Bgc Group Inc (BGC) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the BGC Partners fourth-quarter and full-year 2013 earnings conference call. My name is Crystal, and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Howard Lutnick, Chairman and CEO. Please proceed, sir.

This is actually Jason McGruder. I'll read the disclaimer.

Good morning. Our fourth-quarter and full-year 2013 financial results press release was issued this morning. It can be found at either the news center or investor relations section of our website at www.BGCpartners.com.

During this call we will also be referring to our presentation that summarizes the results, which includes other useful information. This too can be found in the investor relations section of our site.

Throughout today's call we'll be referring to ourselves only on a distributable earnings basis. Please see today's press release for GAAP results. Please see the section of today's press release entitled distributable earnings for distributable earnings results compared with GAAP results, reconciliation of revenues under GAAP distributable earnings, a reconciliation of GAAP income to distributable earnings, as well as a reconciliation of GAAP earnings to EBITDA for a definition of these terms and how, when, and why management uses them.

Unless otherwise stated, whenever we refer to income statement items such as revenue, expenses, pretax earnings, post-tax earnings, we are doing so only on a distributable earnings basis. Unless otherwise stated, all results provided on today's call compare the fourth quarter of 2013 with the year-earlier period.

In addition, certain revenue items and nonfinancial metrics as well as some other items have been adjusted for prior periods to conform to current reporting methodology. These adjustments have no impact on overall revenues or earnings for either GAAP or distributable earnings.

On June 28, 2013, we sold our fully-electronic platform for US Treasury notes and bonds to NASDAQ OMX Group, Inc. For the purposes of today's call, the assets sold are referred to as eSpeed. Also, Newmark Grubb Knight Frank is synonymous with NGKF or real estate services.

I also remind you that information on this call contains forward-looking statements within the section of meaning 27A of the Securities Exchange Act of 1933 as amended and section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include 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 and involve risks and uncertainties. Actual results, performance, or achievements could differ materially from those consequently expressed or implied because of the number of risks and uncertainties that include but are not limited to the risks and uncertainties identified in BGC's filings with the US Securities and Exchange Commission.

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

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update these statements with regard to subsequent events and developments. Please refer to the complete disclaimers with respect to forward-looking statements and risk factors set forth in most recent public filings on Form 8-K, 10-K, 10-Q, which we incorporate for your reference.

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

Thank you, Jason. Good morning and thank you for joining us for our fourth-quarter and 2013 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's post-tax earnings per share increased by 30% in the fourth quarter, driven by the strength of Newmark Grubb Knight Frank, which more than doubled its pretax profits. Our real estate revenues grew by approximately 23%, which represented over 40% of BGC's total revenues for the quarter. Our real estate profits grew by 116% and exceeded the revenues -- not the profits, but the revenues -- of eSpeed's business a year ago.

Because our two businesses essentially reverse each other's seasonality, we are unique amongst our real estate and financial service peers in that we expect BGC to have strong fourth and first quarters going forward.

Last month we announced our planned acquisition of Cornish & Carey Commercial, the leading full-service commercial real estate services company in the Bay Area and Silicon Valley. This is a key strategic addition for NGKF in the fundamentally important Northern California marketplace.

This transaction is the latest example of the extraordinary value we are creating by deploying our capital across our real estate service business. BGC's cash position was $795 million at the end of the quarter, and we still expect to receive approximately $530 million in NASDAQ OMX stock.

We clearly have the financial capacity to grow our profits by making accretive acquisitions and profitable hires in both of our businesses. We can also repay debt, repurchase common shares and units, and maintain our regular common dividend for the foreseeable future. Our Board declared a $0.12 qualified dividend for the fourth quarter, which at today's stock price represents a 7.3% annualized yield.

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

Thanks, Howard, and good morning to everyone. BGC's financial services business generated revenues of $246.3 million and $32.5 million of pretax earnings. Despite challenging market conditions, this is a decline of just 2.6% excluding eSpeed.

We believe we continue to gain market share in the financial services segment. Last year this business included $22.2 million in revenues from eSpeed and overall generated $274.9 million in revenues and $35.1 million in pretax profits.

Looking at results by asset class, our revenues from electronic rates products, excluding eSpeed, grew by 8.1% in the quarter, driven mainly by our interest rate derivative desks. Excluding eSpeed, our overall rates business declined by 5.9% to $99.3 million, while our fully electronic credit revenues increased by nearly 13%, our overall credit revenues declined by 13.8% to $53.7 million. This reflected overall weaknesses in the interbank credit sector, due to regulatory uncertainty and increased bank capital requirements.

Our higher-margin fully electronic spot FX revenues were up by over, 50% whereas BGC's overall foreign exchange revenues declined by 5.2% to $44.7 million. This performance was better than the comparable FX volume declines reported by CME, EBS, and Reuters.

Global equity and energy markets were mixed to down in the quarter. For example, equity derivative volumes were down by 12% and 28%, respectively. According to Eurex and Euronext, while the US cash equity turnover declined by 9%, energy volumes were up by 5% to 6% at CME and ICE. In comparison, BGC's revenues from the energy and commodity desk increased by over 17% in the quarter.

Our overall revenues from equities and other asset classes, which includes these desks, decreased by about 2% to $35.2 million. With virtually all of our fully electronic asset classes showing strong growth despite challenging overall market conditions, the bump in the industry's electronic road this quarter was in the e-FX options business.

This market's volumes are down significantly due to the personnel and regulatory issues at a number of our customers. Excluding eSpeed, financial services electronic trading market data and software revenues increased by 1.7% to $18.2 million or 7.4% of segment revenues in the quarter, compared with $17.9 million or 7.1%.

The technology products we retained after the NASDAQ OMX transaction generated a pretax profit margin of approximately 47%. And we believe that our fully electronic business will continue to grow faster than our overall financial services segment.

We began operating our Swap Execution Facility, or SEF, on October 2, 2013. Mandatory Dodd-Frank compliant execution by swap dealers and major swap participants is scheduled to commence later this month for a small number of products -- and in May of this year for essentially more.

We have heard from many of our customers that they are currently trading less while they prepare for the new rule to take effect. Although SEF activity has greatly increased in January compared to December, volumes to date are not indicative of what we expect this business to look like a year from now.

We anticipate improved derivative volumes once a regulatory landscape becomes clearer for our clients. In addition to our SEF platform, we maintain our ownership space in ELX Markets, a CFTC-approved designated contract market, or DCM, which includes several of the world's largest banks and equity holders.

A number of major banks have begun building ELX into their processes and workflows. It is ELX's understanding that these banks intend to use its platform as one of their primary means of Dodd-Frank compliant swap trading going forward.

We ended December with 1,501 brokers and salespeople in financial services, down 13% from 1,721 a year earlier. Excluding eSpeed, our average revenue per broker salesperson increased by 4% to $153,000.

With respect to our real estate services business, industry metrics continued to move in a positive direction in the fourth quarter. The combination of moderate economic growth and low interest rates in the US has continued to be a strong tailwind for commercial real estate. The relatively wide spread between US Treasuries and commercial cap rates also creates strong investment demand for the yields available through direct ownership of real estate and funds.

Activity continues to be strong in gateway cities like New York and San Francisco and has also picked up in some suburban and regional markets. Our NGKF research team believes that positive US sales and leasing trends will continue through 2014. We believe that NGKF will once again outpace the industry and grow its market share.

With respect to our results, management services and other revenues increased by 7.5% to $44.3 million. Excluding the non-core purchased asset that we discussed in our earnings release, NGKF's brokerage revenues improved by 28.6%, while overall revenues improved by 22.5%.

Including these purchased assets, our brokerage revenues were up by 23.2% and overall revenues improved by 18.9% in this segment. We had 884 real estate brokers and salespeople at quarter end, up 7% compared with 830 last year. Excluding the non-core purchased assets, average revenue per real estate broker was up 22% to $150,000. Including the non-core revenues, production per head was up 17%.

BGC's overall front-office headcount increased by 7% to 2,385 brokers and salespeople. Our average revenue per front-office employee across both businesses was up 9% to $152,000, excluding the non-core purchased assets and eSpeed.

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

Thank you, Shaun, and good morning, everyone. BGC generated revenues of $432.9 million, down 0.8% compared with $436.3 million. Our revenues from the Americas were up approximately 14%, excluding eSpeed. Revenues from Europe, Middle East, and Africa were down by 7.3%; and Asia-Pacific revenues decreased by 13.3%.

Turning to consolidated expenses, compensation and employee benefits were 62.1% of revenues compared with 61.5%. Our compensation ratio increased mainly due to a larger proportion of revenues coming from real estate services.

Non-compensation expenses were down on an absolute basis and as a percentage of revenues to 27.3% compared with 30.4%. The decrease in expenses was across nearly all of our GAAP line items, due largely to our ongoing cost reduction program as well some lower financial services revenues and the sale of eSpeed.

By the end of the quarter, we succeeded in lowering our non-compensation expenses on an annualized basis by approximately $60 million as compared with the second half of 2012 run rate. This puts us at more than halfway towards our goal of reducing annualized costs by $100 million by the end of 2014.

Our pretax earnings were $46 million, up 31% when compared with $35.1 million. Our pretax margin this quarter expanded to 10.6% compared with 8%. BGC's effective tax rate for distributable earnings was unchanged at 14.5%.

Our post-tax distributable earnings increased to $40.2 million or $0.13 per fully diluted share compared with $28.4 million or $0.10. Our post-tax earnings margin improved to 9.3% compared with 6.5%.

BGC had a fully diluted weighted average share count of 358 million in the fourth quarter of 2013 for distributable earnings and 318.1 million under GAAP. This compares with 337.2 million for distributable earnings and 297.6 million for GAAP a year earlier. The GAAP share count was lower in both periods because of excluded certain share equivalents in order to avoid antidilution.

The year-over-year increase in share count for distributable earnings was due in part to issuances related to the Frederick Ross, Ginalfi, Smith Mack, Newmark, and Grubb & Ellis acquisitions, as well as to new hires and other equity-related employee compensation. This increase was partially offset by the net approximately 32 million fully diluted share count reduction that occurred in the second quarter of 2013 as a result of a large unit redemption and restricted share issuance.

The share count was also impacted by the repurchase or net redemption of another 6 million shares and units in 2013. As of December 31, 2013, our fully diluted share count was 357.9 million, assuming conversion of the convertible senior notes into 40 million shares.

Absent acquisitions, significant hiring, or changes in the stock price, we expect our fully diluted share count to grow by just under 5 million shares this quarter. As of December 31, 2013, the Company's cash position, which we define as cash and cash equivalents, marketable securities, and unencumbered securities owned, was $795 million.

Notes payable in collateralized borrowings and notes payable to related parties were $408.4 million. Book value per common share was $2.15, while total capital, which we define as redeemable partnership interest, noncontrolling interest in subsidiaries, and total stockholders' equity, was $769.7 million.

In comparison, as of December 31, 2012, our cash position was $420.4 million. Notes payable in collateralized borrowings and notes payable to related parties were $451.4 million, but value per common share was $2.11, while total capital was $506.3 million.

BGC's cash position increased from year-end 2012 primarily because of the net proceeds from the NASDAQ OMX transaction. The year-end 2013 cash position also increased due to the receipt of approximately 1 million shares of NASDAQ OMX stock.

This increase was partially offset by the following items. Firstly, withholding taxes and distributions paid by BGC on behalf of partners for unit redemptions related to the net approximately 32 million fully diluted share count reduction in the second quarter of 2013. Secondly, cash used to reduce the Company's debt by $48.2 million. And thirdly, cash used to redeem or repurchase a net total of another 6 million shares and units during full-year 2013 at an average price of $5.08 per share.

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

Thank you, Graham. For the first quarter 2014, we expect to generate revenues of between $410 million and $440 million, which compares with [$449.8 million] (corrected by company after the call) last year, which included eSpeed. We expect pretax distributable earnings to be between $41 million and $52 million compared with $45.1 million last year, which also included eSpeed.

We anticipate our effective tax rate for distributable earnings to remain around 15%. This outlook reflects the following items. Excluding real estate services and eSpeed, our revenues for January were down 8.5% compared with last year. On that same basis, revenues were down 6.4% during the first 7 trading days of February.

Next, commercial real estate services firms are generally seasonally slow in the first calendar quarter, and they're strongest in the fourth calendar quarter. And lastly, our guidance also assumes that the acquisitions we recently announced do not close during the quarter. We intend to update our first-quarter outlook around the end of March.

And operator, we've now like to open the call for questions, please.

(Operator Instructions). Jillian Miller, BMO Capital Markets.

Thanks, guys. I just was wondering what impact the SEF rules are having, kind of in fragmentation in the global OTC markets overall. Like, are you seeing non-US clients separating their business, that they avoid the mandates?

And if we do develop some of these kind of regional silos for trading, what does that mean for volume in the OTC markets longer-term? It seems like that friction could be a headwind.

Yes, we are seeing the fragmentation of some of the how they're splitting their entities. I think it is a headwind in the sense that there's a lot of confusion; as you know, a lot of the dates keep being pushed back and pushed back.

There is the growth, potentially, of a new client base coming into the market, as we've been talking about over the last 18 months. But throughout all of this, the challenge for everybody is just trying to keep ahead of the regulation and how things are changing and keeping on top of it.

A lot of people are doing a lot of talking instead of trading. And they're trying to see in their crystal ball as to where they're going to be trading and how they are going to be trading in the next two or three months, as I said in my piece; which -- the rules have only been coming out last week where we have aimed to talk about how we're -- some of the trades that are going to be hedged trades, where they are not included within the SEF rules until May.

That now that now frees up the market, where pretty much 65% to 70% of the business that happens in the interest rate swap market will now be offset. So these things are happening real time. These things are changing. And so I think this is a headwind for the marketplace, which I've said in my piece; and I think it will continue for the next few months until things become a bit clearer -- will get in towards March the -- to May 17.

I guess one could look at it -- what Sean said is exactly right. I think, though, that the marketplace already has the reduced volumes in it. And the headwinds makes you think that things are going to get tougher.

In fact, the market numbers that you've seen are the ones with that regulatory uncertainty sort of baked into them. And so I think what you see is actually strange is that as that is relieved, you'll see substantial benefits coming as that regulatory oversight and uncertainty gets lifted.

So I think it's strange, because it is constraining the business today. So to suggest it's not a headwind would be inaccurate. But the strange point is, because that's already in our numbers, right, the clearing of that uncertainty will create a positive movement in swaps generally and will be an improvement in our numbers in financial services.

So as it clears up over the course of the year, I think it will become a benefit. We may be only going back to where we were. But still, in these numbers going back to where we were would be a great benefit to our earnings and our profits.

Okay. So even though there is still kind of a lot of uncertainty with what's going on in Europe, and they're behind the US, you think at least for the US portion of the business, when we get to May it will be a positive for volumes?

Right. It will start with -- the volumes will start to improve as -- if May is the date where it all is settled and final, then that is the first day of the beginning of improved numbers going forward for the Company.

Okay. And then just on this GCS business, it drove all the jump we saw in real estate -- well, certainly, real estate profitability in the quarter. And I think last quarter you mentioned that it was really not so much a sustainable revenue, because in the fourth quarter there were an unusual amount of these consulting paydays.

But maybe you could help us understand what we should be expecting going forward from GCS. Is this a seasonal thing? Or fourth quarter is typically stronger, like some of the rest of the real estate business?

And I guess kind of separate but related to it: it just seems like this is an attractive business, because you don't have to pay the commissions on it and profitability is higher. So is there anything you guys can do to try to kind of actively build that out more and expand it?

Well, we completely agree with you. And we are doing everything we possibly can to build it and expand it, because you are right. It is a conflict-free analysis.

The common thought in real estate is you go to the head of that particular business, and he or she wants more space nearer to their house. That's basically how it works. And when you get to corporate headquarters they don't have that particular interest. They want to know what's most efficient for their company, generally.

And to be able to bring in basically deal-conflict-free consultants, who are deep, deep experts in workflows and real estate management, and be consultants not for their business, but just for their workflows and then real estate, we can save companies tens of millions of dollars by suggesting that they add space here, and they get rid of the space there, and all that kind of work which is basically paid as a consulting fee.

Often they then hire us to execute that plan, and that would then go into the brokerage business. But just that advisory business -- it tends to be a little more consistent with the real estate business generally in terms of seasonality, but less so. So it's not entirely sort of bulky in the fourth quarter, and it is more spread out; but it does, in fact -- things tend to crescendo in the real estate business by the end of the year?

So they'll want their reports due by the end of the year. They'll pay their bills by the end of the year. You know, sort of classic stuff that happens more balanced toward the end of the year. But from a billing, from an operating, from a business perspective, it tends to be much more spread out across the business year.

We are using our technology at BGC and our technology expertise to do a huge value input. Taking our technological expertise, our valuation determination, our inferential pricing models, and using them in real estate is really giving us leg up. And it has created enormous value, I think, in the GCS business.

And I think we should have substantial growth going through that as we leverage our ability to price and value bonds, which is deeply, deeply complex; and then taking those inputs and using it in real estate is really extraordinarily interesting and helpful in the GCS space. And we are very, very excited about its prospects.

That's interesting. And then final question from me: you made several acquisitions in the period, or you announced several acquisitions in the period. Can we kind of infer from that that you're seeing prices for some of the assets you have been watching for a while rationalize ahead of these SEF mandates? And if that's the case, could you just discuss what areas of the business you're still looking to build out, potentially inorganically, in the next couple of quarters?

Yes. I think I said on the last call that we were going to be looking for these sort of opportunities as the SEF rules start to take hold. The cost of being compliant operating a SEF is a heavy burden for a lot of companies.

And I think that from our standpoint, we feel with the NASDAQ OMX transaction, that we are now best placed with the cash that's inside the Company, our platform, the marketplace, is to attract many different types of brokerage -- be that from energy, commodities, the traditional rate services that we do every day, and then going on to many other products.

In the market space and brokerage, we are attracting lots of these. So, yes, we do see it as a great, great opportunity, as much as it can be as a headwind from a day-to-day business, which we are -- as Howard said earlier, we are in that at the moment. We're right in the middle of that.

Ongoing for the next 2, 3, 4 years, this is not going away. You have got Europe upcoming in with exactly the same agenda. So if you are a small brokerage outfit or medium-sized brokerage outfit, this cost is not going to go away. You're not just going to spend this money and then there's nothing else.

It's going to be relentless with regard to the investment that you're going to have to make from a technology perspective and from regulation and compliance. So we are out there. At the moment we are looking, as I'm sure are others; but we feel with our situation in the marketplace, we are best positioned compared to a lot of others.

And then with respect to real estate, the value of joining our platform will mean that we should be able to make fair and reasonably-priced transactions, because, for example, the Cornish & Carey transaction -- they are and have been the leading company in Silicon Valley and the Bay Area for a long -- for decades. For a long, long time.

And what they've been doing is they've been -- they are the broker who starts off Apple, and Google, and you name -- and Hewlett-Packard, even. And you go back as far as you can. They were the ones who did it.

And what they would do is after those companies expanded and grew out of Silicon Valley and wanted to expand in other marketplaces, they ended up losing that client to other platforms, because they weren't there. And now, by joining the NGKF platform, they can retain a piece of the business that these companies do across the country.

And so that is a very attractive pull. And so the benefit of keeping that piece of their business for their employees makes the deal sort of a balanced deal. It's good for them. Extraordinarily good for them, and extraordinarily good for us. And that kind of balance makes things work well.

So we are seeing very, very attractive candidates talking to us at fair prices. I'm not saying bargain. That's the opposite of true. Okay? These are not bargains. But these -- you know, when you buy a great company with great people, and you do a fair deal for you and for them, it works out brilliantly, because you can grow and do it well.

So I think we are seeing fair -- fairly-priced deals in the real estate business because of the strength of our platform and Newmark's fundamental strength in the biggest market in the world. In New York, Newmark is -- it's not the best -- certainly tied for the best company in New York, and that is a great magnetic pull for other companies who want to associate with that.

Okay. Thank you.

Mike Adams, Sandler O'Neill.

One follow-up question here on the SEF. Curious if some of the regulatory focus on impartial access has resulted in a diversification of the customer base -- if you're talking to some new clients, and maybe in the past weren't, you know, picking up the phone with you guys that often -- has that happened? And if not, do you expect that to happen in the coming quarters?

I think, look, it's starting to happen. It's not material as we sit here today. As you know, basically our platform is open access, as it must be. But it's not material at this current time.

Okay. Fair enough. And then a follow-up question on expenses. You guys made really great progress on some of the non-comp expenses. But looking at compensation as a percentage of distributable revenue, it's kind of stuck around 62%.

I appreciate that the higher-payout real estate business was really strong in the fourth quarter, but if you drill down by segment, what sort of trends have you seen within financial services brokerage? And I know there's been some headcount reductions, but have you also seen the comp ratio coming down there over time?

Look, I think we are -- the challenging market conditions are no secret. Okay? They are not our well-kept secret. They are -- the employees know it perfectly well. And they are, as you know, huge partners and owners of this Company. And we have aligned their interests with the shareholders' interests in a way that I don't know of any other company in our industry who has done.

So I think you will see our comp ratio in financial services drop a bit in order to make sure that this Company continues on its current trajectory higher. We have made a commitment that we would lower our costs, and our employees understand that; and they are on board.

I'm not suggesting that they are happy about it, right, any more than anybody would be happy about challenging market conditions. But when you understand it, and you also know the value of investing in technology is fundamentally important, they are going to throw their hat in the ring with us somewhat.

And I think you should see over the course of this year that our financial service comp ratio should decline a bit. Not a huge amount, that's for sure. But a bit.

Okay. So would it be fair to say that in order for the consolidated comp ratio to come down this year, it will probably take an uptick in improvement of the financial services performance?

No. I think if all other things had been equal, it would -- we'll pick up. Look, we are on our path to do $100 million. So if we picked it up -- if it picked up 1 point, right? You can do the math of 1 point. 1 point will add to our totals in our path towards cutting our costs $100 million.

So that's how we look at it. I don't think it's going to drop 2 points. I would say in the 1 point to, maximum, sort of 1.5 points range would be sort of one of the objectives of the Company. Because that's sort of a range.

But I wouldn't think -- if it grew, that would be best. That's for sure. That would definitely help. Moving things in electronic also helps. We can see from our numbers just the e-foreign-exchange options business coming back will help our numbers. All of those things.

More electronics reduces our comp ratio, and more financial services as a percentage reduces our comp ratio. And working with our partners to be committed to having them participate in the investment of technology as we drive forward to achieve better results for the Company will help produce our comp ratio a bit. But like I said, more in the order of a point.

Got it. Thank you for taking my questions.

Patrick O'Shaughnessy, Raymond James.

My first question is with Cornish & Carey. It's a pretty sizable deal for you. What sort of implications is bringing that business into the fold going to have on the margins of your real estate segment?

It's my understanding there when we combine with them, they should be consistent with our margins.

Okay, great. So kind of in the 10% range or so?

Just, you know, consistent. As we improve our margins and grow our business by scale, I hope to improve those margins. But we see no structural difference with the combination of the business. It fits beautifully with us.

Okay, got you. And then, I guess, staying on the real estate theme, you guys have seen some really nice growth out of your real estate management services. And I think you probably alluded to it before, but is that an area where you expect to see it continue to grow, or had there been some market share gains in 2013 that you think might level off a little bit?

No. We like that business a lot. We think the combination of our GCS business and our management services business should continue to grow. We should have opportunities to both hire tremendously talented people and acquire firms in that area to strengthen it.

The key acquisition in that space was the Grubb & Ellis transaction -- gave us scale, give us scope. And we added some tremendous management. And so we were willing to invest in them, and it feels good. So I would say that there is a long road ahead for us in that space, and I think we should see continued growth going forward.

Okay, great. And then last one from me. Just kind of want to focus on the credit segment. And your comments were, I think, pretty interesting before -- about how other dealers continue to shrink their balance sheets, and that's pressured.

And I think as a function of that, your credit revenue, I think, was down 14% year over year to the overall trades corporate bond volume, from what I'm looking at, was actually up 5% year over year. So it seems like a lot of the corporate bond trading activity is kind of moving away from your clients. And, A, is that kind of a correct assumption? And, B, do you expect that trend to continue? Or do you kind of think things have more or less stabilized now?

My view is it's stabilized. I think that from our standpoint, we -- as you know, the traditional client base, the stresses on their balance sheets constrain them with regards to position taking that they have. Which is working through. We are seeing more of the clients moving away from the traditional clients, and moving to hedge funds, and moving to other different counterparties, where they are starting new books up. And the client base is changing.

I think we'll come out of that. But today I think we are where we are, and I don't think we are expecting it to slip any more.

Issuance has been great.

Yes.

Right? Issuance has been great, but the banks are trading less than they have in the past. And so you see the difference between the issuance market and the traditional it's-a-deal broker market.

When friction like that occurs -- when one side is big, and the other side is smaller, you see it in the press by the largest accounts complaining there's just not enough liquidity out there for them to do their -- for them to transact the business in the way they are comfortable with, and so they're going to try to figure out alternatives.

The alternatives are going to be met with exactly the way Shaun said it, which is: additional capital is going to come into market through non-bank means, whether that's hedge funds, money managers, electronic trading firms. However the structure will work, eventually capital will come into the business, because that -- I don't remember anyone saying that trading corporate bonds from a bank's perspective was not a profitable business until they put such hard, high capital charges on it that made it more difficult.

So eventually, those who don't have those kind of high capital charges will find a way into the business. And this will sort of play out. So I think the pressure that you're seeing and pointing out will eventually lead itself to a modification of the business.

Remember, in US Treasuries, once upon a time all the top 10 names where the top 10 bank names or investment banks that you could remember. And at some point, that all changed, and the top 10 was filled with names that most people in America have never heard of, because they were -- again, they brought capital and technology to the marketplace to provide market-making liquidity and expertise as the banks reduced their liquidity and capital in that space.

And I think that this is the kind of thing that will happen. And what you're pointing out is the pressure that it's creating that is going to make it happen and provide that opportunity. And then we'll be there to pick up some of the pieces.

Okay, guys, that's helpful. And actually, one last one from me. And maybe this is for Graham. With your diluted share count guidance for the first quarter of 2014, what are your share repurchase assumptions within that guidance?

Yes. And that's just a small part of it, right? What we're predicting is a -- so we're looking at just under $5 million for Q1, and then just sort of going forwards from that, we are striving to reduce that issuance per compensation unit. But of course we may issue units in respect to no accretive acquisitions and new hires. So that may cause it to bump up.

Okay. So let's kind of -- taking acquisitions aside, just kind of on the organic basis, would you foresee -- you know, like, some companies say, we're going to use repurchases to offset dilution from share-based compensation. Is that a philosophy that you would subscribe to? Or do you still kind of think that the share base is going to grow, and maybe you will be opportunistic with repurchases, but you're not specifically going to try to offset that dilution?

We are considering that. We certainly have the financial resources to do that. And we are not announcing that on this call, but I would not take that off the table.

All right, great. Thank you, guys.

Ms. Alexander, KBW.

This is actually Kyle Voigt. I'm stepping in for Niamh. Most of my questions were answered already, but just one more quick one, if I could, on the eSpeed deal. You said you were exploring options to hedge the payout of the NASDAQ stock. Could you just give us an update on your progress there?

Sure. We have -- we continuously -- since we know the markets particularly well, we sometimes can sell calls. We sometimes buy put spreads. We do a variety of things.

All we have now is a small amount of put spread protection on our position, with no cost to us, since we've done a variety of other transactions -- which, by trading around the marketplace, we've put on and taken off.

So we have a small amount of put spread protection. And literally, it has cost us zero, because we invested the proceeds in other option trades, which have since expired or have been closed out and used those proceeds to put on the put spreads.

So we have downside protection. No upside, no upside cost. Unlimited upside. And that's where we stand now. But it's relatively small.

Okay, thanks. That's really all I had. Thank you.

(Operator Instructions). Michael Wong, Morningstar.

I believe that your SEF volumes are fairly decent compared to your peers. So I'm just wondering if you could go more into why you said that you believe the market share now wouldn't be indicative of what you believe the market share will be a year from now?

Because the volumes that you're seeing on -- we said this all the way along. The volumes that you're seeing on the various different websites are only indicative of some of the trades that are actually going through the SEFs.

It's a very small amount compared to the tradition that we had been doing, although it has ticked up in January, when the further guidance came out from the CFCC. But we think that that's going to just increase over the course of this next year, as clarity prevails into the marketplace, and get through May -- subject to actually getting some definitive guidance and rules in May -- that will start to increase.

Okay. And, you know, with the recent announcement of the Cornish & Carey -- so you've recently added to your real estate brokerage headcount, and you have been, I guess, actively reducing your financial brokerage headcount.

Do you have any long-term strategic mix in mind in terms of revenue or operating income among those businesses? Or are you just responding to the environment and opportunities that are presented to you?

The way one succeeds in the brokerage business for scale is average revenue per head. And so adding high-quality brokers and reducing those that are toward the bottom of your productivity has an economic-enhancing quality to the Firm. And that is the math.

So we are going to continuously add quality people at the top and ask those who are less productive at the bottom to go elsewhere. And that's just the math of this business.

So you should expect that to continue in financial services, and from time to time, in real estate. It's just good, prudent management. And we expect to do that, so every once in a while we're going to take a hard, sharp look at our business and make sure we -- the people who are here are productive, active, and economically viable for our platform.

But the more, the better. The more, the better. So Cornish & Carey has approximately in the neighborhood of 275 to 300 brokers. And so when we close that transaction, you will see our brokerage numbers jump.

And you should expect us to continue -- on the financial side to continue to look into the energy commodity space, which I've been talking for the last 12 to 18 months about exactly that. But we will look at any opportunity that makes sense for the Company, that's going to be accretive; and one thing is -- it's not just having these calls, but we see our shareholders every day; we look up and down the list. We see them and talk to them every day. So they want performance as well as the public.

Okay. Thank you.

And with no further questions, I would now like to turn the call back over to Mr. Lutnick for closing remarks.

Thank you all for joining us today, and we look forward to speaking to you again next quarter. We'd also like you to mark your calendars for May 29, which is when we plan to have another analyst and investor day in New York City. Hopefully the weather will be warmer than it is today. So, anyway, thank you all for joining us and have a great day today.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. Have a great day.