CME
#$900 million.
Can I just add something there.
<UNK>, let me just add something really quick here.
You know, we went down a couple million dollars in revenue in swaps clearing, but as you recall, a couple years ago, several years ago as we started to introduce clearing of swaps, there was a lot of people that thought that we would make anywhere between $500 million and $1 billion doing this business.
We went out forth very aggressively to price this in order to build up our core business and to grow the revenue in our core business.
And I think what <UNK> and <UNK> just walked you through is a couple million dollars down in swaps clearing, but multiples of that in our core business.
So I think that strategy really worked to perfection.
As you know, we don't give out guidance on volume, which is the main driver relative to clearing transaction fees.
But as we look at it as a management team, we were focused really on two things: managing our expenditures and growing our top line, and expanding our margins.
So you're right; we were expecting a very modest 1% increase in expenses and I think what we're looking at is two drivers.
One being our market data revenue, which we showed was ---+ where we showed the increase about 4% to 5%.
And then we've also used to lever in terms of pricing in our transaction fees.
We've provided a tremendous amount of value to our clients, so we have a 2% increase across the board in our transaction fees.
When you take a look at the month of January, we have had a record volume for the month of January.
We have seen large increases in our options complex.
So the things that we laid out to do ---+ growing internationally, growing our options complex.
We have taken the opportunity to adjust prices, so our top line is ---+ we are hitting on all levers there.
And on the expense side, one of the things that we are doing, like I said, is managing the expenditures very carefully.
And we have really focused on efficiency in light of security spending, regulatory spending, which we've made investments in over time and we are continuing to look at our technological infrastructure.
Also, we are looking at keeping our compensation relatively flat, as well, as we kind of manage the human capital here, too.
Rich, it's <UNK>.
With respect to the stress testing issue for clearinghouses, we invest significant effort already in various types of stress testing in the clearinghouse that we perform on a daily basis, including stress testing of the risk waterfall and the capital that's needed for CME to contribute to that.
So we would not anticipate any impact from minor changes in regulation there.
With respect to the CME exchange in Europe, there are plans to expand beyond the agricultural products and the FX products that are there.
And I will ask <UNK> to make a comment there.
Correct.
Sure, <UNK>; this is <UNK>.
We do have a venture group, CME Ventures, that has been investing in technology companies that we see as potentially being important to us in the long run.
So we have been investing in real-time payments.
We have been investing in blockchain.
We have been investing in big data, computing technology companies, and the like.
It's important for us because what we are able to do is, by making these investments, we can get kind of a view of the future, if you will, and bring that innovation back into the Company.
One of the things that we have a strong culture on is innovation and bringing this knowledge into the Company helps us in terms of our long-term planning.
Just to add to what <UNK> said, if you look at some of the emerging technologies and the investments that we have made, they translate very neatly into use cases for us.
And so there are a bunch of folks running a bunch of use cases across not just the payment and settlement side, but across many aspects of the operations of the firm, with the intention to reduce not just our cost, but the cost of connecting into our client base and, in turn, reducing our clients' costs.
Sure.
When you take a look at the RPC from outside the US, it tends to be higher than within the US, because those clients tend not to be members of the exchange.
They pay a higher rate.
So outside the US it's about 37% higher RPC than within the US, which in us ---+ when you heard <UNK> ---+ penetrating outside the US in the energy space, energy tends to be one of our higher RPC products.
So it's really ---+ it's an important growth area for us, both from a rate per contract, but also from a volume perspective.
I will turn it over to <UNK> to comment on the clients overseas.
Sure.
Thanks, <UNK>.
As I indicated in the prepared remarks, we are expecting a 4% to 5% increase in terms of overall market data revenue.
As you know, we are moving ---+ we have moved our grandfathered fee waivered clients from zero to $42.50 and now up to $85, the same as our other customers.
With respect to attrition and the like, we don't have that information now as we are going through the first billing cycle for customers at the $85 level.
So our base core, previously the non-grandfathered clients had remained relatively stable.
The grandfathered ones I think we will have a little bit more insight as we go into billing at the full rate.
<UNK>, would you like to comment on it from what you see from a customer perspective.
Sorry, <UNK>; this is <UNK>.
We generally have increased prices every two years and the last time we did it was two years ago.
I'm going to ask the chairman to answer.
This is <UNK> <UNK>.
Thanks, <UNK>.
You know, Pat, we have been working on the equivalence issue for quite some time now and we have been working with Chairman Tim Massad actually since the day he's been sworn in into the administration to take the role at the CFTC.
This has been a big issue.
This has been a long road working through all the different issues.
We feel very confident that we have gotten all the issues resolved.
I met with the chairman along with <UNK> and <UNK> and a few other folks just a couple days ago, and I assure you that Chairman Massad understands the magnitude of the potential market disruption if, in fact, the US is not deemed equivalent prior to the February 21 frontloading date.
So that being said, it gives us some comfort, but we would like to see it ahead of time.
That being said, we have seen some recent articles, I think in Risk magazine, where a couple of banks have made comments as to what they may or may not do come February 21.
And then you have heard from some other participants saying that they feel very confident and they are not overly concerned about this.
This is an issue that we are very focused on and we will stay focused on until it's granted.
But, again, I think the chairman has recognized that there could be market disruptions, and that would be the worst thing that could happen, not only to the US market but to the European participants as well, if equivalence is not granted to the United States.
So we feel confident that we will get this done.
Sure, this is <UNK>.
In terms of the JV, we are very pleased with our investment in our joint venture with McGraw-<UNK>.
The general drivers for the business are assets under management as well as license fees generated from exchanges that utilize their trademark and IP, so it would be primarily CME and the CBOE.
That ---+ so we end up profiting from activity, both from the move from active to passive investing, which is a megatrend in the investing space as well as trading activity, both from futures and options as well.
So we think we were very bullish on that business.
It has characteristics very similar to ours, a lot of leverage in their model.
And I think we are very optimistic in terms of the trends in investing and the position that the JV has globally.
This is <UNK>.
I just want to emphasize one thing that <UNK> touched upon a short while ago.
This is a testament again to the investment that we have made over the years in growing our salesforce around the world and that is ---+ and the deeper relationships and education campaigns that we have run in China.
The past two months, as the upheaval in China has intensified, we have seen a very large number of traders that are seeking opportunities outside of China, and that has been driving a significant portion of the international growth that <UNK> is referring to here.
You're also seeing the open interest for the entire exchange growing significantly, which is another thing that you did not see in the years that you mentioned.
So these things, together with the product development that has been done across the board, is what I would say differentiates us in this environment from the past ones.
Let me just give you my ---+ this is <UNK> <UNK> ---+ short take on that, because participants are interesting; they come and go and they go from asset class to different asset class.
But one of the things that we have been talking a little bit about this morning is the growth in the open interest in our options product.
And I really believe that when you look at options growth, that's what preserves your futures contracts.
That is what continues to attract new futures participants.
So we've done a really good job of bolstering our options products with the growth that we've seen in them.
Now you got to realize, they don't turnover as much as our futures, but what they do is they help the risk management product, which is a futures contract.
And you need to have bigger growth in your options in order to garner more participants in your futures and that's exactly what we are doing.
So we expect that mix ---+ it always goes up and down, but this is something that I have never seen in my 36-year history, to see the options growth outpace the futures growth.
And that's a great, healthy sign for this company.
Thank you all for joining us on this call and we look forward to talking to you in the next quarter.
Thank you.
