洲際交易所 (ICE) 2015 Q2 法說會逐字稿

Welcome to the ICE second-quarter 2015 earnings conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Kelly Loeffler. Miss Loeffler, please go ahead.

Good morning. ICE's second-quarter 2015 earnings release and presentation can be found in the Investor section of theice.com. These items will be archived. Our call will be available for replay.

Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2014 Form 10-K. In addition to GAAP results, we also refer to certain Non-GAAP measures, including adjusted income, adjusted operating margin, adjusted expenses, adjusted EPS, adjusted EBITDA and adjusted tax rate.

We believe our Non-GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP term in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures. When used on this call, net revenue refers to revenue net of transaction-based expenses. Adjusted net income refers to adjusted net income from continuing operations. Adjusted earnings refers to adjusted diluted continuing operations earnings per share.

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

Thank you, Kelly. Good morning, everyone. Thank you for joining us. I'll begin on slide 4 by highlighting our strong performance in the first half of 2015. We grew adjusted earnings 27% year to year on 6% revenue growth, with commodities, cash equities, data services and listings, all contributing top-line growth. Adjusted expenses declined 6%. Adjusted margins expanded 6 points. The revenue growth and margin expansion generated operating cash flow of $770 million in the first half, which enabled us to deploy around $300 million in capital expenditures and business investments like Amex and OCC, while returning $560 million to investors.

Now please turn to slide 5, where we detail our second quarter financial results. Adjusted earnings per share rose 27% from the prior year to $2.90. Net revenues grew 6% year-over-year to $797 million. This includes record revenues for data services and for NYSE listing and strong growth in commodities revenues. Adjusted operating expenses declined 8% from the prior second quarter. Adjusted operating margin reached 59%. Our adjusted tax rate of 28% was at the lower end of our range in the quarter, due to a number of discrete items. For the second half of the year, we expect our tax rate to be closer to the middle of the 28% to 31% range.

Let's move on to slide 6 and I'll discuss the drivers of our 6% revenue growth. Transaction revenue accounted for 56% of net revenue during the second quarter. Our net transaction and clearing revenues declined 3% year to year, due primarily to continued interest rate volume weakness in Europe. Commodities revenue increased 8% year to year on strength in our oil, natural gas and ag markets. Revenues also grew in our FX and cash equities markets.

Non-transaction revenue grew 20% and represented 44% of net revenues. This included data services revenues, which were up 29% to a record $191 million, driven by the addition of new users and product offerings. NYSE listings revenues grew 12% year to year to a record $101 million reflecting the NYSE's continue global leadership in IPOs and capital raising.

Next on slide 7, I'll detail the revenue performance across our futures exchanges for the second quarter. Despite muted activity in interest rate markets, revenues from futures and options declined just 2% from the prior second quarter. Energy and ag volume and revenue growth was solid, including global oil and sugar revenues, which increased 11% and 20% respectively versus the prior year.

Total open interest across all of our exchanges has increased 3% from the beginning of 2015. Notably, volatility in European short-term interest rates picked up during the month of July, with daily volume in our rates complex up 17% over the prior July, contributing to overall derivatives volumes, which were up 1%. Total volumes in July actually grew 7% when you exclude European single stock equities volumes.

The revenue associated with that trading activity is capped and thus there is very little correlation between volumes and revenue. To ensure our volumetrics better align with transaction revenues, we will exclude single stock equities volumes from our volume and RPC metrics beginning in August. We will provide updated historical information on that same basis on our website.

Turning to slide 8, I'll expand on the performance of our energy markets. During the quarter, global oil revenue increased 11% including Brent and other oil revenues up 11% and 15% respectively. ICE Brent, along with hundreds of related oil products, remains the global benchmark relied upon by producers and consumers. Revenues also grew in gas oil and WTI as did volume and open interest. From the beginning of the year through the end of June, open interest in our global oil complex is up 8%. Our natural gas markets also performed well in the second quarter, benefiting from increased volatility resulting in revenue and volume growth of 7% year-over-year.

Moving along to slide 9, I'll provide an update on revenues from our swaps markets. Total credit derivative's revenues for the quarter were $34 million, including $22 million in CDS clearing revenues. The sequential decline in clearing revenues was primarily due to the $3 million accounting adjustment that we noted in our first-quarter results. For the full year 2015, we expect clearing revenues to increase from the prior year and to exceed $100 million as we continue to add more products and see increased interest from buyside clients.

Growth in European buyside participation continued in the quarter and accounted for 34% of the gross notional cleared in the first half at ICE Clear Credit, our US swaps clearinghouse. CDS clearing activity in the US remains robust, due to our comprehensive product offering, portfolio margining and the relative regulatory certainty in the US.

Please turn to slide 10. The New York Stock Exchange continues to grow revenue and gain share reaching 24.4% share of the US cash equities market in the second quarter, up from 22.7% in the prior second quarter. We have improved revenue capture and grown revenue consistently since completing the acquisition in 2013 by focusing on the needs of our customers and simplifying markets.

Share in our equity options market was stable versus the first quarter. After purchasing the remaining 16% stake in the Amex business at the end of June, we saw share increase in July. Importantly, we will retain 100% of the profit from the Amex options business starting in the third quarter. So in our equity options business, share is stable to improving. The profit contribution from the business is increasing.

We continue to focus on the evolution of our options markets as we shift from a mutualized structure to one that is focused on innovating across the NYSE Amex and Arca Options markets. We've historically focused on aggregate expense management and revenue performance by business line. That notwithstanding, I want to eliminate any misperception about the significant profit contribution we are realizing from the New York Stock Exchange.

The combination of improved share and stable revenue capture in cash equities, continued listings leadership, diverse data offerings, the elimination of corporate redundancies and significant operational improvements, increased NYSE's adjusted operating margin above 50% in the second quarter of 2015. That's a nearly twofold increase versus 2012. As we continue to serve our customers, implement technology improvements and streamline NYSE's operations, we expect the profit contribution from the NYSE business to continue to increase as margins expand.

Moving on to slide 11, as I just mentioned, we continue to extend our global leadership in listings in the second quarter and the first half of 2015. Listings revenue grew 12% over the prior second quarter to $101 million. We also led in global proceeds, raising $95 billion in 264 transactions during the first half of the year. We have a robust IPO pipeline for the second half. We are investing in our team and resources to support our listed companies.

Slide 12 reflects the continued strength of our data services business. For the quarter, data services revenues were a record $191 million, up 29% over the prior second quarter. This was primarily driven by the addition of new data products and growth in our customer base couple with the addition of super derivatives and the emergence of ICE benchmark administration.

Turning to slide 13, I'll move from a focus on revenues to a discussion of our second quarter expenses. As you can see, adjusted expenses declined 8% year-over-year to $328 million. Expenses were better than guidance, primarily due to accelerated synergies, coupled with reduced non-cash compensation expenses related to a large number of resource reductions during the quarter and a large recovery in technology expenses.

Compensation, professional services and SG&A expenses continue to decline as we integrate our businesses, eliminate overlapping roles and reduce contractor levels. Technology and D&A expenses increased from the prior second quarter, due to investment to improve our NYSE technology platform to enhance our listed customer offerings and to enable our ongoing integration and the consolidation of our global real estate footprint.

This continued focus on strong expense management enabled adjusted operating margins to expand to 59% in the second quarter, a 6 point improvement versus the prior year. We expect expenses in the third and fourth quarters to be in the range of $330 million to $335 million, which means our full-year expense should be at or slightly below the low end of our prior guidance and approximately 4% lower than in 2014.

If you'll move to slide 14, I'll quickly cover our cash flow and capital structure. In the first half of 2015, we generated $770 million in operating cash flow. At June 30, we had $700 million in unrestricted cash and short-term investments, including just under $200 million in additional regulatory capital that will be required when ICE Clear Europe receives EMIR authorization. On June 30, we paid off our $1 billion 2015 euro notes. Our total debt now stands at $3.3 billion. Our adjusted debt to EBITDA is 1.6 times.

I'll conclude my remarks on slide 15, with an update on our uses of capital. As you can see, we have used all of our operating cash for capital return, opportunistic M&A and capital expenditures. In the second quarter, we returned nearly $290 million to our shareholders. We repurchased $203 million of shares during the second quarter and continue to opportunistically buy back our shares. We also paid $85 million in dividends, representing a 15% increase and demonstrating our commitment to grow dividends as we grow. We expect to maintain around $500 million in unrestricted cash and equivalents and a leveraged ratio around 1.5 times.

We otherwise expect to use 100% of cash flow to return capital to shareholders and to deploy towards growth investments that meet or exceed our return expectations. Importantly, our strong balance sheet and cash generation coupled with our access to debt markets should enable us to return significant amounts of capital without limiting in any material way our ability to act opportunistically when we identify growth opportunities.

Our strong first-half performance reflects the execution of our financial and strategic objectives. Revenues grew 6%. Adjusted earnings grew 27%, even as we integrated multiple acquisitions, invested in growth initiatives and returned $560 million to shareholders. Importantly, we have established solid momentum that will carry through the remainder of this year and into 2016. I'll be happy to answer any questions during Q&A. I'll now hand the call over to Jeff.

Thank you, Scott. Good morning. Our 27% earnings growth in the quarter was driven by strength across our Company. Our record first-half revenue and record first-half earnings are consistent with our objective of delivering strong top and bottom-line growth. We delivered growth in our energy, agriculture and equities markets, as well as in market data and in listings.

We're integrating our acquired companies and advancing numerous technologies and strategic initiatives to address our customers needs. Our team is adept at managing change, consistently evolving and growing our business since its inception. We've moved from an electronic trade execution venue for over-the-counter markets to become a global network of exchanges and more recently pursuing clearing, data services and expanding our listings franchise.

We're striking a balance between high-value recurring revenues and more commoditized volumetric revenues. Our progress in quickly reshaping historically low margin businesses to increase margins through improvements is evident in the NYSE and Liffe operations. Significant cost efficiencies remain in our sites. As our revenues continue to rise, they should amplify our earnings growth in the coming years.

We've also positioned ICE alongside long-term secular trends coupled with improving cyclical dynamics. I'll walk through some of these starting on slide 16. Demand continues to rise for our products and services due to the globalization of markets and the increasing need for risk management. The significance of data services in clearing is rising with the additional collateral, treasury, benchmark and valuation services that we are developing. As such, much of the value we add today cannot be measured through trading volume.

This is evident in the chart on slide 16, where trading volume trends have become a less reliable indicator of our earnings growth. Over the last four quarters, while trading volumes have declined on a year-over-year basis, our earnings per share has consistently grown at a strong double-digit rate. Our continued top-line revenue growth, including revenues up 6% in the first half of this year, is driven by our anticipation of changing customer needs.

At the same time, we compete in our trading volume based businesses from a position of strength, owning globally relevant benchmark contracts, integrated with risk management and data services. We differentiated our approach by locating in the major market centers where our customers operate. As we reach for global growth, we plan to launch our Singapore-based exchange and clearinghouse in the fourth quarter. We built ICE Trade Vault data repositories in the US, Canada, Europe to serve unique reporting requirements.

We believe that our geographic diversity is increasingly important, as regulation and capital requirements continue to diverge across these jurisdictions. In response to customer requirements for products that are more capital efficient, we've launched our Eris products, which replicate the economics available in swaps within a futures contract, while we are also taking a leading role in meeting the demand for swaps clearing in the US and Europe.

As you saw during July, our leading European interest rate franchise demonstrated that when volatility returned during the month, trading volumes responded with a 17% increase year to year driven by Euribor and sterling. We are very well-positioned across our global financial products franchise including our MSCI index volumes, which are more than 30% and foreign exchange volumes up more than 100% year to date through July. In our equities markets, we're focused on innovating and growing the NYSE.

We're introducing new technology, reducing market complexities and promoting liquidity by developing a midday auction. As the global leader in capital raising, we're focused on all aspects of our listings business. We continue to lead in IPOs across virtually all segments including technology, REITs and ETFs. This is due to the clear advantages that we offer from our strong visibility, issuer advocacy and our unique market model, which improves the ability of our listed the companies to issue new equity or buyback their shares.

Turning to slide 17, I'll highlight how our diverse global markets continue to provide near-term and long-term growth. Recently, we've seen growth in our European rates and US natural gas trading volumes demonstrating how quickly volatility can return to markets. Longer-term, as Western economies continue to move towards natural gas, we're very well-positioned with over 100 listed natural gas contracts including key natural grass benchmarks across the US, Canada, the UK and Continental Europe.

In our global oil complex, we continue to benefit from price volatility and the demand for energy price hedging that is coming out of Asia through ICE Futures Europe. With nearly two decades of record annual volumes in the ICE Brent contract, there continue to be many drivers of its long-term volume growth. These include price volatility, changing supply and demand expectations, regulation, the adoption of Brent as a global oil benchmark, geopolitics and the shifts in hedging strategies.

Turning to what's next, I mentioned earlier that we have a number of technology initiatives that are underway. For example, immediately after closing on the NYSE transaction, we began investing to reduce the complexity of the exchanges five trading platforms into one modern system. We plan to begin broad industry testing of our new NYSE pillar platform over the next couple of months.

I'll now turn to ICE benchmark administration and the important role that we are planning to rebuild confidence in the benchmark setting process. We've been working closely with the industry and regulators since beginning our work on LIBOR and have deployed improved governments, transparency, systems and oversight, that's required for this new era. With over $350 trillion in gross notional value that is tied to LIBOR, ICE benchmark administration is applying significant resources to reform the rate setting process.

Through a market consultation that was announced last week, we're reviewing each aspects of LIBOR's methodology and calculation, including more transaction data included in the process. We've received very strong feedback from the 22 banks that are now submitting rates as part of our process. In addition, the new gold price auction has proceeded very well with record volume since its launch this year and with the number of direct participants expanding from 4 to 10 in the recent months.

In our data services business, we're working on building out our safety network, which is an increasingly valuable piece of market infrastructure that we acquired with the NYSE. As secure connectivity becomes increasingly vital to market participants, we've seen strong interest in access to our network.

I'll conclude on slide 18, which is the same slide on which Scott opened his remarks, in order to emphasize that we are delivering consistent growth by executing on our strategic plan. We're off to a great start in 2015, with record first-half revenues, record operating income and record earnings.

We've transitioned from generating revenues that were approximately 90% transaction-based related to one asset class to an approximate 60% transaction-based revenue business that is now levered to multiple asset classes, multiple geographies and multiple growth drivers. This is why we are confident in our strategy. We have uniquely delivered growth each year through all phases of the business cycle.

Our margins are rising. Earnings growth is consistently strong. We're delivering the best revenue and earnings performance in our history. As we move into the back half and the coming year, we've identified significant opportunities across revenues and expenses that are yet to be realized to ensure that our strong track record continues. So on behalf of the ICE team, I want to thank our customers for trusting us with their business in this excellent quarter for us.

I'll now ask Keith, our operator, to open up the call for a question-and-answer session.

(Operator Instructions)

Mike Carrier, BofA Merrill Lynch.

Maybe just an update on some of the regulatory items that are going on in the industry? Most importantly, probably equivalents and then just some of the Emir points. You mentioned with Singapore launching, that you're going to have the clearinghouses and the exchanges globally. So just wanted to get an update on your thoughts on where the potential concentration or where the markets will be going (inaudible) these regulations turn out.

Sure. Why don't -- I'll move geographically across the globe. So starting with the US, we've been participating in a number of panels and hearings and conversations that have been going on with the CFTC regarding the potential implementation of position limits and how those should go in to markets. Particularly, we're concerned about how the commodity markets operate. I think you're aware that we've built our business around the commercial users of hedging tools and commodities. We are trying to make sure that those kinds of reliable and diligent people have access to markets so that they could use them to hedge and continue to manage risk in their businesses.

I feel like that constituency is much more engaged now in this conversation. Our regulators are listening and trying to find their way through that. So honestly, we feel like there's a very good healthy dialogue going on in the United States. We feel like as a Company, we've positioned ourselves with the right group of customers to continue to grow as we have been through all phases of increased regulation in the United States.

In Europe, you mentioned the equivalents conversation; we're deeply involved in the conversations on both sides of that. Publicly, the regulators have stated that they're moving closer to a deal. It looks like to us, from basically everything we see, that they're working in earnest that a deal is within sight. We think that they've done a very good job of gathering a lot of data, so that the policies that they implement will be data-driven, which has been important for us.

We've participated in providing data and running analytics and scenarios so that people can be educated. So we feel good about the direction of that and have no reason to believe that they won't come to a deal as both sides have suggested that they're moving towards. Based on our conversations, it looks like the areas that they're negotiating over would be helpful for the markets and that it will continue to allow for strong risk management, but won't necessarily impede or significantly change the way people do business.

Moving to Asia, we are anxious to launch our Singapore exchange and clearinghouse. We've done all the work that we've needed to do, put the staff in place, the systems in place and are basically ready to go but we really benefit as a Company from being a global network, a global distribution. Our goal is to bring a lot of non-traditional global players to Singapore to do business. So it's taken our customers longer to get set up than we anticipated.

We don't want to launch the exchange until major customers can have access. We think the best -- it was in our best interest to slow down and give our customers a chance to catch up to us. So we are now planning that in the fourth quarter of this year, we think there will be significant mind share there around the exchange that will allow us to have a successful launch.

So that's kind of the lay of the land. It's all a work in progress. But broadly speaking, a lot of really good, healthy dialogue going on across the world as regulators are struggling to implement a lot of new rule changes, but do it in a way that's consistent globally and also that doesn't impede people that are trying to use the markets in healthy ways.

Okay. That's helpful. Then, Scott, you gave an update on the second half on expenses. They continue to be well-managed. But I just wanted to get an update on 2016, 2017, just on the synergy timeline. If anything's changed? Or more or less in line with what you've said in the past?

No, I think, Mike, we continue to make very good progress on the projects that made up that $550 million of synergies. As I mentioned, the performance in the quarter really reflects an acceleration of those synergies and the efforts around it. So I feel good about the projects we've identified. I feel good about the progress that we're making. We continue to be very focused, not just on the synergies, but on expense management generally.

Okay. Thanks a lot.

Ken Hill, Barclays.

I just wanted to follow-up there last on the Singapore exchange. I know the timeline has been a little bit more drawn up than you guys initially expected. But you had mentioned the fourth quarter launch here as the customers get onboard. I was hoping you could remind us as to what your initial goals are? As we turn into 2016, what we should be looking for there with the Singapore exchange?

Really as managers, our hope is that we have a successful launch. We have a handful of products that we have talked to a lot of customers about in Asia that they want to trade. We want to have a successful launch of the exchange, get people used to using the exchange and clearinghouse, get the connectivity around it. Be able then to plug that into our global distribution network. The goal is to just have this nice successful launch because we have the intention of launching a lot of new products.

There's a lot of demands coming from our Asian customers for new products in the region. So what you see us doing is trying to find a couple of products that we think will have appeal, that the appeal will be broad enough that it will bring global distribution to Asia. But the real intent there is not that any one of those things is necessarily a home run it's -- we want to have a solid start to the business because we do intend to continue to invest in there. There really does seem to be strong demand for trading in the region.

Okay. Just a follow-up on CDS business. I know you guys on the slide deck have the target there for clearing revenues above $100 million. Versus where we were in 2Q, I know you had some one-off adjustments, can you give us some color on what you're hearing from clients that gives you a little bit more confidence on that greater than $100 million number?

Yes, that's a really good question, Ken. Really, our willingness to commit that we will be over $100 million for the year is based on customer feedback. We're seeing a lot of positive momentum now with buyside customers, in particular, and single names and importantly, in advance of any mandate. We've got mandates from the CFTC on indexes, but we don't have mandates in single name. That notwithstanding, we are seeing growth in interest because I think there is a view that for the market to really succeed, clearing is an important element of that.

So you've seen a couple of buyside firms that have written about that. We have the most comprehensive offering of single name products. The most comprehensive offering of sovereign names. Have talked about our intention during the second half to launch the UK, France and Germany sovereign names. So I'm encouraged by the product launches that we have in front of us, the buyside customer feedback that we're getting and just the nature of the business that we've built, which I think provides, not only a foundation for us to do well the rest of this year, but to continue to grow out into 2016 and 2017.

Great. Thanks. That's helpful color.

Rich Repetto, Sandler O'Neill.

Congrats on the strong quarter here. My first question is on the market data. Jeff, you spent a fair amount of time emphasizing on calls and this demand for more data by the customers and what you're doing -- that it isn't just price increases but it's content increases too. Can you get into more color on what exactly you are providing the value here? Then Scott, you said it was going to be -- I think guidance say flat. It grew by $4 million. So where can it go for the next couple quarters?

Sure. I think the trend that we see and that we saw and have moved towards is this demand for more and more data. We all know -- all of us that follow this industry saw the emergence of algorithmic traders that were consuming a lot of data and then figuring out very quickly how to place trades. Well that kind of an analytics is now making its way onto desktops and into buyside firms.

People now are increasingly have the capability to handle a lot of data and to analyze it in to finding trends or other opportunities or to use it for risk management in hedging activities in this data set. One of the things that has the nice luxuries of the Company that we've built is that we've now moved into multiple asset classes, as you've seen, including over-the-counter products, listed commodities and listed derivatives and now equities and equity options. We've done that globally.

So we have quite a package of data and are able to put things together in interesting ways to help serve the needs of our customers. So when we were a small Company, our data wasn't as rich. Honestly, we didn't have as deep of appreciation as how data was going to be consumed as we do today. So what you've seen us do is put Lynn Martin now in charge of a new data operation to organize across all of our businesses, to gather data. It's paying dividends.

Scott mentioned in his prepared remarks that revenues were up 20% in that area. 20% across our fixed businesses and 29% in data, which is an interesting place for us to position the Company. It's why Scott and I both mentioned it in our prepared remarks. We think we're just scratching the surface. We just are integrating these businesses. We've just put Lynn as an executive to oversee the integration. So we have strong appetite, we think, to continue to grow these businesses.

I won $10, Rich, that you called me out on guidance being a little off. The point I'd make, it's an expensive business that Lynn is running. It's traditional data services that ICE has had, where we sold data in the back offices that allow them to mark their books. The safety business at NYSE that Jeff talked about in his prepared remarks, where people want to get connectivity into our exchange. It's direct connect into ICE's exchanges. So there are a number of pieces that move around. The overall visibility is good, not perfect. My expectation is the data services revenues are going to grow strongly every single quarter.

Sequentially, I still think a relatively accurate projection for the year is that the 3Q and 4Q look like 2Q. Could it be a couple million dollars higher in some of those quarters based on more connections or greater data sales or continued customer growth or super derivatives (inaudible)? It could be. I think that's the conservative assumption. I think the more important point versus what we think about the third quarter or the fourth quarter is, what do we think long-term? This is a growth business for us. It's a significant growth opportunity for us as you move into 2016 and then out into 2017.

Got it. I'll rebate you that $10, Scott. (laughter) My follow-up question, Jeff, would be every quarter -- you positioned the Company as a growth Company and it has been. I guess it has to do with the NYSE. You've talked a lot about the improving margins of 50% and the growth. Now you're 100% in the Amex contribution. I'd love to understand what that is.

But I guess the bigger question though is, once the synergies are done and looking at the Company to keep -- if revenue was -- wanted revenue to grow mid-single digits, can you still grow when you don't have the synergies? Then looking at the NYSE, again, I would assume a lot of the growth is from cost savings. I know you've done well with market share, but the point being, you may not be getting the value for that either. So again the question about growth after the synergies are done at the NYSE and the valuation there?

You're right in that we've taken a lot of costs out of the business. We've been able to do that because we're a larger organization that can lever off of other businesses. There's more to go there. We still haven't put our technology in place. We're making large investments in the way we oversee our markets and compliance and other tools that we think will really make us a better compliance organization and more efficient.

So there's still a lot to go there on the expense side, but we've really been growing revenues. This idea that we had in simplifying markets -- we now want to simplify technology. We are really -- have a new team in place that's really pursuing a lot of listings and the top line is growing. We think the trends are in our favor. We are going to put a midday auction in. The FCC has worked with us on a tick pilot that's going to go into place; it's going to test various market models around the listed business. We see potential upside in all of that.

The other thing that happens, Rich, is that what the exhaust of the NYSE is a pretty rich data set. That data set is something along with the safety network that we inherited with that is something that we've now been exploiting to add to it and enrich it with other data. So we think that we will be able to grow the top line of that business when you look at it collectively for years to come.

I guess the point is, you think you could grow earnings post synergies?

Yes. Absolutely. We don't see right now any limitations. The levers that we are pulling seem to be working. The trends really -- all things being equal, we really believe markets -- that buyers are looking for sellers and sellers are looking for buyers and that markets don't want to be fragmented. The fragmentation comes when there's payment for order flow where intermediaries are incented to do something on their personal behalf and less so on their customer behalf, where algorithmic traders benefit from the fragmentation.

Where corporate traders may not have balance sheet attached to their -- the use of the corporate balance sheet attached to their pay, so they are looking for economic incentives and will actually trade slightly off market in order to lower execution costs, if you will, that they get paid against. So you have a lot of disincentives in the markets that have caused a lot of fragmentation.

As there's more regulation, as there's more focus on the bottom line, as people are really having a very healthy debate about the fiduciary responsibility of exchanges and brokers and intermediaries, those trends are allowing what the natural market wants, which is for buyers to find sellers and for these things to come back to more organized listed venues. We've seen that trend. I'd like to say that everything we are doing has caused it, but it that is not the case. There's a macro trend in place that we're moving the business into.

Understood. Thanks. Very helpful, Jeff. Thank you.

Dan Fannon, Jefferies.

One more question on market data. You talked about growth in new users. I was wondering if there's any kind of stats or color you can put around where they're coming from geographically or anything to be a little more helpful there?

Not a lot that we put out publicly on that, but what I can tell you is similar to what I said in the first quarter. We saw a lot of growth in the energy space in particular and more narrowly interest in oil markets, which is not surprising if you look at what's happening. There's a lot of growth in the world in oil, a lot of new sources of oil, a lot of discussion around the oil markets. So that's an area where we've seen a significant growth in the number of customers.

The other thing I mentioned earlier is it's not just an interest in the data, but we are seeing more customers grow -- I forget what the number was but I think we were up something like 30% in terms of people who are buying access to our exchanges. So it's growth in data consumption in energy. It's growth in connectivity in energy. Then as Jeff alluded to, there is a lot of valuable information at the New York Stock Exchange as well. We continue to see more customers who are interested in consuming that data. So it's across the business.

Great. Then just on M&A and your outlook today versus other periods, how much time you guys are thinking -- or spending on potential acquisitions? How you would characterize the environment today for potential activity?

There's definitely a lot of opportunities available for M&A in the market. We see it -- similarly there's a lot of private equity firms that are coming to be listed on the New York Stock Exchange. Some of those companies are not really ready for listing. Those private equity firms have been looking to sell them privately. So we see activity on both sides. Nothing has changed for us. We are driven by return on invested capital metrics and whether -- where we can place our money so that it has the highest return for shareholders.

That's part of that graph that we have shown which is, we like to buy businesses where we -- not to own them, but where we think we can transform them because of the unique nature of the network we've put together. So they become high-value, high return on invested capital businesses for us. So we'll always look at things like that.

But we weigh them against the other opportunities we have and the way we can return capital to shareholders or reinvest in organic growth. I would say nothing has changed other than it does seem like there's a lot of private equity-based companies around that are looking for new owners both in the public and private markets.

Just extending that point, in the first slide in the appendix, we do put out each quarter what our return on invested capital is. As I said I thought we'd be by the end of the year, where now back at 8%. It's above of our cost of capital. So just to build on Jeff's point, we do focus on return on invested capital as we think about investment, as we think about synergies in the businesses we buy and the integration plans for those acquisition. I think that's an important milestone. The ROIC for our Company remains above that of our closer competitors and more importantly, it's back above cost of capital, which means every day we come to work we're creating value for shareholders.

Great. Thank you.

Alex Kramm, UBS.

Just wanted to ask quickly about -- I don't think you mentioned it, the Russell/FTSE agreement that CME just struck? Maybe also give a little bit of history there? I remember you taking this over. You were very excited. I think you paid a pretty big price for it, to get that over and it never took off. So maybe just, what happened? Why did it never become a big area for you? Why did you not get more competitive in keeping this contract? What's the profitability or impact when that -- if going to CME in the future?

Sure. So let me answer the second part first which is, the move away from us is immaterial to us. The reason that happened is really the first part of your question which is, what we found in marketing the Russell complex was that the natural hedging user, which is always our target customer, is a large institutional buyside or small or medium institutional buyside that has a mid cap or small cap US portfolio that wants to hedge that.

What we found is very strong competition from our competitor, who was marketing to that same asset base, the use of the S&P 500 as a hedging instrument. The Russell indices and the S&P 500 have become very highly correlated. So there was very robust competition. The deal we struck had the cost of that marketing borne by us. Over time, we had been putting in more and more market making programs and other incentives to try to attract liquidity that was lowering our rate per contract and lowering the take that ICE got out of that deal.

So, it is now moving to that competitor. It's going into a vertical. It's going to be exclusive. Basically, the market's going to be carved up by the index providers and their distributor on those economics. We understand why they would want to do that. It's not material -- the loss is not material to us. The thing we find incongruous however is claims that somehow that is pro competition or somehow this is open access, when in reality it's exactly the opposite.

It's a market carve up putting all those in one place and have the economics split between people. A similar thing has happened with respect to the equity side of the Russell business, which has moved exclusively recently to CBOE. Again CBOE being a person -- an equity options exchange that puts out unique content, has been very successful in its unique content and a decision made to put all that together in a vertical and carve up the economics.

All right. Great. Then maybe secondly, for Scott, I guess. Capital returns have come up a few times already. But if I just look at your buybacks here, around $200 million per quarter over the last three quarters. Absent any other things, I think, is that a good range to think about for now? Then in general, how do you feel about, again absent any sort of M&A, adding more leverage to the balance sheet? Any recent discussions with the ratings agencies? I know you're just getting to know them still, but how do you feel about leverage in general?

As I mentioned in my prepared remarks, our leverage target is still 1.5 times. I think that's where we'll need to be around that in order to maintain the current rating we have, which is important to us as clearinghouse operators. I also mentioned that we will maintain about a $500 million cash balance. After that, it's our intention, as I said in my prepared remarks, is to continue to return cash to shareholders. As we have been doing. If you look at, I think, it was slide 15 in the deck, we've already returned almost $600 million this year and that's versus around $900 million for the full year last year.

We have, as you mentioned, been very consistent in buying back our shares because clearly it expresses the view that we think that is the best investment and the best use of our capital. We've grown our dividend. So I think what you should continue to expect is other than CapEx and to the extent we find M&A that generates high return on invested capital, we're going to continue to deploy our cash strongly towards share repurchases and dividends.

All right. Very good. Thank you.

Brian Bedell, Deutsche Bank.

Scott, maybe if you could tell us a little bit more about the expense outlook trajectory as we move into the fourth quarter? I think you had said last quarter that expenses could trend -- that trajectory could trend down into the fourth quarter. Then as we move into the first quarter of 2016 -- I think, a couple quarters ago, you gave guidance on the expense interview realization road map and obviously I think you're tracking ahead of that. So just maybe an update on the $450 million of annualized expense synergies that you thought you'd be at on a run rate basis in 1Q 2016? If you think you might be ahead of that? What is that number as of 2Q as of this quarter?

I think what's really important is to focus on our overall expense trajectory and the margin expansion that you're seeing. We're three years removed almost from announcing the deal, almost two years removed from closing the deal. In the intervening period of time, we've bought four new businesses. We've invested in growing organically our internal businesses. So we're really very focused on our overall expense trajectory. Inside that, we are well on track towards our synergy objectives.

As I said in the quarter, you mentioned that it was going to decelerate over the course of the year. But synergies actually accelerated into the second quarter. So if you look at the guidance relatively, we are now at or likely slightly below our full-year guidance. If you had taken the midpoint of our original guidance, it was down 3%. We are now down 4%. That's against the backdrop of growing revenues.

The other thing I think that's important is we just don't manage expenses through synergies. We manage expenses across all of our businesses. So as we move forward, we're going to be really focused on what is the next trajectory of our overall expenses. We expect those expenses to continue to improve, which will allow margins to continue to expand. I think the real visibility to our progress is going to be found in the margin expansion, which as I mentioned, in the quarter 6 points up year-to-year to 59%, right on track frankly to where we thought we'd be a couple of years ago.

I know, it sounds like that trajectory would have you at a lower overall expense rate as we get into the fourth quarter. Particularly given the projects that you're working on for NYSE with the margins over 50% to the NYSE businesses. Is that fairly accurate?

Again, I think we gave pretty clear guidance on where we thought third and fourth quarter would be. I definitely think the trends are positive, because imbedded in that guidance frankly are investments to enable, as Jeff said, earlier improvements in our compliance functions and the efficiency of that organization. It's investments that are necessary to integrate our super derivatives acquisition, our Holland clearinghouse acquisition. So despite those investments, which are reflected in the third- and fourth-quarter guidance, the expenses will be down year-to-year. Then once those investments are made, we realize the benefit of them as we move into 2016.

Okay. Great. Thanks. Maybe just back on the market data. It sounds like you've got great traction in the core businesses. Maybe if you can comment about super derivatives a little bit? And the ICE benchmark administration from a revenue contribution is that -- were they not as bigger growth contributors in the second quarter? Then as we move into 2016, do you expect both of them to become much more meaningful in that growth trajectory?

Yes. We give guidance at the beginning of the year that I think was, we expected our acquisition to be $50 million to $55 million in revenues. That was largely super derivatives and that was incremental revenue. I think we're largely right on track to that. What I would suggest to you, if that's not inconsistent with their prior-year performance, I do expect as we move into 2016 that business can grow for us. Because what we're doing right now is we're really integrating it. We're leveraging their resources to help us build out our clearing offerings.

So I think as we get that business more integrated, invest in resources to expand it, it will certainly contribute to growth as it moves into 2016. So I would characterize super derivatives as pretty much on track to what we thought it would be this year and definitely a growth opportunity in the next year. Look, ICE benchmark administration is still a relatively new business. We've just recently kicked off the gold fix, the ICE swap rate is still relatively new. So I definitely do think that business -- it's certainly already, contributing this year, but I do think it's a business that can grow next. We're making significant investments in that business to help it growth as we move into the future.

Okay, great. Thanks very much.

Alex Blostein, Goldman Sachs.

Question for you guys on just what's been going on in the oil markets more recently. Specifically, curious if you could give us a little more color on any changes in participation or climate behavior we saw this time around with the slide in July versus what was happening at the end of last year? Producers versus consumers versus financial folks? Who's been more or less active on that front? Thanks.

It's interesting. I think the major trend that you'll see is that open interest is it moved higher and is up at record levels. So there is a lot of interest in those markets. A lot of lay people think, it's the prices going down and nobody is interested in using it for hedging. But the reality is, people that buy oil want to try to buy it at a low price and lock in low prices. These are two-sided markets and is always one side that's interested in whatever the trend is, up or down. That's how ultimately we'd make a market.

We still are very focused on commercial uses. You'll see in the commitment of traders report that we file publicly that we continue to see very, very strong commercial interest in the oil markets. We have a large portfolio -- we talked a lot about Brent because it's our flagship. It's now become a regulated benchmark and has become a global benchmark, but we have many, many other oil products including gas oil.

Gas oil, you may recall, we changed the specification to make it closer to diesel fuel. We also changed the settlement date on that. So we had a lot of movement around gas oil. That happen over the last 18 months or so. But that's all in place now. What you're seeing is volumes of gas oil trading have also been rising. Now that contract has landed on its ultimate design. We feel pretty good about that business from all, long-term from all of those trends that we are seeing.

Got you. Then, Scott, just one for you on the 100% retention of NYSE Amex, I'm not sure if I missed it, but what does that mean for the operating, operator results of the Company on a whole pretax basis?

We haven't disclosed what the dollar amounts are. I don't want to be trite and tell you it means we get to keep 100% of it, but that's really effectively we've moved from getting 84% to 100%. It's not, in the scheme of things, it's not a huge amount for that business. It's important. Because what we've seen -- you've seen us walk away from volumes that aren't helping to deliver profit to the bottom line.

There has been some impact around some of those volumes as we worked our way through that Amex partnership. I think now what you saw in the first quarter and in the second quarter, you see it even more clearly, share seems to have stabilized. It was actually a little bit better in July versus what we saw in the second quarter. So generally with that business, what we're seeing is stable share, relatively stable rate capture and as we've bought back that profit an improving profitability of the business overall.

Got it. Thanks so much.

Ken Worthington, JPMorgan.

Okay, I think this is question six on data, so I apologize. But as we think about growing data revenue and earnings going forward, how are you thinking about the opportunity of growing the business that goes beyond ICE's proprietary data? So you've got LIBOR, gold fix, super derivatives is in there as well. What are really the next steps for growth beyond ICE's own data?

First of all, I think maybe implicit in your question is the notion that our data is the data that is the obvious data, which is the output of trading. But the other thing that we believe that we have that is unique content that has yet to have been developed. Because of our broad relationship with a lot of companies and the way we touch them, there is a lot of non-trade data that we collect through the various ways we touch our customers that can be organized up and potentially have value back into the market.

We are building through the team that we have at super derivatives, more predictive capabilities and analytical capabilities to take all of that rich data set and put it into context. We think that will sort of be the next leg up. You couple that with the fact that we've made a decision -- we didn't talk a lot about it at the time, but we made a decision when we spun off a lot of the NYSE technology businesses to actually keep the network that's called Safety, so that we have better distribution into our client base.

More importantly in a world where people are concerned about security and we are hyper concerned about security, we think that the trends on the way data is delivered are going to move towards very, very highly secured relationships between us and our customers. We've got this great infrastructure to do that. So all of those are more than just selling the trade data, the exhaust that comes out of exchanges. All of the things that I mentioned as growth opportunities are quite high value and they are things that when we talk to customers increasingly, they are telling us that they are willing to pay for those.

Perfect. Then just lastly, China is topical today. I think both CME and Virtu had some sort of disclosure or announcement. Updated thoughts in terms of tapping China? You've got Singapore launching next quarter. I think initial you were going to do look-alike contracts. Have you kind of circled back on the China strategy? If so, what are your thoughts today?

First of all, we do have an FX franchise. We have the dollar index. I would just mentioned that R&B is not a part of the dollar index. It's been a conversation we've had for a couple of years. So with respect to FX, it's had no real impact on us -- China FX has had no real impact on us. Our China strategy is, we want to open an exchange and clearinghouse in Singapore. Honestly, we don't have -- it is a very hard nut to crack in financial services. The government there has made it very clear that they are going to control access to markets in and out.

So what we want to do is be positioned in the region and have -- we are in constant dialogues over there. We have an office in China and colleagues that are working on improving our position every day. But it is a difficult area to penetrate in the financial services space. Personally, I understand why that is and don't begrudge their government for wanting to have controls over that, as they move their population into the middle class. So in any event, a long story short, this Singapore launch for us is strategic and important.

Thank you very much.

Thank you. That concludes the question-and-answer session. At this time, I would like to turn the call back over to management for any closing comments.

Thank you, Keith. Thank you all for joining us on the call. We'll continue to report on our future results on future calls like this. Have a good day.

Thank you. Your conference is now concluded. Thank you for attending today's presentation. You may now disconnect.