芝加哥商業交易所 (CME) 2015 Q3 法說會逐字稿

Welcome to the CME Group third-quarter 2015 earnings call. (Operator Instructions). I will now turn the call over to Mr. John Peschier. Please begin.

Thank you for joining us this morning. Gill and John will spend a few minutes discussing the third quarter and then we will open up the call for your questions. Terry, Bryan, Derek and Sean 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 in the slides 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 today. We had an outstanding third quarter across the board. We delivered significant top-line growth in transaction fees and market data revenue, which, coupled with solid expense control, resulted in a 21% increase in adjusted earnings per share. We continue to benefit from revenue strength that is fairly balanced. Total transaction fee revenue growth for the third quarter was 12%. Commodity products were 14% higher and financial products were up 10%. I will go through the highlights of these two segments for the quarter and then I will touch on our growth initiatives.

Starting with commodities, all three product areas were up double digits in terms of volume. Within energy, average daily volume was up 26%, driven by more than 30% growth in our crude business while natural gas and refined products has done well, up 9% in total. Our WTI futures and options volume was up 39% in Q3 while the other major crude offering traded at a competitor was up 7%.

Recently, the Goldman Sachs Commodity Index preliminary re-weightings were released. The WTI futures are now the largest component and represent 23% of the total index, which clearly reflects our clients' choice in risk management tools among our crude oil liquidity pools. Additionally, our WTI options increased by 50% for the quarter.

Turning to ags, we are tracking for a record volume year. During the third quarter, our ag volume was up 20% with continued strength after a record quarter in Q2. Some highlights include corn, which was up 40% year-over-year and wheat, which was up 29%. Within metals, precious metals rose 12%, while the smaller base metals grew by 26%.

During the quarter, we continued to roll out innovative new commodity products. We announced a South American short-dated soybean option contract offering South American producers a flexible and cost-effective tool to manage new crop price risk.

And on the back of our success in the copper business, which is up 26% in Q3, we continue to expand our base metals products suite. In addition to launching zinc futures, we are also launching a global physically delivered lead contract with US and European delivery points, as well as new aluminum European premium futures following success with our US Midwest premium futures.

On the European energy side, we launched a suite of European power contracts to complement the European gas futures that we launched in January, which will be further enhanced by European emissions futures that we plan to launch in the next month. I will touch on some interesting new partnerships in a few minutes.

Moving on to our financial products, we had an impressive quarter in our equity business with volume up 27% driven by increased volatility. Equity options growth during the quarter was 32%. During the month of August, we had the two highest days ever in our equity options products with both days above 1.9 million contracts.

Within interest rates and FX, we have seen some slowdown in activity as a result of the expectations of a Fed move being pushed out several months. We have seen that before and the opportunity remains in front of us. We continue to innovate and believe we are well-positioned in those products.

CME Fed funds futures volumes have tripled and open interest has doubled this year as the market has used the Fed funds futures contracts to manage risk in relation to uncertainty of Fed rate hikes. The CME Fed watch tool that translates Fed funds futures prices into probability of rate moves by the FOMC gives a more than 30% chance of a rate move in December and over a 50% chance of a rate move by March of 2016.

From a growth perspective, a couple of important points. In early August, we were pleased to announce the licensing deal with FTSE Russell Indexes and we look forward to driving growth in these products. We have already launched futures on the Russell 1000, Russell 1000 Growth in Value, FTSE 100 Emerging Markets and FTSE China 50 Indexes and other products. We will be rolling out the FTSE Emerging Markets, the FTSE Developed Europe in 2016 and most importantly the Russell 2000 in 2017.

In addition, on November 16, we plan to launch S&P Dividend Index Futures, as well as introducing the so-called Basis Trade Index at Close, or BTIC, functionality for the S&P 500, NASDAQ and Dow Jones Index Futures.

Within interest rates, last week, we announced plans to launch the Ultra 10-Year Treasury Note futures and options contract, which I alluded to last quarter. This contract provides hedging and spreading opportunities at the true 10-year point of the treasury yield curve. Market participants approached us in the first half of this year and suggested that we look at a futures contract that can provide deep liquidity and capital and margin efficiencies of the treasury futures complex to the highly traded 10-year point on the treasury yield curve.

CME conducted an extensive market valuation process of three potential contract designs. We found great enthusiasm, interest and deeply held views on the design and usefulness from market participants. The design announcement for the new Ultra 10-year futures has elicited significant positive feedback from our customers.

Looking at our global business, we had the best quarter ever in terms of volume and percentage of total volume from outside the US. The total electronic average daily volume for the quarter of 3.2 million contracts was up 15% from the prior year. In addition, the total electronic volume traded from outside of the US exceeded 25% for the first time and revenue from outside of the US represented 32% of the total.

Our interest rate business has been particularly strong outside the US as electronic revenue has grown from 31% in Q3 last year to 37% this quarter. We continued to establish global partnerships, particularly in Asia, over the last few months. We announced an exclusive license arrangement with Rim Intelligence, a leading provider of pricing data in Japan, to develop and clear energy derivatives based on their LNG data.

Secondly, we signed an MOU with MCX in this leading commodity exchange related to product development, market education and a licensing agreement for rupee-denominated oil and gas contracts based on NYMEX prices. We have made three noteworthy announcements with Chinese entities. We announced an index development and product licensing agreement with China Securities Index Company for commodity index development. We signed an agreement with CFETS, China's largest market base for interest rate and foreign exchange products related to joint development and innovation of offshore renminbi and related products.

As part of the agreement, CFETS will help facilitate China into bank market participants who trade CME Group's products. And finally, last week, we signed an MOU with China Construction Bank to offer offshore Chinese RMB futures contracts with physical delivery in London for the first time, which will be offered via CME Europe. We believe our cooperative efforts will continue to unlock opportunities for our shareholders as we continue to grow our customer base and volume around the world.

Turning to our options business, as you know, we have invested in system enhancements, new products and investor education, which are driving significant usage of our diverse suite of option products. Q3 options volume reached a record level of 2.9 million contracts per day. We also saw the highest percentage of this business trading electronically, which reached 55% electronic during the quarter.

One of the key drivers of our continued electronic option success is our investment in enabling more complex option spreads to trade on Globex. In Q3, we saw a record 45% of all option spreads traded electronically versus just 10% in 2010. And volume in the world's largest major options contracts, our euro dollar options traded on Globex, jumped by more than 60% to a record 200,000 contracts per day in Q3 and reached 21% electronic versus 14% a year ago.

In summary, we continue to deliver strong results, but more importantly we are intensely focused on running the business as efficiently as we can while laying the foundation for future growth in the years to come. I'm going to turn the call over to John to discuss the financials. Thank you.

Thank you, Gill and good morning, everyone. CME had a strong quarter, another great job by the team on both the revenue and expense side with revenue up 12% and expenses basically flat. Our adjusted operating margin of 62.7% was the highest level we've seen since 2011. Finally, our adjusted EPS grew 21% during the quarter compared to the prior year driven by organic growth.

I'll start with some revenue details. The rate per contract for the third quarter was $0.759, down from $0.777 last quarter, driven primarily by a product shift from ags to equities, volume discounts and a drop in the energy RPC as a result of the contract mix. In September, within energy, we saw a significant increase in our small size power contracts, which accounted for 8% of the energy volume for that month or 161,000 contracts per day. During the second quarter, the power contracts accounted for less than one half of 1% of the volume and for Q3, that jumped up to 5% at an average of $0.06 per contract.

Cleared swaps revenue totaled $16.3 million for the quarter. We captured $166 per IRS cleared trade, higher than we've seen in prior quarters due to our customer mix. We cleared approximately 1370 trades per day in Q3. Market data revenue of $99.5 million was up 13% versus Q3 last year, driven primarily by the elimination of our fee waiver program, which we have discussed the last few quarters. This came in slightly below our guidance and we would expect it to dip slightly in Q4.

Adjusted operating expenses for the third quarter were $317 million, down from last year. We remain extremely focused on driving efficiency throughout the organization and eliminating redundancy to continue to improve agility and customer and market responsiveness.

At the end of the quarter, we had 2525 employees, down 5% from three months ago, driven by our futures pit closures in July and staff reductions in August. Our headcount is down 11% from the same quarter last year. Stock-based compensation costs came in below our normal run rate primarily due to high forfeitures on expenses we had previously recognized.

After some variability in our stock-based compensation the last two quarters, we expect to revert to a run rate of approximately $15 million per quarter. Modest fluctuations may result in future periods due to the changes in expectations regarding achievement of performance share targets.

Our compensation ratio year to date is running at an industry-leading 16.1%, down from 17.1% in 2014 and 17.4% in 2013. During the quarter, it came in at 15.4%. Looking at the non-operating income and expense line, our ownership in the S&P Dow Jones joint venture drove the $26.6 million in net earnings from unconsolidated subsidiaries, which was up 33% 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, the effective rate for the quarter was 36.3%. I expect the fourth quarter to be approximately 37% for a full-year tax rate of 36.6%.

And now to the balance sheet. At the end of the third quarter, we had $1.61 billion in cash, restricted cash and marketable securities. That is approximately $910 million above our $700 million minimum cash target. During the third quarter, capital expenditures net of leasehold improvement allowances, was $30 million and year-to-date CapEx has totaled $85 million. We expect full-year 2015 CapEx to be back-end-loaded in Q4 and should come in lower than we expected at approximately $125 million.

For the full-year expenses, we initially guided to $1.31 billion, which we reduced by $10 million last quarter and I'm going to reduce that by another $5 million to $1.295 billion. This includes absorbing a $12 million increase in license fees so far this year based on volume growth. The guidance would result in a 2% expense reduction in Q4 compared to the prior year on an adjusted basis.

As we mention at this time every year, we have a large amount of marketing and customer-related spend in the fourth quarter that will drive the sequential increase from Q3. Finally, we communicated an adjusted 2016 transaction fee schedule across all six product areas to our customers last week. We expect the transaction fee revenue to increase approximately 2% assuming the same volume levels and product mix next year.

In summary, the third quarter of 2015 once again demonstrated the power of CME Group's business model. Broad-based volume growth from our diverse products set and our disciplined expense management drove adjusted EPS up more than 20%, continuing our growth in the first half of the year. We also continue to generate a significant amount of excess cash, which we plan to return to our shareholders.

With that, we'd 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 have any further questions. Thank you.

(Operator Instructions). Michael Carrier, Bank of America Merrill Lynch.

John, maybe just on some of the guidance. Just on the market data. You mentioned in the fourth quarter a little moderation. Just wanted to get a sense, given what you guys have done on like the waivers what we should be expecting as you head into 2016. And then same thing on the expenses. Obviously, this year, expenses have been well-controlled. Just wanting to think next year what's the expense outlook, particularly what you mentioned just like on the equity compensation normalizing?

In terms of the market data, as you can imagine, forecasting attrition is not an exact science and revenue came in slightly lower than we had guided to and we'd anticipate it being slightly lower again in the fourth quarter. We are keeping a strong eye on it as we go into next year. As you know, those that were grandfathered will now be paying the full freight amount, which is approximately double what they are paying today. We don't have any guidance on that as yet. We are working with our clients to make sure that we keep any attrition down to as low as possible.

In terms of expenses, we are going through the budgeting process now. As you can imagine, we are focused strongly on expenses. I will be giving guidance during the first quarter -- end-of-year conference call in January. In terms of expenses, we are down about 2% based on our guidance in the fourth quarter. Again, we are focused on expenses going into next year and we will be making sure that we are optimizing the entire expense base during the budgeting process.

As it relates to stock-based compensation, what you saw this quarter was an adjustment because the grant date and the vesting date for the stock awards occurs annually in September and the forfeiture rates are updated at this time and because of the actions we've taken over the last few years, we had to adjust it to reflect the reduced number of employees. We are anticipating going back to approximately a $15 million run rate on stock-based compensation, but there will be some variability in it going into next year because of the proportion of performance-related stock awards will cause some fluctuation because they adjust both based on our performance, as well as performance of the S&P 500 or a group of peer companies.

Okay. And the stock base was 11 and you're saying it's just going to 15. So I just want to make sure I had that number right?

Yes, it's been trending about 15. We had an adjustment last quarter because of performance and then this quarter because of the reduced number of employees.

So it will go back to approximately a $15 million run rate.

Okay, got it. Thanks a lot.

Rich Repetto, Sandler O'Neill.

I guess my question is going to be broader. It's going to be on the topic of market data and I'm just trying to get your views as you see your peer or your competitor make a sizable acquisition and with the strategy, there's going to be a lot more value placed on market data going forward. So I guess I'm just trying to see what your view on that was. Your market data has been performing nicely because of price increases, but just trying to see whether there is an expansive opportunity or what you think about that.

I will start and then I will ask Bryan to address some of the specifics of our market data businesses. If you look at the market data business for CME, I think we pioneered the acquisition of IP, which we have the opportunity then to actually grow with respect to new products and indexes that the S&P Dow Jones joint venture has. And as part of the business of CME, it's 25% before taxes and growing, as John pointed out in his remarks. I will ask Bryan to add a little bit there.

We've really worked at consolidating our efforts in terms of our sales effectiveness with market data and it's enabled us to position ourselves well on a global basis as part of our new client acquisition for our core products. Across CME Group, market data is a big part of that element. So as we get new clients coming in, certainly part of that is recognized in terms of our market data.

So you can expect focus on direct new client, direct sales efforts from that perspective, development and commercialization of data analytics initiatives that we have underway, further growth in terms of our benchmarking services and then further development of our S&P joint venture. So as Gill alluded to, we are intensifying our efforts from that strong relationship.

Rich, you may also have seen that, over the course of the last few years, as a result of CME Groups beginning to clear swaps, we have introduced a lot of analytical tools for our clients with respect to understanding what the impact of margin requirements are going to be as they combine their futures and their swaps portfolios. And so this all requires a lot of tool kits that we have passed on to our client base and so that forms part and parcel. Even though we don't charge for it, it's becoming a very important element of what our clients need and this has been a trend that has been the case for the past several years.

Okay. That is very helpful, guys. I'm sure we will get a chance to talk more about it -- a lot more about it in the future. Thanks.

Ken Hill, Barclays.

So I've noticed in some of your marketing a lot more pointed advertising around the eurodollar, particularly as it compares to products like your [IBOR] futures. You guys note paper liquidity, some good forward visibility in trading hours that somewhat overlap with London there. Has that generated much interest there from participants in the market of historically traded products like your IBOR? And are there any changes you guys might look to make to the salesforce there to potentially, I guess, flesh out that opportunity a little bit more and maybe use eurodollar as a substitute product?

Yes, so in terms of our eurodollar futures and our eurodollar options, absolutely we've seen an increased interest. We've actually seen a very nice jump in the open interest in our eurodollar options and particularly this year the big thing to point out is 4 of our 10 largest market makers in 2015 are new. So they were not market makers in our eurodollar options last year, number one. And number two, they are large market makers in the [euro/IBOR] complex, so we are definitely penetrating the European marketplace in a very substantial way this year in a way that's new.

In addition to that, one thing I might update folks on in terms of Fed funds, we did see as of yesterday Fed meeting. Now the probability of a Fed tightening in December well over 40% and the probability according to our Fed funds futures of tightening by March now well over 65%.

Thanks for the color there.

Dan Fannon, Jefferies.

Thanks and good morning. My question is for Gill and it's around your views on M&A and how that might evolve if -- well, you just gave us some of the Fed fund futures outlook, but if we are kind of in a scenario where things don't move that much next year, does that make you think about M&A more aggressively or just more tactically and just kind of update us on your thoughts at this point.

Dan, we are always looking at all opportunities as they exist there and anything that will drive shareholder value for us or makes sense to our business we will always explore, so it doesn't have to be an exchange necessarily. It has to be a service or a growth initiative around what the client base needs. And so a lot of the analytical tools that we have been providing the marketplace over the last few years as a result of swap clearing, you can expect us to continue to work in that direction as we start seeing our market and the products that we are rolling out grow.

I talked a little bit about the 10-year contract a short while ago. I think if there are any opportunities surrounding those types of things either in the commodity space or in the financial space, we will explore them. Currently, as you might know, we have a CME Venture Group that has placed small bets on what are called emerging trends in the marketplace that might lead to commercial arrangement that we might sign with these firms such as the one that we introduced with [DWALA] a couple of days ago. So these types of things are always on our radar with a very clear view to what the future might hold for CME Group in this space.

Great, thank you.

Chris Allen, Evercore.

You guys have done a very good job on the expense side reducing the headcount. I'm just wondering do you see further opportunities moving forward, potentially closing the pits further if options ever go (inaudible) [electronic] is the obvious one, but are there other areas that you guys are focused on improving efficiency and where do you think margins could get to in a very (inaudible) environment over the course of the year?

Thanks, Chris. This is John. We are going through the budgeting and planning process now and I think the entire team has a focus on running the engine as efficiently as possible. So we are looking at -- we're constantly looking at how we can optimize our expense base without impacting future growth. And you've hit on one of them, which is, as we go electronic and as the market takes the option complex electronic, that has a potential to offer some cost savings.

We also are looking at things like consolidating our data centers and continuing that process, optimizing our real estate footprint to make sure that we have the optimal space for our employees. We are also looking at utilizing contract services from outside the United States where we can provision them more cost effectively.

As you take a look at our headcount, I would imagine, over time, you will see more headcount growing internationally because, as Gill indicated, that's where our growth is -- there's a large amount of our growth coming from overseas.

So in terms of our overall margins, we've got the highest margin right now since 2011 with incremental margins above 90%. So I think there's no artificial limiter in terms of how high our margin can go. In fact, we've hit a high of over 65% in the not-too-distant past. So I think -- we don't look at it from the perspective of how high we can grow our margin. We look at it in terms of how efficiently we are running our expenses, what levers we have to pull to grow the top line and investing for growth. So that's the way we are thinking about it and as I mentioned, we are going to be reviewing with our Board our 2016 plan in the coming weeks.

Great. Thanks a lot, guys.

Patrick O'Shaughnessy, Raymond James.

So I was hoping you could help me kind of characterize the competitive landscape right now in energy trading. Certainly, you guys had a very robust competition with ICE for a number of years and now you have NASDAQ coming into the market. How do you see things playing out at this point?

I think that you have seen us do I think a really nice job focusing on what are some of the natural tailwinds in the energies market right now. The energy market is certainly a story of oversupply on the TI side.

That said, we are absolutely focused on making sure that we've got a liquid set of pools across each of the benchmark products. We've been focused on making sure our presence in TI in the futures and the options. [Brents] is an area that we continue to have about 12%, 13% of. And certainly the trends we are seeing in the natural gas market, while we don't see necessarily huge change in macro trends over the next 12 months, we are continuing to build on our market share that we've solidified over the last probably 12 to 15 months there.

As it relates to the options business specifically in TI, we've got 72% of our options in TI traded electronically now. That business is up 50%. And options is a real differentiator for us because, if you look at the magnitude of our business, I think we've got about 165,000 contracts ADV in our TI options. You compare that to your points on the competitive landscape at ICE, they got 50,000 or 60,000 contracts [today]. We know that options volume perpetuates and strengthens the futures franchise, so that's an area of focus for us.

And probably the last thing I would talk about, maybe two other small pieces, there's been increasing movement on the potential lift in the export ban. It went through one side. We think there is a broader dialogue that we think is happening, so despite the fact that there's an election next year, the fact that it's part of the dialogue in Washington right now we think is very positive. We think there's a good story there. The Chairman actually testified to that a couple months ago in DC.

And then, finally, if you look at the GSCI reweightings preliminarily announced a couple of weeks ago, we just think that speaks to really what the natural footprint of TI is in the global landscape. As I said before, if we can't provide a full suite of products to our customers, whether it's Brent, TI, even the Almonte crude in DME, that's what our customers need. We will let the customers choose what they want to trade.

Great, thank you.

Brian Bedell, Deutsche Bank.

Just a follow-up on energy. For the power contracts in the third quarter, John, I don't know if you could outline a pro forma RPC for the energy complex given the power contracts and (inaudible) run rate going forward on that. And then also just if you can also talk about some of the new products, especially the Ultra 10-Year in the financials, BTIC in terms of how promising and how quickly you think that can ramp up in the near term. Thanks.

Sure. Thanks, Brian. I'll take the first one and then maybe Sean can comment on Ultra 10-Year. That's definitely a product we are excited about. Just with regard to the energy RPC with the small sized, smaller priced power contracts, I can understand the disconnect. Energy RPC fell about $0.08 compared to last quarter. The lower RPC again was driven by those smaller sized, lower-priced contracts and the bulk of that all occurred in the month of September. I think when you take a look at the quarter, the ADV for power contracts this quarter was about 91,000, up from the ADV of about 5000 last quarter. So if you normalized out the RPC for those power contracts, it's about $1.25 on everything else. So that's the impact.

I think what we will do in the future is we will make sure on our monthly volume release that any unusual spikes in the power contract we will make sure to call that out. I think the important thing is, even with these lower sized, lower-priced contracts, our energy revenue was up 17% this quarter. So really pleased with how energy has been performing and I will turn over to Sean to talk about the TN.

Yes, so in terms of the TN, we are obviously very excited about that. There was an opportunity -- market participants came to us relative to -- earlier this year, the bond future jumped to what we call the five-year gap in terms of the maturity spectrum of U.S. Treasury bonds. So with that, the TY future now has a (inaudible) to deliver of 7 years and the bond future has (inaudible) to deliver of 21 years leaving a very wide gap for additional products.

So with customer feedback, we -- extensive customer feedback -- and excitement we did decide to -- that we will launch a TN or a 10-year future that will have a (inaudible) to deliver basket of 9.5 to 10 years. So we've had very positive feedback. We think it's a product that the marketplace has high demand for. Now, obviously, very uncertain as to what the uptake will be, but we see significant opportunity for basis trading between that and other products.

As you mentioned also and as was mentioned during the script, several new equity products, so the Russell 1000, Russell 1000 Growth and Value, the FTSE 100, FTSE Emerging Markets, FTSE China 50 have already been launched relative to our agreement with FTSE Russell to be their partner in terms of these products and then we are very excited in 2017 to launch the Russell 2000.

In terms of BTIC, or Basis Trade Index Close, we are excited about this. This is the first time we are going to be offering that on Globex. Previously, it has been a product that has been available in terms of block trading. What this does is it allows index-driven asset managers to trade at exactly or at a basis to index close everyday making it extremely efficient for matching their index, so we are very excited about it. We've had very positive feedback. But, obviously, there is uncertainty as to how much uptake you are going to get in a new product.

Great. And the 10-year note, is that launched later this quarter?

We look at launching that in Q1 of next year.

Great. Thanks very much.

Kyle Voigt, KBW.

I guess just on the RPC guidance of a 2% increase year on year for 2016 with the pricing changes going into effect, John, can you just give us some more guidance as to where we should expect the most significant impact? Is it right to think about the ags and rates products to be most significantly impacted, or what line should we expect those to come through?

Sure, Kyle. As we've mentioned, we announced an overall 2% price increase. We looked comprehensively at our price levels, volume tiers and incentive plans and then strategically adjusted them. As we mentioned, we took action across all of our asset classes. So rates and energies were the highest impacted and FX and metals were the least impacted.

Okay, thanks.

Amanda Yao, JPMorgan.

This is Amanda. I'm filling in for Ken Worthington. In terms of open interest, futures open interest is flat and options open interest is down year-over-year. Given the volatility is on the rise and we seem to be right on top of a rate hike, why isn't open interest growing faster than it is?

The open interest down a little bit. We had a huge -- if you look at last year -- October of last year, right, was an absolutely phenomenal period of time. Let's recall, for example, in rates what happened. Last year, our rates complex was up 19% in terms of the ADV and if you look at October of last year, we had a number of events. We had a surprise easing by the ECB. We had the potential for a Greek exit and we had the all-time record on October 15 of last year in terms of the exchange volumes and that was in part due to the huge open interest at that time.

If you recall, interest rate futures on that date alone, we did over 25 million contracts, so we've got some very tough comps right now. But in addition to that, the healthfulness of our business continues to grow without question. So looking at that in terms of large open interest holders in our interest rate complex, we reached an all-time record in August.

In terms of our FX complex, we also reached an all-time record in large open interest holders in August. And the trends in large open interest holders continues to increase and our penetration of alternative markets continues to increase. So if you look, for example, at our treasury complex, one of the things that we do talk about pretty often is the percentage of treasury futures that trade relative to the cash bond market.

Just as a recollection, in 2013, that was 60%. In 2014, it was 65%. In 2015, we are running at 78%. So all the indications are that it's a very healthy marketplace, so I am focused on the financials and maybe I will turn it over to Derek to talk a bit about commodities.

Yes, I think I would probably just add to that. In your decks for the presentation material, if you look at slides 23, 24 and 25, we've now provided clarity and a view into the large open interest holder on the commodity side of the fence as well. And to the point that Sean made, we focus not just on the volume, but the quality of participation in our markets as well.

So while we are seeing some short-term gyrations largely in the option side, which is fairly typical, actually, it's much more volatile on the options OI then the futures OI, we are pointing you guys to some clarity on the commodities open interest holding picture here as well. Particularly on page 23 on the energy side, if you look year-on-year, our large open interest holding is up almost 7.5% year on year. So the quality and the number of participants holding significant positions with us is equally important to us as the short-term gyrations in the option side.

Thank you for taking my question.

(Operator Instructions). Rich Repetto, Sandler O'Neill.

I just wanted to do a quick follow-up on the marketing. So John, you guided to $10 million down for the year. It looks like it will be down even more than that. And just trying to see what's coming out of marketing this year and is there any bigger impacts as you cut this spend, looks dramatically year-to-year?

Thanks, Rich. Yes, like I mentioned, we are expecting this quarter to be down about 2%. You are going to see the largest increase going from, in our marketing line, going from the Q3 to Q4 and it's down about 2% from last year. The bulk of that is coming out of marketing and if you recall, we had some marketing spends in prior years that were really around the MF global issues, as well as some of the industry issues that were happening and we reduced that down. We'd always anticipated on reducing those costs, and you are seeing them reflected now.

So I think we will continue to see an uptick in terms of spend in marketing in the fourth quarter going into next year, but it will be down year-over-year and it's not necessarily impacting growth at all because these were more kind of overall industry campaign-based.

Understood. That's helpful. Thank you.

Thank you. At this time, we have no additional questions in queue. I'd like to turn the call back to the management for some closing comments.

Thank you all for joining us this morning and we look forward to talking to you again in the next quarter. Thank you, everybody.

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation. You may now disconnect.