NDAQ
#I would say, first thing is we always judge our effectiveness first before we get to efficiency.
What that means here is we're certainly looking at non-financial metrics, and I think you touched on a few of them.
I pay paid close attention to the number of participants that come in on a daily basis.
We were in the 20s through most of last year, getting to the high 20s now, we're getting to the high 30s of number of daily participants.
That's good, so we're spreading through the community.
We look for our progress in particular instruments.
We look, obviously, at the overall scheme but we're trying to focus on a couple different instruments, most notably nat gas options, and to have double-digit market share in that space.
So, we focus on that.
We also look at the total number of contracts we trade.
We look at the break down between trade reporting and central limit order book trading that's done.
And then last and probably most important is the open interest.
As I referred to in my comments, we had over half a million contracts of open interest, which is well beyond what we thought we would be at this stage of time.
So, increasing engagement from the community, increasing participation, and we're hitting all the metrics we need.
With respect to a direct answer to your question, I think the financial metrics come to play in and around mid year, going into the second half of this year.
But right now we would like to get to higher average daily contract rate and obviously increase our market share in certain targeted products.
But so far so good.
<UNK>, it's really both.
I think that what we see, we see margin upside, both from continued elimination of some redundant expenses, as well as revenue growth in the business as a whole with higher margins.
We will take it any which way we can but I think both will be contributors here.
Sure, thanks for the question.
The first thing I would say is SMARTS has really three different markets that we're trying to serve at this point.
We have the exchanges, which was the original business for SMARTS, and it's the longest-standing business.
It's a deployed solution out to the clients we've been selling through exchanges for many years, as well as to regulators.
I should say exchanges and regulators.
And that continues, as you can tell, to grow in terms of new exchanges, taking our solution like Nigerian stock exchange most recently.
But that's a longer sale cycle.
Obviously there's a finite number of exchanges, but we continue to find real success there, and that's a more mature part of our business.
The broker-dealer community is the second community that we have sold to, and that's a newer part of our business but definitely the fastest growing.
We actually surpassed 1,000 users this year, and we were just thrilled with that.
We, in fact, sent them a small gift.
And I think that it's really exciting to see continued double digit growth in that part of the business as we continue to find striking demand for trade surveillance solutions across the broker-dealer community.
In the year, over the last two years, we've made it so it's multi-asset class and it's every geography, so it really can serve any and all trading firms in the world.
The third community is the buy-side community.
And for the first time this year, we do have three buy-side clients who have signed up for the service.
And we have chosen to invest through our R&D program to build out a more fulsome buy-side solution for this trade surveillance.
So, buy-side firms, both hedge funds and traditionals, are really becoming much more sophisticated in their trading operations, and they realize now that they need sophisticated tools to couple with the sophistication of their trading strategy.
We believe that that will be a new area of increased demand for us for the SMARTS service.
We also are looking at how we can integrate more machine intelligence into the solution.
And we have been discussing how to integrate even more intelligence to make it more useful across the platform in terms of compliance and trade supervision.
So, that's a quick synopsis of the SMARTS business but it really is a great business for us.
That's a difficult question for me to answer directly.
You'd have to talk to them.
But I'll just make one comment on the topic.
Certainly, we think it is time for a redo of Reg NMS.
And I also think Reg NMS deserves some credit in that we had a duopoly kind of situation before Reg NMS came along, and we've seen a dramatic decline in spreads and effective transaction cost in the market.
It served a purpose for a long period of time but we certainly think refinement is in order.
With respect to IEX, our position is it's thoughtful, it could be innovative, and is very similar to what we had suggested to the Commission back in 2012.
They told us it was not in either the letter or the spirit of Reg NMS, and said we could not do it.
So, our position with IEX is that it really should be after there's a rethink of Reg NMS and how do we get the new market structure in place, and then let innovation develop under the new set of rules and not patch work and try to get exceptions under the existing rules that exist.
I would say, yes, we certainly see blockchain adoption coming in public market equities, but we'll not predict when.
Certainly that will take a village to get there.
To move from the legacy infrastructure that is ingrained in everybody's infrastructure is not an easy thing to do.
So, we'll be involved with those conversations and an active participant but when you think of NASDAQ and blockchain you have to think of us being focused on what's the art of the doable, what's pragmatic and what's possible.
Obviously with NASDAQ private market, it's the beginning of time so we were able to create the experience we wanted.
We're looking for similar type opportunities.
We want to have use cases where we can deliver and get paid for and bring real value today.
So, as I said in my prepared remarks we're committed to proxy voting in Astonia.
They have a rule set that will allow us to do that.
We have about three other use cases, which we'll not announce today but are very close to being funded.
And those use cases will have a common theme, that they will be doable, we can deliver it, and deliver real value and not get wrapped up in the allure of blockchain technology but focus on blockchain to enable real products that customers want to pay us for.
While <UNK> looks at the exact impact, I'll answer the second part of the question.
As we work with a very broad set of clients, we have over 70 marketplaces around the world that will leverage our technology, they have things that they want to do to enhance that technology over time.
It may be a new feature, a new product or asset class that they want to bring into their marketplace, and maybe speed they want to continue to enhance their speed or enhance their volumes, and then maybe regulatory changes they have to make to be able to manage through the regulatory environment they're facing.
In all of those cases that would be a change to the original scope of what we built for them and, therefore, they come to us and they ask us to size out and work through enhancements and change requests associated with the technology.
In general, I always think of it, in general, as somewhere in the range of a $20 million annual revenue stream to us, but it can fluctuate year over year.
I'm going to turn it over to <UNK> to answer the specific question.
<UNK>, the change request variance from the prior year was, on a year-over-year basis the increase in change request was $5 million.
That gives you some context now.
Also keep in mind that's on a reported basis and so a portion of that revenue is going to be subject to the FX impact that we have.
I would estimate it's probably proportionately in the $3 million to $4 million of an organic impact relative to market technology revenue as a whole.
Sure.
In the information services business, as you know, we operate two sub businesses, the index business and the data products business.
And we look at product development across both of those areas.
Clearly in the index space we work very closely with ETF partners to launch new products that they believe will have investor demand around thematic indexes.
And we can do that now with the AlphaDEX index family with First Trust, we can do that with our dividend achievers index family, our buyback index family, and Dorsey Wright index family.
So, we have a broad range of strategies that we can deploy through new products and we do that on a regular basis.
With regard to data products, we do a lot of work with our clients to look at new ways that we can either present our data, provide new technologies around our data like FPGA technology, to deliver some of the data that we already have.
And then we have been working closely with clients to start to get their demand and their interest in some new data analytics and, again, the use of machine intelligence to help fuel some of those products.
But it's early days and we're still in the research phase for that.
I would say it's too early to change that target.
As <UNK> referenced, the product is new.
We're so excited to have it rolled out.
And we're gaining experience by the day.
In the quarters to come we'll have a better sense of that.
With respect to NLX, we are continuing to have what I'll call intensive dialogue with our customers.
The focus now is with respect to the open interest, realizing that's an enduring value.
There remains in that community a strong desire for a credible alternative.
We have been successful at running the enterprise at, I think, a hyper efficient level, so it allows us to have a betting chip on the table without us impacting the mothership in some material way.
<UNK> was just there last week, I was there a few weeks ago.
The community's engaged and we have some pretty exciting plans in place, and we'll see how they play out later in the quarter.
<UNK>, do you want to add anything.
We could add that what we believe is very important is a question about moving open interest.
We have an approval for a scheme for that approved by the UK authorities.
And now we are working with customers to making that real.
And I would say that I met a couple of the really big players in discerning products and they are very keen that something is going to happen soon.
And the reason for that is pretty obvious for me.
What they have in their mind is only one thing ---+ how can they reduce the capital cost to the bank, and the way to do that is to clear more products in the same clearinghouse, in this case [lana] clearinghouse, because thereby they can reduce the cost of clearing, and thereby the capital cost.
And for the record, scheme is a defined term in the UK, and it doesn't have the connotations that it has in the US, just the pricing plan.
And improved one.
I would say this.
One, the treasury market is undergoing some fundamental rethink.
And the market is not just us and broker tech.
There are other competitive forces in play.
That being said, I think we've seen on the positive side some marginal increase in activity based upon the rate movement.
We've seen some increased take up of eSpeed Elect where we have more participants coming on pretty much every week or so.
So, o that's on a good side.
But on a relative basis, even though there are competitors, I think relative to broker tech we are still share challenged and obviously our efforts have to become more effective in that regard, and we're working hard at it.
We basically are continuing to work towards a full solution offering that will continue to allow, it will actually turn on the GAAP reporting of the contract.
We're not giving any sort of estimates right now on time and we're working with the client.
So, I can't give you a direct answer to that question at this point because we continue to work through the development and the acceptance by the client.
But as we get closer, we will certainly make sure that you stay informed.
Just to clarify for everyone, the question really relates to IPOs that we have come on to NASDAQ.
And we basically for the period ---+ or switches ---+ for a multi-year period they are able to take the services for free, and then we turn them into paying clients as they choose to continue to take those services over time.
And with those, we have had a strong IPO environment in 2014 and 2015.
But if you really look at it, the clients who are rolling off are clients that went public in 2012 and 2013.
And we do have strong success in converting them into paying clients.
And therefore, the way that we manage that internally is that the listing business does pay the corporate solutions business some piece of that cots to be able to offer those out to their clients.
So, really, those free clients are being partially paid for by listings, and that's reflected in our segment results.
But the 10,000 customers are not getting a free trial of IR Insight.
No, there's no free trials going on, on IR Insight.
If that was your question.
I think we feel incredibly comfortable.
One, you have to realize that when you go public it's an event to raise your profile.
You want to get publicity associated with it.
And the companies want publicity associated with a brand that they know and like.
So, there's a very large brand barrier to the IPO pipeline.
Obviously, we've seen others try to build an IPO franchise with very limited success in the past.
But, in addition, I think under <UNK>'s leadership we've done a lot to actually put hard products into our listing.
So, when you think about our corporate solutions product, which we talked about today, and just talked about on the last question, that's a whole range of services that we uniquely can offer, and that is a large barrier to entry.
When you think about the technology we bring to bear on the IPO across at this point in time, again a big barrier to entry.
It's our job to always be paranoid but with respect to the different businesses we have, the IPO business has a large and I think protective moat.
Thank you.
