Q3 2022 Intercontinental Exchange Inc Earnings Call

Hello, everyone and welcome to the ice third quarter 2022 earnings conference call and webcast. My name is Chelsea and I will be coordinating the call. Today, you will have the opportunity to ask your questions at the end of the presentation, if you'd like to register your question. Please press star followed by one on your telephone keypad.

Please note that we'll be taking one question and one follow up from each participant.

You asked about other question please potentially Q.

I'll now hand over to your host Catchier Gonzales Investor Relations senior analyst begin Katia. Please go ahead.

Good morning, I, just third quarter of 2022 earnings release and presentation can be found in the investors section of the ice Com is that also will be archived and our call will be available for replay today's call may contain forward looking statements. These statements, which we undertake no obligation to update represent our current judgment and are subject to risks assumptions and uncertainties.

Broad description of the risks that could cause our results to differ materially from those described in forward looking statements. Please refer to our 2021 from 10-K third quarter from thank you and other filings with the SEC. In addition, as we announced in May I think that they're used to acquire a black Knight. The transaction is pending customary regulatory approval and we expect to close.

In the first half of 2023 in connection with the proposed transaction iPhone filed with the SEC a registration statement on form S. Four to register the shares of our common stock to be issued in connection with that transaction.

Registration statement with the proxy statement all Black Knight that also constitutes a prospectus of life. Please see our form S. One filing for additional information regarding the transaction.

In our earnings supplement we refer to certain non-GAAP measures. We believe our non-GAAP measures are more reflective of our cash operations and core business performance, you'll find a reconciliation to those who are willing doctors in the earnings materials. When used on this call net revenue refers to revenue net of transaction based expenses and adjusted earnings refers to adjusted diluted earnings per share.

Throughout this presentation unless otherwise indicated references to revenue growth are on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items.

With us on the call today are Jeff Sprecher, Chairman and CEO , Warren Gardiner, Chief Financial Officer, Ben Jackson, President and Lynn Martin President of the NYSE I'll now turn the call over to Warren.

Yeah good.

Good morning, everyone and thank you for joining us today I'll begin on slide four with some of the key highlights from our third quarter results.

Third quarter adjusted earnings per share increased 4% to $1 31.

On top of 30% growth in the third quarter of 2021, and Mark the best third quarter in our company's history.

Third quarter net revenues totaled a record $1 8 billion.

Up 3% year over year, while transaction revenues were flat on a year over year basis, our recurring revenues, which accounted for over half of our business increased by 6% with all three of our business segments contributing to this strong year over year growth.

Third quarter, adjusted operating expenses totaled $727 million and were $16 million below the low end of our guidance.

Better than expected results were driven by favorable FX trends continued operating efficiencies and a handful of non recurring items within professional services SG&A in technology.

Shifting to the fourth quarter, we now expect adjusted operating expenses to be in the range of $730 million to $740 million with the increase relative to the third quarter, largely reflecting the reversal of one time items.

As you begin to think about 2023 expenses the midpoint of our current full year guidance of roughly $2 billion $948 million is a reasonable base to build upon.

Despite the dynamic and uncertain macroeconomic backdrop, the diversity and importantly, durability of our business has enabled us to invest through cycles.

And while taking the current inflationary backdrop into consideration, we expect to once again invest in our people and the many medium and long term growth opportunities that exist across our expanded business.

Third quarter adjusted operating income totaled $1 1 billion up over 6% year over year and is on top of 13% pro forma growth in 2021.

While our adjusted operating margin expanded by nearly 180 basis points to approximately 60%.

Through the first three quarters of 2022 adjusted free cash flow has totaled over $2 1 billion up 7% year over year.

Now, let's move to slide five where I'll provide an overview of the performance of our exchange segment.

Third quarter exchange net revenues totaled $1 billion, an increase of 8% year over year. In addition to higher levels of collateral at our clearinghouses and thus higher member interest revenues. This strong performance was driven by a 54% increase in our interest rate futures, a 23% increase in our equity derivatives and a 13% increase in.

Cash equities and options revenues.

Importantly, total open interest, which we believe to be the best indicator of longer term growth ended October up 11% versus the end of last year, including 7% growth in energy and 18% growth across our financial futures and options complex.

Recurring revenues increased by 5% year over year. This growth was driven by strong demand for our energy exchange data and a continued benefit from our record 2021 listings performance.

Recent market volatility has led to a pause in new listings business.

Both the backlog and our conversations with potential partners remains robust and through the end of October a record 19 corporations, representing a combined market cap of nearly $40 billion.

I've chosen to transfer to the NYSE.

Turning now to slide six.

In our fixed income and data services segment third quarter revenues totaled a record $534 million, a 14% increase versus a year ago.

Extended fixed income market volatility is also impacting growth and a portion of our end of day fixed income pricing business is reduced new issuance is driven slower growth in the number of outstanding bonds available to be priced.

Absent a sharp reserve reversal of these macro trends, we would expect fourth quarter growth to be similar to our third quarter performance.

Shifting to mortgage technology on slide seven.

Third quarter revenues totaled $276 million recurring revenues, which accounted for nearly 60% of segment revenues and total at a record of $163 million in the quarter increased 14% year over year.

Strong recurring revenues continued to drive outperformance versus an industry that experienced in nearly 60% decline in origination volumes.

Importantly, data and analytics revenue increased 22% year over year with underlying recurring revenue increasing by over 40%.

Similar to last quarter, it's worth noting that industry unit origination volumes for similar to those in the first quarter of 2019.

However, our third quarter of 2022 mortgage technology revenues were over $100 million greater growing at a keg of approximately 17% when compared to the pro forma revenues and one 219. This is a clear testament to the continued automation and growth in customer adoption of our solutions across the origination.

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I'll conclude my remarks on slide eight.

Year to date, we've grown ice revenue by 6%.

Adjusted operating income by 10% and are adjusted earnings per share by 9%, representing the best year to date performance in our company's history.

Despite dramatically different macroeconomic macroeconomic environments over a three year period, you will see a similar story of compounding growth with ice revenues, increasing at a kicker of 8% operating income at 11% in EPS of 12% again, a testament to the resilience and durability of our platform and the all weather nature of our business model.

As we look to the balance of this year of the year. We're excited about the many growth opportunities in front of us and remained focused on creating value for our stockholders with that I'll hand, it over to Ben.

Thank you one and thank you all for joining US. This morning, please turn to slide nine.

In our financial markets, rising inflation and central bank activity across Europe , and the UK continued to derive increased hedging activity with interest rate average daily volumes, increasing 40% year over year in the third quarter, including record your rival our futures.

In our equity derivatives complex Adv at our MSCI complex was up 17% in the third quarter as volatility levels continued to be elevated versus the prior year.

And our energy markets. The third quarter was marked with the confluence of macroeconomic and geopolitical uncertainties that when combined with high price volatility made for a difficult trading environment.

Despite these uncertain conditions, we have seen strengths and areas like our options markets are north American gas business, and our North American environmental complex.

Options contracts are a valuable tool and highly uncertain market conditions due to the ability to manage geopolitical tail risk in the lower associated capital requirements as we've seen historically.

With open interest up 29% versus the end of last year.

We are pleased that our customers continue to charge, who are deep liquid options markets to manage their risk.

The evolving energy supply chain in Europe is increasing the demand for global liquefied natural gas sourced from the United States driving price volatility in our North American gas markets.

Our commercial customers continue to rely on our markets to manage their risk contributing to a 23% volume growth and our north American gas business year to date and an all time record in North American gas open interest as we have gained 500 basis points of market share over the past year versus.

Peers.

Finally, although our European carbon markets are seeing headwinds due to the aforementioned factors. We continue to see growth in active participants in this market with participation up 7% year over year.

At the same time, the secular trend toward cleaner energy is also driving growth in our north American environmental markets with volumes of 6% year over year in the third quarter.

And because we offer the broadest suite of environmental products across the carbon cycle. We remain excited about our position to serve customers as they navigate the journey to cleaner energy and as the demand for transparent pricing and carbon growth.

Importantly, as we look out over the longer term, we believe that the three secular drivers across our energy markets remain intact.

First increasing energy demand second and evolving energy supply chain and third the clean energy transition.

And because we operate deep liquid markets across the globe with benchmarks in emerging markets across every source of energy, we feel very well positioned to benefit from these factors.

Moving to our fixed income and data services business, we delivered record revenues, which grew 14% year over year.

Our comprehensive fixed income and data platform continues to deliver compounding revenue growth underpinned by both a recurring transaction revenues.

A testament to the strategic diversification of our business model and our ability to deliver growth through an array of macroeconomic environment.

Turning out of our mortgage business.

In the third quarter, our mortgage business once again outperform the broader industry driven by strong recurring revenues the strength and resiliency that we've seen in recurring revenues has been driven by our new customers continuing to adopt our digital solutions.

Increased demand for our data and analytics tools and continued strong retention.

Our customers remained focused on automation and efficiencies. This focus has led to increased interest in our data and analytics products contributing to a 22% growth year to date, and our data and analytics business.

Through our AI queue solution and analyze our tools customers can save thousands of dollars per loan by leveraging our artificial intelligence and machine learning tools to drive automation and the loan manufacturing process.

We are pleased that the value of our offerings continues to resonate with lenders and we remain optimistic about the long term opportunity to leverage our mission critical technology and data expertise to accelerate the analog to digital conversion happening in the industry.

Now turn the call over to Jeff.

<unk> been <unk>.

I want to start my prepared remarks by highlighting our vision of how ice is contributing to both the U S home mortgage and U S equity markets to bring increased efficiencies to consumers in these two asset classes.

To take you back ice was initially founded to build and operate digital commodity exchanges.

Modern digital exchanges provide an essential service efficiently matching buyers and sellers with operational neutrality.

Our modern exchanges are regulated but more importantly, their growth and efficacy depend on the industry Trust of our neutrality iced.

Ice does not take a position on the price of any commodity or security, we simply provide the software and network that efficiently facilitates a buyer and seller finding one another and allows them to determine their transaction price.

Today millions of traders investors brokers and regulators around the world are attached to our exchange networks and they all benefit from the transparency and standardization that we enable.

We followed up our launch into the exchange business by building digital data networks to disperse information separate from our exchanges networks that thrive on the neutrality and confidentiality of our data management.

It is likely obvious to you that our data networks would contain financial information generated by our own exchanges, but it may be less obvious that our growth has been accelerated by opening these networks to third parties, including most of our global exchange competitors, who also access our customer base.

Today hundreds of third party exchanges brokers and market data generators publish their data to users across our networks.

Our growth in the U S mortgage industry builds on the same management tenants trust transparency and neutrality, our mortgage software and network are open and impartial.

<unk> has been at the forefront of building a mortgage platform. So that industry participants can better communicate with one another reduce their costs.

Pass the savings on to consumers in the form of better prices and appropriately implement the governments homeownership policies and.

And it is in this vein that we have agreed to acquire Black Knight two.

To connect their market participants to ours open up its platform reduced cost per mortgage origination overlay the safety and soundness practices that we've developed for businesses like the systemically important New York stock exchange and create new products and services for lenders to increase homeownership, including in under.

Communities.

As a part of the budget that we previously guided you two ice plans a significant financial outlay to open an upgrade the black Knight technology stack of commitment that we believe would have been hard for black Knight other potential acquirers to make potentially.

In a contracting mortgage environment.

This is the same strategy and commitment that we made when taking over the mortgage electronic registration system, which today has durable and scalable operations in technology built by ice.

Systems that are prepared to manage the difficult risk environments in the U S housing market.

And is shown on slide 10, these murders processes can identify and deregister failed lending firms, who become zombies to borrowers and regulators.

You may have recently heard Sandra Thomson the federal housing finance agencies director lamenting how stakeholders in the mortgage manufacturing process seemingly lack the will to adopt technology that changes their entrenched methods.

This is precisely the challenge that ice is laser focused on solving.

Jillian pet pointed out in her book the silo effect that the U S. Mortgage industry is so siloed that the federal government's past attempts to help troubled homeowners stay in their homes by reducing mortgage payments actually exacerbated the foreclosure problem because lenders lowered monthly payments.

And Servicers mistook this as consumers falling behind and initiated foreclosure proceedings.

As Austan Goolsbee once said the silos were so strong they did the exact opposite of what everyone expected.

With the explosive growth of the fin tech industry over the last decade. The U S has seen a dramatic upsurge in the number of alternative home lenders and mortgage technology providers, who like ice or building solutions to benefit lenders and borrowers.

Slide 10 also shows the number of new lending firms that just this year have registered to do business with Merce and.

And surprisingly the number of lending firms has increased in a year, where consumer demand for mortgages has decreased.

This increase lender competition presents opportunities for ice to take costs out of the mortgage it's manufacturing process. So that these lenders can compete more effectively passing those savings on to borrowers.

The high cost of manufacturing and funding a home mortgage that we target are particularly acute for the most marginalized borrowers, which further exacerbates the wealth divide in the United States.

Our acquisition of Black night remained subject to review by the Federal Trade Commission.

This is provided the FTC with extensive information and certified its completeness.

As is often customary we agreed to extend the F. T seas statutory review period and intend to continue Isis cooperation with the F. T C staff.

Our estimate is that the black Knight merger will close in the first half of next year.

While we will be unable to answer any questions on this call relating to our transaction with Black night. Please know that our participation in this FTC review coupled with the comprehensive conversations that we've been having with our customer base as further convinced us that our merger will afford significant benefits to U S homeowners and.

Industry stakeholders.

And while on the subject of regulators I'd like to comment on the recent remarks from the Securities and Exchange Commission focused on the structure of the U S equities market.

It is June 8th speech shared Ginzler noted the key elements of the national market system rules haven't been updated since year 2005.

And since that time, the U S equity markets have become increasingly opaque.

Today, most retail order flow is executed through off exchange bilateral trading relationships with a small number of wholesalers. These.

These wholesalers are able to trade against customers without exposing those orders the competition.

Some cases wholesalers pay retail brokers for the privilege of this first look at their clients order flow.

This practice is known as price improvement and it refers to locations where a trade is made at prices better than the national best bid and offer ticker displayed by the public exchanges.

Trades that often contain fractions less than one whole penny per share.

What's often left out of this price improvement narrative. However is the fact that public exchanges like the New York stock exchange under current FCC rules are actually prohibited from displaying orders at price increments less than one whole penny.

As a result public investors are in fact prevent it from narrowing the national best bid and offer ticker two sub penny price increments.

But ask yourself this.

Is the national best bid and offer ticker really the best market price that we should all be relying on if investors can routinely by share of stock cheaper than what's displayed we.

We measure the opportunity for investor price improvements savings to the tune of $1.8 billion a year. If there were a simple harmonization of the quote and trade increments across the entire market we.

We hope that this opportunity will be considered by the SEC.

Ice has been consistent in its strategy promoting standardization fair transparent markets and networks using state of the art technology.

We embrace opportunities to transform businesses to create efficiencies and lower customer costs not only in home mortgage but even in at 230 year old business like the New York Stock exchange.

I will conclude my remarks on slide 11 the.

The third quarter of this year has been marked by rising inflation fluctuating interest rates in central bank activity concerns over energy and food security and global political uncertainty.

And I can't think of any firm that has been better positioned to help manage these risks than ice.

Our customers rely on our data technology and liquid markets to navigate through this environment.

In the third quarter. We once again grew revenues grew adjusted operating income and grew adjusted earnings per share.

These record setting third quarter results against our extraordinary third quarter results of last year reflects the all weather nature of our business model.

We have intentionally positioned the company to provide customer solutions and numerous geographies and economic conditions to facilitate all weather results.

I would like to end by thanking our customers for their continued business in their trust and I want to thank my colleagues that ice for their contribution to this record third quarter following up on our unsurpassed first half results.

And with that I will now turn the call back to our moderator, Charlie and will conduct a question and answer session until 930 eastern time.

Thank you if you'd like to ask you a question. Please press star followed by one on your telephone keypad.

It's truly a question. Please press staff for the <unk>, what's the <unk>.

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As a reminder, we will only be taking one question and one follow up from each office and you wish to offset other questions. Please potentially cute.

So that staff of buy one on your telephone keypad now.

Our first question comes from Richard Repetto apartment Sandler Richard Your line is open. Please proceed.

Yeah, Good morning, Jeff Bennett and worn and first thanks for the comparison water on the mortgage technology.

Performance versus unit originations that's helpful, but as we dig in you outperformed again against unit origination can you give us a little bit more detail on which lines.

And the more are outperforming like data analytics, we would expect that to be 100 per cent recurring and that's been.

Outperformed but like the other has been flat and we expected it to be all variables. So the question is.

What's getting you to.

Perform the unit originations and.

Within which lines and mortgage.

Sure.

[noise] Richard spent.

So as you can appreciate.

Our our whole.

My Pops us on this deal and what we've been doing in the mortgage space is all directed towards a long term view of taken one of the most analog asset classes that there are and turning it digital and that's what we believe over the long term.

Will enable us to achieve that 8% to 10% 10% growth.

And the contributors underneath that are really we're very focused on product innovation and in particular, helping our lender lender customers lower costs become more efficient and as we do that we're hoping that the savings.

That those lenders achieve are then brought down to their their clients. The end consumer and will translate into better product selection. It will help to lower costs for the end consumer it will help enable them to get the best products at the most efficient prices to meet.

Their needs and achieve the dream of homeownership. So that's.

From a long term perspective, what our focus has been and where we're making our investments.

Overall, what's driving our ability to beat is the intentional shift towards subscription revenue.

So if you look across each of the segments that we have we're pushing very hard to move more and more of the revenue in each of those reporting segments more towards subscription.

When we can.

And one of the things I'll I'll highlight in terms of success. This last quarter, even with all the headwinds that the industry has had two thirds of the customers that renewed in the third quarter renewed at higher subscription base levels.

By the end of that quarter than they were at at the beginning of the quarter.

The other thing I'd say is that it has it has been a difficult environment has been a difficult environment and despite that we only saw a single small single digit percentage of our clients not renew.

And most of that is due to M&A industry consolidation and closing up shop.

But one of the things we've seen as a as a positive for us with some of the backdrop of this industry consolidation as some of these companies and their employees have been diet downsized some of these.

Impacted personnel have used it as an as an opportunity to become an entrepreneur and start a new lending shot and those are opportunities that we compete for and we've won some of that business on encompass this past quarter. So we've seen sales success and origination on.

On encompass both in the smaller startup companies the mid market as well as banks. So that said a lot of what's going on in our origination process origination blind item in reporting line item as well as the fact as we move more and more of that revenue towards subscription and we are very low attrition.

And the data and analytics area, what's really fueling our ability to beat there is the same so data and analytics does have historically a transaction element to it.

We have been moving this line item very similar to our origination line item more and more towards subscription as clients renew.

And as we signed new clients to make sure that we're tilting those deals much more.

Towards subscription revenue in the big piece of of.

Of product that we have in that area. It's a product called AI Q. That's the product that's automating a lot of the underwriting process processes.

And that's a big area of where today, we're generating around $1400 of savings and originating alone a lot of it is anchored in this area of automating the underwriting process for our customers I mentioned that in the second quarter, We signed J P. Morgan Chase, that's going through and implement implementation on this and this quarter.

<unk>, we have several wins across different segments that that we that we sell to from banks non banks and credit unions, and we had a significant win with with lung depot this past quarter.

Which day like many lenders are trying to get the efficiencies said that.

That our platform will provide to them so.

So that's a little bit of a flavor and some other segments of what we see under the covers.

[laughter]. Thanks. Thanks.

Thanks for the detail my follow up question would be in the exchange segment and I don't know, whether it's for Jeffer bend, but.

The the energy complex not just you industrywide continues at least to <unk> a lot of us.

With the volume performance, there and again, it's not just you its industry, but Jeff or bank could you give us a little bit more insight into you're making up a good part of the volumes growing financial futures in cash equity and options, but like the gasoline will contract I believe it's down.

40% year over year, and this idea of higher margin.

Causing corporates and speculate as to pull back could you give us some more color into the energy complex specifically gas oil.

Sure sure Richard it's been again and.

You alluded to it in the way that you ask the question around the way that we manage this business is from looking at the overall portfolio and we have a wide lens.

This and we pride ourselves in having the deepest and most liquid.

Futures markets to enable our customers to manage risk across the energy spectrum also in the global rates environment, we manage our business as a as an overall portfolio.

And that's the the nature of that all weather aspect of our of our stock and energy, specifically, which is where you are where you were going.

We manage even the energy segment as a portfolio and we're proud to say that despite all these headwinds.

Our energy business itself open interest is up when you look across the entire the entire business is up 6% since the end of last year.

And this is in the backdrop of a confluence of all kinds of issues.

World's dealing with right now you have this unfortunate war you have on and off Lockdowns in China.

You have pushed to move towards cleaner energy sources, you have under investment in energy infrastructure, you have major releases from the strategic Petroleum reserve all rearing their head at the same time.

And we're proud that now more than ever our clients are coming to us to manage to manage their risk.

And I'll I'll touch on a couple a couple of areas within energy.

Specifically about gasoline, so I'll touch on that as well.

So you broadly speaking, we positioned our business to help clients.

Manage.

They're they're transition towards the cleaner energy environment and that's why we have the most deep liquid markets around the globe and oil natural gas power LNG an environmentalist.

Oil we have seen some headwinds you focused on gas oil and your spotter and gas oil has had some headwinds.

Most of this.

Is associated to the market meeting clarity around how Russian oil deliveries into the contract would be handled because historically Russian oil did go into that contract.

We work with governments.

And customers to come up with a market based solution to this and also landed on a sanctions regime that we aligned to that at the end of this year Russian oil can no longer be delivered into that contract.

Once we did that and provided clarity to the market for that we have started to see open interest rebuild in that contract in calendar year 2003, and beyond so that's a positive is going to take some time for that to play out, but we're seeing that on the horizon. We believe that that's going to turn the corner.

What's that up with an oil itself expanding further across what's going on in the portfolio.

We've had some some very positive development. So our options contracts have done very very well.

Brent alone is seen options volume up 14%.

Year over year and part of the reason for that is that options contracts enable a traitor to hedge a whole range of outcome and enabled them in an efficient way to manage geopolitical risks and there's also a little bit of a lower margin requirement associated these because if you're buying an option. You are risks on that option is limited to the premium that you pay so all of that is.

Corporate it into the into the margin models. So we've seen a lot of success in our options markets.

And we have new innovation. So we continue to build our Mervyn contract that we launched.

And we're continuing to hit records consistently with our Midland W. Ti Gulf Coast contract.

That we launched early this year. So we're having some good success and continue to build on that.

The other area I touch on quickly would be natural gas.

So our natural gas business, you have to again to expand the lens and look at it from a global perspective, I mentioned U S gas is at a record and up 23% in volume.

Globally are natural gas business is up 16% and 6% in Hawaii.

And some of the inputs to that or as our Tcf business has seen some headwinds because Russia has historically supplied 40% of the gas to continental Europe and this supply has effectively been cut off.

Well, what's filling the void U S. LNG is filling that void for Europe , and that's fueling strength in our North America gas complex as commercial customers are trading or Henry and our basis markets <unk>.

Significantly and also a lot of those LNG cargoes that are going to Europe are hedged via our TGF contract or Henry hub contract basis markets as well as our LNG markets.

And the last thing I would say on the.

Gas markets is that we're innovating and working on market based solutions with Europe as we understand the situation they're.

And where we announced just recently we are gonna be launching some new contracts new basis contracts in Italy, France, and Germany and gas to trade alongside our existing continental gas business and then in northwest Europe in southwest Europe .

LNG contracts that will trade alongside our J K M contract.

And it's important that the feedback we're getting from our clients is that all of these contracts are likely to trade basis and relative to our TTS keep liquid.

Price benchmark.

Got it. Thank you for all the detail then.

Thank you next question comes from Ken Weddington of J P. Morgan Ken Yolanda. It's open. Please go ahead.

Hi, Good morning, Thanks for taking my question I'd like to spend a little time on the old white business and the European right complex.

We've seen inflation in Europe , and the highest rates and more than a decade.

First spring it's back what was the peak of <unk> revenue generation for the European right business back when rates were much higher and then do you think the opportunity here is bigger or smaller today.

For that franchise, given the underlying market.

And then CME launched Esther futures I think earlier in the week, which I think seems like your term. So can you talk about the potential for investment in the rates business and product development. You think this is sort of an attractive use of resources and what are you thinking from here.

Hi.

It's been I'll I'll I'll start here.

The.

So when you look across our rates business.

The way we look at it we manager we manage it as a portfolio we look at in particular.

The the largest parts of our way franchise or with our Sonya.

Guilt business as well as your <unk>.

And underneath the covers.

When you look at what's been going on geopolitical Lee.

And in the in the overall the overall environment.

Continental Europe has actually done a pretty good job of signaling how they're going to handle this rates environment.

Add in the market has responded very well to that and that's what's led to just a.

Very very solid year in terms of your rivalry volumes.

As well as open interest is that is up over 60%.

On a year over year basis, so that that part of the business is done extraordinarily well if.

If you look at the UK, specifically and Gilson Sonya.

Yeah.

There's two dynamics going on there was sonja specifically when you're comparing our performance with with with last year you have to remember that last year, we had both short sterling and Sonya trading side by side.

And this year and then those converged in December of last year. So this year you have Sonia only so there's a bit of an off comparison. There is there was a significant amount of arbitration going on between Sonya in short Sterling is that convergence was taking place and now you have soon Sonya as a stand alone.

And the UK those specifically.

Obviously, there's been political uncertainty there you've had the change of prime ministers, you've got uncertain.

<unk> right high expectations, you had that many budget that shocked a lot of people you had a potential currency crisis all heading at the same time.

And that definitely wait a little bit Sonya and guilt, but we're already seeing signs of the market is stabilizing as the as the environment has stabilized there.

So we feel very good about that overall rates portfolio that we have it's definitely an area where continuing to invest we have our own software contract that we've launched as well and.

<unk>.

I know, it's an area that we're going to continue to invest in we see opportunity.

Okay. If you recall the size you know is there a lot of opportunities to grow it versus what it was a decade ago or.

That's sort of the peak of what you think this can be.

So can.

So that I can get you the exact number there, but I think it's certainly approaching where it was years and I think the record would've been sort of Oh eight O nine that kind of arrangement in terms of the revenues. We've certainly made some adjustments to R. P. C's in that in that complex too and and there has been some pressure from FX. This year. So so I think we're kind of we're approaching to wear it.

It was and we're around those levels, but I do think that the world is a lot bigger and different than it was back then and so I think because you think about the future. There is certainly room and what is effectively certainly in the garage. So the second largest reserve currency for that complex to grow well into the future regardless of what the prior level would have been.

Great. Thank you very much.

Thank you next.

Next question comes from Daniel <unk>, Oh, Jeffrey Daniel Your line is open. Please go ahead.

Thanks, Good morning, So a couple of questions just on the fixed income data business suit the execution.

As well as the clearing his that's in pretty strong activity. This year, you mentioned higher rates that you're talking about just participation levels customer growth other areas or are these really more just kind of external factors kind of finally more of the tailwind.

Hi, Dan This has led Martin thanks, so much for that question and absolutely volatility has been a tailwind for the execution side of business with record levels of C. D. S. Clearing so far in 2022 about what we're really we continue to be really excited about it.

Pick up of activity and our eyes on platform, where as a result of that continued fed rate hike, you've seen tremendous volatility in fixed income markets global anti fond of the beneficiary of some of that volatility, particularly in our treasury or me.

Any corporate bond, our CD business, where he'd seen record levels.

Activity and volatility in fact activity measured on a volume perspective is almost 200 per cent up in Q3 versus last Q3.

I am very important factor, though is how we brought in out the participation in those platforms, particularly focused on institutional customers and in Q3 alone in our Union market you saw the levels of institutional participation and grow by.

892 per cent.

So that just continues on a trend that we've seen as a result of thinking about particularly the muni market.

As an ecosystem and driving additional institutional participation across our platform.

Understood and then on the data and analytics side I think warn you mentioned.

Fourth quarter being kind of flattish with the third quarter in terms of growth in deciding.

So I think the I think lower bonds outstanding as a part of the factor I guess could you remind us of the pricing model I thought this was more of a subscription based model more recurring revenue associated with customers not bonds outstanding.

I guess <unk> provide a little more clarity understanding in terms of.

How we think about the the outstanding bond versus.

Customer growth and other things in terms of drivers of revenue.

So Dan this is Lin again, I think I'll I'll start off and then turn it over to Lauren. Thanks for the follow up question, because I think what you're planning to really illustrates how we build businesses to be all bladder businesses and we talked about the volatility.

And the market's being a significant tailwind for our execution side of the business.

It's been a bit of a headwind for our fixed income data and analytics line, whereas Warren said in his prepared remarks.

If you think about our index business, we've seen assets flow out of our higher capture.

<unk>, specifically equities corporate bond.

<unk> and assets flow into indices, where we have a lower capturing specifically our treasury indices. In fact, if you look at the AUN benchmarked against our embassies, it's actually at an all time high but the mix has significantly changed which impacts the revenue.

And is Warren said another tale another headwind, we're seeing that's affecting a fixed income data and analytics line is a new bond issuance, which slipped and fixed income. This year. So that has impacted the growth rate of our legacy PRD business, which has continued to grow albeit at a much slower.

Right.

That's sad volatility again has been a.

A tailwind for the other part of our data services, particularly or other data services line, where you see various factors increasing to what we believe it advertise growth in that line, including 22 per cent increase in demand for our capacity and our ice global.

Network as volatility continues.

To require customers to have reliable resilient connectivity and higher bandwidth connectivity double digit growth and arkansas's a data feed business double digit growth in our data analytics business, which provides transparency too opaque asset classes and outsize growth and our desktop.

Foreign specifically, our chat platforms as ways that customers interact with our markets continue to modernize.

And then I just added that just give it a little more color on the on the consumption of course, there is a subset of customers that that do take or consume I should say based on the number of securities that that they are priced in the fund holdings that they'd have it typically will be custodians, and and and participants such a <unk> a lot of them honestly hope.

Most if not all of the bond market, if you will and so as the bond market and size fluctuates and this isn't necessarily.

Related to refinancings, which will be sort of a cancel and replace it's more around new issuance and the growth of the I'll be overall bond markets, whether it's corporate or <unk> or structured products does that fluctuate, it's and it tends to be sort of lower single digit growth over a year over the years that will that will help work with some extent hurt the growth.

And that component of of our subscription business, but.

But again, it's it's a part of the <unk>, it's only a portion of the overall PRD business from the overall data business at the end of the day that that that applies to.

Understood. Thanks for the detailed answer.

Thank you as a reminder will be taking one question and one follow up from each participant.

Next question comes from Kyle voice of K V. W. Kyle <unk>. Please go ahead.

Hi, good morning.

Wondering if you could comment a bit more on the health of your customers and the mortgage Tech segment.

You mentioned earlier in the call that there was some customers that didn't renew mostly to shuttering are consolidating but we're really in the beginning phases of what could be a long and challenging volume environment. So I guess the question is if the current mortgage environment remains extremely challenging over the next year do you still believe you can grow the recurring revenues year.

One year in that segment and offset client attrition or should we didn't expect some slowdown on that part of the business as well.

Thanks. This has this has been an.

We do feel confident in our ability to grow the business over over the long term horizon of that 8% to 10% and I think this past quarter.

As a as a as a perfect example to point at you.

You had the market down year over year close to 60%.

And sequentially it was down north of 25%, so very tough environment for clients and.

And yet as we approach them about <unk>.

Shifting more of their the economic model that we have with them more towards subscription.

Even if it cost us some transaction revenue, they're they're willing to do that and that's why we were able to get two thirds of the customers to renew.

And in this environment low single digit customers didn't renew.

So I think that's a.

A very good sign it a testament to the resiliency of the business, but also the mission critical nature of the technology that we provide.

So from that standpoint C. It is all positive the other thing that if you go back to the slide that Jeffrey <unk> two in his comments and you see what's happening with some of the churn in new lenders that are starting up.

As some of these personnel are impacted their starting up new lending shops, and we're seeing growth in terms of new lenders. This.

This year.

The population down from that verse graph that Jeff showed is higher than it was last year.

So that is a testament that there's new startup startups coming up on the scene as these folks startup they want to adopt automation and the most efficient way to to.

To set up their businesses and we are well positioned to win that business, albeit it's a competitive environment and we compete with others for that but we have winds in that environment. So can we expect some of that turn to continue but where there's where there's customers that potentially go out of business. There is also startups that happened on the back side of it.

And this is Jeff and let me just in.

In the past.

Earnings presentations, we've shown you the demographic trends that are going on in the United States and.

Yes, there are higher interest rates, yes, there are supply chain issues for homebuilders.

Uncertainty for homebuilders, but there is a.

Unbelievably large demographic of people in this country that are starting new households, having children getting married moving on with their lives.

And and that demographic trend.

One way or another has to be satisfied with a place to live and so and so I think what you're really seeing on a macro basis as us building solutions to deal in part with that population.

Understood and in terms of follow up I, just want to follow up on Dan's prior question.

Regarding the fixed income AFB growth decelerating to 4% in the quarter versus five 5% last quarter.

I appreciate the additional color on the index business in the headwinds facing but just in terms of quantifying that was that really the entirety of that kind of deceleration.

We saw from from five and half to four.

Or some of the other aspects that you mentioned also also playing a role into that when we look sequentially.

Sorry, Hey, Kyle sworn so so there are a couple of things there I mean, certainly the macro headwinds we talked about on the website and some of the pricing business, but also don't forget your next as part of that as well, but but if you adjust for those yeah, well, let me look at the adjusted for those roads around five per cent of is closer to 5% for the quarter. So we feel pretty good about that <unk>.

Given what's going on within fixed income markets at the moment and again don't loose Limbed mentioned this but don't lose sight of the overall segment results were the segment was up 14% year over year from a revenue perspective, we're up 12% year to date in that business operating margins in the quarter or operating income and a quarter I should say it was up about <unk>.

30% and margins grew by six point. So so overall, we're very happy with the performance of that segment and a lot of factors that are weighing on what we're seeing on the pricing side and on the index side or was benefiting for us on the on the trading side. So so those results this year or some of the best we've had ever and so we're pleased with the results of the business overall.

Understood. Thank you.

Thank you call. Our next question comes from Alex Crumb of UBS, Alex <unk> iPhone. Please go ahead.

Yeah, Hey, good morning, everyone want.

Want to come back to Rich's question on the energy performance.

Then.

Answer.

It almost sounded like you blamed Russia, Ukraine situation almost entirely what you're seeing the end up performance. They are so that almost sounds a little structural also just wanted to.

Make sure there are other factors that you can maybe isolato, even even pointed some green shoots and is it margins having to come down as it volatility may be coming to more normal.

Or what would you what do you think.

Needs to happen for maybe that business too in its current form perform a little bit better unless it really is structural and something has changed and then quickly there's more talk of price caps in Europe as well. So just wondering how you view dose in terms of impacting your business because generally speaking somebody interfering and market forces. It's usually like this before.

So just maybe those two additional areas and energy.

Thank you Alex Yes, I think what you're what you're seeing and I'll I'll give a little more color on some of the things under underneath underneath this but what you're seeing is that a lot of these sanctions regime regimes have not been put in place. So.

You've put.

Put it get being put in place. The example of gas oil earlier, it's at the end of this year that those that those oil deliveries cannot happen.

So you have some traders with cop month coming up right now and end of the year that just won't won't touch those contracts until this gets through and that's why I also highlighted in the earlier question that we're starting to see open interest build.

Twenty-three and beyond in the.

In the in the gas oil and gas oil contract as an as an example.

And natural gas I think the things that I look at and that that are encouraging to me is that when you look at our TTS business.

And you look at October of last year versus October of the month that just passed the.

The number of active market participants that we have in Tcf is exactly the same we have lost any market participants that are trading Pts.

So that to me is a sign of of of longer term strength in the business as the situation is the situation clears we've.

We've also at the same time grown our data subscriptions and TTS double digits in that same period of time, so there's more eyeballs and more people paying attention to it.

So from a from a from a longer term perspective, we feel we feel good about the positioning of these contracts as I had mentioned, we're launching new contracts with those new basis gas locations in Italy, Germany, and France, as well as the northwest Europe and South.

Western Europe .

LNG contracts feedback from traders are all going to price relative to TTS. So we feel good long term about about that as well.

Price caps.

That you also also mentioned May look we understand the severity of the situation in Europe .

We are very active dialogue at the table with government and with regulators and commercial customers to forge a market based solution to these issues and.

We know our role is to create deep liquid futures markets to provide important price signals on supply and demand dynamics.

As they're changing to make sure that people have the best pricing tools, the hedge manage their risk through our discussions and you can also see through media that's happened over the last couple of weeks.

There is acknowledgement.

Broadly of the issues with price caps and and in a general agreement that they don't want to disrupt.

The price discovery and.

And so a lot of the issues that are being highlighted in these articles and that we've been we've been expressing and commercial market participants have been expressing as well as several governments.

Or that an artificial price limit on the commodity makes it very difficult to accurately hedged commodity price risk.

Second would be if you're.

That if you put price caps in these markets you could end up having the unintended result of taking volume and liquidity from transparent lit markets and moving it to the OTC markets reversing that more than a decade of progress that's been made here.

If you create an artificial price in the settlement and the settlement in the clearing houses it makes it difficult for clearing houses to manage the accurate risk that we're exposed to if it's dislocated from what the real market price is of that position.

And it can create an artificial price debate over encouraged consumption, which is not what people are looking for right now and obviously these markets are global and supplies and go elsewhere. So that's why we're at the table were encouraged that recent rhetoric, because they understand a lot of those issues and risks and we're in the middle of putting forth market based solutions, which is why we are.

Sure.

Proactively launching all these contracts in December and are continuing in the middle of the dialogues to help the situation. So.

Which.

Thank you I appreciate the incremental color have just one quick one for war and then.

It seems like your revenue is benefiting from higher rates directly Ah more.

So I was just hoping you can remind me what.

What the magnitude is I think in the L. D C and other line on the exchange site and then on the Cvs business, you've got net interest income so maybe.

Some underlying data you can give us in terms of the balances and the rates you're getting what rates, you'll mostly sensitive to a as in in Europe and in the U S. Because obviously the rate the rate pictures fairly dynamic. These days. So just just wanted to make sure we understand how to model et cetera.

Sure. So in terms of OTC. Another about if you look at the second quarter about half of the increase would have been related a member of interest in and I'll just say two within not only just the C. D. S business, but also within our clearinghouses, we're not trying to be a bank, where the service, we're providing as clearing and risk management.

And that's the value of that were provided to those customers and so we're actually we're trying to lower collateral levels, where we can.

Ben mentioned, pushing people or I should say, leading people towards the benefits of options.

We're working on trying to expand the different types of collateral that will be accepted as such as accepted such as with some of the emissions allowances and so we are still start we're starting to see a little bit of normalization and some of the collateral levels.

As we sit here in October , but it's just difficult to predict where that's going to go you know it. It certainly is part of or a significant part of OTC and other but there are a lot of other elements to that line item as well. So so it's been the driver of some of the growth we've seen but it's certainly not the.

The vast majority of if you will of the total line at the end of the day and then the same ago would hold for the Cvs business. We're certainly has helped.

As as we as collateral levels have built their but we're also as you would imagine seeing really strong trading volumes across that business, where they are clearing volumes of cross that businesses is certainly has the headlines around recessions in an interest rates continue to build the demand for credit risks can credit protection is increasing alongside that.

So that's been really a bigger driver.

Things or over a longer period of time than than anything else and don't forget to that in the third quarter, that's a role quarter as as the first quarter. So we benefit a little bit from that as well relative to maybe the second and fourth quarter in that business.

The other area I would just point out to us if you go below the line, we're actually benefitting a little bit from the cash on hand.

The interest that were earning on the bonds that we have our started on the on the cash we have on hand, so there's been a benefit that from a from an interest rate perspective, as well that's flowing through the income statement.

In addition of course to the benefit we get on the future side from from higher rates within your drive over and some of the UK interest rate businesses as well.

So there's there's a number of different things across the platform of course those rates are rising that were that were benefiting that may be offsetting some of the areas that they tend to do or not do as well during during higher rates environments.

My Great I'll follow up for some of the.

Details right stuff.

Thank you to to talk to your shrink that was our last question of today I will now hand that kind of two checks breakfast for any closing remarks.

Well, thank you Charlie and thank everyone for joining us this morning.

Would really like to again, thank my colleagues for delivering yet another record quarter and thank our customers were putting your faith in us during these very uncertain times, we appreciate your business.

We look forward to updating you all again as we continued to execute on the opportunity set that we are able to talk to you about today and with that I Hope you have a good day.

Ladies and gentlemen. This concludes today's cool you may now disconnect your lines.

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