Q3 2021 CME Group Inc Earnings Call

October 27, 2021

Good day and welcome to the CME group third quarter 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to John P. Sir. Please go ahead Sir.

Thank you and good morning, everyone I hope, you're all doing well I'm going to start with the Safe Harbor language, and then I'll turn it over to Terry and our team for brief remarks, followed by your questions statements.

Statements made on this call and in the other reference documents on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance.

Involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied in any statements.

Mailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website lastly on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures.

With that I'd like to turn the call over to Terry. Thank you John and thank you all for joining US. This morning, we released our executive summary, as John says, which provided extensive details on the third quarter of 2021.

John Shawn Derik, Sunil Julie Winkler on the call. This morning, and we all look forward to addressing any questions. You have before I begin in addition to John who will discuss the financial results I'm going to have Sean and Derek can make some comments with all the recent news associated with interest rates.

Energy I thought it was important that they present this morning with that we delivered solid volume during the third quarter of this year as we averaged $17 8 million contracts per day, which was up 14% versus third quarter last year.

We saw year over year strength in our interest rates and energy businesses and saw significant options growth of 45% during Q3.

The average daily volume rose, 53%, including 78% growth in eurodollars, and 41% growth in treasuries.

As the expectations of future rate hikes has increased.

We continue to launch innovative new products tools and services to support customer needs, including additions to our suite of micro sized contracts that allow market users to customize their trading and hedging as well as ESG focus futures contracts that help manage climate related risks and.

In terms of specific products and services we.

We had two consecutive.

Quarterly ADB records and sulfur futures in Q2, and Q3 as the market continues to manage their interest rate risk ahead of key transition deadlines.

Bitcoin futures Adv increased 170% compared with the third quarter last year, either futures are also off to a good start since their launch in the first quarter of this year in September we launched the derivatives industries first ever sustainable sustainable clearing service to help market participants track and report on.

They're hedging activities are advancing their sustainable goals.

Finally, micro WT I am micro treasury yield contracts began trading in July and August respectively.

<unk> Ti contract represents the most successful commodity product launch in our history with over 1 million contracts traded within the first 20 days and a total of $4 3 million contracts traded since July 12 launch.

Most importantly, this innovative new contract is attracting new customers to our energy market as evidenced by the fact that almost 10000 micro wty market participants have not traded any other CME group crude oil product in 2021, you'll hear more about this in a moment from both Derek and Sean respectively.

In the third quarter non U S. Adv was up 13% to 5 million contracts per day, we saw 15% growth in Europe, 8% growth in Asia, 32% growth in Latin America, and 10% growth in the U S. Also during the quarter, we completed our joint venture with IHS Markit and together.

Their launch awestruck.

A leading provider of progressive post trade solutions for the global OTC market across interest rates equities, FX and credit asset classes turned into Q4, we have had a strong start so far in October averaging more than 20 million contracts, which is an increase of 35% month to date.

Compared to the same point in October last year interest rates and energy are up double digits with rates up 90% with that let me turn it over to Sean to give you more flavor as it relates to interest rates. Thank you very much Terry.

As Terry said the financials units saw a number of significant developments in the third quarter, particularly regarding sofer, the overall rates market and our scripted.

Our silver futures average daily volume grew to 124000 contracts per day in the third quarter up over 180% year over year and our open interest grew to over 1 million contracts up 140% year over year. Additionally, in the month of October we're seeing average daily volume of 227000.

So for futures contract and open interest of $1 2 million contract over.

Over the last 60 days, our silver futures Adv made up over 78% of the global sulfur futures volumes and our open interest represents approximately 95%.

Further on July 2019, alternative reference rate committee of <unk>, and our reserve endorsed <unk>, one month, three month and six month term sofa rates.

On September 19.

Jimmy began publishing a 12 month term so for rate as well.

And for access to our terms sofa rate is very high as we have already executed more than 100 term software licenses to market participant and we are currently working with an additional 300 firms who are also interested in licensing.

Or a fall backs for eurodollar futures and options have also been a very strong success since we finalized a roadblock back on March 29, Silver link to open interest includes so for futures as well as eurodollar futures and options that referenced in LIBOR rate, which will be set after June 32023, those contracts has grown from $11 8 million open <unk>.

On March 29, $16 3 million open interest as of October 25 up 38% further at the average daily volume of our so firstly futures and options in Q3 was $1 6 million contract representing 52% of Cme's total short term interest rate Adv.

In addition, our long held view view regarding the rates market environment continues to gain veracity using CME said washed will we can see the market is now pricing in a 60% chance of tightening by June 2022.

From just 17% just one month ago or washed tool also now indicate an 87% chance of at least two fed tightenings either December 2022 epilepsy meeting.

In Q3, the improving rate environment as Gerry said led to a 53% growth in our interest rates Adv versus third quarter of 2020.

Nonetheless rate volatility while higher in the third quarter of 2021 than it was in recent quarters remained historically quite low for example in the.

The eighth quarterly Eurodollar futures. It achieved just the 37th percentile of volatility versus a history going back to 2007.

And our 10 year notes futures achieved only a 25th percentile volatility rank showing the current volatility even in Q3 with very low regarding CME group's crypto offering first let me say the recent approval of Etfs based on CV declined futures is not only an important milestone for <unk>.

But also a positive development for the border bitcoin ecosystem.

This is a direct reflection of the strong growth in client demand for exposure to bitcoin I assume he's transparent deeply liquid and regulate and crypto currency futures contract.

The launch of Etfs based on Cme's futures as validation from the industry of what we've known for some time, a teeny bitcoin futures are the leading source of big price discovery in the industry.

Two new Bitcoin Etfs were launched just last week and.

And another this morning.

Both of which are based or all three of which are based on cme's bitcoin futures on the back of those launches our bitcoin futures October ADT has risen to over 12000 contract or over 60000 equivalent bitcoin with a record $3 5 billion per day up 57% over September. Additionally average.

Open interest in our Bitcoin futures has grown to a record 17433 contracts.

Up 70% versus September.

Our micro Bitcoin futures volume is also up 33% month over month and our average open interest is up 97% month over month with that I'll turn it over to Darrin.

Thanks, Sean as Terry mentioned at the top of the call. We have seen a strong return of activity in our global energy business in the second half of this year with both crude oil and natural gas prices hitting multiyear highs.

Overall this has helped our global energy business to deliver average daily volume growth of 18% in the third quarter led by energy options up 26% year on year.

<unk> futures reached the $84 a barrel Mark earlier this month for the first time since 2014 as OPEC maintained caution on production increases and as the U S shale steadily recovered from the 2020 decline.

Prices were further boosted from returning global demand as economies reopen in the U S. Gasoline consumption reached 10 million barrels a day in July, arguing all time monthly high.

Activity in WCS crude oil futures saw a 26% jump in average daily volume in the third quarter and 990000 contract. The WTO options average daily volume jumping, 45% to 129000 contracts.

This helped us to deliver strong daily volume growth in our refined products portfolio as well with a gasoline product volume up 20% to 196000 contracts in our heating oil products daily trading volume up 10% to 154000 contract.

This has helped set the stage for significant success that we've delivered with our micro <unk> futures contract.

On July 12 through this year as Terry mentioned, we surpassed 1 million contracts traded in the first 20 trading days, but we've already traded more than $4 3 million contracts since launch.

Most importantly, this innovative new contract is attracting brand new global customers to our energy market as evidenced by the fact that almost 10000 micro wty customers have not traded any other CME group crude oil product in 2021.

As new customers come from 118 different countries and represent over 50% of our micro <unk> customer base. So this has been a significant source of new client acquisition for us.

At the same time, we've also seen the natural gas market experienced the highest price level in over 13 years with U S. Henry hub futures hitting a high price of $6 45 earlier this month more than tripling in pricing from the Covid driven March 2020 levels.

The resulting increase in volatility has boosted our Henry hub futures business with September average daily volume of 496000 contracts up 11% year on year.

Henry hub options were particularly strong in the third quarter with average daily volume up 18% to 124000 contract achieving our best months of August and September ever.

Participation has been strong from our commercial customers and we've seen our natural gas futures and options open interest up to $6 2 million contracts in September which is the highest level we've seen since January 2018.

Overall, we're seeing that the investments, we're making in our product portfolio, our global client development and our technology pay strong dividends as market voluntary returns as our customer base managers their energy risks and CME group's global benchmark products.

With that I'll turn it over to John to discuss the financial results.

Thanks, Derek during the third quarter CME generated more than $1 $1 billion in revenue with average daily volume up 14% compared to the same period last year expenses were very carefully managed and on an adjusted basis were $412 million for the quarter and $355 billion, excluding license fees CME had an.

<unk> effective tax rate of 23, 3%, which resulted in adjusted diluted EPS of $1 60 up 16% from the third quarter last year.

Capital expenditures for the quarter were approximately $33 million CME paid out more than $300 million of dividends during the third quarter and cash at the end of the quarter was approximately $1 $6 billion.

At the start of September CME in IHS, Markit launched <unk>, our post trade services joint venture.

As a result, CME will no longer be recording revenue and expenses associated with our post trade businesses, but we'll be recording our share of the joint venture earnings in the equity and net earnings of unconsolidated subsidiaries lines on our income statement for the month of September CME would have recorded approximately $22 million in revenue and <unk>.

$11 million of expenses, but instead recorded approximately $8 million in our share of the adjusted earnings of the joint venture when you take into consideration tax implications and providing support services for the joint venture there was essentially no impact to our overall earnings.

Turning to guidance, we now expect total adjusted operating expenses for 2021, excluding license fees and reflecting the impact of our joint venture to come in at approximately $1 $5 billion down about $30 million from our guidance at the start of the year all other guidance remains unchanged.

<unk>, we are very pleased to say, we achieved our planned $200 million in cumulative run rate expense synergies related to the <unk> acquisition this quarter.

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

We would like to now open the call up the call for your questions based on the number of analysts covering US. Please limit yourself to one question and then feel free to jump back into the queue. Thank you.

Thank you. Thank you I'd like to ask a question. Please signal by pressing star one on your telephone keypad.

Please make sure your mute function.

Two layers takeout sweeter.

Again press Star one to ask a question well.

We'll go ahead and Peter first question from Rich Repetto with Piper Sandler.

Yeah, Good morning, Terry.

And good morning, John and team.

Thanks for the macro update because certainly a lot of things going on but.

On the bitcoin.

<unk> ETF Terry.

Besides just industry valid validation.

It was regulatory validation of both the CFPB and your regulatory regime, you have for the product as well. So I guess my question is.

What kind of.

Precautions are you taking it when I'm talking to position limits basically to ensure that you know that.

The roll in.

Is it as efficient as possible.

We know there's some volume being generated by the Isa ETF.

Manufacturers.

Rich. Thank you it's a great question and I appreciate you asking it but the Etfs as Sean stated.

In his comments I think are very exciting for to be based off of CME futures I think that in and of itself lends to the credibility of our product as a listed futures exchange and deregulation thereof to get more directly to your question around position limits associated with it. They are an important component to any credit markets. When you have.

Have a highly regulated entity like CME, so the existing position limits and our bitcoin futures today as you may or May not know is 2000 and for spot and then we have account.

Accountability levels going back into deferred months.

That are much larger than that but the spot month will go to 4000 in November and we feel very confident from a risk perspective that we are not being reckless in any which way shape or form that this has been vetted to our entire team here and with the agency. So we've filed for those changes were com.

That.

The product is mature enough now to increase the size of the limit so again.

We will be careful here rich this product we launched in 2017 19.

<unk> $19 17. So this is a newer product a newer asset class and we will be very very cautious here, but again, we're excited by the uptake in the credibility associated with Powershares in some of the other etfs that decided to benchmark against our futures contract.

Thank you very helpful. Terry Thanks.

Thanks Rich.

Hi, Dan that is star one to ask a question with your final question have been answered you may remove yourself from the queue by pressing star two well go ahead and take our next question from Dan Fannon with Jefferies.

Thanks, Good morning was hoping to get a little bit more color on expenses, John So the implied guidance with the adjustments.

Assume some pick up in the fourth quarter could maybe explain a little bit just in terms of the ramp in the <unk>, but then given all the moving parts as we think about next year I know, it's a bit early maybe.

Give us some framework to think about with the.

The JV coming out the synergies being realized within the broader kind of inflationary pressures we're hearing.

Across.

The employment and other kind of costs that factors to think about as we think about 'twenty two.

And beyond.

Yes, Thanks, Dan I appreciate the question so in terms of our expense guidance.

Did reduce our expense guidance after you adjust for.

The.

The <unk> joint venture.

By an additional $15 million. So we're about $30 million down from our original guidance at the start of the year when.

When you when you think about what we've done on the expense side.

The entire CME team has done an excellent job managing our costs. We continue to have that as a strong focus and to put kind of our expense management into perspective.

After adjusting for the creation of Australia were about $12 million down from last.

Last year's adjusted expenses at almost a $100 million down below 2019 levels.

When you look at our a reduction of the 15 million about half of that reduction reflects lower expected travel and in person events as you recall at the beginning of the year, we had about $20 million, we put into the back half of the year, assuming that we would be able to have additional travel but as you.

Can see there's still limitations on travel, especially international travel we have been seeing additional pickup in meetings.

Especially in in Europe, and London in particular, but still international travel is still a little bit tough in.

And the balances really of our of our.

Our reduction in terms of our guidance is just excellent.

Excellent continued expense controls by the entire team, including careful hiring and careful use of contingent labor.

Or would you take a look at 2024th quarter and 2021 fourth quarter, Yes, we do see a pickup in costs.

Fourth quarter is traditionally our highest expense quarter, historically marketing and advertising spend to be tend to be highest.

In the fourth quarter, along with higher project spending as we wind up the current year and prepare for the next year. The spending this year reflects that same pattern and we anticipated a higher than normal proportion of spend when we built out our spending plans at the start of the year.

We expect higher levels of spend in marketing and advertising, including targeting a portion of that spend on our successful micro products and anticipation of a more open operating environment. In 2022, we're also investing in system projects, including the migration of UBS and streaming services, which would lead to more technology related.

Costs also our incentive compensation is anticipated to be higher.

In the fourth quarter of this year than the fourth quarter of last year.

So those are some of the items, which are our.

Causing the fourth quarter this year to be higher than the fourth quarter last year, but overall for the entire year, some really impressive expense controls.

By the entire by the entire organization so in terms of.

Thinking about modeling for next year, we're going through the budgeting process now so it's really too early to provide guidance we.

We are hopeful for a more normalized environment, which would be positive for our business. When looking at 2022. There are a couple of things to keep in mind.

We did postpone salary increases in 2021 for our staff and we don't anticipate doing the same this year for.

For 2021.

Sorry for 'twenty, one 'twenty two also in an open business environment, which is obviously extremely fluid we would anticipate increased travel both regionally and globally and more in person events, which we would view as positive from a business perspective, but again in November it's a little tough to see that in 2010.

Two yet.

So.

We will provide some additional guidance when we do.

Do our earnings in.

In February we.

We are starting to see some of that open up like I mentioned before in Europe will continue to invest in our systems and technology capabilities with an eye towards accelerating growth globally.

It is our intention that we will continue our excellent expense management as we build out our plans for next year.

So that should give you a little bit of a flavor in terms of in terms of 2022.

Great. Thank you.

Thanks, Dan.

All right. We'll go ahead and take our next question from Alex <unk> with Goldman Sachs.

Thanks, guys. Good morning, Thanks for taking the question I wanted to dig into market down a little bit it's been flattish over the last three quarters.

I think there were some pricing adjustments that should have resulted in slightly better near term trends and maybe kind of.

Walk us through sort of what's been what's been going on behind the scenes and market data and how you're thinking about growth in that business going forward. Thanks.

Yeah.

Alright, Thanks for the question Alex the data business has really been quite stable as you point out. So this quarter coming in at a $145 million were up 4%, where we were in Q3 of 2020. So the number of professional subscribers that we're seeing for our real time business, which is the bulk of them.

Our revenue has been has been steady and the price increase that we saw a $5 per user has been realized the big difference that we saw between Q2 and Q3 results were really audit findings were down about $2 million, which again is quite difficult to forecast and one that.

It really just the timing of audits that we have underway with our client.

So.

Sean had mentioned to at the beginning of the call right a lot of the focus.

For the team, particularly the data sales team team has been on the terms Telfer right. We've got a tremendous amount of client engagement going on there with 100 licenses already done within the last quarter and 300 more in the Q. We are also continuing to see great.

Uptake of those non display policies and pricing that we introduced at the beginning of the year as well as our derived business performing very strongly and lastly, just continue to see adoption of our cloud offering with Google on smart screen. So I think the growth is is still there.

Yes.

Again, the real difference in Q3 with was based on the audit.

Got it thank you.

Go ahead and take our next question comes from Ken Worthington with Jpmorgan.

Hello, Thank you for taking my question.

Wanted to ask about open interest in the aggregate open.

Open interest is still hovering around 100 million contracts more or less.

And it's been anchored there for a little while.

And CME is it's been highlighting all these great things that have been happening we've got a ton of innovation a lot built in so for the build out at the micro products the strength in energy and in the macro you've seen some some rate movements at the 10 year in anticipation of higher rates at the short end of the curve.

Curve and you know the commodity super cycle and the huge debt issuance you guys have highlighted when do you think CME will start to see all these good things start to flow.

Into the open interest growth.

But what's the outlook windows the good translate into Hawaii.

Hello This is Terry.

It's Ken I am sorry, Ken It's Terry Duffy.

I'm going to let Sean comment and maybe some Neil as well, but let me give you a broad comment here. The open interest of 100 to 109 million contracts open, which I think is what you're referring to the trend over the last several.

Probably a year or so.

We came off of the high of 150, a lot of it's reflected in the interest rate business, we're going through a massive transition as Sean pointed out earlier from LIBOR to something else. We are suspected sulfur and people are trying to adjust associated with that we're also seeing.

The low vol still thats, even though we've seen an uptick in some of the things that you are referencing the volatility is still significantly lower not only in interest rates, but FX I'm talking from a historical standpoint that is changing you are correct. In your comments. The question is when does it reflect in open interest.

We believe there is open to the participants are in their participating but you got to remember our open interest today is a little bit different than it was just a couple of years ago. We didn't have weekly options on a lot of these products. We didn't have some of the exploration constantly coming on and off so people are taking exposures versus projected periods of time might be.

Days versus quarters like that it was historically, so we're seeing people manage their risk and a little bit different way and I think that's reflective of the open interest as well. So I think those are all a lot of factors going into a fundamental being the main one but a lot of it is some of the products. The way we offer people to manage risk right now, which I don't see that as a bad problem I see there is a good problem because open <unk>.

We don't get paid for what we get paid for transactions.

The way, we are restructuring and no I think that's a much more powerful offering but the open interest is a reflection of future trade. We've always said that the people and we still believe in that but at the same time, we're seeing people participated in the market because of what I, just outlined a moment ago with options and other products to transition from one rates to another the fundamentals and foreign exchange being extremely.

Quiet and we're also seeing massive directional changes in energy as Derek pointed out earlier, we went from just a year and a half ago to minus 3700 50 to $84 a barrel. So you think about the massive directional.

Participation in the marketplace has been truly one way and a lot of people. Just don't believe that you can go from minus $37 a barrel to $84 a barrel in a year. It app. So I think there is just an adjustment to the world that we live in today and people will again.

Participate and holding more and more open interest, but right now I don't see it as a bad problem because of what we what I just outlined and then I'll ask John to comment more yeah. Thank you Terry and thank you Ken for the question just very briefly in terms of the numbers.

Year over year, the open interest interest rates of 14% in equities, it's up 13% in foreign exchange, it's up 22%, so a very strong year over year growth.

In addition to that another number you know we track very closely as the number of large open interest holders as reported by the CFC. If you look at the second quarter of this year and if you look across the financials product rates equities and foreign exchange.

The average large open interest holder number across the second quarter was an all time record high for the combined three asset classes.

If you look at the third quarter, we beat the second quarter. So I've had two back to back all time record numbers of large open interest holders on average if you look at our interest rate business. The most recent numbers from the CFC indicate the rates business is just 1% below its all time high in large open interest holders in the foreign exchange business. Similarly is just <unk>.

A percentage points below its all time high so I think overall the marketplace is extremely healthy and doing well.

I don't know if well.

And I don't want to think we are dodging. The question because I think your question Ken is based on a $150 million of ally, which was a record open interest several years ago. So I think what Sean is giving you is coming off of a different base obviously.

So we don't want to be disingenuous, either but they are what they are we've gone through a lot here in the last couple of years with Pandemics uncertainty people I'm not sure how they're going to manage risk, but I think we're starting to see a return to that in John's numbers are reflective of that.

I think thats whats positive as far as the open interest are you guys.

Great. Thank you very much.

Thank you.

Alright, well take our next question from Chris Allen with Compass point.

Good morning, everyone I was hoping to get a little bit more color on Australia.

Just in terms of maybe what would the revenues that were included in the P&L of the P&L for <unk> before.

<unk> in September and also what would the year to date expenses have been kind of thinking about what's kind of the adjusted.

Starting point.

For us we kind of contemplate for next year.

Yeah. Thanks. Thanks for the question. This is John So yeah, we're very excited about the launch of ultra.

We think it's going to be very positive for our customers.

<unk> will be able to offer them.

New and innovative products improved workflow and analytics.

And also we're going to be.

Well positioned.

It didn't really support the global the global banks in.

In particular, so very excited about ultra we've like I said launched it in early September.

Got an integration plan that is being executed.

Right now.

And so far we've been I've been very pleased with.

The leadership, there and working with our partners at IHS Markit.

So in terms of the breakdown into.

And in more detail.

The impacts for the month of September and <unk>.

Which will which will be helpful. And then we could talk a little bit about what it what it looks like.

Kind of going forward so.

In terms of revenue like I said in my prepared remarks, it was about $22 million in in revenue for the month of September we would have booked had we not <unk>.

Launched OS drop of that $7 million is in transaction fees and $15 million is in the other revenue line.

From an expense perspective, it was about $11 million for the month of September about $7 million of that was in compensation and the rest.

It was split between technology other than pro fees.

In the equity and earnings section equity in net earnings of unconsolidated subsidiaries was $8 million in in that line now that $8 million is net of tax.

And then we had $1 million in in the other line in that section of our of our income statement.

Obviously, when we had the company before.

The formation of <unk> you'd have to tax effect.

The $11 million in operating operating income so when you when you net all that out is really no impact for the month of.

For September now looking at the expense level the expense levels have been very constant.

In the $11 million range.

So theres very little in the way of volatility over the last several several quarters.

$11 million per month.

Is a good.

It was a good run rate and then when you look at when.

When you look at the revenue.

If you looked at it for a full quarter. If you took the 22 million multiplied by three to give yourself a quarterly range quarterly amount of 66, if you look over the last.

Several quarters. The revenue has been in the $64 million to $66 million range per quarter. So those are those those would be the numbers that I would work with it.

In terms of in terms of run rates.

Thank you.

Okay. Thanks Christian.

Yes.

And we'll take our next question is from Owen Lau with Oppenheimer.

Good morning, and thank you for taking my question.

The volume of Bitcoin futures has been very strong Oi has been increasing.

There will be more be Confucius trading Daniel coming up could you. Please remind us the value proposition of <unk>.

E <unk> futures franchise, and why ETF and other institutional investors will continue to go to CMT instead of other trading values. Thank you.

Sure. This is Sean jumping in thank you for the question you May recall it was back in 2017 that CME group devised its new bitcoin reference rate, which has become an essential reference rate for the industry.

We also created a reference rate for ether. So these reference rates are highly used by the world now.

And again were created by <unk>.

In conjunction with partners.

That's one of the unique value proposition in addition to that.

We offer as you know.

Asset classes across the spectrum across the entire commodities spectrum across the entire financials spectrum across equities.

Rates and foreign exchange. So I think the combination of all of the products that we offer is enormous in addition to that we are a highly regulated we are highly transparent and we have an enormous distribution out to our partners CME group you I'm sure know as a 170 year history.

Of being the most reliable exchange in the United States the offer our partners.

So I hope I hope that that helps you understand some of the value competition I want let me just add to what Sean said, because I think it is important to you referenced the reference rates and Julie Winkler and her team constantly are looking at different ways to bring value to the company and this is just another example, and maybe the further on the prior question that you don't have to have transacted Bowl.

As in order to generate revenue in the future in these reference rates or something that had been very very helpful for CMA going forward and as Sean touched on but I think is really important to highlight is the regulatory aspect of cme's business, especially as crypto offering you can imagine there's many people that are now more and more every day looking for.

Some form of exposure as cryptos or becoming more and more acceptable.

Maybe the problem with that would be also the appreciation of the price of the product people are maybe a little bit more concerned about where they go to get that risk and they want to make sure. They're at our regulated platform. Another reason the credibility of having a highly regulated platform as a benefit not only to our crypto franchise, but the entire CME group.

Sunil.

One thing we wanted to add is that we have a very strong record of risk management, especially for both bitcoin and ethereum.

And we manage that through extreme periods of volatility seen even early this year. So.

This is this is true with every product that we bring to the market. We have a strong risk management experience and Shaun pointed that out we have over 100 units experienced bearing product at <unk>.

Got it that's very helpful. Thank you.

Okay.

We will take our next question from Kyle Voigt with CBW.

Hi, good morning.

So you spoke a bit about the LIBOR transition and the record activity in so for trading.

Gary it sounded a bit like the transition might be negatively impacting short term interest rate open interest at the moment. So I guess I'm just wondering as the transition continues over the next couple of years do you expect this to be a headwind to oi or volume over that period of time or is this kind of just a near term.

The impact.

The second part of that question, maybe for John do you expect any impact on net fee capture.

Youre short end.

Complex through the transition to sofa, and maybe you could talk about there any fee holidays or incentives in place for silver trading at the moment.

Along those will last.

So Kyle I think there was about three or four questions embedded in your.

Question between open interest costs.

Incentive plans, so I'll touch on Sean I'll touch on a few of those John and I will also I'll give you my opinion, yes. So thank you Kyle.

Right now with.

Huge growth in our silver futures and as I said, we're also seeing enormous growth in our eurodollar futures and options. So we're seeing both marketplaces grow in parallel side by side.

So that's actually a very exciting development as.

As you go into the next couple of years.

That will also increase and we expect to see an increase in the spread trading between the <unk> and the silver futures. In addition to that you may recall, we launched busy future not too long ago, where were also doing about seven 8000 contracts a day, depending upon the timeframe.

So the transition of the short term interest rate business to a new rate whether it is the busy for the term sofa or sofa, it's actually a very positive thing in regards to.

The inter commodity trading between or the spread trading between the different instruments. So thats actually a very positive development I also remarked earlier that we've seen enormous growth in the software linked products.

Again, with an adv of more than $1 6 million contracts a day in the third quarter. So that's growing very strongly in terms of incentives, yes, we have had incentives.

As anyone who follows us closely knows.

Whenever we start a market and so we have had significant incentives and our silver futures.

Over the recent quarters. The good news there is that means that thats already priced in to our revenues for the largest so.

We will expect to continue those incentives for a period of time, but as you can imagine as we have with all of our products you know the history I'm sure.

Our bitcoin futures and how we've reduced incentives here of micro E minis, and how we've reduced incentives there and how those rpc's grew pretty dramatically.

Those marketplaces got up and running so we would expect.

That as we get greater adoption of so for relative to your to the incentives and so forth would decline on a relative basis. So again.

Already spending a lot of money on incentives.

That's already baked in in the last 12 months.

And yes, we will continue to have some incentive spend.

I don't expect any kind of a significant increase John yes, thanks, Kyle and just to Echo what Sean said I think over over time.

The.

We believe that with the value proposition that we have and we are already seeing significant amount of trading happening in <unk>.

In Euro dollars post the transition date.

So I think our clients are very comfortable with our with the conversion program that we've got in place and in the fall backs. We've got setup. So very very excited about the.

Where what the what the team has done in terms of preparing us for the transition I think they've done a remarkable job and working closely with our clients to ensure that that happens in a very orderly fashion in terms of fees Sean's right. We do have.

Some in.

Market maker.

The programs in place it's embedded in the <unk>.

On the revenue that we've got right now over time.

We would view sulfur.

Being treated just like the rest of R. R.

Our short term interest rate products.

So I don't I don't see there being any unusual headwinds.

Because of silver versus any of our other short term.

Incentive products and this is something that we as a team.

Julie.

Sean myself, and Derek and others, we look at our pricing all the time to ensure that we are our pricing our products appropriately to maximize our top line and to create as much liquidity as we can across our platform 24 hours a day. Okay. Let me just wrap it up by saying, it's really fascinating to me that when you look.

Look at the trillions of dollars that is benchmark to LIBOR today, and we are asking the world to transition in a very short period of time into something else.

Now you can imagine just use an example look at the automobile industry, we're going to convert that but we're talking about a 30 year conversion, possibly we're talking about just a couple of years, we're going to convert trillions of dollars of assets benchmark to LIBOR into something else, which we believe we are in the strongest position of anybody to capture that risk.

<unk> said and that is with the products and Sean outlined now that will not be just a measure of open interest there will be a measure of many things as we go through this transition to me this might be the most exciting time in the history of interest rate trading that I've ever seen in my 41 year here at CME. So to me I am very optimistic about it but I will not judge.

On open interest alone I won't judge it on one particular issue alone. There is many factors that are going to go into this and Sean outlined some of the things that we have right now with not only on incentives but wood.

With the <unk> product with Bloomberg with the short term.

So if we're right and with the sulfur.

Futures and options and we think we're in a really strong position and one of them. One of the benchmarks is open interest Sean gave it to you. We are the leader in that one by a long shot so I'm very pleased with this transition.

Understood. Thank you very much.

Yes.

As a reminder that is star one to ask a question. If you send your question has been answered you may remove yourself from the queue by pressing Star Kim We'll go ahead and take our next question from Brian Bedell with Deutsche Bank.

Great Great. Thanks for taking my question just wanted to go back to the micro sized contracts in retail participation broadly.

I think.

While back it was I think retail generated.

Low double digits percentage of revenue.

I just wanted to see if there was an update on that and maybe how that's trended over the last couple of years since.

The creation of all the micro sized contracts and then I would imagine Etfs are considered an institutional customers given that he is actually trading but.

I don't know if you would put ETF usage.

And the underlying futures as part of retail maybe.

You could talk about it.

On a pro forma basis I guess, if that's if that's possible and then just how you think broadly about that success in launching more micro contracts across the franchise great question, Brian Let me ask Julie Winkler to make a few comments on that and the rest of the team. They play a lot as well. So it's really a go ahead.

Yes. Thanks, I know you are correct retail is a single digit.

<unk> from a customer communication standpoint.

Still a very we're on path for a very strong year in retail it's looking to be the second highest revenue year on record for us.

Participation there is definitely strongest in the equity of those micro products and performance is a bit subdued through some of the quarter until volatility has started to pick up a little bit and kind of mid September and since then we've definitely seen further uptick in the business.

But it also speaks to just the diversity of our suite right. So the retail adoption of things like our agricultural product has never been stronger than what we've seen this year. So AG revenue for retail and APAC was up 86% North American up 30%. So overall participate.

<unk> can you just is very very strong we're on pace.

275000 traders in our market this year likely only surpassed by where we ended last year, which was a record year.

We talked quite a bit as well about the new client acquisition in the space that has been strongest while we brought on 134000, new retail traders and.

Really looking spin.

Specifically when we looked at June July and August in 2021, we outpaced those levels that we saw in 2020 during those exact same month.

So we're doing that continues to be the same thing that we've talked about before it's really about driving that retail traffic to our digital properties. There we saw that activity more than double from where we were last year and also just the interest in our educational materials we've had.

About 1 million retail traders visit those properties through Q3, and which is great and our partnership.

Global broker partners that we have the education of the outreach efforts that they make.

Huge part of that in Asia alone our broker partners have reached about one 7 million active traders year to date and we've seen our digital educational events activities up over 178%. So I think it's that continued focus on really that retail go to market that.

Has kept the activity very strong.

Do you want to add.

Yes, no I don't think I have much to add frankly, we've seen very.

Got good growth in our micro treasury yields futures doing about 8000, a day, our micro E. Minis month to date doing about $2 4 million a day.

So nothing really to add Brian.

Brian kind of address all your concerns.

Yes, just on Etfs those are considered institutional I assume Ryan or is there any way to.

Think about just the bitcoin usage on the ETF I'm thinking you might get more retail participation de facto and that maybe just want to know if there's any way to pro forma would get more retail participation from there Brian Youre correctly are institutionally driven products Etfs, but the more liquidity that's pumped into the system by the.

<unk> players always attracts to retail participants and Conversely, the same way that larger pool of retail participants can can attract institutional participants. So we see it going both ways and we see this as an example of that so hopefully.

That answered your question, but I think youre right on John.

One additional comment.

In terms of the micro bitcoin futures, we are seeing huge growth on the back of the Etfs, So greater interest in our Microbitcoin futures. So month to date more than 27000 contracts average daily volume is significantly up from the year to date of 21000 as I mentioned earlier and open interest now at over 65.

<unk> contracts are micro mill.

So we've seen enormous growth in our micro products not just our institutional bitcoin futures most of the ETF launch so not to count on my colleague the proper thing to do on an earnings call, but I also would attribute a lot of that the fundamentals in the marketplace.

No crypto made an all time high last week of 60, plus 1000, which could be driving some of those micro retail numbers, but we do believe as I said earlier they work.

And units together.

Bring more volume on both sides.

Great Great Super helpful comments. Thank you.

Okay.

Okay, We'll take our next question from Michael Cyprus with Morgan Stanley.

Great. Thanks for taking the question. Good morning, I was hoping you could update us on your ESG and sustainability products, what sort of traction and use cases are you seeing there and maybe you could talk a little bit about the new product roadmap, what that looks like and if you could also elaborate on the new sustainable clearing services that I think you launched and made available in September.

<unk>.

Both great questions I'm going to ask Derek to touch on the product side MLS So Neil to touch on the clearing side so Derek.

Yes. So appreciate the question Michael So I think probably the easiest place to start in our material that we pre circulated on slide four you'll notice some very.

A detailed comments about some of the products that we've launched and what those mean to our franchise specifically on the environmental product side as you know we launched in August.

Nature based Geo contractor <unk> is the global emissions offset contracts that complements the geo contracts, we launched earlier this year and we continue to see significant traction there not just in terms of the traded volumes, but more importantly, the open interest that we are accruing and then the deliveries that we're seeing are these contracts as well so since launch.

We've actually now seen a peak we hit a peak open interest record of just over 10000 contracts on December 21st we hit a new record just on Friday, and what's important about that is while these contracts are now seen record open interest terms were also seen record amounts of physical deliveries of these offset.

Certificates as well so we'd now facilitated the physical delivery of 146000 offset credits across four separate delivery cycles, and just to put that into context for what that means for customers that are taking delivery of these certificates. That's the equivalent of 146 million metric tons of Cotwo equivalent. So this is a.

Market that started really about two years ago, we partnered exclusively as we've shared with you on previous calls with CBL expanse of the largest spark platform and the voluntary offset market in the.

And the carbon markets and we now are delivering record amounts of volume through the platform and delivery of these certificates grew four delivery cycles will have another one this week.

This is a new market, we just launched our nature based contracts in August of this year. So that's pretty significant traction early on there is a lot thats expected out of this conference in Glasgow Cop 26, and as we continue to work with the markets and connect.

Well, where we are now on a global basis of where these kind of go it's a complement to the work that we've already done and continue to do.

On the equity side, where we hosted the world's largest ESG contract by nominal value. Our S&P 500, ESG index futures, which has seen open interest above 4 billion notional value, which is pretty significant so when you look at the space, whether its army environmental product side. The traction that we're seeing in a market that we are at the cutting edge of developing that.

Voluntary carbon market side or our servicing the needs of customers that are looking for ESG compliant investment vehicles. We're leaders in both of those spaces. So we're happy with our positioning and feel like you've chosen good partners and I think the market as it adapts to a new world of carbon neutrality.

We feel like we're in a strong position there with the success we've already had.

Thanks, Derrick so Neil I don't know Greg, Yes. So thank you Terry so on sustainable clearing we've seen a keen interest from our clients to actually track their hedges.

They use our entire complement of products not just what Derek went through but they also use our interest rate and FX and equity products to hedge their exposure.

So what is important for these clients is to track their activity used to hedge the green investments as an example.

And we in clearing we provide them a mechanism to actually track those exposures and report on them.

This is this is a novel service.

We've just started with a group of clients and we look to expand it to a product line.

Hopefully that gave you a little bit of color on that Michael.

Great. Thanks, so much.

Thank you.

And we will take our last question from Simon Collins with Atlanta equity.

It appears there are no further questions at this time I would like to turn the conference back over to management for additional or closing remarks.

Okay, well, we thank you all very much for taking time out of your busy schedules. Once again, we wish that you and your families stay safe and healthy during these very difficult days that we're all dealing with and we look forward to talking to you next quarter. Thank.

Thank you.

This concludes today's call. Thank you all for your participation you may now disconnect.

Okay.

[music].

Yes.

[music].

Yes.

[music].

Good day and welcome to the CME group third quarter 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to John P. Sir. Please go ahead Sir.

Thank you and good morning, everyone I hope, you're all doing well I'm going to start with the Safe Harbor language, and then I'll turn it over to Terry and our team for brief remarks, followed.

So by your questions Steve.

Involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied in any statements.

Information about factors that may affect our performance can be found in our filings with the SEC, which are on our website lastly on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures.

John Shawn Derik Chenille, Julie Winkler on the call. This morning, and we all look forward to addressing any questions. You have before I begin in addition to John who will discuss the financial results I'm going to have Sean and Derek make some comments with all the recent news associated with interest rates and.

We saw year over year strength in our interest rates and energy businesses and saw significant options growth of 45% during Q3.

The average daily volume rose, 53%, including 78% growth in eurodollars, and 41% growth in treasuries.

As the expectations of future rate hikes has increased.

In terms of specific products and services we.

We had two consecutive.

Quarterly ADB records and sulfur futures in Q2, and Q3 as the market continues to manage their interest rate risk ahead of key transition deadlines.

They're hedging activities are advancing their sustainable goals.

Finally, micro WT micro treasury yield contracts began trading in July and August respectively.

Most importantly, this innovative new contract is attracting new customers to our energy market as evidenced by the fact that almost 10000 micro wty market participants have not traded any other CME group crude oil product in 2021 Youll hear more about this in a moment from both Derek and Sean respectively.

<unk> launched awestruck.

As Terry said the financials units saw a number of significant developments in the third quarter, particularly regarding sofer, the overall rates market and our effectiveness.

So for futures contracts in open interest of $1 2 million contract over.

Over the last 60 days, our silver futures Adv made up over 78% of the global sulfur futures volumes and our open interest represents approximately 95%.

Further on July 2019, alternative reference rate committee of <unk>, and our reserve endorsed <unk>, one month, three month and six month term self rates.

On September 19.

EMEA began publishing a 12 month term so for rate as well.

And for access to our terms sofa rate is very high as we have already executed more than 100 term software licenses to market participants and we are currently working with an additional 300 firms who are also interested in licensing.

On March 29 to $16 3 million open interest as of October 25 up 38% further at the average daily volume of our sale front linked futures and options in Q3 was $1 6 million contracts, representing 52% of Cme's total short term interest rate Adv.

In addition, our long held view view regarding the rates market environment continues to gain <unk> using <unk>. We can see the market is now pricing in a 60% chance of tightening by June 2022.

From just 17% just one month ago or washed tool also now indicate an 87% chance of at least two fed tightening by the December 2022 epilepsy meeting.

In Q3, the improving rate environment as Terry said led to a 53% growth in our interest rate Adv versus third quarter of 2020.

Nonetheless rate volatility while higher in the third quarter of 2021 than it was in recent quarters remained historically quite low for example in the eighth quarterly Eurodollar futures. It achieved Jack the 37th percentile of volatility versus a history going back to 2007 and.

Our 10 year notes futures achieved only a 20 percentile volatility rank showing the current volatility even in Q3 was very low.

Regarding CME group's crypto offering first let me say the recent approval of Etfs based on CV Bitcoin futures is not only an important milestone for our futures contracts, but also a positive development for the broader bitcoin ecosystem.

This is a direct reflection of the strong growth in client demand for exposure to bitcoin <unk> transparent deeply liquid and regulate and crypto currency futures contract.

The launch of Etfs based on CMS data point futures as validation on the industry of what we've known for some time, a teeny bitcoin futures are the leading source of big price discovery in the industry.

Two new Bitcoin Etfs were launched just last week and another this morning.

Both of which are based on all three of which are based on Cme's bitcoin futures on the back of those launches our bitcoin futures October Adv has risen to over 12000 contract.

We're over 60000 equivalent bitcoin with a record $3 5 billion per day up 57% over September. Additionally, average open interest in our bitcoin futures has grown to a record 17433 contracts up.

70% versus September.

Our micro Bitcoin futures volume is also up 33% month over month and our average open interest is up 97% month over month with that I'll turn it over to Darren.

Thanks, Sean and Terry mentioned at the top of the call. We have seen a strong return of activity in our global energy business in the second half of this year with both crude oil and natural gas prices hitting multiyear highs.

Overall this has helped our global energy business to deliver average daily volume growth of 18% in the third quarter led by energy options up 26% year on year.

Prices were further boosted from returning global demand as economies reopen in the U S. Gasoline consumption reached 10 million barrels a day in July marking an all time monthly high <unk>.

Activity in WCS crude oil futures saw a 26% jump in average daily volume in the third quarter and 990 <unk> contract. The WTO options average daily volume jumping, 45% to 129000 contract.

This helped us to deliver strong daily volume growth in our refined products portfolio as well with our gasoline product volume up 20% to 196000 contracts in our heating oil products daily trading volume up 10% to 154000 contracts.

This has helped set the stage for significant success that we've delivered with our micro <unk> futures contract.

On July 12 through this year as Terry mentioned, we surpassed 1 million contracts traded in the first 20 trading days and we have already traded more than $4 3 million contracts since launch.

New customers come from a 118 different countries and represent over 50% of our micro Wty customer base. So this has been a significant source of new client acquisition for us.

The resulting increase in volatility has boosted our Henry hub futures business with September average daily volume of 496000 contracts up 11% year on year.

Henry hub options were particularly strong in the third quarter with average daily volume up 18% to 124000 contract achieving our best months of August and September ever.

Overall, we're seeing that the investments, we're making in our product portfolio, our global client development and our technology pay strong dividends as market voluntary returns as our customers manage their energy risk and CME group's global benchmark products.

With that I'll turn it over to John to discuss the financial results.

<unk> effective tax rate of 23, 3%, which resulted in adjusted diluted EPS of $1 60 up 16% from the third quarter last year.

At the start of September CME in IHS, Markit launched <unk>, our post trade services joint venture.

As a result, CME will no longer be recording revenue and expenses associated with our post trade businesses, but we'll be recording our share of the joint venture earnings in the equity and net earnings of unconsolidated subsidiaries line on our income statement for the month of September CME would have recorded approximately $22 million in revenue.

An $11 million of expenses, but instead recorded approximately $8 million in our share of the adjusted earnings of the joint venture when you take into consideration tax implications and providing support services for the joint venture there was essentially no impact to our overall earnings.

To say, we achieved our planned $200 million in cumulative run rate expense synergies related to the <unk> acquisition this quarter.

Please refer to the last page of our executive commentary for additional financial highlights and details we would like to now open the call up the call for your questions based on the number of analysts covering US. Please limit yourself to one question and then feel free to jump back into the queue. Thank you.

Yes.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Denise Please your phone please make sure your turns.

Two layers to comes sweeter equipment.

Hi, Dan Press Star one to ask a question.

We will go ahead and take our first question from Rich Repetto with Piper Sandler.

Yeah, Good morning, Terry and good morning, John and team.

Thanks for the macro update because certainly a lot of things going on but.

On the bitcoin.

<unk> ETF Terry.

Besides just industry valid validation.

It was regulatory validation about the CFPB and your regulatory regime, you have for the product as well. So I guess my question is.

What kind of.

Precautions are you taking it when I'm talking to position limits basically to ensure that.

The role.

<unk> is as efficient as possible and we.

We know there is some volume being generated by the <unk>.

ETF.

Manufacturers.

Rich. Thank you it's a great question and I appreciate you asking it but the Etfs as Sean stated.

And his comments I think are very exciting for re based off of CME futures I think that in and of itself lends to the credibility of our product as a listed futures exchange and deregulation thereof to get more directly to your question around position limits associated with it. They are an important component to any credit markets when you.

Have highly regulated entity like CME, so the existing position limits and our bitcoin futures today as you may or May not know is 2000 and for spot and then we have <unk>.

Stability levels going back into deferred months.

That the.

The product is mature enough now to increase the size of the limit so again.

We will be careful here rich this product we launched in 2017.

$19 17. So this is a newer product a newer asset class and we will be very very cautious here, but again, we're excited by the uptake in the credibility associated with Powershares in some of the other etfs that decided to benchmark against our futures contract.

Thank you very helpful. Terry Thanks.

Rich.

Thanks, Good morning was hoping to get a little bit more color on expenses, John So the implied guidance with the adjustments.

Give us some framework to think about with the.

The JV coming out the synergies being realized within the broader kind of inflationary pressures we're hearing.

Across.

The employment and other kind of costs that factors to think about as we think about 'twenty two.

And beyond.

Yes, Thanks, Dan I appreciate the question so in terms of our expense guidance.

Did reduce our expense guidance after you adjust for.

The.

The <unk> joint venture.

An additional $15 million, so we're about $30 million down from our original guidance at the start of the year when.

When you when you think about what we've done on the expense side.

<unk> entire CME team has done an excellent job managing our cost we continue to have that as a strong focus and to put kind of our expense management into perspective.

After adjusting for the creation of Australia were about $12 million down from last.

Last year's adjusted expenses at almost $100 million down below 2019 levels.

Can see there's still limitations on travel, especially international travel we have been seeing additional pickup in meetings.

Especially in in Europe, and London in particular, but still international travel is still a little bit tough in.

And the balances really of our of our.

Our reduction in terms of our guidance is just excellent continued expense controls by the entire team.

<unk> careful hiring and careful use of contingent labor.

Take a look at 2024th quarter and 2021 fourth quarter, Yes, we do see a pickup in costs.

The fourth quarter is traditionally our highest expense quarter, historically marketing and advertising spend to be tend to be highest in.

Costs also our incentive compensation is anticipated to be higher.

In the fourth quarter of this year than the fourth quarter of last year.

So those are some of the items, which R. R.

Causing the fourth quarter this year to be higher than the fourth quarter last year, but overall for the entire year, some really impressive expense controls.

By the entire by the entire organization so in terms of.

Thinking about modeling for next year, we're going through the budgeting process now so it's really too early to provide guidance we.

We are hopeful for a more normalized environment, which will be positive for our business. When looking at 2022. There are a couple of things to keep in mind.

We did postpone salary increases in 2021 for our staff and we don't anticipate doing the same this year for.

For 2021.

We would view as positive from a business perspective, but again.

In November it's little tough to see that in 2022 yet.

So.

We'll provide some additional guidance when we do.

Do our earnings in.

In February we.

We are starting to see some of that open up like I mentioned before in Europe will continue to invest in our systems and technology capabilities with an eye towards accelerating growth globally.

It is our intention that we will continue our excellent expense management as we build out our plans for next year.

So that should give you a little bit of a flavor in terms of in terms of 2022.

Great. Thank you.

Thanks, Dan.

All right. We'll go ahead and take our next question from Alex <unk> with Goldman Sachs.

Thanks, guys. Good morning, Thanks for taking the question.

Wanted to dig into market down a little bit it's been flattish over the last three quarters.

I think there were some pricing adjustments that should have resulted in slightly better near term trends, so maybe kind of.

Walk us through sort of what's been what's been going on behind the scenes and market data and how you're thinking about growth in that business going forward. Thanks.

Alright, Thanks for the question Alex.

Data businesses has really been quite stable as you point out so this quarter coming in at $145 million were up 4%, where we were in Q3 of 2020. So the number of professional subscribers that we're seeing for our real time business, which is the bulk of the revenue has been has been <unk>.

Eddie and the price increase that we saw a $5 per user has been realized the big difference that we saw between Q2 and Q3 results were really audit findings were down about $2 million, which again is quite difficult to forecast and one that is really just the timing of.

Audits that we have underway with our client.

So.

Sean had mentioned to at the beginning of the call right a lot of the focus.

For the team, particularly the data sales team team has been on the term sell for rate they've got a tremendous amount of client engagement going on there with a 100 licenses already done within the last quarter and 300 more in the Q. We are also continuing to see great.

Uptake of those non display policies and pricing that we introduced at the beginning of the year as well as our derived business performing very strongly.

And lastly, just continue to see adoption of our cloud offering with Google on smart screen. So I think the growth is is still there.

Yes.

Again, the real difference in Q3 with was based on the audit.

Got it thank you.

Okay. We can go ahead and take our next question comes from Ken Worthington with Jpmorgan.

Hello, Thank you for taking my question.

Wanted to ask about open interest in the aggregate open.

Open interest is still hovering around 100 million contracts more or less.

And it's been anchored there for a little while.

And CME is it's been highlighting all these great things that have been happening we've got a ton of innovation Oi building. So for the build out at the micro products the strength in energy and in the macro you have seen some some rate movements at the 10 year in anticipation of higher rates at the short end of the curve.

Curve in there.

The commodity Super cycle, and the huge debt issuance you guys have highlighted when do you think CME will start to see all these good things start to flow.

Into the open interest growth.

But what's the outlook windows the good translate into Hawaii.

Hello This is Terry.

Ken Im sorry, Ken It's Terry Duffy I am going to let Sean comment and maybe some Neil as well, but let me give you a broad comment here. The open interest of 100 to 109 million contracts open, which I think is what you're referring to the trend over the last several.

Probably a year or so as we came off of the high of 150, a lot of it's reflected in the interest rate business, we're going through a massive transition as Sean pointed out earlier from LIBOR to something else will get a suspected sulfur and people are trying to adjust associated with that we're also seeing.

We believe there is open.

<unk> are in their participating but you got to remember our open interest today is a little bit different than it was just a couple of years ago. We didn't have weekly options on a lot of these products. We didn't have some of the exploration constantly coming on and off so people are taking exposures versus projected periods of time might be days versus quarters like that it was there.

Storage lease so we're seeing people manage their risk and a little bit different way and I think thats reflective of the open interest as well. So I think those are all a lot of factors going into it fundamental being the main one but a lot of it is some of the products. The way we offer people to manage risk right now, which I don't see that as a bad problem I see there is a good problem because open interest we don't get paid for what we get paid for transactions.

The way we are structuring it no I think thats a much more powerful offering but the open interest is a reflection of future trade. We've always said that the people and we still believe in that but at the same time, we're seeing people participated in the market because of what I, just outlined a moment ago with options and other products to transition from one rates to another the fundamentals and foreign exchange being extremely.

Participate and holding more and more open edge, but right now I don't see it as a bad problem because of what we what I just outlined and then I'll ask Sean to comment more yeah. Thank you Terry and thank you Ken for the question just very briefly in terms of the numbers.

Year over year, the open interest interest rates of 14% in equities, it's up 13% in foreign exchange, it's up 22%, so a very strong year over year growth in.

In addition to that another number we track very closely as the number of large open interest holders as reported by the CFC. If you look at the second quarter of this year and if you look across the financials product rates equities and foreign exchange.

The average large open interest holder number across the second quarter was an all time record high for the combined three asset class.

A percentage points below its all time high so I think overall the marketplace is extremely healthy and doing well.

I don't know if well I don't want to think we are dodging. The question because I think your question Ken is based on a $150 million of ally, which was a record open interest several years ago. So I think what Sean is giving you is coming off of a different base obviously so.

So we don't want to be disingenuous, either but.

They are what they are we've gone through a lot here in the last couple of years with Pandemics uncertainty people I'm not sure how they're going to manage risk, but I think we're starting to see a return to that in John's numbers are reflective of that.

That's what's positive as far as the open interest are you guys.

Great. Thank you very much.

Thank you.

Alright, we'll take our next question from Chris Allen with Compass point.

Good morning, everyone.

I was hoping to get a little bit more color on Australia.

Just in terms of maybe what would the revenues that were included in the P&L. The P&L for <unk> before the separations in September and also what would the year to date expenses have been kind of thinking about what's kind of the adjusted.

Starting point.

As we kind of contemplate for next year.

Yeah. Thanks. Thanks for the question. This is John So yeah, we're very excited about the launch of ultra.

We think it's going to be very positive for our customers.

It will be able to offer them.

New and innovative products improved workflow and analytics.

And also we're going to be.

We are well positioned.

It did really support the global the global banks in particular, so very excited about ultra we've like I said launched it in early September we've got an integration plan that is being executed.

Right now.

And so far we've been I've been very pleased with the.

The leadership, there and working with our partners at IHS Markit.

So in terms of the breakdown into.

And in more detail.

The impacts for the month of September and <unk>.

Which will which will be helpful and then.

Could talk a little bit about what it looks like.

Kind of going forward so.

In terms of revenue like I said in my prepared remarks, it was about $22 million in revenue for the month of September we would have booked had we not.

<unk> launched OS drop of that $7 million is in transaction fees and $15 million is in the other revenue line.

From an expense perspective, it was about $11 million for the month of September about $7 million of that was in compensation and the rest.

It was split between technology other than pro fees.

In the equity and earnings section equity in net earnings of unconsolidated subsidiaries was $8 million in in that line now that $8 million is net of tax.

And then we had $1 million in in the other line in that section of our of our income statement, obviously, when we had the company before.

The formation of <unk> you'd have to tax effect.

The $11 million in operating operating income so when you when you net all that out is really no impact for the month of.

September now looking at the expense level the expense levels have been very constant.

In the $11 million range.

So theres very little in the way of volatility over the last several several quarters.

So $11 million per month.

Is a good.

As a good run rate and then when you look at.

When you look at the revenue.

If you looked at it for a full quarter or if you took the 22 million multiplied by three to give yourself a quarterly range quarterly amount of <unk> 66, if you look over the last.

Several quarters. The revenue has been in the $64 million to $66 million range per quarter. So those are those those would be the numbers that I would work with.

In terms of in terms of run rates.

Thank you.

Okay. Thanks, Chris.

Okay.

And we'll take our next question is from Owen Lau with Oppenheimer.

Good morning, and thank you for taking my question.

So the volume of Bitcoin futures has been very strong Oi has been increasing but there will be more become future trading Daniel coming up could you. Please remind us the value proposition of <unk>.

E <unk> futures franchise, and why ETF and other institutional investors will continue to go to CMT instead of other trading values. Thank you.

The World now.

And again were created by <unk> in conjunction with partners. So thats one of the unique value proposition in addition to that.

We offer as you know.

Asset classes across the spectrum across the entire commodities spectrum across the entire financials spectrum across equities.

Of being the most reliable exchange in the United States the offer our partners.

So I hope I hope that that helps to understand some of the value competition I want let me just add to what Sean said, because I think it is important to you referenced the reference rates and Julie Winkler and her team constantly are looking at different ways to bring value to the company and this is just another example, and maybe the further on the prior question that you don't have to have transacted Bowl.

As in order to generate revenue in the future in these reference rates or something that had been very very helpful for CMA going forward and as Sean touched on but I think is really important to highlight is the regulatory aspect of cme's business, especially as crypto offering you can imagine there is many people that are now more and more every day looking for.

Some form of exposure as cryptos or becoming more and more acceptable.

So Neil.

One thing we wanted to add is that we have a very strong record of risk management, especially for both bitcoin and ethereum.

And we manage that through extreme periods of volatility seen even early this year. So.

This is this is true with every product that we bring to the market. We have a strong risk management experience and Shaun pointed that out we have over 100 years of experience bearing product at <unk>.

Got it that's very helpful. Thank you.

Okay.

We will take our next question from Kyle Voigt with CBW.

Hi, good morning.

So you spoke a bit about the LIBOR transition and the record activity in so for trading.

Yes.

The impact.

The second part of that question, maybe for John do you expect any impact on on net fee capture to Youre short end.

Okay.

Complex through the transition to sofa, and maybe you could talk about there any fee holidays or incentives in place for sofa trading at the moment.

Along with those will last.

So Kyle I think there was about three or four questions embedded in your.

Question between open interest costs.

Incentive plans, so I'll touch on Sean I'll touch on a few of those John and I will also I'll give you my opinion, yes. So thank you Kyle.

Right now with.

Huge growth in our silver futures and as I said, we're also seeing enormous growth in our eurodollar futures and options. So we're seeing both marketplaces grow in parallel side by side.

So that's actually a very exciting development as.

As you go into the next couple of years.

That will also increase and we expect to see an increase in the spread trading between the eurodollars and the silver futures. In addition to that you may recall, we launched busy future not too long ago, where were also doing about 70000 contracts a day, depending upon the timeframe.

So the transition of the short term interest rate business to a new rate whether it is the busy for the term sofa or sofa, it's actually a very positive thing in regards to.

Again, with Adv up more than $1 6 million contracts a day in the third quarter. So that's growing very strongly in terms of incentives, yes, we have had incentives.

As anyone who follows us closely knows.

Whenever we start a market and so we have had significant incentives and our silver futures.

Over the recent quarters. The good news there is that means that thats already priced in to our revenues to a large extent so.

We will expect to continue those incentives for a period of time, but as you can imagine as we have with all of our products you know the history I'm sure.

Our bitcoin futures and how we've reduced incentives here of micro E minis, and how we've reduced incentives there and how those rpc's grew pretty dramatically.

Those marketplaces got up and running so we would expect.

That as we get greater adoption of so far relative to your to the incentives and so forth would decline on a relative basis. So again.

Already spending a lot of money on incentives that's already baked in in the last 12 months.

And yes, we will continue to have some incentive spend but I don't expect any kind of a significant increase John yes.

Thanks, Kyle and just to Echo what John said I think over over time.

We believe that with.

The value proposition that we have and we are already seeing significant amount of trading happening in.

In Euro dollars post the transition dates.

So I think our clients are very comfortable with our with the conversion.

Graham that we've got in place and in the fall backs. We've got setup. So very very excited about the.

Some in.

Market maker.

The programs in place it's embedded in the <unk>.

The revenue that we've got right now over time.

We would view sulfur.

Being treated just like the rest of R. R.

Our short term interest rate products.

So I don't I don't see there being any unusual headwinds because of silver versus any of our other short term incentive products and this is something that we as a team.

Julie.

You look at the trillions of dollars that is benchmark to LIBOR today.

We are asking the world to transition in a very short period of time into something else. You can you can imagine distribute as an example look at the automobile industry and we're going to convert that but we're talking about a 30 year conversion, possibly we're talking about them. Just a couple of years, we're going to convert trillions of dollars of assets.

<unk> Mark to LIBOR into something else, which we believe we are in the strongest position of anybody to capture that risk offset and that is with the products that Shaun outlined now that will not be just a measure of open interest there will be a measure of many things as we go through this transition to me this might be the most exciting time in the history of interest rate trading.

That I have ever seen in my 41 year here at CME. So to me I am very optimistic about it but I will not judge it on open interest alone I won't judge it on one particular issue alone. There's many factors that are going to go into this and Sean outlined some of the things that we have right now with not only on incentives but wood.

But the <unk> product with Bloomberg with the short term.

So if we're right and with the sulfur.

Our futures and options, we think we're in a really strong position and one of them. One of the benchmarks is open interest Sean gave it to you. We are the leader in that one by a long shot so I'm very pleased with this transition.

Understood. Thank you very much thank.

Thank you.

As a reminder that is star one to ask a question. If you send your question has been answered you may remove yourself from the queue by pressing Star Q. We'll go ahead and take our next question from Brad.

Ryan <unk> with Deutsche Bank.

Great Great. Thanks for taking my question I just wanted to go back to the micro sized contracts in retail purchase of tissue broadly.

I think.

While back it was I think retail generated.

Low double digits percentage of revenue.

Just wanted to see if there was an update on that and maybe how that's trended over the last couple of years since the creation of all the micro sized contracts and then I would imagine Etfs are considered an institutional customers given that he is actually trading but.

I don't know if you would put ETF usage.

And the underlying futures as part of retail and maybe if you could talk about it.

Pro forma basis, I guess, if that's if that's possible and then just how you think broadly about that success in launching more micro contracts across the franchise great question, Brian Let me ask Julie Winkler to make a few comments on that and the rest of the team may play a lot as well. So Julian go ahead, yes. Thanks I know you are you are correct retail is a single digit.

Contribution from a customer communication standpoint so.

Still a very we're on path for a very strong year in retail it's looking to be the second highest revenue year on record for us.

The participation there is definitely strongest in the equity of those micro products and performance is a bit subdued through some of the quarter until volatility has started to pick up a little bit in kind of mid September and since then we've definitely seen further uptick in the business.

<unk> is very very strong we're on pace.

275000 traders in our market this year likely only surpassed by where we ended last year, which was a record year and we talk quite a bit as well about the new client acquisition in the space that has been strong as well we brought on 134000, new retail traders.

And.

Really looking spin.

Specifically when we looked at June July and August in 2021, we outpaced those levels that we saw in 2020 during those exact same month.

About 1 million retail traders.

At those properties through Q3, which is great and our partnership.

Global broker partners that we have the education of the outreach efforts that they make a huge part of that in Asia alone. Our broker partners have reached about $1 7 million active traders and year to date and we've seen our digital educational events activities up over 178%. So I think it's that continued.

Focus on really that retail go to market that.

He has kept the activity very strong.

You want to add.

Yes, no I don't think I have much to add Brian we've seen very good.

<unk> got good growth in our micro treasury yield futures doing about 8000, a day, our micro E. Minis month to date doing about $2 4 million a day.

So nothing really to add Brian.

Brian kind of address all your concerns.

Yes, just on Etfs those are considered institutional I assume Ryan or is there any way to.

If you think about just the bitcoin usage on the ETF I'm thinking you might get more retail participation de facto and that is what I don't know if there's any way to profile. It would get more retail participation from there Brian Youre correctly are institutionally driven products Etfs, but the more liquidity that's pumped into the system by the.

<unk> players always attracts the retail participants and Conversely, the same way that the larger pool of retail participants can can attract.

Institutional participants so we see it going both ways and we see this as an example of that so hopefully that answered your question, but I think youre right on John and maybe one additional comment.

In terms of the micro bitcoin futures, we are seeing huge growth on the back of the Etfs, So greater interest in our micro mill futures. So month to date more than 27000 contracts average daily volume and significantly up from the year to date of 21000 as I mentioned earlier and open interest now at over 65000 contracts in our micro mill.

We also know crypto made an all time high last week of 60 plus.

Which could be driving some of those micro retail numbers, but we do believe as I said earlier they work in.

Units together.

Bring more volume on both sides.

Yes, great Great Super helpful comments. Thank you.

Okay.

Okay, We'll take our next question from Michael Cyprus with Morgan Stanley.

September.

Both great questions I'm going to ask Derek to touch on the product side MLS SUNY able to touch on the clearing side. So Derrick.

Yes. So I appreciate the question, Michael So I think probably the easiest way to start in our material that we pre circulated on slide four youll notice some very.

Detailed comments about some of the products that we've launched and what those mean to our franchise specifically.

On the environmental products side as you know we've launched in August.

<unk> base Geo contracts with <unk> is the global emissions offset contracts that complement the geo contracts. We launched earlier this year and we continue to see significant traction there not just in terms of the traded volumes, but more importantly, the open interest that were accruing and then the deliveries that we're seeing that these contracts as well so since launch.

And the carbon markets and we now are delivering record amounts of volume through the platform and delivery of these certificates grew four delivery cycles will have another one this week. So this is a new market. We just launched our nature based contracts in August of this year. So that's pretty significant traction early on there's a lot that's expected.

Out of this conference in Glasgow Cop 26, and as we continue to work with the markets and connect.

Where we are now on a global basis of where these kind of go.

It's a complement to the work that we've already done and continue to do.

On the equity side, where we hosted the world's largest ESG contract by nominal value. Our S&P 500, ESG index futures, which has seen open interest above 4 billion notional value, which is pretty significant so when you look at the space, whether its omi environmental product side. The traction that we're seeing in a market that we are at the cutting edge of develop.

The voluntary carbon market side or our servicing the needs of customers that are looking for ESG compliant investment vehicles. We're leaders in both of those spaces. So we're happy with our positioning and feel like you've chosen good partners.

And I think the market as it adapts to a new world of carbon neutrality how.

We feel like we're in a strong position there with the success we've already had thanks.

Thanks, Derrick So Neal I don't know Gary yes. So thank you Terry so on sustainable clearing we've seen a keen interest from our clients to actually track their hedges.

They use our entire complement of products not just what Derek went through but they also use our interest rate and FX and equity products to hedge their exposure.

So what is important for these clients is to track their activity used to hedge the green investments as an example.

And we in clearing we provide them a mechanism to actually track those exposures and report on them.

This is this is a novel service.

We've just started with a group of clients and we look to expand it to a product line.

Hopefully that gave you a little bit of color on that Michael.

Great. Thanks, so much.

Thank you.

And we'll take our last question from Simon Collins with Atlanta equity.

And it appears there are no further questions at this time I would like to turn the conference back over to management for additional or closing remarks.

Thank you.

This concludes today's call. Thank you all for your participation you may now disconnect.

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