Q1 2021 Cboe Global Markets Inc Earnings Call
[music].
Good morning, everyone and welcome to the CBOE Global markets first quarter 2021 earnings conference call. Please note. This event is being recorded.
This time for opening introductions I'd like to turn the call over to Debbie Koopman, Vice President of Investor Relations.
Good morning, and thank you for joining us for our first quarter earnings conference call on the call today, Ed Tilly, our chairman President and CEO will discuss our performance for the quarter and provide an update on our strategic initiatives then Brian Schell, our executive Vice President CFO and Treasurer will provide an overview of our financial results for.
For the quarter as long as an update.
For 2021 financial outlook for.
Boeing their comments, we will open the call for Q&A also joining us for Q&A will be our chief operating officer, Chris Isaacson, and our Chief strategy Officer, John Deere. In addition, I would like to point out that this presentation will include the use of slides, we will be showing the slides and providing commentary on each a downloadable copy of the slide presentation is available.
On the Investor relations portion of our website.
In our remarks, we will make some forward looking statements, which represent our current judgment on what the future may hold and while we believe these judgments are reasonable fees.
Forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties.
Actual outcomes and results may differ materially from what is expressed or implied in any forward looking statements. Please refer to our filings with the SEC for a full discussion on the factors that may affect any forward looking statements we undertake.
No obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise. After this conference call. During the course of the call. This morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials now I'd like to turn the call over to Ed.
Thank you Debbie.
Good morning, and thank you for joining us today, I hope, you're all doing well on staying healthy.
We reported solid financial results for the first quarter of 2021 that she'd low global markets, while continuing to successfully execute on our strategic growth plan to expand our geographic and asset class footprint broaden our customer reach diversify our business mix with recurring revenue and leverage our superior technology.
As expected we have more difficult comparisons this quarter against last year's record first quarter earnings when we saw exceptionally strong trading as the COVID-19 pandemic began sweeping the globe.
For the quarter net revenue was up 2% and adjusted earnings per share was down 7% year over year.
However, we saw very strong sequential growth across business segments with net revenue up 19% over the fourth quarter of 2020, and adjusted EPS up 26%.
Our solid results were driven by record trading in multi listed options and continued growth on a recurring non transaction revenues as well as the contribution from the acquisitions, we completed in 2020.
I want to update you on the progress we made this year on for key incremental growth drivers I highlighted last quarter on.
Our plans to launch Siebel Europe derivatives the.
The opportunity to grow recurring non transaction revenue.
Our plans to expand bids trading and efforts to extend across to our products and services, including retail.
First I'd like to take a moment to highlight a few market dynamics, we saw during the quarter.
With increased certainty around the political landscape for.
Progress around the vaccine rollout.
Reopening of businesses at various companies returning to work, we've seen institutional investors reengage with our index options and volatility products. This year.
Quarter over quarter volume increased by 63% and VIX futures, 29% index options and 15% in SPX options.
In Europe, our successful Brexit transition and the reintroduction of Swiss trading on our UK market helped us achieve some notable records across our suite of European equity products during the first quarter.
People Europe periodic auctions had record average daily notional value traded of one 3 billion during the first quarter up 5% year over year.
Additionally, C L. I S. Our European block trading platform powered by bids had record market share of $24 one per cent up from 22, 7% market share one year ago.
As clients have recalibrated their models and readjusted to the new trading landscape in Europe.
Pleased to see that our overall market share has increased to 17, 9% month to date in April our highest since July of 2020.
We are maintaining our focus on investing in long term growth building on the strong foundation, we laid last year and are excited about the momentum we are seeing across our business.
Last month, we announced plans to acquire checks Asia Pacific, which will provide sito with a single point of entry into true the world's largest securities markets, Australia and Japan.
I'll touch on this exciting deal on a moment.
But first let me update you on key incremental growth drivers I noted earlier and how this planned acquisition complements several would be discussion initiatives.
I'll begin with the progress we've made growing non transaction revenues during.
During the first quarter, we achieved 17% growth in recurring non transaction revenues exceeding our expectations.
This increase includes organic growth of 14% for.
Ryan will share additional details later on the call, but we are increasing our 2021 growth target for organic recurring non transaction revenues to a range of 10% to 11% from a range of 6% to 7%.
One of our top priorities remains the continued global expansion of our data analytics offering and last month, we announced the creation of CFO data and access solutions, a new division that will lead our charge to become a global leader in data and analytics.
Led by Catherine Clay This new division combines our information solutions and market data and access services teams into one group that create an optimized offering for our global client base.
This holistic solutions is expected to enable customers around the world to seamlessly access all those see those expanded capabilities.
<unk> global indices.
<unk> solutions, as well as data market and risk analytics to a unified offering.
Additionally in connection with the planned China ex acquisition, Kathy will lead our effort to build the first truly global equities market data platform that is expected to offer data from most major markets around the world.
We recognize that as the trading environment becomes more globalized customers, who on greater efficiency in the market infrastructure services. They require and our goal is to align our business to address these client needs for global data and analytics. We are excited about the continued evolution of this business and believe the new data and access solutions group.
Will create opportunities for further grow our base of recurring non transaction revenue Kathy.
Kathy is a tremendous leader with a track record of delivering results and we're excited for her to lead this team as we look to expand the business and our market data offering globally.
Turning to CBOE Europe derivatives yesterday, we announced plans to go live with this new market on Monday September six subject to regulatory approval.
We had originally hoped to launch this new venue in June and while we expect to be operationally ready for regulatory approval process has taken longer than expected given this initiative expands our existing capabilities into a new asset class.
We are working closely with regulators and continue to have a very constructive engagement with them most.
Most importantly, we have a critical mass of key market participants ready to support the exchange from day, one, including banks clearing firms market makers and proprietary trading firms will help contribute to the provision of liquidity and client order flow on the new market.
The team has worked incredibly hard to achieve our mission of creating a modern vibrant pan European derivatives market designed to grow the overall derivatives trading landscape.
Creating new opportunities for customers to express their investment for us and manage their equity exposure.
Our Pan European model will help provide market participants with the ability to access a modern onscreen derivatives market for one single access point, creating efficiencies in trading and clearing.
As previously noted while our 2021 revenue expectations for European derivatives on modest we are investing for long term growth and looking for a gradual revenue build as we gain traction and expand our product offering and unlock the potential we see for considerable growth in this market.
Moving to bids trading we.
We see significant opportunity to leverage the planned types Asia Pacific acquisition to bring bids industry, leading block trading capabilities to this new geography.
With bids current network covering major North American and European Equities markets. The planned addition of Asia Pacific Equities is expected to create a global block trading platform to serve a broader base of customers.
The expansion of bids into Canada is well underway alongside see those technology integration on batch now the Canadian Etfs, we acquired last year.
With bids extensive global network of more than 465 sided investment managers and sales side constituents. This innovative platform will play a critical role in achieving suppose mission of building one of the world's largest global derivatives and securities trading networks.
We also remain committed to extending access to our products and services through product innovation enhancements of our markets as well as expansion of our customer base, both institutional and retail and made solid progress on this initiative in the first quarter.
Last month, we extended equity trading hours on our etch ex exchange to allow for trading beginning at four am eastern time and the volume we are handling during this early market session has exceeded our expectations.
<unk> is now handling more than 11% of the volume during the early trading session.
Earlier. This month, we also received approval from the SEC to launch our innovative periodic auctions in the U S. Paving the way for us to provide customers with an on exchange alternative to op exchange electronic block trading by enabling them to trade in size, while helping to reduce market impact.
As I mentioned earlier, we continue to see strong customer adoption of <unk> related product in Europe, and we're excited to build on that success by providing a new version of this product for the U S customer base.
This long awaited approval on the U S was the result of our steadfast commitment to improving markets for our customers and we look forward to launching this offering in the third quarter of this year.
We are also planning to extend global trading hours for VIX and SPX options in the fourth quarter of this year as part of our 24 or five initiatives subject to regulatory review.
The length from global trading hours will complement our planned entry into Asia Pacific and are designed to help meet growing investor demand for the ability to manage risk more efficiently react to global macro economic events as they are happening and adjust SPX and VIX options positions around the clock.
The uptick in market engagement from retail and institutional investors alike reinforces the importance of our ongoing commitment to education.
Our new core derivatives curriculum from the options Institute has been met with positive feedback from early participants at all experience levels.
We've expanded derivatives education webinar series to include foundational knowledge on options pricing models and strategies and we are on track to launch our first set of online demand courses in June to further build understanding of derivative strategies and applications.
Additionally to meet customer demand for even more learning opportunities. The options Institute is expected to be launching the adjunct faculty program. This June the program features distinguished practitioners specializing in derivative products operations and risk management decision theory and research.
Turning now to our plans to acquire <unk> Asia Pacific we.
We believe this deal significantly advances our mission to build one of the world's largest global derivatives and securities trading networks, enabling the further expansion of our product offerings to a global network of customers.
We believe this exciting investment will complement our north American and European operations and provide a foothold in a key Asia Pacific region positioning us to become a truly global marketplace for our customers.
<unk> is one of the most successful alternative market operators in Asia Pacific with core exchange operations in Australia, and Japan, and a significant sales presence in the region.
Asia Pacific is an untapped market for <unk> and we are excited about the potential to offer our unique proprietary products and other services to clients in the region.
As I noted earlier the acquisition provides the opportunity for us to expand our global ex lease business, including bringing bids to the region.
Dave housing price didn't see both European and Asia Pacific operations will lead our planned expansion into the region working closely with placebo team and checks local management teams.
<unk> leadership has shown incredible commitment to innovation across market operations customer service and technology.
I look forward to leveraging the expertise of the team to expand sales geographic reach enhance existing capabilities and offer new market solutions to investors in the region.
The transaction is expected to close in the second or third quarter of 2021 subject to regulatory review and other customary closing conditions, we look forward to welcoming the <unk> team into the CBOE global markets family.
With that I'll turn it over to Brian.
Okay.
Thanks, Ed and good morning, everyone I hope all of you and your families are remaining safe and healthy.
Let me remind everyone that unless specifically noted my comments relate to <unk> 21, as compared to <unk> 20, and are based on our non-GAAP adjusted results.
As Ed just indicated we reported strong financial results for the quarter, our third highest quarter on that.
Adjusted EPS basis.
Earnings were down compared to last year's record high but we continued to build on the positive momentum we ended last year with.
We also continued to execute on our strategic initiatives and remain laser focused on building one of the world's largest global derivatives and securities networks to deliver enhanced value to our customers as well as our shareholders now a quick review of the quarter.
Our net revenue increased 2% with net transaction fees down, 7% and recurring non transaction revenue up 17%.
Adjusted operating expenses increased 26%.
Adjusted EBITDA of $250 million was down 6%.
And finally, our adjusted diluted earnings per share was $1 53 down 7% compared to last year's record quarterly results, but up 26% quarter over quarter.
Okay.
Turning to the key drivers by segment, our press release and the appendix of our slide deck includes information detailing the key metrics for each of our business segments. So I'll just provide summary thoughts.
The revenue decline in our options segment was driven by lower trading volumes and our proprietary products.
Offset somewhat by a continuation of strong trading in our multi listed options.
Growth in revenue per contract for RPC, and our index and multi listed options and growth in our recurring non transaction revenue.
The increase in North American Equity's revenue resulted from the addition of bids and match now which contributed total revenue of $12 $4 million net.
Sure.
Recurring non transaction revenue increased nearly $5 million or 16%.
With organic growth of 15%.
Okay.
The revenue decline and futures resulted from lower trading volume index futures.
The revenue increase in Europe, primarily reflects the addition of your S. D C P, which contributed $12 $1 million as Ed noted we achieved some notable records in European equities in the first quarter underscoring our successful Brexit transition and the reintroduction of Swiss trading on our market and.
You need to make meaningful progress on the planned launch of European derivatives. Overall, we are very proud of the European results this quarter given the challenging circumstances.
And finally enough ex the <unk>.
Revenue decline was due to lower a D N V.
<unk> and lower net transaction fees.
Offset slightly by growth in access and capacity fees. In addition, FX market share grew 80 basis points year over year to 16, 5%.
While not included in our prior year results I want to point out that the businesses. We acquired in 2020 achieved double digit year over year revenue growth apart from bids which had tougher comparisons.
Like our other trading venues.
We recently published historical volume and revenue capture metrics for your OCC T D.
It's trading and match now which are available on our website, where we post on a monthly volume statistics.
Turning to expenses total adjusted expenses were about $125 million for the quarter up 26% against last year's first quarter excluding.
Excluding the impact of acquisitions, adjusted operating expenses were up 8% or $8 million for the quarter.
Most of the expense variance related to the acquisitions with compensation and benefits.
While first quarter expenses annualize.
Our tracking below our current expense guidance range of 531% to $539 million.
Most of the variance is due to timing. So we are reaffirming our previous guidance for 2021 expenses.
As we mentioned on our last earnings call our plans for 2021 and beyond call for continued investments to drive long term sustainable growth in our business.
We started the year strong.
Cheating, 14% organic growth in recurring non transaction revenue well ahead of our targeted growth rate for the year of 6% to 7% like prior quarters. Most of this growth was driven by additional units for subscriptions versus pricing changes.
And as Ed mentioned, we now expect the organic annual growth rate in recurring non transaction revenue to be 10% to 11% for the year.
After incorporating our 'twenty 'twenty acquisitions, we similarly, now expect the total annual growth rate for this category to be 11% to 12% up from our prior guidance of 7% to 8%.
As a reminder, we define recurring non transaction revenue, it's accessing catastrophes plus proprietary market data fees.
In the aggregate we continue to expect the acquisitions closed in 2020 to contribute additional annual net revenue growth for years to 6% in 2021.
Moving to our expense guidance as I noted earlier, we continue to expect adjusted operating expenses to be in the range of $531 million to $539 million.
Furthermore, I want to reemphasize, our plan to invest approximately $24 million to $26 million this year to drive incremental and sustainable long term organic revenue growth and high conviction high return opportunities.
This includes our European driven as Buildout as well as investments to increase access to our existing products and services, especially growth on our index.
Options and futures by developing listing and distributing the products enhancing our marketing education and content and increasing our efforts to tap into the growing base of retail investors keep in mind, our current guidance metrics for 2020. One do not include the pending acquisition of Chi X.
We will update our guidance accordingly, once that transaction has closed.
Turning now to summary of full year guidance on the next slide we are reaffirming our guidance for depreciation and amortization effective tax rate on adjusted earnings and Capex.
A quick note on our effective tax rate, which was 27, 9% for the quarter slightly above last year's first quarter rate of 27 per cent and at the lower end of our guidance range of 27, and a half day 29, 5%. We are reaffirming this guidance under the current tax laws.
While we are not providing full year guidance on interest expense absent any additional borrowing a significant changes in LIBOR. Our interest expense for the second quarter of 'twenty 'twenty. One is expected to be 12 to 12 on a half million dollars.
In line with our first quarter expense of $12 $3 million.
Moving to capital allocation, our priorities have not changed as we remain committed to investing in our growth strategy, while returning excess cash to shareholders through dividends and share repurchases as you heard from our recent acquisitions as well as our pending acquisition of China ex underscore our conviction and our ability to.
Deploy capital to help enhance organic growth and strategic value over time, leveraging the robust infrastructure and technology at the core of our strong operating leverage profile.
From a capital return perspective, our strong cash flow generation enabled us to return $93 million to shareholders through dividends and share repurchases in the first quarter.
Playing to continue being opportunistic with share repurchases.
Our leverage ratio was unchanged at 124 times at March 31st versus year end 2020, we ended the year with adjusted cash of $264 million, reflecting in part higher balances associated with additional regulatory capital supporting growth in Europe.
Now I'd like to turn it back over to Ed for some closing comments before we open it up to Q&A.
Thank you Brian in closing I'm very pleased with the progress we've made as we continue to execute against our strategic growth plan and focus on building on one of the world's largest global derivatives and securities networks.
Earlier this week she both celebrated its 48th anniversary that.
For pioneering spirit that drove the creation of our company now fuels, our leadership as a global multi asset market operator, while every year has been remarkable on its own right. The on.
Precedented events of this past year have reaffirmed what I already knew.
The entrepreneurial and collaborative team spirit has always defined CBOE has never been stronger.
I am very proud of what we've accomplished as a team and I look forward to delivering on our vision as the year progresses.
With that I'll turn to Debbie for instructions on the Q&A portion of the call.
Thanks, Ed.
At this point, we'd be happy to take questions. We ask that you. Please limit your questions to one per person to allow time to get to everyone.
For you to get back in the queue and if time permits we'll take a second question operator.
Yes. Thank you.
Jim We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing vs. Just try a question. Please press Star then two this time, we will pause momentarily to assemble the roster.
And the first question comes from Rich Repetto with Piper Sandler.
Hi, Good morning, Ed and Brian and Chris.
First congrats on the on on the strong quarter here, I guess I'm going to skip the Allen.
Alan Danish expense guidance, but let me go to I think is net.
I'd like to focus more on and that would be.
The organic growth on the non recurring transaction revenue.
Just trying to dig under the covers a little bit more you know the guidance increase 50 to almost double.
And I'm, just trying to see what increased the momentum a little bit deeper between when you gave the guidance.
In February to now what did you see that was able to able to allow you to increase it so much.
Thanks, Rich, Brian why don't you jump in.
Yeah, I'll take that thanks.
Rich we are obviously.
Obviously very excited about this.
Obviously, the incremental guidance reflects our increased confidence in that growth rate and which was already strong obviously going in and as you recall the growth rate in the fourth quarter.
<unk> was also kind of that same kind of near double digit teen growth rate.
I guess, just kind of again lay out our investment thesis that we had that we talked about at.
At the end of the fourth quarter.
Results and basically you know that growth is not accidental.
Next our strategic approach and that longer term effort and it's starting to bear fruit.
When you think about the cash flow generation of the organization and where do you deploy that capital, which again a common theme that we wanted to make sure we laid out.
The expense guidance part of what we're doing with the cash flow.
Got you know hey, let's let's take the extra cash and let's put it in a soft draw it helped the growth.
Reflect the investment thesis is that our global client base is an increasing need for data and analytics and better access. So as you look at the details of where did that growth come from and what we're saying it's three parts it's growth in demand for access to our markets its growth in demand for our data and its growth in demand to our analytics and.
That suite of products.
On the access side and you look across primarily this is coming from the options North American Equity's on Europe business is we're seeing a little bit of a macro factor that increasing demand increasing activity, but we're also seeing you know the feedback that the firms are looking for more and more capacity as they potentially as they're expanding their trading.
The city.
On the data side, we're seeing incremental top of book sales, particularly in the on the equity strength and 75 per cent of that growth is actually international.
It's it's there is some you asked for the top of book sales are coming International and then the U S. We're actually seeing more debt to book, a I'll call. It more share of wallet demand coming through on the analytics side.
Is what we're seeing is that that whole analytics suite is starting to come together, we're seeing increased client demand for access for having that same provider. We're seeing growth on the silex platform, we're seeing growth in LIBOR Handbook ft options and trade what all of that is coming together from a similar provider again, we've talked about this before pre trade at trade post trade helping.
Provide that risk net.
Ex framework is really starting to bear fruits and where this is coming out.
On a go forward.
The increased guidance.
It reflects the strong pipeline and again confidence in our efforts and we're just going to continue to leverage our global net working and we're really excited to grow this part of the business.
Thanks very helpful. I was kidding about the expense [laughter]. Thanks rich.
Thank you and the next question comes from Dan Fannon with Jefferies.
Oh, Thanks, good morning.
My question's on M&A and capital allocation I guess just in general you didn't quite active over the last couple of years. So it would help to characterize the current environment.
And how you are thinking about M&A today, and then also do you.
You consider the suite of products within the umbrella and potential divestitures that may be weren't adds core now as maybe they were when you did or acquired them. This thinking about capex today.
Kind of.
Yeah.
Looked at growth from some of the strategies and outlook that you have it doesn't feel as if that's core to some of the things you're focused on today and growth has been relatively stagnant. So just thinking about holistically parts of the business maybe that aren't.
For two deeply important today that maybe it could be a source of funds at some point.
Sure Dan. Thank you let me, let me start with M&A in general we.
We made comments in the past and yes, you're right we've been quite active.
On the.
Data and.
Analytics solution, we said, we've kind of like where we are we're in full integration mode, Brian mentioned that pre and post trade solutions for our customers, we like that that's poised for further.
For further movement growth.
And globalization, so I kind of like where we are on that respect on M&A as for the other M&A you notice in the.
The core business for bus matching trades, if a region is opened for competition.
That makes sense for us to take a hard look at and with Japan, and Australia are new to the region, we like going into those regions, who are looking for alternatives.
To the incumbents in an open in an open way so we'll keep looking in that regard nothing imminent, but.
Certainly oh always on our radar, Chris you want to jump in on FX a.
A couple of comments on FX, we actually like that trajectory by the way, Dan, but Chris couple of comments.
Yeah, Dan Good question, we as Ed mentioned, we really liked the FX business, we've actually had a really strong growth rate. The last three to four years, while the market overall market volumes have not grown that much our share of the market has grown our share of the wallet has grown we've used data and analytics again to grow our share and get closer to our customers.
Also added some non transactional revenues there, we've launched non deliverable forwards or SaaS growing nicely and our full amount platform. So we we really like the FX business and even as you know regarding other M&A that we have announced if you talk about Chai ex Asia as well.
Looking to close that hopefully soon you know it opens up opportunities not just in the equities asset classes that we know of those existing businesses, but there's also we think more opportunity across our other asset classes, including FX as we really move into the Asian region.
Thank you.
Thank you and the next question comes from Alex Kramm with UBS.
Yes, Hey, Hello, everyone just want to come back to the recurring revenue growth outlook, you sound pretty confident but I think you just acknowledged early a couple of questions ago that there are some macro factors of play. So just wanted to flush out what the risk is that this has massively benefited from you know the activity we've seen the first.
Quarter end last year, all this retail upsides and and watch what could come off again and related to that I know the Sip revenues are not part of that is recurring guidance, but I think chip revenues for I think the pool really went up a lot on the first quarter I think some of that was driven by retail so again.
Curious how if you if you have any insights that that size of the pool of sustainable where it's sitting right now thank you.
Yeah, Bryan Bryan you might start with recurring Crystal Kristian will move into the ship.
Yeah. So thanks, Alex I would say that.
As you think about that retail participation, that's not really driving.
Some of the access that we're seeing.
From the the growth.
And that's again, that's growing across all the asset classes, it's not just kind of have the the retail effort or maybe in the equities are the options. So we're seeing it again across all and again, we can't necessarily point, here's a macro factor here is the internal kind of the growth driven.
Of the of the firms themselves.
But like I said.
As for him to have grown this capacity and they continue to execute their trading strategies.
They have not indicated any change like I said, we still feel confident in sustaining that overall level of participation and access into our market. So.
Like I said.
It's hard to predict you know the growth rates you know in any one particular quarter, but overtime, we still feel pretty good overall again that macro factor, we can't ignore it but we don't think it was the primary driver of our growth.
Yeah, and Alex just quickly on the ship as well, we we haven't really projected ship.
Overall, Sip market data pool growth for a while once you know quarter to quarter there'll be some market day to recoveries to come through but as Brian mentioned and quite a bit of detail already our growth in non transaction revenue has primarily come from.
Access people needing more capacity to our markets as well as data that's unique to us that we're selling.
Here and around the World and you said 75 per cent coming from outside the U S. So on.
On certain products. So we're we're excited about that our growth plans in non transaction aren't aren't dependent on the ship.
Very helpful. Thank you.
Thank you and the next question comes from Ari Ghosh with credit Suisse.
Hey, good morning, everyone based on.
So it looks like you know somebody on recent transactions are coming together for more cohesive strategy across your business lines I believe leveraging.
For example.
Curious on the other areas, we see similar opportunities with a newly acquired assets and then Brian you touched on this a little bit but curious if you know the higher restarting growth outlook that you now have you know does that you said potential cross sell opportunities that that's you know that could come through some of these assets or is it primarily is moving.
As all of you know on the.
Standalone assets on run rate since the acquisition. Thanks, so much.
Alright. Thank you let me start it's.
It's great and I appreciate you pointing that out certainly now if we look back over our activity over the last 18 months or so I hope the story is coming together in your head. So exactly right. We're just so pleased yesterday to announce the launch of European derivatives that was an effort that we began well on.
Over a year ago, and being able to come to market.
In September is quite exciting.
And then taking the incredible leadership that David housing. This he shepherded that effort with Eddie Cordell in Europe, being able to take David's expertise and.
Have him oversee the integration of Chi X. It makes perfect sense for us on a build out but importantly, you can see the effect and the vision, we had with our purchase of bids or partner for years in Europe being able to move into Canada.
With our match now a T S acquisition, and then now moving that network and reach into the APAC region. So it is just terrific and putting a bryan harkins in charge of that growth in net rollout I think we're well positioned to take full advantage of all of the deals that we've expressed to you over the past 18.
10 months. So it's great. It is coming together I appreciate you pointing that out I'm on.
Let me turn it over to Chris.
Yes.
I just want to point out again, just the demand for bids in other regions in other countries is palpable as we announced our match now.
Acquisition and that integration, which is coming here February 1st of next year. The demand for beds is extremely high there.
We've already seen that Oh, we're not closed yet with Tri ex Asia, but as Ed mentioned.
A lot of demand in Asia for bids also so there's 460 buy side participants on bids and we think that can grow substantially trading you know existing products of bids already trades, but also across new securities in different regions on I'll end with you know all of this.
There's data and access related to each of these markets on each of these different trading networks that we have so that's that's underpinning our actually outcome that outcome of all of these all this coming together is that you see the non transaction over performance.
Got it.
Sure.
Thank you and the next question comes from Chris Harris with Wells Fargo.
Great. Thanks, a lot.
Hey, Ed you mentioned that our customers are beginning to come back to the proprietary product suite in a bigger way I'm wondering if you can expand on that a little bit maybe talk about what you're seeing there and then related to that do you think the shape of the VIX curve and other dynamics that were affecting the complex are now healed.
It's a great question and we do I think on the macro level. This is exactly what institutions.
We're telling us from the second half of last year and of course, we were passing that information along to you I think know no better place to look is that SPX volume as it is right around one 2 million contracts a day very consistent for the first four months of the year. What's been interesting is to see the VIX options a growth in the first.
For the year and that's changed a bit in.
In April and really the efficiency of our institutional users who saw a an advantage using VIX options at a time, where the difference between realized volatility on implied volatility buying ball and the exposure of VIX options is relatively cheap and so we saw institutions.
The big way move to using VIX options for hedging purposes. That's changed now in April as we're looking at a more normal realized two implied vol level. So that's that's exactly.
The right move from our institutions, so that really be having at a very logical way and then the overall levels of VIX.
In the fourth quarter really about 25, 5% or so.
Quarter about 'twenty, three and then if you take out today.
Right around 20, or just below 20, so moving toward more normal contango shape, which should kick in the roll down trade that we've seen in years past. So this is exactly what we expect out of our institutions and no reason to think that that won't continue so I.
We share that question.
Thank you and the next question comes from Owen Lau with Oppenheimer.
Good morning, and thank you for taking my question just a quick one from me how should we think about the incremental financial and non financial impact to Siebel Wendy hours for SPX and VIX options I'll expand it potentially in the fourth quarter of this year. Thank you.
Thank you Christian I'll give a little background on how we're doing on 'twenty on our near 24 five effort. Yeah on great question. So we're really excited about 24 by five this hits on one of the major themes, which is greater access to existing customers, but also access to new customers. So as you said, we we plan to launch in the fourth quarter.
Pending regulatory approval working very hard on that.
We already trade VIX futures 20 for Bai five and this will get us to nearly 24 by five for SPX and VIX options and we've we call. This global trading hours outside of the U S hours, we saw actually more than 100% growth in that segment in SPX options last year year over year and so.
We're excited that we incur.
Tracy access.
So will the volume come.
As a bit of a precursor to that we we extended our U S equities hours to for a M. Eastern on opening up three hours earlier.
We've seen quite an uptick.
And number of customers on our market share coming there kind of exceeding our expectation. So the world is 24 by seven.
And.
And in every asset class for moving in that direction. So we're we're meeting customer demand as.
As we do so my I'll hand, it to Brian for maybe the financial impact here.
Let me, let me jump in one more time and again I think if you look at the M&A activity and important to note.
We've I think really outperformed particularly on the market data sales in APAC, we have a very very small team who's who works very very hard, but having a presence with Chi X now and really sales team on the ground the timing of 24, five and the awareness that there is demand for exposure.
And for the U S year round the clock really comes together nicely if we look at hoped.
Hopefully the approval and closing of Chi X. So it's coming together for us a pretty nicely, but yes back to you Brian.
Yeah, just I wanted to just mention that that's part of that effort is built into our investments that I mentioned upfront as.
As far as the broadly.
Now as far as the you know the revenue expectations again, it's it's been a more muted as we roll that out and again. It's later in the year the annualized impact. So again, it's building it's part of a building a very broad.
Access again as Chris mentioned to.
For the global network and people continuing to take advantage of increased access to the overall product suite, obviously, including the proprietary product suite, so more muted on the revenue side.
And in 2021, and the full burden of the expenses.
It is this year.
Alright got it thank you very much.
Thank you and our next question comes from Brian Bedell with Deutsche Bank.
Great. Thanks, good morning folks.
Maybe just I'll go back to the global data platform concept and on if you could just maybe talk about sort of the timing of of developing the more cohesive.
Platform, which it sounds like what you're trying to do with again all of the market data that you trade both on the proprietary side and also that I can think of.
Yeah, both U S and even European markets, where you.
You know you have a lot of data for for them for for things that you don't trade.
But maybe if you can talk about how you view those proprietary angles.
And shifting that that sales from individual pieces of the day that you do a more you know cause.
Cohesive global product that you can sell.
So instead.
Institutions, and whether it's you view that debt as more of a content sale or you know do you view yourself as getting into really distribution of that content and starting to compete with some of the.
Distributors of data down the road.
Christopher I'll start.
Yeah, I love to so obviously, Brian you recognize we we put together the data and access solutions group under Cathy Clay tremendous leader, we've recognized this opportunity that we need a cohesive and well package data offering globally on Kathy is leading the charge there and.
And so I would say, we're maybe early to middle innings on this effort. So we bought Hamrlik F. T trade alert last year were fully you know nearly fully integrated there will be done by the end of this year now we're putting that together with the real time data coming off of our.
Coming off of all of our exchanges as Brian mentioned, 75% of certain.
Certain products are being sold outside the U S. Now so it is coming together, but it's still I think middle innings.
Technically we are bringing it together, but from a packaging perspective.
On getting the access from the distribution writers were excited about doing that.
I had also mentioned you know we the way in which we're getting to customers. We want to make sure we get to them not just the existing customers with more well packaged data.
In a way that they can they can act upon but actually new customers. So that may not have current access.
Using the normal maintenance that you might have so also ex exploration of of efforts to use the cloud and whatnot.
To get to new customers. So we have an incredible amount of data in a unique position now when we hopefully close the China ex Asia acquisition on this global derivatives from security in that work with you.
And unparalleled amount of data coming from the equity equity platforms put that together with our deep analytics and.
We're very excited about this but early to middle innings as we've just for them This group altogether on or Kathy.
Brian I'll just stay away and this is John also there.
You think about the acquisitions, we've done over the past 12 to 18 months.
Generally they're all either productive of data produces a data or there are data packaging and distribution platforms and so.
We think about them as a cohesive whole you've heard a lot of talk about this today I mean, what we're seeing right now in terms of the performance and the raise on the forward for God and non transaction revenues is just.
It's increasing return to that scale and scope.
And we can give you.
You know some direct examples of that for example, this past quarter, we had a win on.
A sizable consulting agreement with a global top tier buy side firm to.
To look at top to bottom there are the risk systems debt is likely to lead to a mandate to just sort of look at all of that and replace substantial components of it because we've got a package that really works well.
Well together.
And we look forward to continuing that globally again is we have a footprint in Europe, and Asia, and North America that sales effort.
It should be a.
Much more routine for us.
Let me now begin to you can.
Finish up on also Brian it's important we're on the lookout always for new sources of data as well on.
On a twin routes, Great example of us moving into crypto currency market data.
That is just an incredible opportunity for us to look at the potential of derived data and crypto the analytics associated with it in real price data. So theres more to come we're just getting this up and going.
As soon as we think about the out years 'twenty to 'twenty, three I know, you're not giving guidance there yet, but it sounds like it would be a good tailwind to the recurring net organic recurring revenue growth rate in your next year and beyond.
Okay. Nobody answered that question Thats too forward looking Debbie is gonna be mad at Us Brian.
Hum.
Yeah.
Alright. Thanks.
That's true.
Yeah next question comes from Ken Hill with loop capital.
Hey, good morning I'm on.
I wanted to ask about ESG I didn't hear anything on the comments today, but I know that's an important initiative within C. Bo.
Just given the breadth of capabilities and exposure you guys have across Europe, where that seems to be a little more important than the U S and heading in Asia.
Are there any opportunities you're excited about either from a transaction on product or maybe something on the data side that could resonate a little bit better going forward.
It's a great question, let me before I turn over to John on.
On the product I think it's important for us to recognize where.
It's very top of mind for all of our associates and what that means to see bow before we even move to what's tradable what industries are out there and how our customers can take advantage of investing in ESG.
Important for me to mention that on the front end.
This is a big deal for US. It's a report that's very important to us I just reviewed the report that we're about to send out and all of our associates. This is top of mind. So I want to start there John want to move to whats tradable and some of our index partners and the opportunities we see.
Yes, Thanks, Ed Hi, Ken.
It's point it really does start at home are we want to walk the walk and talk the talk.
And that gives us really insight into the thought process behind ESG. So we can have intelligent conversations with our partners.
We will be proceeding forward on ESG product, whether data products or tradable products together with partners.
That has always been our Forte and you think about the partners we have.
Today, our deepest partnerships.
FTSE Russell MSCI S&P.
For those partners are all making.
Making substantial investments in ESG and leading the way into the future here. So we fully intend to leverage what.
What they've built and create a really interesting value added products off of those partnerships and you'll see many of those come to light over the next couple of quarters.
Got it thanks for all the detail there.
Thank you and the next question comes from Kyle Voigt with VW.
Hi, good morning.
Just wondering if I can ask a follow up to an earlier question around the customer Reengagement and the index options complex. So if I just take a step back index options volumes.
<unk> been relatively flat since 2017.
That's after a long track record of double digit volume growth.
I know in the past there were efforts at CBOE to gather more information and detail on your end clients really try to understand who is using products from y I'm.
I'm wondering if you have any color on how the institutional options client mix has changed over the past few years and whether the reengagement that you're currently seeing as the type of Reengagement that you think can really reaccelerate that complex back to that double digit type of growth rate.
Well, that's a terrific question I think what the biggest observation. We see is the change in the size of the contracts that are coming into the SPX complex. It's quite remarkable those really really large trades that we saw before the pandemic have been replaced with.
With a smaller order size in general, which is very telling to us and then in the.
Super short dated and low premium contracts huge uptick in what we'll put in a category of traditional retail that is retail access that's been around for years.
But what has been missing in the SPX.
VIX options are many futures excess P. R mini SPX and what we're looking at is is to accommodate new retail, which still does not have access to our proprietary products debt. So the rotation through smaller order size the rotation of more traditional retail.
It is what you see today and at one point to roughly $1 2 million.
Contract a day and we're still working on providing access to retail, which we think are the more you look at our many products and the more we allow or they allow access for their clients into SPX I would predict that you'll see.
A movement like traditional retail out of new retail. So that's our goal that's what we're seeing today. That's the biggest change I can tell you is trade size.
Okay.
Thank you and that's kind of a follow up from rich Repetto with Piper Sandler.
Yeah, Hey, and this follows on the on the last question I guess.
And the other trading question earlier, but it seemed like in April are somewhat flipped the switch if you look at the VIX chart, you know we were running.
On 'twenty and in April 1st, we just sold a dropdown and volume.
Volume had lightened and I guess any color or indication you know it seems like we've had the stair step down with VIX and the outlook for you know.
The pickup in training we saw on the first quarter I think there are there is some concern that with the pandemic.
And people are not as exposed to work from home et cetera that we may see some lightening of the volumes as we go on to the summer day.
Any way your outlook on.
On volumes as we hit the sort of patch in April so far.
Just volumes overall rich.
See a little of the volumes are retreating a little bit, but you know a couple of weeks just not for our opinion a trend make I actually like the momentum, particularly at retail that would kind of spending some time on non.
Not surprisingly individual names the attention that individual trading has had it has raised vol across the spectrum.
So if you are providing that liquidity in the most volatile single names Youre looking for macro lay off as best you can that had that had raised.
The interest for us on what we saw in a O N E. G fees, we saw that index options as I said before the you really were buying implied volatility a discount of what the market was trading at that fence go onto a more normal relationship again, if we put today out of the mix.
But then what we would expect traditionally is if that volume I'm, sorry, if that ball went to a more historical contango shape, we will see the role that we shouldn't see the roll down on trade again so.
So from our proprietary product perspective.
We just see that as a normal rotation the single name excitement being replaced with more macro as volume contracts a bit and then going back to a shortfall capture trade on a roll down trade and going back to a more normal cadence, but it'll be interesting to see I think the uniqueness of <unk> is having a product for any market environment.
And that's not different so again and let me add a little one more comment on retail where after sustainable volume in retail there's gonna be flashes and we're gonna have headlines is gonna be interesting stories and shiny objects in the corner, where after a what education can provide and it before.
For the long term investor and the retail on vessel, that's gonna be here year on year out. So we don't really chase those spikes, we chase sustainable growth.
And that's what that's what that's what we're after so I appreciate that.
Got it thank you very helpful. Thanks.
Thank you and then next we also I'll follow on from Alex Kramm with UBS.
Yes, Hello again.
I wanted to ask a question then I feel like I ask every few quarters.
And it also pertains to the proprietary products and maybe some of this was addressed already but Ed and team you always still a very good job talking about the macro and what the investors are doing on clients are doing and why and what we should be looking for but I feel like what I still always Miss is you know any sort of things you can point to that the underlying customer.
<unk> customer base on structurally growing so I I don't know if it's like the market data on the access fees growing as a sign but with all the efforts that you've been putting in and investing into new sales efforts et cetera.
What what can you tell us where you see that there is a new clients new regions new people that are telling you. We're trading now we didn't trade a year ago, and and any sort of indication that that is still growing at a healthy clip or not thank you.
I think Alex you set me up perfectly with the data on the demand for data so from an institutional perspective.
The data and the back testing is first.
Before conversion so that's on.
Love that that's the kind of reflects some of the guidance we've seen as the demand for that data is increasing but again I want to I really want to punish the fact that we've seen no conversion.
From new retail zero, there's no access from the most popular new retail.
We love the story, we liked telling how the management of cash settled European style style contracts are super easy and so that that's the educational effort. That's what we're gonna be pointing at hopefully in the months and quarters to come.
But start with data in your head as we watch those numbers and then we will look for conversion from new retail that is a that is a good opportunity for us and one that will be chasing the rest of this year.
Oh I'll just jump in on on on one concrete example, as well while the on boarding for many of our proprietary products on the new platforms is a long process.
Process.
We every quarter every month.
Work towards extending access access is one of our key strategic objectives and a great example of that is the the target outcome product set.
Which in the past year or two went from.
Zero to over $5 billion on assets Overman at under management between our par.
Partners at first Trust innovator.
True market others.
That product set as a product set that are.
We really worked with our partners to create.
Through the whole chain of.
Mechanics that are required flex options silex century systems.
On the NAV calculation on the index as the guide those products all of those are things, we provide to our partners. So that they can offer access to our proprietary products through the wrapper of target outcome.
On a.
Target outcome funds and they've had needless to say in this volatile market great uptake over the last.
A year or so.
Okay, and just a quick point of clarification Ed.
You focused very much on retail again, just now that that is not I shouldn't read this as a reflection that you think the institutional opportunity stepped out right like it's just retail you think there's a lot more low hanging fruit is that right Oh, sorry, sorry, Alex the data reference was on institutional.
We tell that we've not seen a history of retail.
Back testing.
It really it is <unk>.
Access to the market, it's Super short dated.
So that is lower hanging fruit and I referenced traditional retail really being a big mover into the SPX complex over the last quarter quarters.
And pointing out that the low hanging fruit is the millions of customers, who do not have access to our proprietary product set that is not instead of an effort on institutions. John I think pointed out that the institutions the lead times longer and it starts with data back testing and drive that.
Yes, just making sure. Thanks again, thanks, Alex for clarification.
Thank you and our next question comes from trying to Oregon with Rosenblatt Securities.
Hi, guys. Good morning, and thanks for taking my question I just wanted to come back to the coin routes announcement from December 2020, I think a real price data was originally expected to be available in the first quarter of 'twenty one.
Can you update us on the progress there and expand on your plans to get involved with cryptocurrency more broadly.
Let me start with more broadly John you can go to the coin routes, but but as you look at we know market participants are looking for exposure in crypto access has to be the driver.
We've talked in the past, we're trying to build an ecosystem. So we start with access to market data. That's the coin routes agreement from there you know we have a vanek bitcoin trustee T F in front of the SEC, So we'd love to deliver on.
On a trusted and a trusted way and Etfs, which are really customer friendly and easy to understand and then throughout this effort we need a focus on education, we've not done that in a big way and then you know our way if you take the educated investor and retail access and then you move from.
On the ETF into satisfying demand for institutional participants.
So all of that pretty early innings, if you look at Chris Crypto more broadly and we're in it for the long haul I think John a couple of words on point routes.
Yeah. Thanks, that's a great question.
No.
Thanks, Ed Great question, Shaun So where we're actually live now on our CCC wide channel and see a semi with the coin rights routes are real price index is and we're excited about this.
A lot of great uptake and and touch point it really it starts with identifying the price.
The accurate prices, which at which you are.
You want to reference your crypto currency trading from there we add all the things we do as an exchange operator, so what we're solving for is that intersection between regulated exchange, operator, and and the really revolutionary crypto currency space.
And offering our broader services beyond just data to those participants.
That's great. Thanks, Thanks, Ed Thanks, John.
Welcome.
Thank you.
And this does conclude the question answer session I would like to return the Florida, Debbie Koopman for any closing comments.
Thanks Keith.
That completes our call. This morning, we think state your time and continued interest in our company. Thank you.
Thank you.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.