Cboe Global Markets, Inc. Q1 FY2023 Earnings Call

Good morning. Thank you for joining us for our first 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 Brian Schell, our Executive Vice President, CFO and Treasurer, 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 outlined in the earnings materials. Now I'd like to turn the call over to Ed.

Thank you, Ken. Good morning, and thanks for joining us today. Before I begin, I want to take a moment to recognize Cboe's 50th anniversary, which took place last week. It was a monumental milestone for the company, and I was excited to celebrate with our associates around the globe. Throughout our 50-year history, Cboe has been driven by a unique vision and an unwavering commitment to continually innovate to meet the evolving needs of the global financial industry. From pioneering options and volatility trading to introducing new technologies and market models, Cboe has transformed the way market participants transfer risk and build capital. Our series of strategic acquisitions in recent years have greatly expanded the breadth and depth of the Cboe network, making us the dynamic company that we are today. Each and every quarter, we have built upon our strong foundation, and this quarter is no different. I'm pleased to report record first quarter earnings for Cboe, reflecting the continued endurance of our business. During the quarter, we grew net revenue by 13% year-over-year to a record $471 million and adjusted EPS by 10% to a record $1.90. These record-breaking first quarter results were driven by strong volumes across our Derivatives franchise, specifically our proprietary index option products and the continued global expansion of our Data and Access Solutions business. Our Derivatives business delivered another outstanding quarter as total net revenue increased 29% driven by the strength of our index options and volatility products and solid volumes in multi-list options trading. During the quarter, total net revenue in our Data and Access Solutions business increased 9%, while total net revenue in our Cash and Spot Markets business decreased 12%. We continue to make progress delivering on our top strategic growth priorities: Derivatives, Data and Access Solutions, and Cboe Digital. I'll touch on 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 continued to onboard new participants as liquidity deepened and our spreads compressed to competitive levels compared to other U.S.-based platforms. February represented our best month to date with ADV of more than $100 million. We had a record first quarter with 7.4 billion traded. 2023 is not only an anniversary year for Cboe, but it also marks the 40th anniversary of SPX options and the 30th anniversary of the VIX Index. The success of both our VIX franchise and suite of S&P 500 index option products is a result of years of innovation and perseverance driven by our unwavering belief in the potential from the beginning. Trading in these products was robust during the quarter. The recent enhancements implemented to expand access to SPX and XSP, including expanded trading hours and new expirations, have created new opportunities for customers. During the first quarter, SPX options ADV increased 59% to a record 2.8 million contracts, including a single day record of 4.2 million contracts traded on March 10. Building on the strong momentum we saw last quarter, our Mini SPX options contract, known by the ticker XSP, increased 195% year-over-year. Additionally, ADV for fixed options increased 18% year-over-year in the first quarter. In both SPX and XSP, we continue to see many market participants opening and trading positions on the same day the options expire as they engage in tactical trading strategies around market events. ADV for SPX options opened on the same day of expiration, otherwise called 0DTE, comprised nearly 43% of overall SPX volumes in the first quarter and nearly 45% of SPX volume in April. We believe there has been a fundamental evolution in how customers are trading this product, and we anticipate this volume to continue. We also continue to see increased demand from our non-U.S. customers and liquidity providers for the ability to trade SPX and VIX products across all time zones day and night. As a result, we have seen a sizable increase in volume during our global trading hour session with ADV for SPX and VIX options increasing 121% and 118%, respectively, year-over-year. Turning to our VIX products. ADV for fixed options increased 18% year-over-year to over 718,000 contracts traded in the first quarter while VIX futures ADV remained steady at 223,000 contracts. First quarter volume in multi-listed options increased 1% to an ADV of 11 million contracts. In March, Cboe reached a record 337 million total contracts traded across its 4 options exchanges. 50 years ago, we founded the listed options industry. And despite its immense growth, we believe that we are still in the early stages of the evolution of this market. We continue to lead the industry forward through continued enhancements to our ecosystem of products to suit the needs of various customers. Most recently, we announced the launch of a Cboe 1-day volatility index. The market seeks to measure the expected volatility of the S&P 500 Index over the current trading day. Just as the VIX Index has grown to become one of the most recognized tools in the marketplace, we believe that 1-day VIX Index will be a complementary addition for market participants seeking to better understand current equity market volatility. During the quarter, we were also excited to announce our plans to expand the product suite of Cboe Europe Derivatives to include single stock options on leading European companies. These products are expected to be available for trading in November of 2023 and cleared by Cboe Clear Europe subject to necessary regulatory approvals. With the utility and flexibility that options provide in any market environment as well as the varied trading strategies utilized by a diverse customer base, we believe we will continue to see demand from new and existing customers as they discover the benefits options can provide to their portfolios. We are pleased with the continued solid growth of our Data and Access Solutions business, which posted another strong quarter with total net revenue increasing 9%. We continue to enhance our bundled data offerings and cloud strategy, packaging high-quality data from across our markets and delivering it to customers globally in a consistent and cost-effective manner, extending the reach of our content and the opportunity for this business. During the quarter, we were excited to launch the Cboe one options, a product designed for the retail options trading community. This high-quality data feed provides retail investors with cost-effective real-time data. Cboe knows it is imperative to help equip the retail community with the information they may need to invest responsibly. Cboe's enduring success over the past half century is reflected in the unrivaled position that we hold today across our global derivatives and securities ecosystem. I've covered our Derivatives business and will now touch on highlights from our Cash and Spot Markets. In our Global FX business, net revenues were up 8% year-over-year in the first quarter as the business expanded spot market share to a record 19% with average daily spot notional value traded of $45 billion. In Europe, the Cboe Europe Equities business increased first quarter market share by 3 percentage points year-over-year to 24.9%. Additionally, Cboe BIDS Europe had another strong quarter with 36.3% market share, extending its run as the largest European block trading venue for 12 consecutive months. Cboe Clear market share grew to 34.1% in the first quarter, up from 32.2% in the prior year quarter, making it the largest pan-European clearing venue. Turning to Asia Pacific. In March, we successfully completed our technology migration of Cboe Australia in partnership with customers and launched Cboe BIDS Australia, making our expansion of BIDS into the Asia Pacific market. We also welcomed Emma as the new President of Cboe Australia, and we couldn’t be more excited to have her leading our efforts in this key region. In Japan, we saw our equities market share grow to 4.8% during the first quarter, up from 3.8% a year ago. We also 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, further extending our reach on the BIDS network into another key global equity market. In summary, Cboe delivered an outstanding first quarter to start the year, continuing the momentum of our record 2022. While we have a long-term view of our business, we are committed to investing in the near term to lay a solid foundation for future sustainable growth. With this perspective, we are confident we can build on our success and continue to deliver value to our customers and shareholders for the next 50 years. With that, I'll turn it over to Brian.

Thank you, Ed. As Ed highlighted, Cboe posted another record quarter to start 2023. Adjusted diluted earnings per share for the first quarter was up 10% on a year-over-year basis to a record $1.90. The record revenue performance was again driven by the continued organic growth of our Derivatives franchise as well as a steady contribution from our Data and Access Solutions business. 1Q was not only a period of robust financial performance, but it also marked a period of meaningful advancement for many of our strategic initiatives. We believe that striking the right balance between monetizing today's opportunities and investing in the future of our company is crucial for the long-term growth of Cboe. I want to quickly touch on some of the high-level takeaways from the first quarter before delving into the segment performance. Our first quarter net revenue increase of 13% set another quarterly record at $471 million led by the strength in our Derivatives markets category and the solid results from our Data and Access Solutions business. Specifically, Derivatives markets produced 29% year-over-year organic net revenue growth in the first quarter as the market continued to find increasing utility in our index options complex with the rise of 0DTE trading and global trading hours. Data and Access Solutions net revenues increased 9%, up 6% on an organic basis during the quarter. We're pleased with the overall performance of the category and even more excited by the numerous catalysts we expect to accelerate growth over the course of this year. Cash and Spot Markets net revenues decreased 12% during the quarter or 13% on an organic basis as we faced difficult industry volume comparisons versus the first quarter of 2022 and a 3 percentage point impact from a stronger dollar. Adjusted operating expenses increased 28% to $186 million, and adjusted EBITDA of $310 million also notched a quarterly high, up 10% from the first 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 just provide summary thoughts. The performance of our Options segment was again very strong, delivering the highest growth of any segment for the quarter with net revenue increasing 28%. Results were driven by robust volumes in our index business and strong revenue per contract or RPC, given the favorable mix shift trends. Total options ADV was up 9% as our higher-priced index options ADV increased 49% over 1Q 2022 levels. RPC moved 27% higher given the continued positive contribution of index options and a stronger mix of higher-priced SPX options in our index business. And market data and access capacity were up 8% and 9%, respectively, as compared to 1Q 2022. One additional item worth calling out for the segment in the first quarter was the 51% year-over-year increase in options royalty fees, somewhat higher than previous quarterly growth rates. Roughly 75% of the increase was related to higher volumes in our SPX and VIX options. The remaining 25% of the increase was related to the last scheduled reset and royalty fees with S&P, which took effect at the beginning of the first quarter. This last scheduled adjustment to contract rates is part of our current agreement with S&P that runs through 2032, '33, making the first quarter a good run rate ratio of royalty fees to proprietary volume moving forward. North American Equities net revenue was flat on a year-over-year basis. Results benefited from NEO, which was acquired in June of 2022, contributing $5.6 million in net revenue during the quarter. In addition, access and capacity fees increased 9% as compared to 1Q 2022, while market data declined 7% on the back of lower SIP revenue. Net transaction fees were flat, given softer industry volumes and market share in our U.S. businesses. And while our U.S. 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 activity seen during 1Q. The industry volume and market share headwinds were offset by the positive contribution from the NEO acquisition during the quarter. The Europe and APAC segment reported a 14% year-over-year decline in net revenue. However, adjusting for a $3.5 million FX impact given the stronger dollar during the quarter, net revenue fell by a more modest 8% on a constant currency basis, impacted by softer volumes in Europe. The lower activity levels were partially offset by a 3.1 percentage point increase in market share on a year-over-year basis, making Cboe Europe the largest stock exchange in Europe again. And Cboe Clear Europe also grew market share during the quarter from 32% to 34%. First quarter net revenue was flat in the futures segment as a 4% decline in net transaction fees was offset by an increase in access and capacity fees. Lower volumes were the primary driver of the decline in net transaction fees, falling 9% during the quarter. Non-transaction revenues continued to perform well, with access and capacity fees up 18% and market data flat to the first quarter of last year. And finally, net revenue in the FX segment was up 8% compared to last year, building on the very strong momentum we saw from the FX segment during 2022. Net transaction fee revenue was up 8% as average daily notional value increased by 7% and market share hit another record at 19% for the quarter. Turning now to Cboe's Data and Access Solutions business. Net revenues were up a solid 9% in the first quarter, up 6.2% on an organic basis. Net revenue growth continued to be driven by additional subscriptions and units, accounting for 70% of access fee and market data growth in the first quarter. While our 6.2% organic net revenue growth rate for the quarter finished slightly below the low end of our 7% to 10% full year guidance range, we feel confident in our ability to accelerate trends over the back half of the year. Specifically, with the recent launch of Cboe One options, we expect to see an uptake of clients for all of our Cboe One data fees in the second half of Q3, adding incremental revenue for the D&A business. In Australia, we finished our successful technology migration and launched our BIDS offering in the region at the end of the first quarter. Following the migration, we expect to see increased demand for Cboe data in Australia, consistent with what we have seen following past technology migrations around the globe. And to that positive momentum is the enhanced distribution that Cboe Global Cloud now provides, offering incremental sales potential for our suite of data products. We also anticipate solid trends from Cboe Global Indices with good momentum around index licensing. We are experiencing new global customer wins in risk and market analytics and see opportunities coming online in distribution. From a timing perspective, we anticipate most of this acceleration will occur in the second half of 2023, landing us in our 7% to 10% organic net revenue growth guidance range for the full year and putting us in line with our medium-term expectations outlined at our November 2021 Investor Day. Turning to expenses. Total adjusted operating expenses were approximately $186 million for the quarter, up 28% compared to last year. Excluding the impact of acquisitions owned less than a year, adjusted operating expenses were up 19% or $28 million for the quarter, largely reflecting higher headcount as compared to the first quarter of last year as well as some inflationary compensation adjustments and higher professional fees and outside services as compared to 1Q 2022. Moving to our expense guidance, we are reaffirming our full year 2023 expense guidance range of $769 million to $779 million. This compares to our 2022 expense base of $652 million. The 3 basic components of the year-over-year increase are outlined on Slide 17 of our earnings presentation: expenses from 2022 acquisitions, growth investments and core expense growth. At a high level, while the aggregate expense range remains unchanged, we expect a $3 million reduction in expenses from 2022 acquisitions to be entirely offset by higher anticipated consolidated audit trail or CAT project expenses, costs that we have limited control over. Looking at the details of our 3 expense categories, we anticipate that 2022 acquisitions of NEO and ErisX will add approximately $33 million to $35 million in incremental expenses in 2023. We are again calling out growth-generating investments, given the numerous attractive opportunities we see today. These are investments we are making today to help drive incremental revenue to our bottom line in future years. Specifically, we are investing in global listings, D&A expansion and more aggressive marketing campaigns and targeted products and services R&D efforts across our ecosystem. In 2023, we continue to expect growth investments to be in the range of $28 million to $30 million. The last component and the largest portion of the year-over-year increase remains our core expense growth totaling approximately $56 million to $62 million. Our new range is $3 million higher than last quarter, given the increased expectations for CAT project costs in 2023, while our outlook for investments in infrastructure and inflationary factors remains unchanged. We will continue to exhibit operational efficiency while investing where we see opportunities over time. We believe the investments we are making today position Cboe well to generate attractive returns in the years ahead. Now turning to a summary of full year guidance. On the next slide, we are reaffirming the 2023 guidance we introduced last quarter. In addition to the previously noted D&A organic net revenue growth rate of 7% to 10% range for 2023, we expect acquisitions held less than a year to contribute around 0.5 percentage point to total net revenue growth in 2023. And we are reaffirming our organic total revenue growth range of 7% to 9% for 2023. This remains above our medium-term guidance of 5% to 7% introduced at our Investor Day 1.5 years ago, a function of our confidence in the durable growth of our business and the progress we are seeing behind the investments we have made to increase the access and distribution of our products and markets globally. Last quarter, we introduced guidance calling for an expected contribution of $27 million to $33 million in 2023 for minority investments benefiting our other income line. In 1Q, we recognized a $14 million gain on the company's investment in the 7RIDGE fund, which owns trading technologies and are reaffirming our full year expectation of a $27 million to $33 million benefit. We look for the impact of minority investments to become a regular and recurring contributor to company earnings and are providing our best estimate of the benefit we anticipate in 2023. We are also reaffirming our full year guidance on depreciation and amortization of $48 million to $52 million and expect the effective tax rate on adjusted earnings under current tax laws to come in at 28.5% to 30.5% in 2023. Outside of our annual guidance, net interest expense for the first quarter of 2023 was $15.1 million. For 2Q, we expect net interest expense to be in the range of $15 million to $16 million. On the capital front, our focus has been and remains maximizing shareholder value through effective use of our capital. In the first quarter, we returned a total of $123 million to shareholders in the form of a $0.50 per share quarterly dividend and $70 million in the form of share repurchases. Overall, we remain well-positioned to invest in the business, support our dividend and opportunistically repurchase shares when we believe our stock price does not adequately reflect the underlying fundamentals of our business as we did in the first quarter. We have $148 million of remaining capacity on our share repurchase authorization as of April 30, 2023. Our leverage ratio for the quarter remained at 1.5x, in line with fourth quarter levels. We remain comfortable with our debt profile, having locked in low medium- to longer-term fixed rates averaging below 3% on over 80% of our total debt. In summary, the first quarter of 2023 was an excellent start to the year. We look forward to building on our record results through thoughtful investments behind the numerous growth initiatives we have, generating durable returns for shareholders in many quarters and years to come. Now I'd like to turn it back over to Ed for some closing comments before we open it up to Q&A.

Thanks, Brian. In closing, I want to thank our valued customers who engage with us every day, providing liquidity to our markets, utilizing our products and services and supporting our vision. They are valued partners that have been critical to our success over the last 50 years. I'm extremely proud of our people, past and present, who helped build an incredible company and continue to chart the future success for Cboe. Our 50-year legacy is built on trust, relentless innovation and a drive to disrupt the status quo, powered by the exceptional strength of our people. Together, we have created an exchange like no other, the exchange for the world stage.

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 for everyone. Feel free to get back in the queue, and if time permits, we’ll take the second question.

Good morning. Good morning, Ed.

Good morning.

Good morning. I agree that you continue to change the perspective on risk management. The zero DTE options have proven to be the most resilient asset class since the increase in volume and volatility in March. My question is about what steps you can take to maintain this momentum. Can you discuss how the 1-day VIX volatility index might affect trading and the XSP contract? Also, do you think there’s a chance that other exchanges with proprietary products might raise their prices? Is there any potential for adjusting pricing on these products?

Let's take a moment to discuss the 1-day VIX before moving on to Dave for insights on product expansion and pricing. As a reminder, we use real prices of the S&P 500 to calculate the benchmark VIX, specifically the 30-day implied number. This benchmark is provided to the marketplace for informational purposes. We believe that enhanced information and transparency lead to better-informed customers and traders. Our development focus with the one-day VIX reflects this principle. The remarkable growth of zero DTE options, which began about a year ago, now accounts for nearly half of the SPX volume in one- and two-day expirations. The 30-day VIX did not accurately reflect the implied volatility for these short durations, prompting us to introduce a benchmark that portrays short-term implied volatility more clearly. To illustrate, consider the Chicago 10-day weather forecast; while it may suggest pleasant conditions, it doesn't account for the current rain shower. While the forecast isn't wrong, it fails to capture today's reality. Similarly, our one-day implied volatility measure aims to provide investors with a clearer understanding of short-term uncertainty. Now, let's turn it over to Dave for further insights on pricing and growth related to the zeros.

Thanks, Ed, and thanks, Rich, for pointing out the sustained and consistent volumes there in the zero days to expiration. As we look at the SPX family, we do really see it as a family of products. You mentioned that the XSP product, the one-tenth size contract of the SPX. What we see, you can see some in the figures there, some good growth of the XSP contract itself as customers also define utility in the small products. And what we find is through the education of end users and customers that are coming to the complex and growing, we hear from our customers that new account openings meaningfully increased in Q1 with those customers trading the SPX and the XSP family. And indeed, we see graduations from XSP users to SPX as well as people finding also utility in the XSP contract itself. You talked about pricing there as well, Rich. And when we look across actually our business in general, our priority is expanding access and distribution, getting those incremental users engaged in the products or viewing our data. So, at this point in time, we don't see a particular need for us to increase their pricing across the product landscape at this point. Really, it's about further adoption. And when we look at the trends, it looks very positive.

Great. Thank you. Thanks for the weather analogy. That's helps.

Great. Thank you. Good morning. Maybe just continuing with the last thread around continuing to drive further adoption just on the SPX product. Maybe you could talk about the institutional usage of the 0DTEs. Where does that stand today? What are some of the stuff that you guys can take to increase usage by institutions for 0DTEs? And what are some of the most compelling use cases that you're seeing there and how that may differ from other customer sets that are using the 0DTEs? Thank you.

Yes. We want to clarify that the initial users we identified almost a year ago were primarily from retail platforms. However, this does not mean our focus is solely on retail. We are seeing more institutional and professional customers utilizing our IV platform and thinkorswim, which we have highlighted as early adopters. Currently, we are observing broader usage, with more involvement from high-touch desks. We are attuned to our customers' needs, and we've been listening, particularly to insights from Thomas Peterffy about the IV platform, indicating that adoption is just starting in certain areas. We're witnessing increasing adoption focused on capturing daily news while enabling investors to navigate uncertainty without committing to long-term premium positions. A case in point was just two days ago when I aimed to hedge against what the Fed would announce at 1:30 Central Time, demonstrating how one-day strategies can effectively manage risk without the need for extended premium coverage. We are closely monitoring the demand for data modeling short-term exposure and analyzing trading patterns, particularly regarding open interest and strike dispersion within a single day. There is significant ongoing research and backtesting of this strategy, and we are encouraged by the feedback from our broader user groups, not just the early adopters.

Great. Thank you.

Thanks. Good morning. I wanted to follow up on Data and Access Solutions. The 6% growth you mentioned aligns with your medium-term target of 7% to 10%. Brian, you detailed several upcoming rollouts in the latter half of the year that should boost growth. Could you provide more context or numbers around some of these initiatives? You mentioned BIDS as an example where you've previously implemented it. Could you clarify what kind of incremental contribution that has had? It seems like all these initiatives could potentially result in next year's numbers being higher than some of the metrics we've seen recently. I would like to delve further into what you've shared.

Yes. I think I'll partner with Dave on this as we discuss the rollout. I won't provide specific numbers for each of the three categories, but we're conveying that there is a strong pipeline within each of them, and based on client feedback, we are beginning to see signs of progress. Regarding the Cboe 1 products related to options, we have a robust pipeline in that area, and the significant growth is expected in the second half of the year. Looking at Australia and the new platform, we anticipate gradual growth over time, which may not be immediate but will contribute to our overall growth rate as new clients start using the platform. Additionally, for the global indices and risk and market analytics, we are monitoring the pipeline and potential client sign-ups, making it challenging to give precise details for each line item. However, we are optimistic about the overall contributions towards achieving our targeted growth rate. Dave, let me know if there's anything I've overlooked.

Yes. And certainly, the revenue profile for the year is really living up to our own projections and expectations with that acceleration in the second half of this year. And the uniformity of the technology with the Australian platform really does help the adoption of data. And we've seen that elsewhere as Brian mentioned. And notably around the cloud, 17% of new users actually in Q1 came from Australia. So boots on the ground, re-platforming completed, really just increased the uptake and interest in the data from the region. We've done the re-platforming. And then mentioning on the indices from the real highlight is the options overlay indices that are really getting a lot of traction right now with our business and with our customers. And then the risk management and analytics sleeve in the Data and Access Solutions business, that global analytics capability that we rolled out in Q1, the addition of European data really picking up clients in Europe there as well as the pipeline looking good for the rest of the year. And as Brian said, on top of that, the Cboe one options product as part of that broader Cboe one family, that packaging of data really part of the growth that we see realizing in the second half of this year.

Great. Thank you.

Good morning and thank you for taking my question. Could you please give us a little bit more color on Cboe Digital? And I think, Ed, you talked about onboarding more partners, but how many more partners in your pipeline do you expect to onboard in the coming months? Do you have any timeline? And also, what is your plan to launch more new products?

Thank you for the question. We reported in our prepared remarks that we achieved record volumes, particularly in February, with a tightening of the spread and improvements in depth. We are more than halfway through onboarding syndicate members and are seeing benefits as they optimize their interactions with the platform. We are eager to continue engaging with the CFTC regarding the approval of margin futures.

Great. Thanks. Good morning everyone. I have one clarification question for Brian and then a strategic question about Canada. Brian, I believe you mentioned a $14 million gain in the other non-operating line in the first quarter and reiterated the guidance of 27 to 33. I want to confirm if that guidance includes the gain, suggesting around $5 million a quarter in non-operating other income. My second question relates to the Canada strategy. It seems you've gained about 100 basis points of market share compared to the previous quarter. Can you discuss your ambitions for ongoing share improvement? I also understand that this does not include BIDS, so please clarify that and share your thoughts on the BIDS strategy and your perspective on momentum in Canada.

Yes. So short answer is, yes, it does include that current gain. So as we look at that forecast and the guidance, it does include this first quarter.

Talking about the Canadian strategy, having a significant market share in every competitive market benefits us by providing a wide playbook and a diverse set of customers to engage with as we plan our next moves. We have seen an improvement in market share, which we are pleased about. This progress comes from various tactical initiatives the team has executed, including providing insights on the advantages of the four trading books under our Cboe Canada brand, which have proven useful for our customers as we support their growth. Moving forward, expect continued enhancements in pricing, functionality, and features. Additionally, BIDS has performed exceptionally well. Last quarter, I mentioned we had 75 buy-side clients on the platform; that number is now 103, with only 30 of those being Canadian buy-sides. This illustrates the strength of the BIDS global network within just one quarter. In Europe, where our presence is well established, we have over 250 buy-side clients, and we are quickly closing the gap in Canada. The global network of BIDS is proving advantageous for the local Canadian market. Currently, we hold a 14% market share in Canada and were at 25% in Europe in April, with an approximate 20% in Canada. These figures serve as benchmarks as we consider our future growth.

Excellent. Thank you.

Hi. Good morning. Just a follow-up question for me on one-day VIX. And in terms of how Cboe potentially monetizes the development of that index, is the index really solely meant to help kind of facilitate trading, provide more granular market data for clients that are trading 0DTE and some other listed products? Or would it also be possible to launch a derivatives product based off of one-day VIX at some point in the future? Just not sure the technical difficulties of doing that, so maybe you could expand a bit around that.

Yes. Looking back, VIX started as a benchmark and evolved into a tradable futures contract, which is the model we plan to follow. Currently, we are focused on educating the market about the one-day VIX. It has shown considerable volatility with significant daily movements, in contrast to the more stable 30-day VIX. Our models for measuring short-term volatility, along with customer feedback, will enable our Cboe labs to explore the potential for a tradable product. Our goal is to transform useful market indicators into tradable products for various hedging and exposure strategies. We aim to develop something that can be introduced to the market as a tradable option.

Understood. Thank you.

Hey, guys. Good morning. Thanks for taking the question. In prior meetings, you talked about increased utilization of SPX daily options by market makers to delta hedge, etc. Can you update us on any incremental details you're sort of seeing on that front? Any color on what percentage of SPX volume that activity comprises today? And ultimately, how do you think about customers' view on the all-in cost of doing that versus trading alternative products largely on CME?

Yes, that's a great question. We've started to notice a trend over the past six months, with liquidity in the daily options increasing slightly. It's important to emphasize that the strength of the 500 complex for our development and benchmarks during our expansion depends on a very deep and liquid futures market. Our market makers are significant customers of CME futures, and we need that market to remain robust. We are strong advocates for the overall ecosystem. If you're a market maker trading zero-day options, your ideal hedge should closely align with the initiating trade. For example, if you sell a daily call as part of your liquidity providing responsibilities, the least effective and most costly hedge would be a futures contract that you might need to exit by the end of the day. While this is not inherently negative, it’s preferable to have a hedge that expires simultaneously with the initial trade. Market makers are naturally gravitating towards a highly liquid daily options market for their primary hedging needs. We expect this trend to keep going, not because futures contracts are problematic, but simply because it may necessitate another futures trade by day's end, producing a scenario where both options roll off together. This illustrates our vision of utilizing hedged-like exposure, which is efficient and cost-effective. This does not diminish the vibrant and liquid market present elsewhere. The ongoing trend is about optimizing trading from the market makers' standpoint, which is a natural evolution driven by the depth and liquidity in the daily options market.

Great. Very helpful. Thank you.

Hey, good morning. Just following up on Cboe Digital. You guys provide any more color around your margin futures application with the CFTC and if there's been any change in discussions with the regulator, given some of the recent rhetoric and enforcement actions from the SEC? And additionally, do you think approval will drive greater trading activity kind of soon after? Or are you finding that customers are still waiting for greater regulatory clarity more broadly? Thanks.

Yes, thanks, Andrew. The discussions with the CFTC are ongoing. The application is currently with the CFTC and is progressing through the process. We have several SCMs prepared to onboard as soon as we receive the application. Once they are onboarded, things will move relatively quickly.

Andrew, this is John. Just one other thing to note there as we look at the environment, things have really picked back up to where they were in 2022 in terms of core nodes, in terms of active accounts on the Bitcoin network. The issue is that while a lot of that activity is in the U.S., spot trading is hampered by the regulatory environment. We think as Ed mentioned, the Derivatives products that we're preparing really change that because there's full regulatory clarity around that product set. So that's an enabler in our point of view.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

I have a closing remark, and thanks, Ken, for letting me take the opportunity. Sorry, Rich, but we want to take a moment to note that this is your last call ahead of retirement later this summer. Everyone knows, Rich has just been a constant on the Cboe earnings call since our IPO in 2010 and one of the first just to understand the power of this index franchise and always highlighting the durability of our product set. So Rich, we wish you all the best in everything you do in the future and certainly look forward to seeing you at your conference in June. So thank you so much for the years and years of coverage and dialogue.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.