Bgc Group Inc (BGC) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 BGC Partners Incorporated Earnings Conference Call. My name is Regina and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

Today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jason McGruder, Head of Investor Relations and you may begin, Sir.

Good morning. Before we begin I want to make sure that you know our fourth quarter and full year 2010 financial results press release was issued this morning. It can be found at either the News Center or Investor Relations sections of our website at www.bgcpartners.com.

During this call, we will also be referring to a presentation that summarizes our results and which includes other useful information. These can also be found in Investor Relations section of our website.

Throughout today's call, we will be referring mainly to our quarterly results on a distributable earnings basis. What you'll see today is press release for full year results or for GAAP results.Please also see the section of today's results release entitled Distributable Earnings Results compared with GAAP and a Reconciliation of GAAP Income to Distributable Earnings, for a definition of this term, and how, when, and why management uses it.

Unless otherwise stated whenever we refer to income statement items, such as revenues, expenses, pre-tax earnings or post-tax earnings on today's call, we are doing so only on a distributable earnings basis.

I also remind you that the information on this call contains forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 as amended, and section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements includes statements about the outlook and prospects for BGC and for its industry, as well as statements about our future financial and operating performance. Such statements are based upon current expectations that involve risks and uncertainties. Actual results, performance, or achievement could differ materially from those contemplated, expressed, implied because of a number risks and uncertainties that include, but not limited to the risks and uncertainties identified in BGC's fillings with the US Securities and Exchange Commission.

We believe that all forward-looking statements based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcome or the effect of risks and uncertainties and other factors on anticipated results or outcomes in that accordingly you not should place under reliance on these statements.

Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments. Please refer to the complete disclaimer with respect to forward-looking statements and risk factor set forth in our public filings, which we incorporate today by reference.

I now happy to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners.

Well done Jason. Good morning, and thank you for joining us today for a fourth quarter conference call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Graham Sadler.

BGC continues to outperform our industry in terms of revenue and earnings growth. Our revenues were up 7.6% to $322.5 million in fourth quarter of 2010. Pre-tax earnings up 97.4% to $45.4 or $0.19 per fully diluted share and our post- tax earnings were up 168.1% to $39.8 million or $0.17 per fully diluted share.

BGC's performance was strong across most of our products and geographies during the quarter. We generated double-digit top-line growth in foreign exchange equities and other asset classes and overall fully electronic trading.

BGC's post-tax profit margin expanded dramatically year over year by 730 basis points to 12.3%. Our pre-tax earnings per share were up 72.7% while post-tax earnings per share increased by 142.9%. This is BGC's fifth consecutive quarter of significant and industry-leading earnings growth.

I am also pleased to announce that BGC's Board has declared a quarterly dividend of $0.14 per share, an increase of 133.3% compared to last year. We expect to increase the dividend for the first quarter 2011 and then keep it consistent over the fourth quarters of that year.

I would now like to turn the call over to our President, Shaun Lynn.

Thanks, Howard, and good day to everyone. Once again the three key revenue drivers of BGC's growth are; a strengthened fully electronic trading, a global front-office headcount and market share growth, and positive market dynamics across most of our product categories. The earnings presentation and press release tables on our website show the key factors in greater detail. Unless otherwise stated, the comparisons I will discuss are for the fourth quarter 2010 versus a year earlier.

BGC's overall rates revenue were up 7.9%. We continued to benefit from the sizable levels of debt issuance by governments around the world. For example, according to [the logic], total government debt issuance has increased by compound average of 25% a year since 2006. Sovereign debt issuance provides the raw material for our rights and sovereign CDS debts, [whether they bought] cash or derivatives via voice or electronic means to the US Congressional Budget Office projecting the that US Federal deficit more than double more over the next 10 years. With a similar outlook for the EU by the European commission, we expect these positive tailwinds to derive volumes for our businesses for the foreseeable future.

BGC's foreign exchange revenues increased by 24.7%. As our earnings presentation shows this growth rates generally surpassed FX volume growth reported by our competitors and major central banks. Because of the ongoing rebounding global volumes and the strength of fully electronic and hybrid product offerings, we are confident that we will continue to gain FX market share.

BGC's revenues from equities and other asset classes increased by 12.6% driven mainly by the addition of Mint and growth from our energy and commodities desks. As shown in our earnings presentation, [add] growth in these businesses has greatly surpassed comparable industry metrics in 2010. BGC's credit revenues were flat year on year, but held up better than the overall industry average, which so corporate bond and [credit derivative] trading activity for example, and metrics page shows that trace all bond volumes were down 5.9% in the quarter. A stronger performance in credit is largely due to significant growth from our voice and electronic sovereign CDS brokerage and our overall fully electronic credit business. Across all asset classes, over 75 of the 200 plus different product desks now offer customers fully electronic trading even through streaming prices with the BGC Trader or [option] using volume match.

We are particularly happy with the strong results from the BGC's recently launched suite of fully electronic interest rate derivative products including euro interest rate swaps. In late August, we were the first to launch what is now over a dozen such products on the BGC Trader and [all] volume match.

From August 2010 through January 31 of this year, BGC brokered more than 1,900 transactions with a notional volume of $340 billion in fully electronic interest rates derivatives,a large majority of which were Euro swaps. Additionally, January's average daily notional volume was over 90% higher than in the fourth quarter, and these figures do not include the launches this past week of interest rates swaps for Australian dollars in British pounds. Given our continued investment of $100 million, a year in technology, our extensive experience in converting products fully electronic trading and our clients' trust in our ability to create premier e-broking products. We are confident our success in global electronic interest rate swaps will continue.

BGC's total revenues relates to fully electronic trading increased 16.1% to $32.2 million. Representing 10% of overall company revenues in the fourth quarter of 2010. This is the best quarter for e-broking revenue in both absolute and relative terms since the eSpeed merger. In comparison, revenues related to fully electronic trading were $27.7 million or 9.2% of total revenues a year earlier.

Our overall growth from e-broking came from multiple desks globally, and were driven primarily by the US Treasuries, sovereign credit default swaps, interest rates derivatives, and corporate bonds. As we've demonstrated for the last three quarters, [add count] e-broking business delivers high margins and greater profits. As we continue to convert, our current voice [debt] revenues to fully electronic, we expect to see additional profit margin expansion.

Front office headcount and productivity is third key driver of our revenue growth. As of December 31, 2010, BGC's front office headcount is up by 9.8% to 1,705 brokers and sales people. Average quarterly revenue per broker salesperson was approximately $180,000 versus $188,000 a year earlier.

Looking forward to the first quarter, we expect average quarterly revenue per broker salesperson to exceed $200,000. Our headcount declined slightly versus the third quarter due to the normal year-end review process.

With that, I would now like to turn the call over to Graham.

Thank you, Shaun, and good morning, everyone. Unless otherwise stated, all comparisons I'm making compare to the fourth quarter 2010 to the fourth quarter of 2009. BGC generated revenue of $322.5 million, up 7.6% compared with $299.8 million. Brokerage revenues were $297.7 million, up 8.9% versus $273.5 million. Turning to our geographic revenues, Europe, Middle East, and Africa increased by 7.1%, the Americas were up by 10.5%, and Asia-Pacific revenues increased by 4.5%. Europe represented 56.8% of revenues, the Americas 27.5%, and Asia, 15.7%. A year earlier, Europe represented 57.1% of revenues, the Americas 26.8%, and Asia 16.1%.

In terms of monthly revenues, October 2010 was up approximately 5% to $115 million. November was up approximately 14% to $115 million and December was up approximately 6% to $93 million. For the fourth quarter 2010, BGC's rates revenues increased to $135.9 million, compared to $125.9 million. Foreign exchange rose to $48 million, compared to $38.5 million. Equities and other asset classes increased to $43.5 million versus $38.7 million. And credit was $70.3 million versus $70.4 million. Rates represented 42.1% of revenues compared to 42%. Credit represented 21.8% versus 23.5%. Foreign exchange represented 14.9%, increasing from 12.8%; and equities and other represented 13.5%, increasing from 12.9%.

Turning to expenses, total expenses were $277.1 million roughly flat versus $276.8 million last year but lower by approximately 640 basis points as a percentage of revenue. Compensation and employee benefits were $173.5 million representing 53.8% of revenues. This compares with $184.3 million or 61.5% of revenues in the year-earlier period, an improvement of approximately 770 basis points. This margin expansion was driven primarily by our ongoing partnership enhancement program and the positive compensation related impact of growing fully electronic revenues. We expect our full-year 2011 compensation ratio to be around the full year 2010 level of 56.2%. However, in any given quarter it could vary due to such factors as the mix of brokerage revenues by geography and product as well as headcount growth.

Non-compensation expenses were $103.6 million or 32.1% of revenues. This compares with $92.5 million or 30.8% of revenues. The increase in non-comp expenses were driven primarily by the number of line items associated with the opening of five additional offices and hiring 152 new brokers over the past year. We expect non-comp expenses to be below this absolute level in the first quarter of 2011 and to decline as a percentage of revenues.

BGC's pre-tax distributable earnings were $45.4 million or $0.19 per fully diluted share, compared with $23 million or $0.11. Our pre-tax distributable earnings margin was 14.1% versus 7.7%, an improvement of about 640 basis points.

BGC produced post-tax distributable earnings of $39.8 million or $0.17 per fully diluted share, compared with $14.8 million or $0.07. Our effective tax rate for distributable earnings was 10.9% in the fourth quarter 2010, compared with 29.4% a year earlier. Our tax rate for the quarter came in lower than the 15% we had guided, because we were able to benefit from a number of tax credits in the fourth quarter. This added a penny for post-tax earnings per share.

For the full-year 2010, our tax rate was 14% versus 27.3% in 2009. The lower rate was driven primarily by $45.7 million in non-cash, non-dilutive and non-economic GAAP charges relating to granting exchangeability and/or redemption of limited partnership units and founding partner units in the first quarter of 2010. These non-cash items are deductible for tax purposes but do not impact distributable earnings and are non-dilutive. We expect our tax rate to be approximately 15% for full year 2011 and the foreseeable future. Our post-tax distributable earnings margin was 12.3%, compared with 5% or about 730 basis points better. We believe that our partnership structure, business model, and technological capabilities provide us the scale to further expand our margins going forward.

Consistent with FASB guidance on anti-dilution, our post- tax earnings per share calculation for the fourth quarter 2010 included the 21.7 million shares underlying the convertible senior notes. But excluded the associated post-tax interest charges of $2.8 million. Therefore, our fully diluted weighted average share count was 256 million for the fourth quarter 2010, compared to 217.7 million in the fourth quarter of 2009, which was prior to our issuance of the notes. As of December 31, 2010, the Company's fully diluted share count for distributable earnings was 256.5 million including the shares underlying the notes.

Regarding the balance sheet, as of December 31, 2010, the Company's cash position, which we defined as cash and cash equivalents and cash segregated under regulatory requirements was $366.5 million. Notes payable and collateralized borrowings were $189.3 million. Book value per common share was $2.47 and total capital, which we define as a redeemable partnership interests Cantor's non-controlling interest in subsidiaries and total stock holders' equity was $425 million.

In comparison, as of December 31, 2009, the Company's cash position was $471.5 million. Notes payable and collateralized borrowings were $167.6 million and book value per common share was $2.44. And total capital was $437.9 million.

The decline in cash from year-end 2009 is due primarily to a reduction of payables. The timing of cash use in our ordinary securities clearance process. And the repurchases and redemptions of shares of partnership units net of proceeds from the issuance of Class A common stock as part of our controlled equity offering.

Between January 1, 2010, and December 31, 2010, BGC Partners repurchased or redeemed approximately 13.3 million shares and units for approximately $79.4 million.

With respect to our dividend, BGC's common dividend is based on post- tax distributable earnings, which due mainly to non-cash, non-dilutive, and non-economic GAAP charges were higher in 2010 than earnings and profit on the GAAP in the US Federal Tax principles. In addition, the Company's net income for both GAAP and distributable earnings includes income earned by foreign affiliates, corporate subsidiaries and other entities not taxable under US Federal Tax principles .

Therefore, for tax purposes, we expect that approximately 18% of our common dividend paid for full year 2010 will be treated as non-taxable return of capital for common stockholders. The remainder will be treated as qualified dividend. Based upon an annualized dividend of $0.56 per share, and yesterday's closing stock price of $8.77 per share, BGC's dividend yield is 6.4%. For a New York City resident in a 35% federal tax bracket on the 12.9% state and local tax bracket, the taxable equivalent yield will be 9.1% when compared to a dividend or interest payment that is fully taxable at ordinary rates, and 6.7% when compared to fully taxable qualified dividend. We expect to increase the percentage of our dividend that is a non-taxable return of capital in 2011.

We provide more detail in the section of today's financial results press release call Non-taxable Return of Capital. The earnings presentation on our website all also includes a taxable equivalent yield analysis of our dividend.

With that, I'm happy to turn the call back over

Thank you, Graham. Our January 2011 revenues were up by 4% to approximately $123 million, which is over 20 days versus $118 million over 19 days last year. We generated approximately $55 million for the nine trading days from February 1 through February 11. We therefore expect to generate revenues between $355 million and $370 million in the first quarter of 2011, compared with $348.9 million last year's first quarter. We expect post-tax distributable earnings to be between $48 million and $54 million, an increase of 26% to 40%, compared to $38.1 million last year. Please remember, when calculating our post-tax earnings per share to add a $2.8 million in post- tax interest expense and to include the shares associated with our convertible notes.

Operator, we would now like to open the call for questions, please.

(Operator Instructions)

Rich Repetto, Sandler O'Neill.

I guess -- the compensation expenses percent in revenues was very low, below 54%. I guess you guide to I guess 2010 level -- which is about 56%. Is there a reason -- it will go back up that much going forward?

Well, I think each quarter there's variation depending on exactly what we pay, exactly the mix of products, and exactly the bonus calculation of any particular date, so what we said was for the full year, we were 56.2%. That seems, as Graham said, approximately right. So, we would expect next year overall things to remain around that 56% level. I don't think you guided above it, in fact, you said it would be approximately around that. But there's going to be some quarters that are, of course, slightly higher as you have seen and there will be some quarters slightly lower. But overall, I think we're very comfortable around this level as we grow our business and new products where we pay 60% compensation ratio for brokers and we drive additional fully electronic business at the much lower ratio.

I think we are comfortable with 56%. Obviously, weren't continuing to add new products at the 60% comp lower level, of course, we would expect our competition ratio to decline. We expect to grow a top-line revenue with voice and expect to turn more and more of our current revenue electronic, which will have an offsetting lower compensation ratio. I think going forward, we are pretty comfortable with the 56% level. And we think we will expand our margins going forward and continue to grow.

Okay. Howard or Graham, just one more question on expenses.The non- comp expenses if you look back last year, the first quarter you're almost hitting 90 and then you went about 100 for the next quarter. It was a big expenses in the other category and there was the whole discussion about your -- there was just some one time expenses that you could not fully disclose. So that other expenses went down, but the overall non-comp is still about 104 this quarter. When you say it is going down, can it go back down to the 90 level in the first quarter -- what causes uptick and a better feel for where we are going?

As you can see, if you look Q3 to Q4 there was a drop in other. The increase across basically most the other lines and that was really a reflection of number of a number of items, really relating to the addition of new brokers and the purchase of Mint. If you look at, for instance, one of the big bumps was in professional consulting fees, which included legal fees relating to Mint and other legal issues. I think going forwards, we would expect, I'm expecting to come in Q1 underneath these levels. I would expect over time the percentage of revenues, it would decline.

I mean would be back close to 1Q '10 levels? Or --

I think I can say it will be below the level where we are at now and --

I think, Rich that's too much, I think -- Graham is trying to tell you first quarter is too much. We expect it to be lower than now but not to that exaggerated level.

All right. That's fair. I guess, one bigger picture question I guess and I'll be done -- lots of good things going on in the space from a regulatory -- Dodd-Frank and from a consolidation, I guess, where do you see yourself positioned --maybe we will stick to regulatory side. Has it been things -- can you point to things that have been proposed by the CFTC that are making you in a dramatic -- way more optimistic or maybe more reserved? Anything that you highlight in the mass of things that they proposed and I trying to get on time in July or get out in 2011?

I guess I would say it's neither. I think we remain, because of our electronic capacity and capabilities, we remain optimistic. Otherwise I don't think it is time to comment. The rules are still being written, things are still working their way out. We remain optimistic. We were optimistic about the potential results from Dodd-Frank law. And we wait to see the final set of regulations and we will see but I think optimism remains the key word that runs through this place here.

Understood. Thank you.

Patrick O'Shaughnessy, Raymond James.

As you may have heard, there has been a couple of deals announced; mergers and acquisitions in the exchange space and it seems like as we're coming through the economic turmoil and things are starting to look up certainly the appetite for M&A there has increased. I'm kind of curious, do you see anything changing in the inter-dealer broker landscape generally speaking because of regulations or because the economy improving that will land itself to more M&A in your area.

I think there are cost savings benefits to consolidation. That is the New York stock exchange and Deutsche Boerse based their whole announcement on those costs savings so I think consolidation does bring those cost savings. We have electronic capabilities that makes us very attractive and so I am -- continue to be much more popular than my look should make me a most head of exchanges as they come by and have a visit, because I think they find the electronic assets of BGC a very, very attractive as far as something that they think about. So, we are in an excellent position from a technology perspective. I think we are not particularly driven by cost savings as our future. We are -- think about our guidance in the first quarter, say taking our post-tax earnings up 26% to 40% next quarter. I mean, we are driving bottom-line growth in cash earnings. That is where we are focused. We will over time, of course, the opportunities of consolidation, I do not know that they are right today. I don't think these exchanges which have other limiting factors that produce them to make the moves now really in front of us but we are certainly open minded to it. So, I think there's opportunities in that space. We are open minded, but I think we are driving and winning all by ourselves and that we expect to continue to do that over the long term. Remember, we have been buying small companies sort of on a consistent basis and as the company gets bigger, I think we will be able to acquire other companies again of the smaller size. We continue to plug-and-play them into strategically into our business and relentlessly add to our broker headcount and our profitability. I think that is a strategy that we are actively pursuing all the time, and I think we have been very, very successful over the last three years doing that and you should expect us to go to continue to do that. So, consolidation below us, I don't think they're really spending time looking at the big kind of picture that's not what we're spending our time on now.

Fair enough and then my follow-up question to, actually follow-up on Rich's question about the comp ratio. Historically, the story for you guys has been, as you shift to more electronic trading and as you obviously increase in scale and the revenues build up and as people need to re-sign contracts and you can compensate them in giving them some liquidity rather than initial cash payment that compensation ratio will continue to fall over time, and your guidance as of today is basically 2011 is going to be more or less flat from 2010. I guess, I don't quite get what has changed now versus kind of the story you were talking about over the past few quarters.

Okay, so nothing has changed from the story. If we were to not add any new brokerage desks, not add any new brokers, not add to our top-line revenue growth, from external areas by hiring or acquiring, we would expect our compensation ratio to decline as a fully electronic trading continues to grow and the costs of providing the fully electronic trading would be lower. And we would add points and points and points to our profit margin as we continue to do that. We sign brokers to ever extended contracts, exactly the model that we discussed, nothing has changed. What will counteract that but not to the negative, meaning that is just good full stop. Now additionally, we plan to hire and the acquire significantly over the course of this year at 60% or potentially even higher compensation ratios of other companies and that we are going to either hire brokers who are great producers or acquire companies below us in the space as I just discussed and let's assume those brokers come on at 60% or 61% or 62% compensation ratios. Well, if you put those two together what you are going to have is our current business adding points and points and points of lower compensation ratio, right? And new revenue coming on at higher points and points and points but profitably coming on and what you'll get is the average of those two will likely stay around this level and you can do the math. You can say okay, I expected your compensation ratio to drop two or three points. For that to balance out at 56 what Graham is saying, you expect to grow your revenue in the top line by hiring and acquiring these tens of millions of dollar, right? And both those things together will drive your earnings to much higher levels and that must be why you guys sound so optimistic on the phone and positive energy and why you feel so good about your company and the answer is that is absolutely the point Graham was making.

I got you. Then one last quick question for Graham, and I apologize if missed it during his commentary but software solutions revenue was up a little bit quarter over quarter, can you explain what that jump was?

-- it went from 1.8 to 2.5, I think.

We provide software.

And new customers.

New customers, no contracts, enterprise deals with people, we provide backup software, we provide all sorts of -- our technological capabilities are such that -- there's lots and lots of places that we could provide technology for clients, to customers, co-location like exchanges. I mean, if you go and look through how the exchanges make money, you're going to start to see us make money in much those same ways. Co-location fees, new contracts for market data and extension of market data as we grow -- growth those kinds of businesses tend to be lumpy but it's long-term subscription based. Sticky lumpy, big step up, stays there. So, I think you're going to see over time our market data grow.

If you look at us, we're kind in the place once upon a time the CME was in. They used to have big sets of voice brokers down on the floor and then as they converted that to electronic, you saw their stock-price profitability explode. That's what you are watching us do. We are taking our current business, converting it electronic and growing new voice business at the same time. And those two things together, the conversion of our current business to fully electronic and driving those profits to the bottom line on our current revenues coupled with our adding head count, hiring and acquiring profitably and accretively, and growing our core business, which we can then convert again. It's really -- we are in the early stages, if you look back to the early stages of the CME you're going to see a company that looks and smells and tastes much like ours, and you're going to see our performance really being impressive over the years because we have the raw material in house to do it.

We have the revenues to convert. We have the electronic technological capabilities right now. As customers pick it up, you heard Shaun say 90% compared to the fourth quarter growth in just interest rate swaps in January alone. As those things convert, you will see huge margin expansion because we go from a 60% payout over time to a 15% payout on those same revenues. And so I really think together we have that opportunity and we are going to do co-location like exchanges and we are sell market data like exchanges and we are going to operate very electronically profitably.

Understood. Thank you.

Niamh Alexander, KBW.

If I could just follow-up on the dividend policy and thanks for giving us the guidance and you are looking to raise it and then keep it steady for the rest of the year, kind of as you've been signaling previously, but there's some seasonality to your business typical the first half stronger than the second half. So, should we think about the payout ratio being around 75% or so that has not changed ?

Well , I think this year, you look this year we earn $0.17 per quarter, and we paid a dividend of $0.14 per quarter. We said it's going to be at least 85% -- at least 75% I'm sorry but, of course, it could be higher than 75%. So, I think our view is the first quarter to center dividend policy with our Board and then set that a rate that will be sustainable even through the seasonally lower fourth quarter. Now, what you saw us do because our hiring and acquiring and electronic conversion to electronics, we were able to earn the same amount in the seasonally slower fourth quarter as we were in the first quarter. So, I think that kind of over the course of the year growth is something that we hope to achieve next year. We went step-by-step along the way. But I think our view is going to be to set our dividend based on the first-quarter earnings and then maintain that and it can be set higher than 75% . We've just said we do not expect to set it lower. Last year, we did pay out 82% so that

Thanks, Howard, I appreciate. And then if I could come back to the electronic because it is going very aggressively as you have kind indicated it was. But are there any metrics maybe you can share Shaun, you have shown us before how more and more the products are having daily auctions like -- are those daily auctions maybe now happening every other day or how many of them now versus maybe six months ago if you have those data points. And then just help me understand -- what might be a reasonable expectation. I'm not asking for guidance but is it reasonable to think that 16% revenue contribution could be 20% in a year's time if things grow at this pace and as you're expecting it?

Yes, you can expect in to continue to grow. The overall effect is going to affect that as we continue to grow, the voice broking business as well and we buy and acquire companies. That will negatively affect how the percentage looks, but overall the revenue is going to be going up because it is more markets electronic. With regard to volume match, it's has been a great success for us, globally across the board. We go from Australia through to the US, more and more markets are going electronic. We are doing it more and more each day. The market, generally across the board, it is so well accepted and it has a stickiness because you add liquidity to the marketplace. You have seen that the majority of the markets that we have already gone live in, we continue to run more and more volume [matching] during the day. (inaudible) that we have on things like governments and US treasuries, we have on volume match we have three to four times a day, and on top of that, we have [extreme] prices as well. The volume match is brings all the eyes together at one point during the course of the day, three or four times a day to look at certain part of the market. So yes, you can expect to see growth will continue.

Okay. That's helpful, thanks, Shaun. And then lastly, if I could, I guess right now for some of the big products in the OTC market, talking to some participants-- still there is a dealer-to-dealer bucket and then there's the dealer to [buy side bucket], as it were. And how you're reading the legislation proposals right now, do you think the market should probably end up going [all-to-all] under this new -- specially for those coming in under the (inaudible) requirement.

We are currently in effectively the dealer-and-professional trading market and that is the size and scope of our business. There's a lot of conversation to the dealer and customer market and how that will evolve and merge into this business. That business which we do not participate in now, is vast. And it's much, much, much larger than our current sort of bank and professional trading firm business. So our view is we will wait and see how the world progresses. We will wait and see how the regulators write things, but I do not see it for us, we are optimistic meaning that the opportunity that this will most likely bring us dramatically exceeds the current opportunity in front of us. But we will wait and see. The topic that you're discussing is that which we do not participate in today in any level of participation we get to do in that business will be great extension of our current capabilities. So we can do it, we just don't. If the world aligns itself so that we can, it would be a big change for us to the positive. But we are going to have to wait and see how the world shakes its way out.

Fair enough. Thanks for taking my question.

(Operator Instructions)

Michael Wong, Morningstar.

Do you see anything else being put on SEF besides credit and interest rate swaps and do you already offer those products electronically?

We obviously announced in this call that we did 340 billion of interest swaps electronically and do have electronic capability in credit right now. We do broker credit. We said there was double-digit growth in our e-broking in credit this quarter. Credit and interest rate swaps, we have the capability of doing it and we are capable of satisfying we think whatever the requirements come to bear.We will read them at the time, but I think our technological capability set us up nicely. There are a lot of other products for instance, the options suite of products, FX options, equity derivatives which are elongated equity options, those kind of things really, really work well and are intellectually consistent to interest rate swaps in the credit markets that we have electronic. Those are two examples that I think would follow well on the heels of that.Whether those are required under the SEF set of rules or not, it is kind of going to become immaterial. The rules are the rules, but electronics are great products, they are faster execution and a lower price for the clients. Faster and cheaper are two words that are obvious and efficiency and so I think get a little push and all of the sudden go electronic. We like those two products moving electronic over time as well as credit and interest rate swaps.

Okay. The likely increased volume from central clearing of OTC contracts and the related transparency, where do see that incremental volume from, would it be coming from existing customers or new customers that you have to go out and sign up, and I believe you're talking about the potential of dealer to customer market that you don't really interact with at the moment.

The current market for interest rate swaps and credit derivatives is exclusionary in that the only the largest banks of world, those with the biggest girth in scale and breadth are really counter parties that you would accept for a long-term interest rate swap. It is really a bilateral credit model, which excludes the professional trading firms of the world and the smaller participants. As an example, there are hundreds and hundreds of really sophisticated players who trade US Treasuries and US Treasury futures who can't trade interests swaps because of the bilateral credit world of scale and girth.

If you take that business and make it centrally cleared, you're going to open the opportunity for those basically more than 100 firms to come into that market and trade interest rate swaps on a level playing field with the large banks. I think that is to dramatically add to the volume. I think from a bank's perspective, sure, it will shrink their margins per transaction, but it will probably equally offsetting double or triple their overall transaction. So you don't hear about banks and foreign exchange not making money because they have huge volume. Okay, smallest spread for trade but huge volume. So, I think, the same will be true of interest rate swaps. Margin per transaction will decline per bank. We don't make margin per transaction. We are just volume, volume, volume. So, I think, our volume and interest rate swaps will dramatically rise and that will be dramatic benefit your business. We are on the record. We love, love is a good word for us. We love nondiscriminatory central counter-party clearing. Love is the word that comes to mind.

Fantastic word. Okay. Do you expect all of your trading desks to eventually offer e-broking and what is preventing an even faster roll out of e-broking capabilities to your desks, and a little further on that any color around the productivity or margin increase of desks with e-broking versus desks without it .

We have the capability of doing e-broking in almost any product, in almost any currency. It is really demand based. Meaning for each new desk, there is of course a slight modification. No one would accept what someone else has exactly their way. Each type of instrument trades slightly different and has the nuance and idiosyncrasies. We have to have 400 technology personnel here and coders and developers. They work -- you have them work on different products that we think are most likely to go. So which clients want them, where we think the scale in scope is large enough, get entirely in the liquid market is not the first one to do electronic trading. We are in over 200 businesses and75 our desks already is Shaun said. That's going to continue to expand. Eventually, will they all offer e-broking, I would say the answer is, yes. It's simply a matter of when not, if.

For us, there is no margin or economic expense to offer an e-broking. That is not the way it works for us. We are an intermediary, we help other counterparties to find each other. It's either name give up where we actually literally introduce them to each other and they settle and process the trade between them. Or, in what we were just talking about, there's a central counter-party who stands in the middle and everyone agrees like US treasuries, let's all use of the DTCC or like equities everybody use the DTCC. They can use swap clear, any other type of central counter-party, and all parties agree that they'll do their transactions and net them against each other. Obviously, for us, any of those work fine. We don't really -- we can operate in all of those markets, but our favorite is the central counterpart because it allows professionals to trade. They don't have to carry the position.

Right now, if you did an interest rate swap with a big bank and then you sold that interest rate swap to another big bank, you have to carry both those positions for the next 10 years. Whereas you have the central counterpart, you put the two of them together those two banks will deal with each other and you're out. That idea of being able to buy in the morning and selling and afternoon and nothing on your books is very attractive and that is why the regulators are pushing for it. Of course, we like that also because instead of having receivables on our books, we get paid right away. That is another good thing for us, it will take our receivables and turn it into cash and something that makes my CFO Graham smile broadly.

Thanks for taking my question, Howard.

Ladies and gentlemen, this concludes the question-and-answer portion of the call. I would like to turn the call over to Howard Lutnick, Chairman and CEO for closing remarks.

Thank you for joining us today. Obviously, we feel optimistic. We have a superb fourth quarter in 2010. We are very optimistic looking forward to next year and the first quarter. We look forward to talking to you next quarter and have a great day today. Thanks everyone else for joining us this morning.

Ladies and gentlemen this does conclude our presentation today. Thank you so much for your participation. You may now disconnect. Have a wonderful day.