CBOE - AMEX

Hello and welcome to the Cboe Global Markets Second Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, today's event is being recorded. Now, I would now like to turn the conference over to Ken Hill, Vice President of Investor Relations. Please go ahead, sir.

Good morning. Thank you for joining us for our second quarter earnings conference call. On the call today, Ed Tilly, our Chairman and CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Then Jill Griebenow, our Executive Vice President, Chief Financial Officer, Treasurer and Chief Accounting Officer, will provide an overview of financial results for the quarter as well as discuss our 2023 financial outlook. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be Chris Isaacson, our Chief Operating Officer; Dave Howson, our President; and our Chief Strategy Officer, John Deters. I'd like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we'll make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise after this conference call. During the call this morning, we'll be referring to non-GAAP measures as defined and reconciled in our earnings materials. Now, I'd like to turn the call over to Ed.

Thank you, Ken. Good morning, and thanks for joining us today. First off, I'd like to welcome Jill Griebenow, our new Chief Financial Officer on the call. During her 12 year tenure at Cboe, Jill has helped held many roles across our global organization and has an incredible understanding of our business, bringing the breadth and depth of expertise needed to serve in this role. Her leadership has helped drive our vision and strategy, enabling us to become the global market powerhouse we are today, and I'm happy to have her at the helm as CFO. I'm pleased to report on strong second quarter earnings for Cboe. During the quarter, we grew net revenue 10% year-over-year to $467 million, and adjusted EPS by 7% to $1.78. These results were driven by strong volumes across our Derivatives franchise, specifically our proprietary index options products and the continued global expansion of our Data and Access Solutions business. Our Derivatives business delivered another outstanding quarter, as total organic net revenue increased 21%, driven by the strength of our index options and volatility products and continued solid volumes in multi-listed options trading. During the quarter, total net revenue in our Data and Access Solutions business increased 9% and organic revenue growth increased over 7%. Total net revenue in our Cash and Spot Markets business decreased 11% during the quarter. Cboe's efforts to achieve its environmental, social and governance goal continued to gain momentum. Last month, we published our fifth annual ESG report. In addition to disclosing our Scope 1 and Scope 2 emissions. This year for the first time, we disclosed our relevance to Scope 3 emissions in our report. We plan to continue to make strides forward each year with our ESG program. In the second quarter, we advanced our top strategic growth priorities, which include Derivatives, Data and Access Solutions and Cboe Digital, recording wins across each of these priorities during the second quarter. I will turn to Derivatives and Data and Access Solutions in a moment. But first, I want to provide an update on Cboe Digital. During the quarter, Cboe Digital recorded solid volumes with ADV of more than $50 million and $4.6 billion total traded on our spot market. We were also pleased to receive regulatory approval to expand our product offering to include margin futures contracts, which we plan to launch later this year, making Cboe Digital the first US regulated crypto native exchange and clearinghouse platform to offer leverage Derivatives products. The initial product rollout will include physically and financially settled Bitcoin and either contracts and will help enable customers to trade futures in a much less capital intensive way. We are working with our customers and the CFTC in preparation for launch and look forward to bringing this unique product to the market. As the digital asset market continues to evolve, we remain highly active in discussions with regulators and policy makers. We continue to see engagement from market participants about the opportunities this asset class affords and will continue to leverage our trusted, transparent, and regulated market structure to advance the industry forward. Our Derivatives ecosystem continue to flourish in the second quarter as traders and investors utilize our flagship VIX and S&P 500 Index Options products across an ever changing market environment. As we have evolved our suite of products in recent years, we have created flexible products that provide opportunities for customers of all dimensions to trade a contract with its right size for them on a timeframe that suits their unique needs. Together, our VIX and SVX products anchor a remarkable toolkit that is available for investors to help find opportunity and hedge their portfolios in changing market environments. During the second quarter, volume in our proprietary index options products increased 38% year-over-year, while multi-listed options increased 2%. In June, we reached new record monthly ADV of 3.9 million total index options contracts traded. SPX options ADV increased 33% to a record 2.8 million contracts during the quarter. We also continued to see strong momentum in our mini SPX options contract, known by its ticker symbol XSP, which increased 142% year-over-year. ADV for SPX options opened on the same day of expiration, otherwise called 0DTE, comprised nearly 44% of overall SPX volumes in the second quarter. As we’ve noted before, we believe there has been a fundamental evolution in how customers are trading this product and we anticipate this volume to continue. Given this strong customer interest, we continue to focus on the development of a short-term tradable product that is designed to allow customers to more effectively trade daily moves in the market. While interest in 0DTE trading has gained a lot of attention, we continue to see strong volumes in our standard monthly SPX options contract that expires on the third Friday of every month, with average open interest up 12% in June 2023 compared to one year ago. While the VIX Index remained at historically low levels during the second quarter, we saw a significant increase in trading activity in VIX options with a 53% increase year-over-year to an ADV of 778,000 contracts, our fourth best quarter on record. Given the flexibility and utility that both VIX and SPX options provide in changing market environments, we see customers utilizing both products interchangeably to manage and hedge their risk. And globally, demand for our products continued with SPX and VIX options ADV during global trading hours increasing 81% and 16%, respectively versus the second quarter of 2022. Through our strong foundation of proprietary index options products, we are able to further expand our diverse offerings with new products designed to help meet the evolving needs of our growing global customer base. Last month we launched options on our corporate bond index futures, bringing a new options on futures functionality to Cboe Futures Exchange which we can leverage for additional products in the future. This quarter we also anticipate that FINRA will receive regulatory approval for new margin requirements recently adopted by Cboe related to cash settled index options written against ETFs that track the same index underlying the option. Specifically, customers who are writing options against indices that are offset by an underlying ETF, for example XSP versus long SPY stock, will receive margin relief enabling greater capital efficiencies in their trading. And in partnership with S&P Dow Jones Indices, we plan to launch a new Cboe S&P 500 Dispersion Index next month. Dispersion is recognized as one of the fundamental metrics of market risk. A strategy that is predominately traded in the over-the-counter market, this new index aims to standardize the measurement of S&P 500 dispersion. Additionally, we are preparing for the launch of single stock options on our Cboe Europe Derivatives Exchange in the fourth quarter of this year, with active engagement from market participants and other members of the ecosystem who share our vision of growing the market and delivering a simpler and more efficient pan-European trading and post-trade experience. We look forward to providing an update on these initiatives during our next earnings call. Turning to our Data and Access Solutions business. We continue to see solid growth, with total net revenue increasing 9%, up 7% on an organic basis during the quarter. The second quarter results build on the strong demand we see globally from customers for our high quality data and access to our markets. As we look to the second half of the year, we anticipate new opportunities across our Data and Access Solutions ecosystem will help drive further growth, including demand for Australian equity market data now that Cboe Australia has migrated its exchange technology to Cboe’s uniform trading platform. As we continue to leverage our global footprint and expanded customer base, we also see opportunity to expand our reach of our proprietary data products, such as our Cboe One data feeds and Cboe Global Indices offering. We continue to focus on our sales and marketing efforts in new regions to introduce market participants to the unique value proposition of our unrivaled data offering. During the second quarter, we announced the launch of Cboe Global Listings, a first-of-its-kind global listings network which aims to facilitate worldwide access to capital and secondary liquidity for companies and ETFs. Our new listings offering draws on our deep markets expertise, regional experience in all the jurisdictions where we operate, and the combined strength of our global equities exchange network to provide locally optimized and centrally coordinated listing services and support for issuers. The expansion of our listings business rounds out our global equities offering, helping to enable market participants around the globe to utilize Cboe markets for more uniform access to equities trading, market data and listings. Performance in our Cash and Spot Markets reflected the overall muted volumes we saw across all global equity markets in the second quarter. In Europe, the Cboe Europe Equities business increased second quarter market share by one percentage point year-over-year to 23.8%. Additionally, Cboe BIDS Europe experienced another strong quarter with 35.8% market share and remained the largest European block trading venue. Cboe Clear Europe market share grew to 33.8% in the second quarter, up from 31.3% in the prior year quarter. During the quarter, Cboe Clear Europe also announced plans to introduce securities financing transactions, or SFTs, in 2024 subject to regulatory approvals. Cboe aims to bring this new service to the market to help ease capital requirements for market participants through a centrally cleared service for stock lending. SFT is yet another example of Cboe taking market feedback, leveraging our expansive ecosystem, and building tangible solutions for our customers. Turning to Asia-Pacific. Cboe Australia market share grew to 18.2% in the second quarter, up from 17% in the previous year. In Japan, equities market share was 4.1% during the second quarter, up from 3.5% in the second quarter of 2022, and we remain on track for the Cboe Japan technology migration and expected launch of Cboe BIDS Japan in the fourth quarter of this year, subject to regulatory approval. With the launch of Cboe BIDS Japan, the BIDS network will now extend to seven of the top 10 global equity markets, creating a one-of-a-kind global equity block trading network. In our global FX business, net revenues were up 7% year-over-year in the second quarter as the business expanded spot market share to a record 19.5%, up from 17% a year ago. Our NDF offering, which trades on Cboe SEF, our swap execution facility, continued to see strong results with volumes increasing 23% during the second quarter with ADV of $937 million. To meet this increased customer demand, we launched a new London matching engine for Cboe SEF during the second quarter. With Asia currency pairs accounting for a significant portion of Cboe SEF volumes, this new matching engine is expected to enhance our service to customers based in Asia and Europe, further diversify order flow on the platform and create greater matching opportunities for our clients. In summary, Cboe delivered another solid quarter, building on our record first quarter results. With our strong foundation of Derivatives, Cash and Spot Markets, coupled with our Data and Access Solutions, we have the ability to continue to harness the power of these markets to create new products and services that deliver innovative products to our customers. We will continue to plant the seeds of opportunity that will help allow us to harvest investments across all seasons to drive consistent growth and value for our shareholders. With that, I will turn it over to Jill.

Ed, thank you for that kind introduction. I couldn’t be more excited to build on the strong momentum at Cboe today. As Ed highlighted, Cboe posted a strong second quarter, with adjusted diluted earnings per share up 7% on a year-over-year basis to $1.78. The performance was led by continued strength from our Derivatives franchise, as well as a steady contribution from our Data and Access Solutions business. As we have done in prior quarters, we looked to maximize long-term shareholder value through monetizing today’s opportunities while investing in future growth initiatives. I want to highlight some high level takeaways from the strong second quarter performance before providing a more detailed assessment of our segments. Our second quarter net revenue increased 10% to finish at $467 million, driven by the strength in our Derivatives Markets category and the solid results from our Data and Access Solutions business. Specifically, Derivatives Markets produced 21% year-over-year organic net revenue growth in the second quarter as the market continued to find increasing utility in our toolkit of proprietary products. Data and Access Solutions net revenues increased 9.4%, up 7.4% on an organic basis during the quarter. We are pleased with the sequential organic revenue improvement in the second quarter and remain excited by the catalysts we see in the second half of the year. Cash and Spot Markets net revenues decreased 11% during the quarter or 12% on an organic basis, as the trading environment remained muted across the globe. Adjusted operating expenses increased 22% to $192 million and adjusted EBITDA of $293 million grew a solid 7% versus the second quarter of 2022. Turning to the key drivers by segment. Our press release and the appendix of our slide deck include information detailing the key metrics for each of our business segments, so I’ll provide some summary thoughts. The performance of our Options segment was again very robust, delivering the highest growth of any segment for the quarter, with net revenue increasing 20%. The results were driven by strong volumes in our index business and favorable revenue per contract, or RPC, trends given the mix shift to index options. Total options ADV was up 10% as our higher priced index options ADV increased 38% over 2Q22 levels. RPC moved 16% higher given a continued positive contribution of higher capture index products. And market data and access capacity fees were up 11% and 5%, respectively as compared to 2Q 2022. North American equities net revenue was down 2% on a year-over-year basis. Results benefited from NEO, which was acquired in June of 2022, contributing $3.6 million in inorganic net revenue during the quarter. In addition, access and capacity fees increased 6% as compared to 2Q 2022 and market data increased 1% as proprietary market data growth outpaced a decline in SIP revenues. Net transaction fees were down 13% given softer industry volumes and market share in our US businesses. And while our US on-exchange market share has trended lower on an absolute basis, our share has remained relatively constant when adjusting for the increase in off-exchange market volume and auction activity seen during the second quarter. The Europe and APAC segment reported a 5% year-over-year decline in net revenue, impacted largely by softer industry volumes in Europe. The lower activity levels were partially offset by a nearly one percentage point increase in market share on a year-over-year basis. And Cboe Clear Europe also grew market share during the quarter from 31% to 34%. Second quarter net revenue was down 1% in the Futures segment as a 3% decrease in net transaction fees was partially offset by an increase in access and capacity fees. Lower volumes were the primary driver of the decline in net transaction fees, falling 11% during the quarter. The decline in activity was partially offset by a 9% increase in RPC, helped by pricing tweaks we made in the VIX complex in April of this year. On the non-transaction side, access and capacity fees continued to perform well, up 6% versus the second quarter of last year. And finally, net revenue in the FX segment was up a solid 7% as compared to last year, marking the ninth straight quarter of year-over-year net revenue gains. Net transaction fees revenue was up 6% as average daily notional value increased by 7% and market share hit another record at 19.5% for the quarter. Turning now to Cboe’s Data and Access Solutions business. Net revenues were up a solid 9.4% in the second quarter, up 7.4% on an organic basis. Net revenue growth continued to be driven by additional subscriptions and units, accounting for 77% of organic access fee growth and 63% of organic market data growth in the second quarter. We are pleased with the sequential acceleration in organic net revenue growth and remain confident in our ability to hit our full year guidance range of 7% to 10%. Over the second half of the year we expect solid contributions from proprietary data sales, benefiting from the sustained growth across our derivatives complex. We also anticipate solid trends from Cboe Global Indices with good momentum around index licensing. In Australia, we saw a solid uptick in data sales and access since the migration, in line with what we have witnessed following past technology migrations. We expect that momentum to continue, adding to the enhanced distribution capabilities that Cboe Global Cloud presents, providing incremental sales potential for our suite of data products. We also expect to make modest pricing increases in areas where our pricing has been consistent for many years, but the utility being offered has increased dramatically. Following the selective enhancements, our products are expected to remain competitively priced relative to peers, and we remain focused on the value proposition for our customers. Turning to expenses. Total adjusted operating expenses were approximately $192 million for the quarter, up 22% compared to last year. Excluding the impact of acquisitions owned less than a year, adjusted operating expenses were up 19% or $30 million for the quarter, largely reflecting higher headcount as compared to the second quarter of last year, an increased travel and promotional spend given our 50th anniversary celebration and increased corporate brand marketing costs, and the second quarter also included a one-time $5 million true-up in June to reclassify certain capitalized charges to operating expenses in the technology support services line. Note that we do not expect any further adjustments for previously capitalized charges to impact our expense or capitalized charges moving forward. Moving to our expense guidance. We are lowering our full year 2023 expense guidance range to $766 million to $774 million from $769 million to $779 million. The three basic components of the year-over-year increase are outlined on slide 18 of our earnings presentation; expenses from 2022 acquisitions, growth investments, and core expense growth. Looking at the details of our three expense categories. We expect the two 2022 acquisitions to add approximately $30 million to $31 million in incremental expenses for 2023, below our previously expected range of $33 million to $35 million, as hiring slowed in our digital business in part due to ongoing regulatory uncertainty. While we are still incredibly committed to the digital business, we continue to watch the regulatory landscape closely and adjust our spending to match the revenue environment. Moving onto growth generating investments. We anticipate that the investments we are making in the business to help drive incremental revenue to our bottom line will be in the range of $25 million to $27 million. Our new range is roughly $3 million lower than our prior range, but we remain committed to investing in high return areas like DnA expansion, a more aggressive marketing campaign and targeted product and services R&D efforts across our ecosystem. The last component is our core expense growth, totaling approximately $59 million to $64 million. As a reminder, this includes our expectations for CAT project costs in 2023, investments in infrastructure and inflationary factors on our business. Our updated estimates factor in an incremental $5 million for CAT expenses as well as the one-time reclassification of certain capitalized charges to operating expenses of $5 million. These higher charges were partially offset by lower expected depreciation and amortization expenses. Moving forward, we will continue to put capital to work in value-enhancing ways across our ecosystem, while striving to strike the right balance between the revenue opportunity available and the expense outlay required to enhance value for shareholders. Looking at our full year guidance more broadly on the next slide, we are making some positive revisions to reflect our solid year-to-date performance and our constructive forward outlook across our businesses. At a high level, we are reaffirming our organic total net revenue growth range of 7% to 9% for 2023, but we now expect to finish at the higher end of the range for the year. This remains above our medium term guidance of 5% to 7% introduced at our Investor Day a year and a half ago, a function of the meaningful engagement we have seen across the toolkit of products at Cboe. As mentioned earlier, we are reaffirming our DnA organic net revenue growth rate of 7% to 10% percent for 2023, in line with our medium term expectations. Given the company’s positive marks on its investment in the 7Ridge Fund, which owns Trading Technologies, we now expect the other income benefit from minority investments to be in the range of $34 million to $40 million, up from our prior guidance calling for $27 million to $33 million. We are lowering our full year guidance on depreciation and amortization to $40 million to $44 million from $48 to $52 million, and we expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% in 2023, unchanged from our previous guidance. Outside of our annual guidance, net interest expense for the second quarter of 2023 was $13.9 million. For 3Q, we expect net interest expense to be in the range of $12 million to $13 million. On the capital front, our focus has been, and remains, maximizing long-term shareholder value through the effective use of our capital. In the second quarter, we returned a total of $61 million to shareholders in the form of a $0.50 per share quarterly dividend and $8 million in the form of share repurchases. Our leverage ratio declined slightly to 1.4 times from 1.5 times in the prior quarter as we paid down $140 million on our term loan facility that matures in December of this year. We remain comfortable with our debt profile, having locked in low, medium to longer term fixed rates, averaging below 3% on nearly 90% of our total debt. In summary, the second quarter of 2023 was another solid quarter at Cboe. I could not be more excited about the outlook for the company, and I look forward to delivering solid returns for shareholders in the quarters ahead. Now, I’d like to turn it back over to Ed for some closing comments before we open it up to Q&A.

Thanks, Jill. As you can see, it has been a busy first half of the year, and I want to thank the entire Cboe team for their hard work in consistently delivering outstanding results. We head into the final half of the year on stronger footing than ever, and we look forward to continuing to execute on our growth opportunities ahead. I'll now pass it back to Ken for instructions on the Q&A portion of the call.

At this point, we'd be happy to take questions. We ask that you please limit your questions to one per person to allow time to get to everyone. Feel free to get back in the queue, and if time permits, we'll take a second question.

Thank you. And as mentioned, at this time, we will begin the question-and-answer session. [Operator Instructions] And this morning's first question comes from Ben Budish with Barclays.

Hi. Good morning, and thanks for taking the question. Ed, I wanted to -- I was hoping you could unpack a comment you made earlier about your expectation that you mentioned the evolution in how customers trade as you were talking about the growth in SPX volumes. I was wondering if you could unpack that a bit in terms of where do you think the next sort of legs of growth come from. Is it more adoption of shorter-dated contracts? Is it more customer types? Is it more kind of global adoption of SPX? Where do you see that coming from in the next 12 to 18 months?

Thanks Ben. Yeah. It's been pretty remarkable. And we can look at this from the institutional perspective or the customer perspective. We do see the continuation of retail who have -- primarily been introduced to this market in a time of pandemic, that was incredible growth. But now with the transition through education and the benefits of a sustained investment that allows for not being perfect. That means, adding Derivatives exposure to a portfolio either to hedge or to initiate a position with limited risk. So, we think and expect that continuation to move forward, and that's in both the multi-list area and our proprietary products. What we're most excited about, and I'll turn it over to Dave, is the change in margin treatment in our XSP contract, which we think is very retail friendly with a lot of benefits of the SPX, but with a much smaller wallet size built for retail. And then the institutional side, we continue to see growth in third Friday exposures. And for the SPX, that is the typical trade for institutions in the SPX. But interest being drawn into those very, very short-dated contracts like we see coming from retail platforms. So that change and exposure is underway, and we think that's going to continue in the quarters to come. We're going to keep you up to date on that because it's so exciting. But it really is a completely new exposure, and it's additive to what we've seen the growth over the years, and in particular, as I say, since the pandemic. But Dave, I think the real retail shift and what we're optimistic about is the adoption of and the change in margin treatment in XSP and what that allows for individual retail investors, including shorter-dated options.

Absolutely. And it's been really encouraging to hear from our customers on calls like these about the increased projections for engagement in the options market in general. And here at Cboe, we've got a whole toolkit of products that we see as complementary to each other that might either be used together or in isolation to manage risk and hedge exposure throughout any market environment. And as part of that toolkit, we see the XSP product, and a little reminder on what it is for those of you out there. The XSP product is a one-tenth-size SPX contract. It's very much the cash settled index options contract for the SPY user. You can deploy all of the strategies that you employ in SPX, also in XSP. And XSP has three defining categories, and that's the fourth kicker that Ed just mentioned. The first of those is that the XSP contract is a cash settled broad-based index contract. So, you don't have a chance of being physically delivered or needing to physically deliver the underlying. At the end of day, at the expiry, you move cash. The second point is that it's European exercise. There's no opportunity to be exercised or assigned early before expiring. And the third point there is the potential for beneficial tax treatment, that potential for 60/40 long-term, short-term capital gains treatment. And then we come to the evolution that we're looking at as we eagerly await the final regulatory approvals required to really access -- XSP to access that ability for cash settled index options written XSP, written against ETFs, read SPY, that track the same underlying option. And so, there you can see the opportunity for margin offsets for hedging. For example, when you override a long SPY position with a short XSP position, you can get that margin treatment there. So, what we expect from that is a good deal of increased activity there and certainly encouraging for us to hear that retail brokerage platforms are looking to onboard cash settled index options in the future.

So, Ben, a long answer to what we see coming at us. But I think the excitement that you hear from us is really the attention that the zero days to expiry have in the marketplace. And it really is the cash settlement around the buzz and the ease of trading in and out with cash settled options. And I'll remind you that not all retail platforms allow for cash settled contracts at this point. So, we're really keen to see those that still have not offered that to their customers, think Robinhood, offering that sometime next year. So, exciting that we think the breadth is increasing and certainly, we'll be there with education and all the tools to help those early movers.

Got it. We'll appreciate the very thorough answer. Thanks.

Thank you. And the next question comes from Alex Kramm with UBS.

Yes. Hey, good morning, everyone. I want to ask another question on the zero DTE favorite topic of everyone. I think there's an expectation from some investors that that's called phenomenon. It's going to expand into other areas and obviously other exchanges are talking about it. And I'm particularly curious as that happens also into like single stock options, et cetera. Like two things. One, what's your roadmap from your perspective? And what is the expectation? And then secondarily, is there a risk that as that zero DTE phenomenon, again, sorry, it goes into other areas that it potentially takes away from what you've seen and benefited from on the index side? I guess, what I'm trying to say is there's only limited attention, limited capital that people can put to use. And if some of those trading strategies gravitate elsewhere, maybe you actually end up losing out. Sorry for the lengthy question. Hopefully, it makes sense.

No. Alex, it's a really good question. And we really stress the cash settlement for a reason. And from a retail platform perspective, think of the tail risk, the risk after expiring on physical settlement versus cash, that's the obstacle that other exchanges are trying to solve for. And really the roadblock to instantly offering zero day exposure in single name. At the end of the day, the assignment risk, that means they take physical delivery at the end of the day. I'm having a naked long position overnight and I'm subject to some gap risk the next day. Now, the alternative would be I can offer a zero day single name exposure, but require that to be closed out at the end of the day. What cash settlement allows for is you can take the position into close. And as Dave said, you settle in cash. There is no risk or exposure the next morning. That's a really, really big difference. And until the street figures out how to enter day margin and/or offset the risk going into expiring on physical, I just don't know how quickly those can come to market. Do I think it takes away from the end of the day? I don't. There are individual retail investors who look for exposure in single name stocks. We think that's a good thing. At the end of the day, the macro hedging or the broad market, the U.S. market exposure is best represented with the products at Cboe. So, no, if the entire environment is growing, we think that's good. We have a tool and exposure for all portfolios at any time of the day. And any growth in the industry is good growth in the industry.

Very good. Thanks, guys.

Thank you. And the next question comes from Ken Worthington with J.P. Morgan.

Hi. Good morning. Thanks for taking my question. Maybe changing gears, can you talk about the outlook for a spot Bitcoin ETF in the U.S.? It seems like a crypto ETF would touch a number of businesses at Cboe. So, what might broad-based approval for a spot ETF mean for the company?

Hi, Ken. Dave Howson here. Absolutely, obviously, a subject matter for the news headlines there recently. And as you may know, we've put forward applications for a spot Bitcoin ETF on behalf of five issuers so far. We have a number of surveillance and SSAs and surveillance sharing agreements in place with a number of trading platforms. And should these get approved, we think this is a good progress for the broader industry and investors alike who want to gain exposure to this asset class in familiar and regulated wrappers. So, this would be clearly a good thing for the industry. And overall, for the underlying digital crypto market in general, the market makers involved in those ETFs and in the create redeem process are going to need somewhere to hedge that potential exposure. They'll look to a spot and futures market in order to do that. And in this quarter, we were very pleased to receive our approval for margin futures from the CFTC. And we're working together with our customers at SCM to build out and looking to launch that for the end of the year. So, probably there, Ken, we think it's good for investors, good for the industry, and also good for regulated platforms such as Cboe Digital that have the regulated exchange, clearinghouse, and ability to spot and margin cash and physically settled futures all on one platform, which is unique within the United States.

Great. Thank you very much.

Thank you. And the next question comes from Patrick Moley with Piper Sandler.

Yeah. Good morning. Thanks for taking my question. So, congrats on a strong quarter, and Jill, congrats on the new role. It hasn't even been a month, and you're already bringing expense guidance down, so we like to see that. But I was hoping maybe, Jill, could just talk a little bit about how she's approaching the role and maybe the ways that she might differ from her predecessor, and I guess specifically as that relates to expense management. Thanks.

You bet. Thank you for the question. And -- I mean, I'll say just as I step into the new role looking back at the things that we're doing very well is we've done a really good job, investing behind opportunities where we see high returns. Definitely want to continue to do that. Also do, though, want to be diligent as we manage the core expense growth going forward. I think the last two years have obviously seen a noticeable uptick as we did work to lay that foundation, integrate acquisitions, really build a nice scale. But going forward, really want to focus on the productivity of the expanded global team that we have set forward.

All right. Great. Thanks. I'll hop back in the queue.

Thank you. And the next question comes from Brian Bedell with Deutsche Bank.

Great. Thanks. Good morning, and thanks -- and welcome, Jill, as well. Actually, just following on to that question, the prior one, as we think about the M&A strategy, obviously, you've built a substantially large global exchange through a series of acquisitions. But as we move into next year, should we be thinking about the focus on product introduction as opposed to more deals? And if we can think about how -- or if you can describe how the incremental margins may be favorable in product launches versus acquisitions. And what I'm trying to get at is, at what point do you think we can swing back to positive operating leverages as early as next year?

That's really great. Let me take the first part of the question, and then I'll turn it over to Jill and to Dave. We've always gone and looked at the approach of growth in two ways, and nothing more positive, nothing more rewarding than answering the questions from customers on how we can standardize some exposure, some risk that they have in their portfolio, whether locally in the U.S. or globally. So, we start here in our labs with solutions for customers at all times. We announced today a dispersion contract as an example of continuing to look to the marketplace and offering solutions for investors with different exposures. So, we'll always do that. They are incredibly high margin. You look at the Tuesday, Thursday, rounding out a daily offering. There's not a whole lot of investment in that. It's really listening to customers and delivering to the market what customers are asking for. So that is always going to be an approach, and our labs are here to bring solutions to customers. As for M&A, we do always keep an eye out for the jurisdictions that are open for competition in major marketplaces, and you've seen us do that. We'll always have our eye out on what can be next and making sure that we're in scale, but there is nothing that we think we need to do at any given time, especially right now. But our eyes are wide open. And I think, Jill, just the flexibility and the way you see our capital use and the balance sheet at this point, what that allows us to do, and then the philosophy going forward.

You bet. So, just from a capital allocation perspective, our strategy will remain consistent. The various levers or belts that we have to inform that, obviously, is investment in our business. That can either be organic, inorganic. We also have over time really grown the steady dividend rate. We'd expect that as well going forward. And then finally, share repurchases are a tool that we've utilized as well. And going back to the inorganic growth, we have, for certain acquisitions, basically financed those. As you saw during the second quarter, really did start to delever on the term loan that matures in December of this year. So, do have the leverage rate down to a very comfortable 1.4 times there. And again, just really wouldn't see any noticeable changes to the capital allocation approach. It's really a balance of those factors over time depending upon what the environment is.

That's great, color. Thank you.

Thank you. And the next question comes from Michael Cyprys, Morgan Stanley.

Great. Thanks. Good morning. Wanted to circle back to some of the commentary on pricing increases, something you could talk about. Which parts of the business are you contemplating making pricing adjustments? What's been done so far? I think you mentioned VIX back in April. How does this sort of compare to what you guys have done in the past? Thank you.

Thanks Michael. It's Dave Howson here. We -- during the quarter, actually more philosophically, we look at both our transaction businesses and our Data and Access Solutions businesses a little bit differently. On the transaction side, we continuously review our pricing to make sure we maintain a competitive stance and to ensure that we're reflecting the value of our offerings and also looking for where perhaps over time maybe the usage patterns of our products and some of the price schedules there has changed over time and requires changing. Also, we use it to try and encourage a greater diversity of flows. You saw that certainly through the second quarter. More broadly on the transaction businesses, if you look at multi-list options or U.S. equities, we constantly look to optimize for market share, market quality, revenue capture, and overall maximizing revenues across the franchise there. And then when we come to Data and Access Solutions, we had a 67 -- 77% came from new users and -- one second -- about 75% from new units, subscribers there. And on the pricing point, we generally look to see periodically where perhaps we've had our prices remain consistent for a while and look to review those to make sure that they remain competitive, but also remain in line with the general movement through time there. And so going forward as we look at the DnA group, we think there will be about a third of the growth there coming from pricing changes.

Great. Thank you.

Thank you. And the next question comes from Kyle Voigt with KBW.

Hi. Good morning. So, I think later this quarter, there will likely be some new competition in the multi-list options space. That's been an area where I'd say the competitive trends have been a bit more stable since the backfield. Your fee capture has been very stable over the last five years as well. So, just given it's not an area where we've really been focused much on recently from an investor standpoint, just wondering if you could give us an update on the strategy there, if there's a certain amount of market share that you want to defend there to support data or other fees. And also, if you could just remind us how much of the volume is on price time priority where there could be more direct competition.

Thanks Kyle. Yes. So, as you rightly pointed out, there's new venues coming to the multi-list options space in the coming months. And really what we look at there is, again, the balance between market share and market quality and revenue capture there, the RPC. And we see ourselves coming into this period with around about 27% market share, so a solid position there. The new entrants so far are looking at, as you mentioned, that price time maker/taker portion of the market, which today represents around about 20% of the overall market. And certainly, if the past is anything to go by, the pricing schedules there will be highly aggressive and really going for that lower margin type of business within that frame.

Thank you. And the next question comes from Andrew Bond with Rosenblatt Securities.

Hey, thanks. Good morning. Can you stand upon the opportunity for corporate listings, and specifically if CBOE plans to build out a team to compete with NYSE, NASDAQ in the U.S. for corporate listings, or will the focus be on international markets and the potential for dual listing in the U.S.? Thanks.

Absolutely. Thanks for the question, Andrew. Yeah. We're not going to be going for the big blue-chip listings that NASDAQ and NYSE have there. They're cool, but that's absolutely what we're not doing. What are we doing? We're using the existing infrastructure that we've built up over inorganic and organic initiatives over the years. We're using that footprint across five exchanges with the regulatory environment, the people, the processes, and the capabilities around the world there. And we're using and we're leveraging off the back of our existing ETP listings business. That is an ETP listings business which puts us at number two today in the United States. So, what are we doing in the corporate end of the spectrum as we marginally -- through marginal incremental investment there, we're able to leverage our platform, and that's across the trading, the market data, the indexing, our derivatives expertise to really engage with customers and issuers from a niche underserved portion of the market in that $50 million to $500 million market cap range. And these companies we're terming are the purpose-driven innovation companies. These are companies driven by technology, driven by research, and driven by the key drivers of the new world and the new economy that we see before us. And that includes companies like Cleantech, FinTech, Critical Minerals. And in particular if you take the example of Critical Minerals, we've got issuers in Australia who are interested in those investors who have appetite and interest in Critical Minerals companies in Canada. So that's a great opportunity for us to be able to give access to that global capital to those companies interested in global investors in partnership with our global liquidity providers and legal capabilities and common technology platform. So, really enabling us to, once again, use that global securities network we've built out to build with an unrivaled growth trajectory.

And Andrew, this is John. Just one point to follow on that last item that Dave mentioned strategically. This is really what we mean when we talk about building one of the world's largest derivatives and securities networks to drive growth and value creation. Now that we've touched seven of 10 largest markets, almost 80% of the world's GDP, the opportunity to create services and offerings that bind all that together, that add value for our global customers, and that drive revenue growth is substantial, and this is a great example of that.

Thanks guys.

Thank you. And the next question is a follow-up from Brian Bedell with Deutsche Bank.

Great. Thanks for taking my follow-up. Actually, on that last theme on the global footprint that you've developed, would you say you're in early innings in terms of being able to create a global product that can be used across -- for global customers? And I don't know if that's quantifiable yet. Maybe it's too early. And then just a couple clean-up questions. Are you going to be done with the CAT builds this year, or is that going to move into next year? And then also on that one-third pricing increase, or the DnA growth that you said is attributable to pricing. Is that -- was there any pricing in DnA that is helping this year's growth rate? Sorry for the multi-parts.

So, let's take these in reverse. So, Chris, maybe some comments on what we see and the process that you're aware of on the entire CAT exposure and build. And then, Jill, maybe you can come in on the cost and how we see that. It's not totally transparent. We'll say that up front. And then we'll get into the other two questions, Brian, if that's okay.

Yeah. Great. Thank you.

Hey, good morning, Brian. Yeah. So on the CAT build, our visibility, as we mentioned, is quite limited. We have some visibility, but it's limited, so we can't really say exactly when it's going to end. And Jill can look -- Jill can advise here on what she knows and what we know. But unfortunately, our visibility is going to be there.

Yeah. Just from a cost perspective, what we've included in our forward-looking estimates indicate our best expectation at this time. They do fluctuate, and we'll look to continue to refine those in the future as we get more information.

I think, David, if you could walk down the difference between a global product perhaps, and then the network effect and the data that comes off of these exchanges and how we've already tried to offer access to data and the differences in our data, and then, of course, the BITS network, which has its latest rollout expected in November. And we can talk a little bit about that. And then let me say up front, David, while you're getting your thoughts together, that what we recognize in the beauty of operating in different jurisdictions are liquidity providers are our biggest sources of global liquidity are in each and every one of the jurisdictions that we operate. So giving them through the technology migrations that Chris and the team have been rolling out, and again, we look to complete that in November in Japan, is a constant, repeatable expectation on how to view and to face Cboe and then global customers. So, in various stages of a global offering, and we can walk through a little bit, as I say, the data and access, but really from a liquidity provider, we want to be where they are, where their exposures are, and with global products, that's a little bit different. But go ahead, David.

Yeah. Absolutely. And it is early stages for us as well, as Ed mentioned there, with the ending replatforming of the Japanese exchange in November there. What we get from that, starting from not necessarily a tradable product, but as Ed said, a uniformity in interaction point of view, is that uniformity of the trading system, that familiarity with how the systems work, and the ability to be able to ingest data in a common format for our customers around the world. So, what does that mean? That means a low incremental effort for our customers to deliver new capabilities to their own customers. I'll give you a couple of examples, thinking about periodic auctions moving from Europe in equities to the USA in equities. Now the whole toolkit of the equities functionality we've got is now going to be available in Australia. It will be available in Japan in November. And with that comes the data and analytics capability that we can bring, and then bring that incremental value to our customers. And as Ed mentioned, part of that network build out is the BIDS network. Great traction, early traction from BIDS Australia, with the addition of the buy-side interaction coming in September of this year, and BIDS will also be part of that November migration in Japan. So then the 26 markets around the world are from that network, pushing out data. That raw data can be delivered in multiple forms to customers, either as a service or of the cloud. We saw 75% of our incremental revenue in cloud coming internationally from outside the United States, so great utility being seen there. And then from that data we can create proprietary data sets. We launched a short volume -- equity volume report this quarter, which gained really rapid early traction on the back of that open and closed data that we saw for the SPX there. So, as we see that network build out, we can really see the capability to bring functionality across the globe on the basis of that uniform platform. And then when you think about us moving up the value ladder, we can then think about tradable products, which are of interest globally. But already, actually, we've got our tradable products from our toolkit available on a 24 5 basis to customers around the world to trade during their trading hours.

Super helpful. Thank you so much.

And Brian, I think we have one more DnA question to answer regarding pricing, but -- this is Chris. On the global front, we've seen and we've mentioned this, we've already seen immediate access and data growth post-Australia migration. We expect something similar in Japan when that comes in November. And then Dave mentioned BIDS where we have, in September, adding the buy-side interactions as well. So, there's immediate improvements we get from platform migrations, but then there's also durable improvements and functionality that we get over the coming quarters as customers adjust and really plug in and dive into the new platform that's uniform with what they're expecting around the world. So, the network effect is quite durable. Dave, maybe back to you on the DnA question.

Yeah. Thanks Chris. We mentioned it in an earlier answer there that we made some changes in the early part of this quarter. We expect about one-third of incremental growth across DnA to come from pricing increases.

And that's relatively new, correct? In other words, it wasn't really in the legacy numbers in terms of the price increases.

There were always a portion of pricing increase there. It's a slight increase potentially there to the proportions, but it's not really a change in philosophy or approach.

Okay. Great. Great. Thanks so much for the detailed answers to the questions.

Thank you. And the next question is also a follow-up from Michael Cyprys with Morgan Stanley.

Great. Thanks for taking the follow-up. I wanted to come back to the Cboe Indices comment you mentioned about seeing good momentum there. I was hoping you could maybe elaborate a bit more on the momentum that you're seeing across Cboe Indices. Which of the indices are you most excited about? And can you talk about some of the initiatives to accelerate growth there?

Absolutely. A couple of channels I would speak about there. One is the Cboe Global Indices Feed themselves and then also the Cboe Global Indices Business. At the Feed, we began the exclusive distribution of Morningstar indices in this quarter and have seen some good enterprise sales there and see some good forward-looking pipeline there as well. And also, we've built out common APIs to allow us to onboard new data sets from new customers very, very quickly there. So, for low incremental lift, we can add to that distribution as a service for data providers and index providers alike. In terms of the indices where we see great traction is really in the derivative overlay benchmarks. And this is an area where we see beautiful flywheel effects. The derivative overlay indices forming those defined outcome products, which you see are really coming strongly to market in the United States and now globally. So, that's where the flywheel comes in, the ability for us to calculate these indices and then list the products that are benchmarked against those indices and then enjoy trading revenues and market data revenues off the back of that. So, I would really point to that defined outcome space, in particular for the derivative overlay benchmarks. And indeed, this quarter, we also began to calculate our own indices for our European index platform.

Great. Thank you.

Great. That completes our call for today. Thank you so much for your time and interest in the company, and have a great weekend everyone.