CME - Earnings call transcript Q3 2017

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Operator

Please standby. Good day everyone and welcome to the CME Group Third Quarter 2017 Earnings Conference Call. At this time, I'd like to turn the call over to Mr. John Peschier. Please go ahead.

John Peschier

you joining thank and morning all us. for Good open the language to and going we for to I'll Harbor with start will then and over I'm then your Safe turn few remarks up it for a questions. Terry it our of as here the are participate well session. team will during members Other and Q&A are on are forward-looking facts this the Statements historical and made slides on not in call our website that statements. to assumptions predict. of future performance involve that These are are and difficult not guarantees statements risks, and uncertainties, Therefore, results in what statements. and actual expressed is from outcomes materially differ may or any implied detailed affect filings be More information are performance about SEC, the may factors on our our in website. that found which our may with measures. Also, of will earnings on a you last release, the page and reconciliation the non-GAAP find between GAAP turn With over like call I to would to the Terry. that,

Terrence Duffy

I drove net want Group. in interest us broad-based volume with you appreciate all growth progress QX thank growth. CME We morning. to during double-digit for coupled this adjusted discipline Thanks, EPS joining your We great made John. expense

We season know are the many during the incredibly are busy also of earnings works. We initiatives several also multiple calls. you often juggling have and in new

you This earnings to replace and that We on a process. company anniversary a assess will scripted available our XX to we had made Hopefully we create chance the decided delivery our release. decided the with of are public We press a quarterly to document look becoming at XXth up coming highlight remarks. ago it. minutes normal

up to our acquiring expenses up non-operating questions. up across like as with reflect year the open continue would to efficient. mention of These new this when financial $XX the intend whole We lot the and on your call company a With customers we mindset. comparing and global notable to that million, income year-to-date of this being focus total hard we was work XXXX, for revenue million. metrics versus is flat, is results I like would remained our One $XXX

the question, of analysts cover us, everyone. who with that one we we so get number to ask off Given can you start

If back look questions. forward to jump you the you have your another question queue. feel and Thank free we to into

Operator

Thank [Operator Instructions]. you.

Our Dan first Jefferies. question today Fannon from from is

Dan Fannon

my or Terry has M&A. on of your there securities so and been the John kind some within good is so participation businesses, and investment get on I also that industry, remains guess of a morning. an been at all for first your activity curious question else Thanks, kind outlook that if There is want process. to update Then of ongoing, if all. valuation kind you’ve that's are continuing you're looking anything exiting that seems non-core

Terrence Duffy

in of we've what latter and So the market getting investment the I'll especially few. done in when credit that taken the Europe year down take you first, investment our over and of we part out to a Dan, name credit -- look of business last out Brazil the just question at getting had

efficient where question made Europe the wasn't here run. round the Chicago U.S. and working, it’s work be the after I eventually think down to we taking much don't and pretty I'm wasn't much here clock liquidity it just right those in a we it built to and now believer while more just call need that we're where to investments. they the big completely by you which company have for

and proposition just us don't to especially if a that a money, it believer eventually for question. to they the the us for other investments big shareholders needed reasons invest it as I'm they that. do really call need Brazil, want themselves, them credit can relates their us the to that's and to behind do So And was losing it

we where the be and to of would a We're that couple analyzing I pretty that that are but I the move think referring ones much of nothing plans you're right incentive nature radar. some smaller to things those want think now. main So that's

other as M&A far to I activity, As John, comment would like you on.

John Pietrowicz

Sure.

on it that scale done certainly is we we really to we're environment. M&A especially exchange really to mergers relates strategy, value at can a as options now believe We this open But it if in our something and that large but view strong think hasn't advance acquisitions, keep we difficult right very find on still shareholder changed. cross-border sitting M&A Our current get and Dan we'll create position. our execute do

be So can can position we -- things approach of strength. we from a

on view our mergers acquisitions. that's and So

Operator

Chris from question Moving comes on, our Allen from Rosenblatt. next

Chris Allen

just full-year expect in when terms bump the have the movement in but of down the morning job know quickly get wanted of year. I guys. I we touch on and think how about to on services, -- the up XQ. of some lines for to should Good sequential marketing you expense other done good guidance managing big the spend, you a professional this

like longer-term to think the growth you're And continued then the CapEx how How years, forward single us wondering to every how just about that four or year able to maintain brought I'm about you perspective? So and again. sequential three down decline for moving has your there. think from continuous to the decline it

John Pietrowicz

the a the take correct; consistent growth pattern at our expenses Sure look sequential be you're when is a it's Chris, this of kind over years. that John. Yes, you in

QX really services little quarter. a from a increase. fourth over expect last up $X our in do higher. this at that the do the some you it's got events our average at compensation to Our take to be have other you year, on year, tend pro cost three we quarter we catch-up look quarters of the When versus When customer-facing quarter. QX go do of about so and about up million third QX $X year fees significantly a projects, our fourth first we because look quarter. million look up it's in get you Also marketing occur at some bump to increase a this QX than when We a heavier

So expenses bit, down into going non-compensation actually related our to going QX. little anticipating a are go we're

CME an effort our team job well. guidance entire In done has terms expenses managing the of fantastic wide our really a of expense been and this has

As to Terry with expense his XXXX, to kind total it our expenses excluding what our regard remarks to was fees. start, in is level in alluded of below license

last So spend actually the decreased million. team CapEx really cost. mindset around of $XX years is managing -- actually at and on between strong When CapEx -- I'm over $XX million the really sorry capital year-by-year has has the been our a basis, our looking in range the has several is a

million, $XX million, given the and is XXXX about was guidance $XX is in XXXX between $XX So our we've capital on tech million only in million. about $XX

efficient spending. U.S. two demonstrated that with three market can the the been tech at significant services has it's XXXX. high current has to in in roughly allowed that done times we've like Brexit of events business that new you levels handle being which volume to as our availability So in a look around in as really terms Elections is and technologies tremendous managing important job utilizing examples. was engineering and scale handle while cloud-based took really our And clock, when team our We range very and the our and needed. What’s a systems been

The lot systems. of great got engineering we've new work robust a team and our system. done very is in leveraging a really terms So technologies is

Operator

question today Sandler next will Repetto O'Neill. from Rich Our from come

Rich Repetto

thanks guys process for morning Good here. new and the

it So go is completely one likely I the of annual $XXX capital is, to freed whether from I’m guess and the dividend would I the question in Europe, year-end? to that -- variable and the question up number at that's million that is that's -- sure believe where you earmarked not is

John Pietrowicz

Thanks billion to in coming We've the of cash into cash Rich, about fourth $X.XX We're pleased very this amount and John. cash is been got the quarter. we've able build. with equivalents

building one-time typical build Brazil to Our sales. $XXX like excluding million $XXX between million QX items and is

the So able pleased we've been -- expense controls are we're growth with very higher. really with balances those cash, our our and generate driving organic to way

that's be I capital of from around variable the board a out at operations up decision. the take the Certainly freed level look Europe. think annual of point we will discussion of when the dividend our a

So variable about in fourth we that point will the talk with $XXX annual quarter discussion be of million the dividend. the board

Rich Repetto

in Okay, get back I the thank queue. will you.

John Pietrowicz

you, Thank right. All Rich.

Terrence Duffy

you, Thank Rich.

Operator

And our next has Bank Deutsche Bedell question. from Brian

Brian Bedell

thanks. also Thanks new format. very appreciate I the much. Great,

quarters? a margin from You little We're to alone better on of a sort I guys of just was talked will for bit a on FX whether with presentation uncleared and a seeing activity the you that think function trying in rules talk futures swap futures? get pretty a how about next growth months. little FX of you're working But the volumes over the big bit outlook few on step that about little FX volumes roll you you in Can the sense create futures certainly bit participants. your maybe

Terrence Duffy

Sean?

Sean Tully

Sure, this is Sean jumping in.

business we closely several space, same way market grow that are market years. marketplace in and then rules problems represent in risk. we interest of years' movement recurring best to are the The much order we the the We markets solve working rates last the FX rates several excited did and over way very with about the market over to last the as the lowest-cost folks facilitated right rate the futures into of swaps with participants space that we've hit shown future and OTC way from to a lot the

non-billable market, again hearing well. very we're near about participants OTC the forward and we are OTC FX So offer in future we launch hearing working looking with excited in options space do FX the the in to as that,

launched marketplace contracts the an really well market the futures, our addition gives where actually -- recently more we futures to that about monthly. number. ago, FX The as about. In a we're as That's kicks in new which had a FX alternative monthly FX an the FX contract did we forward week-and-a-half and swaps our we monthly excited in on important a new than and day XX,XXX market monthly

our about a day XXX,XXX a is was think you almost XX,XXX day, portion our product volumes. in day of does new significant that FX contracts X% a contracts FX If

participants the and we are we are of seeing So come in uptick products. these seeing additional

expect of OTC link next we our which announced recently year. be transaction going With January spot also to launch We on able to futures and FX between the you're actually the CME FX spread of launch contract. an Globex, to link trade CME

will our this as from start So quarterly. monthlies from three well against the as contracts, be

them a Relative that, swaps first have the for about rules, will will the and to to Why the on alternative. combined on is market market it's swaps about from look FX according that will be equivalent even cost of adjustments it very FX the so these So products, the study margin and between post available the the And the X FX have trillion standardized to lower time standardized if at forwards. recent FX volume. excited $X.X GSIT and we you MITHID rules, listed the forwards we're a the margin under futures BIS for market impact two exciting? most

a offering about we're we're participant standardized market that. excited with working on So equivalent and

Brian Bedell

from you is that much just now, this longer-term of momentum fourth building you pace I the more year quarter next and or of And project? of see did for the in guess sort that a more that as do view

Sean Tully

Probably to for very hard efficient not longer-term. the much the I really to be, alternative obviously put will mean going -- most longer-term offer predictions we cost, be there transfer going predict, want to to to how but market. not lowest our

Terrence Duffy

under day say what’s almost the of particular date. law people than the as uncleared such the a as When you dictates rules mandatory participant, a you economics come I Dodd-Frank for will relates it's that that. behavior one mandatory that more economics is of have the things to Terry care implements the on Duffy when when certain actually it's much have it powerful under Brian FX margin the

we look going to us you economics way trying So without differences at particular that when an of any think uptick or seem live I timeline and another the to to have around to these think give one up. that’s always rules have

Operator

question next today of America Merrill Lynch. Michael comes Our from Carrier, Bank

Michael Carrier

cost and the lot the out it’s of pretty a comments either markets one the of areas, but declaring you there regulatory any the the just much treasury CFPC ton stuff the next in the get that report is to already few that on in just all in are the seems like put a industry been air years? it you over your take saw capital on recommendation on guys. progressing the working futures report launches market wanted that Thanks new how on see lot outlook, Maybe of

Terrence Duffy

go out is organization I Mike, make they're through chance seen several the is I I and comment a other in supplemental at that. with lengthy is treasury that on I'll with that. the a to got will treasury will but to in think things summary got Kim that take the report that the spot the times a had -- way people leverage that of meet if Taylor in report the good the and along opportunity that taking the positive, you've rather as point ratio looking the couple of stance there it's report we very on that of and

some the doesn't think report, run have for -- with we're that of to fine to in standpoint or part CME Group we're the I relates report. it businesses As impact it other the going any that we most adverse on the but from things the

but report is -- Kim even thing ratio want if the So to in it’s again and that further you comment there one that leverage any though supplemental we on that

Kim Taylor

important. implication The most customers for the capital is our

Terrence Duffy

Right.

of kind how at we look Mike. that report, that's So

Operator

our comes Worthington from next Ken JPMorgan. And moving from question on

Ken Worthington

I'm data, there? have comments then update data continuing sequential decline going the modest much you. there One turned half give to and can teams modestly; going us seems an to revenues quarter sneak on on other to growth, way questions. to you so in be the some clearing two Thank any

Terrence Duffy

you data? the and Bryan off So start don't go why ahead

Bryan Durkin

months. market now couple respect support respect With commenced on and derived focusing data, international data audit resources been also strong and and this that completed demand We we have data the that a we’ve over function, arrangements a note of of numerous request add in in process review to in-sourcing we track of really we're the course resources are hard mainly next pleased to we of to agreements and data. to want that in new internally number audits new commercialization continue for to well to-date. the efforts overseeing working completion products audits the in that licenses, executed. I more pleased agreements in with core we're And under for derived and being which efforts to have our deliver to data market renewals are see With data new are our of number On business several our the of to a and the be are progress existing of function we stage. resourcing pipeline of pipeline and our licensing closed

more usage et our needs. is using future consumption field to cetera. order us facilitating services our more business to with this With and optimize whether the from annum the per have to XX XX,XXX will increase aligned of to real the intelligence for customers an new annual time provide enable data. market We The Getting trading data of we products and all these systems and also an identify respect for XX,XXX use, of clients our recently specifically redistribution categories business their non-display information on to announced in license to licensees to XX,XXX per to category annum. pricing will believe and principal structures I introduction routing registrants, requiring the management so data delayed also announced a provide

reporting note with usage requirements will to we non-professional and January. as base, take observed other So data some while continue in non-display, to have retail, providers increase professional categories. To the our these an in also with attrition respect terminal data see we Asia effect

structures profiles to forward. So those user we're confirm pricing the going currently appropriate reviewing

Terrence Duffy

Bryan. Thanks,

clearing about? was the with you want talking deal revenue So to Sean question he

Sean Tully

Sure.

rate flattish In this so terms side, on to the be fairly be we revenue revenues year, of interest clearing expect flat. to

revenues And mentioned the net was Clearing we to income activity. have our small, we As decided while close the right were negative. earlier CBS

higher. the numbers. you would at swaps look also rate but impact on an flattish if So interest those But that slightly have

about had far rate have, billion I’m last offerings -- a over now we new very additional traction get we $XX American participants Mexico and fact we the Latin months in XX over swaps, running currencies good XXX to that those interest particularly in our so in are two have In and an day the year. XX Real. this excited Peso over Brazilian participants we’re We and

rate Korean the say around Won which so done XX participants, clearing. Rupee also is currencies with We’re the and those KRW, We’ve XX traction and very beginning. interest Indian to that the good trades for swap excited are launched we very already

If unique and Korean look these the you the we a first Peso, Indian and the with we value it launched Mexican proposition are Mexican Won Real, the Rupee got. Brazilian at had the where traction especially we when Peso the

rules we have addressing the add to to and we margin that actually, So much currencies expect in value than past. clearing. be our better to more we earning trades executed efficiency in XX the To that, will in recently that to these had the relative we the Swaptions marketplace than do proposition

While relatively in traction getting small product. we had business, new are we

Terrence Duffy

does Ken that Sean. you Thanks, questions. color on your give some

Ken Worthington

very A lot you much. color. of Thank

Terrence Duffy

Thanks, Ken.

Operator

from Voigt next hear will from We Kyle KBW.

Kyle Voigt

one Maybe for John. morning. good Hi

get tiers past transaction announcements really Just here? growth the strong we growing making the around the as of if still before gotten quarter time we’ve in CME product on in adjust the few doesn’t you volume pricing have wondering pricing, pricing wondering -- to ability or year the and prior after over if number some environment volume you read think earnings typically new is changes this Thanks. updated and done complexes that thoughts you’ve you’ve pricing left I calls, into or there just XXXX for years file could that the seen

John Pietrowicz

Kyle. Thanks,

at we budgeting process continuously are -- now. we We and our a through are take right pricing look going

relative to attracting you we So going want on terms is you that announcements options some might marketplace. pricing important comment we of budget. have report do to the that customers into and the in Euro do that? more be have seen think Sean, this our in in to we take We at is recently area dollar pricing do, look a did that of something creation

Sean Tully

Sure.

last this the everyone, fast terms to in few of years times responses technology strategies very in work order the ability the have to electronification. we in in options investments and hard our very Over number marketplace our of thought to investments facilitate and

playing So from we in we trading particular them venues And the of it in leveled we as $XX. you're the on then mentioned dollar John increase to to the the with terms fifth. in if CME for between different fees options $X.XX $X.XX Euro Globex fees $XX field lowered did the members gets the

last the to differential we is two our particularly electronic in participants you over If a there option success reduced of about dollar get our our last year growth continue about before can XX% XX% have and years, electronic electronic field currently significant playing in market. growth So see at XX% that we’re electronic, so leveling the very order international more had running our there we’ve market. electronic the in year to it Euro we’re

In XX% that around addition the running actually XX% year. side, electronic to versus last to we're around treasury closer at currently

electronification So about we're increasing excited and the increasing volumes. the

year-over-year, much our If rates business you those faster. while marketplaces is options at up is growing overall business look our much, about XX%

are our XX% dollar options XX% are options year-over-year. particular up running and up in fact Euro treasury in Our year-over-year

increased and to we typically participants, as volume, participation, we trading past we have higher about So increasing that's the times definitely velocity increasing here. of coming and spoken see see I much in many fruition think John I electronify

Operator

question from Campbell comes from Jeremy Barclays. The next

Jeremy Campbell

Hi thanks.

looked can rate kind you just the December here to as of with to and about to us of as what potentially clients pass-through at yields? as be meeting, what keep Just have remind kind do guys hike look we of might you getting might kind in of rate able Fed increases another kind far ahead for you

John Pietrowicz

Thanks is this John. Jeremy,

to some investments it, And the going can announced we with we’re get you be how another how can to what the to do we competitive this want the Fed. handle returns get thinking move the we’re other haven’t cash to customers with they about give versus our to order color Fed in about balances to want at We but Fed. attract

more the Fed offer company can the but that moves. really we’re in investment we thinking way that so putting on alternative returns it is the Fed that announced vehicles, come haven't money about to though we by our the versus once is So

Jeremy Campbell

say to bit on But of I you’re safe going effect is a that think XXX% pass-through little an it to get that?

John Pietrowicz

unknown We’re not the it’s move. is when going too Fed and early going on to it’s comment exactly it, to

to the So -- we on don’t rate once Fed will comment that makes change. we want the

Operator

Herbert has from Ben question. And Citi next our

Ben Herbert

color protect market what on gains then Could of to recent you share there dynamic and competitive you’re metals just provide in kind some gains? doing

Derek Sammann

help business well. continue primarily as out we’re of are particularly is volumes able the over between Sure to we it's Derek global XX% but on the U.S. to our participation and electronify side gold Asia. metals a WTI extends non-U.S. significant diversification developed about growth seeing we our in metals ensure the story think three through the done us year-on-year have liquidity precious precious retail has silver primarily popular where put increased years market that metals two franchise outside in excited the metals; to versus we Palladium the here. XX% What QX in forward. last to very been year-on-year XXXX to We're specifically That's up the and business business metals due we extend with and XXXX. have COMEX was the share options beyond QX Gold What which our curve have actually have most products Platinum, I the population

options there So actually the electronics a so electronics electronifying global to we record see our electronification XX% had from continuing extensive market our we options, gains in think in XX% of I on of metals we participation of to are level market side. went

side other place to put the of franchise, we metal XXXX industrial focus in the build the side of a business. the specific On in

from a XX% share to business gains So in XX% year-to-date take this in market the about close to XX%, year. XXXX market make us share copper, primarily that see you

portfolio other primarily lead zinc. metals that talking use building industrial product our gone they we is need and that to aluminum, balance just sure that have of for customers the around making the So we’re globalized participation way and about it the really but our business ensuring the not in has copper

more side are fixed So very of products, like lines metals tend to bases, financial metals a client trade different these direct the really the we globalize see U.S. in participation growth conversations is that correlation growth in are the industrial are products is a in to we copper at on our income participation. came point financial trends which in and the of the and precious contract business when saying time FX and infrastructure a bonds

So we’ve there. share market seen strong gains

We and products, have been able with any electronic we’re liquidity, European without to that cuts, better pricing in do the access competing better Nation market.

So we’re pleased business we and continue believe the participation continue to with recovery will build have and certainly share the and metals made, of and base see grow global when developed the to we progress will to growth continue gains we for see industrial built we we’ve portion market there. as will we those think we on globally that we

Operator

next go Patrick James. O'Shaughnessy from will We to Raymond

Patrick O'Shaughnessy

good Hey morning.

have lot customers and really your your looks is WTI is that we it is seen is that like So the on, what now? broad-based that European products, lot it nice international European trading a a a it product group and is right growth reacceleration catching growth greater energy growth of why U.S. on of and in specifically focus volume

Terrence Duffy

a going Derek So have growth Bryan about little the talk we’re bit about the to products. and comment Patrick then

So Bryan?

Bryan Durkin

Energy out years in particular suite couple product of in traction on and sales commercial it’s the the last and that would just impact of the in that this energy the we've clear terms to that there the Derek So taken the dynamic few out last ago seen of terms build a outreach efforts activity, asset and across and efforts robustness resonated and of new the benchmark continuing can as recognition commercial community. and that our of with in say I across huge just classes. but a weeks loud segments in side showing the the suite that volatility, these is reviews Asia participation of the more mechanics of of undertaken energy underscores we’re into major year-and-a-half get clients continuing has EMEA way in our solid so have within of and it’s which all our terms definitely particularly uptake EMEA, driven by the we’ve its

can we banks surface expect opportunity, because believe don't and these you in very in corporates product and this terms in managers, managers, asset scratched hedge terms cross funds, regard classes, all is drivers So biggest aggressively of have are products. of I more even asset hedge commercials. Multiple that really asset efforts trading fund

Derek Sammann

a Patrick the from little color product side.

at top X If particularly class document benchmark. asset continued non-U.S. the we you now that benchmark WTI XX%. growth call circulated it's to Crude will look and Page the we business see we the or and attribute in largely that the growth you globalization the energy the call earnings the for see a of is We U.S. of that waterboard and

We are seeing participation in our markets skyrocket.

there Page interest large excited and particularly there only but over XX, course the as well. will not is set volumes the records holders the we're large growth the in you see material Appendix we open well. about there You’re absolutely as record we’re fact new holder below Asian we’re setting on What sent just and seeing pointed year a the European you that participation open growth interest right this we of

couple to Bryan made WTI that last seeing Europe globalizing in really point gas are the years. we in growth starting the So participation, that's side. see crude we are to is we over are broad-based natural seen in excited What path follow about we’ve beginning and similar a that is accelerated of actually on Asia a the market

XX% Hub Henry the seeing XX% to So taken we've market Henry to starting benchmark continue see months. expand, rise benchmark the market always which as that's last from we’re you U.S. has been Hub are to status, share in market to a be XX share global

places gas in the to natural is as actually market. that markets As come of natural transportable you’re of Henry U.S. see Hub liquefaction which center facilities a U.S. connects starting gas the version the online gas global

see they So this see Pass, growth more some We light increase in we’re process; regulatory in WTI. particularly years. starting for in relative development. gas don’t over we are from facing path online next action facilities broader to we are uptake path changes European the now we’ve see happen NAT -- develop participation time being Sabine the We similar but seeing a see that and of the online to able of participants overnight, this unfold to as one in to in been to a locally, facility three come a early and three is liquefaction two multi-year the there the

futures will and globalizing Hub Henry serve take well as of and building forward. WTI business So we you we that the XX% see see going participation the global core use in we positioned base, use the think you gas make path follow a of share of business thought are growing market to similar global sure they energy will this our this that NAT market, a

Operator

Repetto Sandler And take Rich follow-up we a question will from from O’Neill.

Rich Repetto

Yes. been the would here futures stepping NYMEX. that M&A just news have I I’m question I'm a interested the down Deutsche regulated focusing been Borse you’ve with generally is a CFPC around broke. do going large acquisitions in definitely But I Kengeter that your to that CME and now Terry, not have is got question a CBOT but real entities, but you be question year-end. Carsten on that ask time by kidding

you you stuff like -- open regulated markets more the would would forward entities both, of of As there given majority out state by at cetera. boundary, et are within you going Terry the are that look now to forward the have need necessarily you the some those look

Terrence Duffy

going follow-up many to will so position Rich, earlier with we John and is going to thing analyze the and look I a because add what's major what and to focus put say said continue the continuing and ourselves clients a over kind that value in I look client, we’re and as only of was I to year I'll to that's my said took to ago CEO different when transactions do. building user end of the we’re

for value will makes lot return I to continuing clients, will that freed new believe if up to capital, a the So we’re there in sense is our client the potential that's to bottom-line and do shareholders. that acquisition truly our formula that for we deliver add a of we transaction

that goes that I it, value who not it. down of as will from So go something product but just I regulates will that will the as from the the going under regulation that and because away that deliver that’s we we path I’m company who take shy regulates particular after far think consideration and

Operator

And I conclude today's back At conference today. question-and-answer additional that session the this remarks. time, does closing or will to management turn for

Terrence Duffy

thank I and we you have CME as hope you and said outset interest to much. day want for your you and a thank in we at the your good participation very Well

Operator

for your conclude does that conference And you participation. Thank today. our

now You disconnect. may

CME (CME) 26 Oct 172017 Q3 Earnings call transcript