Q4 2023 CME Group Inc Earnings Call
Operator: Greetings and welcome to the CME Group 4th Quarter and Year End 2023 Earnings Call. During the presentation, all participants will be in a listen-only mode.
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Speaker Change: Greetings and welcome to the CME group fourth quarter and year end 2023 earnings call. During the presentation, all participants will be in a listen only mode.
Operator: Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0.
Speaker Change: Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
Speaker Change: At any time during the conference you need to reach an operator. Please press star Zero I would now like to turn the conference over to Adam mimic. Please go ahead.
Adam Minnick: I would now like to turn the conference over to Adam Minnick. Please go ahead. Good morning, and I hope you're all doing well today.
Adam Mimic: Good morning, and I hope, you're all doing well today, we released our executive commentary earlier today, which provides extensive details on the fourth quarter and full year of 2023, which we will be discussing on this call.
Adam Minnick: We released our executive commentary earlier today, which provides extensive details on the fourth quarter and full year of 2023, which we will be discussing on this call. I will start with the Safe Harbor language, and then I'll turn it over to Terry. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statement.
Adam Mimic: I will start with the Safe Harbor language, and then I'll turn it over to Terry.
Terry: Statements made on this call and in the other reference documents on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance they involve.
Terry: The risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied in any statement.
Terry: Detailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website.
Terry: Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures. With that, I'll turn the call over to Terry. Thank you, Adam. And, as Adam said, thank you all for joining us this morning. I'm going to start by giving you a little color on the broader environment. Following that, Lynn will provide an overview of our financial results and our 2024 guidance. In addition to Lynn, we have other members of our management team here to answer questions after the prepared remarks. 2023 was the best year in CME Group's history with a record average daily volume of 24.4 million contracts, up 5% from 2022. This growth was led by records in both agriculture and interest rate products, which for the year were up 17% and 16%, respectively.
Terry: Lastly on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures with that I'll turn the call over to Terry.
Terry: Thank you Adam and as Adam said, Thank you all for joining US this morning, I'm going to start by giving a little color on the broader environment.
Terry: Following that Lynne will provide an overview of our financial results and our 2024 guidance. In addition to when we have other members of our management team here to answer questions. After the prepared remarks.
Lynne: 23 was the best year in CME group's history with a record average daily volume of $24 4 million contracts up 5% from 2022. This growth was led by our records in both the agriculture and interest rate products, which for the year were up 17% and <unk>.
Lynne: 16%, respectively options average daily volume across all asset classes also set a record with Adv of $5 1 million contracts up 23% versus last year.
Terry: Options average daily volume across all asset classes also set a record, with ADV of 5.1 million contracts, up 23% versus last year. Lastly, our non-U.S. average daily volume increased to a record 6.8 million contracts. Last year, I referred to 2023.
Lynne: Lastly, our non U S average daily volume increased to a record $6 8 million contracts.
Lynne: Last year I referenced referred to 2023 as.
Terry: In this new age of uncertainty, and that uncertainty extended throughout the year, we experienced continued inflation, the rising cost of capital, increasing geopolitical tensions, and shifting perceptions around the Fed's interest rate policy. All of these factors contributed to our customers' growing need for risk management, capital efficiencies, and demand for our products. Following the very strong performance of our business in 2022 and 2023, we have seen speculation that our interest rate business could face headwinds based on the expectation that the Fed will start to lower interest rates this year. In my 40 plus years in the industry, I've observed that regardless of whether rates are going up or down, our volumes are typically higher during periods when the change of rates is uncertain, as is the case today.
Lynne: As a new age of uncertainty and that uncertainty extended throughout the year. We experienced continued inflation rising cost of capital increasing geopolitical tensions and shifting perceptions around the feds interest rate policy. All of these factors contributed to our customers' growing need for risk management capital.
Lynne: Patients ease and demand for our products.
Lynne: Following the very strong performance of our business in 2022 and 2023, we have seen the speculation that our interest rate business could face headwinds based on the expectation that the fed will start to lower interest rates this year.
Lynne: In my 40, plus years in the industry I've observed that regardless of whether rates are going up or down our volumes are typically higher during periods. When the change of rates is uncertain as is the case today.
Terry: I've never seen such a disparity in opinions on what the Fed may or may not do, and I believe that is a tailwind for CME Group and our REACH product. I mentioned earlier that our interest rate volume was up 16% in 2023 with four Fed rate hikes during the first half of the year, building up record volume levels in 2022. In contrast to the view that a rising rate environment is optimal for our interest rate complex,
Lynne: Never seen such disparity in opinions on what the fed may or may not do and I believe that as a tailwind for CME group and our rates products.
Lynne: I mentioned earlier that our interest rate volume was up 16% in 2023 with four fed rate hikes. During the first half of the year building up a record volume levels of 2022 in contrast to the view that a rising rate environment is optimal for our interest rate complex.
Lynne: Our volume actually grew and.
Lynne: And accelerated since the fed stopped raising rates in July of last year and the six months from August of 'twenty three to January of 24 hour rates volume is up 24% year over year.
Terry: Our volume actually grew... I would also like to comment on the dynamics in the crude oil marketplace following the Russian-Ukraine war and other geopolitical factors that have influenced the price of energy.
Lynne: I would also like to comment on the dynamics in the crude oil marketplace.
Lynne: Following the Russia, Russia, and Ukraine Award and other geopolitical factors that influenced the price of energy.
Terry: WTI, or West Texas Intermediate, has become even more relevant to our customers in Europe and Asia and cemented its position as a primary reference price for crude oil globally. As the primary market for WTI trading, we continue to generate growth and expanded end-user client participation through developing and investing in new contracts, such as CME Group's Argus Gulf Coast contract. In a very short period of time, these contracts have generated significant commercial participation, with current open interest exceeding 500,000 contracts. As indicated by the open interest, it's clear that commercial participants prefer CME Group's Argus Gulf Coast contract. We continue to remain focused on the growth of these contracts, along with creating capital and technological efficiencies in the entire suite of CME Group's energy complex. This anchors CME Group as the global leader in West Texas Intermediate.
Lynne: <unk> or west, Texas intermediate has become even more relevant to our customers in Europe, and Asia and cemented its position as their primary reference price for crude oil globally.
Lynne: As the Prime primary market for WTS trading we continue to generate growth and expanded end user client participation through developing and investing in new contracts such as CMA groups Rguest Gulf Coast contract in a very short period of time these contracts have generated.
Lynne: Significant commercial participation with current open interest over 500000 contracts.
Lynne: As indicated by the open interest it is clear that the commercial participants prefer CME group's Argos golf coast contract.
Lynne: We continue to remain focused on the growth of these contracts along with creating capital and technological efficiencies in the entire suite of CME groups energy complex. This anchor at CME group as the global leader in West, Texas Intermediate.
Terry: Moving into 2024, we continue to see a wide range of views as it relates to the health of the global economy, whether it's inflation, unemployment, or monetary policy. Also, there are ongoing geopolitical tensions and supply chain disruptions in certain parts of the world. Additionally, we're approaching political elections in over 60 countries this year. The uncertainty of those elections and the policies that could come from them is basically unknown to all, which only leads to market participants continuing to manage risk.
Lynne: Moving into 2024, we continue to see a wide range of views as it relates to the health of the global economy, whether it's inflation unemployment or monetary policy also there are ongoing geopolitical tensions and supply chain disruptions continue in certain parts of the world.
Lynne: Additionally, we're approaching political elections in over 60 countries this year <unk>.
Lynne: The uncertainty of those elections and the policies that could come from that are basically unknown to all.
Lynne: Which only leads to market participant participants continue to manage risk.
Terry: All that being said, 2024 is still very much the age of uncertainty, and our products remain critical risk management tools for our clients. We have seen this reflected in our strong start to 2024, where we delivered our highest January average daily volume in our history of 25.2 million contracts, which is up 16% relative to last year. With that being said, I'm going to turn the call over to Lynn, and we look forward to taking your questions. Thanks, Terry.
Lynne: All that being said 2024 is still very much the age of uncertainty and our products remain critical risk management tools for our clients.
Lynne: We have seen this reflected in our strong start to 2024, where we delivered our highest January average daily volume in our history of $25 2 million contracts, which is up 16% relative to last year with.
Lynne: With that being said I'm going to turn the call over to Lynn and we look forward to taking your questions.
Lynn: Thanks, Terry and.
Lynn: In addition to the volume records Terry discussed, we delivered record financial results in 2023. Our revenue of $5.6 billion grew 11% compared to 2022. Our annual adjusted expenses, excluding license fees, were approximately $1,526,000,000, including $56,000,000 related to our cloud migration. In aggregate, our adjusted operating expenses were $9 million below our annual guidance.
Lynn: In addition to the volume Records Terry discussed we delivered record financial results in 2023 or.
Lynn: Our revenue of $5 6 billion grew 11% compared to 2022.
Lynn: Our annual adjusted expenses, excluding license fees were approximately $1 billion 526 million, including $56 million related to our cloud migration.
Lynn: In aggregate, our adjusted operating expenses were 9 million below our annual guidance.
Lynn: Our adjusted operating margins for the year extended to 66, 9% up over 200 basis points from 2022.
Lynn: Our adjusted operating margins for the year expanded to 66.9%, up over 200 basis points from 2022. We delivered $3.4 billion in adjusted net income, resulting in 17% earnings per share growth for the year. During the fourth quarter, CME Group generated more than $1.4 billion in revenue, a 19% increase from Q4 2022, with average daily volume up 17%. Market data revenue grew 9% from last year to $167 million. Expenses were very carefully managed, and on an adjusted basis for $490 million for the quarter and $393 million, excluding license fees and $16 million in cloud migration costs. CME Group had an adjusted effective tax rate of 21.7%, which resulted in an adjusted net income of $865 million. Our adjusted EPS was $2.37, up 23% from the fourth quarter last year, and represented our 10th consecutive quarter of double-digit earnings growth. Capital expenditures for the fourth quarter were approximately $23 million, and cash at the end of the year was $3.1 billion.
Lynn: We delivered $3 4 billion and adjusted net income, resulting in 17% earnings per share growth for the year.
Lynn: During the fourth quarter CME group generated more than $1 4 billion in revenue at 19% increase from Q4 2022 with average daily volume up 17%.
Lynn: Market data revenue grew 9% from last year to $167 million.
Lynn: Expenses were very carefully managed and on an adjusted basis were $490 million for the quarter and $393 million, excluding license fees and $16 million in cloud migration costs.
Lynn: CME group had an adjusted effective tax rate of 21, 7%, which resulted in adjusted net income of $865 million.
Lynn: Adjusted EPS was $2 37.
Lynn: Up 23% from the fourth quarter last year and represented our 10th consecutive quarter of double digit earnings growth.
Lynn: Capital expenditures for the fourth quarter were approximately $23 million in cash at the end of the year was $3 1 billion.
Lynn: CME Group declared over $3.5 billion of dividends during 2023, including the annual variable dividend of $1.9 billion, which was paid in January. Turning to 2024 guidance, we expect total adjusted operating expenses, excluding license fees, but including cloud migration expenses, to be approximately $1,585,000,000. Total capital expenditures, net of leasehold improvement allowances, are expected to be approximately $85 million, and the adjusted effective tax rate should come in between 23 and 24 percent
Lynn: Group declared over $3 5 billion of dividends during 2023, including the annual variable dividend of $1 9 billion, which was paid in January.
Lynn: Turning to 2024 guidance.
Lynn: We expect total adjusted operating expenses, excluding license fees, but including cloud migration expenses.
Lynn: Approximately $1 billion $585 million.
Lynn: Total capital expenditures net of leasehold improvement allowances are expected to be approximately $85 million and the adjusted effective tax rate should come in between 23 and 24%.
Lynn: Finally in November we announced transaction fee adjustment, which became effective February one.
Operator: Finally, in November, we announced a transaction fee adjustment, which became effective February 1st. Assuming similar trading patterns as 2023, the fee adjustments would increase futures and options transaction revenue approximately 1.5 to 2%. Taken in aggregate with the fee changes for market data and non-cash collateral, which took effect January 1st, the fee adjustments would increase total revenue by approximately 2.5% to 3% on similar activity to 2023. In summary, we're very proud of the results we were able to deliver as a firm this year, driving 11% revenue growth and 17% adjusted earnings growth from our previous record year of 2022. We'd now like to open up the call to your questions. Thank you. Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge a request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.
Lynn: Assuming similar trading patterns as 2023 fee adjustments with increased features and options transaction revenue approximately one 5% to 2%.
Lynn: Taken in aggregate with the fee changes for market data and noncash collateral, which took effect January one.
Lynn: <unk> adjustments with increased total revenue by approximately two 5% to 3% on a similar activity to 2023.
Lynn: In summary, we're very proud of the results, we were able to deliver as a firm this year driving a 11% revenue growth and 17% adjusted earnings growth from our previous record year of 2022.
Speaker Change: I would now like to open up the call for your questions.
Speaker Change: Okay.
Speaker Change: Thank you if you'd like to register a question. Please press the one followed by the four on your telephone you will hear us retail impromptu acknowledged a request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again to register for a question. Please press. The one followed by the <unk> for our first question is come.
Operator: Once again, to register for a question, please press the 1, followed by the 4. Our first question is coming from the line of Dan Fannon with Jeffries. Please go ahead. Thanks. Good morning. Maybe Lynn, just to start on expenses, can you talk about what the areas are for investment in 2024? And how that might be different from what we saw last year, where dollars went last year? And then also on the Google partnership? Can you update us on the progress there? And maybe what you are expecting in terms of contribution as we think about 2024 and 2025 from that relationship? Okay, sure. I'll start on the investment piece. So if you look at the guidance, we are expecting expenses to increase by $60 million year over year.
Speaker Change: From the line of Dan Fannon with Jefferies. Please go ahead.
Daniel T. Fannon: Thanks, Good morning.
Daniel T. Fannon: Maybe Lin just to start on expenses can you talk about what the areas are for investment in 2024, and how that might be different than what we saw last year were $1 <unk> last year and then also just on the Google partnership can you update us on the progress there and maybe what you are expecting in terms of contribution as we think about 2002.
Daniel T. Fannon: 24, and 2025 from that relationship.
Lin: Okay sure I'll start on the investment. So if you look at the guidance, we are expecting expenses to increase by $60 million year over year that is inclusive of the migration spend of that $60 million about $15 million as an increase in depreciation expense as a reminder, reduce expect to have incremental <unk>.
Lynn: That is inclusive of the migration spend. So of that $60 million, about $15 million is an increase in the migration expense. As a reminder, we do expect to have incremental migration expenses this year and next year before we get to cash breakeven and ultimately cash flow positive. The remaining $45 million in increases are related to core expense growth, and that's in the 3% range, very similar to what we've seen historically. In terms of Google, I'll let some of my colleagues know. In terms of progress on Google migration, we intend to make substantial progress with migrating clearing, business information systems, and market regulatory systems to the cloud platform.
Daniel T. Fannon: <unk> expenses this year and next year before we get to cash breakeven and ultimately cash flow positive.
Daniel T. Fannon: The remaining $45 million in increases related to core expense growth and that's in the 3% range very similar to what we've seen historically.
Speaker Change: In terms of Google I'll, let some of my.
Speaker Change: Colleagues Aneel and Julie will.
Speaker Change: In terms of progress on Google migration, we intend on making substantial progress with migrating clearing business information systems end market regulatory systems.
Speaker Change: The cloud platform.
Lynn: Some of these regulated workloads are, of course, subject to no objection approval from regulators, but we intend to make significant progress even on the data side. I'll now hand over to my colleague, Julie Winkler, who will talk about data and data products. Thanks for the question, Dan.
Speaker Change: Some of these regulated workloads out of course subject to no objection approval.
Speaker Change: From regulators.
Speaker Change: But we intend on making significant progress even on the data side I will now hand over to my colleague Julie Winkler, who will talk about data data product.
Thanks for the question Dan on the on the client side with Google, We've really been focused on areas that we believe are going to enhance our clients' abilities really engage in our market.
Julie Winkler: And on the client side with Google, we've really been focused on areas that we believe are going to enhance our clients' abilities to really engage in our market and utilize these offerings. The technology with Google Cloud is, you know, something that we're able to leverage. And so, we've been really focused on where we can enhance our data services business. Things like performing the trade execution analytics that we've talked about, which is something very unique in terms of our ability to use, you know, proprietary data and benchmarking. And we expect to be rolling that out here in 2024.
Julie Winkler: And utilize these offerings the technology with Google Cloud is something that we're able to leverage and so.
Julie Winkler: We've been really focused on where we can enhance our data services business.
Julie Winkler: <unk> like performing the trade execution analytics that we've talked about which is something very unique in terms of our ability to use our proprietary data and benchmarking and we expect to be rolling that out here in 2024, and also a lot of interest from our clients around supporting them to help them better manage their.
Julie Winkler: And also a lot of interest from our clients around supporting them to help them better manage their risk, and so looking at how we do that, both with data and analytics that we are providing for them. So, we're on, you know, we're on track.
Julie Winkler: Risks and so looking at how we do that both with data and analytics that we are providing with them. So we're on.
Julie Winkler: We're on track, we continue to rollout a number of new data services products throughout the year and as Sunil pointed out the speed and velocity of which we're able to deliver has certainly increased now that our core data is in the cloud.
Julie Winkler: We've continued to roll out a number of new data services products throughout the year. And as Sunil pointed out, the speed and velocity with which we're able to deliver have certainly increased now that our core data is in the cloud. Great, thank you. Thanks, Dan.
Speaker Change: Great. Thank you thanks, Dan Thank you.
Operator: Thank you. Our next question is coming from the line of Alex Kramm with UBS. Please go ahead. Yes, hey, good morning, everyone.
Speaker Change: Yes.
Speaker Change: Our next question is coming from the line of Alex Kramm with UBS. Please go ahead. Please go ahead.
Alex Kramm: Yes, Hey, good morning, everyone. Just wanted to come back to the pricing comments you made at the end of your prepared remarks, there I think one 5% to 2% on the future side I think that's kind of back to pre inflation a high inflation environment, maybe even on the lower side. So can you maybe just talk about how you thought about the price.
Operator: Just wanted to come back to the pricing comments you made at the end of your prepared remarks there. I think one and a half to 2% on the future side. I think that's kind of back to a pre-inflation or high inflation environment, maybe even on the lower side.
Operator: So can you maybe just talk about how you thought about the price increase this year? Seems like inflation is still somewhat elevated, but I'm obviously curious to see to what degree client feedback and competitive dynamics are impacting that, if at all. Thank you.
Alex Kramm: The increase this year it seems like inflation is still somewhat elevated but then obviously curious if.
Alex Kramm: To what degree.
Alex Kramm: Client feedback competitive dynamics.
Speaker Change: Our are impacting that if at all thank you Phil.
Speaker Change: Thanks.
Operator: You know, I think we should look at it in several pieces. One is the clearing and transaction fee, which did increase in the one and a half to 2% range. But keep in mind, we do think about the different levers of pricing and how they impact different parts of our customer base. So we did increase the collateral fees this year from seven basis points to ten basis points, and we did increase the market data fees as well. So in aggregate, the total fee change will result in about two and a half to three percent total increase in revenue.
Phil: I think we look at it in several pieces one is the clearing and transaction fee, which did increase in the one 5% to 2% range, but keep in mind, we do think about the different levers of pricing and how they impact different parts of our customer base.
Phil: We did increase our collateral fees this year going from seven basis points to 10 basis points and we did increase the market data fees as well so in aggregate. The total fee change will result in about two 5% to 3% in total increase in revenue. We wanted to make sure we're taking that balanced approach because it's different fee changes like.
Operator: We want to make sure we're taking that balanced approach because different fee changes, like transaction fees, will impact certain segments, whereas collateral fees will impact different segments. We're always looking to balance that impact and make sure we're not overly burdening one part of our customer base. Fair enough, thank you. Thanks all. Our next question is coming from the line of Owen Lua with Oppenheimer. Please go ahead.
Phil: The transaction fees will impact certain segments, whereas collateral fees will impact different segments, we're always looking to balance that impact and make sure were not overly burdening one part of our customer base.
Speaker Change: Fair enough. Thank you.
Speaker Change: Thanks, Alex.
Our next question is coming from the line of Owen.
Owen: With Oppenheimer. Please go ahead.
Owen: Good morning, and thank you for taking my question.
Operator: Good morning, and thank you for taking my question. So CME and DTCC just launched the Enhanced Cross-Moduling Arrangement. Could you please talk about the initial feedback from your clients? And please remind us what this means for your clients and for CME in the longer term. Thanks a lot.
Owen: DTC just launched the enhanced cross margining arrangement could you. Please talk about the initial feedback from your clients and please remind us the implication to your clients and <unk> longer term about this initiative. Thanks a lot.
Suzanne Sprague: Thanks, Owen. I'm going to turn it over to my colleague, Suzanne Sprague, the president of our Clearinghouse, which is about clearing and risk, and she can give you some fairly good color as it relates to the DTCC arrangement. Yeah, thanks, Terry, and thanks for the question. Although it's the early days of the program since the launch just a few weeks ago, we do have eight clearing members that are live with the program, and some portfolios are already seeing consistent savings of 75 to 80 percent, so we're happy with the uptake of the program that we've seen so far. Although it is early days, we continue engaging with those clearing members to increase the onboarding and the efficiencies that they're able to achieve through their portfolio savings.
Owen: Thanks, Alan I'm going to turn it to my colleague Suzanne spreads the president of our clearinghouse is about clearing and risk and she can give you some really good color as it relates to the DTC see arrangement.
Suzanne: Terry and thanks for the question. Although it is early days of the program since the launch just a few weeks ago. We do have eight clearing members that are live with the programs and some portfolios or already seeing consistent savings of 75% to 80%.
Suzanne: So we're happy with the uptake of the program that we've seen so far although it is early days and we continue engaging with those clearing members to increase the onboarding and the efficiencies that they are able to achieve through their portfolio savings.
Suzanne Sprague: And Owen, I think just to add to what Suzanne said, as you know, and others on the line know, over the last year or so, our former colleague that headed up that business, Sean Tully, talked about the efficiencies that would go along with getting us into the offsets with DTCC, in the ranges of anywhere from 40 to 80%. And so Suzanne's numbers of 75 to 80 are on the high end of what we were originally looking for.
Speaker Change: And I think just to add what Suzanne said as you know and others on the line know over these last year or so.
Speaker Change: Our former colleague heading up their business, Sean <unk> talked about the efficiencies that would go along with.
Speaker Change: Getting us into the offsets with DTC and in the ranges of anywhere from 40% to 80% and so Suzanne numbers of 75 to 80 around the high end of what we were originally looking for so this is a very exciting opportunity for us and more importantly, our client base.
Terry: So this is a very exciting opportunity for us. Yeah, and more importantly, our client. Very helpful. Thanks a lot.
Speaker Change: Very helpful. Thanks, a lot.
Speaker Change: Thank you.
Operator: Thank you. Our next question is coming from the line of Ken Worthington with J.P. Morgan. Please go ahead.
Speaker Change: Okay.
Speaker Change: Our next question is coming from the line of Ken Worthington with Jpmorgan. Please go ahead.
Operator: Hi, good morning, and thanks for taking the question. I wanted to dig further into your commentary on energy and market share and the sort of business shifts in that market. You call that Argus as sort of a preferred crude contract. I was hoping to get more color on crude more broadly and also what you're seeing in gas. So for crude, what are you seeing in terms of share and participation? And to what degree is the addition of Midland to the Brent marker altering behavior?
Ken Worthington: Hi, good morning, and thanks for taking the question.
Ken Worthington: I wanted to dig further into your commentary on energy and market share and sort of business shifts in that market you called out Argus as sort of a preferred crude contract.
Ken Worthington: I was hoping to get more color on crude more broadly and also what youre seeing in gas. So for crude what are you seeing in terms of share and participation and to what degree is the addition of Midland to the Brent marker altering behavior and a natural gas it seems like options and globalization seem to be the story here.
Operator: And in natural gas, it seems like options and globalization seem to be the story here. I was hoping you could provide some perspective. There's a little bit to unpack there.
Speaker Change: Was hoping you could provide some perspective.
Speaker Change: Sure Ken.
Speaker Change: Little bit unpack, there, so I'm going to take part of it.
Terry: So I'm going to take part in it. I'm going to take some of it and ask Mr. Sammann to comment on the gas and the back part of your energy question. But when we talk about our Argus contract, we're talking about a contract that is based in the same region where there are competing contracts trading as well. We're just pointing out that our contract is very much attracted by the large commercial participation with the reflection of over half a million open positions compared to others in the same region. They have the same risk characterizations as ours.
Speaker Change: Take some of it and ask Mr. Salmon to comment on the gas and part the back part of your energy question, but when we talk about our Argos contract. We're talking about a contract that is based out of the same region that theres a competitive contract trading as well, we're just pointing out that our contract is very much attracted by the large commercial participation.
Mr. Salmon: And what's your reflection of over half a million open positions compared to others in the same region that have the same risk character.
Mr. Salmon: Characterizations.
Terry: So we think that's very much a net positive for us as far as market share goes, Ken. Being around a long time, like I said earlier, when you look at markets that are in a 10-month range of less than $10 a barrel for energy, you will see shifts and behavior shifts of percentage points here or there going back and forth depending on what's going on on any given day. So that doesn't surprise us.
So we think thats, a very much a net positive for us as far as market share goes Ken.
Ken Worthington: Being around a long time ago. Unfortunately, I've said earlier when you look at.
Ken Worthington: Markets that are in our 10 month range of less than $10, a barrel and energy you will see shifts in behavior shifts of percentage points here, they're going back and forth depending on what's going on on any given day. So that doesn't surprise us we've seen that historically since we acquired the New York Mercantile <unk>.
Terry: We've seen that historically since we acquired the New York Mercantile Exchange, so those are things I'm not surprised by in this low-volatility environment. So that being said, let me know if that gives you an understanding of what we're talking about in the Midland area and also about the percent changes going back and forth in low volume times. And then I'll ask Derek to comment on the gas and anything on the options as well, which I think was the other part of the question. Yeah, thank you. Now, let me take a step back a little bit.
Ken Worthington: <unk>. So those are things that I'm not surprised by in this low vol environment. So that being said let me if that gives you an understanding of what we're talking about in the Midland area and also about the present changes going back and forth and low Vol times, and then I'll ask Eric to comment on the guests anything else on the options as well I think it was the other part of it.
Eric: Question, Yes. Thank you, let me take a step back a little bit in that important to note that our <unk> franchise is bigger than just our CL contract.
Derek L. Sammann: And I think it's important to note that our WTI franchise is bigger than just our CL contract. So I want to point out a couple of ways that we continue to invest in, innovate, and grow our overall WTI portfolio in this range-bound and quiet volatility market. Terry mentioned one of those, which is the crude grades contracts. And that's a growth story with significant participation from the commercial end user base. And that's reflective of WTI now being part of the Brent assessment, and that just means it further cements WTI as a global benchmark. Secondly, we continue to expand our WTI options franchise. We added expanded weekly expirations on Mondays and Wednesdays.
Eric: Want to point out a couple of ways that we continue to invest and innovate and grow our overall wty portfolio in this range bound and quiet volatility market. Terry mentioned, one of those which is the crude grades contracts and Thats a growth story with a significant participation in commercial end user base and Thats reflective of UTI now being part of the Brent assessment and that just means that further cements WTS.
Eric: As a global benchmark secondly are we continue to expand our WTO options franchise, we added expanded weekly explorations Mondays and Wednesdays, that's driving 35% growth in our crude and refined options business. So far this year third we continued to invest in our micro contracts, we have adv of our 100000 contracts 50000 unique traders in there.
Derek L. Sammann: That's driving 35% growth in our crude and refined options business so far this year. Third, we continue to invest in our micro contracts. We have ADV over 100,000 contracts, 50,000 unique traders in that market, and the products overall have been a great entry point for new client acquisition. A lot of these customers have never traded an energy contract before.
Eric: Market and the products overall had been a great entry point for new client acquisition. There are a lot of these customers have never traded in energy contract before so we continue to onboard new clients through that so all of these products in our broader <unk> portfolio reinforced WTS.
Derek L. Sammann: We continue to onboard new clients through that. And all these products in our broader WTI portfolio reinforce WTI as the main benchmark globally. And it contributes strongly to the overall energy franchise growth we've seen in 2024, with overall energy up 21% and our options growth, particularly up 87%. Pivoting over to natural gas, Ken, you're right, it's a significant story, and I think when you look at the fact that the U.S. has now become a significant both producer and exporter of natural gas, that really has positioned Henry Hub as a central benchmark When you look at that business over the course of last year, you've seen significant growth. You're absolutely right.
Eric: As the main benchmark globally to contribute strongly to the overall energy franchise growth we've seen in the 2024 with overall energy up 21% and our options growth, particularly up 87%.
Speaker Change: Yes, pivoting over to natural gas, Ken you're right. It's a significant story and I think when you look at the fact that the U S has now become a significant both producer and exporter of natural gas that really has position Henry hub as a central benchmark.
Speaker Change: Globally for LNG as natural gas continues to be consumed globally. When you look at that business over the course of last year, you've seen significant growth globalization youre absolutely right. When you continue to see the growth that we've seen in 2023, we saw our European Nat gas volumes up almost 50% and we're seeing that business.
Derek L. Sammann: When you continue to see the growth that we've seen in 2023, we saw our European nat gas volumes up almost 50%, and we're seeing that business up almost 100% so far in the first six to seven weeks of 2024. When you look at both the commercial participation, natural gas was up 30% with our commercial participants last year. It's up 50% so far this year, and the buy side clients were up 50% last year and 80% this year. So it's a global story.
Speaker Change: Almost 100%.
Speaker Change: So far in the first six to seven weeks of 2024, when you look at both the commercial participation natural gas was up 30% with our commercial participants last year.
Speaker Change: 50%.
Speaker Change: So far this year on the buy side clients was up 50% last year and 80%. This year. So it is a global story. It's a story that has been adopted by buy side and commercial participants and it's a global story for US I think the last piece of that is the central role that options continues to play in markets as volatile as we have seen in natural gas options are the optimal tool.
Derek L. Sammann: It's a story that's being adopted by buy side and commercial participants, and it's a global story for us. I think the last piece of that is the central role that options continue to play in markets as volatile as we have seen in natural gas. They are the optimal tool for the way customers interact with this business.
Speaker Change: For the way customers interact with this business. So when you look at our Natgas options versus set a record last year of over 150000 contracts up over 40% and <unk>.
Derek L. Sammann: So when you look at our nat gas options business, which set a record last year of over 150,000 contracts, up over 40%, and the vast proportion of that was on screen, and 2024 has started extremely strong with almost 300,000 contracts so far a day in nat gas options, up over 100%. So overall, it's a globalized story. It's one that we continue to engage in and one that's true to our story. Ken, hopefully that gives you a little bit of color on the energy markets and the Gulf Coast, in other words. That was excellent; thank you. Thanks again.
Speaker Change: Vast proportion of that was on screen and 2024 has started extremely strong with over with almost 300000 contracts. So far a day in Nat gas options up over 100%. So overall, it's a globalized story. It's one we continue to engage.
Speaker Change: And one neutral to our story Ken.
Speaker Change: Ken hopefully that gives you a little bit of color on the energy markets in the Gulf Coast and other places.
Speaker Change: That was excellent. Thank you.
Speaker Change: Thanks, Ken.
Speaker Change: Next question is coming from the line of Brian Bedell with Deutsche Bank. Please go ahead.
Operator: The next question is coming from the line of Brian Bedell with Deutsche Bank. Please go ahead. Great. Thanks. Good morning, folks.
Brian Bedell: Great. Thanks, Good morning folks thanks for taking my question.
Operator: Thanks for taking my question. If I could just add a two-parter, just one on a little bit of a clarification on the market data price increase that's coming into that 2.5 to 3. If I back out the collateral increase from 7 to 10, it looks like the market data increases are maybe less than the increase for the RPC. I just wanted to gauge that.
Brian Bedell: If I could ask a two quarter just one.
Brian Bedell: Little bit of a clarification on the market data price increase that's coming into that two five to three if I back up the collateral decrease of 7% to 10, it looks like the March data increases as maybe less than the increases for the RPC.
Operator: And then, just secondarily, maybe just if you could talk about the development of incremental trading volume from the DTC arrangement, just your views on to what extent that capacity increase for the clients will make its way into more trading volume in the rates. Okay. Thanks, Brian. And Lynn will touch on the data as the market data pricing changes that you referenced, and then I'll have Tim McCourt and probably myself touch a little bit on the trading volume as it relates to DTCC and the arrangement associated with it. Lynn?
Brian Bedell: We gauge that and then just secondarily.
Brian Bedell: Maybe just if you can talk about.
The development of.
Brian Bedell: Incremental trading volume from the DTC arrangement.
Brian Bedell: Just your views on what expenses.
Brian Bedell: <unk> decrease for the clients, who will make its way into more trading volume and the rates complex.
Brian Bedell: Okay.
Speaker Change: Thanks, Brian Lynn will touch on the data as the market data pricing changes that you referenced and then I'll have Tim Accordant probably myself.
Brian Bedell: Touch a little bit on the trading volume as it relates to DTC and the arrangement associated with it.
Lynn: Yeah. So the pricing changes that went into market data were in the range of 3 to 5 percent across the majority of our data products. The total impact is going to come down to the subscriber count, the customer, and product mix, just like we see on the transaction side. But most of the products went up in that 3 to 5 percent range. Does that get to your question on the data, Brian? Yes, that answers that.
Brian Bedell: Yes, so the pricing changes that went into market data. We are in the range of 3% to 5% across the majority of our data products. The total impact is going to come down to the subscriber count customer and product mix just like we see on the transaction side, but most of the products went up in that 3% to 5% range.
Brian Bedell: Does that get to your question on the data Brian.
Brian: Yes that answers that thank you. Thank you.
Operator: Thank you. So on the trade volume question that you had as it relates to the DTCC arrangement, was that the second part? Yeah, yes.
Brian: So on the volume question that you had as it relates to the DTC arrangement of that second part.
Speaker Change: Yes, yes, yes.
Tim Mccourt: Yeah. In terms of your expectations for volume improvement, given the capacity, you know, improvement from the client base that's trading. We're always cautious about expectations, but let me go ahead and have Tim start a little bit with the client based on how they're reacting to it. And I think you got a little bit of a flavor for it in the previous answer that Ms. Sprague gave as it relates to the clients that are using it already, getting the 75% to 80% deficiencies in their margin portfolios. But Tim, let me turn to you for some comment.
Your expectations for volume improvement given the capacity.
Speaker Change: The improvement from the high base that's trading.
Speaker Change: Yes.
Speaker Change: And we're always cautious on expectations, but let me go ahead and have Tim started a little bit with the client based on how they are reacting to and I think you've got a little bit of a flavor for on the previous answer to Mr. Brennan Gateway as it relates to the clients that are using it already giving the 75% or 80% efficiencies with their margin portfolios, but Tim let me turn to <unk> for some comments. Thanks.
Tim Mccourt: Thanks, Terry, and thanks, Brian. As Terry said, it's very difficult, almost impossible, to forecast the impact on trading volumes going forward. But if we look back over the years, increasing capital savings and delivering capital efficiencies to clients has been a strong tailwind for our business in terms of increasing the ability of our clients to manage risk at CME by unlocking those capital efficiencies. And perhaps an analogy would be when we look at the portfolio margin savings of our futures and options complex against the cleared interest rate swap business, which has grown over the last several years to about $7 to $8 billion of savings And we've seen commensurate growth in volume NOIs. Hard to draw a strict relationship, but tried and true is increasing capital efficiencies, increasing the ability of our clients to efficiently manage their risk, and provide enormous volume benefits in terms of the offsets available, and we'll continue to watch it develop, but hard to give an exact number at this point.
Tim: Terry and thanks, Brian as Terry said, it's very difficult almost impossible to forecast the impact on trading volumes going forward, but if we look back over the years, increasing capital savings from delivering capital efficiencies. The client has been a strong tailwind for our business in terms of increasing the ability of our clients to manage risks at CME.
Tim: By unlocking those capital efficiencies and if we look at an analog perhaps is when we look at the portfolio margin savings, our futures and options complex against the cleared interest rate swap business that has grown over the last several years to about 7% to $8 billion of savings per day, and we've seen commensurate growth in volume NOI are to drive <unk>.
Relationship, but tried and true is increasing capital efficiencies increased ability of our clients to efficiently manage their risks provides enormous volume benefits in terms of the offsets available and we'll continue to watch it developing but hard to give an exact number at this point in time.
Terry: And Brian, the only thing I would add to that is you have to look at what we talked about earlier today, and you see the entire 2023, especially going into the end of Q3 and the beginning of Q4. We saw record open interest in our treasury complex across the curve, which is very encouraging for us. So from our standpoint, you know, owning a cash platform and owning the largest listed business in the world, this is very exciting for us. We've we've talked all along about the future of products. You're seeing that more and more every single day, the electrification of different products. And with the growth in our rates business going into last year, I think it was just another example of the record open interest in trade coming into our treasury complex. So, you know, from the growth, it's hard to say where the growth is coming from or what's driving it. But by owning both platforms, we can see we get the benefits either way.
Speaker Change: And Brian the only thing I would add to that you have to look at what we talked about earlier today and you see the entire 2023, especially going into the end of Q3 and the beginning of Q4 of 2003, we saw the record open interest in our treasury complex across the curve.
Speaker Change: It's very encouraging for us so from our standpoint.
Speaker Change: Owning a cash platform and owning the largest listed.
Speaker Change: Business in the World. This is very exciting for us we've talked all along about future innovation of products Youre seeing that more and more every single day, the electronic vacation of different products and with the growth in our rates business going into last year. I think it was just another example that with a record open interest in trade coming into our Treasury complex.
Speaker Change: From the growth, it's hard to say, what the growth is coming from or what's driving it but by owning both platforms. We can we get the benefits either way and we saw the benefits really materialize on the future side in 2023, especially in Q4.
Operator: And we saw the benefits really materialize on the future side in 2023, especially in Q4. That's a great perspective. Thank you. Our next question is coming from the line of Benjamin Badish with Barclays. Please go ahead.
Speaker Change: That's great perspective, thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question is coming from the line of Benjamin <unk> with Barclays. Please go ahead.
Operator: Hi, good morning, and thanks for taking the question. Terry, in your prepared remarks, you talked about expanding end-user client participation. I was wondering if you could expand on that a little bit, both on the energy side and on the rates side.
Benjamin: Hi, Yes, good morning, and thanks for taking the question Terry in your prepared remarks, you talked about expanding end user client participation I wondering if you could expand upon that a little bit both in the energy complex and on the right side are you on the rate side are you seeing sort of more activity from your existing client base are you seeing more participation from maybe new institutions that are increasingly engaging in that sort of risk.
Operator: On the rates side, are you seeing sort of more activity from your existing client base? Are you seeing more participation from maybe new institutions that are increasingly engaging in the sort of risk management behavior? Yeah, thank you.
Terry: Yeah, thanks, Benjamin. And I'll start with the rates in just a minute. My colleagues can jump in if they'd like, especially Julie Winkler, who's in charge of our new client acquisition. But on the rate side, you know, I think a lot of it goes to what I just said about the futurization of the marketplace and people trading more and more futures contracts versus maybe certain other venues. And that's an ebb and flow situation. So I'm not saying it's going to continue at the pace that it continued in 23. And I'm not saying it's not either, though.
Benjamin: Ashwin behavior.
Ashwin: Yes. Thank you.
Ashwin: Yes, Thanks, Benjamin and I will start with the rates just for a minute and my colleagues can jump in if they'd like especially Julie Winkler, who is in charge of our new client acquisition, both on the rate side.
Ashwin: I think a lot of it goes to what I, just said on the futurization of the marketplace and people trading more and more futures contracts.
Ashwin: Versus maybe particular other venues.
Ashwin: It's an ebb and flow situations I'm, not saying, it's going to continue at the pace of continued in 'twenty, three and I'm not saying, it's not either though so I like the way the trajectory is and I think a lot of the clients. When you look at what happened with the duration risk through 2023 for a lot of different participants. They are now looking at using the marketplace, which are.
Terry: So I like the way the trajectory is. And I think a lot of clients, when you look at what happened with the duration risk through 2023, for a lot of different participants, they are now looking at using the marketplace, which are the deepest liquid markets, which are ours, to mitigate and manage that risk. So I think we're seeing it from them. And as you know, the direct clients we can see, but some of them are coming through our major banks. So we don't know exactly who the client is, to the person or the entity.
Ashwin: Deep liquid markets, which are ours to mitigate and manage that risk. So I think we're seeing it from them and as you know the direct clients, we can see but some of them are coming through our major bank. So we don't know exactly who the client is.
Ashwin: So the person or the entity, but you can definitely see that people are looking at the fundamentals that are going on around the world and using our marketplace to use it. So I think thats part of the new clients.
Terry: But you can definitely see that people are looking at the fundamentals that are going on around the world and using our marketplace to take advantage of them. So I think that's part of the new clients. On the energy side, I think when you look at the new clients, I think you'd have to be exceptionally excited by the commercial energy participants that Derek referenced, especially in the Gulf Coast contracts. We're looking at close to 80 different commercial participants that are trading in those ARGUS contracts that we referenced earlier. So that's growth for us on the energy side. This is all part of it.
Ashwin: On the energy side I think when you look at the new clients I think you'd have to be exceptionally excited by the commercial energy participants that Derek reference, especially in the Gulf Coast contracts. We're looking at close to 80 different commercial participants that are trading in those argus contracts that we referenced earlier, so thats a growth for us on the on the <unk>.
Ashwin: Angie side. So this is all part of it so we're not just looking at <unk>.
Retail or.
Ashwin: Other proprietary trading we're looking at true commercial participation, which is a reflection of the health of anyone's marketplace. So I think that's what's really exciting for us as we look at the new clients coming into our marketplace and I'll ask my colleague Ms Winkler and make some further comments.
Julie Winkler: So we're not just looking at retail or other proprietary trading; we're looking at true commercial participation, which is a reflection of the health of anyone's marketplace. So I think that's what's really exciting for us, as we look at the new clients coming into our marketplace. And I'll ask my colleague, Ms. Winkler, to make some further comments. Yeah, I think Terry is absolutely right.
Ms Winkler: Yes, I think Terry is absolutely right and the two segments that I would just hone in on Benjamin that we saw particularly double digit growth from last year was really the buy side and the commodities are sorry that.
Ms Winkler: The.
Ms Winkler: Commercial segment as well and so when we look at that we saw really strong adv from asset managers again double digit that stomach buy side clients that really are looking at our products.
Julie Winkler: And the two segments that I would just hone in on, Benjamin, that we saw particularly double-digit growth from last year were really the buy side and the commodities, or sorry, the commercial segment as well. And so when we look at that, we saw really strong ADV from asset managers, again, double digits, systemic clients that are really looking at our products because of the regulatory environment, the liquidity, and also the capital efficiencies that we offer. And so the products that I'd say they were most interested in, and what we saw, you know, almost half of that growth was coming from interest rates with all of the volatility and movement that we saw last year, but also a lot of interest in our commodity suite. So hedge funds, managed funds that are really looking at CME's agricultural portfolio and also more esoteric products, things that we offer like milk and lumber, because they're looking to diversify their risk profiles and also access those uncorrelated markets.
Ms Winkler: The regulatory environment, the liquidity and also the capital efficiencies that we offer and so the products that I would say they were most interested in and what we saw almost half of that growth was coming from interest rates with all of the volatility and movement that we saw last year, but also a lot of interest in our commodity suite sell.
Ms Winkler: Hedge funds managed funds that are really looking at Cme's agricultural portfolio and also more esoteric products things that we offer like milk and lumber because theyre looking to diversify their risk profiles and also access those uncorrelated markets and so it's another sign of our really diverse product portfolio.
Ms Winkler: <unk> meeting customer needs on the commercial side.
Ms Winkler: Double digit growth both in terms of revenue and ABB last year and that was really as they were looking to hedge their physical positions manage that risk exposure that good uptake in some of our new industrial metals.
Ms Winkler: Energy companies that we talked about before and I think this trend is speak to the transparency the efficiencies and well regulated futures markets that we offer and then internationally I think particularly in Europe.
Ms Winkler: In the short term interest rate side, we saw some really strong performance and also interest across our commodities and FX suite. So I think we have a lot too.
Julie Winkler: And so it's another sign of our really diverse product portfolio meeting customer needs. On the commercial side, you know, double-digit growth, both in terms of revenue and ADV last year, and that was really as they were looking to hedge their physical positions, manage that risk exposure, and saw good uptake in some of our new industrial metals, you know, the energy companies that we talked about before. And, you know, I think this trend speaks to the transparency, the efficiency, and the well-regulated futures markets that we offer. And then internationally, I think, particularly in Europe, on the short-term interest rate side, we saw some really strong performance and also interest across our commodities and FX suite. So I think we have a lot to, you know, build on as we look into 2024, but a very strong performance in those areas last year. Thanks, John.
Ms Winkler: Build on as we look into 2024, but very strong performance in those areas last year. Thanks, Jon Benjamin Let me end on this note as it relates to that I think it's really important and we don't state it enough.
Ms Winkler: As it relates to our rates business, especially you look at some of the largest participants who I referenced earlier.
Ms Winkler: Between there.
Ms Winkler: Activity in swaps and futures in case. This is a critically important point here. They are saving roughly $8 billion $7 billion to $8 billion, a day and margin efficiencies, where they can deploy that capital in other activities, whether it's trading are there parts of their business, that's hard to replicate and Thats as a server as a benefit to the largest.
Ms Winkler: And the world that can use that money to be deployed elsewhere. So that has grown substantially since 2015, so thats been a big growth driver for us over the last eight five to nine years as well.
Speaker Change: Alright, great. Thank you for all the color.
Speaker Change: Thank you.
Speaker Change: Yeah.
Our next question is coming from the line of Alex Blaustein with Goldman Sachs. Please go ahead.
Alex Blostein: Hey, everybody. Good morning. Thanks for the question I was hoping we could dig into the equity business a little more.
Alex Blostein: And specifically just talk about the competitive dynamics between you guys and see both contracts.
Terry: Benjamin, let me end on this note as it relates to that. I think it's really important, and we don't say it enough. As it relates to our rates business, especially as it relates to our rates business, especially as it relates to some of the largest participants who I referenced earlier. And then last, activity in swaps and futures, and futures is a critically important point here. They're saving roughly $7 to $8 billion a day in margin efficiencies where they could deploy that capital in other activities, whether it's trading or other parts of their business. That's hard to replicate, and that's a benefit for the largest clients in the world that can use that money to be deployed elsewhere. So that has grown substantially since 2015, and that's been a big growth driver for us over the last eight and a half to nine years as well. All right, great. Thank you for all the color.
Alex Blostein: We've seen the divergence in kind of volumes and market share for a couple of quarters. Now. So just curious to hear what are you seeing with respect to your underlying clients and what you have in the works to narrow that gap.
Speaker Change: Yeah. It's a good question, Alex I'll turn it over to Mr. Mccourt he'll starting in <unk>.
Tim Mccourt: I'm going to jump in as well and maybe most Winkler also so go ahead Tim.
Tim Mccourt: Thanks, Alex I think before we get to the market to your point. It is important to note that equity options on futures Youre, Jimmy how a record 2023 doing over one 4 million contracts and had consecutive record months in Q4, as we headed into the end of the year and also important to note here in January.
Tim Mccourt: On the recent activity up over one 5 million contracts per day, so our equity option franchise at CME is continuing to grow but there are certainly dynamics in the marketplace around the same day expiring reserves ETE options that are changing the dynamics, but it's important to know that it is a growth versus growth.
Sorry.
Tim Mccourt: At <unk>, our same day expiring options on the S&P 500 E. Mini futures are up 70% in Q4 2023 versus 2022, but it's also interesting to note the only make up about 26% of our volume in Q4 of 2023 and our open interest is up between 20% to 24% outside.
Operator: Thank you. Our next question is coming from the line of Alex Blostein with Goldman Sachs. Please go ahead. Hey everybody, good morning.
Operator: Thanks for the question. I was hoping we could dig into the equity business a little more and specifically just talk about the competitive dynamics between you guys and see both contracts. We've seen the divergence and kind of volumes and market share for a couple quarters now, so just curious to hear what you're seeing with respect to underlying clients and what you have in the works to narrow that gap. Thanks. Yeah, it's a good question, Alex. I'll turn it over to Mr. McCourt. He'll start, and I'm going to jump in as well and maybe Ms. Winkler also, so go ahead.
Tim Mccourt: Zero DTE when we look over 2023 and 2024. So it is a very strong growth story here at CME is not only a zero DTE story and when we look at the relative participation of our markets. It is important to note that we have gained share since the low that we observed over the summer at the peak of some of the zero E trading trading.
Tim Mccourt: Picking up several percentage points of share back. It's also important to note when we look at our global offering nearly 24 hours a day, we remain the leader across the globe, particularly in non U S trading hours, where that relationship is practically inverted against SPX and E. Mini remain options remain the partner of choice for those investors outside of the U S and outside.
Tim Mccourt: The normal U S trading day. So you really have to look at all the facets of our business, which continued to grow and continue to serve a vital part of risk management for our clients in the marketplace.
Tim Mccourt: And I think just to add to what my colleague said, Alex, I think it's really important that we, when he references the risk management of these, we're a risk management institution, and we're looking at massive amounts of open interest that have portfolio margin associated with them that can't be replicated at other entities. So we, to the degree we can. So we are really excited about our equity franchise. We do recognize, so we're not saying we don't recognize the growth that there has been in zero DTEs. As you know, our zero DTEs expire into futures, and there's a zero DTE that can expire into cash. That has been a difference that the retail participants seem to like a little bit more than the professional participants. So we are obviously looking at different things as this continues to evolve. Very helpful, thank you.
Speaker Change: Just to add to what my colleague said, Alex I think it's really important that when you referenced the risk management of these where risk management institution and we're looking at massive amounts of open interest that have portfolio margin associated with them that cannot be replicated at other entities. So.
Speaker Change: To the degree we can so we're really excited about our equity franchise. We do recognize so we're not saying we don't recognize the growth that theres been any zero DTE as you know our zero dte's expire into futures and Theres expire into cash that has been a difference that it seems that the retail participants seem to like a little bit more than the professional participant. So we are.
Speaker Change: We're obviously looking at different things it just continues to evolve.
Speaker Change: Very helpful. Thank you.
Operator: Thank you. Our next question is coming from the line of Kyle Voigt with KBW. Please go ahead. Hi, good morning.
Speaker Change: Thank you.
Speaker Change: Our next question is coming from the line of Kyle White with K W. K B W. Please.
Kyle Voigt: Please go ahead.
Kyle Voigt: Hi, good morning.
Operator: So last week, you announced that you'll be rolling out US Corporate Bond Index futures this summer. I think other venues have attempted to launch credit index futures in the past, and historically, it's proven difficult for those products to gain sufficient adoption. Just wondering if you'd go into some detail about why you think the time is right for this product, why your approach may be different here, and then also provide some color on customer demand that you're seeing for the product as well. Thanks, Kyle. Tim?
Kyle Voigt: So last week, you announced that you'll be rolling out U S. Corporate bond index futures this summer.
Kyle Voigt: I think other venues and attempted to launch credit index futures in the past historically has proven difficult for those products to gain.
Kyle Voigt: Patient adoption.
Speaker Change: Just wondering if you could go into some detail about why you think the time is right for this products why your effort maybe different here and then also provide some color on customer demand that youre seeing from the product as well.
Speaker Change: Thanks, Kyle Tim.
Tim Mccourt: Thanks, Terry. Thanks, Kyle. Great question.
Speaker Change: Thanks, Jerry and thanks, Kyle Great question.
Tim Mccourt: You know, we're pleased to announce earlier this month that we entered into an IPO arrangement with Bloomberg to offer futures on their corporate bond futures for both high yield and investment grade, with futures coming online in the summer of 2024. You know, all the details are still coming, but it's important to note, I think, when we look at credit in this market with the increasing rate environment and the increasing dynamics and relationships diverging between equities and rates, introducing credit products to the market makes complete sense to offer another tool to our clients to manage the risk as it manifests in all parts of their portfolio, whether it be equity rates or single name credit. I think it's also interesting to note that when we look at this universe in general and partner with Bloomberg, we are also tapping into a well-established ecosystem around these indices, around other exchange-traded products, and structured products that are available. So this is a very welcome tool for clients.
Speaker Change: We're pleased to announce earlier this month that we entered into the IPO raised but Bloomberg to offer futures on their corporate bond futures for both high yield and investment grade with futures coming online a summer of 2024.
Speaker Change: Still all the details are coming but it is important to note I think when we look at credit is in this market with the increasing rate environment, and the increasing dynamics and relationships diverging between equities and rates market introducing credit products to the market makes complete sense to offer another tool to our clients to manage the risks as it manifests in all parts of their poor.
Speaker Change: Folio, whether it be equity rates or single name credit I think it's also interesting to note is that when we look at this universe in general and partner Bloomberg were also tapping into a well established ecosystem around these indices around other exchange traded product structure products are available. So this is a very welcome pool FERC clients referred overwhelming.
Tim Mccourt: We've heard overwhelming feedback over the last several months during the validation process that this will be additive, it will help them in other parts of the credit market. And we're looking forward to bringing these products to market, working with our participants to make sure that they continue to grow. And I would just encourage you to stay tuned, stay tuned for more details as we approach the summer.
Speaker Change: Feedback over the last several months during the validation process that this will be additive and will help them in other parts of the credit market and we're looking forward to bringing these products to market with our participants to make sure that that continues to grow and I would just encourage you to stay do stay tuned for more details as we approach summer.
Kyle: And so, Kyle, let me make a few more points on this. I think you said it at the beginning, your question about timing: timing is everything as it relates to certain products and certain product launches. So I don't think a lot of people would have believed that the short end of the curve was going to continue to be the attraction point for as long as it has been to date. We listed a T-bill contract where some would say, geez, you haven't had that since 1980 or 1981. Why did you bring that back out?
Speaker Change: So Caroline let me make a few more points on this I think you said it in your question timing timing is everything as it relates to certain products and certain product launches. So I don't think a lot of people would believe that the short end of the curve was going to continue to be the attraction point for as long as it has been to date, we listed a T bill contract with so much they would usually haven't had that.
Speaker Change: Since 1980 or 81, why do you bring that back out while the cost of us to do that is very de Minimis and we can get these contracts out there quickly and if people need to manage risk even if it's small at that current period of time. It's a good thing for CME. So I think when you look at.
Terry: Well, the cost for us to do that is very de minimis, and we can get these contracts out there quickly. But now, people need to manage risk. Even if it's small at this current period of time, it's a good thing for CME. So, I think when you look at the corporate bond market, timing is everything, and we're not trying to nail the timing perfectly, but we want to make sure that these products are available if, in fact, people need to manage their risk. Great, thank you.
Speaker Change: The corporate bond market timing is everything and we're not trying to nail the timing perfectly, but we want to make sure that these products are available if in fact people need to manage their risks more closely today than they did when others acquire listed these contracts. So you never know and again. These are these are not big lifts for CMA, we can continue.
To do it but we also have other value added.
Speaker Change: Oppositions that some others don't when we list new contracts.
Great. Thank you.
Speaker Change: Thank you.
Operator: Thank you. Our next question is coming from the line of Michael Cyprys with Morgan Stanley. Please go ahead. Hi, good morning.
Speaker Change: Okay.
Speaker Change: Our next question is coming from the line of Michael Cyprus with Morgan Stanley. Please go ahead.
Michael J. Cyprys: Hi, Good morning, Thanks for taking the question wanted to ask on post trade services. The JV that you have with S&P, Australia. It's been nearly three years since the Austria JV was created I was hoping you could speak to the growth that you've seen how well penetrated as the offering today and speak to where you see some of the biggest growth opportunities ahead and post trade services.
Operator: Thanks for taking the question. I wanted to ask about post-trade services, the JV that you have with S&P Austra. It's been nearly three years since the Austra JV was created.
Operator: I was hoping you could speak to the growth that you've seen, how well penetrated the offering today, and speak to where you see some of the biggest growth opportunities ahead for post-trade services and some of the steps you guys are taking to accelerate growth. And then also, if you could touch on the competitive backdrop, that would be interesting to hear. Some others are looking to take a share in processing and risk management. You know, it's a great question, Michael.
Michael J. Cyprys: And some of the steps you guys are taking to accelerate growth and then also if you could touch on the competitive backdrop.
Michael J. Cyprys: But just being interesting to hear some others are looking to take share in processing and risk management.
Speaker Change: Okay. That's a great question, Michael we haven't talked too much about that so I appreciate the opportunity to discuss real quick on the call I'm going to turn to lend that I'm going to make a few comments as it relates to it as well because I think it goes into the strategy when you originally.
Lynn: We haven't talked too much about that, so I appreciate the opportunity to discuss it real quick on the call. I'm going to turn it over to Lynn, but I'm going to make a few comments as it relates to it as well. Because I think it goes into the strategy we originally acquired next in the cash markets and also the post-trade services that came with it and what our thought process was. So I'll save those comments, and I'll let Lynn go first.
Lend: <unk> next and the cash markets and also the post trade services that came with it and what our thought process was so.
Lend: I'll say those comments and I'll, let lingo first.
Lynn: Yeah, so thanks, Mike. I think one of the things that we've been excited about is the JV that we were able to establish with originally IHS and now S&P; it was bringing together additional assets in the space to bring scale to that joint venture. So being able to cover multiple asset classes, from FX, interest rates, and credit, being able to have the services span across that back office of the customer base has been really important and is a good foundation to grow from. So I think we've been excited about the prospects there. There certainly are always competitors in that space and people looking at that space. It's one that continues to need improvement in terms of where banks are looking for efficiencies.
Lend: Yeah. Thanks, Mike I think one of the things that we've been excited about is the JV that we were able to establish with originally IHS I know S&P. It was bringing together additional assets in the space to bring scale to that joint venture so being able to cover multiple asset classes from FX interest rate.
Lend: Credits being able to have the services span across that back office of the of the customer base has been really important and is a good foundation to grow from so I think we've been excited about the prospects. There. There certainly are always competitors in that space and people looking at that space.
Lend: It's one that continues to need improvement.
Lend: Improvement in terms of where banks are looking for efficiencies we've talked a lot about capital efficiencies. This is an area where it is important.
Lynn: We've talked a lot about capital efficiencies. This is an area where it is important to the customers to have that service and have a consistent approach there. So I think it's one where we continue to look for opportunities to expand the reach of that joint venture now that it's a trusted provider across a lot of the major asset classes. I have nothing more to add than that because I think Lynn sums it up.
Lend: Customers to have that service and have.
Consistent approach there. So I think it's one where we continue to look for opportunities to expand the reach of that joint venture now that it's a trusted provider across a lot of the major asset classes.
Speaker Change: I have nothing more to add than that because I think Lynn summed it up that's where I was going to go to the benefits of once we acquired the business getting focused on the cash markets.
Terry: That's where I was going to go with the benefits of once we acquire the business; getting focused on the cash markets to complement our futures markets was something we were really excited about with NEXT. And then when you look at the post-trade services and now having the JV, I think that was nothing but a bonus for us to be able to do that with IHS and then ultimately with our partner at S&P Global. So I think Lynn summed it up quite well.
Speaker Change: To complement our futures markets was something we were really excited about with Nex and then when you look at the post trade services and now having the JV I think there was nothing but a bonus for us to be able to do that with IHS and then ultimately with our partner at S&P Global So I think <unk> summed it up quite well.
Operator: Great, thank you. Our next question is coming from the line of Simon Clinch with Redburn Atlantic. Please go ahead.
Speaker Change: Great. Thank you.
Speaker Change: Our next question is coming from the line of Simon Collins with Redburn Atlantic. Please go ahead.
Operator: Hi guys, thanks for taking my question. There's quite a bit written about the hedge fund basis trade recently, and I was wondering if you could talk a little bit more about, I guess, how you think that that particular trade has scaled, how it's impacted your business, and what you would expect if or when it starts to unwind, as the Fed shifts from QT to QE at some point. Just some thoughts, and that would be really useful. Thank you, Thanks, Simon. Tim?
Chris M. Harris: Hi, guys. Thanks for taking my question.
Simon Collins: This.
They've been written about the hedge fund basis trade recently and I was wondering if you could talk a little bit more about.
Chris M. Harris: I guess, how you're seeing that.
Particularly trade has scaled how it's impacted your business and what you would expect.
Chris M. Harris: When it starts to unwind.
Chris M. Harris: As the fed shifts from Q2 to Q at some point, just some tools and that will be really useful. Thank you.
Speaker Change: Thanks, Simon Tim Griffith. Thanks.
Tim Mccourt: Great. Thanks, Simon. As we've talked about over the last several months, the basis trade remains an important part of keeping these markets in line and the efficient transfer of risk between the related markets of cash and futures. It's something that gets a lot of talk, I think, just given the increase in the size of that trade. But it's also important to remember when we look at how that trade has grown and the participants in that trade, with respect to increasing its size over the last several months and years, it is proportionate to the debt outstanding and the debt issuance of the market. So, it's scaling in sort of a linear fashion to that, and it's important to put it in context.
Speaker Change: Thanks Simon.
Speaker Change: We've talked about over the last several months the basis trade remains an important part of keeping these market in line and the efficient transfer of risk between the related markets of cash and futures. It's something that gets a lot of talk I think just given the increase in the size of that trade, but it's also important to remember when we look at the how that trade has grown.
Speaker Change: And the participants on that trade with respect to increasing the size over the last several months and years as it is proportionate to the debt outstanding and the issuance of the market. So it's scaling in sort of a linear fashion to that and it's important to put it in context.
Tim Mccourt: You just can't discreetly look at the size of the trade and compare it to something over a decade ago without the larger context of what's going on with respect to the debt market and the issuance of the Treasury markets themselves. So, it's something that remains efficient for the marketplace. It's an important part of the risk management tool. It's something also important to remind folks in this discourse on this topic that we do have our own margin and risk management system, with respect to the Treasury futures side, that remains as it is, regardless if you're trading it against the basis or trading it outright. We have all our risk management in place.
Speaker Change: We look at the size of the trade and compare it to.
Speaker Change: Something over a decade ago without the larger context of what's going on with respect to the debt market issuance in the treasury market themselves. So it's something that remains efficient for the marketplace.
Speaker Change: Important part of the risk management tool is something also important to remind folks in this discourse on this topic is that we do have our own margin and risk management system inspections of Treasury futures side that remains as it is regardless if you're trading at against the basis. We're trading in outright we have all of our risk management in place. So I think it's just important for people to understand where they are.
Tim Mccourt: So, I think it's just important for people to understand when they're looking at the basis trade to really understand the benefits it provides to the market and make sure we're accurately talking about the futures side and the cash side. But I think it's something that will continue. And, as with my other comments, it's, as with my other comments, very hard to speculate on what might happen in the event of an unwind or as we continue to move further into the QT cycle in the race environment. That's something that, as Terry said in his opening remark, it's more important in these uncertain times that we are here to help clients manage that risk, and we'll do that regardless of what's happening in any of the specific asset classes, but it's something that we'll have to make sure we're continuing to serve our clients' needs. And that's what's important going forward, rather than necessarily trying to quantify an impact from a volume. Thanks, Jim. Thanks, Simon. Thanks a lot.
Speaker Change: Looking at the basis trade to really understand the benefits it provides to the market and make sure we're accurately talking about the future side and the cash side, but I think it's something that will continue and it's similar to my other comment very hard to speculate on what might happen in the event of an unwind or as we continue to move further into the <unk> cycle.
Speaker Change: In the rates environment, that's something that as Terry said in his opening remark. It's more important that in these uncertain times that we are here to help clients manage that risk and we will do that regardless of what's happening in any of the one specific asset classes, but it's something that we'll have to make sure. We're continuing to serve our clients' needs and that's what's important going forward rather than necessarily try to quantify.
Speaker Change: From a volume perspective.
Speaker Change: Thanks, Tim Thanks Simon.
Speaker Change: Thanks, a lot.
Speaker Change: Our next question is coming from the line of Chris Allen with Citigroup. Please go ahead.
Operator: Our next question is coming from the line of Chris Allen with Citi. Please go ahead. Yeah, morning, everyone.
Chris Allen: Yes. Good morning, everyone. Thanks for the question I wanted to ask on energy.
Operator: Thanks for the question. One of the questions on energy, which obviously globalization is having a positive impact here. And I think longer-term energy transition will be structural catalysts. Kind of curious how you're thinking about energy transition impacting other asset classes, namely, whether there's an impact you see in ags and metals and the growth opportunity. You got it there? Yeah. Yeah.
Chris Allen: Obviously globalization is having a positive impact here and I think longer term energy transition will be structural titles kind of curious.
Chris Allen: How are you thinking about energy transition impacting other asset classes, namely whether there is an impact do you see in eggs and metals and there's a growth opportunity moving forward.
Speaker Change: You got it there yes, yes, so I think we've talked about this in the past we are seeing the lines of distinction born between energy traders AG traders and metal traders and when you look at kind of the growth for commodities portfolio and Julie touched on this a little bit earlier and overall the portfolio grew very strongly last year metals up 15%, 17%. So it is not just a function of <unk>.
Derek L. Sammann: So I think we've talked about this in the past. We're seeing the lines of distinction blur between energy traders, ag traders, and metal traders. And when you look at kind of the growth of the commodities portfolio, and Julie touched on this a little bit earlier, overall, the portfolio grew very strongly last year. Metal was up 15%, and ag was up 17%.
Derek L. Sammann: So it's not just a function of crossing asset cost lines; it's a function of mobilizing adoption of our benchmarks as well. We're seeing our biggest grain traders move into energy. We're seeing our biggest energy producers move out into things like soybean oil and voluntary credit markets. So that's the benefit of having a single platform where we have been able to put up record volumes and participation in our commodities portfolio as a whole. Julie also referenced earlier the strong participation we've seen from buy-side and commercial customers across ags, energy, and metals. We saw buy-side client growth last year of 30%. Commercials across all energy, ags, and metals were up 15%.
Speaker Change: And asset class lines, its functional capitalizing adoption of our benchmarks as well, we're seeing our biggest grain traders moved into energy, we're seeing our biggest energy producers move out into things like soybean oil.
Speaker Change: Voluntary credit market. So that's the benefit of having a single platform, where we have been able to put up record volumes and participation.
Speaker Change: In our commodities portfolio as a whole Julia also referenced earlier the strong participation we've seen from buy side and commercial customers across AG energy and metals, we saw buy side client growth last year up 30% commercials across all energy Ags and metals were up 15%. So I think it's a story of making sure that Terry mentioned this point earlier, having the <unk>.
Derek L. Sammann: So I think it's a story of making sure, and Terry mentioned this point earlier, having the right products in the right market circumstances. We have the benchmarks, we have the liquidity, futures, and options, leading technology, best-in-class capital, efficiencies across these asset classes, and I think it's generating the results that we put forward. Thanks, Derek. Lynn?
Speaker Change: Products and the right market circumstances, we have the benchmarks, we have the liquidity futures and options, leading technology best in class capital efficiencies across these asset classes I don't think its generating the results that we put forward.
Speaker Change: Thanks, Derek Glynn, one part I just wanted to highlight that their customer.
Lynn: One part I just wanted to highlight that Derek said, we do have customer bases on the network across these asset classes, so energy, ags, metals, and when those lines are blurring, we already have that network. So we're making sure that we have those products available for those customers to trade as this transition develops. We can be that natural home for those customers that are already here at CME. Okay, Chris?
Speaker Change: Customer bases in the network across these asset classes, so energy Ags metals and when those lines are blurring, we already have that network. So we're making sure that we have those products available for those customers to trade as this transition develop we can be that natural home for those customers that are already here at CME.
Speaker Change: Okay Chris.
Chris Allen: Thanks, Chris.
Operator: Thank you, everybody. Our next question is coming from the line of Craig Siegenthaler with Bank of America. Please go ahead. Good morning, everybody.
Chris Allen: Think about it.
Chris Allen: Our next question is coming from the line of Craig Siegenthaler with Bank of America. Please go ahead.
Craig Siegenthaler: Good morning, everyone.
Craig Siegenthaler: My question is on the November pricing schedule update you.
Operator: My question is on November... Did it increase pricing on a rate? The Bulletproof Executive 2013, You know, let me just touch on that a little bit, Craig, because I don't want you to read any more into it than where it's at. You got to remember, we just came off of the biggest transition of a benchmark, from LIBOR to SOFR, and we thought it was really important to let the market continue to mature, even though we've become the natural home for SOFR. I think we're just at 100% of the market. There are a handful that were at 99.9% of the market are now at CME. From my standpoint, as I look at the pricing with my team and I look at some of the rates businesses, I really believe it was important to let that benchmark continue to mature. And I didn't think it was appropriate to raise rates on mature products right now as we're going through a cycle where risk management continues to be critical. We had a great expansion, as I said earlier, from what I believe is a movement a little bit from cash into futures, and I don't want to ruin that momentum.
Craig Siegenthaler: You didn't increase pricing on rates. So we're curious to why you didn't touch right.
Craig Siegenthaler: Okay.
Speaker Change: Let me just touch on that a little bit Greg because I don't want you to read anymore into it than where it's at you got to remember we.
Craig Siegenthaler: We just came off of the biggest transition our benchmark.
From <unk>.
Craig Siegenthaler: <unk> to sow for.
Craig Siegenthaler: And.
Craig Siegenthaler: We thought it was really important to delight the market continue to mature even though we've become the natural home for silver I think we're just at 100% of the market. There is a handful that was up for 99, 9% of the market is now at CME.
Craig Siegenthaler: From my standpoint, as I look at the pricing with my team and I look at some of the rates businesses I really believe it was important to let that benchmark continued to mature and I didn't think it was appropriate to raise them on the mature products right now as we as we're going through a cycle where risk management continues to be critical we had a great expansion.
Craig Siegenthaler: And as I said earlier, what I'm, what I believe is a movement a little bit from cash into futures and I don't want to ruin that momentum I want to let it continue to flow, but again it was basically around the maturity of the sulfur futures contract and the options associated with it. So that was really my thinking with my team when we did the pricing on the rates.
Terry: I want to let it continue to flow. But again, it was basically around the maturity of the SOFR futures contract and the options associated with it. So that was really my thinking with my team when we did the pricing on the rates. The only thing I would add to that is, keep in mind Craig, because we were incentivizing the SOFR product over the last couple of years, as those have rolled off, we have had some natural pricing increases as the incentives have rolled off. So they weren't necessarily on the exact pricing change, but they were related to those incentives that have rolled off over time as it's matured. Does that give you a little color on why we did it, Craig? Now that's perfect.
Speaker Change: Yeah. The only thing I would add to that is keep in mind, Craig because we were incentive the sofa product over the last couple of years as those have rolled off we have had some great natural.
Speaker Change: Natural pricing increases as the incentives have rolled off so they werent necessarily on the exact pricing change, but they were related to those incentives that have rolled off over time as it's matured.
Speaker Change: Does that give you a little color why we did it Greg.
Speaker Change: No that's perfect.
Speaker Change: Thank you Terry. Thank you appreciate it thank you Sir.
Lynn: Thank you. Appreciate it. And our next question is a follow-up question. It's coming from the line of Alex Kramm with UBS. Please go ahead. Hey, hello again. I think we have a little bit of extra time. Just a couple of modeling cleanup questions here.
Speaker Change: And our next question is a follow up question is coming from the line of Alex Kramm with UBS. Please go ahead.
Alex Kramm: Hey, Hello, again, I think we have a little bit extra time, and then just a couple of modeling clean up questions here, one just to come back to the pricing question from Craig.
Operator: One, just to come back to the pricing question from Craig, can you actually, from a modeling perspective, help us where we would see the biggest impact on RPC? And I know we can probably look at your pricing schedule, but it's, you know, thousands of lines, and then have another one after that. Okay, Lynn.
Alex Kramm: Can you actually from a modeling perspective help us where we would see the biggest impact on RPC I know if you can probably look at your pricing schedule, but it's thousands of lines and then I have another one after that.
Speaker Change: Okay Lynn yes. It is.
Lynn: Yeah, it's fairly well spread. I would say equities and agriculture probably were a bit higher than some of the other asset classes, but it's fairly well spread with the exception of race, which we just discussed. And then my other one, I don't think anybody has asked yet, but can you just give us an update on, you know, balances in the clearinghouse cash and then, obviously, non-cash collateral, the return you had, and then maybe related to that, when I look at some of the data that we track on that, it seems like the cash balances have been super consistent over the last one, two quarters. So just wondering if there's anything you would point to why we may have found a floor to those declines that we have seen in cash balances over the last couple of years. Thanks. I'm going to jump in before Lynn does, and I'm going to ask Suzanne, too.
Lynn: Fairly well spread I would say.
Lynn: Equities in agriculture, probably were a bit higher than some of the other asset classes, but.
Lynn: It's fairly well spread with the exception of rates.
Lynn: Okay.
Lynn: Great. Thank you and then my other one I don't think anybody has asked yet but can you just give us an update on balances.
Lynn: The clearinghouse cash and then obviously noncash collateral. The return you had and then maybe related to that when I look at some of the data that we track on that it seems like the cash balances have been super consistent over the last one two quarters. So just wondering if there's anything you would point to why we may have found a floor.
Lynn: The war to those declines that we had seen in cash balances over the last couple of years. Thanks.
Lynn: I'm going to jump in before Linda I'm going to ask Suzanne to also you can go ahead, but I think what's interesting is.
Terry: You can go ahead. But I think what's interesting is... Alex, on that point, we've seen some really massive fluctuations in cash balances that go up and down in a very short period of time. I mean, I'm talking about days.
Speaker Change: Alex on that point, we've seen some really massive fluctuations in that cash balances that go up and down in a very short period of time, I mean, I'm talking about days.
Terry: So it's really hard to say if there's a floor on that or not, or if there's a ceiling on that or not, because it does fluctuate. And I think after you saw some of the recent numbers as of yesterday, it caught some people off guard a little bit. And we don't know what that means for our cash balance at the Fed or not. So I think it's quite fascinating what's going on right now. And I think that's going to be a bit of a pattern this year. So I don't want to draw too many conclusions on where that balance is going to be at or not. But it's really going to be hard for us to predict what a floor could possibly be on it.
Speaker Change: It's really hard to say if there is a floor on that or not or if there is a ceiling on that or not because it does fluctuate and I think as you saw some of the recent numbers as of yesterday I think it caught some people off sides, a little bit and that we don't know what that means to our cash.
Speaker Change: Balances at the fed.
Speaker Change: Or not so I think it's quite fascinating what's going on right now and I think that's going to be bit of a pattern. This year. So I don't want to draw too much conclusions on where that balance is going to be at or not but it's really going to be hard for us to predict what a floor could possibly be on it.
Lynn: Go ahead, Lynn. Yeah, and just to provide you with a little more of the data, Alex. So for Q3, our average cash balances were $91 billion. In Q4, the average was $75 billion, and we've seen that $75 billion continue in the early parts of Q1. The earnings on the cash balance was consistent with last quarter at about 36 basis points.
Speaker Change: Yeah, and just to provide you a little more of the data Alex So for Q3, our average cash balances were <unk> 91 billion in Q4. The average was <unk> 75 billion and we've seen that 75 billion continue in the early parts of Q1.
Alex: The earnings on the cash balance was was consistent with last quarter at about 36 basis points.
Speaker Change: On the noncash side in Q3, we're at we were at $137 billion on average in Q4 that went up to 153 billion. Mr reminder, that was at seven basis points in Q4, and increased 10 basis points here in Q1.
Lynn: On the non-cash side, in Q3, we were at $137 billion on average. In Q4, that went up to $153 billion. Just a reminder, that was at 7 basis points in Q4 and increased to 10 basis points here in Q1. In the early part of Q1, through February 6, our average is $160 billion on that fee-eligible non-cash.
Speaker Change: In the early part of Q1 through February six our average is 160 billion on that fee eligible noncash.
Operator: Fantastic. Thanks for the follow-up. Thanks, Alex. And our last question in queue is a follow-up. It's coming from Owen Luo with Oppenheimer. Please go ahead.
Speaker Change: Fantastic Thanks for the follow up.
Speaker Change: Thanks, Alex.
Speaker Change: Yeah.
Speaker Change: And our last question in queue is a follow up it's coming from Owen Lau with Oppenheimer. Please go ahead.
Operator: Hi, thank you for taking my follow up. So it has been more than one month since the launch of SPOT Bitcoin ETF. Could you please talk about how it has impacted CME Bitcoin futures and the futures ETF? Do you think it's a net positive for CME? Just want to get your thoughts on this space. Thanks a lot. Thanks, y'all, and Jim can comment. I won't be able to help myself; I'll make a comment as well.
Owen Lau: Hi, Thank you for taking my follow up so it has been more than one month. After the launch of swap fee ETF could you. Please talk about how it has impacted <unk> futures in futures ETF.
Owen Lau: It's a net positive for CME just wanted to get your thoughts on this space. Thanks a lot.
Speaker Change: Thanks, Bill and Tim can comment on.
Speaker Change: I won't be able to help myself I'll make a comment as well.
Tim Mccourt: Thanks, Owen, for the question. Certainly, we've seen the long-awaited approval of the spot-based ETFs on Bitcoin, and it's certainly an interesting and positive development for the ecosystem more broadly.
Bill: Thanks, a lot for the question certainly we've seen finally, the long awaited approval of the spot based Etfs on bitcoin and it's certainly a interesting and positive development for the ecosystem more broadly we're hearing from customers. Our futures remain a central pool for the market makers of that ETF for those who are looking to create.
Tim Mccourt: We're hearing from customers; our futures remain a central tool for the market makers of that ETF for those who are looking to create or redeem against the futures instead of the cash process. So, it's something that we've also seen strong growth in, both in open interest and in volume of our complex, in response to the run-up that's also remained here into February. To put that in perspective, January was our best month ever in terms of average daily open interest, capping four consecutive months of average daily open interest at all-time highs, where the average daily open interest reached a record of almost 23,600 contracts, which is the equivalent of about 5.1 billion U.S. dollars.
Bill: Our redeem against the futures instead of the cash process. So it's something that we've also seen strong growth both on open interest and in volume of our complex in response to the run up has also remained here into February so put that perspective January was our best month ever in terms of average daily open interest gap in four consecutive months.
Bill: <unk> average daily open interests, all time highs, whereas the average daily open interest reached a record of almost 23600 contract, which is the equivalent of about $5 1 billion U S dollars, but also on the volume side. The future suite reached an all time high of about 67000 contracts were almost $6 billion.
Tim Mccourt: But also on the volume side, the futures suite reached an all-time high of about 67,000 contracts for almost $6 billion per day in January. And our microsuite for the crypto products grew four times, a four-fold increase since September, all in response to the market dynamics around the up-fee, the ramp to launch, and the subsequent trading activity of the launch spot Bitcoin ETF.
Bill: Per day in January and our micro suite further crypto products grew four times a four fold increase since September all in response to the market dynamics around the up the.
Bill: The launch.
Bill: <unk> two launch and the subsequent trading activity of the launch spot Big ETF. We also remain the top bitcoin futures exchange by open interest and we expect this ecosystem.
Tim Mccourt: We also remain the top Bitcoin futures exchange by open interest, and we expect this ecosystem to continue to grow as we see the interrelated products be adopted by the market. And CME Bitcoin futures and our Bitcoin reference rate will remain at the center of price discovery for this continued growth. And oh, and the only thing I would add to that, we've heard, you know, for a lot of years, what does it mean when an ETF versus future? Are they competitive in certain asset classes?
Bill: To grow as we see the interrelated products be adopted by the market and CME futures and our bitcoin reference rate will remain at the center of price discovery for us continuing growing equally.
Speaker Change #102: Oh, and the only thing I would add to that we've heard from a lot of years, what does it mean, when an ETF versus the future or are they competitive in certain asset classes. All we have seen is the futures continue to grow as they list Etfs as people need to do risk management as people. Other people are taking a passive interest in some of these etfs. So I think it's.
Terry: All we have seen is the futures continue to grow as they list ETFs as people need to do risk management, as other people are taking a passive interest in some of these ETFs. So I think the ecosystem is good as it continues to grow. Tim just outlined some of the numbers. So I don't see it's any different than some of the growth of our other products.
Bill: The ecosystem is good as it continues to grow Tim just outlined some of the numbers. So I don't see there is any different than some of the growth of our other products I actually I'm very encouraged by this.
Operator: I am actually very encouraged by this. Thanks a lot. Thank you. We have no further questions. I'd like to turn it back over to management for closing remarks. We want to thank you all very much for covering CME. We're excited about the quarter. We look forward to talking with you next quarter. We think it's going to be a busy year and look forward to answering any other questions you have for us regarding follow-up as we go forward. Thank you. That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you.
Speaker Change: Hi.
Speaker Change #100: We have no further questions I'd like to turn it back over to management for closing remarks.
Speaker Change: We want to thank you all very much for your covering CMA. We're excited by the quarter, we look forward.
Speaker Change: Talking with you next quarter, we think it is going to be a busy year and.
Speaker Change #101: We look forward to answering any other questions you have for us on follow ups as we go forward. Thank you.
Speaker Change #103: That concludes the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Speaker Change #101: Okay.
Speaker Change #101: Yes.
Speaker Change #101: Okay.
Speaker Change #101: Okay.
Speaker Change #101: Yeah.
Speaker Change #101: Yes.
Speaker Change #101: Yes.
Speaker Change #101: Sure.
Speaker Change #101: [music].
Speaker Change #101: Okay.
Speaker Change #101: Okay.
Speaker Change #101: Uh huh.
Speaker Change #101: So.
Speaker Change #101: Okay.