Q1 2020 Earnings Call

Net revenue for European Equity increased 15% on a dollar basis and 17% on a local currency basis reflecting higher Market volumes and higher capture offset somewhat by lower market shares a higher capture resulted from continued strong periodic auction and the net revenue increased reflects a seventeen percent increase in transaction fees and non transaction Revenue the growth of not transaction Revenue reflects increases in accessing capacity feed primarily due to incremental connections with the opening of our Amsterdam Network in October third nineteen another Revenue which includes licensing and trade reporting Revenue. The decline in market share was primarily result of significant Market profile shift to the highly volatile market conditions in a quarter which saw many participants recalibrate their models additionally volumes were impacted by our loss.

And results May differ materially from what is expressed or implied in any forward-looking statements. Please refer to our SEC filings for a full discussion of the factors that may affect any forward-looking statements to take no obligation to publicly update any forward-looking statements whether as a result of new information future events, or otherwise after this conference calls during the course of the call this morning. We will be referring to non-gaap defined and reconciled in our earnings materials today speakers are joining from different locations that we would ask that you please be patient if there are any technical difficulties now, I'd like to turn the call over to Ed. Thank you Debbie. Good morning. I would like to thank you for joining us and to extend my best wishes for your health and the health of your families and colleagues.

Of ability to offer Swiss Securities for trading due to Swiss equivalency matter.

Net revenue for Global effects increased 22% for the quarter ending a new all-time high reflecting a 19% increase in Market volume and a 3% increase in net capture with the ladder reflecting mixed up volume by customer type. We maintain strong market share and set new hives and our full amount offering as well as on for NDS.

Turning to expenses total adjusted operating expenses were about $99 for the quarter up 5% against last year's first-quarter. The key expense variance was in compensation and benefits package reflecting the net impact of a five million dollar increase in incentive based compensation resulting from higher bonus expenses quarter in forfeitures of unvested equity Awards in 1 Q nineteen eighty two million dollar increase as a result of lower capitalized wages relating to software development and a two million dollar decline in benefits due to the adjustment of Deferred Compensation Plan asset note that there is an awful thing to million dollar charge in other income resulting in no impact turning this adjustment reflects the change in the valuation of certain Deferred Compensation Plan assets, and we do not need to forecast or include as a part of our overall expense guide looking ahead to the remainder of twenty-twenty while much uncertainty remains around how this pandemic plays out. We remain steadfast in our execution.

The first quarter 2020 was a stunning.

In history encompassing the nascent spread of the covid-19 virus to a global pandemic threatening lives markets and economies the growing spread of the virus fueled tremendous job market uncertainty as well as concerned for the health of our employees Market participants and communities. Our first priority was to help mitigate the risk of potential exposure to our team members wage for Community while working closely with our regulators and customers to maintain continuous and orderly markets.

We began transitioning employees to work from home ahead of government mandates and then March 16th. We made the very difficult but necessary decision to Temporary closed the trading floor or the first time in our forty seven year history and transition Cibo options exchange to all electronic trading cbo's hybrid trading system has always provided best-in-class 6:30 and access through open outcry and electronic trading mechanisms while the historic action of closing the floor proved to be a short-term distraction. Thanks to the collaboration and in age from our floor trading community and the responsiveness of our Regulators. We were able to complete this transition in a two-day period the scc's collaboration and support was critical labeling us to work quickly through the rule changes needed to close gaps through technology for a seamless transition.

A prudent expense management and a lot of the covid-19 prices we have recalibrated. Our twenty-twenty expense plan with a focus on deploying our resources to have the greatest impact. We're reducing our guidance 4020 adjusted operating expenses by $16 to arrange a $419 to $427 primarily reflecting lower compensation costs and lower expenses for travel and entertainment package marketing events resulting from the current environment expenses are expected to ramp up in the second half of the year as we plan to accelerate existing growth initiatives and complete our Chicago headquarters build out this site provides an update to the 2019 to 2020 expense Bridge. We provide it in our last earnings call indicating. We now expect core expense growth to be flat to up 1% because of changes.

Although it remains unclear when and how we met reopen the floor. We are in discussions with our trading for community and working through various scenarios. So we're well prepared for any eventuality off the health and safety of our trading for Community which includes Market participants and Cibo team members is our highest priority and will dictate when and how we reopen the trading floor wage in the meantime the electronic component of our hybrid system remains industry-leading and we are actively working on electronic solutions to replicate the benefits of floor trading in order to serve you better respond to the demand for high risk and complex trades that are temporary.

As a result this guy.

Does not include our plan as a reminder. This guy does not include our planned acquisition of and the build-out of pan-european derivatives trading and clearing we plan to incorporate that in 2020 guidance after the acquisition closes, which we still expect to occur in the next few months subject to regulatory approvals and other closing conditions.

Trying to income taxes are effective tax rate on adjusted earnings for the quarter was 27% at the low end of our guidance range, but above last year's first-quarter rate of 25.4% off of your rate tax increase was due to Greater excess tax benefits associated with Equity Awards in the first quarter of 2019 versus 2020. We are reaffirming bought a 2020 full year tax rate on adjusted earnings, which is expected to be in a range of 26 and 1/2 to 28 and a half percent. Yeah also reaffirming our Capital spending guidance for 20 25 65 to 70 million dollars. We are still on track to move into our new Chicago headquarters in early part of the third quarter. However, this could shift based in the village ability of our current suppliers. Furthermore. We still a depreciation amortization to be thirty-four to thirty-eight million dollars for twenty twenty.

Which excludes amortization intangibles of approximately 120 million dollars in 2020?

Turn into Capital allocation. Let me underscore we remain focused on investing in the growth of our business to build upon our strength while returning excess cash to shareholders through dividends or repurchases. Our financial position continues to be very strong. We have very good cash flow generation capability and a solid balance sheet during the quarter. We returned a hundred twenty million dollars to shareholders through purchases and forty million dollars through dividends and it March 31st or share repurchase authorization available was a hundred eighty million dollars or get remains 875 million dollars and we have a 150 million dollars available and availability under our revolver. If a short-term funding need arises our leverage ratio moved to one times at quarter in down from 1.2 times at the end of the year reflection a higher trailing 12 months of earnings, and we ended the year with adjusted cash of $137.

We expect to see approximately twenty-five to Thirty million dollars of liquidity benefit primarily from the immediate deductibility of leasehold improvements expenses from our Chicago headquarters move deferral a first for life. It's an employer Social Security taxes as Allowed by the we do not expect to maintain we do expect to maintain a more conservative cash position in the near-term and evaluate fun a ternative opportunistically.

In closing these unprecedented times that leaves us with many unknowns, but what we do know is we just reported record quarterly Financial results across across almost every metric our technology infrastructure handled messaging volumes that were double prior peaks with no service disruptions. We work collaboratively with our regular hours and trading floor Community to migrate to an all-electronic exchange and our Workforce converted to a work from home environment all without skipping a beat off a line fundamentals of our business are strong and our philosophy of maintaining Financial flexibility is in place for Times Like These regardless of marketing conditions. We remain focused on serving the needs of our customers and delivering sustainable returns to our shareholders while guarding the Health and Welfare of our Associates.

With that I will turn.

Over to Debbie for instructions on Q&A portion of the call.

Hey Brian, at this point we'd be happy to take questions. We ask that you please limit your questions to one four person to allow time to get to everyone. Feel free to get back in the queue, and if time permits will take a second question am back to Keith now. Just thank you mentioned. We will now begin the question-and-answer session to remind reminder to ask a question. You may press * then 1 on your touchtone phone. If you are using speakerphone, please check your handset before pressing the keys to withdraw your question, please press star the to this time. We will pause momentarily to assemble the roster and his first question comes on repetto with Piper Sandler dead.

Yeah, good morning, Ed and good morning, Brian and I hope everybody you and the CBOE team are all safe and healthy. Congratulations on the outstanding margin report in the cork. I guess the question my question is on proprietary trading volumes and just trying to understand the impact of the floor closures. If you can quantify that at least on the month, you know the complex trading of the SPX options and then just to get more into what you talked about in the prepared remarks, you know, have we seen a more pull back from you the speculative or is it the true hedgers and then I'm just trying to understand how Equity volumes and multi listed options remain elevated. But we've seen you know, the the proprietary product volumes in a faithful, you know ball back, you know, pull back quite a bit rich. Thank you and good morning. Great question. I like the way you combine Thursday.

Let me first answer the floor perspective. I think in there couple of moving to all-electronic. We I think managed to scrape by the demand for the majority of our customer flow really well, but that said the most complex trades. Those are the most risky. We have not been able to fully satisfy and I think there is pent-up demand. I know there's pent-up demand and frustration with some of those Motor complex trades and their attempt to a club says the pool of liquidity. That is the SPX. So we're we're going to work on that. I'm going to provide you some detail there the second part of your question on speculation versus hedging speculation alive and well the activity we see in single name product. I think goes right to that question you there are winners and there are losers in this evening.

Global Market move and even today with a 6 teaspoon move. Am I anticipate there'll be a lot of speculative play and we'll see that in multi-list options and including spiders the SPX. You're right institutional based the hedging tool for exposure to the US market. So, I think those are on the sidelines to to your observation as well. Let me get back to the question on how then to return the utility that is off the floor the tax for the experience of those that are still frustrated by access into aspects. We have a two-pronged approach one. We are preparing for the birth open of the cibao trading floor will be ready in and around June 1st. Safety First is going to be our guideline. We have our own members of the community wage.

Going down back down.

That Florida service are trading community. So the health of both of those groups is first and foremost, we recognize the impact that we've potentially can have on the the Chicago Community if we act too quickly and record so it would be safety first, but we'll be ready operationally June one to go back to open outcry trading the other the path that we're pursuing is what electronic Solutions can we offer to the marketplace that bridge the gap between the experience that was found on the trading floor the utility that Brokers provide the ability for market makers to trade with market makers. How do we provide that solution electronically. We're well into the design of that technology solution and will be vetting that with the SEC off immediately. So I guess a two-pronged approach.

Ready for open outcry June one parallel path an electronic solution. So we will return the experience for all of our users to what they're used to gaining access to the S&P under complex.

Thank you.

Thank you. And the next question comes on Ken Worthington would JPMorgan?

Hi, good morning. Thank you for taking my questions. Can you talk about the Damage Done to your clients in this you know Financial correction? Well forget to be positioned very differently this time and fixed versus what they had where they had been in 2018 there still seems to have been Damage Done to those who are short volatility off. So and we see this in you know may see this in the the the multi-year lows and open interest in Futures. So how would you compare the damage done this time in 2020 versus what we saw in 2018 and to what extent are you seeing signs of recovery first? I guess I'd have to see damage done before I can see signs of recovery. I will say that the big volume change that we see I think I would point to most that. It's affecting the volume in vix futures.

Is the massive reduction in in etps, and as a result, the lower required need to rebalance it the the end of each and every night and vix Futures. So most intense in the levered an inverse etps. We're we're about a tenth of the AUM that we were off. So I don't think that I would not categorize this at all on the in the parallel you're drawing to the last major spike invex where we did lose money flow and strategy. I don't see the same here and I certainly haven't heard stories that resemble anything like we've seen a couple of years ago. So I think this is normal, I think the rest of the vix open interest there was a great deal of monetization of hedging. So if you had Vicks option off,

positions on or if you had the right

Position in Vick's not surprisingly you reach expiration. You hold those positions expiration and a mid-30s fix level is not dead. Where are you would re-engage you let those those options expire and they're we're at a higher level where to Flatline Vic's right. Now. We've talked about this for years. We've seen the market go to flashing and the Market's most indecisive when the the volatility surface is flat. This does not surprise us at all.

Ken this is John Deiter. So to to add points on the the ETP Dynamics just very very different patterns. From what we saw the back a couple of years ago in particular. I you can you can track when you look at short one of the important things to look at is a short interest in the long etps. And where the short Interest really accelerated was wage after the vix level started to lift up. So rather than people being caught short they went short when Vic's was hitting seventy. Eighty now that we're at 30,000 term structures flat people don't have views on where that's going up or down. The shorts are out of the market. The lungs are not back in and you can see that through the inflows the the acid inflows into the atp's wage has generally been negative. So people are waiting to re-establish a view. That's simply it.

Okay, let me give you a just a reference point and the March expiry and kind of proved the point a little bit about not rolling and re-establishing the expires at 69 level. So that's not a role level. I think it's a wait and see and that's exactly what we're observing today. But thank you. It's a great question.

Thank you. And the next question comes on Dan Fannon with Jeffords. Thanks the morning you highlighted, you know across the customer base here in Georgia State marching in April. I guess without Clarity in the pandemic, you know, we engagements likely to be a bit delayed, but I guess if you think longer-term, you know, the address will market for your products in terms of hedging through. The volatility. Can you talk about you know kind of new customers the new opportunity and how the market might be more broader for, you know, the utility of your products kind of post-event wage. Like, you know, the last few months. Yeah, it's great. And you know, what we're doing is we we told you this was the year of organic growth and the team so fired up we were offered the right people on the street with the right people in front of customers engagement with solid and that is still going to be our story, but we're pushing that out a little bit. This is a back to Beijing.

Our existing customers need more information the volatility environment and you're right. You cannot see the end of this pandemic yet and that shows up in the flatness and the elevator nature of the curve right now. So it's it's really difficult to look through. So the engagement has to be different but we're engaging virtually each and every day with the existing customers. And I know if we were our goal was gosh 60% in 2020 to engage with existing customers and forty out and gaining new. I would see we're probably had an 80/20 right now real aging with an existing while still trying to cultivate new. So it is a little a bit more of a pivot back to the people. We know what are we needing more information in this environment off and back to the growth story. I would hope by a third and fourth quarter this year.

Thank you. And the next question comes from Alex crammed with UBS.

Yeah. Hey, hello. Everyone. Wanted to just get the numbers question on what you outlined on the access fee and the price change their can you just give a little bit more color? A $1 impact is on excess fees. And and obviously I guess you're trying to get an offset on the transaction side, but is that basically a plan for one month now, you just set the floor may be reopening in the beginning of June month and then maybe just related to that. I mean, how did you think about that that pricing change? I mean, is there a situation where you know, you're you're introducing higher transaction fees to some clients who are only trade electronically. Anyway, now you implementing more friction into the marketplace at a time when you're desperately looking for more volume or or how should I think about the puts and takes of the of the new pricing uh schedule

Yeah, I was happy to provide a little bit more color there. So the high-level number is about a million and half per month roughly on that fee shift that you would see and that our PCM. Like I said is something that we looked at and say, you know, we're not trying to make more money as a result of the change. We're trying to just basically do a neutral upset and I'm not an exact science but the goal would be to while it won't be a hundred percent is that the same folks who would have paid that call it? The access fee would be seeing a a slightly higher transaction fee on their trade as the way we tried to structure that so it's not across the entire complex. Obviously. It's not exact. It's not perfect the way the Feast of those work, but I would say the bulk of it of what that that shift would be on those who were paying the access and capacity fee that that I mentioned as far as the ship goes as phone number.

Has the you know how long and everything else had talked about, you know, a potential timing change as far as obviously there's conditions are met of you know of of local areas lifting restrictions and and a lot of things that that go into a that's what I was doing and when we provide that guidance has we didn't we don't know exactly when that will shift. So if it's only a month and we're back then it's only a month and will update the guidance. So I think that was a very good question. I have to to kind of stuff that out on a monthly basis of what would expect to see because we would then go back to flip the fees back to where they were temporary for foreclosure.

Great. Thank you. Yep.

Do you think we lost a connection Debbie?

I'm not hearing anything on my Bank of America. Excellent.

Thanks. Thanks guys for taking the question you Brian just a question on the extent, you know guy and then understand, you know, things are so influx. So it's probably you know talking to the 2% but typically the range that you provide, you know, that range constitutes, you know, a pretty kind of broad like outcome in terms of like the bonus and how that gets across I guess just given this year with the uncertainties on you know, like the the pits close versus going back and you know kind of re-engaging in somewhat normal operations and travel how much of that you know is included in in the range meaning in terms of it on hold versus, you know going back and then I know you mentioned Euro CCP is not included I think initially you guys said something around 80% diluted of you know in year one, but as any of that, you know changed universe is what you know, you know as of as of now, thanks.

So I'm not I I'm going to try and interpret the first question on the the bonus impact I think broadly so I'll try to answer that broadly and then on the answer that one because when we gave that guidance that was again meant to be broadly I'll call it a day. Some of that was a bit of a 12-month perspective so that if it was delayed some of that could get shifted a little bit into outside of 2020 and then more into Twenty-One as we've kind of role that forward. So it was a when we obviously when doing all of our modeling life impacts, look at the only investment occurs, we had certain expectations of when that would hit in 2021 if she then went out in 2020, so I would say stay tuned for when we met when we see that actually does get closed and and we'll refresh that. You know, we continue to obviously like the and and and in Europe continue to engage those clients or continue to be very strong interest in what we're doing.

And we haven't seen anybody back away and say we don't want to do this but realizing the environment win, you know, we'll have to evaluate the timing and whether the suspense is happen the exact same time as long as we had initially indicated, but that's kind of why we also then are waiting to update that guidance until that closes to to get give everybody more clarity as far as the timing goes on the bounces and what that reflects essentially sometimes the the that compensation is a little odd, but they have to have a full year perspective on it because essentially what firms are are required to do is you know forecast where they expect to make kind of where they expect to make earnings for the entire years and book an accrual based on kind of a 1/4 of the way through it and have expectations along the way we've made what we think are conservative assumptions as far as how are your goes we have dinner.

Gennaro's that we look at evaluate

You know, they higher or lower volume impacts and obviously any impact to those expectations that that occur relative to what we've assumed obviously can change the, you know, the cruel for the bonus itself. But right now we feel very comfortable that we're kind of in a solid range where we are. And as I said, I think that if that number goes up it will be only due to higher volumes.

And if it goes down and it's not as as where people you know, we might expect them to be that that guidance could come down a bit. So I know you're probably looking for Life explicit number but but just know that overall, you know bonus and and as you look at the expense structure compensation is a Big Driver of the overall, you know, overall expense, Thanks. Mike might just just a couple additional things on on Euro CCP to Brian's point. The whole previous estimate in terms of UPS impact was was an estimate to the time he was also an estimate in terms of where we thought those facility fees would come in off and I think one thing that we've been pleased about over this. Even through the market turmoil is we've been able to successfully make progress on the syndication wage.

I have signed commitments for the full facility really just waiting for those final regulator approvals. And the fees have really come in right in the ballpark of where we anticipated even in the suburbs. That's terrific and just in terms of the longer-term derivatives plan in Europe where as excited as ever some things may face delay in here and there but we're finding banks are really engaging with us wage. They're they're ready to participate and we're also I think in a position to apply some of the lessons we're learning in our markets here in the US in terms of liquidity provision and new ways to electronically Source liquidity Supply that will really bear fruit in Europe since we're obviously I mean Europe is not going to be a floor environment off, but we can still apply some of the electronic lessons. We're learning today there.

Thank you. And the next question comes from Chris Allen with compass point morning. Everyone. Wanted to revisit a little bit just the answer there. I was wondering if you could help us quantify how much activity is driven by the complex trades? Cuz whatever was trying to Parts out is what level of the car has been driven by as you talked about the flatness of the Vets curve the elevator next verses what's been driven by the Foreclosure there? So any color there would be helpful. And also, how is your your the four participants who are being impacted by the faith. We just discussed how do they receive that in terms of particular just given likelihood they're lower levels of activity right now.

So I'll take them in Reverse good question. As far as the fee level look at it this way.

This is primarily SPX issue. If you were trading, you know, the at-the-money options before the move and it was sixty-three to sixty-eight cents you're trading at the money options today, and it's 40 or $50 premium. And you know, there's another dime or so in fees. That is not the friction point.

So while no one wants their fees to go up relative to the options that you're trading. This is not the this is not an issue that is affecting at all opinion the the volumes and the aspects and it's not why you wouldn't trade the SPX as for the complexity. I think you're on to it. If we look at the most complex trades with exposure to the S&P 500 are in multi-leg spreads. And if we Define those as is the most complex there think six legs and over. All right, so pretty simple to trade electronically a two legs spread, but if you get into six and over it becomes more difficult before March that was about five and half percent of the SPX volume.

After the major move and we went to all electronic that's about 2.3 2.4% So that is a massive amount of volume that is been frustrated by an electronic environment and it is exactly the benefit. We think we will gain when we return to either open outcry and Thursday and electronic solution that satisfies those most complex trades and what we have in spent a lot of time on is the market-maker experience not in fees, but in their ability to continue to reposition their own risk with fellow market makers that may or may not have the same exposure that is very very difficult to do it at all electronic environment. It's very very easy when the most liquid pool of liquidity that it allows you that interaction with other market makers leading to rebalance and reposition their own portfolios. Yep.

You need a solution for that electronically and we have that design. So as I say the parallel path we were chasing right now will provide Solutions both all electronically and in return to to open on criteria.

Thank you. And the next question comes from Brian, but that would put your bank.

Great. Thanks. Good morning, folks with everyone safe in well, also just to come back on obviously the the topic on the floor just maybe a different way just in my own find calculations here for a date across STX fix options and Futures STX phone lines are down a little of a 30% while the Vicks options are down sixty and and and Futures are sitting at 65 is maybe this is too simplistic, but from my understanding the STX is more heavily off. The higher floor participation wear Vicks has traditionally has a higher electronic usage. And of course Futures does is of as well. Is that contraction and STX following a somewhat of a reasonable proxy for the contribution from the volume decline on the floor if we were to really look at that way and and then also on the developer job

the electronic

Complex order types that that you're working on I guess how quickly do you think that would be effective and then would people you know continue to use that if I was affected to the extent that they would in the future, you know be less active on the floor and rather use the electronic version. So let me ask answer the electronic version versus the open. Cried a little different way. So our position on the open outcry trading has not changed since we went hybrid. So if you can think ten to fifteen years ago with the expectation was the trading floor would close Cibo has an electronic solution that should satisfy the majority of its users and no longer find utility in the in the pet. Our position has always been that when our customers tell us that there's no utility in the trading crowd when Brokers provide no service to their their customers, the electronic solution will close the trading floor, not Cibo and not dead.

Management team that position has not changed we have been adding an improving technology from the moment hybrid was introduced will continue to do so now in this instance would have been able to isolate needs that have not been satisfied an electronic environment with much more clarity. So the focus and the direction is clear. The design is already done and Thursday interaction now will be with our regulators and timing of a launch in in our phase one that is not going to be the last phase. We will have multiple phases of adding technology and solutions to the experience that our customers have today using open outcry. So I do think there has been an impact in SPX due to the frustration of not being able to get those most risky and most complex orders done. I'm not sure if I answered all your questions, so please re-engage with me if I left something out.

And yeah, this is good. This is Brian. This is Chris Chris Isaacson. I just I would just add here. You know, this is a long history of making technological advancements to satisfy and provide the utility our customers want including on the floor. So, you know, we went to Highbridge for the aspects monthly contract and in 2018, massive integration effort to new technology and 2019. We pivotal on you know on a dime when we were forced to close the trading floor. We're working very quickly to satisfy the utility of the trading floor whether physically or in a virtual mode is that said we're we're all over this. The design is nearly done and subject to regulatory approval and working with them. We will be ready for any outcome here regardless of how covid-19 progresses.

Since we would accept a recovery based on the work you're doing there and then secondarily what you mentioned to an earlier question as people put risk back on in the market. That's that's a whole nother black Dynamic of that recovery, but that's a little bit more uncertain on on the second part.

agree

Yes, thank you. Thank you, and the next question customer already goes with Credit Suisse.

Hey, good morning. Everyone just on the revenue contribution look like the remainder of the month early on I think about Market data and access, you know additional Subs, the new clients have been keep drivers of growth over here. So appreciate any color on on what you've seen thus far in April and expectations near-term around new client growth. Just given some of you know, the continued Market on certain team and day-to-day business disruptions. Thank you. Yeah. Sure. Thanks for the question re so on the left hand would we didn't provide guidance on the acquisition? We just kind of a will continue to let everybody know the incremental amount that's in our numbers as its new home because you know, we want to continue to highlight the organic growth that we've been able to experience and continue to drive going forward. So, you know stay tuned as we continue to report that was about to suck.

A million dollars. I think we had in our slide deck. You'll see that for the the first couple of months for February and and March, um in the in in the quarter as far as you know, you know, the underlying proprietary Market data and the access capacity season what that looks like, you know, we look at that pipeline Marine communication with our business development team again, we still feel good about that organic growth. You've seen the really really strong numbers as far as units and subscribers driving that growth versus any price changes with respect to each of the connectivity part of that that actually is probably surprises to the upside as far as strength goes which is not surprising given the environment the additional need for capacity and the connectivity of it off that's probably slightly higher their expectations and and some of that also in line with as you know, the answer Dam operations, like I mentioned earlier in prepared remarks wage

Online with respect to the proprietary Market data again, you know, if we look at kind of our some of our three larger Geographic areas of of Europe and Asia Thursday, we continue to see a good Pipeline and we still feel good about those cells granted. The the in-person contact has slowed but the interest continues to be strong and and so while we may have seen a little bit of acceleration then we had made the original expected in excess capacity. That's more than offset than some jobs growth that we've seen in the pipeline maybe push back a quarter or two relative to interest but we still see a very strong healthy underlying environment for for that that category and and artists sport that these are not the proprietary data sets that we sell are not heavy in person sales cycle type data sets. These are things that wage.

Are taking electronically by market participants we started.

Immediately after we we closed they had Wicked ft options deals. We started really to cross-sell effort very very small minority of customers across those businesses and across our own existing wage. They're probably businesses were overlapping and so I think those efforts continue and we're I think we're we're very positive about the potential for a client uptake in across the product sets of the three businesses.

Great. Thank you very much.

Thank you. And the next question comes from Chris Harris with Wells Fargo.

Thanks guys. So historically when volumes move from open outcry to electronic they tend to go up could that outcome happen with your electronic solution for complex orders or is there something maybe different about that to suggest that won't occur and and if it does have that potential why not move away from the phone not entirely. So I do think it has the potential but if you can just the image you need is we have excess supply of liquidity that's not deepening deployed in the market right now from our traditional market-maker group who are Global in nature running their own primarily running their own book. We have access demand for Action to the SPX that is you know Global in its nature in wanting exposure to the US market and no better Benchmark than the S&P 500. The frustration is dead.

And that the logistics of that Pipeline and matching these buyers and sellers. That's it. So now can't any solution will cause we believe show up in more volume when more buyers can meet more sellers. So the potential is yes, the electronic vacation in a in a number of different phases can prove to be show up in volumes that are greater than they would otherwise have been but when you say why not just close the trading for it is the answer that I gave a bit ago is because our customers

Haven't found that satisfaction yet and still have great utility in the floor. I can't I can't stress enough the value added by both the Brokers brokerage community that we have today are members of the cibao that are representing those global customers and the liquidity providers who are making those lit markets off each and every day what we need to do what we're challenging ourselves with is not reuniting them on just on the floor but providing solutions that allow them to meet in a in a in a new electronic or virtual world.

Okay. Thank you.

Thank you, and the next question comes with open later.

Good morning, and thank you for taking my question. So in terms of capital return different where your stock is trading right now, how should investors think about maybe regular dividends and special dividends if it's on the table and share with purchases this year, and then for Real Estate expense longer-term how does covid-19 change your operating place off your new headquarters and trading trading floor with occasion maybe in terms of the design and the need of the space because more people may want to work from home going forward with more color would be helpful. Thank you.

Yeah, sure. So, you know up to the capital allocation story hasn't changed as far as you know, what we do what we prioritize and taking a look at that time. You saw her activity of returning Capital shareholders in the first quarter. And we've always said it was a priority to have an increase to the annual dividend and we took that over the last several years and you know, and and obviously we haven't, you know made a decision for the board hasn't made a decision on the dividends as we roll forward and what that looks like, but we'll continue to take you know, a perspective of our entire, you know capital structure and the preference to return Capital but we've always said it's one of our goals and that the share repurchase just once Financial flexibility establish are we purchased continues to be opportunistic? I did say in our prepared remarks that we are going to preference liquidity. Yep.

Credit right now versus you know being aggressive on a share repurchase opportunity. So I think that's kind of where we are right now as far as until the environment becomes a little bit off known I would say that and it's no indication of what we think the value of the stock price is so we make that clear and again to make it clear that the dividend growth as as continues and always will be a priority for for sibo as far as your question on operating expenses what that looks like from Real Estate, you don't expect obviously real estate office over the long term is is variable and we will adjust accordingly. I think shorter-term I would stick with our original guidance of where we were actually going to see it slightly up check off during twenty-twenty given the overlap and what we're doing and the you know, the overlap that we have as we transition to a new headquarters, but yep.

I wouldn't look for any significant change to that and then what we've already guided in 2020, I guess that over the long-term if we see less space being used or we need to walk, you know, make it a little bit more efficient and there's more work from home which we all expect. You know, we don't expect that to see a significant change to our age, you know, overall expense guidance that we've had but good question a longer-term expect that to come down over time. The short-term don't expect to see a material change and decided to

Okay. Thanks.

Chris a little bit Chris maybe on the operationally the design question on returning to the floor and maybe in a a new layout, you know, employing the best of safety and practice in Social distancing and what are considerations are yeah, absolutely. Thanks. So so all in your question there when we we do age return to the office for the trading floor, obviously an employee everything we need to do in order to keep everyone safe from the very beginning of our covid-19 response. And now forward planning. It's about the safety of our home of our Associates and our customers. So when we come back to the trading floor, hopefully as early as June one will have social distancing in place than likely an alternating plan and more alternating package with with groups coming in to ensure the liquidity the floor can offer but also the safety of the trading floor community and then our Associates, of course, we're going to be very cautious and bringing them back to the office off.

To ensure their health and safety also so it doesn't have any long-term change really in our real estate expenses of Brian mentioned or nothing notable at this point. But we are we are proceeding with caution to ensure everyone's safety.

Okay. Thank you very much.

Thank you and the next question comes with.

Hi, good morning, maybe a follow-up for Brian on the expense guidance that you're lowering the core growth rate from 45% to 0 to 1% 2020 off the guidance. Just wondering as we look out to twenty Twenty-One. How should we think about the growth off of this new lower expense base in 2020? And I'm just wondering if there will be elevated core group of 20 21, if some of the some projects and other expenses are are being pushed back into its next year. Yeah, I would say that that's a very good question. As far as the follow-up goes the way we think about it in the way that guidance is built is as a a hinted to and I tend to write try to lay out in the in the prepared remarks is that we do expect a ramp-up of expenses in Q3 and then more fully in Q4 and we you know, so I would say that the modeling is likely going to be kind of absent anything.

You know one-time items or something like that. That would be a little bit more unusual in any one particular quarter. I would expect that the 2020 one guy to be more based on a kind of an annualized more of a run right off of off as far as if we're able to get able to get more of those initiatives up and running into the fourth quarter. You would expect that done to rerun forward because certainly some of the month the discretionary expenses and I called discretionary meaning that the marketing and the promotion things like that that just aren't happening right now because of the events aren't being done. The sponsorships aren't there some of those are literally being pushed into Jersey to into the fourth quarter of deferring into the year. That's likely more of a better run-rate for 20 21 looking at again more the fourth quarter versus kind of an absolute percentage growth rate over the entire 2020.

Helpful. Thank you.

Thank you. And is that all the time we have questions right now would like to return to 4 for any calls and comments.

Thank you. I want to thank everybody for their time this morning and let you know that will be available for any follow-up. So, please feel free to contact me. Thanks and have a good weekend off the conference. It's all concluded. Thank you for attending today's presentation, you know disconnect your front lines.