Q3 2023 Cboe Global Markets Inc Earnings Call
Good morning, and welcome to the C. Bo Global markets third quarter 2023 earnings call. Please.
Please note that this call is being recorded.
All participants are in listen only mode at this time.
After the Speakers' remarks, there will be a question and answer session.
I would like to ask a question. Please press star followed by the number one on your telephone keypad.
So it was draw your question Press Star one again.
Thank you.
I'd now like to turn the call over to Ken.
L Vice President of Investor Relations. Please go ahead Sir.
Good morning, Thank you for joining us for our third quarter earnings conference call on the call Tonight, and Tom <unk>, our CEO and Dave Howson, our global President discuss our performance for the quarter and provide an update of our strategic initiatives.
So we're even though our executive Vice President Chief Financial Officer, and Chief Accounting Officer provide an overview of our financial results for the quarter as well as discuss our 2023 financial outlook.
In their comments, we will open the call to Q&A also joining us for Q&A will be critical I think that our chief operating officer, and our Chief strategy Officer, John Deters, I would like to point out that this presentation will include the use of.
The slides, we'll be showing the slides and providing commentary on each a downloadable copy of the slide presentation is available on the Investor relations portion of our website.
During our remarks, we'll make some forward looking statements, which represent our current judgment on what the future may hold while we believe these judgments are reasonable. These forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties.
Actual outcomes and results may differ materially from what is expressed or implied in any forward looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward looking statement.
We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise after this conference call.
Joining the call. This morning, I'll be referring to non-GAAP measures as defined and reconciled in our earnings materials now I'd like to turn the call over to Fred.
Thanks, Kevin.
Thanks, everyone for joining the call this morning.
Having taken about six weeks ago.
With the strength of the Paypal team and their.
Focus on our clients, which has resulted in another strong quarter for the company.
For today's call I will highlight our overall result, sure why priorities on seaborne CVR.
I will then hand, it over to a global President David <unk> to walk through the progress we made against our strategic priorities.
I am pleased to report record third quarter adjusted earnings for Cmos.
During the quarter, we grew net revenue by 9% year over year to $481 million.
Adjusted earnings per share by 18% to $2 <unk>.
These results were driven by record activity across our derivatives.
The continued growth of our data and access solutions.
While our third quarter operating expenses.
The lower corporate tax rate.
Our derivatives franchise delivered another record quarter.
Total organic net revenue increased 15%.
And the uncertain macro and geopolitical environment impacted markets globally investors and traders relied on our suite of index options and volatility products to help manage risk and generate income.
<unk> environment.
We believe our tourism industry.
Remained incredibly resilient.
Supported by our growing customer base.
Optionally product that is becoming increasingly recurring in nature.
Faster shift to shorter duration explorations and more frequently possession around changing market environments.
During the quarter organic net revenue in our data and access solutions business increased 9%.
Net revenue on our cash in spot markets.
Decreased by 6% during the quarter, reflecting the immuno volumes, we saw across the global equity markets.
These solid results were made possible by the continued execution of our strategy to build the world's largest to revenues in securities network and possession CMO for a strong finish to the year.
Now after the CMO Board member for the last four years.
Very close to the business in support of the team.
<unk> expanded and evolved into a leading global revenues and security network that it is today.
The company has a solid foundation.
Mobile ambition and a strong management team that I'm honored to lead.
In my new role I have primarily focused on three key priorities that I believe will further strengthen and enhance shareholder value.
First sharpening our strategic focus.
Second effective allocation of our capital and training and developing talent and management succession, while I wholeheartedly supports <unk> strategic direction.
The opportunity to redefine the strategy to provide a clearer focus on the core elements of our business that drive revenue and earnings growth.
I believe our sharpened strategy will enhance the margin profile of our business and increase shareholder value over the longer term.
I will also focus on ensuring our capital allocation plan is delivering the kind of returns our shareholders expect from CFO.
I am intent on increasing the efficiency of our investments that we make across the business to generate durable revenue growth.
Finally talent development and succession planning, which is always an important component of any CEO of stories on responsibilities will be a priority for me.
Now I'll turn the call over to Dan Houser, So talk through how we are driving results within our strategy.
Thanks, Brad.
As noted our strategy yielded solid results during the third quarter as we continued to advance our strategic growth priorities during the daytime.
Data and access solutions and digital.
Before moving to the record results for our derivatives and DNA businesses, Let me provide an update on our digital segment.
We are working with our customers on the CNBC on final preparations for the planned launch of marching futures in the first quarter of 2024 subject to regulatory approvals.
With this launch <unk> will be the first U S regulated creep COVID-19 exchange and clearinghouse to offer spot and leveraging derivatives on a single platform.
We look forward to bringing the unique product to market.
Turning to net derivatives and data and access relations last month, we made important leadership changes to further support our global growth strategy.
I think clay, who previously led our data and access solutions business was appointed to global head of derivatives.
A new role for the organization as we reorganized the team for the next chapter of global growth.
Furthermore, we kept our strong bench of talent to provide Adam into realized to global head of data and access solutions.
By aligning our organizational structure to the global nature of the business, we anticipate harnessing the full strength of CEVA, increasing efficiency and collaboration across business lines and regions, while enabling us to better deliver world class products and services and a globally consistent manner to our call.
Hi.
Turning to derivatives on slide eight it was another record quarter for that business as traders and investors tend to our flagship S&P 500, and the VIX index products.
The uncertain macro environment.
SPX volumes surged, 21% to a record Adv of $2 9 million contracts in the third quarter, while our mini SPX contract excess P jumped 82% year over year.
Within SPX the fastest growing segment continued to be the zero day to expiry ocean, gaining 33% year over year.
Investors UEC for hedging income generation express synergies on market direction and more the diversity of use cases is why we expect to continue to see strong and sustained volume zero DTE options, regardless of what the market is doing and where the VIX trading.
These options have opened up a whole new written premium for investment to capture namely intraday risk.
And that uncertainty increases regarding the longer term macro paycheck interest in capturing shorter term trends and dislocations have led to a higher share going to zero DTE option now comprising around 48% of all SPX volumes in the third quarter.
However, it's important to note that while their DTE options on making up a bigger part of the pie. The pie itself is growing as well.
Thanks, guys are also seeing higher volume, including our standard monthly SPX options contract that expires in the third Friday of every month.
We believe that volumes are being used less as a diversified equity risk and invested are increasingly turning to options to hedge their portfolios.
That hedging demand.
I would explain why thanks option volumes up being cited strong with Adv hedging 60% year over year, even as they remain VIX levels stay muted.
Investors use VIX options, primarily to protect against potential black Swan events, which typically happens when volatility levels are low or in other words when least expected.
We believe the attainment buying VIX call options to potentially capture that context named it as a trend triples, or quadruples something that is harder to do when the VIX index within the mid twenties last year versus the mid teens this year.
With macro and geopolitical risks rising across the world, We're seeing strong global demand for our products.
<unk> and VIX options Adv during global trading hours increased 95% and 10% respectively year over year.
As markets change our derivatives products, we remained well positioned for customers in any market environment.
Our VIX and SPX products and a remarkable toolkit that allows customers to choose the right product.
Syed and expiry to meet their needs.
Risk management, our income generation.
Yeah.
Complementing the burgeoning activity by our derivatives business CIO is continuously working to expand the suite of data products to enhance the overall trading ecosystem.
In collaboration with S&P, Dow Jones indices see both product innovation, our CIO labs recently launched several new benchmark indices for market participants.
We were incredibly excited to bring to market placebo S&P 500 dispersion index loan by <unk> DSP acts.
As well as a full new credit volatility indices.
Early market reaction has been extremely favorable in each of these indices designed to provide investors with key information to help them better manage their strategies and portfolios potentially fueling further growth in our tradable products.
On the innovation front in Europe, we are excited about the upcoming launch of single stock options on the <unk> European derivatives exchange beginning next week.
Commitments secured from leading market participants ahead of the launch highlights the opportunity to materially advanced the European options market from clients.
As we plan to introduce a liquidity provider and market, making programs in the first quarter of next year subject to regulatory approvals, we anticipate volumes on the platform to grow.
We see the largest single stock options as a key milestone for our European and regulatory initiatives and our broader ambition of creating that leading market price to manage risk around the globe.
Moving to slide 10, our data access solutions business posted record results during the third quarter with net revenue increasing eight 7% on an organic basis. The durable year over year growth was fueled by an expanding global customer base and an evolving portfolio market.
Data installations.
Through our final data offerings and cloud strategy, we can package high quality data from across markets and delivering to customers globally and are consistent and cost effective manner, extending the addressable market for this business.
We continue to see solid customer adoption C band Global cloud, our real time data streaming service that provides simple defensive access placebos robust suite of market data.
Nearly 80% of customers utilizing this service are located outside of the Americas, reflecting our expanding global footprint.
Additionally, through our cross regional sales efforts many customers are subscribing to multiple data products offered by <unk> global cloud given the simple efficient access to high quality data service before.
As we look across our global network on slide 11.
We continue to build on our solid foundation of our global cash equities business, where we have a strong presence in seven of the top 10 global equity markets, serving a diverse customer base.
While overall performance in our cash and spot markets reflected the muted volumes, we saw crush global equity markets. During the quarter, we are upbeat about the long term potential.
In Asia Pacific Seaborne, Australia market share grew to 17, 9% in the third quarter up from 16, 7% in the previous year as momentum continued to build post our technology migration.
Later this month, we expect to complete the technology migration of <unk>, Japan to our World class technology stack and launching <unk> in Japan subject to regulatory approvals further expanding our unique block trading network to this important market, we are grateful to our customers for their partnership and look for.
To providing them with the best in class trading experienced at our global customers have come to rely on etsy.
In Europe, <unk>, Europe equities business reported market share of 23, 2%, while seaborne page Europe experienced another strong quarter and remains the largest block trading venue in Europe.
<unk> Europe market share grew to 33, 8% in the third quarter up from 33, 2% in the prior year quarter.
In North America, Canadian equities market share rose to 15, 2% up from 12, 2% in the third quarter of 2022.
While U S equities market share fell to 12, 7% compared to 13, 3% in the prior year period, CEVA as addressable market share, which excludes closing auctions and off exchange volume remained stable.
Lastly, our global FX business had another record quarter net revenues were up 6% year over year in the third quarter as the business expanded spot market share to a record 22% up.
From 17, 8% a year ago.
Our MDF offering which trades on CEVA SaaS, our swap execution facility continued to see strong results with volumes, increasing 19% year over year with Adv of $1 1 billion.
These record results were driven by new client growth and increased utilization of our platform by existing clients.
In summary, CBOE delivered another outstanding quarter, and we see strong momentum as we head into the final months of the year and into 2024.
With our strong foundation of derivatives cash in spot markets, coupled with our data and access solutions. We will continue to harness the power of our market to deliver innovative products and services to our customers.
As we sharpen our strategy and focus we see even more opportunity for CEVA to maximize its global potential and drive further value for our shareholders.
With that I will turn the call over to Jim Thanks, Dave as Dave highlighted CIO posted a record third quarter with adjusted diluted earnings per share up 18% on a year over year basis to $2 <unk>.
I'd like to provide some high level takeaways from the record quarter before delving into an assessment of the segment results.
Our third quarter net revenue increased 9% to finish at $481 million.
And again driven by the strength in our derivatives market category and the solid results from our data and access solutions.
Specifically derivatives market produced 17% year over year organic net revenue growth in the third quarter as traders and investors an increase in utility in our toolkit are proprietary products.
Data and access solutions net revenue increased 9% on an organic basis during the quarter.
We are pleased with the revenue growth acceleration, we obtained through 2023 and remain excited by the continued momentum into year end.
Cash and spot markets net revenues decreased 6% during the quarter on an organic basis as the trading environment remained muted across the globe.
Adjusted operating expenses increased a modest 4% to $180 million with the euro per year growth tempered by a $10 million benefit from executive changes made during the corner.
And adjusted EBIT of $321 million grew a solid 12% versus third quarter of 2022.
Turning to the key drivers by segment, our press release and the appendix of our defined that include information detailing the key metrics from our business segments.
To provide some highlights for each.
The option segment again provided the highest growth of any segment for the quarter net revenues grew a robust 14% led by a strong contribution from our index business and stable revenue per contract trend given the mix shift to the next option.
Total options Adv was up 8% as our higher priced options Adv increased 28% over third quarter 2022 hours.
Revenue per contract was 12% higher given a continued positive contribution of higher capture index products.
And market data and access and capacity fees were up 19% and 5%, respectively as compared to third quarter 2020.
North American equities net revenue was down 2% on a year over year basis in our corner.
While access and capacity fees increased 6% and proprietary market data was up 4% U S industry volumes remain a headwind for the segment net transaction fees were down 11% given softer industry volumes and market share in our U S business.
And while our U S on exchange market share has trended lower on an absolute basis, our share remains stable and adjusting for the increase in off exchange market volume and auction activity during the third quarter.
In Europe, and APAC segment reported a 2% year over year increase in net revenue and stronger non transaction revenues and favorable foreign exchange trends were tempered by volume headwinds.
Market data access and capacity and other which includes the positive impact of interest income during the quarter were up a combined 18% on a year over year basis.
And the outperformance was tempered by softer industry volumes in Europe down 13.
<unk> versus the third quarter of 2010.
In the future segment third quarter net revenue was up 14% and net transaction fees.
Yes capacity.
And market data revenue each produced double digit year over year revenue growth for the corner activity in the complex and accelerated as volumes increased 12% on a year over year basis.
On the non transaction side access capacity fees continued to perform well up 14% versus the third quarter of last year and market data revenues increased by 16%.
And finally net revenue on the FX segment notched another quarterly gain currently make 6%, making it the 10th consecutive quarter of year over year net revenue gains for this segment.
And that transaction fee revenue was up 5% and average daily notional value increased by 8% and market share and another record at 22% for the quarter.
Turning now to Cmos, Dana and access solutions business net revenues were up a strong eight 7% on an organic basis.
Net revenue growth continued to be driven by additional subscriptions and E&S accounting for Q3 organic market data growth and just over half of the organic access and capacity growth in the third quarter.
Uptick in pricing for access and capacity fees was driven by the first price increase we have pass through and over five years for physical connectivity to our multi exchange network.
Last quarter, we spoke to selectively increasing pricing to support innovation and keep pace with the utility we provide in the market. We intend to continue to lead with new user any unit growth as we provide exceptional value to our customers.
We will remain mindful of competitive pricing and our need to support continued innovation of our products.
We are pleased with the overall acceleration in organic net revenue trends for this segment and believe the momentum positions us well to hit our full year and medium term guidance range of 7% to 10%.
Specifically, we expect to see continued strength from.
Brian Tierney data sale benefitting from the sustained growth across our derivatives complex.
In Australia, we continue to see a solid uptick in data sales in accessing the migration.
We expect that momentum to continue.
And finally, we anticipate a continued focus on our sales effort to distributing our content globally, adding to the enhanced distribution capability at the hemoglobin after that.
Turning to expenses total adjusted operating expenses were approximately $180 million for the partner up 4% compared to last year.
This increase was a product of higher technology support services and professional and outside services fees to support some of our key growth initiatives and an increased travel and promotional spend given higher ongoing corporate marketing expenses.
These higher year over year changes were partially offset by a 6% year over year decline in compensation and benefits given a $10 million benefit from executive changes at <unk>.
We have historically done we did not adjust for the impact of executive departures and we would not expect the impact to be a recurring element in this in our expense base.
Moving to our expense guidance, we are lowering our full year 2023 expense guidance range.
Two $754 million to $762 million from 766 to 774.
Three basic components on a full year expense held are outlined on slide 18 of our earnings presentation.
Expenses from 2022 acquisition.
Core expense growth and growth investments.
Looking at the details of our three expense categories.
The incremental 2023 expenses from our 2022 acquisition remains at 30% to 31 million following a reduction in expenses earlier in the year.
The largest change in our overall expense forecast comes in the core expense category now calling for growth of 51% to $55 million versus our prior expectation of 59 million to $64 million.
A reduction in the product and the strong expense management trends, we have seen this year as highlighted in our third quarter results and modest growth expectations moving forward.
In addition, we have recalibrated, our cat related costs, given our updated expectations.
Overall, we expect core expenses to grow by 8% in 2023.
Moving on to growth generating investments, we anticipate that the investments we are making in the business to help drive incremental revenue to our bottom line will be in the range of 21% to $24 million, our new range is roughly $3 million to $4 million lower than our prior range and we remain committed to investing in high return areas like DNA expansion.
And a more aggressive marketing campaign and targeted products and services R&D efforts across our ecosystem.
Looking at our full year guidance more broadly on the next slide we are making some positive refinements to our forward outlook across our businesses.
At a high level, we are reaffirming our organic total net revenue growth range of 7% to 9% for 2023 and expect to finish at the high end of the range for the year.
As a reminder, this remains above our medium term guidance of 5% to 7% introduced at our Investor day, nearly two years now.
A function of the durable innovation, we've seen across the entire ecosystem that female.
As mentioned earlier, we are reaffirming our DNA organic net revenue growth rate of 7% to 10% for 2023.
In line with our medium term expectation.
Given the company's positive mark on its investment in the set enrich fund, which owns training technologies. We are again, increasing our expected benefit from the other income line, our new guidance range of 38% to $44 million is $4 million above our prior range of 34% to $40 million.
Our full year guidance on depreciation and amortization remains at 40% to $44 million and we expect the effective tax rate on adjusted earnings under the current tax laws should come in at 27, five to 29, 5% down from our prior guidance of 28, 5% to 35% in 2023.
Outside of our annual guidance net interest expense for the third quarter of 2023 with $12 million.
For fourth quarter, we expect net interest expense to be in the range of $11 million to $12 million.
On the capital front, our focus remains maximizing long term shareholder value through effective capital management and the third quarter. We returned a total of $58 $5 million to shareholders in the form of <unk> 55 per share quarterly dividend.
In addition, last week, we announced an increase in our share repurchase authorization, adding $250 million to bring our total capacity to $390 million available for share repurchases.
We remain well positioned to invest in our business and support our dividend and Opportunistically repurchase shares given our continued strong free cash flow generation.
Turning to our balance sheet, we paid down $90 million on our term loan facility that matures in December of this year during the corner.
Our third quarter leverage ratio declined slightly to one three times from one four times in the prior quarter as a result of the debt Paydown.
Since the end of the third quarter, we have paid down the remaining $75 million on our term loan facility.
Overall, we remain comfortable with our debt profile, having locked in low medium to longer term fixed rates, averaging below 3% on our outstanding debt moves.
Moving forward, we will continue to put capital to work in value enhancing ways across our ecosystem, while looking to strike the right balance between investing in future growth and driving margin efficiency.
Before I turn the call over to Brad for some closing remarks, I want to congratulate Ken Hill, who was recently promoted to treasurer and Vice President Investor Relations.
Since joining <unk> in 2021, Ken has made an incredible impact with our Investor Relations program and I am delighted for him to expand his leadership with the treasurer wrong.
Now I'd like to turn it back over to Frank for some closing comments before we open it up to Q&A.
Thanks, Joe.
In summary, I want to thank the entire receivable team for the warm welcome.
Incredible achievements over the last quarter.
<unk> success this year and over the last 50 years is a testament to the enduring strength and resiliency of the team continued to rise to any occasion and deliver results.
I'm very excited about the future of CMO global markets.
At this point, we'd be happy to take questions. We ask that you. Please limit your questions to one per person to allow time to get to everyone feel free to get back in the queue and if time permits we'll take a second question.
As a reminder.
If you would like to ask a question. Please press star one.
Our first question comes from Patrick <unk> with Piper Sandler Your line is open.
Yes. Good morning, Thanks for taking my question Fred I, just wanted to dig into the three key priorities you laid out in your prepared remarks, but was hoping you could maybe elaborate on the comments you made about refining the strategic vision.
Areas are you focused on where you see the most opportunity for improving efficiencies and what impact would you expect that to have on your overall expense growth going forward. Thanks.
Thanks, Patrick.
So obviously you have been following the strategy from a board level.
And and are providing input and comments to the management teams through the process.
I generally agree with the direction.
Clearly as a board member of my input to US However, I have been clear.
Sure.
Our current strategy is too broad when you just say new asset classes, new geographies as I used to say that my predecessor anything sets in their <unk>.
So I think a good strategy provides both greater direction and focus to the organization.
So that's the first place second.
All growth strategy starts with our gross organic strategy. So we're definitely going to focus on that to make sure. We have a solid organic strategy and then the inorganic part of our strategy will complement that organic strategy will not be the main game so to speak.
I also believe that Youll any growth strategy has been built by the management team.
With everybody provided as our endpoint along the way.
And it has to be reviewed and approved by the board.
So what's important is the first steps we have a common frame of reference.
I mean by that is we all agree on what the trends are in the business, where the world's going splitting that between what I call secular <unk>.
<unk> and cyclical trends and you always lining up your strategies to cope with the secular trends and you adjust over the short term for cyclical trends.
Also the good competitive analysis.
SWOT analysis of what the <unk> is really going to and what it can bring to different parts of the world.
That will fall out your key strategic themes why they are important and then youre various actions will fall off over the next two to three years split between organic and inorganic.
When I talk about efficiencies, obviously clearly recognized that the EBITDA margins are can fall in the last three or four years.
Okay with EBITDA margins fall in falling slightly as long as it was for a good reason.
But I think we want to sort of stabilize that trend start to turn.
In the future looking forward.
Does that answer your question.
Yes.
Yes.
Our next question comes from Dan Fannon with Jefferies. Your line is open.
Thanks, Good morning wanted to follow up on that and maybe if you could talk about capital allocation.
Going forward the authorization last week and the message we heard this morning sounds similar in terms of how you guys are allocated capital previously, but should given the organic and sharpening focus of the business should we think about buybacks.
More of a focus here in the near term.
Okay.
Overland Altice way I would say.
Well have discipline number one number first and foremost we think the best use of our capital is to invest in organic initiatives.
Seen some good returns from some of those initiatives.
And so that will continue to be a focus secondly, obviously, we have a dividend we consider that as something we just have to do almost like an interest payment to return capital to our shareholders through the form of a regular dividend.
Third I think right now as you can see from John's comments, we've been paying down our floating rate debt given the rise of interest rates and we're happy that we brought that back down to essentially zero and then we will look at share repurchases on an opportunistic basis from this point forward and then lastly.
M&A I think you should expect Youll see less M&A.
Going forward in a more focused M&A strategy.
Bigger fan of what I call deliberate M&A transactions, but right now we're going to focus on making sure. Our strategy is tight we're all on the same page.
Making sure our organic growth strategies, what we wanted to be.
Thank you.
Our next question comes from Chris Allen with Citi. Your line is open.
Yes.
Yes, good morning, everyone.
Wanted to follow up on Google.
Through the last two questions just in terms of.
Stabilizing EBITDA margins as a potential room for improvement there any color just in terms of specific opportunities that you see in any color on the timeframe to expect some room for improvement.
Okay.
Well I'm six weeks in so I think.
The announcement of that question.
And next quarter, but.
Someplace it to say that certainly an area of focus for me to try to stabilize those margins.
And find ways to improve them going forward.
Which I think the management team will do.
Good operating leverage in the business, but at this 0.6 week certain I don't have anything specific.
Our next question comes from Ben <unk> with Barclays. Your line is open.
Hi, good morning, and thanks for taking the questions to be original I'm going to continue to follow up on those first three questions. Maybe you talked about narrowing the strategic focus going forward is to what extent does that perhaps divestitures as well it sounds like maybe there was a little bit of disagreement with your predecessor about the breadth of the M&A strategy. So are you are you.
You're talking about being more focused going forward or for revisiting the existing portfolio are you thinking about balancing those two things. Thank you.
I wouldn't say there was much of a disagreement between NII and as much as.
I didn't think that the strategy of providers are not focus of the organization.
Focusing where we allocate our capital in terms of M&A solvent, but I don't think there was a difference of opinion on strategy.
It's much more about narrowing it.
<unk>.
So.
I don't know what else either.
Anybody else so in terms of the product lines that we're in we've got some exciting new events coming up with launches in our digital business.
<unk> futures in the new year with new product launches to come that and we've got the.
Asia Pacific re platforming, that's going to happen.
This year to get us onto a common technology platform and what we saw with the Australia migration was on increasing data and access and capacity. So as we get these new acquisitions onto that common world class technology platform that has some great opportunity to see that longer term growth come from some of those recent acquisitions.
This is John I think really integrations of focus to Dave Fred's point for past acquisitions.
And we do see as a consequence of the way we approach integration deep integration that.
Our return on invested capital for the tranches of deals that we pursued.
Improves over time, we manage those returns were three to five year outcomes and so we are still in process there.
On divestitures.
At this point I don't have anything specific in my mind with respect to divestitures and something every management team considers over time, but right now I would answer no. Obviously, we wanted to see how our digital business does the world's changed since we bought that asset.
As we launched our managed futures for margin futures, we wanted to see how that starts to take it.
Clearly an asset class that doesn't have the trajectory it used to have but we still think there's demand for the market for that particular asset class.
We do believe given all of that has gone on.
Our strategy is right in terms of maybe turning that asset class.
Floating in place trusted markets, where everybody has an appetite for it.
Got it thanks for the incremental color. Thank you.
Our next question comes from Craig Siegenthaler with Bank of America. Your line is open.
Good morning, everyone and thanks for taking my question and also wanted to wish both Fred Encana Congrats on the new roles.
Just starting with the index options volume the long term trajectory here is obviously very robust, but there has been a deceleration over the near term so I <unk>.
Wanted to see what you'd attribute slowing to in your view and then also do you think is zero day contribution which is now in the high 40% range is close to secular equilibrium or do you think zero day mix could move higher thank you guys.
Thanks very much for the question certainly we've had great a great Q3, with a number of rat holes coming.
<unk> coming through Q3, SaaS SPX volume $2 9 million contracts that up significantly over the prior year and VIX options up 60% versus the prior year and then as we think about momentum we think about Teva as we've begun with some records there and in fact too.
223 seed nine of the top 10, SPX days six of those being in October so good momentum coming through that will be driven in SPX that by three factors one would be the.
The take up rate hedging as investors are re risks throughout the year. The second would be that as investors catch catching up with performance through SPX co buying that and then thirdly Costa <unk> complex that you mentioned at 48% as <unk> as you close out of the SPX volume coming from zero days to expire.
We've seen an increase in the proportion that of institutional engagement as more funds more strategies are being setup to trade this incredibly balanced ecosystem.
Hedging income generation tactical strategy in systematic training of all come to light in terms of the sustainability that we see that really persisting and why do we think that we're seeing that because these continued over the last 18 months through different market cycles and different volatility regime.
And so as we look forward, we really think about.
The continued uncertainty in the marketplace, we kind of think about the fed we think about inflation, we think about geopolitical issues, there and really options in our volatility toolkit really being the place to come to manage the risk and then when you think about options in sales, it's a real jewelry and recurring income stream.
Options expire every day every week every month every year and investors will continue to reposition and re engage around around that uncertainty is really at forecasting for the rest of next year.
Just to add onto that are minor I havent seen index options slow downloads continued to rise equity volumes are off as they are around the globe, but.
So just mentioned also.
For our global trading hours and the script you heard us talk about 95% year over year growth of SPX index loss option volumes global trading hours VIX is growing as well, we still see opportunities for growth in access of distribution around the world and around the clock.
Okay.
Hey, good morning, everyone.
Good to be talking again, it's been a few years.
Good to have you again.
In terms of.
The topic is your and maybe this is a continuation from from Ben's question earlier as it comes through divestitures, maybe getting more specific the one area that you didn't highlight was the European derivative expansion now.
We've been at this for for a while now and I know Theres, some new milestones coming here early next year, but just wondering if you would look at as an initiative like that we are now when we talk to clients. We here limited appetite.
Wondering if maybe youll patients with a project like that maybe more limited than what's been done before and then maybe for Jill on the same topic can you just remind us how much the drag is of the European derivatives business today in terms of.
Expenses. Thank you.
Yeah, maybe I'll start and I'll turn it over to Dave for a second.
We just launched European driven so it's a little early to make a judgment on it.
Contrary to what I think there is two different ways of people water.
Derivatives and different market, sometimes they want access to the U S.
However, if you talk to our clients our bigger clients. They continue to tell me in any way that there's a lot of demand for liquidity moving into the U S. So that's one point.
And second point, obviously its very early.
With respect to then the multi list European option.
Expansion here, so I don't I wouldn't prejudge, it up disciplined but I'll ask Dave.
A better perspective on that.
Yes, Thanks, Brian Thanks, Alex for the question here.
When we think about European derivatives, and we've always signaled this is going to be a journey not an event.
An event in time, when you're launching a brand new exchange brand new clearinghouse in a brand new product R&D just one of those at the time, they will need time to gain critical mass and we're really looking forward to the launch of single stock options and a couple of weeks whereby we've got some strong support from industry participants.
And when you look at the growth so far a busy second best quarter for us in Q3 for index options and futures in Europe, with some new participants new futures and options market makers and some new nonbank Fcs so.
Traction continuing to build that and then when we look at the value proposition that white space to move into the European derivatives market.
Significantly still that 10 years ago, Europe, and the U S housing market sizes around about the same now it's 8% to 10 times difference in those market sizes, clearly a number of factors that we see room to grow and expand the European market by bringing that U S market structure Tibet.
With regards to the project itself and the build cost of the build essent going forward, it's purely incremental we already have the largest pan European equity exchange in Europe, we already have the largest cash equity clearinghouse in Europe, and the staff to run them. So by leveraging our global technology platform and we use.
We knew the functionality from the U S. It was a marginal incremental asset for us and so for us it's not a significant burn that concerns us while we really look to take advantage of this real gaps in the market that we think over time, we can move into we can move into a great product development and great partnership with our customers.
So SME.
We remain convicted and committed to this process.
Okay. Good thanks for the color.
Our next question comes from Owen Lau with Oppenheimer. Your line is open.
Good morning, and thank you for taking my question.
Again this is speculation about the ownership of people recently and you also mentioned infrastructure.
Mark would you please elaborate that point.
Thank you.
Can you repeat the second part of your question there for me for a second one.
Alright.
And the succession planning.
Mark could you please elaborate that point before thank you.
So maybe I'll start with the second one first so.
I always remember for the first time and became a CEO and I was pretty young.
My Board was very clear to me that my job priority. One on my first day on the job was to plan for my own succession.
So clearly that's going to be a focus here.
In terms of making sure we have the talent in the organization that we need and then we have the leadership.
<unk> set up for an orderly succession.
Yes.
My experience when you surround yourself with really good people and I've got a good team around me here.
Basically business becomes easier when you are fighting, which don't have good people and.
And good leadership of the organization things got harder, but you should assume.
I'm going to continue to work on developing the Pal team around me.
Growing through their jobs and hopefully more bigger jobs.
And when the time comes for visa stepped down somewhat as Randy and I.
I'll be the first one to say I will hand, it over to my successor.
With respect to receive ownership.
I would emphasize these rumors have come and gone over the years.
Having said that I don't think <unk> is more for sale today than it was two months ago or three months ago.
We're just continuing of most important thing for us is to keep our heads down and stay focused on running our business.
And we will deal with everything that comes of US comes at Us in due course.
Thanks, a lot.
Our next question comes from Alex Blaustein with Goldman Sachs. Your line is open.
Hey, good morning, everybody. Thanks for the question.
I was hoping we could spend a couple of minutes and just again to some of the expense trends you highlighted both for the year and mitigate or we saw 24.
The specific area I was hoping to kind of double blend into the consolidated audit trail I know, it's been a pretty big drag on expenses for you guys. This year.
Just curious how you see that evolving theres, obviously things have come out of the year that could make us better for <unk> and others next year and beyond so maybe help us frame the cap cost drag this year I'm thinking about it for next year and any early thoughts for 2004 expenses you, Matt if I can just jump in.
And I'll take this one as you alluded to there has been I guess some noise with the cabinet sure I will say as we've taken a look and firmed up our guidance as we head into the fourth quarter. You do notice that we have that core costs are that cat costs built into our core expenses and that's really a function at the funding model being.
Recently approved coupled with the fact that the cat is now in its final stage. So we're just again getting that into our core expense base and really looking to see that moderate as it relates to 2024 too early to comment on that we will share our full year projections with you in February of next year, but.
Again for 2023, as we communicated today, we did trim our expense guidance and in our core expense growth looking to come in at about an 8% growth over 2022.
Okay.
Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Great. Thanks, very much. Thanks for taking my question welcome Great to hear your voice again and congrats again.
As well.
Our next question maybe.
Focus on Europe actually just in terms of I.
I guess, a two part question.
Yeah.
Bigger picture there.
Important is the <unk>.
Of the consolidated tape to the overall European strategy.
And then leaving in the derivatives heard of that I guess.
Do you view that as a separate completely separate strategy for your overall European.
And then are you still looking for.
Thank you, we're trying to get to $25 million.
Annualized revenue run rate exiting 2025, just wanted to see if that's still the plan on the derivatives.
Thanks very much for the question, yes, we've been huge prepayments over the last decade as a benefit to the consolidated tape will bring Europe, clearly hugely beneficial for the U S marketplace. So that single pane of glass for the globe into the equity markets ending the fixed income markets in Europe is something we've really been pushed.
Four recent developments show reasonably good structure coming through that should consolidate you take which we which you are very interested in and may even think about whether or not we would want to be the provider of that consolidated site no.
Likely to see an actual tape come through though to about 2026, given the way the legislative process run so really important really to the overall capital markets in Europe, and as the Pan European exchange of the Pan European Clearinghouse will really fit.
<unk> capital markets Union model.
Very very very well that.
Does dovetail with the derivatives market in many ways. When you think about our approach being a pan European approach once again, a single stop shop there.
Enabling us to offer greater capital efficiency on the transparent <unk> model that we have.
<unk> Europe, having the ability to access all of the CSD is around Europe, and provide a cleaner and more capital efficient post trade solution and then when we think about the prognosis for the business and how we are going you mentioned that the guide that we've got single stock options coming in a couple of weeks and as that begins to gain.
Traction, we will be able to take a look at how that's building and can see that.
The revenue profile and growth profile SaaS as that comes to bear.
Okay, great. Thank you very much.
Yeah.
Our next question comes from Kyle Voigt with <unk> W. Your line is open.
Okay.
Hi, Good morning, maybe just a question on pricing.
The ability to raise price in areas, where you are clearly clearly providing incremental value, which recently expertise of the access solutions business kind of porting that over to the transaction side of the business.
Clearly providing significantly more value in SPX <unk>, specifically, given the volume growth we've seen this year.
Under the contract with S&P can you remind us how much flexibility you have to make pricing changes across that SPX complex and is this something that you'd be considering heading into 2024.
Thanks, Hello excellent question.
<unk>.
If I give you a little more color around the orca pricing. We've got in Q3, 59% came from organic subscription to unit growth and so when we think generally about pricing across the data franchise, we really focusing on distribution, a really great opportunity, particularly over in Asia Pacific.
And in EMEA to sell our data products that we sold 39% of the growth in Q3 coming from outside of America. So we see a good runway there so focused predominantly on distribution and broadening access we go back to this consistent types to deliver our data over the cloud revenue that again, 78% or nearly 80% of that.
That revenue coming internationally. So good runway there is some pricing a tool that we use when we look across the <unk>, but really it's about that runway.
Users when we talk about the competitive markets that we run from a transactional basis, that's really looking to maximize the revenue to contract the market share in the market quality that NSS. That's a scale that the teams have headed down to a fine art.
And then when we come to the proprietary products. There. The answer is yes, we can adjust the pricing of the trading of SPX options as we need to when you think look back to my earlier answer that momentum, we're seeing that growth at the moment is continuing to broaden the adoption and as Chris mentioned Fabulous opportunity globally.
Global trading hours as we can look to that international capability and also thinking about those retail brokers coming through into next year. So pricing is right priced at the moment is cost effective place to build liquidity manage risk in that complex is something that in general we will look though.
To see where we can enhance some value in certain pockets, there, but broadly and again nervous about expanding that access and distribution.
Kyle This is John just to be clear, we don't have any constraints on any of our partnership relationships, even beyond S&P in terms of being able to respond to the market environment with with the correct pricing approach.
Very clear thank you.
Our next question comes from Andrew Bond with Rosenblatt Securities. Your line is open.
Hey, good morning, just wanted to get your thoughts on the FCC's latest market structure proposal that looks to ban volume based pricing tiers exchanges.
Walk us through maybe why providing tiers are supportive for liquidity provisioning and how this would impact.
Competition, not just with other exchanges, but.
The exchange markets.
Broker internalization.
Thanks very much for the question, yes, the rule proposal that looks to focus on.
Rebate tiers, not rebates alone, but rebate tiers for the agency flow.
General principle that we don't support government imposed price controls in particular in highly competitive markets as you mentioned.
Thank you will diminish a tool that <unk> may be used to help us drive competition between the trading venues and so that utility there is really important for us to advance hover in coding the even and result in higher costs to the end users of those costs will likely end up being passed back half batch up the food chain so for us really.
I'd like to focus on competing on a level playing field some of the prior proposals coming in the back end of last year focused on leveling the playing field in this one this potential funds here looks.
It looks to go somewhat against us So we will be engaging with it with current mechanism with the SEC and the industry participants to make sure that we have a do no harm approach and actually think about the holistic market structure first because it was better for investors is better for the market and we.
Look to enjoy competing within those constraints.
Great. Thanks.
Our next question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Hi, Good morning, Thanks for taking my question wanted to ask on the index options suite with the SPX dailies <unk> III going out 30 days, but maybe you can just remind us on the SPX expiries.
What do you have beyond 30 days and to what extent might there be any sort of innovation opportunities to fill out more maturities to allow more precise hedging with longer duration and potentially expand the user base, even more I guess said another way why not have daily is going out 365 days instead of just 30 days.
Yeah, Great question, Greg So, we all see where labs team are continually thinking about how we can innovate around our volatility toolkit that you saw D.
The dispersion index you sold the credit VIX indices come up as well the purely on SPX, we'd got at five weeks of SPX weekly expiry is going out naphtha testaments, we have to be able to utilize those as we go strikes and expires, we always manage that fine balance between liquidity provision and to be able to manage the number of <unk>.
Strikes a number of series that the market has to manage and digest, a very conscious about adding value where it where it come through in <unk>.
Longer dated I would mentioned that see that as a pioneer of the leafs options those longer dated options going out multiple years, that's a great utility for some of they say insurers. Another in other asset managers out there know that buy side firms to really gain gained some real value there.
We've got a broad range of strikes and exposure now and where it will be customer that we wanted to give our end customers and investors what they need and also what the liquidity providers are able to support in a reliable and consistent manner, So think about ways in which year.
Momentum through that Michael just mentioned that we so we ended Tuesday Thursday is about a year and a half ago, but we added the fifth the fifth week of dailies or Tuesday Thursday, just in the last few months that was based on customer demand. So as Dave said as customers demand more and we think we have appropriate liquidity provision we will continue that strength if the market wants.
Great. Thank you.
Our final question is a follow up from Owen Lau with Oppenheimer. Your line is open.
Hey, Thank you for taking my follow up so corn based recently launched a quick little futures trading together with this launch waiting could you. Please talk about how stable digital will compete in this space and the value proposition and I guess more importantly, given the low trading volume for the industry. How do you think about the investments in this space.
These are longer term thanks, so much.
Thanks, Owen as we've been talking about we're really excited about the launch of our margin futures product in early 2020 for that great engagement from customers and SCS as we as we build out that project at following that we do have further derivatives products in the pipeline the thing that's unique.
<unk> digital ones, we have that launches that the.
Spot on the margin futures will be on the same technology platform under the same regulatory umbrella over the same Apis over the same connection you can trade both the spot and those physically and cash settled all cash settled.
Margin futures all on US all on the same platform that such real unique value being added that in there.
When we think about the prognosis for the future we think about the.
The hopeful approval of those spot <unk> and spot Bitcoin Etfs, which we will know more about in the new year at CMO with supporting eight issues of those Etfs with five sedating sharing agreements in place and so when they come to market not only do we get to list those products and have the training, but actually.
The ecosystem that we have there with that U S space regulated exchange and clearinghouse to support those also as participants market makers, who will be supporting and failing to manage their exposure in those products. So we see a good ecosystem benefits coming that.
And then when you look at the regulatory direction, although it may slow a little is certainly coming in <unk> direction.
We run a transparent regulated customer first intermediate driven driven model.
Got it thanks a lot.
There are no further questions at this time I will now turn the call back to the management team for any closing remarks.
Okay. Thank you and thanks, everyone for joining us this morning, I wish you all a good weekend.
Forward to seeing you all in the future in person as I start to get help from from.
From the office.
Sure.
This concludes today's conference call. Thank you for joining US you may now disconnect.
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