CME - NASDAQ

Welcome to the CME Group First Quarter 2024 Earnings Call. [Operator Instructions] I'll now turn the conference over to Adam Minick. Please go ahead.

Good morning, and I hope you're all doing well today. We released our executive commentary earlier this morning, which provides extensive details on the first quarter 2024, which we will be discussing on this call. I'll start with the safe harbor language, and then I'll turn it over to Terry. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statement. Detailed information about factors that may affect our performance can be found in the filings with the SEC which are on our website. Lastly on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures. With that, I'll turn the call over to Terry.

Thanks, Adam, and thank you all for joining us this morning. I'm going to make a few brief comments about the quarter and the overall environment. Following that, Lynne will provide an overview of our first quarter financial results. In addition to Lynne, we have other members of our management team present to answer questions after the prepared remarks. Our performance in the first quarter was strong evidence of the ever-growing need for risk management globally. First quarter average daily volume of 26.4 million contracts was the third highest quarterly ADV in CME Group's history. The only higher quarters were first quarter 2020 at the onset of the pandemic and the first quarter last year, which was impacted by the significant bank turmoil in March and created the much tougher comparison for March 2024. Despite no specific macro event or change in Federal Reserve rates occurring in Q1, we had the highest January ADV to date, up 16% year-over-year, and a February that included the highest monthly interest rate ADV in our history of 17.2 million contracts, or up 6%. We achieved quarterly ADV records for both treasuries of 7.8 million contracts, and the overall options of 5.9 million contracts. Both equity index and energy options reached all-time high levels. Our non-U.S. ADV also reached a record level of 7.4 million contracts. This is driven largely by 38% growth in energy, 29% in ag products, and 7% in metals. In total, we delivered 14% ADV growth across our physical commodity products to 4.7 million average daily volume, which included 16% year-over-year growth for both energy and ag products. This strong first quarter activity across our business lines helped generate record-adjusted quarterly financial results, which Lynne will detail in just a moment. Activity so far in April has continued to build on many of these trends. Following the strong first quarter of our physical commodity asset classes, they are up 26% to date in April as of April 22. Metals ADV specifically is up 76%, and the complex reached its highest daily volume in history at 1.7 million contracts on April 12. On the financials side of the business, the CPI released on April 10 was a great example of how important every data point is for the market to adjust positions to manage risk. We reached nearly 44 million contracts traded that day, and the wide range of views around the health of the global economy and the nuance related to interpreting the many different economic indicators continues. As a result of the strong market dynamics, year-to-date through April 22, our ADV is up 4%, including year-over-year growth in all 6 of our asset classes. CME Group continues to provide deep liquid markets across global benchmarks to deliver the most operational and capital efficiencies to market participants. CME Group's multi-asset class offering is in higher demand today than ever. I'm now going to turn the call over to Lynne to review our financial results.

Thanks, Terry, and thank you for joining us this morning. During the first quarter, CME generated nearly $1.5 billion in revenue, up 3% from a very strong first quarter in 2023. Within the physical commodities asset classes, quarterly revenue was up 14% year-over-year and represented approximately 1/3 of clearing and transaction fees in the quarter. Market Data revenue reached a record level, up 6% to $175 million. Other revenue increased 37% to $104 million, largely due to the increased noncash collateral fee implemented in January. Continued strong cost discipline led to adjusted expenses of $462 million for the quarter and $374 million, excluding license fees. Our adjusted operating margin for the quarter was 68.9%, up from 68.2% in the same period last year. CME Group had an adjusted effective tax rate of 23%. Driven by the strong demand for our risk management products, we delivered the highest quarterly adjusted net income and earnings per share in our history at $911 million and $2.50 per share, respectively, both up 3% from the first quarter last year. This represents an adjusted net income margin for the quarter of over 61%. Capital expenditures for the first quarter were approximately $16 million and cash at the end of the period was approximately $1.7 billion. CME Group paid dividends during the quarter of approximately $2.3 billion, and we have returned nearly $25 billion to shareholders in the form of dividends since implementing the variable dividend policy in early 2012. We're very proud to deliver the best adjusted quarterly earnings in our history and are pleased to see this strong start continue into the second quarter. Year-to-date through April 22, 42, or more than half, of our trading days have been over 25 million contracts versus 28 days last year demonstrating more consistent, higher demand for our products. At CME Group, we continue to focus on providing the risk management products needed by our clients and driving earnings growth for our shareholders. We'd now like to open up the call for your questions.

[Operator Instructions] The first question in the queue is from Chris Allen with Citi.

I wanted to focus on the U.S. Treasury complex record activity in the quarter. Obviously, there was a lot of chatter out there where maybe somewhere peak rate activity does not seem to be the case. But maybe how you're thinking about the U.S. Treasury complex? What's driving it? Any color on the impact from the CME DTCC cross margining? And then also U.S. Treasury clearing, which you applied to clear cash U.S. Treasury. How are you thinking about that from a structural impact perspective, but also if there's any revenue opportunities around that? Sorry for the multipart question.

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. So I just don't see anybody can draw a conclusion that this is the peak of that activity. Activity should generate more if, in fact, the Fed does cut so that would generate more activity. It doesn't need to just go up in order to generate activity, as you know, Chris. So I would say that a far away of saying that we are not near a peak as it relates to activity in the treasury market. As far as the DTCC and the clearing, I'll let Tim and Suzanne respond to that, respectively.

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. So holistically, those capital efficiency solutions, I think, have been a great story for market participants in achieving record savings over time and continued consistent savings for the first quarter of this year.

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. So when we look to where the total net issuance is currently occurring in Q1, while it was little changed from Q4 in terms of the net issuance, it was much more coupon heavy than previous quarters, and when we look at the treasury ramps up the notes and bonds to issue the finance these growing budget deficits, that plays very well into the complex of the products that we offer. And as Terry said in his remarks, furthering the growth that we've seen where the treasury complex had a record Q1 of 7.8 million contracts across futures and options and we expect the general issuance backdrop to continue to be a tailwind for that [indiscernible].

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. Now people are going anywhere between 0, none and somewhere in between that. I have no idea what's going to happen, but there's a big difference of opinions out there, which had also generated a tremendous amount of activity. One of the things we don't talk about, and we haven't talked about since SVB failed, was their duration risk. And I'm not suggesting others are going to fall into this. But the longer that rates are higher, you have to think that others are watching this and need to make sure they manage that risk on duration. So I think that's an equation that most people that are sitting on these treasuries was not put accounting for, say, just as little as 3 to 6 months ago.

Appreciate the color. Anything on U.S. Treasury clearing?

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.

The next question in the queue is from Dan Fannon with Jefferies.

I was hoping to get a little more color on some of the activity in the commodities and metals markets. Maybe talk about the health of the customer, given the robust increase in volumes, has there been any change in position limits or other things that might potentially curtail some of the activity that's been happening?

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. ] We saw a significant run-up in participation and growth, and we've actually seen very healthy activity and participation across each of our client segments. When you look at kind of the spread of activity in that market, it's a market that has very healthy participation across not just the commercial participants but buy side as well. And you've seen that activity increase and accelerate. In Q1, we saw really nice growth on the base metal side of the business, up 15%. There's a lot of questions there about global growth, questions around China and electrification generally of the grid globally that's typically really good for markets like copper and aluminum, where we're seeing records in the early stages of our aluminum growth there. So when you look at the growth of the activity, we see it healthy across client segments, we're seeing significant growth across regions and our options business, as Terry said earlier, set records, not just for options, but the full complex in April. So very happy with the client growth, very happy with the product growth across asset classes and across regions as well.

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. We're seeing a big divergence into these metals from people that used to participate that have gone other places. That's really fascinating for us to continue to see. But the bigger part of the picture is all 6 asset classes are humming along. So I think it's really healthy for a client across CME.

The next question, the queue is from Patrick Moley with Piper Sandler.

So Terry, for a few quarters now, you've expressed an openness to potential M&A as an avenue of future growth. So we're just hoping to get your updated thoughts on M&A and kind of the areas and asset classes that you're focused on when it comes to potential M&A opportunities.

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. And again, that mindset has not changed. One of the things that we are obviously excited about is what I just said, all 6 asset classes is going at the same time that may open up different opportunities as it relates to some potential M&A activity if we see something. But again, we're not out shopping at the moment or anything, but we are always open to looking at something that's of value to our clients and shareholders. And what was the other part of your question, Patrick?

No, you hit on all of them. That was great.

The next question in the queue is from Alex Kramm with UBS.

Just a quick one on market data. You pointed out some kind of like onetime-ish episodic revenues here. I think one was audit, and I get that but the other one was on derived data, and that was a bigger number. So maybe you can just remind us why that comes with sometimes episodic revenue. But then bigger picture, I think a few years ago, derived data was a big new initiative. And we would hope that there's maybe a little bit more of a stable revenue source at this point. So maybe you can just give us an update where we stand in particular, as it also pertains to what you're doing with Google on the market data side.

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. As it relates back to those more episodic and sporadic revenues last quarter, right? Certainly, we've talked a lot about the unpredictable nature of the audit. And if you think about derived that there's 2 pieces of derived data revenue that typically an annual component of that as well as a variable component. And so there were some true-ups that we saw, it does bring up, I'd say, consistent revenue and these are contracts that are up for renewal. So I think we do see some -- certainly some repeatability with the subscription and the nature of those agreements but because of those 2 different components. There is some spikes to them occasionally, and we did see that happen in this particular quarter. And I'd say as it relates back to commercialization more broadly, definitely continuing to work with Google in our initiatives there. We've been very clear for the onset that our data business is a priority as we think about trying to deliver our data in new ways and new solutions with them. And that work has tied throughout the quarter. And so I think in one particular example, right, we've talked about the transaction cost analysis and TCA work. That is in production today and is being used by our business teams and with our clients to make better business decisions, the broker tech [indiscernible] change that we're having in the 7-year coming up just a couple of weeks with specifically developed as a result of being able to leverage this tool. So we're working to be able to share that directly with clients. But for now, I think that is a good example of the innovation that we're driving with our partners at Google. Over to Sunil.

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. Craig, we have you listed as the next speaker. Are you there? Any of us or any out there, can hear us. We're having a little trouble hearing the other side come in. So we're not hearing anything. [Technical Difficulty] Bear with us for one second to see...

Craig line is open.

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. And even the underlying market is becoming more and more electronic. So we think that the velocity of this market will continue, the needs to hedge this market will continue as people become increasingly aware of managing their credit risk and to your point, Craig, we expect to offer margin efficiencies, introducing capital efficiencies to enable our clients to manage their risk is something that is tried and true here at CME and early indications, which are always subject to change, we think there will be a 70% margin offset between the U.S. Treasury futures and the investment-grade credit future and 50% offsets against our E-mini equity benchmarks for high yield. Lack of the margin efficiencies in prior products and prior offerings is something that we believe and what we're hearing from customers was a key hurdle for some of the other offerings to become successful. So to Terry's point, while we can't necessarily predict the future, we are optimistic, we're hearing great things from clients given our ability to offer offsets against our asset classes in the base F&O fund and our unique leadership positions in the price formation of the associated asset classes, we certainly like to see what we can do with that coming June when this contract goes [indiscernible].

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

Our next question is from Kyle Voigt with KBW.

Maybe a question for Lynne. I noticed that $750 million of debt moved into the short-term bucket this quarter due to the expiration coming in early in 2025. You're below your historical target leverage level of 1x. And I think you could even issue $1 billion of additional debt from current levels and still be below that threshold. I guess, would you consider increasing gross debt levels with upcoming refinancing to include that cash as part of the annual variable next year? Or should we think about the debt simply being refinanced at current levels? And sorry to squeeze the second part of this question in, but could you also remind us how you think about maximum leverage in a -- if the right M&A opportunity were to present itself?

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. So we'll certainly be evaluating our approach for those bonds as we go through the course of the year. Certainly rates are higher now than when we did that issuance. So we will take that into account, but we haven't made any decisions on level of refinancing or how we will do that at this point. In terms of the maximum target for M&A, we do value our strong investment-grade rating. So that's where we came out with that 1x target. Certainly, there is flex up in an M&A context, given the fact that we do generate a lot of cash and would be able to pay down that debt relatively quickly. I think it would all depend on the circumstance and the transaction if we were to execute how far we would go on the leverage. So I don't have an exact target for you, but it's something that we do try and balance the use of debt and equity in our transactions as you've seen historically.

Our next question Brian Bedell with Deutsche Bank.

Maybe just come back to the treasury futures complex. To what extent is the portfolio margining in agreement with D2C contributing to the strong volume growth? Or is it just more of a side share relative to the other market dynamics? And then from the -- I appreciate it's very early [indiscernible] for this treasury dynamic but would that potentially change the gross margining agreement with DTC? And if I could just squeeze in one more. I didn't see the revenue for EBS and BrokerTec for quarterly summary. I don't know if you can comment on those for 1Q.

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.

Yes. Yes. Maybe this is clear. I was on my headset. Basically the contribution from the portfolio margining in your treasury volumes. Just to sort of categorically is it really helping? Or is it really more of the market dynamics? And then the back to the treasury clearing question, maybe it's early days, but does your application complicate things with the DTC agreement?

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. Tim McCourt may be able to chime in a little bit on his thoughts there about the growth in that activity. But generally, our focus with the DTCC continues to be growing the participation in that program as well as extending that program to customers. So it's something that we've been working very closely as partners on and it's still important to us and thinking about the clearing mandate and bringing to market more efficiencies for those end clients that could be impacted by the current mandate as well.

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. Along that, our interest rate complex has doubled in sort of volume and open interest. And that is the testament to believe if we focus on unlocking capital efficiencies for our clients, enabling them to more efficiently manage their risk, we would expect any further capital savings to have similar effects, but hard to say sort of what that coefficient of growth might be but we think it is a tailwind for our complex and the more we can do to unlock those savings, the better we will do on the transaction side for futures, options and [indiscernible] at CME.

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. We didn't create the mandate that's coming at us in 2026. We have an obligation, as I've told my friends at DTCC that we have to go through with this application. We don't know what's going to happen in 2026 when the mandate kicks in, what the market structure is going to look like? Is it going to change? It couldn't be the same? But I can't wait until 2026 to file an application. So that's why we're doing it now. We are being prepared. And if we are going to use it, we'll use it and if it's not necessary because the better offering comes out of DTCC, with the efficiencies for the clients, we will stay with DTCC. So that's really where we stand on the relationship and the application if that makes sense to you.

It's a great answer.

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.

Right. Okay. And between EBS and BrokerTec were similar to Q4?

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].

Our next question now is from Alex Blostein with Goldman Sachs.

Question on the energy markets for you guys again. Definitely good to see momentum in overall volumes picking up here in April and over the course of the first quarter, but it looks like the market share trends between you guys and ICE and WTI continue to kind of move a little bit more towards ICE or those share gains have been relatively sticky. You gave us a bit of an update, I think, last quarter on like the underlying composition of the mix kind of what's been driving that. So hoping you can update that and give us a sense of whether or not you're seeing any shift in the kind of underlying producers, consumers, more kind of core user base there. And if CME's working on anything to kind of call some of the market share back.

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. And again, the way we count market share is all of our different products that we have, including our Gulf Coast contracts that we did not maybe point out is clearly over the last several years, so I don't see the market share that you're referring to in Q1. As it relates to the other part of your question, I'm going to ask Derek to answer.

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. When you look at energy being a key contributor to our non-U.S. growth, our non-U.S. growth in energy was up 38% this year as well as our record options volume up almost 60% and that's helping to drive a strong RPC of a little over $1.33 in the energy business. When you look at the core benchmark products, and I'll come back to the point Terry just made, when you compare our WTI contracts to ICE WTI contracts, our market share in Q1 was flat with Q4 about 74%. When you look at our WTI options against ICE WTI options, we actually saw an increase in market share to 89% from 86%. So where we compete directly with ICE, we are either maintaining or growing that market share. So but let me talk a little bit about what's actually going on. When the U.S. is actually producing and exporting crude oil at record levels, follow that physical flow. And what does that mean? That means we have new and record amounts of non-U.S. customers that have exposure to U.S. crude and also Henry Hub to the same degree. So that's an increasing set of customer participants that we have not seen before, which is why when you look at where the growth is happening, in our WTI complex, particularly, we're seeing our non-U.S. WTI growth of up 30% and our commercial customer is up 21%. So the very customers, whether it's the buy side or the commercial customers that are looking for that open interest and looking for the best exposure for the energy markets are coming to [indiscernible] WTI to manage that risk. The other parts of the franchise that Terry talked about, our WTI franchise isn't just our WTI futures and options. It's our grades contracts, which continues to grow. We actually just exceeded our open interest in our grades contracts exceeding 600,000 contracts that's up almost 50% year-on-year to a new record. And Alex, that's important because 80% of that open interest holding is with commercial customers to have exposure to the global export market out of the U.S. and into Europe and Asia. So when we think about that growth in the client segments and the regional growth, it's reflective of the physical flows going out into the rest of the world. Pivoting over to the benchmark Henry Hub side of the market, I'll say similar things to what Terry just talked about. When we look at our Henry Hub franchise, compare that to ICE's Henry Hub franchise, you actually see that not only have we set a record total Henry Hub volume for futures and options in first quarter of this year, but we've also hit records of underlying options as well. From a competitive perspective, we actually grew our market share to 81% versus 80% last year, and that's up from 77% in 2022. And our options business was actually up as well. I think we're up at 66% market share, up from 59% market share last year. So we want to be clear, and I think Terry laid this out well, in the markets where we have competitive dynamics, where we have our Henry Hub contracts against listed elsewhere, our WTI contracts against listed elsewhere. We're maintaining stable share and we're growing the OI. So with that, I'll pass it back to you.

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

Our next question now from Ken Worthington with JPMC.

I wanted to extend the competitive landscape question to rates, FMX is launching later this summer, do you see merits to the FMX value proposition? If so, which customer segments might FMX be best positioned to pursue and given that all have tried to compete with CME and rates in the past and have failed, what would you need to see to conclude that FMX might be different?

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. We have about as much information as everybody else does and what their offering is, which is 0. I don't know what their offering is. And I won't say that the party, but Tim just referenced our one pop margining that saves an additional $7 billion to $8 billion a day. We also have an additional offset with FICC, which we just got approved which we have multiple clients using today that are exceeding 80% efficiencies using that service that we offer today. So we think we have a really strong offering going forward against whoever wants to compete in this product or any of our other asset classes. So we feel like we're in a good position. We believe that capital efficiencies are the name of the game and you have to have them. And if you want to just do a me-too strategy, then people will do that. It's a very attractive business. I get it. But again, I think you have to have the capital efficiencies. It's hard to walk away from $7 billion to $8 billion a day in efficiencies, and it's hard to walk away from an additional 80 plus percent that they are receiving associated with FICC now and our new offering that we just accomplished in the last several months. So I think that's very powerful, and that's all I'll say about what they're doing.

Our next question from Owen Lau with Oppenheimer.

So just a quick one on the expense guidance. First quarter adjusted expense was lower than our expectation but you maintained the full year guidance. Is there any investment that you paused in the first quarter that you expect to incur over the next few quarters? Or there is some conservatism picking here?

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. So we do see some of those items growing as we move forward. And then we do typically see that higher spend related to marketing events in the fourth quarter. So there wasn't a particular pause. I just think it's timing on some of these project-based spend that we still expect to come through in the course of the year, making us comfortable with our guidance.

Our next question from Michael Cyprys Morgan Stanley.

Just wanted to ask a question on the cash rate, BrokerTec business and interest rate swaps. Both of those have seen a bit more limited growth. I was just hoping you could unpack some of the drivers moving pieces there that you're seeing maybe you could touch upon the competitive landscape, how you see that evolving? And what sort of potential uplift could we see to the BrokerTec business and interest rate swaps business from the cross margining benefits that you have noted here on the call? And then maybe you could speak to some other initiatives that can help accelerate growth as you look out over the next year or two.

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. We still do get some of the risk layoff and the risk recycling into the club. So given the backdrop, not surprising where we are, but it's important to note that when we look at the U.S. Active club, that's only one part of the story for BrokerTec. U.S. repo had a strong quarter where that year-to-date ADV is just about $300 billion per day. That's up 5% year-over-year. And also the value prop of the BrokerTec platform remains extraordinary. It's important that we focus on the totality of the risk management capabilities, myself and the team look forward to engaging with all of you in the other parts of our business to better understand and showcase things like repo and BrokerTec quote, which is now up to an impressive $45 billion to $50 billion per day. When we look at the interest rate swap business here at CME, still having a very strong quarter here in Q1, so seeing all sort of near record levels in the major 3 Latin American currencies that we clear. That is a growth story, but it's really important to Terry's earlier comments, these are all pieces of how we approach the totality of managing risk for the interest rate complex and the needs of our clients. These things go together. It's important that when we look at what we've been able to achieve in OTC markets, what we've been able to do in providing continued risk management for BrokerTec, that's alongside record futurization in the treasury complex where our futures and options at CME remain the leading center of price discovery and risk management. The treasury future is now at a record 113% of the cash market in terms of the value being traded every day. So you really have to look at all of the pieces of the puzzle together to understand the breadth of the offering here at CME...

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.

Our next question now is from Simon Clinch with Redburn Atlantic.

I mean most of my questions have been answered already, but I was wondering if you could just walk through sort of where we are in the long-term progress with the Google Cloud migration. And I'm curious as to -- if you could talk about the sort of innovations that you are coming up within partnership with Google to sort of deal with the back-end aims of that migration in terms of moving the rest of the business to the cloud, dealing with your co-location clients and things like that. So it's quite longer-term stuff, but interesting numbers.

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?

Yes, that's right.

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. So -- and when we get that, we'll make that final decision. But we have not seen that product yet. So it's -- they're working on it. And Sunil and his team are working on it. So we can't answer the back part of that question just yet. But Sunil can answer the beginning part.

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. We have over 26 petabytes of rich historical information that includes our market data, instantaneous order book. So this information will be available for monetization in the future. We are adding to it risk information as we are migrating our clearing workloads and the risk information will be risk scenarios. And I spoke to that later as far as monetization of those in future cycles.

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

Our next question is from Benjamin Budish with Barclays.

Maybe just following up on the last point on the market data side. Can you maybe talk about how you think about the longer-term growth potential of that offering? So it sounds like there's plenty of other opportunities to kind of increasingly add value to the package there. What about in terms of the client base? How do you think about the penetration of potential subscribers versus opportunities to kind of enhance what you're adding?

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. We're here to manage risk and our ability to be able to provide them data and insight much faster, we believe we match to help our data business, but also be additive to [indiscernible]. We continue to see strong demand on the professional subscriber side, drive data, as we talked about earlier, putting those onetime activity aside from [indiscernible] Q1 and we're still seeing strong plan and that is really a product [indiscernible] benchmark and that price discovery that we're [indiscernible]. I'd say the participation regionally has also been extremely strong. And I think, selectively, we [indiscernible] just we have to continue to provide data set offering and to access to it but how are we leveraging our [indiscernible] that more attractive as part of the package? We had record cross-sell across [indiscernible] last couple of years to really making sure we are selling data and those services alongside our existing relatable products [indiscernible].

We now have a question from Alex Kramm with UBS.

Just I wanted to pop back in for a model cleanup. Can you just, unless I missed it, give us an update on cash and noncash collateral rates you've realized, et cetera, stuff that I often ask anyways?

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.

Any update how that's trending? I think cash seems to be trending a little bit softer, but maybe a quick update. I know it's only been 3 weeks.

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.

Our next question from Eli Abboud with Bank of America.

This is Eli Abboud from Craig's team. Given the prospect of new competition, I was hoping you could speak to the size of your network and interest rate futures. And maybe more specifically, how many unique firms are providing liquidity in rates futures on a daily basis? And when you look at the top handful of market makers, what proportion of liquidity provision are they accounting for?

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. And to your question, while liquidity providers are an important part of this ecosystem, they are not the only part. We have a mix of customers percentage with different trading and risk management needs that leads to the efficient transfer of risk when the market and our participants needed most. If we look to the growing and record-setting ADVs in our complex or treasury futures and options, as Terry said, almost nearly 8 million contracts per day, we have record daily open interest levels in our combined futures complex -- sorry, combined rate futures complex of over 33 million large open interest holders topped a new record of 3,300 large traders just earlier this month. And again, the capital efficiencies we've talked about at length on this call. When you combine all of these things, it's fair to say our network is immensely strong global in nature and is vital to allow our participants to continue to manage their risk.

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

Our next question from Brian Bedell with Deutsche Bank.

My name is on the cash collateral, but I will squeeze one more in on rates, if I can. The basis trading, just if you want to -- if you can comment on your view on how that component of trading may continue to progress through the year. Clearly, there's a lot of value in the arbitrage process there. And of course, Tradeweb has made an acquisition of a systematic trade rates in. Do you see that as expanding the activity in basis trading or the other way around?

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. So it's important for us to make sure we're working with all of the participants, whether they're banks, hedge funds, market makers or even other providers such as Tradeweb that you mentioned, they're all connecting to see me on the future side of the transaction so that's something that when we combine these assets together for BrokerTec and CME, that's a very hard thing for the marketplace to replicate. So it's an important trade. It's continuing, and it's something with the rate environment we're in, we do expect it to continue, but hard to say if it will continue to grow or shrink from here. The important part is when clients need to manage that risk, we have both tools here at CME for them to be able to keep up.

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

Our next question from Owen Lau with Oppenheimer.

I know it's not material to your financials, but it's getting much attention recently. If the [ SEC ] were to defer security, how would CME respond to it?

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].

Our last question today from Michael Cyprys with Morgan Stanley.

I wanted to circle back on the Google Cloud migration and your migration of clearing services and market data to the cloud. Just curious how you think about new services that you could provide customers over time as well as new revenue monetization opportunities over time. And if you look out 5 to 10 years, I guess how do you see the evolution of your business as more of it over time will be moving to the cloud?

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. The next thing we are going to introduce for our clients is optimization. We've talked a lot about portfolio margining. We've talked a lot about portfolio margining with multiple risk pools. Optimization is the ability to give clients the tools to move positions between these risk pools to get the best margin treatment. And we are speaking in that way. We're one of the clearing houses that provide fee services. So we are making that available on Google Cloud as well towards the end of this year as we migrate [indiscernible] Following that, we are releasing a few APIs to some of our services that can be accessed by our clients, our FedWatch API, which gives clients ability to participate in Fed actions that in our markets is now available. We have clients taking advantage of that. So I'm going to forward that now to Julie to talk a little bit about [indiscernible]...

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. Our -- we can provide much more customization. For example, with the offering that we have today been live for a number of years [indiscernible] with Google. Customers can come to us if they just want say crypto data as one particular example. So it's a lot more flexibility, I would say, in the data packaging and the offering and the distribution. It allows us to also package that data in a way that it's much more consumable to our clients. And we're working with our technology piece also find ways where we can create cloud environments where customers are taking the data for many different sources. So can we create, say, secure environments where they can bring in CME data and use it alongside their existing data, and we believe there's some commercialization opportunities among that as well. And as I mentioned earlier, if you think about analytics and APIs, there will be commercial opportunities there. Some of that building on analytics that we already offer, but also how we're going to look to build new things that is going to take a little bit of time. And so I think I would think about that more of a slow burn as we set up those commercialization opportunities. And ultimately, right, it's about how we have this data reinforce both the [indiscernible] that we're providing to our customers and also our transaction-based businesses.

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].

This is the operator. I apologize for the technical difficulties experienced. Thank you very much for your patience. Now I'll hand it back to management for closing remarks.

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. I think that points to the health of the client and the expansion of the client and Julie Winkler and her sales team are out there creating new [indiscernible] and people are managing the risk. And we're saying that because open interest year-to-date is also up across all 6 asset classes. This is exactly what we've been talking about over the last 1.5 years as we talk about risk and needing to manage that risk. They're doing it across the board and new participants are coming in. That's a very expected [indiscernible] CME group. That being said, I want to thank each and every one of you for participating again today, and be safe.