CME Group Inc. — 2024 Q1

No problem, Chris. Again, we'll unpack that a little bit, and I'm going to ask Tim probably Suzanne and myself, will all kind of answer the 3 different parts of it. So let's just talk about -- I think first part of your question was around is it the peak activity around treasuries? I think that would be really difficult to draw that conclusion in lieu what's going on fundamentally around the world and in the United States.

Yes. Thank you very much, Terry, and thank you for the question. We do continue seeing increased participations in the cross margin program between ourselves and the fixed income clearing corporations. Some of those clearing members are seeing upwards of 75% to 80% in margin savings. And that's in addition to the portfolio margining program that we offer within CME between our interest rate futures, options and swaps, which in the first quarter of 2024, continued delivering average daily savings of about $7 billion.

Tim, do you have anything to add?

Chris, I think maybe just one thing to add on the treasury complex is when we look at the long-term growth of that complex, the volume and open interest continue to grow with the stock of outstanding treasuries. And over the last 10 years, the stock of that treasury has roughly doubled. And when we look out the congressional budget office also is forecasting it to double over the next 10 years.

And Chris, let me just add to one thing that I was going to say at the beginning. But on the treasury complex to say that as it peaked, you know and everybody on the call knows that the different amount of opinions that's out there is related to what the Fed is going to do or not do is all over the map. And everybody has been absolutely for the most part wrong. So you had anywhere from 6 rate cuts predicted 6 months ago coming into '24 to 3 that was advertised by the Fed.

On the U.S. Treasury clearing, I will say that we -- I made the announcement that we are going to file an application, as it relates to this. We are in the very early stages of completing that application it will -- I think we've said publicly that we'll probably look in sometime in the fourth quarter before we can have that being viewed by the SEC, and then we'll go from there. But again, I think from our standpoint, the mandate doesn't kick in until sometime in '26 and we'll be prepared either way to go forward with it if it's in the best interest of CME and its participants.

Derek?

Yes, I think it's -- we've seen a really spectacular rise in our metals activity. And then, as you know, our metals activity is made both with the precious metal side and the base metal side. Q1 was a little bit quiet. Volumes up for the first quarter were 4%. What you've seen is a significant move and change in expectations around the role that gold is playing in the market. I think a lot of us scratched our heads over the last few years about why gold was sort of stuck below [ $2,000. ]

And Dan, let me just add to what Derek said because I think it's really important. We talked a moment ago in our prepared remarks about how all 6 asset classes are achieving the levels that they are doing. I've talked to several people just recently as the metals run-up has happened, who I thought never traded metals anymore because of the price action, but are back in the marketplace now. So you asked, I think specifically about the customer is the customer healthy, I don't know how you phrased it, but I will tell you that it's amazing, and this is a story that we've been telling for 22 years is when one asset class might quiet down, they go to another one.

Thanks, Patrick. I don't know if I've been open to discussing that. I think that I have said that with CME is in a strong position, if, in fact, the right transaction was to come along, and made sense for our shareholders and our clients. And so I'm not out looking for particular deals. I just said that we are in a strong position to do so if it were to arise.

Thanks, Alex. I'll turn it over to Julie Winkler and I don't know if Sunil wants to chime in as it relates [indiscernible] Julie.

Yes. Thanks for the question, Alex. I mean the data services business, obviously, in general, had a great quarter, $175 million revenue, up another 6%. This is on the back of a record year from last year. And the key growth part of that is certainly with our professional subscriber revenue. That is our core revenue base that is coming and delivering over 80% of that revenue.

The only thing I'll add is we have plans to add more data sets [indiscernible] more data sets available as risk management becomes a priority, as Terry has pointed out. So we'll be working with our clients on stress scenarios, historical scenarios, so they could use that [indiscernible].

Thanks, Julie. Thanks, Sunil. Thanks, Alex.

Terry, can you hear me?

I can now Craig. Thank you. I apologize for the delay.

No worries. I was trying before, but nobody could hear me. So listen, guys, I know you planned to launch credit futures in June. There is an attractive capital efficiency component here with the margin offsets, especially against the rate product. How do you size up the TAM for this new segment? And how quickly do you expect volumes to ramp just given your conversations with key participants?

Yes. Good question, Craig. And I don't know if we can answer it fully because we haven't got the contract out yet, but that's always the multimillion dollar question, as I say. But let me turn it over to Tim to talk a little bit about the market and the potential opportunity and what it might mean for not only for the credit market, but for markets that are correlated associated with it that she merely has today. Tim.

Great. Thanks. And Craig, I really appreciate the question. Ourselves and our clients are excited about the launch of credit futures on June 17, which will be index futures on the Bloomberg corporate bond indices and I think CME is uniquely positioned given our strength both in the interest rate and equity complex. Credit tends to be at a nice intersection of those other asset classes, but also offers a unique distinct market where when you look at the recent growth in credit markets, that has an addressable market of about 90 billion average daily volume in terms of notional across the fixed income ETFs, the CDX, the cash bond.

Thanks, Tim. Thanks, Craig, for the question. Appreciate it.

Yes. Thanks, Kyle. So we do have our next maturity coming up in March of 2025. So it's certainly something we will be looking at over the course of this year. As you know, we don't have a strong need for debt financing, but we do try and keep some bonds out in the market just to keep our name in front of the investors and keep that credit work fresh.

Yes. Brian, we're going to have to kind of win this one a little bit because I think we heard about every third word that you said for some reason. I don't know what's going on in the line, but you kind of tapped out a few different times there. So can I just break this down? You asked about our treasury business, and you asked about DTCC and the offsets. Is that correct? And you asked about -- just give me the headline of the other things.

That's the part I missed. That's the part I missed. We got it. So I'm going to let -- I'm going to take your last question. But the first couple, I'm going to have Suzanne Sprague, who heads up our clearing and risk, deal with those. Suzanne?

Yes. Thanks very much for the question. So just on the participation in the existing programs, we have seen some new clearing members take direct membership to be able to take advantage of the cross margin program that is currently in place for health accounts between ourselves and the Fixed Income Clearing Corporation. I think it's hard to quantify how much of that would be new activity versus activity that may have been cleared as clients through existing clearing numbers prior to that.

Okay. Tim, you have anything to add?

I think I mean, I'll talk about the relationship with DTCC. I think the one thing I would add is when we looked at the additive value of the CME one-pot portfolio margin where we have the futures against -- the futures and options against the swaps, is that has grown significantly over the years while it's hard to exactly draw a strict relationship that, as Suzanne said, those margin savings have grown to $7 billion to $8 billion last year per day, about $7 billion per day this year.

Thanks, Tim. I think that's really important. And let me just add, Brian, that on the relationship with DTCC as it relates to our treasury and clearing application, I have spoken to those folks before I said anything publicly about this. And what I also said publicly when we announced this is I do believe that DTCC has the most efficient offering in clearing of these products today.

And then Brian, you just asked on the data point on the cash market -- yes. The total trading revenue for the quarter was $69 million, similar to Q4 and the total revenue from cash markets, including data and some of the connectivity was also consistent with Q4 at $92 million.

Yes. So if you break that out, BrokerTec was at $38 million in line with Q4 and EBS was at 31. That's just creating [indiscernible].

Thanks, Alex. And let me just touch on the first point on the first quarter, especially as it relates to energy on the market share. The market share did not shift from Q3 into -- or Q4 into Q1 as it relates to market share. So I'm -- they're not continuing to supposedly take market share.

Yes. Appreciate the question, Alex. So as Terry mentioned at the top of the call, the breadth and the scale, the diversity of the franchise here is, I think, yielding benefits for shareholders and certainly providing multiple ways that customers use us to manage risk. Energy delivered strong results in the first quarter this year, up 16%. When you look at the significant participants of where that business is growing, we saw the fastest growth of our biostatic commercial customers, and we saw record options level at the overall level as well.

Thanks, Derek. Again, Alex, hopefully that gives you some clarity.

Ken, let me answer this in this way. First of all, I have sat here for 22 years as the Chairman and CEO of this company since we went public, and I've seen nothing but competition in my entire career. So this is no different. I take every single bit of competition seriously as I'm sure others do about CME as we continue to move our business forward.

Thanks, Owen, for the question. So we do have some project-based work that we do expect to ramp up over the course of the year for things like the Google migration, securities clearing that we've mentioned on the call previously. You'll also see a ramp-up in terms of the consumption. So in the technology line as we're moving more into the cloud, we will see that grow over the course of the year.

Thanks, Michael. I'm going to ask Tim to start, and I might join in as well and see where he goes. Tim.

Great. Thanks, Terry. Thanks, Michael. Certainly, when we look at our BrokerTec business, volatility has come in since the start of the year and that tends to favor the internalization of flow with less being sent to our club. And that's what we've seen in Q1. So not necessarily surprising in that regard.

Thanks, Tim. You said what I was going to say. So that was very good. Not all, but I didn't have all. Michael, hopefully, that addressed your question as it relates to BrokerTec and what we're doing and where we look at from the percentages with others.

So I'm going to turn it to Sunil, Simon, but on the back end of your question, we are obviously and I've said this from the beginning, we will wait until the work is completed. I'm assuming in the back end, you're referring to the markets going into the cloud. Is that where you were going?

So again, that is yet to be finalized and the data centers are yet to be finalized. We're working on all those things. But again, as I've said from the very beginning of this transaction, I will not put CME's markets into the cloud or any other platform unless it's better than, more efficient than what CME offers today to its clients.

I'll answer 2 aspects of that question. One is related to migration of the nonmarket workloads. And there, we are making very good progress. We intend to migrate our clearing regulatory services and business intelligence services this year subject to regulatory approval, of course. And then the second aspect of it is the data platform. We spoke a little bit about it. What we've done is we stood up our data platform.

Does that answer your question, Simon? Okay. I think we lost Simon. But Simon, thank you very much for your question.

Thanks, Ben. Good question. I'll turn it over to Ms. Winkler for a response.

I think I will start where Sunil was talking. I mean I think as it relates to being able to have our consolidated data sets for cloud [indiscernible]. So as we think about easing onboarding to those tools and [indiscernible] to analytics, able to offer these guys. These are new opportunities that we otherwise did not have. And I think the ability to really facilitate access to customers more data. We're seeing a lot of interest in customers as well [indiscernible], more explainability or market model and this supports our business.

Lynne?

Sure, Alex. So for the quarter, we averaged U.S. cash balances of about $76 billion, and we earned about 36 basis points on that cash. On the noncash, the average balances for the quarter were about $159 billion, earning 10 basis points.

Yes. So far in April, our average U.S. dollar cash balance is about $73 billion and the noncash is averaging $160 billion -- $163 billion, so similar to what we saw in Q4 -- Q1, excuse me.

Yes. Thanks, Eli. We don't -- I let Tim go ahead and answer it, and I'll jump in as well.

Yes. Thanks, Eli. As you can understand, we don't comment on the number of exact firms providing liquidity in a given market or at a given time or who's in what provision program or what certain subset of participants might be doing. The anonymity of the cloud is an important part of the efficacy and efficiency of risk transfer and price discovery process here at CME but what I can tell you is that our network is strong for interest rate futures.

Thanks, Tim. Thanks, Eli. I appreciate your question.

Thanks, Brian. Tim, do you want to continue?

Sure, Brian. I think certainly, when we look at the basis trading, it's a trade that has persisted in the market now for several years. When we look at the combination of trading futures alongside cash, that's certainly something CME is uniquely positioned in our ability to help facilitate that. But it is important to note that basis trading does change some of the characteristics of how participants may be trading or the size they may be trading in and the different modalities they use.

Thanks, Tim. Thanks, Brian. Appreciate the question.

Yes. Thanks, Owen. On the crypto, Tim?

Thanks, Owen. It's certainly something that we've heard customers talk about markets whether or not either will become security. However, it's important to note our primary regulator, the CFTC as said unequivocally that either is a commodity. Based on that clarity, we have listed this product for years under the [ CDC's ] exclusive jurisdiction. The SEC did not have [indiscernible] when we listed the contract, but that will be the path we take forward until we learn otherwise with respect to our other futures and options here at CME Group.

But the way you asked your question is correct. This is not that material to CME. We are in this asset class, but we are not all in on this asset class. I think that's important. We're in the [indiscernible].

I will answer the capabilities and then Julie Winkler will talk a little bit about the commercialization of them. So what we've done over the last 2 years is we've made margin calculation services available on the cloud. There are 2 types. One is your current margin calculation that was the first to be released following that we allowed clients to actually calculate historical calculations. Now we are allowing our clients to actually compute margin intraday so as you can see, we are progressing to give clients increased visibility into risk in a highly scalable way in far more real time.

I mean I think Sunil touched on a few of the items that we have in process. There's certainly a distribution component to this, right? We have an extremely large market data distribution network today and being able to offer our data in the cloud gives us another avenue to do that. And it also allows us to do different data packaging than what we do today.

Lynne, do you want to add?

Yes. Just one thing to add there, Michael. How we commercialize these opportunities is still to be determined. These may be tools that we want to get in the hands of as many people as we can because they might lead to more growth and trading opportunities and just overall scalability of access to our market. So we could see benefits of this coming through trading and clearing fees. We could see specific products that we want to monetize through subscription-type fees. But that's to be determined where you will see that incremental revenue.

Michael that gives you some clarity [indiscernible].

Thank you. I appreciate that. And let me just say, I appreciate everybody that participated in today's call and those that can't, we look forward to continually communicating with you. I want to say one thing before we close, I think it's really interesting to look at CME. We've talked about all 6 of our asset class being up in Q1. That is a great sign. We've got a question about the health of the client.