within the last quarter than even what we saw last year and but it's something that you know we're continuing.

Turning to monitor and client engagement has been you know and feedback has been really strong you know we invested a lot in our global sales team over the last few years and having those that regionally based with sales leader and personnel on the ground means that you know we have that trust with our customers and.

And that you know they need for face to face meetings is less important when we built those relationships. So that part has been great and we're also taking advantage of that's work from home environment to continue to do a lot of education with our sales team and make sure that they really prepared for those cross introductions.

With that I will turn it over to kinda add anything from an optimization perspective.

Ken real I'm, a little optimization.

Yeah, I very briefly I think you know julie's team's efforts are really you know kind of a life blood. That's driving you know the optimization business. The one observation I wouldn't say is that we learned a lot in the first quarter about the importance of these businesses and they performed well the because see him.

He was so quickly able to move to a work from home environment. We were we were very well prepared to help our customers. During this time in our services performed very well and you know having acquired next 18 months ago and working through the integration I think we can sit here and say coming out of a the Q1 that yeah.

These services are in high demand from our customers and their even better positioned based on their performance. During this difficult time coming coming out of the first quarter.

Thanks, Ken Jeremy Thank you very much.

Thank you.

Thank you. Our next question comes from Alex Kramm with yes.

Okay.

Yes. Thank you I think I think Sean actually answered my original question. So I don't think there's much more to add but I I sense on back here I just a quick follow up on I guess Terry's comments on your comments on the err on the Euro dollar franchise on the onto the floor trading rather you you made it almost seems like closing the floor.

I had an impact because the percentage.

<unk> futures and options has remained stable and I guess I have a challenge that to some degree and say well just because the percentage is unchanged doesn't mean, the pie hasn't trunk right. So maybe sean or somebody else can flesh out little bit what you've seen actually in terms of trading strategy told people have behaved et cetera, and then related to that considering that the you know I think the trading on the floor is much lower economic.

Accentuating electronically wondering to what degree you already exploring like hey, senses market shifted enough, where maybe we don't really need to floors much anymore as we needed and then it could be a substantial cost savings maybe the future. If if we never reopen again, so maybe any any sort of color on the cost of a flaw would be helpful. As well. Thank you okay.

Thanks, Alex and I mean, what Sean take the first part as.

As it relates to potential different strategies associated with floor versus screen. If there's any doing if there are any differences that he's saying.

I gave you percentages of you know raw apples to apples to your point about the pie could be valid I'm not saying, it's not and then I will comment more about where we're at as far as our.

Objectives as it relates to the trading for it. So let me go first to Sean to talk about that.

Terry Thank you very much as Terry mentioned in his prepared remarks, if you look at and as Alex you referred to so thank you Alex for the question.

Our options as a percentage of our interest rate futures since the closure of the floor or running at 39%. If you look at 29 team as a base case, our interest rate options are traded and average daily volume up 36% of relevant future.

So from that perspective.

It looks like it it's a it's been a very healthy transition to the floor. In addition to that you you'll know well for many years now we have made very significant investments in electronification of our markets and in particular.

We have instruments called user defined spreads. So there are many pre defined spreads that users can ask on a request for quote for prices for then in addition to that there are almost an unlimited number of user defined spreads users can I'm request a quote.

From our market makers.

Up to 30 legs. So we have seen a very robust activity on the box since the closure of the floor and the we've seen <unk> or I'd say.

All that different types of strategy that we ever song the floor continue to trade on the box we've seen as I said actually a growth in the percentage of options versus features I'd also mention.

Or some of the innovations that we had launched and we're continuing to work on have gotten greater traction I'll give you. An example, we have a function called a committed cross where a broker is able to put in both sides of the trade.

And if they better the markets.

You know they get a a portion of the trade guaranteed to them.

Why is that important we were trying to electronically replicate the experience on the floor for both the end customers the market makers as well as the brokers and I'm very pleased to say that while committed cross was trading just a 10000 or so a day in January we're trading 74000 today.

Since the closure of the floor. So our innovations are working our investments in electronic markets are working participants contrite any strategy today as easily as they could prior to the closure of the floor and in fact, our our options ER volumes relative to.

Futures have increased relative to last year since the closure of the floor I hope that helps.

And let me just add a few things Alex and Sean Thank you for that.

Response.

Trading floor, the costs associated with it or roughly around 20 million annually. I believe is what the number is but John Detroit's or drop because you're correct me.

As it relates to the floor products as you know back in 2000, we had thresholds.

So see other with them about the viability of their existence and you know the futures did not meet those thresholds subsequently, we close them several years. After they did not meet the thresholds we didn't do it right away it was actually many years.

Options and futures, none of the products meet the threshold today, except for one to my knowledge and that is euro dollar options.

So.

We are going to continue making sure we maintained.

Our threshold and our guidelines that we have agreed to many many years ago, but most importantly, Alex the as it relates to the trading floor.

We will not do anything irrational either wait until we know exactly where the health officials and government officials are going to come down as it relates to multiple people getting together in a single location as you know trading floor trading environments are very close environments and very difficult to what this virus.

To continuing to keep everybody safe you know I have 54 employees that have to be down there. The staff. Those and then we have hundreds of traders and clerks that are down there and we have an obligation to do the right thing and not overreacting to wait so we'll make those decisions with government officials and health officials as time goes on.

But I just want to point out that the cost is not extraordinary and a threshold levels have not been met and futures subsequent close the threshold.

My own futures has not been.

Matt, but still open except for one product Euro dollar does that help you.

Awesome. Thank you very much.

If I appreciate it.

Our next question comes from Christian Bolu with autonomous.

Thank you guys. Good morning, maybe a follow for Sean I'm, sorry, if I already Mr spot why exactly do you see treasury issuance will have any impact on volumes todays zero rate Q U World I guess treasury debts tripled from.

Ah tourism and seven to 2014 up let's see any volumes did not grow over that period. So curious what's different this time and then just a second part question a part to the question or just the second question basically when you put John what do you have a clean up question on the balance sheet I see perform.

Bonds tripled to 100 billion I'll, just remind us the dynamics here on that line item kind of what drove the spike.

Sustainable and more importantly, how do we think about any PLM piano impacts.

Yes.

Okay.

John I'm so.

Yeah I think.

So I take that yeah marketplace is completely different than it was a party 2000 and pet.

As I said earlier, we spent an enormous amount of money effort on PUC innovation that has for example made our Turkey complex much more attractive we added our ultra bombed futures.

In 2010 that this year have done 233000 contracts today, we added our ultra tenure of future. It's just a couple of years ago, what you're doing 293000 contracts today, he's a lot participants to much more accurately.

Hedge their cash treasury with with the end of life features products. In addition to that we also have making adjustments to oxides, you know I'm a little over a year ago, we adjusted our to your notes futures minimum price increments, reducing them by half.

I'm very glad to say that we believe it around 200000 contracts today of our two year in those features on today are attributable to our attributable.

To the decline in that no pricing correct. When you reduce that minimum pricing trends you reduce the cost to trade you by reducing the bid offer spread that in addition to significantly reducing the execution cost to trade things like changing minimum tightening increments, we've not simply improves the capital margin in total cost.

Licensees, just things like portfolio margining against interest rate swaps again didn't exist.

During that time period that you're talking about in terms of interest rate swaps I mentioned earlier actually we had an all time revenue record.

In Q1, and then say swaps and in March in particular as I did mentioned earlier, we saw an all time record portfolio margining benefit to our customers up 7 billion.

So we see very significant differences in terms our Pos in terms of our offerings. In addition to that we could talk for a long time about our investment in Salesforce. So if you look going back up here on you're referring to the bulk of our Salesforce sat in United States and double that's else Salesforce sat in Chicago.

Today or most of our Salesforce is outside the United States and so much more deeply penetrated the global markets last if you go back to 2012. Another key difference Anthony you've heard me talk about on earnings calls before is because of these efficiencies because of our improvements in sales because we have.

Invested so much electronic markets, our penetration of the cast Treasury bond market has gone dramatically. So if you look back in 2012 hour Treasury futures traders, 55% of the average daily volume of the cats Treasury bond market today, we are trading.

More than 121% of that underlying cash treasury bond market. So that the treasury futures. So he for all of those reasons.

We're in a completely different place today, and we birth that hope that helps.

Thanks, John.

In terms of <unk>.

I'm, sorry go ahead, Chris and glut.

There's gonna say yeah.

Yeah John please.

The balance sheet.

Thank you Shannon so.

Thank you Christian so in terms of the in terms of the balance sheet will you will you see in terms of the performance bonds. That's the positions that the ER customers put up in support of their trading activity. We did see an increase on their balance sheet in terms of performance bonds, which primarily represents cash put up.

The clearinghouse increased you know from about 37 billion in the fourth quarter of 19 $200 billion in the first quarter of.

Oh this year, so I'm pretty marketing increasing that that's really due to the activity at the clearing house and the volatility so higher the volatility in more activity, you'll see an increased a in the amount of performance bonds put out now how that flows through the into the income statement is we earn.

Money on cash well put up at the clearing house by our customers and generally speaking we <unk>, we have the spread between what the Iowa. We are news I'd be interested in excess reserves and in we share that with our customers generally its oh, it's about 80%.

It gets rebated back from customers about 20% no we keep.

In support of managing the collateral we also earn based upon the non cash collateral as well and that flows through our revenue line, but to give you an idea in last quarter average balances in terms of cash that we earn on like increased from about 28.1 billion too.

$40 billion Silver 12 billion dollar increase on the average balance and Ah we earned.

Oh 29 basis points in the fourth quarter, and 19 basis points in the first quarter.

No just to point out the average cash balances well through the month of April is about $89 billion a in the month of April so I'm about more than double what we had on average for the first quarter I know the IDR did come down to 10 basis points and again.

And we keep a spread of approximately 80 or 80 20, 80% to our customers about 20% to us and so the customer journey eight basis points, and we're earning two basis points.

Great. Thank you very much for things out thanks Christian Okay.

Well keeping your own our next question comes from Oh, Unwound with Oppenheimer.

Okay and good morning. Thank you for the good morning. Thank you for taking my question continuing on the balance sheet and capital management. So you had $1 billion in cash and you reached Youre one times leverage target at the out the first quarter.

But given to cold feet uncertainty would you wait you smoke that in order to have more cash.

Confident about confidence about your cash position and can pay down some debt.

And I think more importantly, how should investors think about your favorite voted for then policy. This year. Thank you.

Thanks on John you can go and address that and I might chime in as well.

Yes sure.

Thanks, Thanks, one in terms of our in terms of our capital structure, you know a we're very comfortable with our capital structure, we like I mentioned in the prepared remarks, we achieved our one times debt to EBITDA target or we have about $100 million in commercial paper or that we will be paying.

Alan I in relatively short order.

So with that you know that's the though remaining amount oh debt that's pre payable on so we feel very comfortable with our capital structure. You know we had you know as you saw this quarter, we've got very strong leverage in our business model and.

We have no very high investment grade rating, which we think is an important for you know for the firm so very comfortable and in terms of our our capital structure a in terms of our no ability to pay down debt like I mentioned, you got $100 million in pre payable debt, which will pay down in short.

The order and I think in terms of our annual variable dividend you know the dividend is obviously a function of our board and that's a board decision or we had been very no focused on ensuring that we've got an appropriate capital return policy and been utilizing our our annual Barry.

Dividend in a regular dividend as a means to return cash back to our shareholders. Our regular dividend, we've increased 13% to 85 cents a share and no. We have a number we think is a really good and prudent dividend policy.

Thanks, John.

Thank you. Thank you next question comes from Alex Blostein with Goldman Sachs.

Hey, Alex Hey, guys. Good morning, Thanks for taking the question. So another one for Derek around the energy market dynamics and the question is really not so much about the merits of physical delivery versus casselman or Brent versus never T. I I'm more curious about the outlook off by U.S., while production and given the fact that that's likely to decline.

Over the coming year to bring the market's back into balance obviously as the demand side of the equation is kind of difficult to predict right now.

Do you see this decline and went production impact and utilization of <unk> and in terms of exposure I'm Dark I think you talked about in terms of growth, but different customer categories, but anyway, you can give us a sense of just kinda runrate exposures in terms of total revenues of total volumes of W. <unk> by you know kind of the buckets that you are.

The scrap I'm not one of the prior questions. Thanks.

Oh, sorry, Alex Thank you and Dirk obviously, we can't predict future volumes, but Dirk lunch wasn't it drops out just question.

Yeah, So it's a tough because the predicate us where where the all my friends Gonna go what I can do Alex's point you as we all look at as I mentioned earlier look at the forward curve and if you look at the forward curve and look at where the market is expecting some amount of demand to return I think that the wheel riskier frankly is and this is why the refiners have been quicker to.

Reduce the rather than take take less crude into a fine because they can respond more quickly to shifts in demand. The concern is it takes longer to shut in oil well down. The concern now is not that there won't be terminal banana for the next year. The question now is as states are becoming the open and there's just start to see air miles start to fly and miles.

Two of them start to increase as they go back to work. The issue now is wells are reluctant to close because it takes them a while do we start there was a very real chance that if it and this is that the math resigned a bit producers are doing right now should we shut down and how long that taking out to reduce my access stops and then by the time you see demand starting to see.

Well the ramp and then accelerate as markets open up again and demand returns. They don't want to be behind there was a real risk right now that actually have too many folks shutdown that production now you've got the uncertainty as well when demand returns not going to be behind the curve and are we going to see some rubber bantering back effect of oversupply now people are overly shut down then to me.

On returns, but then the police just can't we turn that quickly enough. So that the interesting dynamic is it's me you know people express different opinions as to how quickly demand is going to return I can't control for that what we are watching is the forward curve and we are watching there was a reluctance for producers to shut down because it takes them offline for too long.

So could do see a rapid return of demand, they're gonna be behind and so when you just look at the covered on certainty on top of the election uncertainty that's keeping people in the market, we're not seeing people shutter positions closed down and sit and wait for demand has been trying because everybody knows by the time you'd see it it's too late so I can't give you a precise answer but look at.

The forward curve.

Look at the continued participation in our market R.W.T.I. futures open interest has been between 2.2 and 2.4 million contracts for the last six months that has continued to be more or less in play we have seen as I mentioned before that outsize participation from the commercials were not seen them step away. So I think every once a week.

Looking at the return of demand I can't control for that but the market is telling you. It's probably three months out four months out in the meantime, the storage as she was kinda red herring, because it I don't want to lead people to impression that the structural constraints as there's only so much takes place in Cushing and oil can't go anywhere there is over 3 million barrels a day.

Transition through Cushing as a distribution how it goes on a railcars that goes to the trucks and moved elsewhere. So quite frankly, the contango in the market right now is an opportunity for folks and we think the market's gonna be responding to that and finding smart ways to take that oil transport it and that's one of the differences that you are saying that's not just physical storage in Cushing.

It's a transit hub and so folks are figuring out where can I take that and move that and there's a cost of doing that so alternative locations. So it's a healthier RPC business, where some of the battle Buck 12, Bucks 13 on or thereabouts, and we're continuing to see the commercials participate we don't see them pulling back because the uncertainty of the near term demand returns.

Thanks there.

Thank you were next question comes from a Chris Harris with Wells Fargo.

Hi, Chris.

Hey, guys or how should we be thinking about.

Potential risks to market data in connectivity revenues as a result to the recession.

Yeah really doesn't seem like has been any impact so far but not sure how to be I'm really thinking about the outlook for the duration of stuff 2020 and beyond.

So I'm going to let Julie Winkler comment about the market data business, a little bit and John Petros. If you want to comment on the revenue side as well I will give you this observation from where I'm sitting right now everything you've heard and everything you've heard over the last six weeks from multiple companies is were and uncharted waters.

Difficult times different times, I want to see that before.

And I believe and I think the team believes that the opportunity for market data is gonna be critically important in order for risk management, whether its derived or historical so we can't predict what it's going to be but I think more and more people after seeing what's going on here. The last several weeks arguably you're looking for more and more data in order to help run their business.

So.

If that gives you any indication and at what truly Winkler and her team are doing right now is pretty exceptional so it's really I'll, let you comment.

And then if anybody else wants to make remark John go ahead, Chile.

Sure. Thanks, Terry Thanks for the question Yeah, It to data business certainly performed.

Well in Q1 with our consolidated revenue of 132 million. So we were up slightly over the first quarter of 29 team. They really have not seen much decline in our professional subscriber displaying device count. So far. So you know certainly from the impact of Coven 19 going forward what the teams then doing.

In a certain like close consultation with our key data vendors and also our clients to gather in touch I'd say many of our customers. We're very well prepared for this work from home and NDR scenario that were in they transition their trainers and their support teams with minutes minimal disruption and they.

I wanted to recreate as much as possible the experience those people have in accessing our data and that work from home and D.R. Ics and environment. So for some customers. The transition was more disruptive you know the good news there as Terry pointed out earlier there were like there was no disruption right in terms of the market data technology.

Your distribution.

And so we've seen some of our vendors tell US you know there might be some decreased demand for data screen, then and that's going forward, while others are actually seen and increased need from their customers for data. So we are going that you know definitely remain close to them I think that she thing that we're looking at in particular, where are the historical data that.

I talked about earlier, where the last few months, we thought 50% increase in sales as customers are our shopping for data as Terry pointed out on the web traffic on those pages up over 300% client need to have access to the data to be able to continue to refine their trading strategies and manage risk going forward.

Additionally, you know in our non display device at business. You know customers are are increasingly thinking flexibility I've I've, how do you see Sammy data in algorithm that machine learning capabilities and other automated solution. So that's a trend seen across the industry that that we think well on you know certainly continue through that.

And you know, we're continuing to you know get as close to our customers as possible and also I believe bringing that team within our client development in research organization. We've we've talked about today is definitely going to be more client focused and continue to understand what their needs are so we can deliver new.

Products acquire new clients and continue to work very closely with our channel distribution partners.

So John or anything you want to add.

No I think China telecom side of it seems like doing anything.

No I mean, I think you know we saw a you know a solid first quarter, a you know compared to the fourth quarter and Julie Good all go all the appropriate lead all the all the points. Thanks.

Thanks, guys. So I believe we have about three or four more questions I'd like to get through all of them. So I don't want to kinda anybody off so why don't Dave why don't we continue.

Thank you. Our next question comes from Taiwan voice with KBW.

Hi, good morning, good morning.

<unk>.

Oh, John just Sionyx <unk>.

Oh I didn't hear your question, but.

John did you get a question.

Yeah, no not dropped I do apologize. Our next question comes from Ken Hill with Rosenblat.

Hey, Ken Hey, good morning. Good morning, Thanks for the extended questions here I just wanted to ask on expenses you had some nice control here in the first quarter. So just wanted to wonder how to think about that for two Q, maybe any potential coven 19 impacts that might flow through into two Q, whether that be kinda travel locked down Sir how you're thinking about the expense base here.

In the near term and then as the year process would be helpful. Thanks.

Thanks, Kim shirking over the gun and he can address that John.

Yes, Thanks, Terry Yeah, I think the entire organization really has done a fantastic job in terms of managing our expenses and this really unprecedented time and an unprecedented amount of activity at the at the exchange you know in terms of expense impact to the.

Related to the pandemic you know certainly we're seeing you know less employee attrition and less hiring you know going on during this period of time and when you look at the level of travel you know, it's it's down substantially as you would expect in fact in the first quarter was half of what we spent in the fourth quarter.

2019, and I would imagine no in this quarter it'll be a near zero.

Also our marketing advertising spend as you know pushed out into 'em later on into the year and also Weve really moved to as Julie had and then kind of pointed out previously we really moved to a more video conferencing and Webinars you know versus events. So yeah, we have seen.

Some impacts related to the crisis, you know I'm very proud of the entire organization and how they've been able to manage through it and also manage expenses.

You know in terms of our guidance you know we certainly are very comfortable you know that we're not going to exceed our guided you know our guidance range and it's little too early really to predict tower, how we're going to come out it really relates to a lot of you know how the Stan.

At home orders get you know taken away how businesses respond to you know respond to it as Terry mentioned previously these really unprecedented times. So yeah, we felt that no. It's little too early to to make any adjustments you know two to our guidance, but no. We are are you know as we as the entire organization has a black.

Several years really been managing our expenses well.

And just to add to what John said, Ken I think it's a pretty safe bet that we will be very conservative.

With our people as they get back into their normal routines whenever that may or may not be to limit that some degree I'm not just going to turn developments everybody go back to what you're doing before because as Weve clearly highlighted on this call and then have been over the last several weeks, we've been able to function at a very high level.

And I'm very proud of my team for doing this all throughout the world from home. So we will be very cautious or to continue on with business as usual from a travel perspective than any other things that would incur cost.

Great. Thanks, Thanks for the detail.

Thanks, guys appreciate it.

Thank you were next question comes from Ken Worthington with JP Morgan.

All right now I think you first hi, Thanks for squeezing me and in in terms of a your response to Christians question earlier on the record or near record margin levels, where those levels now that we're sort of closing in on the end of April and volatility is diminished and given the decline in interest rates what are the net yields that you're earning on.

Customer cash side versus the yield you might have earned earlier in the year.

I think John Petro its answered yet or.

Question, a moment ago, but maybe I'm mistaken, but John I think you're already answered that one where you can say it again.

As far as the amounts that we have on deposit.

I'll I'll yield to Tom Mitro, it's on that exact number if he wants to give it or not.

Because it does fluctuate depending on what the margin.

Models are calling for up or down we as I said earlier, we have raised margins across the board that most asset classes to be prudent risk management. So what is obviously a big part of it.

And let me turn for John for any other comments on that.

Sure. Thanks to you as I mentioned previously you know we are averaging in terms of cash you know that that's a that's put up the clearing house in terms of whats I'm available no for.

You know investments on behalf of our clients was 88.7 billion through the month of April.

In terms of or non cash collateral on average and this is the amount that subject to that we can.

No. That's that's a managed on behalf of non cash equivalents managed on behalf of or the that's been up at the clearing house, there's about $136 billion. Both are up substantially from the first quarter first quarter average cash was about 40 billion and about 114 and a half billion that is real.

Related to you know that's put out that's that you know we earn awesome collateral management fees for is at the end of Q or at the end of March our total collateral was 255.4 billion, you're seeing being relatively stable through the end of.

Oh through the end of April in a in approximately 240 to 250 billion dollar range. So you know both no. So they you know it's three indicated this is really related to prudent risk management.

In terms I've already mentioned in terms of the amount or sharing that we do with our our customers because we invest on their behalf you know they get about 80% or customers you get about 80% took will be around and we just about 20% of what we earn and right now the.

We are is it 10 basis points.

Okay. Thank you thanks, Dan Thanks, Ken.

Your next question comes from Kyle Voigt with KBW.

Welcome back, Hey, Hey, I'm, sorry, about that and I'm, sorry, no worse than the shift actually last couple that it was just on expenses I know, there's a I think theres a 1.54 billion annual expense run rate. If you just first quarter and kinda back was that God that it had one thinks for new ones like side, just wondering if John if you could have experienced.

Gap there in terms of what's going to drive the incremental spend but when you hear me here and it is their expense lacks the wall that guidance range. If the options for doesn't L. Band, then you're kind of <unk> expenses and other expenses remain low due to lack of Nike.

Thanks, Kyle John.

Yeah. Thanks, Kyle Yeah, we certainly look like I mentioned, yeah, you know very proud of the entire organization in terms of how they've been managing expenses, especially in light of the you know the a the crisis and you know the incredible amount of activity that has to be managed and you know it's across the entire organization.

Oh, that's really stepped up to you know to manage.

You know the you know the an incredible amount of volume and the customer outreach has been.

Tremendous.

You know it really I think differentiates us from our peers in terms of our engagement with our customers. So a tremendous you know results across the board either from you know from them or you know come the employees yeah, we've definitely been managing our expenses very carefully you know we intend to continue to.

Manage our expenses very carefully a this is something that you've seen us due over the last several years you know weve really it's every employee really looks at and make sure that we are spending your money as efficiently as we can you know going forward. It's you know too early to tell in terms of you know how.

I'll be crisis plays out and so we felt that it wasn't appropriate yet to change our guidance, we're very comfortable that we're not going to be above our guidance and in fact, you know I think theres opportunity based on different scenarios for us to come in under our guidance, but it's a little too early.

It's a little too early to tell and you know in terms of the back half of the year.

As you know depending on how the.

You know how the crisis no plays out there could be some timing related to 'em. Some of our spending and as you are aware yards are no fourth quarter tends to be heavier spend not for us in terms of seasonality in our in our expenses.

[noise] Netscout things John Okay. Thank you. Thanks.

Thank you at this time, we have no further questions in the queue. So I'll turn it back to Mr. Duffy for closing comments.

[noise] they've thank you. Thank you all very very much a we appreciate the opportunity to address your questions. During this quarter and I will say a once again most importantly, we wish you and all your families and friends nothing but the best of safety and health, Oh, God bless be safe and well look forward to talking Yeltsin bye.

Ladies and gentlemen that concludes the CDMI group first quarter 2020 earnings Colm you may disconnect your phone lines and thank you for joining us today.

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