Cme Group Inc. Q1 FY2021 Earnings Call

Good day, and welcome to the CME Group First Quarter 2021 Earnings Call. At this time, I would like to turn the conference over to John Peschier. Sir, please go ahead.

Good morning, and thank you for joining us today. I'm going to start with the Safe Harbor language, then I will turn it over to Terry and John for brief remarks followed by your questions. Other members of our management team will also participate in the Q&A session. 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 statements. 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 would like to turn it over to Terry.

Thank you, John, and thank you all for joining us this morning. Our comments will be brief so we can get to your questions. As we all continue to navigate through the pandemic, I hope you and your families are staying safe and healthy. We released our executive summary this morning, which provided extensive details on the first quarter of 2021. As John said, I have John, Sean, Derek, Sunil, and Julie Winkler with me this morning, and we look forward to addressing any questions you have. We saw solid volume rebound during the first quarter of this year as we averaged 22 million contracts per day. That represented our third most active quarter ever following the record activity we saw in Q1 of 2020 at the start of the pandemic when we averaged 27 million contracts per day. Importantly, we had a nice rebound from the back half of the year in 2020. We had a 35% sequential increase in average daily volume from Q4 2020 to Q1 2021. Also, interest rates were up 65% to more than 10 million contracts per day in Q1 relative to Q4. In addition, equities, energy, and metals were all higher sequentially by approximately 20%. In terms of products, we had record quarters in Bitcoin futures and silver futures. Micro E-mini NASDAQ and Russell were each up more than 100%. Agricultural markets remained active, particularly in options with more than 60% growth in both corn and soybean options ADV versus Q1 of 2020. Also, we continue to see strong non-US customer volumes originating in Europe and Asia with approximately 6 million per day during Q1 2021 versus 4.7 million per day for all of 2020. We are also pleased with the transition of BrokerTec onto the Globex platform for the treasury curve trades, and we did see a recent all-time record in European repo activity. Last quarter, I mentioned the ongoing innovation across our markets. In Q1, that continued with Japanese energy futures, global emission offset futures, Ether futures, micro Bitcoin futures, lithium futures, Mexican interest rate futures, and most recently, CME term sulfur. Also, we announced the joint venture with IHS Markit, which we are excited about. The main point is that we are constantly finding ways to assist our clients with the world's most diverse product offering across all the critical global asset classes. With that, let me turn the call over to John, who will discuss the financial results. And I look forward to answering your questions.

Thanks, Terry. During the first quarter, CME generated more than $1.250 billion in revenue, reflecting average daily volume of 21.8 million contracts. Expenses were very carefully managed, and on an adjusted basis, were $437 million for the quarter and $372 million, excluding license fees. CME had an adjusted effective tax rate of 23.6%, which resulted in an adjusted diluted EPS of $1.79. Capital expenditures for the quarter were approximately $27 million. During the first quarter, CME paid out more than $1.2 billion to our shareholders in the form of our annual variable dividend of $2.50 per share and our most recent regular dividend of $0.90 per share. CME's cash at the end of the first quarter was more than $1 billion. Our 2021 guidance remains unchanged. We expect total adjusted operating expenses, excluding license fees, to come in at $1.575 billion. We anticipate the spending to be weighted heavier in the second half of the year as the global economy potentially opens. We continue to expect CapEx to come in between $180 million and $190 million. Finally, our tax rate guidance remains between 23.2% and 24.2%. Please refer to the last page of our executive commentary for additional financial highlights and details. With that short summary, we'd like to open up the call for your questions. Based on the number of analysts covering us, please limit yourself to one question, and then feel free to jump back into the queue. Thank you.

Thank you. Our first question will come from Rich Repetto with Piper Sandler.

Yes, good morning, Terry. Good morning, John.

Good morning.

Good morning. And hope everyone is doing well in the CME team, as we see light at the end of the tunnel here. But anyway, my question is on the BrokerTec migration. I know you completed it in early February. And Sean has talked about the different things, the relative value spread trades, as well as like other initiatives you're going to do. I'm just going to see what the interest rate outlook is. You also said it took like 3 months for people to get really up to speed and connect and get used to the data and so forth. So I'm just trying to see what could we expect from the migration and the impact on interest rate volumes going forward?

Yes, Rich, thank you for your question. I'll ask Sean to go ahead and give a response. And if anybody else would like to participate, fine. But Sean, why don't you go ahead and start?

Thank you for the question, Rich. So far, things have gone very well. Our relative share of the market, specifically on the BrokerTec US treasuries, has remained stable between the fourth quarter and the first quarter. We are pleased with this result despite the challenges of participants adapting to the new platform. We’re also excited about the new functionality we launched about a month ago, specifically our RV trading feature. We currently have around 17 customers submitting orders, and we've executed over $2 billion in volume, averaging about $120 million a day. While adoption is taking time, we anticipate that three major ISVs will complete their development in the next month or two, which we expect will lead to a significant increase in volumes and activity. Additionally, on May 3, we plan to reduce the minimum price increment on 3-year notes, similar to our previous reduction for 2-year notes that resulted in a 3 percentage point increase in overall volumes in our treasury complex. We are optimistic about these developments. Furthermore, our migration includes not only US treasuries but also our repo business, where we are hitting all-time records. The first quarter saw an all-time record in our European repo with nearly $300 billion a day, and our US repo is doing about $219 billion a day. Overall, everything is progressing well and as we expected.

Thanks guys. Thank you.

Thanks, Rich.

Thank you. Our next question comes from Dan Fannon with Jefferies.

Thanks. Good morning. My question's for John, just on the expense outlook. Obviously, after the first quarter, you're tracking annualized well below your guidance. You talked about second half spend pickup. Can you just maybe discuss some of the specifics that you anticipate in terms of either just travel kind of normalization or what you're spending on? And then also remind us where you are in synergies, if there were any additional realizations here in the first quarter.

Thanks, Dan, and good morning. We are effectively managing our expenses at CME Group. We initially projected $1.650 billion in expenses for 2020, but we ended up at $1.557 billion. For this year, we guided to $1.575 billion, demonstrating effective expense management over the past couple of years. Since it's early in the year, we are optimistic about economies beginning to open up in the latter half, and we've built that expectation into our plans. We anticipate an extra $20 million in spending compared to last year for that eventuality. Additionally, we are expanding on the East Coast and progressing with the EBS migration on Globex, which will incur additional costs later this year. We remain committed to managing our expenses while balancing business growth. We have opportunities to engage our sales team with clients as economies reopen, and both the EBS migration and data center expenses are primarily back-loaded. Regarding synergy realization, we did see some in the first quarter and expect to reach $200 million in run rate synergies by the year's end. We still need to achieve $60 million in additional run rate synergies, with about two-thirds of that already accomplished by the end of the first quarter, keeping us on track to meet our $200 million expense synergy target.

Okay, thank you.

Thanks Dan.

Thank you. Our next question comes from Alex Kramm with UBS.

Yes. Hey, good morning, everyone. Can you just give us a quick update on what's happening on the retail side of your business? I mean, I think it's been a nice growth area. So maybe just give us some of the updated kind of stats there and maybe plans for engaging with that customer set more in terms of new products as well. Then on the equity side, it seems like retail has gotten a little bit more tired in the second quarter. So just wondering if you're seeing the same thing on the future side as well? Anything you can point there to in April so far? Thanks.

Thanks, Alex. We'll let Julie Winkler comment on the retail side. Julie?

Sure. Thanks for the question, Alex. The retail volume and revenue in Q1 were quite strong. March, in particular, was one of our top three revenue months for retail, second only to last March and April, which were marked by unprecedented volatility. Comparing Q1 to Q4, we saw a 21% increase in business, with all regions experiencing double-digit growth, which is quite impressive. Although product growth primarily came from equities, we also noted a nice increase in FX and ads. Specifically, this included the Micro E-minis, emerging market FX, micro FX, corn, and soybean, showcasing the diversity of our product offerings and their appeal to active individual traders. In Q1, with many people still staying at home, we focused our outreach through our digital properties, resulting in over 0.5 million retail traders visiting our SME digital properties, doubling the number from the same time last year. We added over 50,000 new traders in the first quarter, marking a 24% increase from Q4, indicating solid momentum. A key aspect of our business is the alignment with our global distribution partners, focusing on outreach and product education. In Q1, the number of active traders educated on CME products by our partners exceeded 1.5 million, with significant outreach in APAC and the US, further helping to attract new customers. Although much of this remains virtual, in-person events are starting to take place. We held about five in-person events in Q1, which is a small fraction but a positive step towards resuming pre-pandemic engagement with clients. Overall, we saw a very strong quarter and there is considerable interest in the upcoming micro Bitcoin launch in May.

And I would just add, Alex, to what Julie said that you referenced as the retail trader tired as it relates to equities, right now, we're looking at a very seasonal slow month of April. And that's probably what's reflecting on what you're seeing at a very seasonal slow month of April. And that's probably what's reflecting on what you're seeing right now in the last couple of weeks. But I think what Julie said is the important part is the onboarding process that's going on, not only for retail and others, is very exciting for the future growth of not only retail trading but the entire business. So I wouldn't read too much into the recent couple of weeks.

And did you give the revenue or volume percentage of retail for the quarter? Sorry, I don't know if I missed it.

John, do you have it?

In terms of the retail volume for the quarter was about 1.1 million contracts traded today for retail. And what was interesting, it was strong across all of our regions, right? So if you look at it sequentially, Q4 to Q1, US, EMEA, APAC, LatAm, and Canada were all up double digits sequentially.

Okay, thank you.

Thanks, Alex.

Thanks, Alex.

Thank you. Our next question comes from Mike Carrier with Bank of America.

Good morning. Thanks for taking the question. Overall volumes are strong in 1Q. We've seen some mixed open interest trends and some moderation. So just wanted to gauge your sense maybe why this is happening? Do you think it's transitory? And then what metrics are you watching that provide you confidence in the growth outlook? Thanks a lot.

Okay. Derek, do you want to start with the...

Yes, it will differ slightly by product, and it also depends on the timing of the analysis. For instance, if we just had a major options expiration, we would observe an open interest rollup. However, when examining average open interest trends sequentially from the fourth quarter to the first quarter on the commodity side, we are witnessing significant positive trends that reflect our commercial customer base. For example, in WTI, we experienced a decline in volumes and open interest during the slowdown in the latter half of last year, with open interest in WTI dropping to 1.9 million contracts in November. Since then, it has built up sequentially to nearly 2.4 million contracts, and we recently hit 2.54 million contracts, which is close to a three-year high. This is indicative of increased participation from commercial customers. Sequentially, our WTI volumes increased by 40% from the fourth quarter of 2020 to the first quarter of 2021, and commercial customer volumes rose by 53%. This growth in open interest highlights a broader involvement from commercial customers in the energy sector. Furthermore, we have reached record levels of open interest in both corn options and soybean options, driven by the fastest-growing segment of our agricultural business, which is commercial customers, who are up 21%. The growth in record open interest among our most active group of clients reflects the heightened risk and volatility in that market. This aligns with our efforts to ensure that CME Group remains the prime destination for price discovery and, crucially, risk management for all end-user customers. This provides an overview of the commodity side.

Yes. And I'll ask Sean to comment as well, Alex. But I think Derek touched on a little bit with the options. And I think you look at where CME is at today versus where it was at just a few years ago with the different options that we have today with the different expirations, not just on a quarterly basis, but the weeklies and things of that nature, you're going to see fluctuations in options OI, which drives those numbers quite a lot up and down. But the good news about that is healthy options on futures business helps protect and grow the underlying futures contract in and of itself. So I find that a very good sign, but the volatility in the OI definitely goes in association with the new expirations that we have. I'll let Sean it relates to the rates.

Thanks very much, Terry. So in terms of the rates, obviously, the open interest down a bit, but we're very excited about the huge growth in the first quarter over the fourth quarter and in particular, several different records that we had in terms of average daily volumes. So average daily volumes of our 3-year notes or 5-year notes or ultra 10-year and our 30-year bond. It was the best quarter ever, actually, for those particular items. In addition to that, we saw enormous growth out in our greens and our blues or our third year of Eurodollar futures and our fourth Eurodollar futures. So with the advent of rising rates, particularly on long end, our rates, particularly on long end, our volumes are following through as expected. One of the things to keep in mind is it remains an extremely challenged environment. And the first quarter was, in fact, an extremely challenging environment. If you look at it from a volatility perspective and foreign exchange. The euro, yen and sterling, if you look at the foreign exchange markets, in euro yen and sterling, their ranks in terms of percentile, volatilities going back to 2007, were 14%, 5% and 13%. So essentially, 90% of the time, volatility has been higher since 2007. If you look likewise at our rates market that out to the eighth Eurodollar future, in the first quarter, we were still running at still just a 5% ranking. So in other words, 95% of the time, going back to 2007, volatilities have been higher. If you go further out the curve, where we saw some increase in volumes that I already spoke about, our 12th Eurodollar future, for example, was at the 34th percentile ranking. And our 10-year notes were at 32%. So still very low volatility, even though we saw very good volumes, especially further out the curve. The other thing I might mention, you asked previously, there was a question previously about retail. And Julie did mention it, but we are excited about our micro Bitcoin launch, which will be happening next week. Bitcoin, you first talked about before, but I think I might talk about it somewhat differently this than I have in the past. If you look at our first quarter of this year, the revenue was higher than the entirety of last year, and it was about $4.7 million in the first quarter. So it was a positive and for the first time, much stronger than in the past. With the launch of the new micro Bitcoins, today, let me talk about the large Bitcoin futures that we have. It's 5 Bitcoins. And the margin requirements run typically more than $105,000 per contract. Obviously, that is extremely restrictive in terms of the number of participants and the types of participants who can be involved in that. With the new micro Bitcoin, it's going to be 1/50 of the size. The micro Bitcoin future will have approximately $2,000 margin. So you can see how that opens up a much wider potential customer base for that product. In addition to that, while the notional size of that product is 1/50, the size of the large contract, it's at 1/10 of a Bitcoin, the rack rate fees are 1/2 of our existing Bitcoin futures. So we're looking forward to that launch. In addition to that, the fees relative to other exchanges will be significantly lower even at that fee rate. So we're looking forward to that launch.

Thanks, Sean. Okay, great. Thanks for the info.

Thanks Mike.

Thank you. Our next question comes from Chris Harris with Wells Fargo.

Great. Thanks, guys. So it's a good quarter for data revenues. Can you maybe talk a little bit about what drove the increase? And then I believe there was a price increase that went into effect in April. So how should we be thinking about the outlook, given that price increase?

Chris, we'll let Julie go ahead and talk about the market data business, and then John can talk about the price changes associated with this. So Julie?

Sure. Thanks for the question, Chris. Yes, it was a great quarter for market data revenue at $144 million. We're up 10% compared to first quarter of 2020. And it was a number of factors. I'd say, in addition to kind of that new fee structure that we've talked about before on nondisplay data, that was implemented this quarter. We also did some data feed pricing adjustments that were implemented in Q2 of last year. And so this was the first quarter that you would have seen those increases as part of the revenue. And in general, it's just increased demand across our drive data licenses and historical data as well as there were some higher audit findings in there. So I think we're continuing to see there's just consistency in our display device counts. And we believe that, that is a result of really better compliance and also reporting of usage by our client base. And when we kind of look not just at that quarter, but the outlook, I think what we're doing is listening to our clients. And we're delivering data in flexible ways, which is really how they want to take it in and use it on their end. So whether it's the data feed side of things, whether it's the new Google formatting that we're allowing and getting the data in the cloud, all of those adjustments are really just speaking to those broader data trends that are really kind of feeding both automated trading as well as clients' use of more sophisticated algorithms. And that really was the reason for the results. I'll turn it to John, but just what we have coming into effect here, April 1 is a change to the realtime pricing. And so that has not been changed since 2018, and we're taking that price per DCM from $105 per month per DCM to $110. So John?

Thank you, Julie. As I mentioned in the last call, we implemented a targeted pricing approach this year, focusing on our micro products. We adjusted the nonmember fees for our micro equities, increasing them by $0.05 per screen and raising micro gold by $0.20 per side and micro silver by $0.40 per side. These changes took effect in February, so we will see a full quarter impact from these price adjustments starting in the second quarter of this year. Additionally, we raised the pricing on our screens in the market data business from $105 to $110. The bulk of our market data revenue comes from this realtime data, which we adjusted. With this targeted approach, we expect to see the full quarter impacts of all pricing changes this year beginning in the second quarter.

Thanks very much and Chris, appreciate it.

Thank you. Our next question comes from Alex Blostein with Goldman Sachs.

Good morning guys. Thanks for taking the question. I was hoping you could spend a couple of minutes on the JV on post-trade services with IHS Markit. Maybe spend a couple of minutes on kind of strategic and financial implications for CME from this transaction over the next kind of 12 to 24 months? Thanks.

Yes, I'll begin. We are very excited about the joint venture with IHS Markit and believe it will have a significant impact on the industry. It will become a leader in trade processing and risk mitigation services, providing our clients more efficient access to services and serving as a great platform for launching new solutions across various asset classes, including interest rates, foreign exchange, equity, and credit. This partnership will enable us to cover the largest markets from an OTC perspective. The joint venture is particularly exciting because it complements the services provided by both the IHS Markit business and CME's optimization services. We are in the process of obtaining the necessary approvals and expect them no sooner than mid-summer, with no issues anticipated at this stage. Moving forward, this venture will facilitate innovation and enable us to offer analytics, workflow tools, and solutions that help clients manage risk and operate more efficiently. The data we receive from CME Group and IHS Markit's Market Serve is quite similar, allowing customers to connect to a single entity instead of multiple ones for cross-asset class exposures. We are very enthusiastic about this development. In terms of financial details, you will observe a change in our accounting due to held-for-sale accounting. This will reflect on our balance sheet, highlighting the assets and liabilities related to our optimization business in preparation for the combination. From a financial perspective, the impact on our adjusted earnings is minimal. On a GAAP basis, there will be a reduction of about $17 million per quarter in the amortization of intangibles because further amortization on these assets has been paused. These are the financial implications so far, and we will share more information as we approach the completion of the combination.

Great. Thank you.

Yes. Thank you.

Thank you. Our next question comes from Ari Ghosh with Crédit Suisse.

Hey good morning everyone. Just a quick one on product development. So again, if you're coming off of a few years of robust product development and again clearly, you've seen strong standard op with these launches. If I look at your recent innovation, it's been skewed around a little more around financial products. So just given the evolving environment of retail, ESG, global participation, etcetera, can you talk about areas of new product focus for CME and where you see the most opportunity over the near to medium term? Thanks.

Okay. Thanks, Ari. I'll let Julie go ahead and comment on that on the new products with her folks are working on these. So Julie, go ahead.

Thank you for your question, Ari. Last year was very active for us as we launched over 85 new products despite the challenges of a work-from-home environment. We remain dedicated to discovering new opportunities with our clients and collaborating across the organization to bring those to market. The first quarter of 2021 was particularly busy, and Derek will provide more details on our commodity offerings. We successfully launched CBL global emissions offset futures, which received great feedback from our clients and has increased our engagement with them. This initiative is expected to lead to several new opportunities in the ESG sector and voluntary carbon markets. Additionally, we introduced several new products focused on Asia in the first quarter, including China methylene and Japanese electricity futures. We also recently announced the launch of Mexican short-term interest rate futures and discussed the ESG 350 futures contract. We are committed to addressing specific market needs, and our clients continue to guide us toward these opportunities. Now, I'll turn it over to Derek for further insights on commodities.

Yes, it's a great question. It's one of these things, Ari, that when we launch products, particularly in the emerging either renewable side or we're looking at ESG constraints, these are markets that are in the early stages of development. So it's not like putting a weekly Monday expiration route or a weekly Wednesday operation out or micro contract that instantly throws a bunch of volume out. So Julie makes the right point. We spend a lot of time working with, particularly our commercial customers, with the end users that actually have these underlying physical risks. And so I'll just give you a quick overview of some of the things that we've launched really over the last 12 months. Julie mentioned a couple that we've launched over the last 3 months. We already have a pretty healthy slate of bio energy products, whether it's the Chicago, New York ethanol contract that we have, Rotterdam ethanol, two contracts that we've launched that are going to sound really niche, but it's exactly in the kind of area that you're talking about, used cooking oil and used cooking oil methyl. These are really, really technical products that serve very specific functions inside the renewable space. Something that is a little more top of mind, cobalt and lithium. These are battery metals that are obviously absolutely imperative for – as the EV market grows and electronify businesses and cars and you go into carbon neutral world, copper is a big part of that. That's a huge part of our business right now, the fastest-growing part of our metals business. But most importantly, building these markets out to provide risk management solutions for commercial customers that need to be able to price and have access to these underlying physical products that are part of the future that we're building. So there are a couple of examples in there that are maybe quite narrow, and you're not going to see those do 100,000 contracts anytime soon, but they're serving specific needs. That's what we do. We talk to our commercial customers. Our focus is on how to build products that suit their needs. We can build open interest, bring the commercial customers alongside. And there are many examples we'd go into, but appreciate the question, but I assure you we're spending a lot of time with our global commercial customers building these products. In our investor deck, and we'll make sure that when we put those out, we highlight those to show the work that we're doing in this environmental space on behalf of our customers.

Ari, let me just make a comment here. Innovation, we've said – I've been here for 41 years. Innovation is the lifeblood of this business as it is every other business in the world that you have to have it. So we are constantly looking at bringing out new products. The beauty of the world that we live in today, we are able to bring out new products in such an expedited fashion because of technology with everything else that's allowed us to do, whether it's regulatory approvals and things of that nature. And – but what's important here is, and Derek referenced some products, as he referred to them as, is timing is very important. So you want to make sure that you have products in your pipeline, and then you'll decide how you want to add cost to them when it's time to promote them in a different fashion. So I do think it's important, and Derek is right. You can get a derivative of a derivative and call it a micro and get instant volume. But through some of these other product lines, it takes some time to nurture, to bring forward, but it's important that you continue to innovate. So that's what we do, and the cost associated with it is nowhere near what it used to be 10, 20, 30 years ago.

Appreciate all the color. Thanks so much.

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

All right. Great. Thanks. Good morning, folks. If you could just touch on the cryptocurrency ecosystem a little bit in terms of how you're thinking about that. Obviously, developing more Bitcoin products and especially on the micro side, I think you said the notion is going down to 1/50 or the margin requirements going down to 1/50. Just if you can comment on, first, how much demand do you think there will be for that, given obviously you're reaching down into that lower-margin bracket and potentially the pickup from Asia on that? And then secondarily, on the risk side in terms of margining, if you could just talk about how comfortable you are with those lower-margin limits. And as you think about the cryptocurrency trading ecosystem broadly in places where there might be even lower-margin requirements, see any systemic risks in the system, either for Bitcoin trading or that could eventually impact CME on the clearing side?

I think it's a really good question, Brian. And let me ask Sunil to comment on the risk component of it because I know it's the second part of your question. But I do believe it's very relevant as the growth of any product is to make sure you risk manage it properly. So when you're going into a contract that is margined at $100,000 or whatever the number is to $2,000, you got to say, 'Well, how are you going to manage that risk?' So I'd like Sunil, who's the President of our clearinghouse, to go ahead and give you a little flavor how he's thinking about it.

Thank you very much, Terry. Very important to note that we did not reduce the margin. The margin is not lower. It is actually – the margin is just the same as the larger contract. The margin is a percentage of the notional. So in this case, our initial margin currently is at 38% of notional. It's still the same thing for the smaller-sized contract. I think what Sean Tully was trying to communicate was the larger contract at a very large notional size, and it was a very higher entry point for smaller clients, who have smaller hedging needs. So as a result, a smaller contract. Again, it's a 38% margin. But in order to get the same exposure, you'll have to actually get 50 of those contracts to equate to the larger contracts. So you'll end up with the same amount of margin. So there's no difference between the margin of the larger contract and the smaller contract in terms of its relative value to the size of the notional.

So, just so it's clear, Brian, we won't participate in a race to the bottom on margins on any product, especially cryptocurrency. So I think that's one thing that's critically important. Our risk management is one of the hallmarks of the growth of this institution. So we'll be very cautious how we do that. So you're right, we are going to have participants in here that have a different economic makeup trading these products than the ones that are trading them today, because of the value. That doesn't mean that the risk management changes at all. It will be just as stringent as it is as today. Sean, do you want to comment any more on a smaller contract?

Thank you, Terry and Sunil, for clarifying my earlier comments. I appreciate it. We are excited about the launch. Additionally, we have recently introduced Ether futures, which are averaging over 1,000 contracts a day, showcasing our continued progress. Regarding our existing Bitcoin futures and Micro E-minis, we've attracted tens of thousands of new accounts, totaling over 200,000 new clients in the past year. This indicates that we are successfully reaching new customers. We are particularly enthusiastic about the new size of this contract, which allows us to expand into a different economic base of clients, while maintaining the same margin-to-risk ratio as highlighted by Sunil. We remain very excited about this development.

Thanks, Sean. Brian, I thought I gave some more color, how we're looking at it.

Regarding the cryptocurrency trading occurring outside of CME on other platforms, do you see any systemic risks that could potentially affect CME, or do you believe your margin requirements are robust enough that there would be no impact at all?

Yes. I'll let Sunil comment, but I don't know if this is, if someone's sneezes we all get sick type of scenario, if that's where you're going. But let me have Sunil give a comment, as it relates to the risk management of other entities that are trading products and the contagion that could possibly happen to CME.

We don't observe any contagion from those entities since they cater to a different client base and aren't regulated in the U.S., meaning U.S. individuals can't trade on those platforms. Our product, on the other hand, is fully regulated here. As Terry mentioned, we are committed to our risk management, which is crucial for us. We consistently monitor our clearing firms and assess contagion risk as well. Thank you.

So, again, we don't have mark-to-myth. We have mark-to-market, and we have margin going back and forth on real-time basis. We can do it as much as an hourly basis if we need be, but we do it twice a day in a typical day. And so, I'm very comfortable with the way we are managing the risk on that. But again, this is a new asset class. There's a lot of people participating in it all over the world. I think your question is valid, but I like our risk management model and the way we handle our client base.

Perfect. Thank you so much for such a comprehensive answer.

Thank you.

Thank you. Our next question comes from Kyle Voigt with KBW.

Hi. Good morning. Maybe just a modeling question for John. Just trying to better understand the moving pieces in the decline in other revenue. I think you called out client shifting towards cash collateral. I guess, can you just remind us what that means from a fee standpoint? So maybe the current net fees earned on cash collateral and the net investment income line versus the fee rates on the noncash collateral and other revenue. And then also, if you could just help us understand the size of the shift in collateral that client shifting collateral that's occurred over the past quarter or so?

Thank you for the question, Kyle. I hope you're doing well. Regarding the sequential decline in other revenue, as I mentioned in the last earnings call, there were a couple of items in Q4 that will not continue and are driving the majority of this decline. We made an annual adjustment based on exchange activity paid by our partner in Brazil for the software we licensed to them. Additionally, there was a termination fee related to our agreement with the Korean exchange. Both of these were booked in Q4, and both agreements concluded last quarter, so they won't carry forward. I noted this during the last earnings call. We also saw lower custody fees in Q4 compared to Q1, amounting to about $2.5 million, as customers opted to place cash with the clearinghouse instead of using noncash collateral. These factors primarily contributed to the decline in other revenue. Looking at our collateral at the clearinghouse, the average cash balances increased from $86.1 billion in Q4 2020 to $103.5 billion in Q1 2021. While we saw an increase in the cash placed at the clearinghouse, the return on those balances declined from about 3 basis points to approximately 2 basis points. In our other nonoperating section of the income statement, the returns remained relatively flat, showing about $6 million in Q4 2020 and approximately $6.4 million in Q1 2021. Therefore, the increase in the nonoperating section is mainly attributed to our equity and unconsolidated subsidiaries, particularly driven by our joint venture with S&P Global in the indexing sector. These points summarize the main changes between other revenue and the other nonoperating section of our income statement. Thank you, Kyle.

And sorry, John, just on the noncash collateral piece, can you just remind us what the net fees are there that you're earning within other revenue, the fee rate?

Yes. I want to say it's 5 basis points is what we charge for noncash collateral put up at our clearinghouse.

Got it. Thank you.

All right. Thanks Kyle.

Thank you. Our next question comes from Chris Allen with Compass Point.

Morning everyone. I wanted to follow-up on the market data question from earlier. Market did a future of about 12.7 million year-over-year, about 10%. I was wondering if you can give us some granularity just in terms of the dollar impact from the higher audit findings, you kind of break down the growth between what's been driven by price increases versus organic growth higher demand?

I'll address part of that and then pass it to Julie to discuss the organic aspect of the question. Regarding the audit findings, we noted a sequential increase of about $1.2 million between Q4 and Q1. When looking at the overall sequential increase in our market data business, it rose by approximately $4.4 million. Therefore, about a quarter of that sequential increase was attributed to the rise in audit findings. We also implemented a structural change regarding non-display fees in our market data business, which had an impact of around $2 million for this quarter. I'll hand it over to Julie for any additional insights.

Yes, I believe that, as John pointed out, the adjustments we made regarding data feed access are significant. We changed the monthly fee for end users accessing our mailable feed from the vendor. This price increase took effect in the second quarter of last year, raising the fee from $375 per month to $500 for real-time data. For delayed data, the fee increased from $175 to $250 per month. As a result, we're observing an approximate 36% increase in fees compared to prior rates. Additionally, we're experiencing good growth in drive data, which has risen by another 16%. This growth primarily stems from the demand for our data in various structured products and indices that customers are developing. Overall, subscriber device count remains robust without decline or attrition, which is crucial since this accounts for the bulk of our data revenue.

Thanks, Julie. Thanks, John. Go ahead, Chris.

I would say, maybe any color just in terms subscriber account on a year-over-year basis.

Subscriber account, Julie.

Yes, it's roughly flat, Chris. The positive aspect is that the pandemic highlighted the significance of our data. As we transitioned to remote work, there was a pressing need for our data. With so much occurring in our market, having that information is crucial for businesses to operate effectively. I've been quite pleased, especially since we made some pricing adjustments, and we have not yet noticed a negative impact on subscriber numbers at this time.

Thank you.

Thanks Chris.

Thank you. Our next question comes from Ben Herbert with Citi.

Hey good morning. Thanks for taking the question. I was just hoping you could drill down a bit on the continued non-US strength. And I know Julie mentioned retail was strong across regions, but anything to note, particularly on the large OI commercial base and then also maybe against kind of different phases of recovery across the globe? And lastly, John, if you could maybe walk us through how we should be thinking about any RPC impacts from non-US trend? Thanks.

Sure. I'll take part...

Why don't you let Julie go ahead and comment on the strength of the U.S. and Derek and/or Sean can jump in, then you can jump in.

Sure.

Yes. Internationally, we experienced our second-best average daily volume (ADV) month with 6.2 million contracts traded, marking a 33% increase from the fourth quarter. This growth stemmed from various product categories. Interest rates saw a 70% rise, equities were up 15%, energy increased by 20%, and metals had a growth of 12%. These figures indicate robust double-digit growth. Interest rates are currently at their highest since the first quarter of last year. From a customer standpoint, we generated growth across all segments, with the most significant increases coming from hedge fund clients and bank trading activity, showcasing the diversity of client contributions to our ADV in the first quarter. Focusing on Europe, we saw a 34% increase in ADV to 4.3 million contracts, with notable growth in Eurodollar futures and treasury products, as well as copper and gasoline. Similarly, the Asia-Pacific region reported an ADV of 1.5 million contracts, up 33%, again driven by strong performance in Eurodollars, treasuries, WTI, copper, and bonds. Every one of the top 20 international markets experienced double-digit growth, which is remarkable. We are committed to investing our resources in these areas to further expand our business. Particularly in these regions, hedge fund and bank clients have been significant contributors to this success. Derek can provide more insights on commodities.

Yes, John. It's a combination of client product and geographical mix for us. We actually saw with the increased volatility around an increasing story around the global super cycle. That's tended to present itself this past quarter more in terms of the record levels of copper that we're looking at right now and that Ags piece of this. So we actually saw some sector rotation of some of the financial players out of energy into copper and Ags. We've talked about some of those trends. And it was a bit of a disappointing gas season for all of us. Last year, we had a really, really active gas season. We just saw gas disappoint over the last couple of months. So from a proportion point of view, a lower proportion total of gas versus WTI.

Yes, thanks. When you take a look at the RBC from participants outside the United States, it's certainly higher than within the US, and it's primarily for a couple of reasons. One, non-US participants tend to be nonmembers of the exchange. They pay a higher rate per contract because they're nonmembers – tend to be nonmembers. And then secondly, the mix of products that they the trade also tends to have a higher RPC. So when you look at the volume, the volume coming from outside the United States is approximately 29% of our total volume. And then when you look at the revenue, the electronic trading revenue from outside the United States is about 38%. So that gives you an idea in terms of what the premium is that they provide in terms of RPC.

Thanks, guys.

Okay.

Thank you. Our next question comes from Owen Lau with Oppenheimer.

Hey, good morning. Thank you for taking my questions. I want to go back to micro Bitcoin futures. And I'm wondering what has changed since the last earnings call so that CME has decided to launch micro Bitcoin futures? And then Ether futures volume, another record high. What do you want to see to feel comfortable of launching something like micro Ether future? Thank you.

I don't think anything has really changed since our last call. I think that we've always looked at the evolution of this product going to trade – to go into different participants' hands, as we talked about earlier. The – obviously, the massive increase we've seen in the price of the cryptocurrency in and of itself lends to a smaller contract for more participants to manage their risk in as we've talked about earlier. So I don't think we really had any change of mind since the last call. It's just part of the natural business decisions that we make here going forward. And as it relates to the Ether contract, that's a relatively new contract trading, Julie, with a couple thousand a day maybe, 2,000 a day. And we won't say never to a micro Ether contract. But again, we're going to continue to help nourish that contract along, and we'll see how it goes. So we'll make that decision when the time is right, if, in fact, the time is right. But right now, it was an appropriate move for us to work on the micro contract with Bitcoin. We have listed the contract for several years. We've had an opportunity to risk management as we talked earlier, which is critically important to this institution. So I think that's really the philosophy as it relates to some of the micros.

All right. Thank you.

Thank you.

Thank you. Our next question comes from Simon Clinch with Atlantic Equities.

Hi. I appreciate you taking my question at this late stage of the call. Could we revisit the trends in RPC? I'm particularly interested in the energy sector and the recent changes we've seen there over the last few months.

Sure. I'll take that and pass it over to Derek for more details. Regarding the RPC in energy, we noticed a slight decline from Q4, mainly due to increased trading volume. There was a notable rise in trading activity from Q4 to Q1, which resulted in more volume discounting. Additionally, the share of member trading activity increased, which also contributed to a lower RPC. Furthermore, we experienced a significant boost in WTI trading, which increased sequentially by about 40%. In contrast, nat gas, which typically holds a higher RPC, remained relatively stable. This shift led to a product mix change favoring WTI, as nat gas accounted for a higher portion of trading in Q4 compared to Q1 due to the increase in WTI trading.

Yes, John. It's a combination of client product and geographical mix for us. We actually saw with the increased volatility around an increasing story around the global super cycle. That's tended to present itself this past quarter more in terms of the record levels of copper that we're looking at right now and that Ags piece of this. So we actually saw some sector rotation of some of the financial players out of energy into copper and Ags. We've talked about some of those trends. And it was a bit of a disappointing gas season for all of us. Last year, we had a really, really active gas season. We just saw gas disappoint over the last couple of months. So from a proportion point of view, a lower proportion total of gas versus WTI.

Thanks for that. I have a follow-up question regarding expenses. When you initially set your targets for the year, you mentioned a more favorable revenue environment. Can you elaborate on whether the current situation in the first quarter aligns with that perspective, or do you anticipate improvements as we approach the latter part of the year?

Yeah. I think it's more along. Obviously, we're very pleased with the first quarter of the year. That's certainly a nice uptick from Q4. So, certainly, very pleased about it. Really, it's more around the opening of the economies around the world and getting the opportunity to get in front of our clients in person, really is what we're thinking about. And certainly, some early positive signs around that. We do have some of our sales teams meeting with clients in outdoors and the like. But really what we're looking for is getting more customer events, more in-person events, more of our sales team meeting clients around the world. That's really what we were referring to, and that leads to additional travel, additional marketing events. Those are the items that we kind of put into our plans for the back half of this year, and we're hopeful we're going to see that.

Okay. That’s useful. Thank you.

Yeah. Thank you.

Thank you. I'm showing no further questions at the time. I will now turn the call back over for closing remarks.

Well, thank you all very much for joining us today and taking time out of your busy schedules. We look forward to talking to you next quarter. Everybody, stay safe.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.