芝加哥商業交易所 (CME) 2015 Q4 法說會逐字稿

Good day and welcome to the CME Group fourth-quarter 2015 earnings conference call. I would like to turn the conference over to John Peschier. Please go ahead, sir.

Thank you for joining us this morning. Gill and John will spend a few minutes discussing the results and then we will open up the call for your questions. Terry, Bryan, Derek, Sean, and Kim are on the call as well and will participate in the Q&A session.

Before they begin, I will read the Safe Harbor language. Statements made on this call and on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and 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 forward-looking statements.

More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. With that, I would like to turn the call over to Gill.

Thank you, Mr. Peschier, and thank you all for joining us. I am proud of our colleagues' hard work and the resulting performance during a challenging year for the financial services space.

In 2015 we delivered product and technology innovation in multiple ways and we also reduced costs by driving efficiency throughout the organization, while improving our agility. We set multiple volume and revenue records last year, with particular strength in energy and agricultural products.

In terms of volumes, we captured market share during the year across multiple products. In our non-transaction-related business we had double-digit growth within both market data and our portion of the S&P Dow index business. Those two line items make up approximately 25% of our pretax income.

We have consistently expanded our global participation and we had a record level of non-US volume and revenue during the year. During Q4, non-US trading volume growth outperformed the US, which has been a consistent trend. Electronic trading volume from outside the US increased by 7% in 2015. The electronification of our options has been an important part of our success as well.

In 2015, our electronic options volume jumped by 15% to more than 1.4 million contracts a day. Our revenue from electronic options has grown by more than 90% from 2012 to 223 million this past year. During this time, we have invested in system enhancements, new products, and client education, which are driving significant usage of our diverse suite of option products.

A couple of quick points on our financial and commodity products, starting with rates. I am pleased to say that we were able to expand our total interest rate futures options and swaps revenue to more than $900 million this year, up slightly from the past year. That compares to approximately $600 million in 2012 prior to the swaps clearing manually.

Within fixed income markets, I would be surprised to find others that saw that same upward trend. For example, as many of you know, FICC activity is down fairly significantly during the last three years. We remain actively engaged with our customers discussing the advantages of liquidity and capital efficiency that we are uniquely positioned to provide.

One recent area of significant success is the launch of our Ultra 10-year treasury note futures and options contract this past month. This contract provides hedging and spreading opportunities at the true 10-year point of the treasury yield curve. This is the exact sweet spot where a lot of activity is clustered.

I'm happy to say that this launch has been the most successful start of a new contract in our long history of innovation, despite an uncertain and volatile trading environment which is usually a difficult time for a new product to garner any attention. With more than 140 market participants providing consistent liquidity across all regions, the Ultra 10-year treasury note futures has been trading more than 20,000 contracts a day over the last few weeks.

Open interest has increased steadily since the launch and stands at more than 50,000 contracts, demonstrating this contract's relevance to our client base. Open interest in our actively traded 10-year treasury note futures has grown by more than 10% since the Ultra 10-year treasury note launch to almost 3 million contracts, thereby expanding the entire interest-rate complex.

The world's largest and most complex options market is our Eurodollar options and total volume there was up 12% to almost 1 million contracts a day in 2015. The percentage of the volume on Globex increased each quarter during the year from 14% in Q1 up to 22% in Q4. Our Eurodollar options average daily volume grew to more than 2.1 million contracts per day in January and record electronic Eurodollar options averaged more than 450,000 contracts per day, tripling the volume from a year ago.

Turning to equities, a couple of items standout. Within options we saw a 7% volume increase during the year. Also in 2015, we were very pleased to secure long-term rights in the FTSE Russell indexes as a result of our partnership with the LSE.

On January 25, we launched a FTSE emerging markets in Europe Developed Markets product and we are looking forward to 2017, when the Russell 2000 launches on CME. And we think there is an opportunity to increase volumes meaningfully.

Finally, last quarter I mentioned we have launched basis-traded index closed functionality for equity futures and S&P 500 dividend futures. Since the expansion of this so-called BTIC to the US major indices in November last year, over 132,000 contracts have been traded. This is the business that has historically been done in the bilateral way of exchange.

In commodities, we saw record volume in energy and agricultural products. The impact of El Nino and the potential for La Nina, along with the normal dynamics, has resulted in increased usage of our products. We are particularly pleased with our results in energy.

Our total energy revenue grew by 15% during the year, more than twice as fast as our closest competitor. We have taken share in crude oil futures and options, natural gas futures and options, and within coal.

During Q4, we were pleased to see the lifting of the 40-year ban on exporting crude outside the US. We think this bodes well for the long-term position of our energy complex. And also within the metals complex we achieved record levels of large open-interest holders and we picked up volume in market share from competing exchanges in gold, copper, and iron ore.

Within our earnings presentation, you will find a summary slide which highlights many of the initiatives we launched during 2015 to pave the way for continued growth on a global basis. I've gone through some of these on prior calls, so I won't go into any detail this morning.

Turning to 2016, our business has been quite active as volatility has picked up. We have had a great start to the year with a new record monthly ADV of $18.2 million in January and record energy volume. In addition, total options, including electronic options, were well above previous levels.

Related to options, there are many firms utilizing more complex trading strategies as the markets have become electronified. We are seeing enhanced liquidity within different strikes and expirations in many products as many market participants have more data and better tools to manage heightened levels of risk.

There was an insightful report recently from the TAP Group on this very topic. Exchanges that have invested in meaningful options activity should benefit on a going-forward basis.

One more point on January. The volume from outside the US was 26% of the total volume, up from the 24% we averaged during 2015. It is very nice to see the global participation and increased activity throughout the entire day.

It is also worth noting that our open interest grew by 16.5 million contracts, or 18%, during the month of January compared to the year-end and all products have seen higher open interest. This is, by far, the largest open interest increase we have seen from the prior month.

In January, energy volume from outside of the US grew by more than 80% versus the prior year, while equity volume rose more than 65%. While we don't provide guidance on our volume, we do know our product diversity is unmatched and has been very helpful over the years in different environments. We have had a large number of repeat clients who utilize our markets every day and an expanding number of new clients that we are pursuing with multiple sales campaigns.

Clearly, there are diverging opinions related to volatility, global risk, and political uncertainty. We don't control these things. Our work is centered on growing the number of tools available to our clients to help them manage their risk.

With that, I am going to turn the call over to John to discuss the financials. Thank you.

Thank you, Gill, and good morning, everyone. CME had a solid fourth quarter and an excellent year. The full-year revenue increased by 7%, while total adjusted expense was down by 1%.

During the year we increased adjusted operating margins from 58% to 61%. Our adjusted EPS and net income year-over-year growth were both above 14% in 2015.

In Q4 last year, we had the second-highest volume in our history, which made for a tough comparison. I will start with some revenue details for the fourth quarter.

The rate per contract for the fourth quarter was $0.789, up 4% from $0.759 in Q3. Overall, we had an increased proportion of volume from higher paying non-members during the quarter and also had strong energy volume, which is one of our higher RPC products. The energy RPC rebounded to $1.23 per contract, up $0.035 from the prior quarter, due to positive mix shifts within the energy product line from lower-priced power to higher-priced natural gas contracts and energy swaps on ClearPort.

Non-member activity in energy was also significant during the quarter.

Adjusted operating expenses for the fourth quarter were $337 million, exactly where we guided. In terms of headcount, we ended the year with 2,530 employees, basically flat relative to the end of the third quarter. Our compensation ratio for the year came in at 16.1% compared to 17% in 2014.

Looking at the non-operating income and expense line, our ownership in the S&P Dow Jones joint venture drove $25 million in net earnings from unconsolidated subsidiaries, which was up 13% from the prior year. We remain pleased with the investment we made in the index business, while also assuring we continue to offer the world's leading index futures products on CME.

Turning to taxes, for the full year we ended at 36.4%, slightly below the 36.6% range we expected. As a result, the effective tax rate for the quarter was 35.9%.

And now to the balance sheet. At the end of the fourth quarter we had $1.87 billion in cash, restricted cash, and marketable securities. In January, we returned almost $1 billion to shareholders in our variable dividend.

Earlier this week, we announced a 20% increase in our regular dividend from $0.50 per share to $0.60. Our dividend yield over the last four years has been more than 5% and we plan to continue to return excess capital to our shareholders.

During the fourth quarter, capital expenditures net of leasehold improvement allowances were $28 million and for the full year we came at $113 million. Our buildout of our New York office space has been completed. We have also made reductions in our data center footprint and we continue to examine opportunities for efficiency there.

Looking ahead to guidance for 2016, let me start with operating expenses. We will continue to be as efficient as possible as we execute on our strategy with an eye to free up dollars to spend on growth initiatives.

Going into 2016, we are providing guidance for total expense, excluding our licensing and other fee agreements. In 2015, our non-license fee-related expenses totaled $1.171 billion. Based on our current plans and business mix, I expect to increase by a modest 1% to approximately $1.185 billion.

As many of you know, the forecasted license fees are driven by your assumptions on equities, energy, and other cleared swaps volumes. In terms of revenue, as a reminder, we implemented the 2016 transaction fee increase across all six product areas beginning in January and we expect the transaction fee revenue to increase approximately 2%, assuming the same volume levels and product mix.

In addition, our market data clients who previously received a fee waiver are moving from $42.50 per month per screen to $85 per month per screen, which is the same level our other customers currently pay. We expect our market data revenue to increase by 4% to 5% in 2016.

A couple of additional items. For modeling purposes, at this point I expect taxes to be at a similar level to 2015 at 36.5%. I expect CapEx to come in between $115 million and $120 million in 2016.

In terms of capital expenditures, we continue to execute our efficiency program that we started last year to reduce operating expenses to pay for new growth initiatives, reduce the unit costs of critical systems by keeping costs flat while increasing capacity, and by leveraging more Software and Infrastructure-as-a-Service, which tends to flow through expenses rather than capital expenditures.

In summary, I'm very pleased with the hard work this year throughout the Company. As you know, operating leverage in our business is significant and that was clearly evident this year. We plan to continue to grow our top line and drive as much revenue to our bottom line as possible and into our healthy, growing dividend stream.

With that, we would like to open up the call for your questions. Given the number of analysts who cover us, we ask that you limit yourself to one question so we can get to everyone. Please feel free to get back into the queue if you any further questions. Thank you.

(Operator Instructions) Ken Worthington, JPMorgan.

Good morning. First, could you talk about the ongoing transition from swaps to futures in the rate complex? Maybe where you are seeing evidence of progress and from here maybe drivers and catalysts.

Included in the response, can you talk about portfolio margining? I know Gill mentioned that conversations are still taking place, but are you getting uptake on the portfolio margining side and is that a catalyst? Then also, the slide in OTC clearing revenue, that seems to continue as well. So swaps to futures. Thanks.

This is Sean Tully jumping in. Thanks for the question. It's been very exciting over the last few years in terms of -- what we've seen in terms of clients transitioning from swaps over to futures.

If you recall, early last year Greenwich Associates published a study looking at our interest-rate futures on a total cost analysis basis relative to the swaps marketplace and saw that our treasury futures, our Eurodollar futures, our deliverable swap futures, on a consistent basis, offer you the same risk profile or a similar risk profile to interest rate swaps at a far lower cost.

So we've seen since 2012 when the mandates clearance rate swaps got kicked in, a big increase, for example, in our penetration of the cash and treasury bond market. So treasury futures back in 2012 traded 66% of the average daily volume of the cash government bond market. Last year, if you look at it, we were at 75%.

So a very significant increase in terms of our market share relative to the rest of the marketplace. In fact, last year, because of the jump in the gap relative to the bond future, if you adjust for that duration jump, our equivalent penetration now of the cash treasury market is about 78%. So we continue to see progress. We continue to see migration into our interest-rate marketplace.

If you look actually this morning, we are at over $62 million open interest in our interest-rate futures complex -- interest-rate futures and options, a near record. So very exciting from that standpoint.

On interest-rate swap side, continued innovation; continued innovation in that marketplace. There were challenges last year relative to the CME basis, relative to LCH, but our continued innovation is allowing us to continue to get traction.

Last year we saw a huge growth in our Mexican peso interest-rate swap clearing and we are now clearing approximately half of that marketplace. Then in December we had our first trades in Brazilian reais cleared interest-rate swaps. If you look at the Mexican peso, since we are unique in offering that relative to the global marketplace, we are now clearing about half of the global Mexican peso in straight swap market and it's our third most important currency.

Other exciting developments we are seeing is the TN future. So relative to the increases in regulation, the increases in costs; relative to capital requirements, on banks in particular, our TN future a very exciting new launch, where we are seeing a migration into an exciting new product. So our TN futures, the single most successful actually launch after the first few weeks in CME history relative to ADV, open interest, and number of large of interest holders.

So already after three weeks we are seeing a 58,000 open interest this morning. We're sitting around 25,000 ADV recently and over 140 participants, so very, very exciting.

Now the increases that we are seeing, in particular, are coming from asset managers, hedge funds, and corporates. Asset managers last year actually outperformed the rest of our market segments by about 9% in terms of their growth in our interest-rate complex. So we see a continued migration and we are continuing to innovate on the swaps area.

With the Mexican peso and with the BRL, today we offer 19 currencies relative to our competition's 17 currencies. In addition to that we do look to launch swaptions clearing early this year as another unique value proposition to the marketplace, offering unique credit and capital management tools.

Ken, just to sum some of what Sean just walked through, if you look at -- and this is part of what I said a short while ago. If you look at the income for the interest-rate environment, that $600 million three years ago in a very flat environment. In a continued flat environment, we grew that to $800 million.

$900 million, $900 million.

$900 million.

Can I just add something there? Ken, let me just add something really quick here.

You know, we went down a couple million dollars in revenue in swaps clearing, but as you recall, a couple years ago, several years ago as we started to introduce clearing of swaps, there was a lot of people that thought that we would make anywhere between $500 million and $1 billion doing this business.

We went out forth very aggressively to price this in order to build up our core business and to grow the revenue in our core business. And I think what Gill and Sean just walked you through is a couple million dollars down in swaps clearing, but multiples of that in our core business. So I think that strategy really worked to perfection.

Great, thank you very much.

Michael Carrier, Bank of America Merrill Lynch.

This is Sameer Murukutla for Michael Carrier. Just on the expense guidance, the growth of 1% is pretty conservative relative to your peers. Can you give us some details on what your top-line outlook is given the 1% growth?

As you know, we don't give out guidance on volume, which is the main driver relative to clearing transaction fees. But as we look at it as a management team, we were focused really on two things: managing our expenditures and growing our top line, and expanding our margins.

So you're right; we were expecting a very modest 1% increase in expenses and I think what we're looking at is two drivers. One being our market data revenue, which we showed was -- where we showed the increase about 4% to 5%. And then we've also used to lever in terms of pricing in our transaction fees. We've provided a tremendous amount of value to our clients, so we have a 2% increase across the board in our transaction fees.

When you take a look at the month of January, we have had a record volume for the month of January. We have seen large increases in our options complex. So the things that we laid out to do -- growing internationally, growing our options complex. We have taken the opportunity to adjust prices, so our top line is -- we are hitting on all levers there.

And on the expense side, one of the things that we are doing, like I said, is managing the expenditures very carefully. And we have really focused on efficiency in light of security spending, regulatory spending, which we've made investments in over time and we are continuing to look at our technological infrastructure. Also, we are looking at keeping our compensation relatively flat, as well, as we kind of manage the human capital here, too.

Perfect, I appreciate the detail. Thanks for taking my question.

Rich Repetto, Sandler O'Neill.

Good morning and congrats on the operating leverage you exhibited in the model this year, over 100% incremental margins. Anyway, my question -- congrats.

My question is on clearinghouses, since I get one question. Just today there was a journal article about the tests, stress testing clearinghouses in Europe and Chairman Massad has talked about tests recovery and resilience here. So I guess the question is, first, is there anything --? Do you have a view on what could be coming down the road and will there be any incremental costs or capital needed in the clearinghouse, in your view?

Then the second part of it is Eurex also got approved as a clearinghouse here in the US. You are over there in London or in Europe; do you have any plans to expand the clearing beyond I guess the FX -- I believe it's metals -- that you clear right now?

Rich, it's Kim. With respect to the stress testing issue for clearinghouses, we invest significant effort already in various types of stress testing in the clearinghouse that we perform on a daily basis, including stress testing of the risk waterfall and the capital that's needed for CME to contribute to that. So we would not anticipate any impact from minor changes in regulation there.

With respect to the CME exchange in Europe, there are plans to expand beyond the agricultural products and the FX products that are there. And I will ask Derek to make a comment there.

I think we have actually been quite successful in building the European utilities business out there. So if you look at -- we actually just hit a recent open interest record of about 58,000 contracts, of which about 55,000 is in our European utilities site of power, gas, and emissions.

So we're very excited. We had a new ADV record in cocoa, which is also clearing -- traded on the European exchange, clearing through the European clearinghouse, so we like the open interest build and the ADV. It's really accessing a brand-new client base for us that expands us into a footprint of users that are not traditional users of Henry Hub or TI or products that are part of our core record-setting franchise this year. So good expansion; looking for more growth in 2016.

I can guess the question is -- on the first part was, I know there's no incremental costs, but I guess you are not expecting any major changes then I guess in the guidelines for clearinghouse, is there?

Correct.

Okay, all right, thank you.

Alex Blostein, Goldman Sachs.

Good morning, everybody. A question for you on the energy business. How do you expect the lift of the US oil export ban I guess to impact the business? Gill, I heard you talk a little bit in the prepared remarks that you guys are excited about the opportunity, but maybe provide a little bit more granularity either in specific contracts or strategies or new users you potentially could target given this change. Thanks.

It's Derek; I will jump in here. We are actually -- we have already seen a pretty significant increase in participation in the levels of activity across our entire suite of products. There was actually an article out this morning on Bloomberg talking about a product that we just launched nine months ago, the loop storage contract, that reflects exactly the infrastructure shift and the market dynamic shifts that are now reflective of a waterborne WTI product.

So we've got the participation levels where not only did we hit large open interest holder record levels in 2015, we actually saw record levels of Chinese participation and revenue generation. In fact, the greatest revenue generator for us in China in 2015 was our energies [complex], that 82% growth year on year there.

So this is a product that the story is one of a globalizing waterborne product. The market now -- I think the first shipment actually left the Gulf Coast last week and headed for Japan. This is something we have been positioning for for the last 18 months or so. We put ourselves in a position with both the innovative new storage contract with loop launched about nine months ago, in addition to our globalizing sales efforts to make sure that wherever there is an interest in energies we want to make sure that we are pounding the pavement with our customers.

And then finally, on page 12 of the deck that we circulated, you will actually notice that 22% of our energies revenues now come from outside the US. That's up from just 18% last year, two years ago. So we are seeing significant growth in the participation in January, particularly as a continuation of that trend.

We're globalizing our footprint. We are expanding our customer base and there's a nat gas piece I'm happy to go into as well. But I think I've got my time used up on this one.

Got it. Thanks for the color there, guys.

Ken Hill, Barclays.

Good morning, everyone. I wanted to ask: you guys have a number of investment companies that are pretty interesting as far as portfolio companies you have on the technology side. One of those is Dwolla, which tends to the most attention in the digital payment area.

I was wondering if you could talk about the investments you are making in clearing and payment infrastructure and then how you actually see that evolving. Because I'm assuming that has a lot of implications for your customers and for you as well on the expense side. So when do you think some of these kind of newer companies might bring that technology to market to impact [your growth] in a meaningful way.

Sure, Ken; this is John. We do have a venture group, CME Ventures, that has been investing in technology companies that we see as potentially being important to us in the long run. So we have been investing in real-time payments. We have been investing in blockchain. We have been investing in big data, computing technology companies, and the like.

It's important for us because what we are able to do is, by making these investments, we can get kind of a view of the future, if you will, and bring that innovation back into the Company. One of the things that we have a strong culture on is innovation and bringing this knowledge into the Company helps us in terms of our long-term planning.

Just to add to what John said, if you look at some of the emerging technologies and the investments that we have made, they translate very neatly into use cases for us. And so there are a bunch of folks running a bunch of use cases across not just the payment and settlement side, but across many aspects of the operations of the firm, with the intention to reduce not just our cost, but the cost of connecting into our client base and, in turn, reducing our clients' costs.

Great, thanks for taking my question.

Brian Bedell, Deutsche Bank.

Good morning, folks. Maybe just on the international theme, John, can you talk about what type of RPC trends you see from the non-US users versus the US? So if you are penetrating that market faster, especially on the energy side, increasingly there and also on the rate side, is that something that can drive a material lift to the RPC over and above your forecast?

Then also just comment on the program to incentivize users on Brent, where we stand on that right now.

Sure. When you take a look at the RPC from outside the US, it tends to be higher than within the US, because those clients tend not to be members of the exchange. They pay a higher rate. So outside the US it's about 37% higher RPC than within the US, which in us -- when you heard Derek -- penetrating outside the US in the energy space, energy tends to be one of our higher RPC products.

So it's really -- it's an important growth area for us, both from a rate per contract, but also from a volume perspective. I will turn it over to Bryan to comment on the clients overseas.

Yes, I think this demonstrates our very targeted campaign approach to selling and it's delivering results across all of our asset classes. We have seen an 81% increase in activity out of the energy complex. The main drivers have been from Asia and some of the emerging EMEA markets.

In particularly, we've seen some nice new business coming from new commercial clients. We have generated about I think 88 or close to 90-something commercial clients globally and a third of that is coming out of international. So you are going to see more and more efforts in that regard in terms of our targeted approach to these clients.

We have been also very heavily intensifying our efforts in our cross-selling. You have heard me talk about that in the past and we have generated new business from new firms as a result. I think of about 500 new firms and that's broken down to 121 asset managers, 88 new commercial clients, and about 300-plus hedge funds. Again, a third of that is coming out of international.

This is Derek; just jumping in specifically on the energy side. With Brent particularly, we actually rolled back some of the incentives in January, so that's going to help the RPC a little bit.

We're continuing to grow the business about 140,000 ADV, maintain at about 12% market share, and most pleasingly, we are actually seeing an increased market share of the Brent TI spread that are traded as a listed spread. We are up to about 40% of that market and on bigger days we're closer to 50%.

So RPC help and we're getting into a more diversified client base by adding more Brent participation on the commercial side.

Great, that's super helpful. Thanks so much.

Kyle Voigt, KBW.

Good morning, thanks for taking my question. Just a couple for John on the market data guidance.

I guess we had expected a bit of a larger uptick in revenues given the full elimination of the fee waiver this year. Can you help us understand what your assumptions are for subscriber attrition for 2016 as you move to 100% of the full monthly rate?

Then do you already have insight into the customer attrition at this point in the year? Then I guess, lastly, can you just remind us when the last time you adjusted monthly prices for the market data terminals and how often you typically reviewed this pricing?

Sure. Thanks, Kyle. As I indicated in the prepared remarks, we are expecting a 4% to 5% increase in terms of overall market data revenue. As you know, we are moving -- we have moved our grandfathered fee waivered clients from zero to $42.50 and now up to $85, the same as our other customers.

With respect to attrition and the like, we don't have that information now as we are going through the first billing cycle for customers at the $85 level. So our base core, previously the non-grandfathered clients had remained relatively stable. The grandfathered ones I think we will have a little bit more insight as we go into billing at the full rate.

Bryan, would you like to comment on it from what you see from a customer perspective?

I just feel that we've done a very good job in terms of stabilizing any reduction in the terminals. And you can see that over the course of the past year and a half, since we put in the elimination of this waiver, we've seen consistent activity and, I would say, some additional take-up from those at the full rate.

And in terms of those that were grandfathered, we have also seen consistent usage from that group. We are monitoring it closely, as John indicated, but we're pretty confident that we went through the main consolidation since we eliminated that fee waiver. We are really focused now on delivering new products and augmenting the data business that we have today.

Then, sorry, also on the monthly -- how often you typically adjust the monthly prices for market data terminals and how often you review that pricing or when the last (multiple speakers) repeat that?

Sorry, Kyle; this is John. We generally have increased prices every two years and the last time we did it was two years ago.

Okay, thank you.

Patrick O'Shaughnessy, Raymond James.

Good morning and welcome back to the call for Kim. It seems like the clearinghouse equivalence rule is kind of coming to a head. I think February 21 is the [EMIR] deadline in terms of determining whether US clearinghouses are compliant for European banks. What do you see as the resolution of this issue?

I'm going to ask the chairman to answer.

This is Terry Duffy. Thanks, Gill. You know, Pat, we have been working on the equivalence issue for quite some time now and we have been working with Chairman Tim Massad actually since the day he's been sworn in into the administration to take the role at the CFTC.

This has been a big issue. This has been a long road working through all the different issues. We feel very confident that we have gotten all the issues resolved.

I met with the chairman along with Gill and Kim and a few other folks just a couple days ago, and I assure you that Chairman Massad understands the magnitude of the potential market disruption if, in fact, the US is not deemed equivalent prior to the February 21 frontloading date. So that being said, it gives us some comfort, but we would like to see it ahead of time.

That being said, we have seen some recent articles, I think in Risk magazine, where a couple of banks have made comments as to what they may or may not do come February 21. And then you have heard from some other participants saying that they feel very confident and they are not overly concerned about this.

This is an issue that we are very focused on and we will stay focused on until it's granted. But, again, I think the chairman has recognized that there could be market disruptions, and that would be the worst thing that could happen, not only to the US market but to the European participants as well, if equivalence is not granted to the United States. So we feel confident that we will get this done.

Chris Harris, Wells Fargo Securities.

Thanks, guys. The S&P Dow Jones venture had a very strong year. Wondering if you can expand a little bit on what the drivers of that were. Was it just volume, strong volumes, or is something else going on there?

And then anything you guys can share about the outlook would be helpful, too.

Sure, this is John. In terms of the JV, we are very pleased with our investment in our joint venture with McGraw-Hill. The general drivers for the business are assets under management as well as license fees generated from exchanges that utilize their trademark and IP, so it would be primarily CME and the CBOE.

That -- so we end up profiting from activity, both from the move from active to passive investing, which is a megatrend in the investing space as well as trading activity, both from futures and options as well.

So we think we were very bullish on that business. It has characteristics very similar to ours, a lot of leverage in their model. And I think we are very optimistic in terms of the trends in investing and the position that the JV has globally.

Rob Rutschow, CLSA Americas.

Good morning. Thanks for taking my question. You gave some very helpful commentary on the non-US. I had a couple small follow-ups.

You have a lot of new clients, but are those the ones that are driving additional non-US volume? Or are you seeing better penetration from older non-US clients and those new clients are kind of pipelined for additional growth?

Then, secondly, are you seeing -- are you taking some share from some of the non-US venues that have look-alike contracts, especially for some of your commodities products?

This is Bryan. I'm going to break it down into three categories. One of the benefits of having the broad swath of interest-rate products that we represent, we are able to reach the client base, particularly within London. We have brought in some new business, particularly in the shorter end of our yield curve, that we just haven't tapped before and that's a strong testament to the product complex that we represent.

Also, I think I alluded to earlier our intensified efforts on cross-selling. From existing clients what that means is going in, working with them through strong, rigorous marketing and education programs, and helping existing users understand how we can complement their business. For example, with metals, having them come in and do some activity into our foreign currency products to hedge their foreign currency risk. That has been very successful to be able to back that up.

New business from existing customers, we have seen existing customers now trading over I think its 1,700 new products that they hadn't tried before. So it's new business from existing customers and then it's also new business from new customers, which I outlined earlier. Again, it's a combination of targeted sales bringing together our marketing, our strategy, and our business line units together to go out there and call that business.

Okay, thank you.

Jonathan Casteleyn, Hedgeye.

Good morning. The earnings trajectory of the exchange is going way up. Stock's multiple is coming down a little bit though, so I'm surmising that there's some fears about the trading community. I'm just curious if you can talk about the breadth of the user base.

In 2011 you had a big step up in activity only to be met with declines in 2012 and 2013. So curious are there any signs that maybe it's different this time, that the activity levels are more sustainable just from a breadth standpoint going forward?

This is Bryan again. If you look across the client segments, we actually, for the past year, year on year, saw anywhere from single-digit -- and I would say single digit from the proprietary segment -- to double-digit growth. Double digit covering our hedge funds, asset management community, as well as our retail.

One of the things that we really haven't emphasized here is our very strong, targeted focus on building up our retail client base. I think this year alone we opened up close to 50,000 additional accounts in that arena. Again, the targeted sales approach across all of these asset classes, bringing together Derek and Sean's team, has enabled us to penetrate those markets.

An interesting one, particularly in the commercial and corporate side of things, seeing about an 8% close to 10% year-on-year growth. That's a real positive for us in the context of our overall interest rate business.

This is Gill. I just want to emphasize one thing that Derek touched upon a short while ago. This is a testament again to the investment that we have made over the years in growing our salesforce around the world and that is -- and the deeper relationships and education campaigns that we have run in China. The past two months, as the upheaval in China has intensified, we have seen a very large number of traders that are seeking opportunities outside of China, and that has been driving a significant portion of the international growth that Bryan is referring to here.

You're also seeing the open interest for the entire exchange growing significantly, which is another thing that you did not see in the years that you mentioned. So these things, together with the product development that has been done across the board, is what I would say differentiates us in this environment from the past ones.

Let me just give you my -- this is Terry Duffy -- short take on that, because participants are interesting; they come and go and they go from asset class to different asset class. But one of the things that we have been talking a little bit about this morning is the growth in the open interest in our options product.

And I really believe that when you look at options growth, that's what preserves your futures contracts. That is what continues to attract new futures participants. So we've done a really good job of bolstering our options products with the growth that we've seen in them.

Now you got to realize, they don't turnover as much as our futures, but what they do is they help the risk management product, which is a futures contract. And you need to have bigger growth in your options in order to garner more participants in your futures and that's exactly what we are doing. So we expect that mix -- it always goes up and down, but this is something that I have never seen in my 36-year history, to see the options growth outpace the futures growth. And that's a great, healthy sign for this company.

Thanks so much for your thoughts.

Andrew Bond, RBC Capital Markets.

Thank you, good morning. I wanted to follow-up on Ken's question to get your take on the basis spread with LCH. Clearing activity has been a little light to start the year out at LCH and I'm wondering if you think it's primarily related to the basis spread.

It appears it has come in a bit over the recent weeks, but do you think you can meaningfully grow clearing activity as the spread settles kind of around these levels? How would this affect the interest rate complex as a whole and futurization, I guess?

This is Sean jumping in again. In terms of the basis, it has been stable in January and it's really -- the level of the basis is really kind of irrelevant to clients. What is much more important is just the bid offer spread they get coming in and the bid offer spread they get coming out, and the level of rights they get coming in versus the level of rights coming out. So we don't see that is highly significant to the marketplace.

One of the things we have seen is a very large increase in the dealer-to-dealer activity on CME Group. We see the dealers hedging their positions on CME with each other. If you looked at that actually, on recent days we have had dealer-to-dealer activity on our platform as much as 30% of the overall volumes.

One of the things I've said before, again if you look in addition to that, the migration over the futures, I slightly misspoke. In 2012, we actually had 56% penetration of the cash treasury bond market, 66% in 2013, and then last year 75%, so we see also a very large migration over into our futures.

Great, thank you.

Thank you. With no further questions, I would like to turn the conference back over for any additional or closing remarks.

Thank you all for joining us on this call and we look forward to talking to you in the next quarter. Thank you.

Thank you for your participation. That does conclude today's conference. You may now disconnect.