Q4 2021 Cboe Global Markets Inc Earnings Call

Good morning, everyone and welcome to the C of O Global markets fourth quarter 2021 earnings conference call. As a reminder, this call is being recorded at this time for opening introductions I would like to turn the call over to Ken Hill, Vice President of Investor Relations.

Good morning, Thank you for joining us for our fourth quarter earnings conference call on the call today until they are chairman President and CEO will discuss our performance for the quarter provide an update of our strategic initiatives.

Brian Schell, our executive Vice President CFO , and Treasurer will provide an overview of our financial results for the quarter as well as an update on our 2022 financial outlook. Following their comments, we will open the call to Q&A also joining us for Q&A will be Chris Isaacson, Our Chief operating Officer, John Peters, Our Chief strategy Officer.

I'd like to point out that this presentation will include the use of slides showing the slides and providing commentary on each a downloadable copy of the slide presentation is available on the Investor relations portion of our website.

During our remarks, we'll make some forward looking statements represent our current judgment on what the future 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 a full discussion on the factors that may affect any forward looking statements. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise after this conference call.

During the 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 Ken good morning, and thanks for joining us today.

Year is off to a good start for all of you and I hope the year ahead sees us turning the page and this global pandemic.

I'm pleased to report a strong fourth quarter and record full year results foreseeable global markets.

A year, we grew net revenue, 18% to a record $1 5 billion and adjusted diluted EPS grew by 15%.

For 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.

Our results were driven by higher volumes across our businesses, coupled with increased demand from our suite of data and access solutions and our proprietary products increased by 50% and VIX futures, 10% and VIX options and 47% and SPX options. We also continued to see.

Strong growth in multi listed options trading with Adv up 21% year over year in the fourth quarter.

During the quarter, we also announced key planned acquisitions designed to strategically expand our global network, including Arris X, which is expected to provide <unk> with spot trading.

Derivatives and clearing capabilities for digital assets through its regulated futures exchange and clearing house and Neo exchange, which is expected to provide us with a significant presence in the Canadian equities market.

We also invested as a limited partner in trading technologies, a global provider of professional training software connectivity and data solutions.

The Arris X and neo deals, which I'll touch on more detail later and are subject to regulatory review and other customary closing conditions are expected to further expand our ecosystem of market infrastructure and tradable products as we continue to build out one of the world's largest and most comprehensive derivatives and securities.

Networks.

Turning to our targets and expectations for this year similar to last year, we plan to leverage new and recent acquisitions to fuel future investment opportunities across our business in 2022.

Our recent expansion into Asia, Asia Pacific, Canada, and our planned reentry into digital assets further expands our global ecosystem, providing seabold the ability to drive growth as we innovate integrate and grow.

To highlight a few recent exam examples last week, we reached two important milestones for these recent acquisitions in Canada, we completed our year long effort to migrate the technology platform of match now the largest equities alternative trading system in Canada, just see both technology.

We also launched the <unk> bids, Canada, bringing bids leading block trading capabilities to the Canadian market.

We were very pleased and grateful for the strong engagement and widespread spreads support from customers vendors regulators and other market participants throughout the migration process.

In Asia Pacific, We rebranded the Chi X business is to see both Australia, and see where Japan and announced our planned technology migration roadmap foreseeable Australia anticipating a February 27, 2023 migration of the exchange to seaborne technology pending regulatory review and approval.

Brian will do a deeper dive in his prepared remarks, we plan to invest an incremental $23 million to $26 million and organic growth initiatives tied to revenue in 2022 initiatives, we expect to contribute to our top line annual organic revenue growth target of 5% to 7% over the medium term.

Our results from this year reaffirm our view that further investment in our business can help us deliver value for shareholders.

Key to the long term success of <unk> will be the ability to execute on the transformational opportunities. We see in three core areas of our business data and access solutions derivatives and CMO digital we will fuel these opportunities by executing against our ongoing strategy, which remain.

Consistent.

Leverage our superior technology further strengthen our core proprietary products increased recurring revenue and expand our product line by geography and asset class.

Let me begin with data and access solutions, we continue to see strong momentum, resulting in a 21% increase in our recurring non transaction revenue for the quarter. This growth was driven by continued demand for access to our exchanges proprietary market data and new subscribers placebos onetime platforms.

During the quarter, we were excited to launch the <unk> global cloud a cloud based market data streaming service that aims to optimize the efficiency and delivery of <unk> data services for market participants globally.

The launch of <unk> Global Cloud is an excellent example of utilizing technology solutions to increase access for new and existing data products to new customers around the world.

[noise] prospective customers.

It may not have access to one of our data centers, but they have an internet connection and can now benefit from our truly unique datasets that is unrivaled amongst exchanges.

This year G&A will be able to realize the full value of our global expansion efforts as we were able to add new datasets and penetrate new markets with our products and services.

We are also focused on growing our index and analytics platforms and services that make key hires that we believe can help fuel sales and expansion of this business.

Data and access solutions posted a very strong fourth quarter to cap an excellent 2021, and we believe the business is positioned incredibly well moving forward.

We anticipate data and access solutions organic revenues will grow at a 7% to 10% rate in 2022, consistent with our medium term guidance provided at Investor day in November .

It was an exciting quarter for our derivatives businesses and we continue to expand access to our products and services globally through new initiatives, including the successful launch of 24, five trading for SPX and VIX options scaling of our new European derivatives business and the continued engagement of retail customers in the options market.

Additionally, while we're only five weeks into the new year, we are seeing strong volumes across our proprietary products franchise and January month over quarter volume increased 31% and VIX futures, 24% and VIX options and 17% in SPX options.

We haven't seen a strong start to 24 five trading since launching in late November validating our belief that global customers want access to tools like our proprietary products around the clock.

In January average daily volume in SPX options during global trading hours was nearly 24000 contracts up from an adv of approximately 11000 contracts prior to the launch of 24 five.

We're also seeing positive impact from VIX options as a result of the 24 five training initiatives and we look forward to continuing to expand access to our suite of proprietary products to new and existing customers.

In that vein earlier. This week, we were excited to announce a planned March 14th launch date, Fernando's pending regulatory approval nanos.

<unk> is a first of its kind options contract designed to make trading more accessible for the retail trader and we are excited to have a number of retail brokers offering the product on day, one including interactive brokers trade station trade here as people, who recently added SPX and VIX options to their suite of products as the <unk>.

Retail market continues to grow we remain committed to investing in education and product development to meet their unique needs.

Tandem within Nanos launch the options Institute will unveil new curriculum customized for retail audience. We expect this market to continue to grow over time, and we look forward to welcoming a new generation of options traders with the launch of mammals.

As we expand the access to new customers around the world, we have an opportunity to integrate them into the <unk> ecosystem across many touch points via access to new asset classes products and services.

This week, we also announced plans to expand SPX weekly options with the addition of Tuesday, and Thursday explorations pending regulatory approval.

With these planned new listings seabold offer SPX weekly options that expire each and every trading day, providing traders with additional tools to manage their short term U S equity market exposure and execute trading strategies with even greater frequency precision and flexibility.

We are seeing increasing levels of interest in adoption for short dated option strategies through our Monday, Wednesday, and Friday, we exploration contracts driving trading volume growth in the SPX complex in recent years.

We see the launch of Tuesday, Thursday, Expiries as a way to build on the success of existing weeklies and look forward to bringing these to the market.

On the retail front, we saw solid growth in SPX options trading on retail broker platforms with ABB on those platforms up 8% from the third quarter hitting a new all time high.

Turning now to Europe I'm pleased to report that our recently launched European derivatives market continues to gain momentum since launching a few months ago. We have laid a strong foundation for future growth and product expansion. We grew the number of participants trading on the exchange and volume continued to grow month over month, the market is off to a strong start.

To start in 2022 with nearly 2000 contracts to January already surpassing our total in 2021.

In terms of product expansion, we are planning to launch futures and options on four additional CLO European country indices, Italy, Spain, Sweden, and Norway. This quarter subject to regulatory approval and we have already secured market, making a support for this part of complex expansion later in the second quarter, we plan to also.

Weekly options on our phase one index products and our longer term plans include a third phase of our product expansion to food.

Pan European single stock options subject to regulatory approvals. We are very excited about the many initiatives in the works with the derivatives franchise, and we find new ways to deliver axis and meet client needs around the world.

Turning to see both digital and our planned acquisition of Arris Ax, which remains on track to close in the first half of 2022 and is subject to regulatory review and other customary closing conditions. We have been pleased with the reception from regulators and state approval process is progressing as expected.

As the appetite for ownership and digital assets continues to grow we believe Segal sabot can play a guiding role in shaping the trajectory of this revolutionary market.

While this is a new asset class, we can apply our blueprint of success operating trusted transparent regulated markets to this experience.

While much of the market focus today is on the transaction opportunity. We also see tremendous potential to generate and provide benchmark crypto data that is currently opaque and untimely in many instances our teams are working closely behind the scenes on integration and roadmap planning.

We're also excited to close the transaction with with the <unk> team and our incredible partner to me from the investors and engaged market participants to try to see those of course in this exciting new frontier.

We're excited about both the near and long term opportunities to grow and expand our business I believe we have a strong momentum as we kick off 2022, we are well positioned to move up into an attractive and expanding addressable markets across all of our businesses and we couldnt be more excited about the opportunities set in front of us today.

Expect these initiatives to help us further strengthen our position as one of the world's largest global derivatives and securities networks with that I will 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.

As Ed spoke to <unk>.

Fourth quarter was a very strong finish to an exciting and record setting year at CMO Ofer.

Overall adjusted earnings per share were up 41% on a year over year basis, and 17% sequentially as both the transaction and non transaction businesses turned in excellent results.

Furthermore, as we look at trends through January we are seeing continued acceleration across our businesses.

Quickly looking back at some of the noteworthy takeaways from the fourth quarter.

Our net revenue increased 27% notching another quarterly record debt.

Net transaction fees were up 42% and recurring non transaction revenue was up 21% adjusted.

Operating expenses increased 23% adjusted.

Adjusted EBITDA of $264 million was up 28%.

And last but certainly not least our adjusted diluted earnings per share was a record $1 70.

Up 41% 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.

You saw a year over year growth in all of our segments for the second consecutive quarter.

Options delivered exceptional growth of 25% driven by higher trading volumes in both our proprietary multi listed options as well as higher revenue per contract or RPC index options.

Total options Adv was up 23% as we again saw double digit increases in both index and multi listed options.

RPC moved higher by 9% given a positive mix shift to index products and a solid increase in our index options RPC up 5%.

And lastly, we continued to benefit from another quarter of double digit growth in recurring non transaction revenue, particularly access and capacity fees, which were up 20% as compared to the fourth quarter of 2020.

North American equities net revenue increased 24% year over year as industry volumes moved slightly higher further helped by solid growth in proprietary market data fees and access and capacity fees.

Net cash a meaningfully improved on a year over year basis.

Somewhat offset by a decline in market share as we move forward. We continue to look to strike the right balance between market share and pricing.

Delivering on quality market data innovative new order types and functionality to the market.

For the quarter this contributed $8 $5 million in net revenue.

Lastly, recurring non transaction organic revenue increased by more than $4 million or 13%.

The Europe and APAC segment delivered outsized growth in the fourth quarter of 2021 with net revenue up 46%.

The increase was driven by higher volumes and the inclusion of China Asia Pacific revenues of $8 5 million.

Clearing fee growth outpaced transactions as settlement volumes were up 25% clearing volumes up 19% and European equity market Adv was up 17% coupled with market share growth of 230 basis points.

Fourth quarter revenue increased in futures by 39% benefiting from a 44% increase in Adv and a 5% increase in capture.

We continue to see steady engagement in our futures business to start the year with January Adv up 32% from fourth quarter levels.

And finally revenues in FX segment increased 6% as compared to the fourth quarter of 2020 as net capture new tire and trading volumes remained steady during the quarter <unk> recorded its sixth consecutive record adv quarter at $725 million versus $135 million in fourth quarter 2020.

People's recurring non transaction revenue growth accelerated from strong third quarter levels with a year over year organic growth, reaching 15% in the fourth quarter again strong growth was primarily driven by additional subscriptions in units as opposed to price increases more specifically we saw robot.

The physical and logical port usage 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 options to get the book products are performing well as.

As we look to 2022, we see tremendous potential for the data access solutions business. We are targeting DNA organic net revenue growth to run in the 7% to 10% range for the year in line with the medium term guidance, we delivered at our November Investor Day, we.

We look to continue to invest strategically in the business to unlock its full potential within the <unk> ecosystem.

Turning to expenses total adjusted operating expenses were approximately $138 million for the quarter up 23% compared to last year.

Excluding the impact of acquisitions owned less than a year adjusted operating expenses were up 13% or $15 million for the quarter. Most of the expense variance related to the acquisitions with compensation and benefits.

Moving to our expense guidance, we are introducing a full year expense guidance range of $617 six $625 million for 2022. This guidance incorporates our run rate expenses as of December coupled with a healthy level of investment spend in the year ahead, a reflection of our conviction in the <unk>.

Many high margin high return opportunities ahead of us.

Throughout 2021, we have consistently message that we would be investing in our business strengthening our global infrastructure and laying the groundwork to support future growth.

We see 2022 as the year, where we make many of those investments.

We expect $23 million to $26 million of the 2022 investments meant to directly drive incremental revenue growth of Tivo, we believe that approximately $10 million is needed for infrastructure enhancements to support and scale our business for greater levels of activity in the future.

I think it's important to spend some time illustrating how some of our recent investments have led to higher levels of revenue growth.

Most recently <unk> has invested purposely in data and access solutions European clearing of derivatives and the expansion of core product set with initiatives like 24 by 5% and our planned launch of nanos.

While we are by no means finished we are already seeing attractive returns that contributed to today's 41% year over year growth in EPS for the fourth quarter and record results for the full year more specifically in data and access solutions, we delivered 21% growth in recurring non transaction revenue for the fourth quarter.

<unk> and 20% growth for the full year. This growth was made possible by investing and integrating recent acquisitions to build a global distribution and sales platform.

As we look to take on DNA business to the next level, we are investing in cloud capabilities hiring senior sales talent and further building out our index franchise to help unlock the full potential of the platform and broadening our potential revenue expansion opportunities in the years ahead.

Your CCP was an investment we made a little over a year and a half ago and is driving more meaningful revenue its IBO not.

Not only has euro CCP vastly exceeded our initial expectations, but it has also laid the groundwork for European derivatives business that is beginning to take shape, while European derivatives is still a minimal contributor today, we are seeing January contract volume and open interest nearly tripled from December levels.

We will look to expand on that growth and plans to introduce four new contracts in April and weekly options later in the second quarter of this year pending regulatory approval.

Lastly, 24 by five trading on the SPX and VIX options contracts went live on November 21.

As Ed highlighted in only a short amount of time 24 by five has delivered incremental volumes through our platform not to mention the ancillary benefits of greater market data and access fees and an expanded customer base.

We expect to continue to invest in our infrastructure to facilitate greater volumes across our platforms.

We believe these initiatives exemplify our philosophies zeebo leverage our superior technology.

Either strengthen our core proprietary products increased recurring revenue and expand our product line by geography and asset class.

While not included in our formal 2022 expense guidance range of 617% to $625 million. We believe the pending acquisitions of <unk> and neo has the potential to add an incremental 36% to $42 million of expenses in 2022 contingent on the timing of closings, which are subject to regulatory.

Reviews, and other customary closing conditions.

We anticipate a potential revenue offset but more than half of the expense in 2022 with an expectation that the additions are EBITDA positive on a combined basis in year two the.

The company plans to further update its guidance for 2022 after the acquisitions close which is expected in the first half of this year.

Looking forward, we see numerous opportunities to invest in ways that fuel sustainable earnings growth for years to come investments have delivered a double digit return on invested capital that shareholders have received and they've come to expect.

Now turning to assembly of full year guidance on the next slide we are reaffirming many of the elements you've heard us speak to at our Investor Day back in November specifically, we anticipate DNA organic net revenue growth will be in the 7% to 10% range acquisitions held less than a year are expected to add 1% to three percentage points to total.

Net revenue growth this year and organic net revenue growth is expected to be 5% to 7% in 2022.

Depreciation and amortization is expected to be in the $40 million to $44 million range. Our capex guidance range is <unk> $47 million to $52 million for the full year and we anticipate our tax rate will fall in the 27 and a half to 29, 5% range for 2022 under the current tax laws.

Our interest expense for the fourth quarter of 2021 was $11 $1 million.

The first quarter, we anticipate incremental borrowing cost as we put financing in place with the acquisitions of <unk> and Neo which includes an expanded and longer tenured revolving credit facility. Given this expected activity in the debt markets interest expense is expected to be in the range of 12 to 12 $5 billion for <unk> 'twenty two.

Okay.

While the investment priorities have taken on a bigger role in our capital allocation strategy as of late we remain committed to returning excess cash to shareholders through dividends and share repurchases in total we returned $52 million to shareholders through dividends in the fourth quarter, we remain opportunistic around share repurchases with 309.

<unk> million dollars in remaining repurchase authorization available.

Our leverage ratio decreased slightly versus the prior quarter to one three times at December 31, as our debt levels remained steady on a sequential basis.

The anticipated funding of neo and <unk>.

We expect our leverage ratio to expand in the quarters ahead, but we remain committed to maintaining a flexible balance sheet overtime.

In summary, <unk> delivered a very strong fourth quarter to close the year in 2021 as record results give us increased confidence that if we continue to invest in the CBO ecosystem. We can continue to deliver strong long term results for investors now I'd like to turn it back over to Ed for some closing comments before we open it.

It up to Q&A, Thanks, Brian and closing it is an exciting time at <unk> as we continued to execute on our strategy and initiatives aimed at accelerating growth and value creation as we innovate integrate and grow we are extremely proud of the record results. We delivered in 2021 and I'm, even more excited about the opera.

Thanks, Chad.

The investments we plan to make this year are expected to contribute to our long term growth in 2022 and beyond I want to thank the entire <unk> team for their dedication and hard work to continue to pursue both to new heights with that I will turn to Ken for instructions on the Q&A portion of the call.

At this point, we would be happy to take your questions. Yes. Thank you. Please limit your questions to one per person to allow time to get to everyone feel free to get back into queue and if time permits we'll take a second question.

Thank you at this time, we will begin the question and answer session.

It's a question you May press Star then one on your Touchtone phone, if you're using a speaker phone. Please pickup your handset before pressing the keys to withdraw your question. Please press Star then two.

We will pause momentarily to assemble the roster.

And so when you first question comes from Rich Repetto with Piper Sandler.

Yeah. Good morning, Ed Good morning, Brian .

I guess.

What do you call it interesting strategic questions, but I'll.

To start off with I'll stick with expenses here.

First I'm trying to understand the conservatism because you were well below what was implied for the fourth quarter and then on the expense question I guess as we look forward it looks like you're going to invest 70 to 80 billion half of that half.

Half of that in other you gave some revenue impact on new neo in Paris, but what about the revenue impact on the other roughly 35 million of investments you're making in 2022.

Sure.

Thanks, Rich a couple of things there are as far as the conservative kind.

Comment on the expense guide overall.

What makes it different say 'twenty, one versus 'twenty to the.

'twenty one guide as we look back on it and you know that.

Being conservative is obviously not new to the organization, we will make sure we lay out there the expectations. What we think we're going to need as far as the investment to execute particularly to deliver the top line and the bottom line results.

Last year was a lot of growth highly reliant on a lot of incremental.

Head count resources add some other investments along the way that frankly were never in doubt as far as making those those high conviction investing it just took a little longer to get them in place than what was originally anticipated. So the timing is more what drove the the amount of investment that was recorded in 'twenty, one versus where that effort.

And the total where we think the run rate is and youre seeing a little bit of that bleed into 'twenty two.

And so as we look at what's different or unique about 'twenty two is it more or less conservative than 'twenty. One, we're obviously going to put forth. What we think is a very achievable plan as far as what we think it will take for investment, but this plan is a little bit more mixed with itself has a.

Ah reflects incremental people to help deliver some of the initiatives that we're looking back if we could talk more and more about those it has some incremental marketing are delivered from some of the initiatives that we're talking about.

With respect to our growth initiatives around DNA in the derivatives and you heard about the recent launches of of of what we're doing around nanos.

The additional weekly explorations.

We're doing more around our tech services that you talked about cloud and what we're doing to support that again directly back to DNA and the additional offerings that were there.

I mentioned, a little bit around our software development capitalization is a little bit less I would say that the prior year again, adding a little bit more to that expense and then as we look at December and you'd say well here. It is conservative sandbagging again, if I look at the December numbers, it's where we wrap up and I roll that forward, just a pure annualized rate.

That will when you look at that number that's a much healthier growth rate just looking at those two separate numbers that the gap of the incremental investment that we're laying out is is pretty close to what you're seeing there. So if I move in to the second part of your question about revenue expectations return expectations on those incremental investments if you look at.

Those incremental investments, we laid out roughly that $10 million for infrastructure again, that's hard to tie it to a specific revenue initiatives, but it's all about supporting the broader <unk>.

Our global network around you know you look that we've all read about the Incrementals cyber attacks that are pending and what's going on and so can you make core investments are.

Around the basics there continues support around our distribution networks continued integration work that goes across the entire network that if we're going to be running a trusted marketplace with high reliability high uptime working on that next development as far as staying leading edge that requires that continuous pace of <unk>.

<unk> spent but the specific revenue initiatives that we tied to and specifically around DNA and then derivatives and it's probably you know high level DNA.

Closer to two thirds of that number grows about one third just given the way it's placing out is that that DNA numbers as far as what do we look for that is we've talked about cloud how we roll that out last year, we talked about incremental people from a sales standpoint.

Making our platform more robust, making it a little bit more around that marketing effort that return.

We envision is actually very short it's high triple digit on that investment.

As far as achieving that growth rate as far as the other initiatives around the derivatives and we've talked about this to last year is the.

24 by five again, that's immediately already returned the investment from 'twenty, one it's already a triple digit return it's already matched the investment of what we're already seeing this year.

P and derivatives again this guidance hasn't changed with where we talked about that that's more of a two to three year.

Where we expect to see a beneficial higher ROI again approaching triple digit if we hit those revenue targets, we talked about nanos as we look at that launched in the incremental investment there that should be a very high return within a 12 month timeframe with that success and.

And then finally.

We mentioned a need.

So again, that's going to be a little bit of a you know as we look through those those will pay back in that ROI.

<unk> will be a little bit longer term, but as we look at those investments as we look to enhance those platforms deliberative those new products again, we talked about in our release in our guidance that we expect.

That's a little bit more of a year or two as far as that EBITDA.

Positive again, requiring some of that initial investment upfront in this first first year in 2022.

Okay. Thank you very much and sorry about the chiefs to the bats.

So if you can help us sell.

Rich.

Was a low blow.

We are thankful for a good season.

Thank you much and the next question comes from Ken Worthington with Jpmorgan.

Oh. Thank you for taking my question, we've seen a real surge in engagement from retail over the last two years.

Driven by some combination of maybe Covid Commission zero commissions market depreciation I'm sure there's a dozen other things.

As you look at Cboe's, you know great 2021 results what portion of the success you had last year would you actually attribute to the retail effect. So you've got a ton of initiatives. There's a lot of things driving your your your good results, but really focusing on on this retail effect and given the tech and MIM seller.

And greater leverage at brokers like Robinhood, how do you think about this durability of retail engagement is it something because options are used to not only speculate but hedge it's gonna be really durable or do you think there is some fragility to what we've seen.

Hi, Thank you said Ed to start Kevin and I'll ask Brian to clean up with kind of a percentage of how that's contributing a little opaque.

And the derivatives world due to kind of a lack of clarity at OCC, but let me frame it a little a little higher level, we do see.

This as being able to continue and because our core has always been an education piece and.

And once you introduce.

A retail trader, who is used to a pretty simple P&L scheme right view of the longer you're short of the payouts 45 degree angle.

You've gotta be right or wrong and options. The first utility in options allows you to customize.

That payout scheme, customize the risk parameters and exposure.

And still have the exposure in a given underlying individual stock the broader market. So that our education really focuses on the versatility for retail once you teach that you create a long term investor and that's what we're all about and why do we think there's some runway here more broadly.

On retail. So then we look at where in the access business. So how do we extend that exposure to a uniquely foreseeable.

The product set alone is terrific right. So your startup individual.

Whats your exposure, but much many retail what broad U S exposure and we look at our notional size of our most successful contracts as the S&P 500. It is quite expensive notionally for exposure for retail. So we launching now it's very very simple one multiplier concept if you look at.

The average.

<unk> value of option exposure in the S&P 500, roughly $5000.

Nanos the premium dollars $5, that's an incredible way to learn the power and the tools.

All the options trading we loved that so that's the concept behind that'll make it simple and easy bake and accept a successor.

Accessible.

So then we look at what's the fastest growing portion.

Our S&P 500 complex well weeklies, it Super short dated and low premium so we're gonna add Tuesdays and Thursdays another opportunity to be able to be more precise.

And answer the demand coming from really short dated exposure, so add Tuesday, Thursday, so all of that to build and the continuation of what we've seen in the last two years of the growth of retail we want to be part of the story open up access and teach so Brian over to you.

Chris for a little bit more color on how we saw that breakdown, yes. So on the I think it will bring it down a little bit by asset class because I think you see the ebbs and flows again to ed's earlier points.

Okay.

The percentages aren't going to be as precise as we frankly would like as well, but as far as the start with the North American equities franchise, we saw a lot of.

All of that mean stock trading obviously vary.

Retail focus.

And as strong as even the January numbers as far as overall market volumes of.

Call It <unk>.

12 billion shares if you recall January of last year was almost 16 billion Adv.

And so we know that was driving a lot of but as you look at those.

Retail percentages in U S equities markets start solid trailing down as we got deeper into the year such that the.

The third quarter was lower than fourth where I think it was significantly lower than where it wasn't the first first quarter. So it was a nice contributor, but I think it's come back to a I would say more a sustainable level that I'm not sure. It's going to go anywhere so was it a nice contributor yes.

But it.

It wasn't the majority I would say it was a stronger.

Contributor within the options once you had talked about the various exposures looking for payers pattern, they've always been a big presence in the multi list and now what they're looking for for a broader community as far as investment alternatives. So we actually are more optimistic that the percentage of growth in our derivatives complex with the retail and the <unk>.

Retail channels. So I know you didn't we didn't give you a specific percentage.

It was it was solid.

We expect to see continued growth in it we're going to continue to look forward to growing that with our retail efforts and with the new product launches.

I kind of leave it there Chris I know if you have anything to add.

Just a couple of items just in January we've seen incredibly strong volumes a couple of days all.

All time records OCC volume with strong retail engagement.

And Brian mentioned in their comments, we're really excited about those four retail brokers and hopefully more that are ready to go day, one was nano so well that it drove a lot of growth in 2021, we do see.

That enduring through 'twenty, two and hopefully beyond.

Great. Thank you very much.

Thank you and the next question comes from Alex Kramm with UBS.

Yes, hi, good morning, everyone I hate to ask a volume and trading environment question.

Prior to your product but.

But it seems like the market environment has changed significantly year to date. So maybe it does make sense I mean rates are moving higher much more divergence in asset classes and markets et cetera. So just wondering if you could talk about.

What is different than what you've seen from customers strategies et cetera.

I want you to think that's a conscious that what we've seen over the last few years, because I think all of US we got used to the snowball environment, where sometimes you've got these periods of volatility and then actually it seemed like volumes went up and then they actually went down a lot and then we've got quiet again. So I know you don't have a crystal ball, but just wondering if what you're seeing out there just maybe seems small.

Sustainable what you would point to and it is something that we should get more excited about from a cyclical perspective. Thank you.

Alex Great question, I'll I'll kick it off and we share the excitement because it's certainly does appear.

From an institutional perspective, much more sustainable.

And then we've seen as you referenced the spikes and then the ebb and flow around spikes.

But the uncertainty out there that's been driving this of late for institutions now really.

Russia attention oil prices continued supply chain challenges and then the big one right the expectations on rate moves all impact a portfolio differently.

And actually the value of the components of that portfolio are influenced by all of the uncertainty we see that.

In both the SPX and VIX and uniquely as we've talked about the rotation in the past.

It's different this time, if you look at the second derivative VIX is at 8% move yesterday that is an incredible punch for a relatively inexpensive contract both the futures level and the options associated with it.

And that's not gone unrecognized, 8% move and then you look at today and maybe there's some follow through even pre trade. The market was up the market's down that is an amazing tool relatively inexpensive that really takes advantage of these 50 plus point S&P 500 moves and then in the same.

<unk> weak as you see these moves early in the week the SPX one month at the money Vol comes crashing down.

Really incredible so SPX looks cheap.

In implied volatility compared to what's been realized.

So it really is an amazing opportunity in our product set that these products actually deliver and youre seeing that engagement is now and it's been month over month January .

Really keeping up with December 4th quarter is truly amazing actually surpassing fourth quarter.

Is terrific. So that's the difference and those risk factors are out there and there is still uncertainty. So no reason why this isn't going to continue for a bit.

Excellent thanks for the color.

Thank you.

Question comes from Brian , but that with Deutsche Bank.

Great. Thanks, Good morning folks I appreciate all the granular.

Got it right.

Neither did you.

Little bit about.

The you.

You know the growth happening on DNA.

Obviously, you did very well in 'twenty, one year heading in with better momentum relative to that.

10%.

Given how we're seeing that volume environment pretty.

Pretty well and customer traction, especially in retail.

You know pretty well.

What would you say would be some upside potential drivers to the high end of that 7% to 10% range.

This year I know you, obviously don't want to read you the guidance or anything like that but we're just thinking about them.

What would what would continue that momentum and then also just a secondary question if you could talk about.

Any upside from revenue contribution from the European derivatives that group now that we are seeing.

You know that volume increase in January just sort of a timeline to get to that 25 million annual revenue number I think.

For a couple of years out in euro derivatives.

Sure I'll take that.

Thanks for the comments, Brian on the the revenue for DNA.

It's helpful. If you look at broadly the three main components of how we think about the DNA number again, we're coming off of a 2021 year of about $427 million.

21 of that go to that group of revenues.

And so as we look at each of those components still the largest component.

It's still that market data and access right. That's a that's the bulk of that number and to get any movement on the growth rate, that's where we're just mathematically we're going to have to see some some real growth there.

I think that that's where the upside is going to have to come.

And that's going to be a big part of the growth again going forward because of its sheer size.

So I would say what would be potential upside. There is we have a pretty good pipeline right now in market data sales.

We continue to see nice traction in the U S. I think the upside will be our incremental traction internationally.

With our APAC entry with what we're doing with the <unk> there and then the.

Incremental international clients, they're showing in the U S data and then the local data as well. So I would say there is if there is going to be upside it would likely have to show their and then on the.

The second part of that as we think about our risk and market analytics again, we're expecting a nice strong growth rate out of there as well, but that's likely going to if we think about where that opportunity. That's probably India is where we see incremental benefit possibly out of there and then on that third component of it is it's the index side again, we think theirs.

<unk> to be within the U S. It's a huge opportunity.

Good.

Traction around our sales effort.

Effort more products, we see more and more ESG and really trying to leverage our distribution channel with TSMC. So that's where I think that were going.

Overall.

As far as Europe .

Chris you want I don't know if you want to talk a little bit more about the any of the path. We're seeing there on the yes.

Yes around the European derivatives, yes. So we are seeing strong demand for U S data into Europe , and APAC and then vice versa. So that's the global network coming together and we still think we have a lot of room.

To sell into Europe , and APAC with the existing data, we have especially as we add more datasets to placebo global cloud as we mentioned we currently have.

North American data their indices data and futures data and we will be adding more data this year, including analytics data and working with Kathy clay.

Now I just mentioned in Europe , you know that.

You either is going quite well the on boarding has gone well in January was very encouraging to us.

Surpassing all of the volume from from last year, and a single month, so tracking very well as we build.

From the start this would take a bit and it's tracking on or ahead of schedule and the.

The team there is doing a wonderful under Dave and.

Team and seal here of CCP. Another investment we made in the last couple of years that is.

Paying off very well and is key to our long term success there in Europe .

That's great that's great color. Thank you so much.

Thank you and the next question comes from Alex <unk> with Goldman Sachs.

Hey, good morning, guys. Thanks for taking the question.

So I was hoping we could spend a minute on sort of like your medium term expense growth philosophy and sort of the growth algorithm. So the 2022 guy that adult ought to be helpful. You previewed some of that at the end of the year. So the decline in margins is probably not that surprised me, but how long do you expect sort of the elevated pace of incremental investments to laugh.

Centrally double what your core sort of expense growth in 2022. So is it just the 22 thing or spillover not asking you for 'twenty three guidance, obviously, just yet, but just trying to understand when we should expect to see about to return to sort of positive operating leverage on the come. Thanks.

Thanks, Alex, but I think I did hear you asking for 'twenty three guidance.

But I think it's a very it's a very appropriate question as we think about it and as we look out to 'twenty three you're right. We're not ready to say, it's going to be X to X type of range, but as we look forward from what we know today and the environment.

Where our growth objectives are we do expect a more moderated expense growth rate in 'twenty three versus what you've seen in 'twenty, one 'twenty, two and independent of the run rate's around acquisitions. So if we look at kind of what the court.

Sure.

I'll call that more normalized there. So if you think about and how do we get that that thought process. As you think about 'twenty. One 'twenty two is our investment in our core our investment in our infrastructure.

Our investment in the revenue growth initiatives to facilitate enable that growth.

But we'll continue to do and we'll continue to get those as we look into 'twenty. Two is and continue to highlight those return on investment items right. We've talked about in one of the first questions that we start talking about is all of those various initiatives. How are they doing can you build a case study for us of why should your investors have confidence around.

And your investments and what you're doing so we will continue to try and provide as much visibility as we can around how they're performing what the return looks like and then make adjustments as appropriate. So we're not going to shy away from seeing an opportunity investing in it if we take it as it really like I said, a high conviction high margin type of opportunity, particularly around data, particularly.

Around the derivatives and again, we've talked about our excitement around.

Bring it on.

Digital capability as well so that is.

What we're looking towards so it's a a moderated level in 'twenty three without giving you any specific percentage rates.

Alright, I will take that.

Thank you and the next question comes from our Lau with Oppenheimer.

Good morning, and thank you for taking my question so.

So full Earth X could you please give us an update on the initial thought process about adding new products and how does the current digital assets trading at xylem and like the bitcoin price impact your thought process and then finally on the $36 million to $42 million additional expense.

Shouldn't floristics Aneel could.

Could you. Please also talk about kind of like on paper when do you expect people to close. These two deals just email message you eat your own assumptions one of the key assumptions baked into these into these range. Thank you.

Yeah I'll take that question. Thanks, Thanks for the question Eric.

We're moving toward close working through the state and federal approvals and as we said, we hope to close that here in the first half of this year.

Given previous guidance, maybe a bit earlier than we expected, but working well through that.

The <unk> team.

Regarding new products, we there is a new listing process that eric's their success.

Put together, that's very well well thought through and how we're looking at new products based on customer demand.

Understanding that we will need to add new products.

Within the confines of those rules.

As we grow the business.

We're very excited about her sex as I had mentioned in his comments because it gives us that spot data derivatives and clearing platform.

Trusted marketplace.

We think is where we're the market needs to go and we want to help define that together.

No.

Very excited about some about Arris X going forward and close the transaction here in the in the first half I want to make sure I answer all your questions or was there. Another segment of your question that I missed.

I don't know just like key assumptions baked into that range like 36 to 42, a median are you assuming like at the beginning of the second quarter or at the end of the second quarter just want to make sure we model this correctly.

Yeah, Brian you want to take that one yeah, I would say kind of the combination of the two it is.

Certainly won't be.

It could be as early as March, but like I said that could go up and it could be like I said into the second quarter as well. So that's why there's a range because we're talking about two transactions that were trying to get again ensure regulatory approval around and multiple.

Regulatory closing conditions so.

That first half is better.

As closest we are right now it's it's you know.

Highest scenario.

Is it that theyre, both close before the start of the second half of the year. So like I said it could fall at the end of the first quarter and it's again will.

We will update obviously when hum updated expense guidance when we do have a firm close date and provide that further projections, but for now.

Unfortunately, we're still.

On the regulatory approval process, which again is not as.

Transparent not negative lasers, sometimes they move at their own pace. John I think this is like this is John just on the you had a question I think in there about how the price of bitcoin impacts our views of the opportunity and just want to drive home. We've seen this before we've been in the digital asset space.

Back well prior to our air sex agreement and.

We have a lot of confidence in this space. It's early innings, and we know that because we're out there talking to partners and clients as we speak.

Got in a really good strong early jump on those conversations the enthusiasm.

And the investment that's going on across the ecosystem is as strong as ever.

And so so we're very optimistic about the opportunity it also highlights to.

Chris has pointed out the product set and aerostar highlights the value that we'll be bringing to the market in terms of derivatives products and the ability to hedge some of these price movements going forward. So.

So we're optimistic.

We see great value in the product set.

Got it that's very helpful. Thank you.

Thank you.

Next question comes from Kyle Voigt with K B W.

Hi, good morning.

A question on capital management, the second straight quarter.

With no buybacks I'm just wondering if we should expect those repurchases to remain paused ahead of this arris and in any of the deal close.

And then just thinking about your capital priorities, you know your leverage ratios pretty modest.

And it's been declining with EBITDA growth. So I'm, just trying to get a better sense of kind of how those how buybacks are returning to buybacks ranks versus maybe additional M&A given the current M&A environment, you're currently seeing.

Sure so as far as I don't want to give a prediction as far as timing of share buyback again.

We have we're very clear that as we wanted to make sure that that balance sheet and the leverage ratio.

It will spike upon the close of these transactions spike up and the comfortable range or so you know high investment grade, we still feel good about that but I think what the the pause has put us in a really good shape from a flexibility standpoint to actually allow us to reengage in a share buyback and a much more meaningful.

Away on a go forward basis, so that little bit of a pause I got to give us that flexibility. So I can't predict timing of when we would see that but we do have expectations that we will return capital to shareholders through a share buyback.

Thousand 23.

But again I don't want to predict timing on that.

And as far as priority goes.

You know, we've always said, it's in our capital allocation.

No thought process. When we think it is important to return that excess cash, but I'll tell you. We are very focused on it and again. This is ultimately with the goal of achieving long term shareholder value and our highest value that we can.

We are very very focused on growing the enterprise and growing the revenue and earnings capability of this organization and sometimes when we see those M&A opportunities show up that we think does that we will invest to grow and if theres excess after that we will then deploy into a share repurchase program.

Right.

Understood. Thank you.

Hmm.

Thank you and next question comes from Michael Cyprus with Morgan Stanley .

Oh, Hey, good morning, Thanks for taking the question I just wanted to circle back to the cloud data offering I was hoping you might be able to elaborate a bit more on that offering and the economics and the vision that you have for that and just more broadly on cloud I was hoping you might be able to remind us of which of your markets and offerings are on the cloud today.

How do you think about the opportunity for migrating your markets. The cloud over time, maybe talk about some of the pros and cons, there and what might make the most sense sooner versus later thank you.

Great question Theres been a lot of this is Chris there's been a lot of.

Talk about this first on the cloud data opportunity.

We have our initial customers we launched November 1st as we mentioned during our Investor Day, we're really excited about.

The number of customers, where we already have and these are largely new customers. We didn't have before that need this new access method. The current data sets we have our U.

U S equities and futures and indices data as I mentioned previously we will be adding other datasets from.

Europe .

From other analytics data and then eventually apex all of our markets around the world.

The data they can.

Collect this data in the U S and Europe as well as in APAC today over the or the AWS cloud.

And then as we think beyond.

You know the data opportunity that the cloud is ready today for data and it's ready for non latency sensitive applications, such as clearing and other more back office things, but as you think about microseconds nanoseconds multi cast and things like that the cloud still has some room to grow and there's a lot of effort.

Going in from cloud providers.

We are also.

Working on things like that.

The cloud needs to be ready for what our customers are demanding.

I know there's other exchanges that are working on this and we are evaluating it.

Part of our ethos is we are customer driven or client driven so as our customers.

If and when they say they want us to move there we will be ready to do so but right now the data.

The opportunity of the cloud is primarily around data.

Data and clearing.

And we'll look at matching in due course.

Great. Thanks, so much.

Thank you and as that was the last question I would like to we're trying to afford to management for any closing comments.

Okay.

Okay. So this completes our call for this morning I appreciate all the interest and questions on the call. Today do you have any follow ups. Please feel free to reach out. Thank you again.

Yeah.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.