Q1 2022 CME Group Inc Earnings Call
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Good day and welcome to the CME group first quarter 2022 earnings call.
At this time I would like to turn the conference over to John P. Sure. Please go ahead.
Good morning, and I Hope you are all doing well today I'm going to start with the Safe Harbor language, then I'll turn it over to Terry and John for brief remarks, followed by your questions. Other members of our management team will also participate in the Q&A session.
Statements made on this call and in the other reference documents on our website <unk> website that are not historical facts are forward looking statements. These statements are not guarantees of future performance. They involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what.
What is expressed or implied in any statements.
Information about factors that may affect our performance can be found in our filings with the SEC, which are on our website.
Lastly on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures.
That I will turn the call over to Terry.
Thank you John and thank you all for joining US. This morning, we released our executive commentary as John said earlier today, which provided extensive details on the first quarter of 2022.
Also as John said I have John Sean Derrickson deal and Julie Winkler on the call or in the room with US. This morning, I will start and then John will provide some comments before we open the call for your questions trading activity during the first quarter jumped 26% from the last quarter with average daily volume of 26 million.
Contracts per day average daily volume was up 19% versus the first quarter last year, driven primarily by record quarterly equity index, Adv, which was up 30% year over year. In addition interest rates average daily volume was up 21% for the same period energy and foreign exchange.
J D V. Both grew 6% compared with the first quarter of 'twenty, one and total options Adv increased 32% to $4 6 million contracts, including significant activity outside of the United States.
In Q1, non U S average daily volume grew to $7 3 million contracts, we saw 17% growth in Europe , 22% growth in Asia, and 28% growth in Latin America.
Contributing to the record quarterly equity index Adv, the micro E mini products represented 43% of the activity.
Growing 36% from the first quarter 2021 to a record average of $3 4 million contracts per day. Additionally, equity options increased 81% for the first quarter.
Last year, driven by record activity across E mini S&P 500, and the NASDA Q1 00 options.
Within interest rates, both sulfur futures and options at record quarterly ADB, averaging a combined $1 2 million contracts per day.
Growth in our sulfur franchise has been a major objective for our team and the increased volatility in rates during the quarter. It did not slow the momentum in this transition.
At the end of the quarter sulfur future share of the Euro dollar futures trading has increased for nine consecutive weeks.
Your breasts Euro dollar is trading just last week for the first time, averaging 137 million contracts above 133 million Euro dollar contracts traded on the same day, a major milestone in the industry shift away.
Shift to LIBOR away from LIBOR to sulfur excuse me.
Uncertainty around the fed.
Well adjust the rates in terms of how much and how often.
Can be seen in the 313% growth in the first quarter of Fed fund futures Adv compared with the first quarter of 2021 <unk>.
The innovative new products, we've launched across the entire yield curve in recent years are more important than ever.
Can see this recent run and volatility driving record quarterly Adv and a three year Treasury note futures as just one example.
Additionally, we already have 60 participants trading 20 year U S bond futures contract that we just listed at the end of the quarter.
In terms of other new products customer demands and the ever apparent need for risk management across our global products continues to lead new product launch opportunities during the quarter. Our micro size contract suite continued to grow with recent launch of micro bitcoin and either options as well.
The planned launch of mic or micro copper futures in early May micro WT ice futures reached a record monthly Adv in March of more than 226000 contracts and have traded more than $16 8 million contracts since their launch in July of last year.
<unk>.
Our ESG offerings expanded with our launch of core globally mission offset futures or as referred to it as C E O.
Ontario offsets have become an increasingly popular tool for entities striving to reduce their carbon footprint and achieve carbon neutrality.
Building upon the successful introductions of our G O and N. G. O contract. These contracts are intended to align with our core carbon principles overseen by the integrity Council for the voluntary carbon markets.
Okay.
Within crypto, we launched two new reference rates for bitcoin and either providing a once a day reference rate of the U S. Dollar price of the two digital assets published at four P. M. New York time as the New York calculation window has the second most traded hours for bitcoin futures behind the London rate in.
Just this week with our partner CF benchmarks, we launched 11, new crypto currency reference rates and real time indices.
The digital asset market continues to expand and there is an increasing demand for regulated cryptocurrency information.
And finally, new option products continue to offer more flexibility to manage short term price risk.
As fed policy and economic uncertainty have implications on metals markets, We announced the early may launch of Monday, and Wednesday, gold silver and copper weekly options, which complemented the existing Friday weekly and the month and quarterly options on these markets.
With the backdrop of ongoing geopolitical uncertainty evolving central bank policies inflation supply chain constraints and other economic challenges risk management has never been more important our team executed extremely well during the first quarter, resulting in many trading volume record.
We're especially pleased with our record results.
And our market data business, which reached a high watermark of $152 million of revenue in Q1.
Looking ahead with the supply of critical global physical commodities fragmenting the reference of several of our global benchmark products products continues to increase and.
And we continue to provide our clients a secure and transparent way to significantly mitigate and manage their risk.
Let me turn the call over to John to provide you with some financial highlights.
Thanks, Terry during the first quarter CNS CME generated approximately $1.350 billion in revenue adjusting for the impact of the formation of <unk>, our joint venture with S&P Global which we launched in September of last year. Our revenue grew over 13% for the quarter as Terry mentioned market data revenue was a record.
Up 5% to $152 million, we continue to see a lot of interest in our globally relevant product set.
Expenses were very carefully managed and on an adjusted basis were $425 million for the quarter and $344 million. Excluding license fees. The expenses include approximately $6 million toward our cloud migration.
The operating leverage in our model is significant again adjusting for the impact of the formation of Australia. When you compare the first quarter 2022 to the first quarter last year, our revenue rose by approximately $158 million and adjusted.
Expenses increased only $22 million.
CME had an adjusted effective tax rate of 23%, which resulted in an adjusted net income of $766 million up 19, 5% from the first quarter last year and an adjusted EPS attributable to common shareholders of $2 11.
Capital expenditures for the first quarter were approximately $22 $5 million CME paid out over one $5 billion of dividends during Q1 and cash at the end of the quarter was approximately $2 $1 billion.
In addition to helping our clients manage their risk we are making progress in our partnership with Google. We have completed the discovery phase of our analysis of our applications and have begun to build the technical foundation to move them to the Google cloud platform.
Our initial focus will be on moving trading data to the cloud and leveraged google's excellent data management capabilities. We will also be looking to move our corporate and clearing systems as part of the first phase of the migration.
In summary, the team at CME group is focused on our clients and on executing on our strategic priorities.
Please refer to the last page of our executive commentary for additional financial highlights and details with that short summary, we'd like to open up the call for your questions based on the number of analysts covering US. Please limit yourself to one question and then feel free to jump back into the queue. Thank you.
Okay.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal as to reach our equipment again press star one to ask a question, we'll pause for just a moment hello, everyone and opportune.
To signal for questions.
We will take our first question from Rich Repetto from Piper Sandler. Please go ahead.
Yeah, Good morning, Terry and John and team.
Good morning, everybody. Good morning, hope everybody is healthy and safe and your families are as well, but Terry last quarter. You spent a fair amount of time talking about the unique setup for volumes.
This was even before you had.
The Russian debuted in Ukraine, So second best quarter in ADB, it's sort of played out. So I guess my question is an update on the set setup because you have seen them a volume pullback probably since mid March with a decline in volatility so.
An update on the setup and then also how you manage I guess this volatility in the quarter you know there's been articles about margin breaches and in fixed.
Extensive margin calls with all the volatility as well.
Yeah. Thanks, Rich I mean, there's a lot packed into your question and then I did referred to how we were positioned well.
The last call or people to manage their risk in a very uncertain world I believe it was what you were referencing and I.
I think we've done a really good job at that and reflecting in the numbers of our first quarter. So we are quite pleased to be able to manage the risk what we've been able to do in every major asset class around the world that people participating here at CME. So that being said you know I have never measured.
Year on a quarter I liked the measure of the year on a year. So I think theres a lot more left to this year.
The I think you're referring to the volume as April piping at 20, just over 20 million contracts a day, which is down from the 26 million that we had in the first quarter with the volatility coming off a little bit and what does that mean I don't think it means anything I think this is make it means that we have to measure the entire year, we're seeing what can happen when people need to manage.
Risk in a real time basis, and that's what we provide the deep liquid markets for them to do that we've seen and no. One saw coming some of the unprecedented events that we have seen over the last six to eight to 12 weeks in this country around the world. So you know I'm really pleased with that how does that translate into future volumes, it's hard to predict that rich as you know.
On the margin.
There are.
We've had <unk>.
That said moves and market. So the CME does move its margins up and down as you are aware and then we have a minimum rate and then there's our firm's member firms that we don't control what they decided to charge their clients on top of what the margin required by CME is.
Every firm seems to be different we do communicate with firms.
As it relates to their everyday business and they do talk about risk and volatility and margins and we all know that they charge something a little bit different. So that's out of our control. What we're here to do is make sure. We can provide deep liquid markets for people that transfer we want to be cautious about talking about margins, because we're talking about risk and.
When we're talking about some of the most unprecedented times in the history of the world, we want to be careful not to be dismissive of some of the margins that have happened. During these times. So I would say not unexpected to see some of the the margins going up significantly at the firm level.
Because I don't think anybody's ever seen our boots on the ground or in the Europe European soil since World War, two so I think that those are there's so many different factors going into it which is causing the margin increases at the firm level. So you know again, we'll let this play out through the balance of the year and we will stay focused on letting people manage their risk.
Great Great I, just wanted to get your broad overview. Thanks Terry.
Thanks, Chris I appreciate it.
We will take our next question from Dan Fannon from Jefferies. Please go ahead.
Thanks, Good morning.
I guess John on expenses, you know clearly a good discipline as you highlighted in the quarter, but typically the first quarter is your highest period for compensation or.
Even overall expenses, maybe the fourth quarter in some years, but given the strength of revenues that you saw in the first quarter can you talk about the trajectory of expenses from here and what is really the ramp in addition to the Google numbers you mentioned.
It just feels like it started the year on expense side was rather low.
Thanks, Dan Thanks for the question.
Yeah in terms of the expenses the entire team here at CME group has done a tremendous job not just this year, but for many years managing our costs and all the employees are here.
Here at CME are focused on ensuring that we spend as efficiently as possible and you see that as evidenced in this quarter's results.
Also as I mentioned in the prepared remarks, we got tremendous leverage in our model and you can see that reflected in our 68% margins for the quarter, we do expect to see a higher level of expenses in the following quarters as we see the full impact of our employee merit increases, which we put on pause last year and they became.
Effective in March so you'll see that play out for the rest of the year.
So as I mentioned in our guidance last quarter, we expect to see about $30 million for an improving business environment, including increased travel marketing events and customer facing resources, which were expected to see ramp up throughout the year.
We as our organization will always be diligent on our costs.
But I think as Jerry indicated in his remarks.
We are.
Well, we are well positioned to serve our clients to manage their risk in this really uncertain time, and we want to make sure that we've got the resources to do that and we've also you know are seeing an improving operating environment, where we expect to be able to do more traveling and in person marketing events to help our.
<unk>.
Got it I guess, just a clarification did some of that start though in the first quarter I mean, the travel and events that was happening in <unk>, though.
Okay.
It was but not not to the extent there.
That we expected in the back half of the year, especially and in Asia in particular.
That's an area that you really haven't seen it open up as much as youre seeing it.
In Europe , and we're seeing more kind of in country.
Events then.
Cross country events so.
International travel in particular, so we expect that to be ramping up and also you know as I indicated in our discussion last quarter.
We are making investment in customer facing resources that we expect to see ramp up throughout the year, especially in our international offices.
Great. Thank you.
Yes, Thanks, Dan.
From UBS, we will now move to Alex Kramm.
Hey, good morning, everyone. A quick one from me just on the the net investment income on the I guess Sunday.
And the clearing house or with the fed looks like that that's decently better than I thought can you just give us an update on what the average balance was maybe what the basis point fee was that you realized and then more importantly, since we got a fed hike at the at the end or towards the end of the first quarter how we.
What's what's the realized rate that you're getting now and have you seen any any change in behavior and any updated thoughts on what are we going to go as we likely will have more and more fed hikes coming here. Thank you.
Yes sure. Thanks, Thanks, Alex.
So in terms of the in terms of our non operating section of our income statement I'll just cover both Oh.
That's up about $11 $5 million sequentially. It's two major pieces one as he indicated as the earnings on cash held by our clients that the clearinghouse, which is up about $5 million. We saw have a higher average cash balances of about $2 $2 billion. Our returns were seven basis.
It's up about two basis points from last quarter.
As he indicated in mid March the fed increased rates to 40 basis points.
So we are returning 27 basis points to our clients and we're keeping 13 basis points.
Ourselves.
So if you look at it that way.
All things being equal you should see a difference between the seven basis points and the 13 basis points going forward.
So I.
I think the.
And currently our average cash balances through.
Through April so are our average cash balance at the end of Q4 Q1 was $152 2 billion.
The average cash balances for the month of April was 161 billion.
<unk> is the average that we have through April we did see the ending balance in Q1 of about 200 and.
I'm, sorry, any balance of $165 5 billion in Q1, and we're seeing the ending balance of $4 25 of a 159 $3 billion.
So the the the amount of cash at our clearinghouse is still pretty.
Pretty pretty pretty robust.
The second piece and the non operating portion of our income statement as I said $5 million of the sequential increase of $11 5 million was related to earnings on cash held by clients with the clearinghouse. The other piece is the earnings from our S&P Dow Jones joint venture, which was up about $6 million sequentially.
And up about 16% year over year and the that JV continues to perform extremely well.
Excellent thanks for all the color.
Yeah. Thanks, Alex.
Yes.
We will take our next question from Alex <unk> from Goldman Sachs.
Hey, good morning, Thanks for the question everybody.
Wanted to go back to some of the earlier comments around Google sounded like you guys have completed your initial analysis of what you guys can sort of do together.
I was hoping to get an update on sort of your thoughts around revenue opportunities and maybe some of the product launches.
This this venture and now that this venture has kind of had a couple of a couple of months two to mature.
Yes.
I'll take that and I'll kick it over to us Aneel and Julie also for some comments, but yes, we're making really good progress.
Wanted to think of it this way we've done the deep due diligence on our applications as we prepare to migrate to the cloud so.
That takes a lot of work, where we basically are analyzing each application determining what the right course of action is as we migrated to the cloud as I've indicated in the past this is not a lift and shift.
It's really a lift analyze the applications and.
And look at optimizing them and then automating it when we get to the cloud right. So at the end of the day once the applications get to the cloud we should have a much more efficient.
Application suite and.
Oh in the cloud so that's our objective and as I indicated previously.
You know this.
At the end of this it will be a much more efficient.
You know operation of our applications. So that it's got good financial characteristics.
Over the 10 year period of the agreement, but also our expense levels, assuming all things being equal.
In terms of trading activity and the like should be at a lower cost as.
As well so.
Excited about that so that's the first phase.
We are looking at moving our market data.
And trading data to the cloud we do have an offering now with Google We're looking to.
Expand the capabilities of.
Of that offering and you know that.
That is ongoing what's great about Google as their excellent.
Excellent at managing large amounts of data and you'll be looking to.
Two to move our our our data to the cloud and offering analytics and other capabilities around that around that data also during this process. You know as we indicated last quarter, we will be moving some of our risk models to the to the cloud why is that important well, it's terrie indicated.
Risk management is critical in this uncertain time, and we wanted to be able to give our clients all the insights to help manage their risk as we can.
And I would say last is kind of our corporate.
System. So that's the stuff that we use internally to run and operate the business I'll be looking to leverage the cloud for that with that I'll turn it over to Julian Chenille for some comments yeah as John pointed out getting the data into the cloud is certainly a big piece of additional product development that we can do on top of that.
So as we mentioned last quarter.
The big opportunity for us now to be able to complete our listed CME futures and options data into the cloud. So we moved all of our options data into TCP earlier. This month and so now you know we really have a full suite of that both in both futures and options data available on historical and.
Real time format for our clients to be able to access and the team is actively working on some additional projects based on the unique datasets that we have here at CME and with a wide range of benchmark products that we have available. There are some unique total cost analysis and other benchmarking that we.
Can do so we are actively working on that and excited to be able to really test that with customers. As we proceed in an agile way of that product development. So we will expect more as the year progresses.
And then I'll speak to the margin calculation.
We do have a real time margin calculator that we host internally.
What we plan to offer with Google as a margin calculate a rap as Terry pointed out risk management is very important for our clients and we wanted to give them the ability and the flexibility to launch these calculators as necessary.
During the day.
Ooh Ooh track their exposures.
So this is something that we target to actually deliver this.
Yes, thats kind of in the near term things that we're focused on I think.
Its important as the long term strategy that we have around the migration to the cloud.
<unk>.
Providing our clients easier.
Easier access to the markets.
Over time, which I think you know as we all as indicated at the time, we did the transaction Thats really what were very excited about is the kind of the long term opportunity here.
Got you alright, thanks for the color.
Yes, thanks al.
Okay.
We will take our next question from.
Brian Bedell from Deutsche Bank. Please go ahead.
Great. Thanks, Good morning, folks hope everyone's well.
Maybe I'll just focus on the micro franchise, obviously first quarter was extremely strong in the micro complex.
You've got obviously the market volatility backdrop, and increasing take up of usage of these contracts plus obviously in a innovation.
From your products maybe just.
I know you don't like to make volume forecast going forward, but in thinking about the product innovation and how retail customers are using these more maybe you.
You know how your agreements are forming on the online brokerage side for example, what how should we think about the outlook.
For that Mike for micro volumes as the year progresses base based on those factors and obviously <unk> was very strong.
Brian It's Terry Duffy, let me I'm going to turn it over to a couple of folks because that question is encompassing among many asset classes, which are represented in this room.
And Julien, let me kick it over to Julia to start with I'll give you a little sense of where we're at but you are correct. We cannot predict the volumes associated with any of our products and we won't do so.
But as I did say at the earlier commentary that rich as you know this is a long year. We're very excited about the first quarter and when we saw the volatility that you referenced earlier in Q1 that was very aggressive volatility due to the beginning of the war. So now that we think volatility becomes the norm.
<unk> is actually bodes better for the entire franchise than extreme volatility that we saw in Q1. So I wanted to make sure I get that point across I wish I would've said it earlier, there rich, but I wanted to emphasize that again more because I think it plays into your question not only from the micro contracts, but obviously the large sized contracts as well so julien.
Thanks for the question, Brian I'll, just maybe start with some broad comments about kind of retail in the micro pieces of that and then turn it over to Derek and Sean to talk a little bit more about the financial results in their business.
Q1 for our retail business was up a record quarter and so revenue.
There was up another 7% higher than that highest quarter on record that we had before in Q1 of 2020 and a lot of that certainly was driven by the micro performance.
I'd say it continues to see strong growth around the globe. So North America led led the pack there really being up 34%.
And when we look at the participation numbers, which is a key part of helping US you know really kind of work with our broker partners as well as the result the.
The number of retail traders.
Up almost double digits in this quarter and we're continuing to see that our model and working with our distribution partners in bringing net new traders into the marketplace. That's well outpacing what we saw in 2021. So the acceleration is still there which is great.
And then micros, Brian This is really been you know.
I'd say a continued story from what we've seen since we launched is that this is a critical component of our new client acquisition strategy.
Are the size of these contracts, we are seeing people start entering our marketplace and getting familiar with our products through this micro suite and as Terry you had mentioned earlier a lot of the strategy here is on continuing to add net new products into that micro suite, which has been.
Part of that growth as well as the.
The volatility that we did see in Q1 naturally lends itself to a higher uptake of micro participation.
The kind of some of the other trends just to wrap up from my side you know the number of traders that begin as kind of micro only and are graduating we are seeing that.
<unk> increased and we're seeing that as clients move on from micro to standard products.
That revenue on average is also making them more sticky to our business and so I think it's important you know a key part is getting the clients then but it's also you know.
Helping them continue their journey into our other products here at CME group itself with that maybe I'll turn it over to Derek first.
Yeah, I think the macro story has actually played out really well as you recall, we just launched a micro wty contracts in July of last year, and certainly going into the NAV.
The asset inflation story that we've seen in energy over the last four months it couldn't come at a better time I'll pick up on a comment that Julien. This is a new client acquisition story for US if you look at the participation levels.
We're seeing that our contracts, we have tearing through Monday traded over 19 million contracts since launch almost 40% of our volume is trading outside the U S. With 55000 unique traders of which 28000 of those customers have never traded a CME group product before.
Net new customers into our environment into specifically energy and we're increasingly seeing the opportunity to cross trade. These customers out across other asset classes. So over 100 firms put trades up and what's most important about this product is the global reach of this since launch over 48% of our volume in Micros is M&A.
It is from outside the U S across a 130 territories. So this is a terrific tool used by our partners and distribution points out in Europe , and Asia to bring net new customers to us and in micro WTS, 31% of this volume is coming from pure retail traders again generally new participants into our world. So good new client.
<unk> story, and it's certainly complements our market, particularly in light of the fact that we've seen crude oil go from $60 $200 that means our large contract win from a 60000 dollar contract $100000 contract. So these micro contracts at this point or $10000 contract well sized for the risk tolerance of retail traders without El Paso.
Sean to talk about what we're seeing in equities, yes, we're very pleased with the growth of our micro products.
Nice growth this year of around 29% year over year in terms of the ATB.
Actually that's the month to date is about 29% year over 35%.
Look at the overall volumes and about $3 2 million contracts a day.
We did on February 1st increase the fees on.
All of those contracts.
So the micro E mini member fees, we increased from four to five.
And the micro E mini non member fees, we increased from 25 to 30.
So increasing volume on increasing fees something that's that's very pleasing from our perspective.
All new product growth continues.
It continues to supply.
Supply is substantial portion of our growth overall, if you look at and something that we update regularly.
<unk> is our.
Adv and new products launched since 2010 within the financials unit if you will.
New products launched since 2010, and the financials unit in the first quarter amounted to $6 92 million contracts, a day generating $173 million in revenue so 28%.
New products launched since 2010, and the financials unit and we've recently updated the Newpage Linde launched since 2017. So that is just in the last five years that excludes a lot of our most successful products in.
Our financials unit.
For example, our ultra bond futures, who would exclude our ultra 10 year futures in many of our very successful product. Nonetheless, if you look at new products launched in 2015.
Even with the Los Angeles unit theatres.
The attained 539 million contracts a day in the first quarter, so more than 20% of the entire exchange volumes and more than $96 million in revenue.
So Brian I Hope you can see that the micro complex.
Julie and the team said is a feeder of new client acquisition, which is extremely important derrick emphasize that and I can't stress that enough. This is not cannibalization from one contract to another these are new clients coming into this company that were never here before and whether they're trading micros or the larger contracts.
Is based on their risk tolerance and they're managing risks. These are not the pure retail traders when Derek referenced retail. These are not people that are trading.
But you know like a sports contracts. These are managing risk. These are participants in the market on a daily basis. So I think it's really important that we emphasize that point, but thank you for that question.
Super Super helpful I'll get back in the queue for follow up thank you.
Thank you.
We will take our next question from Ken Worthington from Jpmorgan. Please go ahead.
Hi, good morning.
Mentioned in the release that one of the two initiatives is in base metals.
The initiative entail and what are the results you hope to achieve and then to what extent is the timing based on the disruption we saw.
This past quarter and nickel market set LMA and some dissatisfaction that the market is seeing there.
Yeah go ahead, you want to comment on the.
Yeah Ken.
I appreciate the question, yes that is certainly an interesting time in the base metals markets over these last couple of months I think that the what we saw was a significant and unexpected market disruption in nickel specifically.
As you know our comex business since we bought that and integrated that into CME group back in 2008 2009.
Started as a largely precious metals business and 85% to 90% of the volumes and revenues coming from the precious side over the last 10 years, we've significantly invested in growing out our base metals business led by copper aluminum steel and a couple of other products.
What we've been able to establish there's a credibility and the use of our comex copper contracts, specifically, which meant that when this actually happened with Alami. We immediately started to get calls from our own base metals customers experiencing a disruption in the nickel market and having concerns to express not only in the nickel market, but about the <unk>.
Broader suite of best metals products, where they are trading right now specifically aluminum. So you saw us announced yesterday that we're gonna be announcing.
Launching aluminum options, we actually were able to execute two successful physical aluminum auctions totaling 500 metric tons of U S. Aluminum specifically helped the physical participants in the aluminum market. So what customers are coming to us about the immediate disruption in the nickel market as you probably know we don't.
Have a physical nickel market today, that's afforded us an opportunity to be able to more easily pork those customers over into our liquid comex base metals products already and we're seeing that that movement over.
The work we're doing right now is engaged in those customers to find the easiest way to move them into our liquid contracts and we're certainly having ongoing conversations with them about what they would like to see as an alternative nickel market and is a big complex market that requires physical delivery outside the U S. So we're converting we're conversing with the industry.
And the commercial participants to see what they would like but the immediate opportunity is what we're seeing in our liquid markets right now copper limit et cetera, So a good opportunity for us.
Great. Thank you.
Yeah.
Okay.
We will take our next question.
Now from Oppenheimer. Please go ahead.
Good morning, and thank you for taking my question.
Could you. Please talk about the driver of the strong sequential growth of your crypto currency futures and options Adv from the fourth quarter to the first quarter when the spot market was down like maybe around 40% sequentially. I mean is there any way to hear about where people feel more comfortable let's say only.
Preschool bitcoin and ethereum for long term growth.
To use derivatives to hedge our position in south just like selling simply selling the tokens.
And then also finally could you please remind us how <unk> can monetize to cryptocurrency reference rate. Thank you.
Okay.
Sean do you want to take the first part about the Qatar would you.
In terms of hedging.
We think we can get a regulated exchange highly regulated by the FTC is then highly trusted exchange right in terms of margins.
Very important and a huge value proposition for customers, who want to trade in the cryptocurrency space.
No.
We have built a very good and strong business in.
In the first quarter running more than 50000 contracts a day.
With approximately 61% growth in the Adv a lot of that growth coming from the micro contracts in particular, the micro ether contract.
So we've seen very very strong growth with participants looking to trade on a trusted regulated exchange.
Namely CMV in addition to that.
We're pleased with the increases in rack rate fees that we instituted.
In February similar to the ones I mentioned earlier in the micro E mini.
If you look at our bitcoin non member fees. For example, we raised them by a dollar for dollar as a contract to $5.
For members, we raised them from $2 50 to $3 on the ether similar increases for non members, we raised them from $3 to $4 for members from $1 50 to $2.
So we were very pleased with the growth in volumes.
The growth in the innovative new products on the micro side and we've also recently launched the micro ether.
Contracts in them and then micro options contract. So further further please.
Pleasing results with growth in those contracts with increasing fees last thing I'll mention is in regards to.
Our recent announcement in April of 11, new currency reference rates. If you look at these new reference rates.
How do we commercialize them and why are they important those 11 currency indexes represent more than 90% of what I would describe as the potentially efficiency, creating currencies.
For the marketplace. So these are non stable coin.
Non net meme coins. These are these are currencies that have the potential to improve the way payments are made across the financial system.
How would we monetize those look at what we did originally we originally launched the bitcoin and the ether indexes and a couple of years later, we launched the futures.
And as you know we are gaining substantial revenues from those futures today.
That is the primary commercialization opportunities.
Yes.
Got you so I appreciate it.
Yeah.
We will take our next question from Kyle.
That's all from B K B W.
Hi, Good morning, maybe just a follow up on Ken's question on the <unk> nickel than.
Just wondering if you could provide a bit more color on kind of the key differences in risk management practices at CME will explain in more detail why something similar couldnt have happened at CME and then also do you think the U S regulators will be looking closely at that <unk> event and.
Could that cause them to take any we're reevaluating.
Things such as position limits or make changes to clearing house oversight more broadly.
Kyle It's Terry Duffy, let me take the back part of that question on the regulatory side and I'll, let Sunil casino take the front side, which is the risk management. So on the regulatory front you'd be purely speculating on what the agency may or may not do you got to remember. This this came out of an FCA regulated marketplace.
The way they tore up trades that one side is something that we do not do it here and so Neil can walk you through more of the risk management associated the way, we manage risk versus how they manage the risks whether the position limits would come under question position limits, probably would not have had any effect on what the outcome here was on.
EMEA was more on the risk management itself not the exact shall position limits themselves. So the concentration of risk is a different thing than a position limit. So is there a different factor that I don't see our government, taking this up in any which way shape or form due to what happened in nickel I did mean there'd be no reason too so but at the same time.
I'll I'll reserve that I will be testifying in Washington, and May not only on a host of things, but it's not an L. M me, but mostly on a risk in general so that may came up we'll see when other Congress feels about it Matt and so let me ask Neil to talk more about the risk of it.
Thank you Terry so from a risk perspective.
<unk> takes a very proactive approach.
With an early warning system, we not only look at margins, but we look at counterparty credit risks and from a counterparty credit risk perspective, we'll look at.
Of clients exposures are clearing firms exposures.
In the U S. We have.
A feature called lost large trader.
Typically highlights.
Traders are clients of clearing firms with physicians that.
Crossed a certain threshold with respect to the overall open interest.
Given that we stress test these clients and we also look at their exposures relative to the total market.
Based on that we have a number of tools to address exposures. So this is this is what has created this resiliency that we bring to the market.
Even in times of great stress.
So at the end of the day I think it's a risk management posture that is not just based on margins or guarantee.
Hopefully that gives you a little bit of color, but I mean again this is a.
Their situation not ours, and we don't want to comment too much further on their situation.
That's helpful. Thank you very much.
From Compass point, we will now move to Chris Allen. Please go ahead.
Yeah morning, guys excuse me thanks for taking my call.
I wanted to ask about the basically how you any thoughts you may have around how market structure is going to evolve in the crypto markets. We have F. T X applying for direct clearly with the CFC FTC.
And many crypto companies have different market structures that would be allowed under the current regulatory framework in terms of exchanges, having institutional brokers even market makers do.
Did you see any potential changes coming from what the crypto industry is.
Pushing or do you see more potential for them being required to adapt to current market regulations and structures.
Chris It's Terry Duffy I again, as I said I'll be testifying on May 12.
On this topic along with some other folks.
It's always difficult to predict what the ultimate outcome is but I don't see any knee jerk reaction into market structure, that's going to change in any direction and let me be clear about this if there is a market structure change in any direction. It wont preclude <unk> from participating in such market structure changes that could benefit this immensely if in fact.
We would see that to be the case I don't know that to be the case, but I don't want people to think that crypto is the only one that has the ability to have its own separate regulation and the rest of the world has to sit idly by as they go.
Unregulated or exempt from a whole host of issues that we've all been in compliance with today. So I do not see that to be an outcome whatsoever. So I you know, it's a very frustrating topic to some degree but at the same time, we will be patient. We will go through it well will give our views are exactly as it relates to.
Their application the flaws in their application their glaring to say, the least and we will be opposing that application.
The industry is very concerned about some of the things that are in that App. So again, you can't just create.
And application and pass it because it's a new asset class C. F. T. C. Also has to look at innovative new products I will tell you that you cannot say that you have innovation for the sake of innovation, it's got to be still under the principles based regulatory regime that is highly outlined in CFT you see today.
And you cant go outside of that just for the sake of innovation, so it'll be fascinating to see how this all plays out but I do not see anything playing out in the near term at all.
Thanks I appreciate it.
Okay.
Yeah.
We will take our next question from Simon Kinch from Atlantic Equities. Please go ahead.
Hi, Thanks for taking my question.
I wanted to jump back to you.
Youll folks around the international opportunity outside the U S trading volumes.
And how would you.
What you think the next steps are in terms of driving that volume higher.
Noticed that.
Since about the sharp rises through 17 18.
<unk> volumes in international has sort of plateaued to some extent and then I was just wondering if there's any particular reason for that or.
Really we should expect that to be moving.
As we move forward and what drives that.
Thanks.
Simon I will turn it over to Derek for that response, yes I'm. Good. Good question, Yes, we've seen a really significant growth as our investments in our non U S personnel and infrastructure has continued to grow if you actually look at.
2021, we set a record all time volume year.
For our business and we actually I think it was about $5 5 million for total year of 'twenty one.
We just met setting an all time record quarter in the first quarter of this year.
We came in at just a $7 3 million Adv for the quarter just methane in all time record. It was our second best revenue and.
Adv quarter, as I said up 18% and 19% respectively. We see could we see continued growth on the international option side, specifically, that's an area of growth for us and that is also an area that brings not just options business to us, but associated futures hedging as well if you look at the the extent of our growth across the regions in Q.
One we saw Latam growing 29% APAC around 22% and EMEA business growing 18% on a rate per contracts actually hung in there well given the high percentage of options business that was getting done yes, we're seeing about micros broadly been a large non U S participation area for us and that's why that is.
Some downward pressure on the RPC typically non U S participation comes at a higher rate per contract. So volume and revenue has actually been quite well aligned there.
Ill turn it over to Julie to talk about some of the ways in which you've allocated additional sales staff and looked at our global reallocation of resources to Europe , and Asia, specifically, just undergone a reorganization of our leadership globally as well to make sure that we can focus on the next 10 years of growth and unlock that those steps in line with the commercial side of the <unk>.
So Julie can talk about some of the stuff did on the sales side.
Yeah, and John mentioned it earlier at a key component of our sales strategy and go to market opportunities is really about having people on the ground in region building relationships with clients understanding their needs and driving the educational opportunities that we have within the region, which is a huge part of basically what we do in Asia.
Now with our own staff, but also with a large network of third party educators that we work with to help continue to promote our products.
We have allocated additional resources internationally and continue that growth that we have seen let's say as I look at the sales engagement numbers.
The biggest year on year.
Growth that we saw in sales productivity actually came and was led by our APAC region, where that that was up over 100% versus what we saw.
In Q1 of 2020, and so you know a lot of this is about.
Continuing to build out the teams we have been very successful at leading a very focused approach with our country planning and we've been working at that throughout the years and have had really in a place now that we're able to take that to the next level as we put more resources on the ground, we have found rate with that focus and with that.
We can really drive greater execution and a lot of what we're looking at as well as just the product opportunities. So with the new client acquisition that we're seeing with micro with our partners in the region with Asia, starting to open back up our Singapore office will be opening in the coming weeks, where we're excited about being able to drive more in person.
Events in the region, which is a key part of our strategy as well. So engagement. There again, an outreach has been extremely high end and more resources. We believe will lead to increased spreads going forward, Eric and Tom and just to put an exclamation point behind that in the materials circulated. This morning on slide three Youll see a couple of graphs on the upper right hand.
Side, they're showing the percent of each of our asset classes that are trading from outside the U S and you see some pretty healthy gains and consistent growth and this is obviously Q2 or Q1 'twenty two versus Q1, 'twenty, one, but just say consistent and and let's say regular trend that we've been employing with the commercial resources in the products, we've been pushing out there so.
I'm happy to go into more detail offline, but hopefully that gives you bought the product level and region level sense of where we're growing that business and the continued growth we're seeing as a percentage of use asset classes growth as well.
Alright, Thats really helpful. Thank you.
Thank you.
We will take our next question from.
<unk> gotten <unk> from credit Suisse. Please go ahead.
Good morning, and thank you for taking my question can you. Please expand on broker Tech expanded protocol suite, including our Q and streams plus the U S. T market profile launch and how do these new products impacted competitiveness of your offering relative to peers and where are you seeing the initial initial utilization of these.
Neely on its capabilities.
Sure. This is Sean jumping in we are pleased with how broker Tech is performing this year. If you look at.
Year over year year to date Adv for U S. Treasuries, it's up 12%. If you look at the year over year month to date Adv, it's up 36%.
Doing overall this year about 136 billion a day so the U S Treasury business I would say you're doing quite well in terms of new protocols. We're very pleased with the growth of RV trading a relative value trading that I've talked about on the earnings calls before creating new efficiencies, where you have you mentioned lower bid offer spread in a very liquid.
Market because of implied.
That isn't available anywhere else in terms of the RV trading we're very pleased with.
March 29th a record day of more than $4 billion again on a base <unk>.
This year of about 136 billion a significant positive impact on last month, $2 5 billion Adv.
We certainly see greater and greater traction and greater customer usage of that product.
On a continuous basis in recent history. So we're very pleased with that in terms of broker Tech stream.
We're very excited about the current migration of Evs over to globex and the use of this new and far superior technology in.
In particular, we're very pleased with.
The new technology, QD M or quote driven markets Ciudadano, that's going to be applied to our ebs direct business.
Again in particular post migration.
He will be and we have announced using that same technology for broker Tech later this year. So we're very excited to have a state of the art direct streaming technology, where we have a unique value proposition to offset for example limits.
Across the central limit order book and direct streaming again something else that no. One else can do in addition to that on broker Tech a couple of other items that I think may be of interest U S repo.
Is up 27% year over year year to date and in the first quarter. We had an all time record U S. Repo for broker Tech USA. In addition to that we had an all time record in EU repo, which fronting likewise around 12% growth year over year. So all time records in U S. Repo all time records in EU repo.
<unk> and strong growth in U S. On the run treasuries. The last thing I'll mention in the repo side is we have spoken before about how we have built a new offering we call. It broker tech quote, which is helping to electronic Phi the dealer to customer business in the repo market across the globe that business Likewise.
<unk> doing very well.
Had a record month recently of more than 17 billion a day.
And we do what we call a term adjustment so in other words the dealer to customer repos tend to go on for several days and the term adjustment well over 200 billion a day, so significant positive progress on the broker Tech business.
Thanks, Sean.
Thank you.
We will take.
Our next question from Michael Cyprus from Morgan Stanley . Please go ahead.
Hey, good morning, Thanks for fitting me in here just a question on M&A I just be curious to hear your latest thinking on the M&A front just the industry has consolidated over the past decade. So I'd just be curious to hear your perspective on what's left at this point in terms of opportunity on the M&A front for CME and how much time are you spending on this.
Today versus the past few years.
Yeah, Michael It's Terry Duffy, obviously M&A is as always.
Something that people want to look at you don't want to be dismissive of potential opportunities that could benefit your shareholders and obviously your user base to create more efficiencies you are correct, though in your opening statement, where you said a lot of it is consolidated and no vertical silos that we have seen around the world already so the question will be what do you see.
Outside of that and I think that people are looking multiple different directions on how they can create efficiencies in the business is one of the reasons I was so passionate with my team about doing the Google transaction has allowed us to have the greatest technology in the world as we implement new products coming across which might create opportunities that we don't need.
But no today or tomorrow as it relates to M&A. So I think that's how people are going to be looking at it.
Correct, though the landscape has shrunk over the last decade and.
But the deals that we all used to talk about 10 to 12 years ago are pretty much wrapped up.
But we continue to look at it to see how.
It will benefit the CME, but I think again.
The technology that we have I can't emphasize that enough is really important for us as we go forward.
Okay.
Great. Thank you.
Thank you.
We will take our next question from.
Brian Bedell from Deutsche Bank. Please go ahead.
Great great. Thanks for taking my follow up question.
Maybe just.
You talked about the Google cloud.
In terms of.
The market data and analytics that youre, developing you decided to sell through them.
The recent launch of more analytical tools in the in the earnings commentary.
Can you maybe tough to predict but is it possible to try to think about a timeline of of revenue contribution from that and if it's too early I understand but trying to understand if that's something that can materially impact. This year's market data revenue or is that more of a 'twenty three and 'twenty four story.
Yes.
Yeah, Brian I think it's tough for us to predict that but to be honest with you. I think you know we had a record quarter in our market data business, which we are extremely excited about as you know that's been a problem for us over the years and we really got Julie Winkler dirt credit, it's got in that business and growing it exponentially the job.
The beauty or around the.
The Google transaction is what I said earlier it just allows us to do so many different things going forward. So I'm really excited by that transaction.
We can put revenue associate and I think that's really premature I think as I said it just opens up so many different opportunities for CME going forward not just in market data, but many other businesses as we referenced Giulia do you want to comment any further I would just add.
We've been working over the last couple of years right to bring greater commercialization to that business and that I believe is part of what you're seeing in the record results. This quarter and you know this.
This is not just about you know, making sure that our professional subscribers have access to all of our real time benchmarks, but also understanding what are their needs they have and what other data.
<unk> can create and monetize and we're also seeing some great growth and our our benchmark Alan So what we've been able to do in just nine months with our term sell for licensing with.
With now 900.
Different firms license with over 4000 licenses, that's a new revenue stream or that that didn't even exist nine months ago. So extremely focused on where there are growth opportunities are you seeing these trading business. We also can create that opportunities and that is definitely top of mind with revenue.
Generation in the future.
Hey, Brian .
Yep, that's great color. Thank you.
I appreciate it.
As we have no additional questions at this time I will turn the call back over to management for closing remarks.
Let me. Thank you all again for joining US today, we appreciate it very much we're quite proud of our quarter. We will continue to work as we go through the balance of the year. So thank you all very much stay safe stay healthy. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
Okay.
Okay.
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