Q3 2021 Cboe Global Markets Inc Earnings Call
Hello, and welcome to the CFO global markets third quarter, 2021 financial results Paul.
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I would now like to turn the call over to your host today, Ken Hill Cherry Hill. Please go ahead.
Good morning, and thank you for joining us for our third 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.
Ian Chandler Executive Vice President CFO, and Treasurer will provide an overview of the financial results for the quarter as well as an update on our 2021 financial outlook.
Slowing their comments, we'll open the call to Q&A also joining us for Q&A don't think Chris Isaacson, Our Chief operating Officer, John Dietrich, Our Chief strategy Officer.
I would like to point out that this presentation I'm going to use.
Clients will be showing the slides and providing commentary on each a downloadable copy of each slide is available on our investor relations portion of our website.
During our remarks, we will make some forward looking statements represent our current judgment.
You may hold and while we believe these judgments are reasonable. These 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 folding discussion of 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 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 Jeff we're happy to have you on board as Debbie Koopman prepares for retirement next month.
And thank you for joining us today as we head into year end, I don't think youre doing well in remaining safe and healthy.
I'm pleased to report a solid financial results for the third quarter 2021 achieve our global markets.
In the quarter, we reported revenue growth across each of our business segments, reflecting strong year over year increases in both transaction and recurring non transaction revenues with net revenue up 27% and adjusted EPS up 31%.
Our solid third quarter results were driven by higher volumes in our index options and volatility products increased demand for our suite of data and access solutions and growth in trading volumes across nearly all our segments.
In our proprietary products Adv increased 29% and VIX futures.
32% and VIX options and 39% in SPX options.
We also continued to see strong growth in multi listed options trading with Adv up 20% year over year in the third quarter.
During the quarter. We also delivered on several strategic milestones to expand our global network, including the successful launch of our European derivatives platform as.
As well as the closing of our acquisition of taxation Pacific I'll touch on both in a moment, but first I want to discuss our plans to enter the digital asset market through the planned acquisition of Arris X, which we announced last week.
<unk> will provide <unk> with spot trading derivatives.
Derivatives and clearing capabilities for digital assets through its regulated futures exchange and clearinghouse.
The past two weeks have been a watershed moment for the digital asset industry with the launch of trading in the first bitcoin Etfs in the U S equities market.
As the appetite for ownership and digital assets continues to grow we believe she will can play a guiding role in shaping the trajectory of this revolutionary market.
Today, we are at a critical inflection point.
We're seeing strong retail demand institutional interest market growth dreaming of digital assets, even with traditional financial firms as a leading provider of global market infrastructure and tradable products, we can bring that knowledge structure and transparency of our trusted markets to the digital asset space.
A man and excitement for digital assets is driven by the unique market structure and freedom. It affords and we want to maintain that innovative spirit, while providing the regulatory framework and structure that many market participants desire.
We have secured support from a tremendous group of industry leaders, who are aligned with our vision and want to shape and define this asset class now and for the future.
These industry leaders bring different perspectives and expertise from retail brokers crypto, leading firms global liquidity providers in sell side banks.
They are expected to format digital Advisory committee tasked with advising us on the ongoing development of our digital asset business see both digital.
These industry leaders, Dr. Debbie Fidelity digital assets Galaxy digital interactive brokers knighted.
<unk> Robin Hood from two financial and legal Additionally, certain members of the digital Advisory Committee intend to acquire minority ownership interest in single digits.
I'm confident that together with aerospace.
Tom <unk> and his team and our incredible partner group, we can not only meet the growing demand for institutional and retail trading solutions, but also push the boundaries of digital asset innovation and unlock its next phase of growth.
I am extremely pleased with the progress we made during the third quarter executing on our four key incremental growth drivers I outlined at the beginning of this year.
The opportunity to grow recurring non transaction revenue for launch of CFO Europe derivatives, our expansion plans for bids trading and extending access to our products and services across geographies and market participants.
We saw positive momentum in our data and access solutions again, this quarter fueling a 21% increase in our recurring non transaction revenue.
This was driven by continued demand for access to our exchanges proprietary market data and new subscribers because she was funded platforms, including silex in trailer.
We continue to optimize the efficiency and delivery of our data and access solutions to market participants and are excited to watch see both global cloud a new real time cloud based market had a streaming service in collaboration with Amazon Web services November 1st.
<unk> Global cloud is expected to help further extend see those data to new users and geographies and an important step towards broadening investor access to our proprietary content and market data globally.
Turning now to Europe, where we successfully launched European derivatives market on September six we are very pleased with the initial progress with trading and clearing running smoothly as we slowly build volume.
Over the coming months, we plan to introduce additional products and onboard new participants.
Bringing the first truly pan European transparent and linked derivatives market to Europe is a remarkable achievement and we are enthusiastic about the opportunities ahead.
Additionally, our European equities business delivered strong results in the third quarter with average daily notional value traded up 29%.
L. I S powered by bids continued to see positive momentum and for the first time in its history became the largest block trading platform in Europe for the month of August.
<unk> has established itself as the Premier block trading destination in the U S and Europe. We are excited about our plans to expand the bids networked cabinet early next year, and then to Asia Pacific region to serve an even broader base of customers.
Turning to Asia Pacific, We made good progress integrating the <unk> team since we closed the acquisition at the beginning of July.
We plan to migrate <unk> to see both technology and are busy working through the integration plan and timeline.
With our expanded footprint in the Asia Pacific region, we see significant opportunity to further develop our ecosystem of market infrastructure and tradable products into one of the worlds largest derivatives and securities networks.
Beginning November 'twenty, one we plan to take an important step towards broadening our network and access to our proprietary products through the launch of extended global trading hours for VIX and SPX options as part of our 24 or five initiatives.
The licensed global trading hours complement our entry into Asia Pacific and are designed to help me growing investor demand for the ability to manage risk more efficiently adjust SPX and VIX options positions around the clock.
We are also pleased to announce that weevil, a leading retail broker platform with a growing global presence began offering our proprietary products VIX and SPX options on their platform. This month.
We've continued to see strong demand for SPX options from both institutional and retail broker platforms and are eager to expand access to this product suite.
Last quarter, we saw solid growth in SPX options trading on retail broker platforms with ABB on those platforms up 24% from the second quarter hitting a new all time high.
Can you talk global network expansion, our strong partnerships and to that end, we were thrilled to expand our relationship with MSCI and extend the licensing agreement that allows us to offer options trading on MSCI global indices through 2031, we have valued our strong relationship with them at MSCI for many years.
And look forward to further collaboration in the years ahead, particularly in the important area of ESG investing.
As the retail market continues to grow we remain committed to investing in education and product development to meet their unique needs to that end earlier. This week, we announced plans to launch nanos.
First of its kind options contract designed to make trading more accessible to the retail trader <unk>.
Increased retail participation is fueled record trading across the industry.
The top floor retail broker platforms. There are now more than a $150 million retail brokerage accounts and many of these accounts are too small to take advantage of the potential benefits certain options contracts can offer we plan to launch our first analyst product on the S&P 500 index first quarter 2022.
A fraction of the size of the standard options contract. The one multiply are cash settled and that'll S&P 500 answers the growing demand for a simpler more cost effective way to gain broad exposure to the U S equity market.
S&P 500 option market is one of the most highly traded and liquid option markets across the globe.
Through our nanos S&P 500 products, we are broadening access to a greater universe of traders, who can enjoy the potential benefits options provide including hedging asset allocation and income generation strategies too.
To complement the Washington, Nanos, the CFO options Institute plans to offer a new options introductory curriculum tailored to retail traders to our long standing commitment to education, we are continuously evolving our programs to offer more retail centric content through the options Institute and we look forward to welcoming a new generation of traders to.
Options trading with the launch of Nanos.
As we broaden our global footprint by entering new markets and launching new products and services. We further our goal of expanding access to a broader base of customers, both institutional and retail by leveraging our technological expertise customer relationships and capital markets capabilities. We plan to continue to unlock additional revenue opportunities.
Across our businesses.
We head into the final months of the year on a stronger footing than ever and we look forward to continuing to execute on our growth opportunities.
With that I'll turn it over to Brian.
Thanks, Ed and good morning, everyone. 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.
Is that just indicated the third quarter was incredibly strong placebo with robust results from both a transaction and non transaction basis.
Overall adjusted earnings increased 31% versus the third quarter of 2020.
And improved our solid second quarter 2021 metrics as.
As we move forward.
For the cash derivatives and data portions of our business to work in unison to enhanced revenue opportunities and shareholder value.
Now a quick look at the third quarter.
Our net revenue increased 27% setting a new quarterly record net transaction fees were up 39% and recurring non transaction revenue was up 21%.
Adjusted operating expenses increased 29% adjusted.
Adjusted EBITDA of $240 million.
It was up 25%.
Finally, our adjusted diluted earnings per share was $1 45 up 31% compared to last year's quarterly results.
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.
While we saw year over year growth in all of our segments. Our options segment produced above average growth for the quarter up 30% driven by higher trading volumes and revenue per contract in both our proprietary and multi listed options.
Total options Adv was up 23% as you saw double digit increases in both index and multi listed options.
Revenue per contract also moved higher by 16% given positive mix shift to index products and a strong increase in our multi listed options RPC up 23%.
And we continue to benefit from double digit growth in recurring non transaction revenue.
Early access and capacity fees.
North American Equity's revenue increased 13% year over year as acquisition related net transaction and clearing fees were further helped by strong proprietary market data fees and access capacity fees. This was offset somewhat by a 1% year over year decline in U S equity Adv and a 1% year over year decline in market.
Sure for the quarter, while market share trends have been impacted by aggressive pricing trends from some competitors. We remained focus on optimizing long term profit in the business through the many initiatives we have introduced.
To introduce to the market.
For the quarter match now Embeds contributed $8 $5 billion in net revenue.
Lastly, recurring non transaction revenue increased by more than $5 million or 17%.
With organic growth of 14%.
Third quarter revenue increased in futures by 24% on the back of a 30% increase in Adv and a 6% increase in capture.
Looking forward, we were pleased to see the SEC recently approved filings to list and trade shares of two new volatility share with products and inverse and long VIX futures ETF <unk>.
Listeners are likely to increase the VIX trading ecosystem as it builds on those products.
The revenue increase in Europe, and APAC, primarily reflects the addition of China Asia Pacific and July 2021.
$8 2 million dollar contribution as well as growth in European equities and clearing.
Underlying trends remain strong in the third quarter as industry average daily notional value traded market share on CFO European equities and net capture all moved higher on a year over year basis.
And finally revenues and the FX segment increased 8% as compared to the third quarter of 2020 as trading volumes and net capture moved higher.
During the quarter global FX market share had a.
All time high of 17%.
People's recurring non transaction revenue growth remained elevated in the third quarter with year over year organic growth, reaching 14%.
This strong growth was largely a product of additional subscriptions in units as opposed to price increases.
More specifically, we saw both physical and logical port usage remained robust in our equities and options businesses driven by increased demand for trading capacity and on the market data side, the equities top of book and depth of book products continue to perform well.
We are increasing our organic outlook by 1% to two percentage points to approximately 14%.
Our total recurring non transaction revenue growth is now expected to reach approximately 18% for 2021 up 2% to three percentage points versus our prior expectation overall, we are very pleased with the continued traction in this business and is an important element placebos ecosystem of products and services.
Turning to expenses total adjusted operating expenses were approximately $140 million for the quarter up 29% compared to last year, excluding the impact of acquisitions owned less than a year adjusted operating expenses were up 17% or $19 million for the quarter.
Most of the expense variance related to the acquisitions with compensation and benefits.
But which are expense guidance, we are tightening and raising our expense guidance range for the full year to $536 million to $341 million from $531 million to $539 million the $4 million increase in the midpoint reflects higher incentive compensation costs, reflecting.
The strong year to date operating results, we have posted as well as our plans for increased hiring during the fourth quarter and a slight uptick in our depreciation and amortization forecast.
As a firm we believe in our paper performance culture and not only has our year to date financial performance have been strong we have made significant progress against our longer term growth priorities, especially towards increasing access to CFO products and services as Ed noted previously.
As you recall from our February earnings meeting, we laid out a path for revenue growth that would be preceded by higher than normal expense growth that was slightly compressed margins in the short term to enable longer term growth. We remain focused on investing in key initiatives with attractive returns and we look forward to meeting the current.
And future market demand by prudently investing organically and inorganically to meet those needs even if it requires upfront spend.
Now turning to a summary of full year guidance on the next slide we are raising our guidance for depreciation and amortization to 38% to $42 million from $34 million to $38 million due to the earlier timing of various products.
Our capex guidance range moves $8 million lower to 47% to $82 million and we are reaffirming the higher end of our guided tax range of 27, and a half to 2009, 5% for the full year under the current tax laws.
Our interest expense for the third quarter of 2021 was $11 $7 million, we expect our first quarter interest expense to hold steady in the 11 $5 million to $12 million range.
In addition to the investment priorities, we outlined earlier in the call. We remain committed to returning excess cash to shareholders through dividends and share repurchases from a capital return perspective.
On cash flow generation enabled us to raise our quarterly dividend for the 11th straight year growing 14% on a year over year basis in total we returned $52 million to shareholders through dividends in the third quarter.
Leverage ratio decreased slightly versus the prior quarter to one four times at September 30, as our debt level has remained steady on a sequential basis.
Our balance sheet remains unencumbered as we look to put incremental capital to use in value enhancing ways for shareholders, our adjusted cash and financial investments bounce as elevated reflecting the planned use of cash to fund a portion of the planned transactions, we recently announced as well as a slightly higher require.
For regulatory capital purposes.
In summary, CFO delivered a very strong third quarter and we're even more enthusiastic about the number of high quality growth initiatives, we are bringing into our ecosystem.
Solutions that extend access to global markets for our customers grow our.
Rapid footprint and breadth of asset classes and diversify our revenue base.
We look for these planned additions to fuel continued growth across the CIO ecosystem now I'd like to turn it back over to Ed for some closing comments before we open it up to Q&A.
Thanks, Brian before we move to Q&A I want to provide a further update on our ESG initiatives during the quarter.
Earlier this month civil was proud to be named a founding member of the derivatives partner exchanges network of the United Nations Sustainable stock exchanges initiative.
Look forward to sharing ideas and engaging this network on an important dialogue on how derivative exchanges can support greater sustainability. In addition to advancing partnerships with index leaders in this important space.
As you can see we have been extremely busy and I. Thank the entire <unk> team for their hard work delivering outstanding results. We look forward to hosting our Investor day on November 16th.
We'll dive further into our business, providing more color on these initiatives and how they are helping to drive our strategy we.
We hope you can join us details for accessing the events are on our IR website.
Finally, I'd once again like to thank Debbie Koopman for her service and wish her all the best as she Hasnt to retirement next month she'll be with us through Investor day, So, it's not quite fair well yet.
But this is a fatality for quarterly earnings she will be dearly missed by me and the entire CFO I'll now pass it back to Ken 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 limit yourself to one question per person to allow time to get to everyone feel free to get back in the queue and if time permits we'll take a second question.
Yes.
Yes. Thank you.
Huntsman that session and just press Star then one if he would like to ask a question if you're using a speakerphone. Please pick up your handset before pressing the keys.
I'm sorry, a question. Please press Star then two because time, we'll pause momentarily to assemble the roster.
And when you first question comes from Rich Repetto with Piper Sandler.
Yes.
Morning, Ed Good morning, Brian and team.
Yes, Ed.
We take your acquisition serious very seriously now so the era of sex.
Physicians and you talked about it in.
In the prepared remarks, but I guess I wanted to get.
What does <unk>.
What are the trading right now I know they create some over the counter products.
When do you actually expect them to trade any digital digital assets and do you need regulatory sort of clarity to do that and it didn't prevent you from buying back shares in the quarter.
So let's take the first part first stock shares Brian and the view of just the buyback on shares yes, rich just as our pipeline as we look at things we are being more conservative than not as we looked at kind of overall leverage deployment of cash.
So it was like I said, it's always a balance quarter over quarter of <unk>.
Sit on a little bit more cash in anticipation of the transaction closing in the pipeline. So that was more of a reflection of that than anything else.
Thanks, Brett So let me rich, let me take a half a step back on aerospace just because I think it's important to recognize that we didn't just wake up a couple of months ago, and saying gosh crypto look what's happening it might be needed to get into the space. We launched if you recall the first futures contract in 2017, and even before that we had application to the SEC.
For each entity. So it's a space we've had our eye on and we thought the ecosystem in this space would have evolved a bit quicker.
So we've always had an eye on getting back into the space for the last couple of calls I've been mentioning that.
Fortunately also.
We were early investors in <unk> in 2018, when Don Wilson, and Tom Chip and saw the opportunity to build out our regulated fair market and spot derivatives clearing and margining. So long answer to your question framed that way we've constantly and.
Since since the launch those futures contracts, but looking for an opportunity that gets us back into the market, but John I think importantly, the rollout what <unk> is trading today and what we have in front of us between between now and close yes. Thanks morning, Rich. This is John so.
The dimension that you that you just gave of OTC products, which I think that that relates to a separate business. It's a little confusing. It's also called Eris, but that business offers swap futures.
They're traded on a competing exchange.
We're talking about here is X, which is purely a crypto platform. The businesses are completely separate and what <unk> offers as Ed mentioned is a.
Really just start to finish integrated platform for crypto trading spot clearing of derivatives and.
The platform is live today. So there are significant users on the platform depending on the day some days it can be.
Really one of the top three or four in the market.
The partners that were bringing to the table here and you see as mentioned in the press release. These partners is forming our digital Advisory committee, but any of those partners are live today on the platform. So we believe as we kind of look at the evolution of the space. The partners were bringing to the table and the readiness of the platform that are timing.
Really is pretty much spot on here because the technology platform is built the regulatory approvals are in place.
One thing that we're really looking forward to as we move towards close and towards evolving the business is the expansion of the derivatives franchise.
So again, the regulatory approvals for the platform are all in place the technology in place is in place.
But what we intend to do is work with the CTC and gaining.
Approval for margin futures and then other derivatives products, which we think are.
Can be game changing for the industry. There really is nothing like it's settling into the physical coin.
Integrated spot clearing and futures and derivatives platform. So we look forward to that builds but really that's the only piece that is yet to come the rest is.
Life, and and poised for for growth today.
Got it very very helpful.
And we will see at the analyst day.
Thanks Vince.
Thank you and the next question comes from Dan Fannon with Jefferies.
Hi, Thanks, Good morning, I wanted to ask you about the European derivative opportunity you talked about some of the product launches and more in the pipeline are you sensing.
Volume with pricing or how what is the pricing strategy.
How should we think about kind of grow through some of the milestone for success.
Kind of coming months and quarters for that business.
Yeah, Let me before I turn it over to Brian for the incentive program I think very very important way, we look at success.
Starts with operations and Chris your observations in the days and since September six actually we could not be happier.
With not only the execution on our platform, but clearing so euro CCP, keeping up with the demands to offer clearing and that flowing seamlessly through.
Couple of words, there, Chris and then Brian on incentives and the statements for market makers.
Yeah, Hey, good morning, Thanks, Dan for the question. So we're very pleased with launching this on time on September six the leadership with Dave housing, a natty and to seal in Europe.
Our exchange work just as design. So did the clearing system you know, we bought CCP, how about a year ago and they've added clearing to them to their portfolio as we built the derivatives exchange. So operationally things are going just as we planned.
Communicated that our we have modest expectations. This year as we build the base.
And Brian can talk about incentives, we have in place for market, making and and liquidity.
Yeah. Thanks, Chris I think it's a to frame that is you have to look at the entire ecosystem of who is involved and what makes a product successful relative to the clearing members. Obviously, we're bringing healthy infrastructure self called the exchange and clearing which was mentioned, but if you think about declaring members the market makers that customers that are.
Trading and putting the right incentives in place. So what we've done is we've obviously tried to remove those frictional elements to facilitate liquidity and facilitate volume. So there are statements in place. There are there is caring in place with respect to those elements.
Getting to Incent, those participants and we will see that continue to build as we add more and more clearing members as we add more market makers to both the futures and the options side. So so stay tuned for that progress will put out some targets at our Investor day as far as where we think this business can go call. It in a more of a three to five year timeframe, but I would say right now is the team is already.
You mentioned the key success here was the operational element of getting people on the platform getting it traded products are successful from that standpoint, we're achieving the on screen transparency liquidity of what we set out to do and then with the expectation of growing that over time.
Thank you.
Thank you and the next question comes from Ken Worthington with JP Morgan.
Hi, Thanks for taking my question I wanted to follow up on on Rich's.
Comments on Arris X. So so.
So how big are you you indicated that <unk> might be like a top platform periodically how big have they been over the last six months like what sort of volume if they've done and what tokens are offered and CBOE was I'd say first or at the very least early.
And building Crypto futures in December 2017, you guys had the right call you were taking a chance, but it seems like CME I dunno somehow outmaneuvered you they were second but they somehow one so give us a little context of what happened there and then maybe lastly, CBOE launched bitcoin futures at a peak price and then seen.
I'm too you know chain change its mind 15 months later at sort of a bitcoin price trough is this.
Is this flip flopping gotta make it harder for you to be successful in building a futures platform at Arris given that then your commitment is so important and sort of longer dated products.
There's a lot there.
You're right we were first to the market.
I said, we really anticipated a little quicker action on approval and the Kennedy EPS.
ETF space.
We do.
Appreciate the incentive market makers to post quotes and to trade.
But with no end in sight to the regulatory uncertainty, we decided to step back. So I wish we were smart enough to know that the price of bitcoin was that its top probably would've made a trade there instead of pivoting in a way and waiting for a regulation and.
Designed to be more obvious for us.
With the ecosystem as we find it today primed and ready for an exchange like Arris acts and significantly you Didnt mentioned the partners that we're entering this with super important they too see the opportunity to.
To offer there.
Our customers access and an experience that they're used to in other asset classes. This is very important this is not a dis intermediate in market, where we think we should be offering direct to customer customers. Our usage of the platform that they trade on those partners that we list.
We are not getting in between them and their experience. So if they'd like to pivot from their exposure.
In options see both proprietary products and on the same platform be able to trade crypto and is safe regulated fairway. That's the experience we were looking for so I don't think we're chasing anyone here Ken So it's an interesting observation, but John back to the points that are on the platform today, Ken. So there are five points on the platform today in the platform.
As is highly extensible. So currently under review additional coins at all coins.
And it's worth noting that in terms of today's bond platform as one of the newest out there given the timeframe since lodge is relatively short.
And we believe that it has all the underpinnings to recognize pretty substantial growth.
It's important to recognize that this our involvement in this space.
The entire space itself isn't evolution and so it really kind of described nicely.
Our initial foray into it well.
We call that product version, one point O cash settled pretty simple kind of construct we quickly learned.
And evolve from those learnings that the industry was demanding something different they were demanding physical settlement there were demanding robust clearing platform that dealt with the underlying spot in conjunction with the derivatives product.
The digital asset space as market participants were telling us they wanted.
That process of kind of getting back into it with the right with the right.
Our platform.
It took some time, we were waiting for the perfect opportunity I would.
I would say that we were attracted to <unk> really.
Because of the comprehensive sort of spot through clearing and data to derivatives.
It conforms very nicely with our strategy across asset classes and geographies.
But as we kind of to the evolution theme as we started down the path of evaluating the deal with Arris.
And we sampled the market.
To ensure that we were thinking about things in a way that really resonated with market participants. This is where another step the evolution came into play where there was really just obvious demand for participation for market participants to be part of part of this initiative to beyond the cap table to be aligned with value creation.
And so so we met that that demand with the structure that you saw us announce last week, so really evolution and its oh.
Rapid evolution, because the market the digital AD space is evolving so rapidly.
I don't think we could have.
Really nearly come close to meeting the demand that the market is telling us they have for the particular type of products and services.
With our with our prior product in any sense in this platform does it for us.
Great. Thank you gave me a lot to consider there I appreciate it.
Thank you and the next question comes from Brian Bedell with Deutsche Bank.
Great. Thanks, Good morning folks, maybe just continuing on <unk>.
Just I mean.
Maybe just to sort of I know you've covered this much more on investor day, but maybe just to sort of characterize it broadly.
If I'm thinking of it right is the longer term aim here and I appreciate it's probably still under development, but to become it seemed like a competitor to coinbase and <unk> or is it more to really stay in the sort of regulated exchange space with more listed types of.
Of contracts be they spot or or or futures.
I didn't know if you can talk about the investment required.
And in the 2022 out looking again, maybe that's investor day come.
But.
Should we consider this as a I think you said two to three years for EBITDA profitability.
Should we consider this as sort of a drag on earnings initially before it really gets going.
Come in and around that.
Yes, I'll kick off Brian.
It's a great question so the.
Yeah, the ambition and the mentioned here is that we really do offer a regulatory compliant product set from from spot through.
Great.
And derivatives and that's a little bit clear what that means when you talk about derivatives, the CF Tc regulated platform bolt clearinghouse and.
And futures market.
On the spot side of things the industry is really hungering for this part of the demand we're talking about hungering for a framework.
And so with these partners that we have on board with us as part of our digital asset.
Advisory Committee, we are we intend to go to the regulators work together collaboratively with the regulators and industry to help define what that means product by product.
<unk> bye token coined by coin.
And we think that initiative and the clarity that that will potentially bring can unleash the next wave of growth in this space. So that's the opportunity it's very much a regulated together with our market participants and the liquidity out in the market today is really.
Despite the some of the regulatory overhang here the liquidity is.
Is impressive but the.
The growth in this space is so rapid that.
Soon enough.
The the.
The platforms and the OTC trading that's occurring out there is going to potentially exceed its capacity, we're creating really a regulated liquidity catch basin for the entire industry, bringing.
Bringing the right partners to the table to be able to establish that kind of platform.
Right.
Shell on the financial implications.
I'll go and I think Chris I think well maybe.
It kind of ended all but as far as the financial elements.
The as we look at that.
The platform is built so it's not so much a capex as far as that investment goes it's going to be more around an opex. So yes, and we will give this further guidance as we get closer to close and where we are in the platform because we've already seen increasing activity and things of that so it would be premature to give us kind of a run rate versus historical versus where we are in and when we get.
Due to the close date, particularly with as we mentioned.
Our announcement that we're going to have.
Our digital Advisory Committee those.
Various partners likely taking me on the various equity positions in that so.
So those numbers could move a little bit. So we only can be premature in that overall number, but but yes, it's a slight drag on opex.
As we continue to build and as we continue to get scale. So I get more details on that as we get closer and then Chris.
Chris Isaacson I think yes.
I want to wrap it up thanks, Brian. So I mean these are all great questions about air sacs and it just speaks to how excited we are about it and how much interest there is in this space and we think the timing is right as John has mentioned this in one step we get.
We get spot data derivatives and clearing in a single step on that so consistent with our strategy and what we've done in other asset classes.
I'd also say as we looked at this asset we see there.
A lot of been a ton of innovation the digital asset space, but there still remains a trust transparency and data gap and we think with their sex.
We can fill that gap with Tom ship isn't team and the platform they've built and expand on the vision or six has started with because of the partners.
Bring into the table regarding competition.
We won't just have a spot market, where having a derivatives market that will allow for physically settled futures margin futures as John talked about Theres, a theres, a big and broad vision here that we think we can fulfill with these partners not disintermediation, but embracing them. So they can access all of our customers both traditional and non.
Traditional customers that want to trade digital assets.
We will be able to get to them through these intermediaries in this platform that's going to embrace transparency.
And regulation.
It gets formed and clarified.
I think thats, Tom and team have built this right they've got the regulatory approvals that are needed they've got the money transfer licenses 50, plus states CCC approval for our futures exchange and it thanks, Nate clearing organization so.
They've got a great chassis, great foundation to build upon.
That's great color and I really appreciate all the detail.
Thank you and the next question comes from Alex <unk> with Goldman Sachs.
Hey, guys. Good morning, Thanks for taking the question I was hoping you could expand a little bit around your plans for Tebow global cloud in early November here Whats the vision ultimately how do you think it expands the addressable market and sort of consumption of your data across different participants and maybe I can sneak in one more just since we're talking about.
Occurring data streams.
Guidance for the fourth quarter seems to imply a little bit of a decline versus the third quarter run rate. So maybe you can expand on that a little bit it's all right.
Great I'll start with the CMO global cloud, which we're very excited about.
Going live here actually next week next Monday. So this just furthers the theme that we want to provide better access and more ubiquitous access to our data and our products all around the world. So we will start with U S equities futures and indices data under the leadership of Kathy Clay.
This new data and access solutions group that we formed earlier. This year. This is just the first we have data sets are soon to be across 22 countries and equities plus futures options data indices data, we'll just keep adding on to the datasets. The offer we're starting this with AWS are great strategic globe.
<unk> partner for us.
And we want to we want to access not just existing customers, but a lot of customers who may not have a cross connect into data center today.
But would have an internet connection to a global cloud providers like AWS. So we view this as new customer acquisition and also giving them access to data sets.
You don't currently have today.
Maybe I'll, let Brian answer the second question, yes, Thanks, Ken and then just to put a fine point on that Alex is that that broader I'll say kind of story and strategy and our really our investment thesis on this whole area has been.
The increasing need for data analytics, therefore increasingly access.
Increasingly geography to leverage the global presence and then increasing the method in which is that last point you just hit on that Chris.
To help fill in the gap for and then and then the overall opportunity as we continue to pursue more and more and we can talk about that later as far as the growth rate. We continue to see growth what you're seeing is you're still going to see growth over the projected growth into the fourth quarter over the third quarter the rate itself may not.
Be as great and what we saw also this is a little bit just kind of more of a math issue is that the fourth quarter in <unk>.
Last year, starting to pick up where we start to see some of this momentum. So you just have a slightly higher comparison base that it's just going to move the numbers down to the rate is going to appear to be a little bit lower but the trajectory is still.
I'd say, it's still the same it's just it's going to look a little different just because we started starting off a slightly higher base last.
Last year.
Great. Thanks.
Yeah.
Thank you and the next question comes from Owen Lau with Oppenheimer.
Good morning, and thank you for taking my question could.
Could you. Please talk about if there's any synergy between the extended trading hours of SPX and VIX options as well as Chi X.
And I'm just wondering what I do at least some of your proprietary products do we exchanged the exchanges in Asia to increase your distribution channel and how should investors think about the potential incremental opportunity placebo when its becoming more like a global company. Thank you.
So let me let me start because we are so excited to extend access to VIX and SPX options to our global trading hours.
It's always subject to regulatory approval, we think we're in pretty good spot here, but that's the plan. That's it that's in answering a demand issue. So if you think about it you've got a position on down as the world becomes smaller and information flow is free.
The ability to adjust open positions or two open positions Rama clock is very very important we trade the country's benchmark here and need to be accessible 24 hours a day for sure. So that's answering the demand. We think there is great interest our presence in the APAC region.
Cause of our acquisition of <unk> really allows us boots on the ground to tell the story and the access kind of completes the demand that we see more globally, but Chris over to you on the.
The current update on integration and migration.
<unk> APAC.
Yes, Thanks Ed.
Great question on so we're super excited about our entry into Asia with tracks Asia integration planning is going very well we plan to.
<unk> bids to the region with.
Australia.
In the second half of two.
2022, and then the first half of 2022, we'd migrate to see what technology in Australia, and then thereafter.
Thereafter, we would we would do Japan also so as Ed mentioned.
Now we have a bonafide presence in that region, and we were able to sell the full suite of our products, including SPX and VIX options and our growing set of data. So let's maybe Brian. If you can you want to chime in at the end here as well.
So just again to continue to hit that is that just the boots on the ground is a key element there as we continued to expand and extend that global network.
I think it's important to remember and what that enables us to do across.
Like all of our network in the proprietary products and everything that we have and then leveraging those learnings and basically what does it mean to be an exchange operator in the consistency and reliability of what that breaks to the various market participants because our client base largely is a very global client base.
There is that you know to mentioned explicitly is that as far as bringing that to market in those geographies, which we talked about so that's on the timeline in conjunction with Chris mentioned the platform migration and then I'll wrap it backup is the broader because I keep coming back to is the broader data opportunity here, we talked about how we're not only continue to go after more.
<unk> of wallet to meet that increasing demand for data analytics, but a big part of that team also has international expansion incremental analytics.
<unk> four <unk>.
Customer capital Slash margin needs and then again in the crypto, which has been brought up a couple of times is that entire.
Our ecosystem of that data need and it just continues to feed off itself and expand from from a data perspective again leveraging off the called the cash slash.
Equity side of that spot as well as the derivatives and then completing it with the data opportunity.
Got it thank you very much.
Okay.
Thank you and the next question comes from Kyle Voigt with K B W.
Hi, Good morning, maybe just a question on retail.
Obviously, you've had some success with many banks.
Yes, P products, but it seems like <unk> has been a bit more muted relative to some other retail oriented and Xbox product launches we've seen over the past couple of years. So maybe you could expand upon the nanos a bit and whether you think this this very small contract size.
Kind of enable you to a lot more growth in that in that retail segment.
And then also from a fee standpoint is it fair to think about the fee rate being much higher than SPX or even the <unk>.
Access piece relative to the new contract size.
So great question.
One I was hoping you'd ask.
Because we have been.
Talking to you about the exchanges.
Not keeping up with retail demand in our product creation and this has been in the works for a while we think simple accessible.
And and designed for all is the team behind nano and its really a simple concept you take the retail size version of the S&P 500.
Spiders for example, which is what retail is most.
Familiar with it's still very expensive its a $460 underlying what we've done is we've done it's 110th version and made it Super simple if youre looking at a derivative screen. If you see the market at the money Thats, a one week outage to $2 50 for a call.
Retail investors like well that seems pretty reasonable except they have to multiply that by 100 and what we do on nanos. There's no. It's actually $2 50, and what you see on the screen is what you'd be paying for that exposure to the S&P 500, So that's really simple and the other confusion, we've noticed in retail and talking to retailers cash there's 30 different.
Exploration cycles of SPX, which is awesome for institutional and more sophisticated retail theres 10000 different strikes or series that in itself is confusing with nanos, we're still finalizing what we're going to offer day, one but think for different exploration cycles, seven days or less and less to expiring.
And maybe 40 or 50 different series again really simple.
That's the goal with nano it is answering the demand from new retail and we can't wait to launch this.
So yes.
A couple of follow ups, then on the pricing and how we think about it again it'll be a little bit of a.
Of a repeat story as we kind of framed up when we talk about the European derivatives in pricing. There is is that you think that it will be obviously notionally adjusted obviously from from the pricing standpoint, but again, we look at it from the perspective of all the participants engaged again to facilitate with all the partners to.
To be able to incent that trading, making it easier, reducing friction and making it affordable and.
And the next question is well, Okay. If you really want to put in that perspective.
Your entire SPX volume.
Was completely replaced by nano would you be better off.
And the answer is yes, it would be even better off because as you know there's usually a slight premium as you continue to break contracts down by size. So as it gets smaller and smaller tends to be a little bit more premium versus the call. It the larger side. So it's on a notional value adjusted basis, it's slightly higher.
But again, it's the pricing is still TBD look for progress as we as we move forward into that launch most important part.
Got.
Sorry for that and importantly, this is accompanying an education program. So you think of <unk>. When you think of derivatives, we believe in recurring trading in an educated investor and.
<unk> talked now the last few quarters about retooling our options Institute, specifically for this new retail investor and bringing them along.
Derivatives that are designed to reduce risk and it really measured way is for all investors and our options Institute is keen on making sure that our new partners, who are looking at us and our and our proprietary products with education in mind, yes.
This is John just following up on that.
We're partner this is we're not creating these products in a vacuum. So there's a theme here the crossover to crypto too. We saw some names there that are really kind of the retail vanguard right now.
We're creating these.
Products and the educational programs around them in partnership.
With these really important retail.
Partners of ours.
That's great. Thanks for all the color.
Thank you and the next question comes from Michael Cyprus with Morgan Stanley.
Yes.
Hey, good morning, Thanks for taking the question, maybe just continuing with the retail theme here just on on Weeble. It looks like your proprietary products began trading on the Weibo platform. This month, just curious what the early feedback has been and.
Maybe you could talk a little bit about some of the initiatives in place to drive broader engagement on the platform and then just more broadly how penetrated do you think you are at this point in terms of getting your products on retail platforms and if you could just maybe talk a little bit about the initiatives there to get on more platforms.
So again I think we referred to in the past and Christian would ask you to jump in in a second.
When we look at retail that's been around for a bit more established broker dealers.
I would be trading out over the last years, we have acts they have access to our proprietary products and from those platforms theres been incredible growth into our proprietary product set.
We've got months over the past couple of quarters of record penetration and our proprietary complex. So.
That has been pretty terrific and what we've been watching that as I say over quarters, new retail, but one that I'm, probably making headlines the most and we bought in that group had not offered access to our proprietary products or cash settled indices in general So we will as a first mover here, we're not penetrated at all.
And other new retail does not offer access to our products either so all greenfield for US and then we'd look another measure that's super important to us as the penetration and the use case for one lot trading and one lot trading for us makes us think that with the very.
Hi, notional value of contracts to the S&P five on an EBIT Super short dated really is a restriction for some retail accounts who are not capitalized.
Similarly to maybe more traditional retail.
The birth of metal so I think we've got a pretty good runway over the next months and.
Watching for the uptake in not only direct access into the products you know like SPX bought in data, which we launched at all so Chris over to you.
Yes, just so as Ed mentioned, we think we're just at the starting line for a lot of the new retail and traditional retail has had access to our products and offered great access for quite a while but.
The new retail is just starting and we're excited with that we've always offered access to SPX and VIX, but we still have a lot a lot of room to grow there and also mentioned that they're adding new assets to their platforms and there is an intersection we think here over the long term with.
With digital assets as well.
Customers retail customers are going to want to trade multi asset not just a single asset on our platform and so many of them are offering that and we we want to provide the ultimate in retail investor access to all of our products, but through these great intermediaries. These great partners, we're trying to solve the problem with the intermediaries. So.
We're just.
We are going with the trend here and wanting to to provide the access and the products that customers really want.
Great. Thank you.
Thank you.
And as that concludes the question and answer session I would like to return the Florida management for any closing comments.
That completes our call for this morning, we appreciate your time and continued interest in the company. If you have any further questions feel free to reach out. Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Yes.
Yeah.