洲際交易所 (ICE) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the IntercontinentalExchange third-quarter 2011 earnings conference call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to turn the conference to your host, Kelly Loeffler, Vice President of Investor Relations and Communications.

Good morning. ICE's third-quarter 2011 earnings release and presentation are available and archived in the Investors section of our website at theICE.com. This call will be available for replay.

Today's call may contain forward-looking statements. These statements are subject to risks, assumptions and uncertainties, and we undertake no obligation to update these statements. These represent our current judgments.

A description of the risks that could cause our results to differ materially from those described in our forward-looking statements can be found in the Company's Form 10-Q, which was filed with the SEC this morning.

The results discussed today include adjusted operating numbers, which we believe are more reflective of our performance. Non-GAAP reconciliations can be found in the earnings release and presentation. We also include an explanation of why this information is meaningful and how we use these measures.

With us today are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Chuck Vice, President and Chief Operating Officer. I will now turn the call over to Scott.

Thanks, Kelly. Good morning, everyone, and thank you for joining us today. I am pleased to again report that ICE achieved record revenues, record net income and record cash flows during the third quarter and for the first nine months of 2011. And importantly, we are delivering these results even as we invest to ensure our continued ability to deliver value to our shareholders.

I will begin this morning on slide 4, with an overview of our performance in the first nine months of this year. Total futures volume increased 18%, while OTC energy volumes rose 23%. Revenues increased 16% to $1 billion; adjusted operating margins expanded to 61%; and we grew adjusted earnings per share 24% in the first nine months of this year. Cash flow from operations increased 43% to a record $541 million.

We leveraged that strong profit and cash generation to make strategic investments in Brazil, to build the tools our customers will need in the evolving global market environment, to roll out over 230 new futures and OTC energy products, to expand over 300 cleared CDS products, to add to our technology team, to deliver industry-leading solutions like our new clearing technology in Europe, and to opportunistically buy back our shares.

Let's move to slide 5 now and get into the detail of our third-quarter results. Consolidated revenues rose 19% over the prior third quarter to $341 million. Consolidated operating income grew 35% to $204 million. Adjusted diluted earnings per share in the quarter increased 32% to $1.87.

For the first nine months, CapEx and capitalized software expenditures were $43 million and adjusted EBITDA grew 20%.

Moving to slide 6, I will review the components of our revenue and expenses for the third quarter. Transaction and carrying revenues increased 18% to a record $302 million, driven by record volume in both futures and OTC markets. Total contract volume grew 25% to a record 207 million contracts. Futures revenues rose 24% to $155 million.

OTC energy revenue increased 13% to $101 million. Revenues from credit derivatives, execution and clearing grew 8% in the quarter to a record $46 million. Growth in market data fees also accelerated, improving 17% to a record $32 million.

Shifting to the expense side of slide 6, we saw a healthy 4-point expansion in adjusted margins to 61%, with adjusted expenses up just 6% on 19% top-line growth. Core operating margins, which exclude our CDS brokerage business, remained stable from 2Q levels at 67%.

Turning now to slide 7, I will walk through the performance of our futures business segment. ICE's Futures markets produced a record volume quarter, with ADV up 23% and open interest up 10% over the year-ago period.

ADV at ICE Futures Europe grew 28%, and during the quarter, the Exchange established its fifth monthly volume record in 2011, [and in] 25.8 million contracts in the month of August. Growth at ICE Futures Europe continued to be driven by activity in our benchmark contracts, Brent and Gasoil, up 41% and 30%, respectively.

Throughout the year, we've set individual product records in Exchange-wide volume and open interest records. You might also have seen the recent announcement by commodity indexes that are being re-weighted to include ICE Brent futures for the first time, as well as increasing the weighting of Brent within the indices.

While Brent and Gasoil are our largest revenue contributors, we continue to see healthy growth in our European utility products. These include natural gas and coal, which saw volumes rise 84% and 64%, respectively compared to the prior third quarter.

Emission volumes increased 52%, and revenues grew 44% to $17 million.

Moving now to ICE Futures US, volumes grew 12% in the third quarter as a result of strong demand for our Russell and FX contracts. Volume in agriculture contracts was more subdued, due in part to the European credit environment and large price movements in the past year in certain markets. We believe that as the environment improves, hedgers will again become more active.

Increased US equity market volatility produced strong volume in open interest growth in the Russell Index futures and options contracts during the quarter. Russell volume increased 32%, and OI grew 17% from the year-ago period, and set volume records in August and September. Notably, the Russell Index contracts have generated $15 million of profit during the first nine months of 2011.

The US Dollar Index also continues to gain traction, with volume up 55% from last year's third quarter and open interest doubling. Customers are responding positively to growing liquidity, and we continue to expand our financial product set based on demand, particularly in FX.

I would also like to point out that this morning, we announced our October futures volumes increased 21% and rate per contract remained steady, so the fourth quarter is off to a very solid start.

Turning next to slide 8, I will review our over-the-counter segment. Average daily commissions in energy increased 14% over the prior third quarter to $1.55 million. North American natural gas and global oil volume increased 29% and 58%, respectively. Open interest increased at a healthy rate despite the relative lack of volatility and continued low prices. Global oil continues to benefit from the ongoing migration to clearing and from new products.

As I noted previously, year-to-date, we have introduced over 230 new contracts for clearing, the vast majority of which are OTC energy contracts, and total new product revenue reached $29 million. This includes $12 million in incremental revenue in the third quarter alone.

Open interest for OTC energy contracts rose 31% from the prior third quarter, indicating healthy demand for our products. And our OTC energy business continues to deliver solid results, with average daily commissions of $1.6 million per day in October.

In our credit derivatives business, third-quarter revenues were up 8%. Credit results were driven by growth on the clearing side of the business, though execution showed improvement, with execution revenue at its highest levels we've seen in five quarters.

The CDS execution market remained soft due to low levels of volatility and its participants await regulatory clarity. However, our execution business continues to migrate towards the screen, with 61% of Creditex's third-quarter revenues conducted electronically, up from 55% in this year's first quarter and up from only 35% in the fourth quarter of 2008.

ICE has cleared nearly $25 trillion in gross notional value and remains the clear leader in CDS clearing. Open interest at the end of the quarter grew 43% from the prior third quarter. Last week, we began clearing sovereign CDS on certain Latin American names at ICE Clear Credit, making it the first clearing house to clear a sovereign CDS.

With 330 Clear Credit derivative contracts, we list hundreds more contracts for clearing than our nearest competitor. Importantly, through nine months, our profit from CDS clearing is nearly equal to the profit we made throughout the year in 2010.

Turning now to slide 9, you can see the solid metrics that our model has produced. We have, quarter after quarter, consistently grown our operating cash flow as we maintain a lean operating model and focus on profitable growth.

For the nine month period, cash flow grew to $541 million, an increase of 43% compared to last year. This consistent cash generation allows ICE to reinvest in the business, execute disciplined M&A and opportunistically buy back shares. As of the end of the third quarter, we had $497 million in cash and a very low debt to EBITDA ratio of 0.7 times. Our low leverage and healthy level of cash gives us strategic flexibility as we evaluate many new opportunities.

With that, I will be happy to answer many questions during our Q&A, and I will now turn the call over to Jeff. Jeff, over to you,

Thank you, Scott, and good morning, everyone. ICE's record results were driven by the continuation of long-term, secular trends in the global derivatives markets and our unique positioning. As evidenced by our returns on capital, we've invested prudently in the capabilities needed to capture and build upon these secular trends. Whether it is the demand for clearing, connectivity or post-trade solutions, ICE is woven deeply into the infrastructure of our customers.

We continue to build on this vital partnership at a time when risk management and capital efficiency are more important than ever.

So before I walk through our results, I would like to update you on the status of the default of MF Global. MF Global affiliates were members at four of our clearing houses, with the exception of our CDS clearing houses, where they did not meet our membership criteria. Because of the ongoing regulatory issues, we are limited in what we can say, but I want to confirm that ICE is in a very strong position with respect to managing through MF's default.

We believe that we have ample collateral to assist in the orderly movement of customers to new member firms or the termination and liquidation of their positions as this process plays out.

The press has reported that there may be potentially a shortfall of funds in customer accounts. But in our case, ICE has always been in receipt of the full amount of margin monies that are required for the positions in our clearing houses.

We began the default process on Monday by making certain that our lines of credit were fully available to the clearing houses, in the unexpected event that short-term capital was required to manage through the situation. We then turned our attention to converting MF's noncash collateral into cash by executing trades in the market. We were granted access to MF's offices, and we [seconded] experienced traders to oversee the management of hedging the portfolio and liquidating accounts.

We were able to offer account holders a window of opportunity to move their positions or have our traders liquidate them to the extent that the MF trustee and administrator and the local regulators allowed.

In the UK, we are operating under the newly-implemented Special Administration regime. This regime was adopted following the Lehman bankruptcy, and within hours, it allowed us to access customer account information.

We continue to work with regulators, MF Global and its trustees and administrators to transfer and liquidate customer positions where we are permitted. We were well prepared in advance of the default, and we've taken action since the default to protect the clearing houses.

You should know that MF Global represented a low-single-digit number in terms of the percentage of activity in our clearing houses, and we do not anticipate a material impact, based on all the information that we have at this time. Again, we feel we are in an extremely solid position with regard to managing their default.

So let me turn back to our results, and I will update you on how we are delivering on the needs of our customers and why we've produced growth in each of the past 27 quarters.

If you will turn to slide 10, we've provided a snapshot of a few of the areas for growth for us, and how we've used changes in technology and regulation to redefine markets and create opportunity.

I will begin with the fundamental strength of our business model. First, we have a unique reach across geographies, customers and products. Nearly half our revenues come from outside the US, and our customer base is skewed towards those that are commercially oriented.

Our specialized products are designed for end users and risk managers. And while the energy markets were among the last to go electronic, these markets have been an area of unprecedented innovation in product and risk management techniques.

ICE's Brent, Crude and Gasoil contracts are in their 14th consecutive year of record volume. And the emergence of China as the leading consumer of energy continues to drive growth, along with the supply and demand imbalances in Western economies.

Brent is relied upon for pricing two-thirds of the world's physical oil, and it continues to rise in importance to the oil community. To ensure our contracts have the broadest market appeal possible, we are working with the industry to evolve the benchmark Brent and Gasoil's futures contract as their demand rises, and while these contracts and the majority of our other contracts have set new volume and open interest records this year.

Similarly, we are continuing the expansion of our OTC energy markets, and I think it is important to understand the unique value proposition that these markets have provided to our customers and ultimately to our shareholders. OTC revenues continue to grow, and year-to-date average daily commissions in 2011 are up 36% compared to 2009, which was the first full year that we operated our energy clearinghouse. We are now able to list 600 cleared OTC energy contracts, up from 100 cleared contracts when our clearing was outsourced.

From a customer perspective, coupling ICE Futures and ICE OTC energy contracts on one platform delivers tremendous value in the form of liquidity, security and efficiency. Thousands of market participants rely on our integrated energy futures and OTC platform for both trading and risk management.

Customers seek sound, well-regulated, transparent markets, and I believe, [frankly, that] market structures have many unintended consequences, such as creating the need for automated trading systems to simply reassemble the markets. Today, competition and execution in clearing keeps our cost of transacting in the regulated markets well below the cost of transacting off-exchange.

Because the cost of trade in our markets represents a very small percentage of the total cost of trading, access to multiple clearing houses and exchanges does not seem to be the primary concern to our commercial hedgers. And the capital efficiency of our clearing model draws participants who hold nettable transactions.

In fractured markets, customers and regulators faced increased operating complexity and systemic risks rise, just as we saw in the fragmented US equity markets during the flash crash.

Today's market structure supports the goal of moving bilateral markets into clearing, it supports moving opaque markets on to exchange, and it allows for the detection of speculative volume that is difficult to detect in a fragmented world.

Our model promotes increased transparency and clearing in a way that is already widely accepted and is increasingly relied upon by the industry.

Turning to OTC credit markets, we've created a model for CDS execution and open access clearing that has largely been mirrored under financial reform. Our CDS clearing revenues continue to rise in spite of financial reform delays. We believe our leadership in the electronification and clearing of swaps will continue to be a competitive advantage. And we've also shown an ability to compete in new markets that we were not involved in a few years ago.

In our financials futures business, we are developing formerly underleveraged products, such as our foreign exchange futures. Year to date, we've grown our FX futures volume 26% compared to the first 10 months of 2010, which outpaces our peers in both futures and OTC FX markets.

As Scott noted, we've already invested and innovated in technology to ensure we are serving customers efficiently and in a way that grows our business. Therefore, as we continue into a more automated world, we believe our investment levels will remain steady. For example, the cost of implementing a new clearing system at ICE Clear Europe this year has been part of our investment, as has increasing the functionality of our platform to more than double our options volume.

ICE's team of over 300 technologists continues to develop best-in-class systems that contribute to ICE's ability to innovate and to meet our customer requirements.

If you will move to the right-hand side of slide 10, you will see the box labeled business optionality that shows a few opportunities that we believe will enable us to continue to diversify our business into growth markets.

While the primary driver of ICE's earnings is our core business, many of these initiatives capture a significant amount of attention. Our strategic diversification is a driver of our opportunity set and it enables ICE to deliver consistent results. By diversifying into these new areas, we've become more relevant to a larger and more global customer base, without needing to become a large company. We remain nimble in creating our own opportunities, including our move into Brazil's fixed income and energy markets.

The demand for derivatives trading and clearing is rising, and it is coming from a more globally-diverse customer base, which ICE has a very solid start in serving.

Turning to the topic of financial reform, you've seen a little more progress with Dodd-Frank in the United States since we spoke in August. Dozens of rules remain to be adopted, but we have enough information to move ahead with delivering on the key provisions of the law, and we are bringing needed certainty to markets.

With the recent passage of both the position limit and DCO core principle rules, two major policy sets are finalized. In regard to the former, ICE has initiated a position-limit regime on its energy futures and OTC contracts, pursuant to regulatory actions in 2008. With these position limits already in place, ICE established record OTC commissions, as well as record WTI futures volume.

Given this experience, we believe the position-limit approach that was adopted by the CFTC is prudent and it will lead to increased confidence in our markets.

We have a number of assets already deployed that are supporting the market evolution towards increased transparency, including ICE's energy platform and Creditex's electronic credit platform, which will likely become swap execution facilities.

We are actively developing our swaps data repository solution, and we anticipate going live in 2012. In the CDS market, our clearinghouses continue to meet demand for more cleared products, and we've introduced clearing for Latin American sovereign CDS just last week.

We've cleared nearly $25 trillion in gross notional, representing the vast majority of outstanding clearable CDS. And we continue to introduce new products to maintain our leadership, and we've produced record revenue during the third quarter in CDS clearing.

So while regulatory change will continue well into 2012, the daily need to manage price and counterparty risk continues. Regulatory reform increasingly requires that exchanges and clearinghouses are the central venue for markets. Whether these markets are futures or over-the-counter, we've established a leading business model well in advance of these requirements. Financial reform is creating new avenues to serve the markets, and it offers additional opportunities for organic growth and M&A.

I'll close out this slide on the concept of value creation. The focus of our efforts is to deliver for our customers ahead of the curve, and this in turn generates value for shareholders. While pursuing organic growth, we carefully manage expenses and investments.

We've been very disciplined in our approach to M&A, spending over $2 billion in acquisitions since 2007, but during that time, generating over $2 billion in operating cash flow, which is generating 18% returns on that invested capital.

In the third quarter, when the opportunity arose, we repurchased $103 million of ICE stock at prices that we believe do not reflect the fundamental strength of our business. So we remain opportunistic, by striving to ensure that our franchise stays in front of new business, while creating value for shareholders, which includes virtually all of our employees.

Let me close out on slide 11, and show the positive upward trend in open interest and volumes in our markets as it continues.

The strong growth engine of our core business is a solid backdrop for layering on new initiatives that create optionality for us in the long term. As entrepreneurs, we look for opportunities that arise within change, and I continue to believe that this defines our Company.

On behalf of my colleagues, I would like to sincerely thank our customers for their business in the third quarter. I would also like to thank the ICE team for delivering the best quarter in our history.

So I will now ask the operator to conduct the question-and-answer session, and I will ask you, if you could limit yourself to one question and one follow-up. Operator?

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

Good morning, Jeff. Good morning, Scott. Jeff, from my understanding on the margin, on client assets -- in the futures market, that the exchange requires some margin; that the FCM can also require margin on top of that. I guess in your prepared remarks, you said you were in full control of the client margin. Does that include all margin that even MF could have required, above what the exchange level is for the products traded on ICE products?

We are in control of all the margin money that was sent to us, which would be the money that we demanded. And there could potentially be other monies that were demanded by MF in MF's account, and there could also be money that customers left simply on deposit, treating those accounts, as you will, like bank accounts, that would be under MF's control.

So we have what we have requested, and those requests can be out of our -- directly out of our risk model or can be increased amounts, as we see fit, depending upon the clearer and the customer.

Okay. And then my one follow-up would be I believe that you would be the SRO, the self-regulating organization, that monitors. I believe that is the way the structure is set up for these accounts.

Have you found -- CME acknowledged, I guess, there was potential for comingling. And I guess also, can you explain, if this is the case, as customers move assets from MF to another broker, the potential margin that still sits at MF on top of yours, could there be a doubling for a period of time until these assets get freed up through the bankruptcy, could there be a small portion of double margining, and how does that impact your volumes? They claim they were number three on ICE Europe.

So let me break your question down, and I'll answer where I can. First of all, with respect to the SRO, the way the market structure works is that each clearing firm must have an SRO. And because the Chicago Mercantile Exchange acquired the Chicago Board of Trade and NYMEX, it is principally the SRO for almost all clearing firms in the United States.

Our US Exchange, the former New York Board of Trade, would be the SRO for any clearer that was simply a member of our clearinghouse that was not also a member of these other clearinghouses, which I believe is a universe of zero. There may be one or two, but I believe it is zero. So we are not an SRO over MF Global.

So I can't -- even if I knew, I probably wouldn't address your question, but I specifically can't address it because I genuinely don't know. We were not in that role.

With respect to customer monies, we are working with the trustee in the US and the administrator in the UK, and where they permit us, we will either move accounts or liquidate accounts. As we do that, we the clearinghouse are not releasing any monies. So those monies are being held in aggregate against the entire MF position by the clearinghouse.

So if somebody were to move their position to a new FCM, and that FCM gave us that position back, theoretically, I assume that the new FCM may be requiring additional margin. But that is between the client and the clearer. We will be margining that clearer for the new position as it moves.

That helps, Jeff. Unfortunately I couldn't ask about your record revenues and record earnings, but we'll get that next time. Thanks.

I hope you'll write about it. Thank you.

I will.

Howard Chen, Credit Suisse.

Congrats on the quarter and thanks for the color on MF. Jeff, we saw proposals for open-access fungibility and transaction taxes in Europe during the quarter. Given so much is happening in that region right now, everyone is trying to find common ground, I'm just wondering what is your overall level of concern of these proposals potentially being implemented?

I think first of all, I would point out, just as you suggested, that they are proposals. And so these are things that have been floated by various entities and are up for conversation.

I guess my own view, because I am an engineer, and unfortunately think like an engineer, Sir Isaac Newton said in his third law that for every action, there is an equal and opposite reaction. And so we have a proposal right now to create a large vertical monopoly futures exchange in Europe, and the equal reaction has been a proposal to try to dismantle that. And so it is not necessarily surprising.

In terms of where it goes from here, I think it will be subject to a lot of debate and probably heavily influenced by whether or not a large exchange forms up or not. And we won't know that for a bit. We'll be active in that debate. I think it is bad policy, both the tax and the MiFID proposals for clearing. I think it will lead to a flight from Europe of trading, and ultimately more volatility and fractures of markets that really have a lot of unintended consequences.

So we will be discussing that with the appropriate legislators and regulators as those proposals go forward. But I think it is probably premature to prejudge their outcome.

I do take some comfort that we are located in the UK right now, as our European operation in the UK has suggested that they will veto the transaction tax.

And I guess I would also suggest to you that we enjoy operating our business out of the UK because it is a global franchise that people respect UK law and the UK has a convenient time zone. But other than that, there is no natural reason for our business to be in the UK, and it could easily move if there were changes to market structure that were disadvantageous to hedgers and the ultimate users of the market to some other domicile. So it is there as a privilege, I believe to the UK, and not a right. And we will be discussing that with European regulators.

Okay. Thanks, Jeff. And separately, if we drill into the energy OTC side of the franchise, as both you and Scott noted, you continue to see really strong growth in global oil and other products. Just hoping you could give us a bit more flavor for the appetite that you're seeing in the market and maybe how you grade yourselves on the opportunity set you've seen over the last couple years. Thanks.

Thanks, Howard. Look, I think particularly global oil, that business is up 68% year-over-year. It is basically 2.5 times the revenue it was just two years ago. And I think that is really driven by a couple of things.

Number one, it is clearly an indication of the market wanting to get out of the bilateral world and into a cleared world. And number two, what has facilitated that is our ability to launch new products for clearing. I think we are now at somewhere around 600 products available for clearing in OTC. When I started four years ago, that number was around 100, and that is back before we controlled our own clearing.

As I mentioned in my prepared remarks, we've launched over 230 products this year, the vast majority of which are OTC, a great number of which are OTC global oil. So it is really two things. It's the market wants to move into a cleared solution, and now that we've got control of our own clearinghouse, we've done exactly what we said we would, and we've launched the new product that people want to have available for clearing, which has facilitated that.

And then, you know, other product innovations, as we've been able to launch options, as an example, and natural gas, that business, even in a relatively low volatility environment, we've seen solid performance there. Natural gas revenues were up 9% in the quarter.

So I think it is really all about our ability to innovate and launch new products. That is what is really underpinning the strength of the OTC results.

Okay. Thanks, Scott.

Chris Allen, Evercore.

Good morning, guys. Nice quarter. Just wanted to talk a little bit about expenses. You guys had provided guidance in the beginning of the year that adjusted operating expenses were going to be 4% to 6%. Obviously, with the record level of revenues and what looks like a strong start to the fourth quarter, I'm just wondering if you are still comfortable with that guidance, or is there going to be any pressure from noncash comp and bonus accrual or anything like that, anything to think about into the fourth quarter?

As opposed to prior years, where we've had a single quarter where the performance outstripped maybe what our expectations were, we came out of the gate really strong this year. We were strong in the first quarter. We had a strong second quarter. We just set a record in the third quarter. And so we've been able to manage the accruals with a pretty good view that the year was going to be good almost from the very beginning.

So I'm hopeful that the fourth quarter blows away our expectations. I think the trend is, as you saw from the metrics I gave, 1.6 million OTC, 21% futures volume growth, we feel good about October. And I think fourth quarter is going to be another good quarter.

But I think we are fairly well-positioned in terms of where we've got the accruals on our performance -- our performance bonuses, et cetera.

And in terms of overall expense, I think the mid-single digits and the 19% revenue growth in the quarter speaks for itself. Our margins were up 4 points on a year-over-year basis. Our core margins, excluding the brokerage business, are 67%. We are investing in future growth, and we are delivering current growth with relatively modest expense growth.

Sounds good. Not to beat a dead horse on MF, but I guess just to simplify everything, from your perspective related to the ICE clearinghouses, did MF violate any customer Seg rules?

They did not violate any of our rules, and so they were a member in good standing at the point they went into default.

Good. Thanks a lot, guys.

Alex Kramm, UBS.

Good morning. Just one more on MF. Not so much about the clearinghouse, but I think you talked about the clearinghouse percentage before. So if I go back to some of your older Ks, I think you certainly highlight them as one of your biggest customers in some of your businesses.

So maybe you can just give us a little bit of a flavor where they were strong, where they were not so strong. I mean, I think they were big energy and commodities players. I think they also did a lot of energy facilitation. So if you think about the business, what do you think the impact, the timeline is, and how long do you think realistically some of this clearing up of all that's going on, account movement is going to be done? Thanks.

The MF house positions were very, very small. The vast majority of the positions in our clearinghouse were related to their customers. As you know, our markets tend to be made up predominantly by commercial market participants. Look, any disruption is going to cause some amount of impact, but our expectation is, just as you saw in October, our volumes will continue to perform well, based upon the large commercial participation in the market.

So again, we will work through what the details are, but our expectation right now is that it should not have a material impact on the performance of our business.

Good. And then just switching gears for a little bit, obviously, in this whole OTC to exchange clearing migration, you've shown where you pick your battles. But I think more recently, there has been a lot of discussion about not just the clearing side, but also I want to call it like the futurization of business and how businesses are shifting to the futures world.

Can you maybe talk about that a little bit more? I think it is not a new trend, but clearly it is something that people are focused on right now. So do you think that is going to be a big impact for you, and what business perhaps? Or do you still think the clearing side and maybe just a shift to cleared on the energy side is really the bigger opportunity, not so much the futures side? Thank you.

I think as we sit here today, it is hard to know with any specificity, because the rules about what is an OTC swap versus what is a future are still being discussed in the United States. And I think the details in those rules will matter in the answer to your question.

But generally speaking, if you step back, I do think that it will become more complicated than it used to be to trade in the over-the-counter markets. There will likely be these swap data repositories and reporting requirements, and there will be requirements to demonstrate that you are hedged or not hedged and the like. And it may ultimately be easier for contracts that can be highly standardized with standardized tenures to be traded as futures, if they can serve the need that people were getting in the over-the-counter market.

Obviously, there will always be, in my mind, some need for customization. But generally speaking, I think where contracts can be standardized, there will be a trend towards futures. I think we see from others that in the FX market -- well, our own FX futures market and others market that there does seem to be in that case a trend from OTC to futures.

In just elaborating on energy, which is where we sit, we are very -- we have a lot of optionality. We have a great OTC platform. We have an open clearing house in the sense that we accept trades from over 100 different OTC venues now.

And then we have an amazing futures franchise that is quite global and quite standardized, and the benchmarks in there continue to be increased and important. So I think we are sort of set up regardless of how the market goes. And if you were to read our comments in this area, you will see we are relatively agnostic, just trying to help the regulators make informed decisions.

All right. Very good. Thank you.

Matthew Heinz, Stifel Nicolaus.

Good morning. Just like to go back to the OTC energy business quickly. And I guess trying to think about the -- specifically with the global oil -- trying to think about what is the bilateral -- what is the real opportunity out there in terms of the bilateral turnover in similar products and how much and how quickly do you think some of this could move over to your platform?

I have a simplistic view from going back to the starting of ICE, where I came out of the electric power market. And that was the first market that Chuck Vice and I attacked. And then it moved into natural gas, and then we moved into oil. And if you think about that chronology, oil had been the oldest market of those three that had traded. Natural gas, at the time we started ICE, had been trading relatively robustly for maybe almost 10 years. And electric power was just starting in its infancy. So sort of the newer the market, the faster they are willing to adopt newer trading techniques and technologies.

So the oil is the last of those; it seems to just now be starting to think about clearing. For many, many years, you had major oil companies with deep balance sheets and large global banks and asset managers that were trading that, and balance sheet credit was not an issue. We saw after the Lehman collapse that people started to think about their counterparty risk, and it is that trend that is moving people. And I would suggest to you it is all voluntary, not regulated, into clearing.

So it is early days. I'm sure there isn't a lot of people that have long-term -- long-standing, bilateral, big balance sheet, big collateralized OTC relationships that have yet to move positions into clearing, but I think the trend is starting. It's accelerating. And we are helping that trend by now controlling our clearing technology and putting domain knowledge into how to manage risks of complicated OTC oil portfolios.

Okay, that's great. Thank you. And then as my follow-up, you mentioned that you were clearing some more sovereign CDS in ICE Trust -- or formerly ICE Trust and ICE Europe. How much sovereign are you doing on the brokerage side? It seems like you saw some nice growth there; really, I guess, the first quarter of year-over-year growth in quite a while for the brokerage. How much sovereign are you doing, and what are the kind of early -- what is the early feedback you are seeing from the Greek situation?

What we announced is the clearing of Latin American sovs out of our ICE Clear Credit clearinghouse. We have not yet launched the European sovereign clearing yet. We are working through still with regulators on the approval to launch those products.

We don't have a large sovereign desk in our execution business. Obviously, the volatility that has been generated around those sovereigns has been good for volumes and was one of the contributors as you look at the third quarter.

The other thing that really drove the strong performance is with that volatility and with the some of the other economic risks that are out there, what we are seeing is a lot of customers trying to get off risk as much as they can.

And one of the products that we've talked a little bit about in the past, our DNA or Delta Neutral Auctions, which basically allows customers to mitigate risk. We saw a tremendous performance out of that product in the quarter. It is a highly electronic product, and that was really a big contributor to the growth.

So we don't have direct exposure to the sovereigns on the execution side, but the volatility around those sovereigns certainly contribute to the performance of that business and particularly in the electronic offerings like DNA.

And then anything you are hearing just on the sovereign side in general from the Greek situation?

Same thing you read in the paper.

Okay, thanks. Thought I'd try.

Michael Carrier, Deutsche Bank.

Scott, just the tax rate in the quarter was fairly low relative to what you've said on the guidance side. You didn't change the guidance for the year, so just wanted to get some sense -- obviously, depending on where the business is coming from, that's going to have an impact, but any update there?

Look, I hate to go into the accounting weeds, but our tax rate for the first nine months is 32%, which is spot in the range that we've given, the 31% to 34%. However, each quarter I've got to book a rate in the quarter that gets me booked right on the year. So the low rate in the quarter simply is reflective of the math to get me to the right full year -- or the current year rate of 32%.

So I what I would look at is the year-to-date rate, not the quarter rate as indicative. That's in the range of 31% to 34%. I will note that we definitely are trending lower on the tax rate, and that is reflective of the fact that we continue to grow the business outside the US. And in the UK in particular, the authorities in the UK have made the determination that it is good for business to have relatively lower tax rate. And we're seeing the tax rate in the UK come down, and we benefit from that.

So it's almost a perfect storm of more business coming from the UK and tax rates going down in the UK that is driving that. So the range was 31% to 34%. We're sitting at 32% on a year-to-date basis and trending lower. We will give some updated guidance as we move into 2012. But as we see our business continue to grow outside the US and continue to see indications from outside the US that tax rates are likely to stabilize or continue to come down, I think you should expect to continue to see us have a fairly attractive, certainly on a relative basis, tax rate.

Thanks, and then just a follow-up. On the OTC credit side, the sovereign opportunity, obviously that is not going to make or break you, meaning there is a lot of other opportunities and you guys have been gaining traction in other product areas. But the way the Greek situation plays out, and I guess it will ultimately depend upon what ISDA decides, but does it put like a crimp in the whole sovereign CDS opportunity, particularly if the CDS doesn't trigger in a restructuring?

I'm just wondering, like sovereigns may be different than corporates in terms of when you go into a bankruptcy or the actual triggers. And obviously, it is still to be determined, and we will see how this all shakes out over the next months and quarters. But just any thoughts around that and how ISDA will potentially look at that?

I guess I agree with you that it is yet to be determined, and it is obviously, I think, important for a determination to ultimately be made and a collective view of the market as to what it means to own a sovereigns CDS. And I think once the market understands its utility and maybe where it lacks utility, then the product can seek its own trading level.

But -- and it may be that different countries -- that the market has different view of different countries and the way they manage defaults -- or potential defaults. So it may not be just one thing. It may be country by country, the product may have different utility.

So we are going to have to wait and see. Right now, this is a voluntary write-down proposal. And if the market really accepts that it is voluntary, then I think CDS will continue somewhat unabated, frankly.

Okay. Thanks, guys.

Ken Worthington, JPMorgan.

Good morning. I apologize. I missed some of your opening remarks. So if this is repeated, you can just shut me down. In Brent versus Gasoil, we are seeing open interest kind of stagnate on the Gasoil side, when it is accelerating on the Brent side. I assume the customers are the same. There was the reconstitution. Is that still having an impact here or is there something else? And when would you kind of think that Gasoil and Brent fundamentals would start to converge, or what would it take for them to converge again?

Right now, Ken, the fundamental issue is Gasoil, the pricing curve is in backwardation -- I can't even say it. Which fundamentally means there is a negative cost to carry. So you are not seeing people put open interest on it and hold it, because basically the prices are lower out in the future than they are today. That is the fundamental issue.

Volume growth has been in line; I think I said in my prepared remarks Brent grew 41% and Gasoil grew 30%. So the volume growth is continued unabated. The interest in the product has continued unabated. The OI is simply related to the shape of the curve right now.

Okay, great. And then, again, apologize if you mentioned this. But on BRIX, can we get an update on the project there and what kind of progress you are making towards launch?

Sure. This is Chuck. We've launched the trading system for over-the-counter physical trades in Brazil. We launched that several months ago, and that has gone very well. I think there are about 40 or 45 signed participants with -- we are having trades every day there.

And we are kind of now beginning to think about Phase II and how we go about offering, structuring the right kinds of derivatives for trading there to help in risk management in that market, looking at the clearing assets that we have, speaking with Cetip, where we have minority investment there, and really just exploring what the options are to continue to build some infrastructure for that market -- not only power, but some of the other commodities in Brazil.

Okay, great. Thank you very much.

Jillian Miller, BMO Capital Markets.

You guys have said in the past that your energy markets are gaining some new participants from China and the Middle East, as those governments kind of scale back the subsidies they are providing for gasoline, and so hedging becomes more important. Just want to get an update there on how those policies of the governments are progressing, and maybe some commentary on any new firms in the past quarter or two that have been looking to start trading on your markets as a result.

I guess probably the most exciting or interesting new news that we've gotten recently is over the past couple of months, China had said that they are going to allow -- I believe it was 31 of their largest companies to begin to participate in global markets. And I believe the comment was something along the lines of, we are large consumers of commodities, but we don't really participate in the price formation. I think that is a big opportunity.

Clearly, as I think we said on a call maybe three, four calls ago, when Jeff and I were in China last year, we met with Sinopec and talked to them about their trading activities in our market. And we are seeing more and more interest. We actually have a person in China and an office in Singapore who are in constant dialogue with the Chinese companies and instructing them on how to get access to our markets for trading.

So that is probably the biggest news, is that the Chinese government now, as they start to try and deregulate pricing to some extent, they recognize their companies are going to be faced with price volatility, and they are now offering an opportunity for at least a small subset of those companies to go out and manage that risk.

And I think when they look to go and manage that risk, they are going to think about what are their exposures. Brent, which is what their oil is priced. Gasoil, which is an important diesel hedge or hedge tool. Those are the benchmarks globally. Those are going to be the products that attract the Chinese companies, because it will help them manage the risk they've got -- global sugar, global cotton, same thing.

So we are basically letting them know that on our exchange we've got these benchmark contracts. They reflect the risk you are looking to hedge. And we are clearly seeing growing interest from those companies in our markets.

Great. Thanks. And then there is some regulatory changes, I guess, going on in Canada that are going to allow you to list additional contracts. Just wanted to get some insight as to how widely used do you expect the new contracts could be. And then in general, maybe you could give us an update on your strategy for ICE Canada. I don't know if there is like OTC clearing opportunities or maybe some additional new product launches that you are eyeing.

It is an exciting opportunity for us, in that the Canadian Wheat Board used to be the price setter for wheat, and with the proposed legislation to eliminate that, there will be a free market. So we have the canola contract in Canada, as you may know, and many of the same agribusiness firms are active in the wheat market, so they have rallied around us to work with us. And the market has designed a new contract and contract terms and specification, delivery points, et cetera, for a Canadian wheat contract.

We have filed with the regulator to begin to launch that -- to get approval to launch that contract. And so we think we are the natural home for that contract. Our customers think we are the natural home for that contract, and it should be a good opportunity for us.

As a result of that, ICE has a history of as we get customer connectivity, we work with those customers to try to figure out their other hedging needs and launch new contracts that are similar that can give economic offsets and other hedging tools for them. So I would expect that it would spawn additional contracts from us.

Okay, thank you.

Roger Freeman, Barclays Capital.

Just wanted to come back to your OTC business. There have been a bunch of questions on that, sort of trying to size the opportunity. If you look at all of the 600 contracts across the energy space, what percentage of the total OTC market would you say is addressed by equivalent contracts in your clearinghouse?

I don't even know where I would begin to answer that question, Roger. I don't have a view to the full size of the OTC market. We've tried at (technical difficulty) times to size it.

Look, the thing I keep going back to is the global oil two years ago was just under $5 million and around 6% of our total OTC revenues. Every one of our OTC revenue products has grown over the past two years, and yet global oil is now roughly 12% of our total OTC revenues and has doubled in size.

So I don't know how large the opportunity is. There is clearly demand for the clearing solution. We've got one recent example of a fairly large airline who is making a decision to start hedging their risk directly as opposed to -- or at least hedging a portion of their risk directly as opposed to going to a third party to write those hedges for them.

So I can't give you a metric. I'd love to give you a metric, but I can't give you a firm metric, other than what we've seen over the last couple of years and the customer movement that we are seeing move directly into the markets, as opposed to going through third parties for their hedging.

Okay, but assuming -- I mean, you talked to customers as you developed these new products. So I was just trying to get a sense for whether -- obviously, like the airline issue is one where the airlines decide to take on maybe some basis risk from a standardized clear contract versus an OTC, but are willing to do that.

And just wondering how -- are there any big holes at this point in terms of the kind of customization that corporates and other customers look for in these true bilateral arrangements that they [can't] get pretty close to in a clear contract.

I think the thing that exchanges can't list, at least as the market exists right now, are contracts that have lots of optionality in it. Let's just take a hypothetical airline. If you were an airline, you might want an OTC hedge that in the event you added certain routes, you were able to increase its size; in the event that you dropped certain routes, you might drop certain delivery points and so on and so forth.

You might -- in the case of a [Penner], you might have certain contracts, and if you get out of your elongated contracts, you might want the swap to also terminate.

So exchanges that list standard contracts for trading tend to not have all that optionality. I personally think one of the unintended consequences of all this new OTC regulation is that there will be more money to be made by people that can write a lot of optionality into contracts, and I think those will become hard to value, because options are more difficult to value. So I think that just happens to be one of the unintended consequences, is it is creating harder-to-value contracts for those that don't come into clearinghouses or on exchanges.

Okay. All right. Thanks.

Daniel Harris, Goldman Sachs.

Jeff, you mentioned earlier that you thought that a transaction tax was bad policy. And yet, probably for the third time I can remember in the last five years, it was put forth again -- or it will be put forth today.

How much global coordination do you think is out there, maybe in front of the G20 meeting, given that we know that France and Germany want this? There are certainly some sects of the US government that might want this. I'm not sure -- do you feel like there is any global demand for putting a transaction tax out there to raise taxes, or is it just something that is just more noise, do you think?

First of all, I do think that regulators are -- and legislators are being much more coordinated globally than I've seen in my 10-year tenure here in the industry. So I do think -- and I do think that is a positive thing, because we operate global markets. So to the extent that we have consistent regulation, it is helpful for our customers.

I don't know -- we've got some large countries that have very explicitly said they won't support such a tax, and others that have very explicitly said they are demanding such a tax. And so it is hard to know where it all lands. But I do think there is a general appreciation that unless such a tax is widely applied that global products will find a different home in a lower tax environment.

And so I do think that -- in every conversation we've had, there is an acknowledgment that is a real capability. That being said, we have seen that the equities markets tend to be local markets, and there have been local transaction taxes on some equity markets. And those markets haven't left. They have evolved into things like contracts for differences -- OTC markets that try to avoid the tax, et cetera. But nonetheless, they haven't actually left. They've morphed into something that avoids the tax, but stays.

And the bad policy point, too. If you look at -- today, it costs you less than $1.00 to trade a Brent contract. If you take 1/10 of 1% as a tax on that one contract, which is 1000 barrels of oil, it is going to cost you $10. So today, it costs you $1.00 to trade. Tomorrow, it would cost you $10 in taxes on a commodity. The price of the commodity is going to go up to reflect that additional tax.

Right. Couldn't agree with you more. Just wanted to turn back to also something you guys said about the CDS market. You're seeing some signs of stabilization. I'm guessing that is both in the execution side as well as the clearing side, which obviously has continued to grow through more and more people using the clearing.

But what are you really seeing? It looks like the execution side is up off the 4Q '10 lows. Are you seeing more traders engaging that market? You also mentioned electronification was increasing pretty rapidly, certainly over the last two years. So where do you think that could go back to in a market that has more certainty around clearing and regulation around CDS?

I think more clarity on what the rules are going to be for SEFs. I think more clarity around the rules for clearing. I think all of those are predicates to that market recovering.

What you are seeing in the results today, as I mentioned earlier, really is driven largely by risk mitigation strategies, and that is enabled by the products that we offer, like D&A, which allow people to get off of risk. So today, that is what is driving it.

As I look -- despite the fact that we have been in a relatively subdued environment, we are still a number one or number two market share in key index and single-name products that we serve. We are building out capabilities in things like emerging markets.

So as we get the clarity around the rules for trading CDS and the rules for clearing CDS, we feel very good about the position we've got. And we feel very confident that over the longer-term, the CDS is a viable product, it does facilitate the flow of credit into the market, it is a good indicator, and I would argue a better indicator than the ratings agencies or stock prices with regards to the health of a company. So we think it is a way that people in the future will take a view on a company.

So we like our market position, we like the product offerings we've got. We like the position we have at the clearinghouse. And as that market turns, we believe it is a significant opportunity to help contribute to our ability to continue to grow.

Thanks, Scott.

Chris Harris, Wells Fargo.

Just a quick follow-up on the CDS business. Obviously, CME is focused on capturing share here, and they are obviously looking closely at getting share in the buy side. We know that you guys have obviously cornered the dealer market. But just wondering what kind of strategic advantages or structural advantages do you have over CME that will help you win out on the buy side with respect to CDS?

The first advantage is $25 trillion versus a few million -- or billion that they've done. The second is $1.6 trillion of open interests. The third is over 330 CDS products that we clear, which is far away more than anybody else in the industry. The fourth is a very open and robust dialogue with the buy-side customers, where, for example, we are putting together allocation capabilities, which is key to a number of those buy-side firms that will be rolling out shortly, which will facilitate their ability to come in.

It is our risk models and our risk management capabilities, the ability to develop technology to look at the portfolio that our clients have. We're in discussions with regulators right now to try and get them to allow us to deploy the technology we've already built that will look at the portfolio single-name and index product.

So I think it is the full fleet of -- it is our operations, it is our risk management, it is our open interest, it is the number of products we clear. We feel very good about the position that we've got in terms of CDS clearing.

Thanks for that, Scott. And then just a quick follow-up on the health of the overall business. You guys are definitely not seeing it in volumes yet, but just curious how you think a prolonged slowdown in Europe might affect your growth outlook over the next couple of years.

I think the thing you are seeing historically, if you go back and look at the fourth quarter of 2008 and into 2009, we don't -- our business model is very geographically diverse. We are not tied to just the European economy. We are not tied to just the US economy. We are not tied to the deleveraging of financial institutions.

We've got a very strong commercial customer base. We have global commodities, the demand for which is being driven out of the emerging economies. The geographic diversity, the product diversity, all of that has enabled us to grow right through the difficult periods over the last two years and gives us confidence that we will continue to grow into the future.

Niamh Alexander, KBW.

Thanks for taking my questions. If I could touch on the Climate Exchange business, are we still kind of running -- is it neutral this year, or maybe positively accretive? And can you give me an update on that market environment? I think we are moving into an important next phase in Europe.

I would say we are on track to where we had expected to be. We took the synergies, the cost synergies out. It's, frankly, a little bit ahead of pace. In terms of revenues, we got off to a little bit of a soft start this year. But as I mentioned in my remarks, 52% volume in the third quarter, 44% revenues. October was another good month in terms of the emissions.

I would tell you we are kind of right on track with where we expected to be. And then embedded in your question is the key. The next real, if you will, growth wave that we think we are well-positioned for is Phase III. There are new participants in that marketplace -- airlines, as an example -- who haven't participated before, who will begin to be able to participate in 2012.

The certificates -- the emission certificates today, which had been provided for free, will start to be auctioned in the future. We will participate in a part of that; but more importantly, those auctions will generate additional price volatility, which tends to mean more risk, which tends to mean more hedging, which is what people do with the products on our exchange.

So we feel good about where we are now, had a very strong third quarter and a good October in terms of the top line. And with the new participants and the implementation of Phase III in the coming 12 to 18 months, we feel like that is a good growth business for us looking forward.

Fair enough. Thanks, Scott. And if I could, Jeff or Scott, you tend to like to see a lot of outside of -- non-organic acquisition opportunities. You've made the big investment into Brazil. But I thought from your comments there that you're still seeing some acquisitive opportunities. Are the conversations changing? Are the sellers kind of more willing sellers? Are the price expectations different? Do you think maybe you are getting closer to something?

I won't say whether we are getting closer to something, and you know that. But yes, I do think that people are having different price expectations. It is interesting that you picked up on that, because the last few months -- you know, we went through this period, I think, after Dodd-Frank was announced when everybody said we are a big winner here. And now what we've seen is that the implementation of Dodd-Frank and its counterparty, EMIR in Europe, is going to take some time. It's going to be implemented over a long period of time. There is a lot of details, the details matter.

And so I've seen some people realize, okay, a pot of gold didn't land in my lap, and I'm going to have to work to evolve businesses and stay ahead of all this. And it has been sobering for some people.

I do think there will be some opportunities potentially to buy interesting businesses at reasonable prices, accretive prices for us as time goes on. Which, as you know, I suggested I thought would be the case, and I do see it starting to happen now.

Thank you.

Jonathan Casteleyn, Susquehanna.

Just one question for me, on your legacy OTC energy business. I guess what impact does a very abundant supply of US natural gas have on the business? So if your adoption rates of new participants in your markets start to slow, why won't this be an issue for the gas franchise? Thank you.

Jon, I would argue that to the abundance of natural gas and the fact that in the US we are looking at natural gas as a potential alternative to oil is something that is going to drive more interest in that product, drive more people towards using that product, consuming, producing. And all of that will be good for that business on the longer term.

Obviously, in pockets where we see really low prices because of supplies we've seen in the past, that can impact volumes over the short term. But over the longer term, as natural gas is looked to more as a viable alternative to oil, I think that only bodes well for that market.

I would say, Jonathan, one of the interesting things that we look at here in trying to figure out forward-looking budgets is the growth in our data revenues and the growth in people that are requesting screens for view-only. And you can look at that and see that it continues to be robust.

So we have a very powerful set of OTC data that comes from all of these contracts, and all the data points to that we see, and there is increasing demand, it appears for that data set, which would suggest to me that there is more interest in those natural gas markets.

Great. That's very helpful. Thanks very much.

Brian Bedell, ISI Group.

Jeff, if you can just comment on Brent and WTI. I mean, you've gained about 10 percentage points of market share, if you look at Brent as a proportion of Brent and WTI combined, from about 30% to about 40% in the beginning of the year. And with the price convergence coming back in to around $16, do you think that has an impact on how people will view Brent versus WTI? Or do you think more organically, Brent has much more room to go in terms of gaining share of those two?

What's interesting is both Brent and WTI have -- they are physically delivered products, and they have unique delivery issues, both of them do. And they've evolved over time to continue to stay relevant and grow in relevance.

And so what has happened really more obviously for the first time to many in the market over the last couple of quarters is that people see that those are two different grades that have two different specific issues. And as those issues move around, it is good for hedging. They are both important benchmarks. We like having both.

I would say we probably have cannibalized our WTI contract more than our competitors in pushing people to Brent. But that is the natural consequence of the fact that we have an active salesforce and education component, that they are talking to people about using Brent as a hedge and showing them against our own contracts how about would work.

But I think all-in, that is very helpful and positive. I do think these issues will move around. I think they will continue to move around. I think the contracts have disconnected long enough that people will continue to use both now for specific reasons, and not necessarily as substitutes for one another, which used to be the case.

You will see that we've been able to develop an active Brent options market around our Brent. It used to be the only options that traded in oil were options on WTI. Because rent Brent and TI were so highly correlated, when you got to an illiquid options market, people didn't want to split the liquidity, so you were able to hedge Brent with a WTI option.

But today, there is a new option market. It creates new arbitrage opportunities for options market makers to deal in both, and I think that will just continue to grow. We feel good about both contracts.

Great. That's very helpful. And then just for my follow-up, can you elaborate a little bit on cross-sell progress between your energy products and your financial and other commodity products between customer sets? What type of resources are you allocating to that from, I guess, a salesforce perspective, and do you see that improving over the next, say, 12 months or so?

We've got quite a salesforce here now, and it doesn't just span products, but it also spans geography. And then if you think about we really now have a salesforce that is selling a clearing and we have a salesforce that is selling post-trade services, so we go from front to middle to back office.

So we've done a pretty good job. It's a great team and they are real energetic. And people that are on our sales team, if you like working here, you really like working here, and they work together as a giant team.

We've standardized information inside than salesforce for a tremendous amount of information sharing on customers what we learn. So the cross-selling opportunity, I think, has really been helpful.

I would suggest to you, for example, people like to ask me a lot in shareholder meetings about moving the Russell Index to ICE, and what we paid and how it is doing and what its return on investment is, and so on and so forth. But one of the side benefits is that it got us -- that became our first truly retail product, which that sales channel opened up our ability to sell the dollar index, get on some of the independent system vendor screens that deal with retail. And now, we've been pushing other FX products. And we wouldn't have had that sales channel unless we had a flagship product like Russell. So it has been a really great consequence of that, and we see that all over the organization.

And the momentum is improving there?

Definitely, because we've -- maybe to your question -- started to recognize our ability to organize our own sales force better and to cross-pollinate those opportunities through our own management efforts.

Great. Thank you very much.

Patrick O'Shaughnessy, Raymond James.

One interesting slide that one of your competitors in Chicago puts together is to talk about how much of their trading activity takes place during US trading hours versus Asian versus UK hours. Have you guys looked at data similar to that? I'm guessing that given ICE Futures Europe, obviously based in London, it would probably skew a little bit more towards Europe. But can you give us a sense for how global your customer order flow is from that perspective?

First of all, we don't have to guess by guessing hours. We actually have data. And we have the unique ability -- because of the way the ICE trading platform was built as an OTC platform, where we were required by law to know the identity of every customer in the early days of ICE, we have tremendous tracking capability inside our trading engine.

And we also have our own screen, as I mentioned earlier, and so we don't rely solely on third-party screens. So we have a very good sampling across the market of people that are using our screens, so that we can see -- and we track people's IP addresses, frankly, so we can see not just to the country, but exactly to their address, where people are acting from.

So we have about half of our revenues that come from outside the United States, and frankly, we just don't look at hours.

Okay. Appreciate that. And then for my follow-up question, just kind of a more long-term philosophical question. With North Sea production dwindling, the way they calculate Brent basket obviously keeps changing a little bit. At some point, do you run the risk where Brent isn't the relevant global benchmark, just because there is no Brent left? Or how do you see that developing over -- I think, probably the next 10 to 20 years? There's probably not next five to 10 years issue, but further out.

It is interesting, because we call the contract Brent, but actually there is little or maybe no Brent in Brent. Over time -- this trend is not a new trend. This has been a trend for the 25 years or so that the contract has been in existence.

So what has happened is the industry has worked with us and we've moved the location. So we went from Brent to Oseberg to Forties, which are different grades of oil. And we will likely at some point add Ekofisk.

And frankly, what people are delivering would be the cheapest to deliver, which is another way of saying the lowest grade of that complex. And so Brent is becoming less sweet as the sweetest oils go away.

And then also, as we announced, Platts, which is one of the -- there is three or four price assessors -- is changing their assessment criteria to lengthen the number of cargoes -- put more cargoes in the assessment that they do. We've announced that we are going to follow them, follow behind them, and change the way we create our own Brent index, that uses the data that we get from Platts and other assessors.

So it will continue to revolve. I don't -- it doesn't go to zero. It is not peak oil theory kind of contract. The reality is the market wants a grade of crude that is sort of the utopian grade against which all other grades can be benchmarked through delta pricing. And so it will continue -- that contract will continue to evolve, to be the best that is available.

Also, by the way, when we first bought the International Petroleum Exchange of London, there was a lot of discussion whether the North Sea was going to go away. And technology keeps finding new ways of extracting more and more oil, and it is just, with $80 and $100 oil prices, market forces continue to find new oil. So the demise of the actual Brent oil field has been greatly exaggerated over decades.

Great. That's very helpful.

(multiple speakers) I think, frankly, just stepping back, it provides intellectual property and domain knowledge and content that we uniquely have to keep that market organized and keep the customers around us. So in that regard, it is a good thing. It would be very hard for a competitor to replicate what we do in continuing to evolve that contract.

Rob Rutschow, CLSA.

Good morning, everybody. I guess my first question, open interest in Europe and the energy business has been largely a result of growth in options open interest. You spoke to it a bit, but can you kind of talk about what is driving the growth in those options open interest, and also whether or not there is any reason to think that turnover in those would be higher than it is for some of your other options contracts?

I think, as Jeff mentioned a few minutes ago on the options question, there really wasn't a viable Brent option until we launched that product this year. So in the past, where people were potentially wanting to hedge a Brent futures position with an option, they're really -- their only option for any liquid pool was to go to the WTI option. So the reason you're seeing the big buildup in Brent options is because we've launched the product, it has built up a liquidity pool, and it is obviously the most natural hedge to a Brent future, is the Brent option.

I will note, though, that not only are Brent options OI up dramatically -- I think over the last year, it's -- a year ago, it was 10% of what it is today -- but Brent futures OI is also up very significantly. Gasoil, as I mentioned earlier in one of my responses, that OI is flat, but that is largely related to the nature of the price curve, which is currently in backwardation.

And you do have -- there is a substitution effect, that there are people that will hold options positions as synthetic futures and move back and forth, since the option expires into the underlying. But all of that ultimately becomes additive as marketmakers are moving back and forth between options and underlying and the interplay between the two.

Okay. My follow-up is a little bit longer-term question. You talked about this a little bit, but it sounds like you're sort of questioning whether or not OTC market participants will be able to re-create idiosyncratic risk management tools with futures. And so I wanted to see if that is an accurate assessment.

And then if it is not, is there strategic benefit to having a broader product set if you are trying to re-create or address idiosyncratic risk with futures contracts?

That's a good word, by the way. I am going to cannibalize that from you. But the interesting thing is that at least in the US, there are very strict accounting rules that companies use to determine whether or not their risk is hedged. And it is helpful for companies to have very perfect hedges. Which means if you have loans that have prepayment capabilities and the ability to switch from fixed to floating and so on and so forth, you might want to write an interest rate swap that has all that optionality in it, and then it would be very clear that that was a hedge and not held for trading.

So I think there will continue to be a real demand for a lot of optionality that will be uniquely tailored to underlying risk, and that will not make its way on to exchanges.

The people writing those, the dealers and marketmakers that will be on one side of providing the liquidity to the end user on those trades will want to hedge out that risk, and they will break that optionality into small building blocks, I suspect, and put it into liquid markets that we list.

So if you look at our energy business now, the 100s of OTC contracts that we list, those are all the building blocks that a sophisticated marketmaker can use to assemble an energy trade for an end user that has a lot of optionality and hedge it out in our market.

So the two are complementary. And the reason I make that distinction is I don't think that one substitutes for the other. I think they will both grow together. But over time, where we can standardize components of that risk and list them for trading and clearing, there will be a natural growth in that. And where the end user is willing to sacrifice some optionality, they will enter the listed markets directly.

Okay, thank you.

Dan Fannon, Jefferies.

Just one question for me. Jeff, you mentioned the kind of global coordination on the regulatory front. I guess if you think about the differences in the two dynamics that are coming about, are there key issues that you are focused on or concerned about, given how things are progressing at this point?

Yes, it is mostly that the trend -- the overall trend, ignoring the detailed differences between various regulators, is for more clearing of OTC contracts and more transparency in the way the over-the-counter markets trade.

And there will be timing differences, I suspect, on when those get implemented. And while regulators are trying to coordinate all of that, the realities of legislators and lobbyists and people like us that want to have a say in the details will affect the timing of implementation.

So we are pretty focused on making sure that during that period of instability, we can provide a stable environment for our customers, so that there is not some arbitrage that goes on because we've been in the wrong place at the wrong time. That kind of means we really have to be everything to everybody at the same time, and there is tremendous efforts going on here to try to figure out exactly where our customers' needs are going to be, at what time, and make sure that we are there ahead of it and make sure we are educating our customers how they can get to us.

So, for example, I mentioned that we are building out a swaps data repository that we will have available shortly, and well in advance, we believe, of the implementation of the US version of SDRs. And it is that kind of thing that is really the focus of management right now.

Great. Thank you.

I would now like to turn the conference over to management.

Thank you, operator. I would like to, again, thank all of our customers. The third quarter for many of our customers was full of volatility, and we very much appreciate that you turn to us for help in managing your risks.

Again, I would like to thank our employees. There was a lot of work that went on here, including the delivery of our new clearing systems in Europe, that really position us well for handling that customer business. With that, we will see you all next quarter.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.