芝加哥商業交易所 (CME) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the NYMEX Holdings, Inc. 2007 Q1 Financial Results Conference Call. My name is [Shiquana] and I will be your operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a Q&A period. It is now my pleasure to turn the floor over to Keil Decker, VP of Corporate Communications and Investor Relations. Please proceed, sir.

Thank you, Operator. Good morning and welcome to the NYMEX Holdings 2007 Q1 Earnings Conference Call. To obtain a copy of our earnings release issued this morning, please visit our Web site at nymex.com. Before we begin formal remarks this morning, you should be aware that statements made on this call 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, including our most recent Annual Report on Form 10-K, which is available on our Web site.

With us this morning to discuss the highlights of our first quarter, our NYMEX Chairman Richard Schaeffer; President and CEO James Newsome, and CFO Ken Shifrin. At the conclusion of their formal remarks, we'll open up the call for your questions. Now, I'll turn the call over to our Chairman, Rich Schaeffer.

Good morning, ladies and gentlemen, and thank you Keil. Thank you very much for joining us today. We are extremely excited to speak with you about our tremendous results and how we continue to execute and deliver on our aggressive goals that we set on our IPO and afterwards. My partner, Jim Newsome, will walk you through some details in a moment.

First of all, we had a great quarter, setting records in volume, revenue, net income, and profitability. Our average daily volume in the first quarter was up 40% to a record 1.513 million contracts. Our operating revenue gained 47% over last year's first quarter to a record $162.2 million -- $164.2 million, and our net income improved 67% to a record $56.2 million over the same period last year.

In addition to our tremendous performance, we also continued to execute on our goals. I want to highlight a number of recent milestones that continued to solidify and advance our position as the leading marketplace for energies and metals.

We announced and completed the purchase of a 19% stake in Optionable, a leading provider of brokerage services for natural gas and other energy derivatives. The transaction has already brought benefits, which Jim will talk about shortly.

We announced and completed a 10% investment in the Montreal Exchange, and on March 23rd announced the creation of Canadian Resource Exchange, known as CAREX, our new joint venture, dedicated to serving the Canadian energy marketplace. We're moving rapidly and expect CAREX to be fully operational within the next 2 quarters.

Financially, we increased our profitability by raising our member fees by $0.20 a round turn. Actually, that's going to go into effect as of today. Even with this increase, we continued to be the most aggressively priced market in the energy industry. We continue to be well under our competitors and our customers are very comfortable with our new pricing structure.

Today we are pleased to announce that the NYMEX board approved our first quarterly dividend to shareholders as a public company in the amount of $0.10 a share, reflecting the confidence we have in our business going forward and our desire to continue to reward shareholders.

Our volumes continue to grow electronically, increasing 503% over last year and 79% over fourth quarter 2006. Electronically traded NYMEX products on CME accounted for 64% of total NYMEX volume and electronically-traded COMEX products now account for 62% of total COMEX volume. All of it just since last September when we embarked on having physical side by side in energies.

We are also pleased our benchmark crude oil contract increased 70%, 68% in Q4, and gold futures and options share increased to 67%, as compared to 61% in Q4.

NYMEX has responded to the marketplace by offering innovative new product store customers, including uranium futures, which were launched last night -- which will launch next week. Last night we had a seminar with over a couple of hundred of people attending that are planning to use the uranium futures contract as a risk management vehicle for utilities, hedge funds, and many other trading groups.

We will continue to look at additional acquisitions and strategic investments. Our focus remains on diversification and on expanding the NYMEX brand globally into untapped markets abroad. We're excited by opportunities in each part of our business, energy, metals, and clearing, and look forward to giving you more detail in the near future. We are very pleased with these results, but we still continue to tighten our belt, cut expenses, and find new ways to drive volume and increase shareholder value.

Jim, would you now please give them an update.

Thank you, Mr. Chairman. Richard covered the record volumes and growth, so I would like to discuss some of the other areas of our business.

NYMEX ClearPort, the industry's leading op exchange electronic clearing platform and the key revenue generator, showed an increase in average daily volume to 373,000 contracts, a gain of 54% over the first quarter of last year.

Options continue to be a strength and driver of volume growth. For the first quarter of 2007, total options volume grew 56% over the same period in 2006 to more than 21.2 million contracts, up from 13.5 million last year.

As Rich mentioned, we've already seen positive developments following our purchase of the 19% stake in Optionable. Optionable has already listed our crude oil options on their screen for clearing through NYMEX ClearPort and will list natural gas, RBOB gasoline, and heating oil options for clearing beginning May 7th. We're optimistic about their success. Along with Optionable, we remain committed to working with the voice brokerage community, which provides significant volume and open interest to NYMEX contracts.

Our market data business continues to be very strong and is showing growth of 50% over the first quarter of 2006 to $23.1 million in the first quarter of 2007, as compared to $15.4 million in revenues the year prior period.

We continue to execute on our strategy to expand our product mix to satisfy customer demand. As Rich mentioned, just a few weeks ago, NYMEX announced a partnership with UxC Consulting Company to offer on and off exchange uranium futures products. We are excited about the potential release products, which are also scheduled to begin trading on May 7th.

Furthermore, this quarter we announced the launch of catastrophic risk futures, diesel swap futures contracts, alternative energy index futures and options, and most recently, a physically delivered Gulf Coast gasoline and 2 physically diesel futures contracts.

Now, for an update on some of our international initiatives. We continue to pursue opportunities to expand the NYMEX brand in untapped and underserved markets worldwide. One of the primary places on which we are focused is the Middle East, with our Dubai Mercantile Exchange venture, which will launch the beginning of June, pending final regulatory approval. A step closer, the Dubai Financial Services Authority last week approved the DME as an authorized market institution and approved NYMEX to operate as a clearinghouse in the Dubai International Financial Center.

Additionally, yesterday, the Kingdom of Bahrain and the Republic of Korea both approved the DME as a foreign futures market. We remain excited about the opportunity of the Amman crude futures contract to become the non-U.S. sour crude benchmark.

We had record revenue and earnings growth for the first quarter of 2007, as a result of increased volume, electronic trading, and clearing, coupled with cost reductions. This was evident in the significant growth in our pretax profitability, which demonstrates the continuing strength of our operating leverage, as well as the growth in electronic volume. NYMEX will seek new revenue streams while further identifying cost efficiencies in our existing infrastructure in the quarters to come.

Let me give you a quick summary of the second quarter thus far. Our average daily volume, as of Friday, April 27th, is 1.41 million contracts. The floor volume is averaging 319,000 contracts per day. Average daily volume of electronic trading on CME Globex for NYMEX energy products is 597,000 contracts. Electronic volume of COMEX metals on CME Globex is 97,000 contracts per day. NYMEX corporate volumes are strong at 326,000 contracts per day.

And at this point I'll turn it over to Ken Shifrin, who will discuss how these results have translated into record financial performance. Ken?

Thank you, Jim. Good morning, everybody. My remarks this morning will cover significant portions of our income statement and then I'll touch on some points about our balance sheet.

While our policy is not to provide guidance, I'd like to mention that we post our average daily volumes on our Web site nymex.com. In addition, at the beginning of each month, we release a summary of the previous month's average daily volumes and rate per contract on a 1-month lag, as well as a 3-month rolling average.

Now, for our 2007 first quarter results. We had another record quarter driven by strong daily volumes, average daily volumes, and overall rate per contract, reduced operating expenses net of transaction costs, as well as expansion of our pretax margins.

Our net income was a record $56.2 million, or $0.59 per diluted share for the first quarter 2007, compared with $33.6 million, or $0.44 per diluted share for the same quarter in 2006, based on 94.8 million and 75.1 million shares outstanding, respectively.

Total operating revenues in the first quarter were up 47% to a record $164.2 million, as compared to $111.7 million for the same period last year. Clearing and transaction fees were $138.2 million, as compared to $92.4 million, up 50% from first quarter 2006. Average daily volume rose 40% to 1.513 million contracts, as compared to 1.082 million contracts in the first quarter of 2006. This growth continues to be driven by an increase in NYMEX electronic volume on CME Globex, which was 597,000 contacts per day and represented a 485% increase over first quarter 2006 electronic volume.

COMEX electronic volume on CME Globex averaged 90,000 contracts per day, an increase of 650% over first quarter 2006 electronic volume. Average daily volume on NYMEX ClearPort clearing increased 54% in the first quarter of 2007 to 373,000 contracts from 242,000 in the comparable period in 2006.

Gross average rate per contract across all venues was $1.50, while the net rate per contract, which strips our transactions costs, was $1.24, as compared to gross average rate per contract of $1.38 and a net rate per contract of $1.28 for the first quarter of 2006. The increase in the gross rate per contract was driven by the increase in volume on NYMEX ClearPort clearing, which also experienced a higher rate per contract due to product mix, which was somewhat offset by lower gross rate per contract for electronic trading. The lower net rate per contract for first quarter 2007 was attributable to increased direct transaction costs for electronic trading on CME Globex. Direct transaction costs were $24.1 million for the first quarter of 2007, versus $6.9 million for the first quarter of 2006.

Market data revenues were $23.1 million for the first quarter of 2007, as compared to $15.4 million for the same period last year, an increase of 50%. This increase was primarily driven by an increase in number of units and revenues per unit, 126,764 and $50, respectively, during the first quarter of 2007, as compared to 114,386 and $40, respectively, during the first quarter of 2006. The price per unit for 2007 was increased by $10 on January 1, 2007.

Total operating expenses, excluding transaction costs, were up 3% from $43.3 million in the first quarter of 2006, to $44.4 million for the first quarter of 2007, which was driven primarily by management equity compensation of $2.3 million. And this equity compensation was granted in connection with our initial public offering last November. There was also $600,000 of severance-related costs as well.

Compensation expenses totaled $21 million, as compared to $18.3 million for the first quarter of 2006. Total operating expense notes going forward, the Company will incur an additional $850,000 annual expense as a result of additional management equity grants for new employees and employees promoted as of the first of the year. In addition, there will be approximately $1 million to $1.5 million of additional severance costs incurred in the second quarter in management's continuing effort to achieve greater efficiency in overall headcount.

Non-compensation expenses, excluding direct transaction costs, were down 6% from $24.9 million for the first quarter of 2006 to $23.4 million for the same quarter in 2007.

Let's move over to non-operating income expenses. Investment income was $6.7 million for the first quarter of 2007, compared to $1.5 million for the first quarter of 2006. 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 June '07.

Pretax income was $99.7 million, as compared to $61.7 million, a 62% increase on the first quarter of 2006. Pretax margin, defined as income before provision for income taxes, divided by operating revenues, investment income, and interest income from securities lending, net of interest expense and fees from securities lending and transactions costs, hit a record 68% in the first quarter 2007, as compared to 58% in the first quarter of 2006.

The effective tax rate for the first quarter was 43.6%, as compared to 45.5% in the first quarter of 2006.

The balance sheet. The balance sheet remains strong. At the end of the first quarter, we had approximately $.5 billion in cash and marketable securities. Our working capital was $455 million. CapEx were $2.9 million for the first quarter of 2007, as compared to $4.4 million for the first quarter of 2006.

And with that, I'd like to turn it back to Rich.

Thanks, Ken.

In this quarter, we continued to demonstrate what makes us a leader in providing risk management tools to the energy and metals industries. We continue to execute on our goals to grow, to cut expenses, and we look forward to an exciting year ahead. Thank you, as always, for your support. We'll now take questions.

[Operator Instructions.] Ken Worthington, JP Morgan

First, can you discuss the divergence in price between WTI and global crude? I guess the magnitude and duration of which has kind of surprised some people. What are the long-term implications for NYMEX and the WTI benchmark? And does this price discrepancy help you in your launch with the Amman sour crude product later in the quarter?

Ken, we've been hearing this now for 10 years. Every year they keep telling us how the divergence in WTI is not the desired crude. Yet in each of the last 10 years, we've continued to grow our open interest in volume geometrically. So I'm going to let Jim talk to this, but this is something that every year seems to come up and our volume continues to grow as well as open interest.

But, Jim, why don't you respond to that please?

Yes, Ken, I mean, there are a number of times throughout the last 10, 12 years that that spread has gotten into an abnormal situation. Certainly that's the case today. The industry will work out of it, as they always will, but I think Rich's point is key, that the -- those who need to use a contract to manage their risks, the energy companies that will buy those, have consistently improved their volumes of WTI and open interest and we think that will be exactly the same case now.

With regard to Amman, we certainly think there is a very strong possibility that Amman will become the non-U.S. benchmark. We worked with the industry for almost 3 years to determine the correct crude, to finalize the contract (inaudible). We think we've got it right, the industry is very excited about it, and we're ready to launch the beginning of June.

Excellent. That's a good way to segue into the next question. There has been quite a lot of buzz around the new Amman sour crude product. It seems there is a lot of excitement around the product. Just help us understand the idiosyncrasies of the way this is traded. As we think about the Patriot Act, how does the Exchange deal with Americans and Iranians trading with each other? Is that a problem or is that a non-issue? And as we think about taxes, how does the tax treatment of the Amman product, compared to the tax treatment on your current U.S. energy exchange-based products for, like, hedge funds and other investors?

I can speak to the tax issue. We don't believe it is a problem. Our customers have been working that individually, based on their locations in the world where they are, and we have gotten feedback that it's not going to be a problem at all on the tax side.

On the other side, I'm going to let Jim take that.

Yes, Ken, our clearing members are the ones that are affected by the Patriot Act. They are very familiar with that. We expect all of them to follow the rules and regulations of the Patriot Act and we don't believe that that will be a problem.

Okay, perfect. And then, lastly, can you update us on your thinking about real estate and your real estate needs with regards to both what kind of square footage you feel you need to run your business at this point, given the continued migration to electronic trading, as well as your desire to remain in lower Manhattan?

On the real estate issue itself, I'm going to give you a no comment at this point in time, but we do continue to cut our costs and review our needs and we react accordingly. But on the real estate issue, I have no comment at this point.

Patrick Pinschmidt, Merrill Lynch

Question on ClearPort pricing. This has been fairly high relative to prior quarters and I understand it's more Europe and a broader product mix. I mean, is this a structural shift in the ClearPort business and should we kind of look at this as being kind of a new run rate going forward, give or take changes in the environment?

I'll talk about the actual rate itself, Patrick. In the first quarter, the rate was 166 and in the fourth quarter I believe it was 158. I've been telling everybody that will fluctuate around somewhat based on the product mix, so it's not really unexpected. I warned everybody just be careful on modeling out on ClearPort. It can go in a range and it's been in that 155, 165 range.

You will continue to see us to build our ClearPort platform, Patrick, because Europe is becoming a significant part of that. And I think with our goal is to see many other products on ClearPort, which will be not only -- which will be Canadian products, obviously, and even non-mills and non-energies in the future, but we're not prepared to talk about that at this point in time.

[So oil is equal.] As non-U.S. products increase on ClearPort, that should be positive for pricing?

Yes, it should be -- it is and is has been and as we continue to grow our European business, as we plan to, that will continue to be positive.

Okay, great. In terms of, Ken, in terms of the tax rate, it came in at, what, 43.6, which was below the fourth quarter. Is this being driven by more volume on Globex? And if so, is this sustainable in terms of the tax rate?

Yes, it is. Just remember when you do a tax rate for a quarter you really estimate a tax rate for the year. The play on that tax rate is settling around the 43.5, 3.6 range. And, yes, it is driven by additional electronic trading, correct.

Okay, great. And then final question on headcount, did I -- did you give a figure there?

I didn't. It's 465. I didn't give it.

Chris Allen, Banc of America Securities

I just wanted to drill down a little bit on the compensation line. You realized the $2.3 million this quarter. So we're going to have the building in the $850,000 going forward?

Right.

Okay. And then, just in terms of the severance expense of $600,000, how much expenses, on an annualized basis, did that remove?

Well, let's talk about our (inaudible) account, which (inaudible). You're looking at right now, on a run rate, we removed roughly about $2.3 million on that $600,000 with the severance.

Okay. And then, so the next quarter, can we think about the $1 million to $1.5 million is another, like, incremental step up to $4 million or so for a run rate?

I don't want to give the exact run rate number, but definitely '07's costs are going to be in that range, between $1 million and $1.5 million for the next quarter.

You're going to continue to see our severance costs increase.

Got you. And just in terms of where do you think the expense basing get to in terms of the floor-based expenses? Where do they stand right now? Where do you --?

No comment. We continue to reduce those expenses. We're being very aggressive about it. We'll continue to be very aggressive about it, but we're not going to drill down on that number.

What I'd like to talk to, though, for the analysts out there and just reiterate what I said in the past. For 2007, in terms of our total expenses, that our total expenses would be flat to annual 2006. But remember the 2007 expenses now include roughly about $10 million with the management equity costs. So we are, in essence, cutting around $10 million worth of costs in 2007.

And the year-over-year comparison, does that include the one-time expenses in '06 of $8.3 million?

Yes.

Okay. And then, just on the market data fees, just doing the math, taking the users times the $50 per month and coming up with about $19 million, there is about a $4 million difference, the $23? What exactly is the $4 million? Is that a fixed payment that gets paid or --?

You had some vendors that are in there, you have some audit fees that we picked up as well in the quarter. I don't know how you did your math, but obviously the big increase is due to the price increase as well.

Yes. But, I mean, there is nothing special in there that we have to worry about falling off going forward?

No.

No. On the contrary. As we add more products, which we're doing, uranium, for example, is going to have a whole host of new users and many of our products as well.

Sure. And then, just on the investment income, I mean, once you back out the gain from the fourth quarter, where you saw a nice sequential increase, is that just due to higher cash balances?

Yes. The IPO funds being in there for a full quarter.

Great. And then, one last question. Just the long-term investments on the balance sheet, the $115 million, is that just the Optionable investment or --?

That's Montreal.

Montreal?

Montreal and Optionable.

Rich Repetto, Sandler O'Neill

Congrats on a great quarter here. Rich, I know you've said you're not saying anything on expenses going forward. The only thing I would say, and this is why I think it opens it up a bit, just for some more color, is you did say in the last call that there would be some coming out in the first quarter and a lot more in the second quarter. And if you actually take a look at your non-comp expenses, they were down year over year, but they went up slightly from 4Q. So I guess are we, maybe not the amount, but maybe the timing, are we -- are you again saying, 2Q, you'll see a much more significant decline in the non-comp expenses as well?

I'll let Ken take it first and then I'll take it after he does.

Okay. Rich, if you looked at the first quarter, in terms of compensations, a couple of things you got to look at.

Non-comp. Non-compensation.

Okay, non-compensation expenses. Okay, we basically looked at our non-comp, we've cut there, we've cut a lot of travel down, a lot of SG&A down, as well as reduced our non-comp expenses. I would look at it, Rich, in the overall parameters I just mentioned before, in terms of our total expenses and that we're going to be flat in 2006. But, in essence, we're cutting around $10 million through 2007. But that will be replaced by the $10 million additional equity costs that we have. So I would look at it more in total, Rich, if you want to model.

Ken, I won't tell you in quarter 2 or what quarter, but I will tell you my partner, Jim, and I continue to pay attention to our cause. Irrespective of the guidance that Ken gives you, Jim and I are in an aggressive mode of tightening our belts, as the amount of business that transacts in this building itself on the floor reduces. So I can't give you a timing on that, Rich, but I can tell you that we will continue on a very strong cost-cutting mode. But I can't give you guidance as to what that would be.

Yes. I mean, Rich, I think investors all recognize the potential here. They are really just waiting for it to happen actually. Anyway, to move on from that, we've talked already about the Dubai and I've learned a pretty fair amount about it. I guess after sinking some time into it. I guess my question is it all makes sense as far as being a benchmark, as far as how you set it up as far as the demand, is this something that we can see ramp, I know it was -- the launch was delayed a little bit, but -- to June 1st, but is this something that -- is it more -- that you can see immediate -- expect immediate results in volume?

Well, I'll tell you that after 3 years of working on it, and I started the project before Jim even came in and joined us, 30 days late is on time, especially in the Middle East. So we're actually proud that we're 30 days, only 30 days, late. We do expect it, I can't say month one, but I can say we expect in the early quarters for there to be robust interest and activity in this future benchmark product.

Understood. And, Rich, the last question. A lot of activity in the exchange space in general. You've got people announcing proposals, this new clearing arrangement as far -- and acquisitions and mergers as well. Could you just -- you said you are going to be involved in the M&A activity, can you just give us a little bit more color in regards to what you're looking at?

Yes. We're not buying out Mobil. I want to be very clear about that.

I used to work there. You probably could buy that.

That's why I said that. They lost you; they lost all of their good people. No, we, of course, have paid attention. We will be a global exchange. We have the commitment to be global. We, of course, are looking at many different things out there, but that's an area where I now have 3 lawyers grabbing me out of the room. So love to talk about that, but we'll talk with action.

Understood. Excellent quarter, guys.

Don Fandetti, Citigroup

One quick question. On your CAREX venture, can you give us an update on how that's progressing? It seems -- for some reason I thought it was going to launch in Q2. Has that been pushed back a little bit?

Well, we actually have our first board meeting on it next week. Jim and I will be going -- flying down to Montreal on May 8th, I believe. And it's just a matter of getting organized. We just funded it. We're getting it funded now. We're hiring the right people. I anticipate that will be -- it's actually up and running now. Probably (inaudible) bases contracts that we have and some swap contracts. So even though it's not officially out there and running, we are already generating revenue in that joint venture. And as we tighten it up over the next month or so, I think you'll see that start to pick up pretty quickly. Can't put a date, but it is in the very near future. We're already generating revenue as a result of it. Even though the formal [carrot] isn't out there, we've hired staff, we're hiring a few people, setting it up, setting up our office in Calgary. And that will come pretty quickly.

Jonathan Casteleyn, Wachovia

Could you broadly speak about your OTC market share. There was a data point last week that BMO Capital Markets was taking a $400 million pretax loss and people were kind of speculating that would hurt the front-end of ICE's business. But, also, I was just wondering, just on the backend, could you talk about your clearing -- your market share in clearing and would something like that --

I'll give you -- I can't break it out right here in clearing in ClearPort and non-ClearPort, but I'll tell you, for example, a good indication of how an exchange is doing is their open interest. If we look at what we're doing, what our competitor, ICE, for example, probably has open interest in their energy products somewhere in the couple of million dollar range. I think I read something a month or so ago that they hit a record of $1.7 million or something. Our current open interest in our energy products is in excess of 23 million contracts. We continue to grow that, we continue to increase our lead in terms of open interest. Open interest is a very, very strong indicator of where volume is going to continue to go. And we're very, very comfortable with our increased position and our growth in ClearPort and non-ClearPort.

Right. I guess I don't understand what other clearing entities you bump against in the ClearPort business though? I mean, if we're -- we're talking about clearing destinations. I mean, what is the market share of ClearPort?

It's very difficult to answer that question, because while we're transparent fully, we know the growth that we're experiencing, other markets are not transparent, so it's hard to evaluate market share.

I can help you in that a little bit by showing you the growth potential. We do less -- OTC does the majority of business, non-NYMEX. Probably 85, 90% is non-energy business. Yet because of all of the credit intermediation issues that have come up from Ameren to Enron --

Enron.

Not Enron. That wouldn't -- and that one.

MotherRock.

MotherRock and Ameren. More and more people are going to the credit intermediated product side, which is bringing it on exchange. So if 10% only has been captured by us, the 90% out there is surely a great target for us to go after to build our business. So we bump up against nobody, except -- I shouldn't say nobody; ICE had some OTC as well. But the main issue here is that there is still 90% untouched in the OTC world, 85, 90%, and that's where the real building potential is for us and exchanges in general.

I understand. Okay, that's helpful, thank you. Can you broadly speak to the success of financially settled products? I'm just kind of curious why a WTI and ICE would obviously get a pretty robust volume versus some of the soft commodity products on NYMEX. I mean, what exactly is the secret focal point where financially settled products do or not do well?

The secret is very simple. The secret is our failure to risk electronically our physical products at an early time. So it's catch up for us. But the fact that ICE came out and licked it at a time when our exchange wasn't together, wasn't ready to go public, didn't have our act together at the time, gave ICE a tremendous edge. As you see, if you follow the numbers weekly and monthly, you'll see we have been taking that back month after month.

Right.

And I don't think it goes away completely, I think ICE keeps a share of it, but I think you'll continue to see us grow.

Right. But aside from the physical side, I mean, the financial side, is there any difference in the success of financial contracts?

Yes. We believe physical contracts are -- in energies and mills, is substantially more successful, as evidenced from the move. When we went to almost 50/50, when we were electronic, once we went physical electronic, we took back probably 70, 75% of the market share.

Right. I understand.

So, clearly, physical is the desired mode.

Okay, great. And just a question for Ken. Can you just talk exactly what you consider your cash and cash equivalents? Do you consider your investments cash and equivalents too?

The investments, you mean like the natural oil exchange investment?

No. When you talk about being liquid on the balance sheet.

Yes, we do. Yes, we do.

So it's marketable securities, cash and equivalents, and do you consider long-term investments too?

Yes.

Okay. And then just lastly, product pipeline, without giving away any specifics, can you just comment whether you believe you're in -- you have average new products, above average new product pipeline, below average new product pipeline, can you just --?

We're well above average on our new pipeline. They include both energies, metals, and non-energy options, which we'll be listing fully across the board in June of this year. And our pipeline is rather busy these days.

Excellent. Thanks for your time.

[George Green], Ridgefield Capital

I just had a question touching on the (inaudible) TI (inaudible) again. It just seems like a lot of the depression on the TI side was tied to sort of a non-transparent Cushing storage capacity number. I was just wondering if you had any plans to help shed light on this and the number in the future. Any type of plan moving forward? And if not, just wondering what you guys' thoughts were.

I know there are guys in research, Dr. Bob Levin, are looking at this very closely, but we also know that there are plans in place to increase storage at Cushing and beyond that we're not prepared to make any comments, George.

Okay, fair enough. I just know that people are missing the number by several million barrels and I was just wondering -- but moving forward, I guess if you can't make a comment, you can't make a comment, but okay, so I should expect something maybe or you just can't at all comment?

Yes, you can expect something. I mean, I think it's safe to say you can expect something, but I just can't go into details about what that is at this point.

Chris Allen, Banc of America Securities

Just had a couple of follow-ups. Just in terms of -- can you just remind people from a seasonal perspective when the slow times are in energy trading?

Well, it's tough to remind you when the slow times are in energy trading, but we are bidding one for the last month and it's been rather quiet. But as we go into the potential hurricane season, this is generally a pretty busy time coming up ahead of us. Jim Newsome, our weatherman, predicts quite a few storms this year, but not from Jim actually, from some serious weather people. But, again, this is generally a pretty busy time that we expect coming up ahead of us.

Sure. We're in the shoulder months right now, right? And as we move closer to June it tends to pick up, right?

In general, in the past, absolutely. I can't speak forward to the future.

Sure. Excellent. I understand. I just wanted to get some color on just how the launch of the American-style options for crude has been at Optionable in terms of how much it's trading on that platform right now.

Chris, you want to take that?

We're doing anywhere from 1,000 to 5,000 lots a day. And we expect that --

Come over here and speak up.

We're doing between 1,000 and 5,000 lots a day and expect that to pick up as people sign on to various platforms and get connected to ClearPort clearing.

Okay.

We're also launching the natural gas and the product options on ClearPort as well on May 7th. So we can expect to see additional growth there.

That doesn't sound like a lot, but that is a tremendous amount for new contracts and getting it going. And we think there is great potential there.

And how does those compare to what's traded on the floor for those specific options right now?

Well, surely the fees are a lot higher, but --

As a percentage of volume, I guess, picking them up.

Too early to tell. Too early to tell, but we think it will have a significant relevance in terms of volume.

Dan Fannon, Jeffries

Most of my questions have been answered, but it seems like the price increase that's going to be implemented today went through without much pushback. How should we think about potential price increases going forward, given the price discrepancy still amongst you and your competitors?

At this point in time, we prefer not to talk about that for competitive reasons. We don't want to let our competitors know what our intentions are relative to pricing. There was not any pushback. I won't say any. We did get one letter of complaint. Two? We got two. But it was rather well received. We told the world we were going to come out very competitive initially, or very cheap, and then we were going to get competitive. So it's a good first move and we're not going to talk about what we're going to do going forward. It was our first fee increase in 18 years. So you guys have to guess what's (inaudible) room.

Rich Johnson.

I'm sorry? Who was this? Oh, Rich Johnson? Rich?

Okay, he removed himself. At this time, there are no further questions. I would now like to turn the call over to Rich Schaeffer for closing remarks.

Okay. Thank you very much for joining us. We look forward to speaking -- as you know, Jim and I run a very open company here. We're accessible to you. You want to meet with us, you can meet with us, you can talk to us. Go through Keil Decker and he'll arrange any meetings or conversations that you want to have. We're proud to have you guys as stockholders and we're going to continue to cut costs, build our business, build volume, and show you that you've made a good investment. Thank you very much for attending today.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.