芝加哥商業交易所 (CME) 2006 Q4 法說會逐字稿

Good morning, my name is Stephanie and I will be your conference operator today. At this time I'd like to welcome everyone to the NYMEX Holdings fourth-quarter and fiscal year 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Thank you. Mr. Decker, you may begin your conference.

Thank you, operator. Good morning and welcome to the NYMEX Holdings 2006 fourth-quarter earnings conference call. To obtain a copy of our earnings release issued this morning please visit our website at NYMEX.com.

Before we begin formal remarks this morning, you should be aware that statements made on this call that are not historical fact 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 including most recent quarterly report on Form 10-Q which is available on our website.

With us this morning to discuss the highlights of the fourth-quarter and full-year 2006 results are NYMEX Chairman, Richard Schaeffer; President and CEO, James Newsome; and CFO, Ken Shifrin. At the conclusion of their formal remarks we will open up the call for your questions.

Now I'll turn the call over to our Chairman, Rich Schaeffer.

Thank you very much, Keil. Good morning everybody and thank you for joining us. We're extremely excited to speak with you today about our strong results and how we continue to execute on the strategy that we outlined during our IPO. My partner, Jim Newsome, will walk you through these details shortly.

Before we discuss our financial results, I'd like to touch on some of the 2006 milestones that strengthen our position as the leading marketplace for both energies and metals. First of all we are pleased by the remarkably strong reception we received from the market in our recently completed IPO. The offering showed us the support and confidence that the investing public has in our board management and our business.

In March we closed our transaction with leading global private equity investor, General Atlantic, to make an investment and partner up with NYMEX. General Atlantic brought valuable expertise in perspective to the governance and other changes we needed to make in the process of converting to a public company. General Atlantic has been and continues to be a great partner. Bill Ford, the CEO of General Atlantic, sits on our Board and works with us on a daily basis to continue helping us to grow our business.

In September, we asked expanded our relationship with the CME toward side-by-side trading of physically settled futures through the industry leading CME Globex Electronic trading platform. Since the launch we've seen NYMEX WTI crude electronic volumes increase by 581% and our market share of the benchmark WTI contract rose from 41% in June to 61% by year end. And as of Friday last week was at 70%.

One of the reasons we continue to set record volumes is that we make it easy to access our marketplace and continue to bring in new traders and users through the world-class CME Globex platform. CME is a great partner and has done a great job in helping us to grow our own business.

Also in September, NYMEX reached an agreement with COMEX members providing us the right to offer COMEX metals on the CME Globex trading platform. As of last week, COMEX gold market share has increased to 64%, up from just about 50 or even a little less prior to doing that. We're extremely excited about the fact that we have taken back our volume in COMEX and continue to grow it and only anticipate increased volume in the future.

These achievements contributed not only to an extremely successful offering but also to a record quarter and year for NYMEX financial performance.

For the fourth quarter of '06, we showed continued revenue and net income strength with year-over-year gains of 40% in total operating revenue to $124.8 million and 105% gain in net income to $42.3 million. Average daily volume in the fourth quarter was up 36% to 1.2 million contracts as compared to the fourth quarter '05. Jim will talk in a few minutes but we continue in the first month and anticipate the first quarter to be extremely robust with even larger gains in our volume.

For the year, operating revenues were up 49% to $497.2 million and net income rose 118% to $154.8 million. Total volume on the venues increased 40% from '05 to '06. We're extremely pleased with these results.

My partner Jim will now update you on the progress we've made in several core areas of our business. Jim?

Thank you, Mr. Chairman. Rich, you covered the positive volumes and growth, now I'd like to cover some of the other areas of our business.

NYMEX ClearPort, the industry's leading Alt exchange electronic clearing platform continued to show growth in average daily volume of 101% over last year to 314,000 contracts. Options continue to be a strength and driver of volume growth. For 2006, options average daily volume grew from 165,000 to 267,000 or 62% over 2005.

We continue to focus on bringing innovative option contracts to market and developing the liquidity of these markets in which we participate. To that end, a week ago we announced our forthcoming investment of Optionable Inc., a leading voice broker. We continue to see the options marketplace as a key area for growth. While we are excited by the strategic relationship with Optionable, we remain committed to our strategic partnerships with the voice brokerage community which provides significant volume and open interest to NYMEX contracts.

Our market data business remains very strong and has shown revenue growth of 43% over the fourth quarter of 2005 from $11.5 million to $16.4 million in revenues in the fourth quarter of 2006.

During '06 we launched over 100 new products across all venues as a direct response to customer needs. These include new electricity options contracts and same-day crude oil and natural gas options. We continue to execute on our strategy to expand our product mix to satisfy customer demand.

In early January, we launched six soft commodities contracts on CME Globex and NYMEX Clearing consisting of coffee, sugar, cocoa, cotton and orange juice. While these contracts are new, bids and offers paint the screen and volume is growing.

Also last week we launched the iPort 321 plus energy index. We're excited about the hedging opportunities that this product offers our customers. We have also recently announced plans to launch weather-related property damage risk contracts covering natural perils across the U.S.

Now let me update you on some of our international initiatives, as we continue to pursue opportunities to expand the NYMEX brand in markets worldwide particularly in Asia and Europe. In Asia, we opened a Singapore office to further expand our presence in the region. In Europe as previously disclosed, we've closed our regulated London operations and our London office will be focused on marketing efforts moving forward.

2006 has been a building year for our joint venture, the Dubai Mercantile Exchange. The [Amman] government announced it will stop retroactive pricing of its crude and use the DME as its benchmark. Furthermore, the Dubai Financial Services Authority approved both the NYMEX and COMEX exchanges and we continue to build the relationships and approvals toward the launch of this exchange.

Let me give you a summary for the first quarter thus far. We have very strong volumes in the first few weeks of 2007 led by electronic trading and ClearPort Clearing. We have in average daily volume of 1.6 million contracts as of Friday, January 26. The floor volume is at 470,000 contracts per day. Electronic volume per day for NYMEX energy contracts is 625,000 electronic COMEX metals is 79,000 and ClearPort volumes are extremely strong at 416,000 clear contracts per day.

As you can see, we had historic revenue and earnings growth over the past year as a result of volume growth in electronic trading and ClearPort Clearing coupled with the cost reductions. This was evident in the significant growth in our pretax margins which demonstrates the strength of our operating leverage.

Additionally, we finished the year with the strongest fourth-quarter ever. We will continue to seek new revenue streams while identifying cost efficiencies in our existing infrastructure in the year to come. 2006 was truly a transformative year for the NYMEX which included many significant growths, achievements and milestones.

I will turn it over to Ken who will discuss how these have translated into record financial performance. Ken?

Thank you, Jim. I will begin my remarks by walking you through the significant portions of our income statement for the fourth quarter and summarize those results to the year and to (technical difficulty) a few key points on our balance sheet.

Before I begin, I want to emphasize that we're committed to greater transparency and readability in our financial reporting and have modified our income statement presentation accordingly. We've added a nonoperating category which includes investment income, interest expense, securities lending interest income and expense, and equity in losses of unconsolidated subsidiaries. The unconsolidated subsidiaries line item is primarily associated with the Dubai Mercantile Exchange.

While our policy is not to provide earnings per share guidance, I'd like to mention that we have our average daily volumes on our website on a daily basis in a more readable format than ever. In addition, at the beginning of each month we will be releasing a summary of the previous month's average daily volumes and rate per contract on a one-month lag.

Fourth-quarter results for 2006, as Jim and Ritchie have mentioned, we had a very strong fourth quarter driven by higher than forecasted average daily volumes and overall rate per contract as well as reduced expenses.

Total operating revenues for the fourth quarter were up 40% to $124.8 million as compared to $88.9 million for the same period last year. Clearing and transaction fees were $104.8 million as compared to $74.1 million, up 41% from the fourth quarter of 2005.

Average daily volumes rose 36% to 1.2 million contracts as compared to 882,000 contracts in the fourth quarter of 2005. This growth was driven by an increase in electronic trading and ClearPort Clearing with average daily volumes in the fourth quarter of 2006 of 384,000 contracts and 303,000 contracts, an increase of 343% and 67% respectively over the same period last year.

Gross average [rate] per contract across all venues were $1.41 while the rate per contract which strips out transaction costs was $1.17 as compared to gross average rate per contract of $1.35 and net rate per contract of $1.23 for the fourth quarter of 2005. The increase in the gross rate per contract was driven by the increase in volume on ClearPort Clearing which also experienced a higher rate per contract due to product mix. This was somewhat offset by a lower gross rate per contract in electronic trading. The lower net rate per contract in the fourth quarter 2006 was attributable to increased direct transaction costs for electronic trading on CME Globex.

Direct transaction costs were $18.2 million for the fourth quarter of 2006 versus 6.7 million for the fourth quarter of 2005.

Now for market data. Market data revenues were $16.4 million for the fourth quarter 2006 as compared to $11.5 million for the same period last year, an increase of 43%. This increase was primarily driven by an increase in number of units and revenue per units; 123,447 and $40 respectively during the fourth quarter of 2006 as compared to 112,289 and the $38.50 respectively during the fourth quarter of 2005. The revenue per unit for 2007 will be increased by $10 per unit.

Total operating expenses excluding transaction costs were down 16% from $45.9 million to $38.5 million for the fourth quarter 2006. This was driven primarily by the closure of the London Trading operations, a decrease in other professional fees, a 1.3 million run rate savings for the reduction in-force, as well as the reduction in the accrued annual bonus and other accruals as well. The operating expenses excluding direct transaction costs and taking into account the accrual adjustments for the fourth quarter would have been approximately $41.6 million.

Compensation expenses were a total of $16.7 million as compared to $17.1 million for the fourth quarter of 2005. Included in compensation expenses for the first time are management equity costs consisting of options and restricted stock awarded to management and directors at the time of the IPO which were $1.3 million for the fourth quarter of 2006. Non-compensation expenses were down 25% from $28.8 million for the fourth quarter of 2005 to $21.7 million for the same quarter in 2006.

Nonoperating income and expenses. Investment income includes a onetime gain of $2.9 million associated with the sale of marketable securities without which our net income, our pro forma net income would have been $40.7 million or $0.46 per diluted share. Losses from unconsolidated subsidiaries were $1.6 million primarily due to the loss attributed to the Dubai Mercantile Exchange which is expected to launch operations in 2007.

Pretax income was $72.5 million as compared to $38.4 million, an 89% increase in the fourth quarter of 2005. Pretax margin defined as income before provisions for income taxes divided by operating and nonoperating revenue net of interest expense/fees from securities lending and direct transaction costs, was 64% in the fourth quarter of 2006 compared with 44% in the fourth quarter of 2005.

The effective tax rate for the fourth quarter was 41.7% which resulted in annual rate of 44.5%. This is a 1% decrease for the year from the previous rate of 45.5% in 2005. This is due to the increase in the revenues derived from electronic trading which we can source to a favorable tax jurisdiction.

Our net income was $42.3 million or $0.48 per diluted share for the fourth quarter 2006 compared with $20.7 million or $0.28 per diluted share for the same quarter in 2005 based on 87.8 million and 73.4 million shares outstanding respectively.

Those are the results for the quarter. Now let me summarize for you quickly the results for full year 2006. Total operating revenues for 2006 were up 49% to $497.2 million as compared to $334.1 million for 2005. Clearing transaction fees were $419.7 million as compared to $277.6 million, up 51% from last year.

Average daily volume rose to 1.2 million contracts from 857,000 contracts or 40% for the year. This growth was driven by an increase in electronic trading of 195% and ClearPort Clearing of 101% with an average daily volume for 2006 of 207,000 contracts and 314,000 contracts respectively.

Gross average rate per contract across all venues was $1.42, while the net rate per contract was 126 compared to gross average rate per contract of 129 and net rate per contract of 115 for 2005. The increase in net rate per contract was due to the increase in volume of ClearPort Clearing which also experienced a higher rate per contract due to product mix. Direct transaction costs were $49.7 million for 2006 as compared to $29.2 million for 2005.

Market data revenues were $53.6 million as compared to $44.5 million, an increase of 43% over 2005. This increase was primarily driven by an increase in the number of average units and revenue per unit -- 118,861 and $40 respectively during 2006 as compared to 109,187 and $38.50 respectively during 2005.

Total operating expenses excluding direct transaction costs were down 2% to 178.1 million to 174.4 million for 2006. This decrease was driven primarily by the closure of the London Trading Corp. and a reduction of professional fees as the prior year included significant costs related to our international expansion initiatives. This was offset in part by an increase in compensation expense which included 4.5 million of severance related costs.

Compensation expenses were a total of $76.8 million as compared to $52.4 million for 2005 which included equity costs of $1.3 million for 2006. Non-compensation expenses were down 16% to $115.7 million from $97.7 million in 2006. Nonoperating income and expenses included investment income which included a onetime gain of $2.9 million in sale of marketable securities which resulted in a pro forma diluted net income of $153.2 million or $1.88 per diluted share. (indiscernible) consolidated subsidiaries were 3.3 million primarily due to loss attributable to the Dubai Mercantile Exchange.

Pretax income was $278.9 million for 2006 compared to $131 million for 2005. The pretax margin for 2006 was 60% as compared to 41% for 2005. The effective tax rate for 2006 was 41.5%. Net income for 2006 was $154.8 million or $1.90 per diluted share compared with $71.1 million and $0.97 per diluted share for 2005.

Our balance sheet remains strong. Our cash position improved by the receipt of approximately $348 million at the IPO and at the quarter's end we had an excess of $500 million in cash and marketable securities on hand. Our working capital was $486 million.

Capital expenditures were $11.7 million for 2006 as compared to $12.4 million for 2005. We also booked in the quarter a $281 million intangible asset related to the purchase of the COMEX electronic trading rights which is classified on the consolidated balance sheet and goodwill and indefinite life intangible assets.

With that I would like to turn the call back over to Rich.

Thank you very much, Ken. Thank you, Jim. Again we are very proud that we're on the right track as a newly public organization and we only anticipate further positive things in the quarters to come.

We're now going to now start to take questions and we will tell you who is going to answer the question and Jim, myself, and Ken will be happy to answer any questions you people may have. And thanks again for coming today and participating with us.

(OPERATOR INSTRUCTIONS) Chris Allen, Banc of America Securities.

Nice quarter. I was wondering if we could drill down to the RPC numbers a little bit specifically the NYMEX electronic side? Clearly some of the decline was due to the payments to CME. But I think you guys also had discounts involved during the quarter. I'm just wondering how much the discounts impacted the RPC because I think they expired at the end of '06, right?

What is with the discounts is they are being phased out over a six-month period of time. They are down dramatically. The discounts are down dramatically from '06. They continue but the levels have been raised at which point people can receive discounts. So I think you will see them over the first six months completely disappear and significantly less in the first quarter and negligible in the second quarter.

I think some of the reduction that you are seeing there, Chris, to the third quarter to the fourth quarter is we went onto CME Globex in September with the fiscal contract and in the third quarter you still had some of the old rates there that were on access and that is why you are seeing that steep decline.

Okay. So going forward to the discounts basically are being phased out and as your volumes increase the rate you are going to be paying seemingly is going to be declining too so we should expect the RPC to be lifting from fourth quarter levels?

Yes, the higher that our average daily volume goes, the lower that effective rate is with the CME.

Great. And just in terms of the ClearPort Clearing RPC, it has been up now two quarters in a row, three quarters in a row really. What is the mix shift tilting toward? Are you guys doing more stuff in electricity or how is that mix shift really playing out right here?

We continue to broaden our base in ClearPort. As Jim said we've added over 100 products this year all at the request of customers. We don't just add products, we have our customers come to us and request products from all over the world, Singapore, Asian products, European products. Even though natural gas is predominately the largest percentage of that we continue to see growth in other areas as well.

We anticipate ClearPort to only continue to increase. Again the first month, January, is normally a very quiet time in the business as people are getting back and just beginning to start trading after the end of the year, vacations and such. Yet we've done 419,000 contracts a day average on ClearPort and exceeding 1.6 million a day in our average daily volume including 465,000 a day -- and our floor. So our floor has not decreased as a result of electronics, it has actually increased dramatically.

Our options has increased genetically and we continue to see tremendous growth with the CME platform and our partners in Globex. On a daily basis we used to see about 1500 users of Globex go ahead and transact business with us. We are now exceeding well over 2000 and anticipate that number growing dramatically.

Just to add to that, Chris, ClearPort has obviously the biggest percentage swing in rate per contract from quarter to quarter. We've raised anywhere on the road show we're saying the average rate per contract on ClearPort is about 180, 184. We've gone as high as 207. So just to keep that in mind going forward when you apply rates to my ClearPort volume it does swing based on product mix.

Got you. And just the one final question. January has been a fantastic month. How sustainable do you think tradings levels are given what we've seen so far in '07?

We are pretty excited about it. Again, they key is the number of users that are coming onto our platform. And they are increasing literally every month. So the fact that we are now getting close to 2500 users electronically and that we're adding new products, we anticipate that growth to continue.

Thanks, I will get back in the queue.

Rich Repetto, Sandler O'Neill.

Good morning, guys, great quarter.

Thank you very much, Rich. Appreciate it.

I guess the first question would be on the acquisition strategy you built up more cash this quarter and I know about Optionable. You've said you are going to put these funds to use. Just trying to get a little bit more color on where the direction is there -- an incremental update from the road show?

Rich, unfortunately I have my lawyers here. So I can't tell you too much. We are working on a number of transactions which I'm not allowed to disclose at this point in time. But I think you will see over the next 30, 60 days us making some very productive investments. But again I'm not allowed to talk about it at this point in time.

Fair enough. Next, you have mentioned in the past and certainly investors are looking for -- the cost cutting efforts there. The volumes rocketing onto Globex -- I'm just trying to see can you give us anymore color on reductions in cost that you might expect to see over the next year as volume transitions?

Sure. I can't talk about specific ones because again my lawyer is right here next to me holding my hand. But I will tell you as I've told you before that our costs related to four related services are about $110 million of $175 million overall budget even though the floor volume is going up the number of people, the number of brokerage companies, the number of brokers and locals on the floor is reducing.

As such we have started and will continue to cut costs both on the employee side and non-employee side. Not just on the floor itself but related transactions whether it is membership or other departments, we have the ability to reduce cost. Things like member benefits that you are going to see shortly, reductions in excess of 6 billion in the second quarter that you don't even see what you see partially now (multiple speakers)

About 4.5 million we were paying in the first quarter.

Yes. It will kick in in the second quarter. You will continue to see, Jim, myself, and Ken cutting costs and again, even though I can't give a number and they do trail the reduction of the floor, they are significant and will continue to decrease as if business goes and electronics kick in more. Again floor volume is up, the number of people on the floor is down and we think that is an exciting opportunity for us to continue to manage our floor-related costs.

It's going to be -- do you have any target -- and this is I guess Rich, Jim or Ken -- you got 64% margin now, with a sort of hybrid. Any target on where margins could go whether it be this year or a year from now as that transition continues to happen?

I can tell you they are not going to exceed 100%. Ken, why don't you take that one, please?

By asking that question, Rich, you're also asking what do I think volumes are going to go and volumes obviously is the key driver for margins. I can't tell you because I don't where volumes are going to be. And however high they go that is going to dictate where my margin ends up eventually.

Understood, it's not really a --

We feel positive about our margins. We feel positive that there's ability for them to move up as our volume increases. We do anticipate increased volume as shown even in the first quarter. When we talked about our numbers to the analysts previously we had let everybody know and the analysts know that the first quarter probably would not be -- we would catch up in the second and third quarter. In fact to our pleasant surprise we've started so robustly that we anticipate the numbers continuing on a very positive note.

Great quarter, guys.

Thank you very much.

Rob Rutschow, Prudential Equity Group.

I was wondering if we could delve into the RPCs for ClearPort a little bit more? Just if you could give us a little more detail on what types of trades are driving the higher RPCs there?

Ken, why don't you take it, but I don't want to get too specific on that at this point. But, Ken, give them a general reasoning.

In general what has drives it are higher rate per contract products, they will trade a larger percentage of the total volume in any particular quarter and that shifts without actually getting specific (multiple speakers).

We don't want to get specific -- for competitive reasons we don't want to get specific about our pricing there. But I can tell you that European options or European trades have been growing dramatically and have added to our increase, have added to our increased average rate and we anticipate those to be robust in the year ahead. But again for competitive reasons I don't want to get into specific pricing on specific products.

Based on those levels during the quarter it's going to drive my rate.

Okay. And you mentioned that you were able to source the electronic volumes to a lower tax rate environment. So that appears that it should be -- you should benefit from that going forward. Can you tell us what the tax rate is and the more favorable jurisdiction?

By sending out to a more favorable jurisdictions you take it out of New York City and New York State. So it is not applicable to those rates. You don't pay the rate -- that's the jurisdiction that you are going into -- and what we are referring to is Globex out in Illinois with the (multiple speakers).

What you anticipate, Ken --

The rate itself right now we're showing a 41.7% rate in the fourth quarter. That is not the rate going forward. That is a rate to adjust the overall tax rate to 44.5% down from 45.5%. I would say a little bit south of that 44.5 is probably a fair bet at this point but we are continuing to try to improve that tax rate going forward (multiple speakers).

Again, we can't speak about what we are doing but we are doing a number of reviews with our accounting team, with our outside auditors to continue to reduce the tax rate.

Okay, great and last question relates to Optionable. Can you give us any idea of what you paid for your stake in Optionable?

Sure. What's that? It hasn't been disclosed. A lot less than where it is trading now.

All right, thanks a lot.

It has not been disclosed. I apologize.

Okay, thank you very much.

Kenneth Worthington, JPMorgan.

Good morning. Thank you for taking my question and it was a very good quarter. If we can probe maybe into expenses a little bit further, compensation and occupancy and equipment declined a fair amount sequentially. Can you discuss maybe what the change was from 3Q to 4Q in both the line items? Maybe how the change in headcount impacted compensation, and for occupancy just discuss the sequential change as well please?

What happened in occupancy is we had a onetime write-off of $1.8 million for our (indiscernible) one of our locations used to use for IT back in 2001. So that hit in the third quarter. What happened in the -- so that's -- we're down in the fourth quarter by that amount that hit in the third quarter. For salaries we had the [RIF] at the end of the third quarter --

What was that? What amount was that?

It was $1.8 million.

The RIF?

No, no, that was the occupancy -- the RIF itself, the RIF itself was about for 59 people was about a run rate of 5.3 million over the twelve-month period. So for twelve months going out we saved about $5.3 million or about $1.4 million, $1.3 million per quarter.

In the last six months we've had two RIFs.

For the third quarter to fourth quarter you're going to also see a $1.3 million decrease in the run rate because of the RIF that happened in the third quarter.

Okay. So there was a $6 million decline in salaries and employee benefits from 3Q to 4Q. What are the components of that 6 million?

Well, in addition what we also had we had an adjustment to our bonus accrual for the year that hit in the fourth quarter. And that itself was about 2 million or so in addition to what hit in the previous quarters. So the $2 million adjustment really covered all quarters but hit in one quarter which was the fourth quarter.

Something that happened this year, we had a build up in the first half of the year the first actual nine months of the year in salary expenses, and (indiscernible) we will talk about headcount. The average headcount for 2006 was about 538 people as compared to last year it was about 508 people but we ended the year with 502 people. So you can see the significant difference in salary expense going from those nine months into the fourth quarter.

Okay. So there was a $2 million I guess onetime true up in the fourth quarter in compensation?

Right. You also had in the fourth quarter to offset some of that the (indiscernible) equity cost for the first time was hit, $1.3 million.

Yes, but the $2 million was a onetime reduction in the overall bonus accrual.

Right, for the year (multiple speakers) bonus.

So I guess outside of raises, that 16.7 is generally a pretty good run rate excluding other cost reductions or headcount reductions that we expect to see in '07, is that --?

Well, you are asking me to give you guidance in '07 when you say that so I'm not going to comment on that.

You can expect continued reductions in our overall cost but we're not going to comment on the amount.

Okay. Then the second question with regard to cost, you mentioned in you prepared remarks and the road show about 65% of expenses are associated with the floor. To date what portion of those costs have been eliminated?

I don't have a percentage basis. I can only tell you that they are significant, they are continuing, they will continue throughout the year. But I won't provide forward guidance on where we are going to go. We will be cutting our costs related to the floor significantly over the next two, three quarters.

Okay, but even just looking back I assume that started -- have you taken --?

Well it literally just started September 5 is when we went side-by-side trading. So the costs have just started to reduce at the end of last year into this month and going forward. So you won't see the significance of them in last year's number. You will see the significance going forward because the reductions in the floor and the change of the dynamics of the floor trading didn't really kick till November. So you are first going to start seeing those come literally a little bit in the first quarter, significantly more in the second quarter. But not a significant number at the end of last year except some of the headcount.

Just as we speak, Ken, with all the departments and we're going through our contingency budgets to determine exactly what those costs are going to be.

Okay, great. And then lastly, can you discuss a little bit more your purchase of in 19% stake in Optionable? Talk about the capabilities that Optionable brings to NYMEX? Why the decision to buy versus build? And given the conversion to futures when clearing OTC trades, how does the electronic trading through Optionables's OPEX system impact your relationship and your relationship with CME?

Okay. First of all let me be clear, it's not a buy versus build product. We did not buy technology that we don't have. We happen to be comfortable with the technology they have in integrating directly through our API direct to our system. We didn't buy it because we are lacking anything technologically. We bought it because of a key strategic partnership in the options business.

Optionable is one of the very successful brokers in the options space. They have good technology that [rights] directly to our technology that continues to bring business into us. More importantly we have a ten-year agreement with them that makes us the only platform that they can use if our products are there versus any other exchange. So they cannot bring business to any other exchange if we list the products that their customers need.

So forget about the fact that we bought them at a good cheap price which I'm not allowed to disclose. We also have a ten-year guarantee of their business. We embrace the voice brokerage community. They are our partners. The voice brokerage community is not going away. We will continue to look at companies, make deals, make agreements that will continue to get the voice brokers to do business at NYMEX.

And that is the reason we went into this venture. It is in long-term venture. We are long-term partners. We believe in their ability to drive business to NYMEX on an incrementally growing basis over a long period of time.

Actually, my lawyer -- one of my lawyers, I had eight here surrounding me, told me it is okay to tell you what we paid for Optionable. And that is $2.69 a share is what we paid for them.

Ken, this is Jim. The second part of your question regarding the CME relationship, obviously we have an outstanding relationship with them and that is a relationship that we cherish. The Optionable deal does nothing to that relationship because it is about the ClearPort business and ClearPort is a carve out with regard to the CME and Globex. So that relationship continues on a very positive note.

Great, thank you very much.

Patrick Pinschmidt, Merrill Lynch.

Good morning, guys. Just following up here on Optionable and I realize you have all the lawyers around you but given that you said you're looking at other deals over the near-term --?

Did I say that?

Assuming you are looking at other deals over the near-term --

Thank you.

-- do you think or are there other any other opportunities to partner with other brokers out there or was the Optionable deal kind of a onetime thing?

Well, interestingly enough we analyzed this to a great degree before we went into the deal to make sure we didn't alienate any other brokers in doing this. And what we found is a lot of interest that has come to Jim and myself from other brokers to forge long-term commitments to NYMEX in the way that they do business by bringing it onto our ClearPort. So even though I can't speak about what may transpire out of it, it was a provocative decision that has actually changed the dynamics of the business and potentially moving forward can have some very interesting results and that is about all I can say on that issue.

Okay, so it is safe to say there wasn't any pushback on --?

On the contrary, it has been received very positively.

Okay. I thought I heard the 2500 customers currently on your platform. Can you give us maybe comparables with year ago -- six months ago or should we just kind of leave it at that?

Well, it's hard to do that because what's transpired is September 5th we went physically electronic and the number is over 2000. I don't know the exact number but it is over 2000. And it is hard to do that because this great relationship that we forge with the CME has been so great and Craig Donahue and Terry Duffy and Gil and the whole team over there have been so helpful to us both in marketing and electronic platform itself that the growth has been dynamic over nearly a three-month period of time from September 5th.

So I can't even give you numbers to compare because it is all new. We didn't have figures. We had our own access system which allowed them to ClearPort which probably had 1000 users a year ago or even less than that. But again, the growth is so quick and dynamic that I can't even compare it to anything. One would hope that that 2000 plus number and one would anticipate with the hundreds of thousands of users that CME has or at least the 10,000 to 12,000 direct users, would result in a lot more activity.

We've been very successful in taking these prop shops who are very happy with trading on the CME to trade on our system. So we've actually been very successful. Some of our competitors claim they are but we have been. And we are very successful at bringing these proprietary trading shops and blackboxes to our system through the CME platform.

We've got about 15 minutes left. Could we ask the participants moving forward to try and limit your questions to one so that we can get through as many as possible.

Okay on that note, thank you very much, guys.

By the way, we are also, Jim and myself, are available -- today we're a little busy but tomorrow, the next day we are available if any of you what to ask us questions please don't hesitate to call either Jim or myself personally and we will be more than happy to address your questions over the next two or three days.

Richard Herr, KBW.

Good morning, guys. Congratulations on the IPO as well as the quarter.

Thank you very much.

Just one quick question and I apologize if this has already been touched on. But how important is you guys getting to market in terms of electronic trading of the soft commodities before your competitor?

Can't tell the answer to that yet. It is a decision we made to go outside just energies and metals. I think you will see a number of provocative things coming out in the months to come. We are on a mission with what we will call work in progress to get involved in contracts other than energies and metals as we see from catastrophic risk and other things. I can't give the answer to that question till we see what transpired.

On the positive side, ICE has failed three times to list the products in the [shelf] or extend their dates of when they plan on doing it. But we're not looking at them, we're looking at us and we're trying to provide our customers with more products to trade. I don't know whether the time we did it -- we've been talking about it for two years, we did it as quickly as we could. I don't know the dynamics of us versus NYBOT, ICE, it is too early to tell.

Okay, thank you very much.

[Casey Embrick], Millennium.

David Chamberlain, Opp Cap.

My questions have been answered. Thanks a lot.

Next please.

Chris Allen, Banc of America Securities.

Just quickly on the soft commodities. You guys have talked about it a little bit. Just what is your strategy for growing that business? Have you guys been talking to the cotton and sugar producers out there? What is the timeline to getting Globex onto their desks, some thoughts on the strategy of growing that business?

I won't tell you the strategy because of competitive reasons but the answer is yes, yes. We are going out to the commercials, we are going out of the prop shops, we're looking to make some deals with some marketmakers and we are not just risking them. We are being very proactive in it in going out to the industry and making deals. We are also looking at the possibility of going physical as well as cash [channeled] and we're probably going to do that in the near-term future. And that will make us we believe more competitive to the commercial participants.

Great. Thanks, guys.

Okay. I want to thank everybody for your support in us going public and I want to thank you for being here today. We look forward to spending time with you guys. And as I said Jim and I are available to answer your questions in the near future and going forward. So thank you very much and have a nice day, everybody.

This concludes today's NYMEX Holdings conference call. You may now disconnect.