Good day and welcome to the CME Group Third Quarter 2021 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to John Peschier. Please go ahead, sir.

Thank you and good morning, everyone. I hope you are all doing well. I am going to start with the Safe Harbor language, then I will turn it over to Terry and our team for brief remarks followed by your questions. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statement. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures. With that, I would like to turn the call over to Terry.

Thank you, John and thank you all for joining us this morning. We released our executive summary, as John said, which provided extensive details on the third quarter of 2021. I have John, Sean, Derek, Sunil, and Julie Winkler on the call this morning, and we all look forward to addressing any questions you have. Before I begin, in addition to John, who will discuss the financial results, I am going to have Sean and Derek to make some comments. With all the recent news associated with interest rates and energy, I thought it was important that they present this morning. With that, we delivered solid volume during the third quarter of this year as we averaged 17.8 million contracts per day, which was up 14% versus third quarter last year. We saw year-over-year strength in our interest rates and energy businesses and saw significant options growth of 45% during Q3. Rates average daily volume rose 53%, including 78% growth in Eurodollars and 41% growth in treasuries, as the expectations of future rate hikes have increased. We continue to launch innovative new products, tools and services to support customer needs, including additions to our suite of micro-sized contracts that allow market users to customize their trading and hedging as well as ESG-focused futures contracts that help manage climate-related risk. In terms of specific products and services, we had two consecutive quarterly ADV records for futures in Q2 and Q3 as the market continues to manage their interest rate risk ahead of key transition deadlines. Bitcoin futures, ADV increased 170% compared with the third quarter last year. Ether futures are also off to a good start since their launch in the first quarter this year. In September, we launched the derivatives industry’s first-ever sustainable clearing service to help market participants track and report on how their hedging activities are advancing their sustainable goals. Finally, Micro WTI and Micro Treasury yield contracts began trading in July and August respectively. The Micro WTI contract represents the most successful commodity product launch in our history, with over 1 million contracts traded within the first 20 days and a total of 4.3 million contracts traded since July 12 launch. Most importantly, this innovative new contract is attracting new customers to our energy market as evidenced by the fact that almost 10,000 Micro WTI market participants have not traded any other CME Group crude oil product in 2021. You will hear more about this in a moment from both Derek and Sean respectively. In the third quarter, non-U.S. ADV was up 13% to 5 million contracts per day. We saw 15% growth in Europe, 8% growth in Asia, 32% growth in Latin America, and 10% growth in the U.S. Also during the quarter, we completed our joint venture with IHS Markit and together launched OSTTRA, a leading provider of progressive post-trade solutions for the global OTC market across interest rates, equities, FX, and credit asset classes. Turning to Q4, we have had a strong start so far in October, averaging more than 20 million contracts, which is an increase of 35% month-to-date compared to the same point in October last year. Interest rates in energy are up double-digits, with rates up 90%. With that, let me turn it over to Sean to give you more flavor as it relates to interest rates.

Thank you very much, Terry. As Terry said, the financials unit saw a number of significant developments in the third quarter, particularly regarding SOFR, the overall rates market, and our crypto business. Our silver futures saw average daily volume grow to 124,000 contracts per day in the third quarter, up over 180% year-over-year, and our open interest grew to over 1 million contracts, up 140% year-over-year. Additionally, in the month of October, we are seeing average daily volume of 227,000 SOFR futures contracts and open interest of 1.2 million contracts. Over the last 60 days, our SOFR futures ADV made up over 78% of the global SOFR futures volumes, and our open interest represents approximately 95%. Further, on July 29, the Alternative Reference Rate Committee of the Federal Reserve endorsed CME’s 1-month, 3-month, and 6-month term SOFR rates. And on September 19, CME began publishing a 12-month term SOFR rate as well. Demand for access to our term SOFR rate is very high, as we have already executed more than 100 term SOFR licenses to market participants, and we are currently working with an additional 300 firms who are also interested in licensing. Our fallbacks for Eurodollar futures and options have also been a very strong success since we finalized our rulebook back on March 29. SOFR-linked open interest includes SOFR futures as well as Eurodollar futures and options that reference a LIBOR rate, which will be set after June 30, 2023. Those contracts have grown from 11.8 million open interest on March 29 to 16.3 million open interest as of October 25, up 38%. Further, the average daily volume of our SOFR-linked futures and options in Q3 was 1.6 million contracts, representing 52% of CME’s total short-term interest rate ADV. In addition, our long-held view regarding the rates market environment continues to gain veracity. Using CME’s FedWatch tool, we can see the market is now pricing in a 60% chance of tightening by June 2022, up from just 17% just 1 month ago. Our FedWatch tool also now indicates an 87% chance of at least two Fed tightenings by the December 2022 FOMC meeting. In Q3, the improving rates environment, as Terry said, led to a 53% growth in our interest rates ADV versus third quarter 2020. Nonetheless, rate volatility, while higher in the third quarter of 2021 than it was in recent quarters, remained historically quite low. For example, in the eighth quarterly Eurodollar futures, it achieved just the 37th percentile of volatility versus a history going back to 2007. And our 10-year note futures achieved only a 25th percentile volatility rank showing the current volatility even in Q3 was very low. Regarding CME Group’s crypto offering, first, let me say, the recent approval of ETFs based on CME Bitcoin futures is not only an important milestone for our futures contracts but also a positive development for the broader Bitcoin ecosystem. This is a direct reflection of the strong growth and client demand for exposure to Bitcoin via CME’s transparent, deeply liquid, and regulated cryptocurrency futures contracts. The launch of ETFs based on CME’s Bitcoin futures is validation from the industry of what we have known for some time—that CME Bitcoin futures are the leading source of Bitcoin price discovery in the industry. Two new Bitcoin ETFs were launched just last week and another this morning, all based on CME’s Bitcoin futures. On the back of those launches, our Bitcoin futures, October ADV has risen to over 12,000 contracts or over 60,000 equivalent Bitcoin with a record $3.5 billion per day, up 57% over September. Additionally, average open interest in our Bitcoin futures has grown to a record 17,433 contracts, up 70% versus September. Our Micro Bitcoin futures volume is also up 33% month-over-month, and our average open interest is up 97% month-over-month. With that, I will turn it over to Derek.

Thanks, Sean. As Terry mentioned at the top of the call, we have seen a strong return of activity in our global energy business in the second half of this year with both crude oil and natural gas prices hitting multiyear highs. Overall, this has helped our global energy business to deliver average daily volume growth of 18% in the third quarter, led by energy options, up 26% year-on-year. WTI futures reached the $84 a barrel mark earlier this month for the first time since 2014, as OPEC maintained caution on production increases and as U.S. shale steadily recovers from the 2020 decline. Prices were further boosted from returning global demand as economies reopen. In the U.S., gasoline consumption reached 10 million barrels a day in July, marking an all-time monthly high. Activity in WTI crude oil futures saw a 26% jump in average daily volume in the third quarter to 990,000 contracts; the WTI options average daily volume jumping 45%, reaching 129,000 contracts. This helped us to deliver strong daily volume growth in our refined products portfolio as well with a gasoline product volume of 20% to 196,000 contracts and our heating oil products' daily trading volume up 10% to 154,000 contracts. This has helped set the stage for the significant success that we have delivered with our Micro WTI futures contract. Launched on July 12 of this year, as Terry mentioned, we surpassed 1 million contracts traded in the first 20 trading days and we have already traded more than 4.3 million contracts since launch. Most importantly, this innovative new contract is attracting brand new global customers to our energy market, as evidenced by the fact that almost 10,000 Micro WTI customers have not traded any other CME Group crude oil product in 2021. These new customers come from 118 different countries and represent over 50% of our Micro WTI customer base. So, this has been a significant source of new client acquisition for us. At the same time, we have also seen the natural gas market experience the highest price level in over 13 years, with U.S. Henry Hub futures hitting a high price of $6.45 earlier this month, more than tripling in price from the COVID-driven March 2020 lows. The resulting increase in volatility has boosted our Henry Hub futures business, with September average daily volume of 496,000 contracts, up 11% year-on-year. Henry Hub options were particularly strong in the third quarter, with average daily volume up 18% to 124,000 contracts, achieving our best months of August and September ever. Participation has been strong from our commercial customers, and we have seen our natural gas futures and options open interest jump to 6.2 million contracts in September, which is the highest level we have seen since January 2018. Overall, we are seeing that the investments we are making in our product portfolio, our global client developments, and our technology pay strong dividends as market volatility returns and as our customer base manages their energy risk and CME Group’s global benchmark products. With that, I will turn over to John to discuss the financial results.

Thanks, Derek. During the third quarter, CME generated more than $1.1 billion in revenue, with average daily volume up 14% compared to the same period last year. Expenses were very carefully managed and on an adjusted basis were $412 million for the quarter and $355 million, excluding license fees. CME had an adjusted effective tax rate of 23.3%, which resulted in an adjusted diluted EPS of $1.60, up 16% from the third quarter last year. Capital expenditures for the quarter were approximately $33 million. CME paid out more than $300 million in dividends during the third quarter and cash at the end of the quarter was approximately $1.6 billion. At the start of September, CME and IHS Markit launched OSTTRA, our post-trade services joint venture. As a result, CME will no longer be recording revenue and expenses associated with our post-trade businesses, but will be recording our share of the joint venture earnings in the equity and net earnings of unconsolidated subsidiaries line out of our income statement. For the month of September, CME would have recorded approximately $22 million in revenue and $11 million in expenses, but instead recorded approximately $8 million in our share of the adjusted earnings of the joint venture. When you take into consideration tax implications and providing support services for the joint venture, there was essentially no impact to our overall earnings. Turning to guidance, we now expect total adjusted operating expenses for 2021, excluding license fees and reflecting the impact of our joint venture, to come in at approximately $1.5 billion, down about $30 million from our guidance at the start of the year. All other guidance remains unchanged. Finally, we are very pleased to say we achieved our planned $200 million in cumulative run-rate expense synergies related to the NEX acquisition this quarter. Please refer to the last page of our executive commentary for additional financial highlights and details. We would like to now 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. We will now take our first question from Rich Repetto with Piper Sandler.

Yes, good morning, Terry and good morning, John and team. Thanks for the macro update, because there is certainly a lot of things going on. But on the Bitcoin futures ETF, Terry, besides just industry validation, I think it was regulatory validation of both the CFTC and your regulatory regime you have for the product as well. So, I guess my question is, what kind of precautions are you taking – when I am talking about position limits basically to ensure that the role and – is as efficient as possible and we know there is some volume being generated by these ETF manufacturers?

Rich, thank you. It’s a great question. I appreciate you asking it, but the ETFs, as Sean stated in his comments, are very exciting for – to be based off of CME futures. I think that in and of itself lends to the credibility of our product as a listed futures exchange and the regulation thereof. To get more directly to your question around position limits associated with it, they are an important component to any credit market when you have a highly regulated entity like CME. So, the existing position limits in our Bitcoin futures today, as you may or may not know, is 2,000 for spot, and then we have accountability levels going back into deferred months that are much larger than that. But the spot month will go to 4,000 in November, and we feel very confident from a risk perspective that we are not being reckless in any way, shape, or form; this has been vetted by our entire team here and with the agency. So we have filed for those changes. We are confident that the product is mature enough now to increase the size of the limit. So again, we will be careful here, Rich. This product, we launched in 2017, not 1917. So, this is a newer product, a newer asset class, and we will be very, very cautious here, but again, we are excited by the uptake and the credibility associated with power shares and some of the other ETFs that decided to benchmark against our futures contract.

Thank you. Very helpful, Terry. Thanks.

We will take our next question from Dan Fannon with Jefferies.

Thanks. Good morning. I was hoping to get a little bit more color on expenses, John. So the implied guidance with the adjustments, I assume some pickup in the fourth quarter. Could you maybe explain a little bit just in terms of the ramp in the 4Q? But then given all the moving parts as we think about next year, I know it’s a bit early. Maybe give us some framework to think about with the JV coming out, the synergies being realized, and then the broader kind of inflationary pressures we are hearing across kind of the employment and other cost factors to think about as we think about ‘22 and beyond?

Yes. Thanks, Dan. Appreciate the question. So in terms of our expense guidance, we did reduce our expense guidance after you adjust for the OSTTRA joint venture by an additional $15 million. So we’re about $30 million down from our original guidance at the start of the year. When you think about what we’ve done on the expense side, this entire CME team has done an excellent job managing our costs. We continue to have that as a strong focus. And to put our expense management into perspective, after adjusting for the creation of OSTTRA, we’re about $12 million down from last year’s adjusted expenses and almost $100 million down below 2019 levels. When you look at our reduction of the $15 million, about half of that reduction reflects lower expected travel and in-person events. As you recall, at the beginning of the year, we had about $20 million we put in the back half of the year, assuming that we would be able to have additional travel. But as you can see, there are still limitations on travel, especially international travel. We have been seeing additional pickup in meetings, especially in Europe and London, particularly, but still, international travel is tough. The balance of our reduction in terms of our guidance is just excellent continued expense control by the entire team, including careful hiring and careful use of contingent labor. When you take a look at 2020’s fourth quarter and 2021’s fourth quarter, we do see a pickup in costs. The fourth quarter is traditionally our highest expense quarter. Historically, marketing and advertising spend tend to be highest in the fourth quarter, along with higher project spending as we wind up the current year and prepare for the next year. The spending this year reflects that same pattern, and we anticipated a higher-than-normal proportion of spend when we built out our spending plans at the start of the year. We expect higher levels of spend in marketing and advertising, including targeting a portion of that spend on our successful micro products and in anticipation of a more open operating environment in 2022. We’re also investing in system projects, including the migration of EBS and streaming services, which would lead to more technology-related costs. Also, our incentive compensation is anticipated to be higher in the fourth quarter of this year than the fourth quarter of last year. So those are some of the items which are causing the fourth quarter this year to be higher than the fourth quarter last year. But overall, for the entire year, some really impressive expense controls by the entire organization. So in terms of thinking about modeling for next year, we’re going through the budgeting process now. So, it’s really too early to provide guidance. We are hopeful for a more normalized environment, which would be positive for our business. When looking at 2022, there are a couple of things to keep in mind. We did postpone salary increases in 2021 and for our staff, and we don’t anticipate doing the same this year for 2021 – I mean, sorry, for 2022. Also, in an open business environment, which is obviously extremely fluid, we would anticipate increased travel, both regionally and globally, and more in-person events, which we would view as positive from a business perspective. But again, in November, it’s a little tough to see that in 2022 yet. So we will provide some additional guidance when we do our earnings in February. We are starting to see some of that open up, like I mentioned before, in Europe. We will continue to invest in our systems and technology capabilities with an eye towards accelerating growth globally. It is our intention that we will continue our excellent expense management as we build out our plans for next year. So that should give you a little bit of a flavor in terms of 2022.

Great, thank you.

Alright. We will go ahead and take our next question from Alex Blostein with Goldman Sachs.

Thanks, guys. Good morning. Thanks for taking the question. I wanted to dig into market data a little bit. It’s been flattish over the last three quarters. I think there were some pricing adjustments that should result in slightly better near-term trends. So maybe kind of walk us through sort of what’s been going on behind the scenes and market data and how you’re thinking about growth in that business going forward. Thanks.

Thanks for the question, Alex. The data business has really been quite stable, as you point out. So this quarter coming in at $145 million, we were up 4% where we were in Q3 of 2020. So the number of professional subscribers that we’re seeing for our real-time business, which is the bulk of the revenue, has been steady. And the price increase that we saw—$5 per user has been realized. The big difference that we saw between Q2 and Q3 results were really audit findings, which were down about $2 million, which, again, is quite difficult to forecast and was really just the timing of audits that we have underway with our clients. So, Sean had mentioned, at the beginning of the call, a lot of the focus for the team, particularly the data sales team, has been on the term SOFR rate. We’ve got a tremendous amount of client engagement going on there with 100 licenses already completed within the last quarter and 300 more in the queue. We are also continuing to see great uptake of those non-display policies and pricing that we introduced at the beginning of the year, as well as our derived business performing very strongly. Lastly, we are seeing continued adoption of our cloud offering with Google on Smart Stream. So I think the growth is still there. It’s just—again, the real difference in Q3 was based on the audit.

Got it. Thank you.

Alright. We can go ahead and take our next question from Ken Worthington with JPMorgan.

Hi. Thank you for taking my question. I wanted to ask about open interest in the aggregate. Open interest is still hovering around 100 million contracts, more or less, and it’s been anchored there for a little while. And CME has been highlighting all these great things that have been happening. We’ve got a ton of innovation, building SOFR, the build-out of the micro products, the strength in energy. And in the macro, you’ve seen some rate movements at the 10-year in anticipation of higher rates at the short end of the curve and the commodity super cycle and the huge debt issuance you guys have highlighted. When do you think CME will start to see all these good things start to flow into open interest growth? What’s the outlook? When does the good translate into OI?

Alex, it’s Terry—Ken, I’m sorry. Ken, it’s Terry Duffy. I’m going to let Sean comment, maybe Sunil, as well, but let me give you a broad comment here. The open interest of 100 million to 109 million contracts, which I think is what you’re referring to, the trend over the last several—probably a year or so since we came off of the high of 150. A lot of it is reflected in the interest rate business. We’re going through a massive transition, as Sean pointed out earlier, from LIBOR to something else we suspect as SOFR, and people are trying to adjust associated with that. We’re also seeing the low vol still that’s—even though we’ve seen an uptick in some of the things that you’re referencing, the volatility is still significantly lower not only in interest rates but FX. I’m talking from a historical standpoint. That is changing. You’re correct in your comments. The question is when does it reflect open interest. We believe there is open—the participants are in there participating. But remember our open interest today is a little bit different than it was just a couple of years ago. We didn’t have weekly options on a lot of these products. We didn’t have some of the expirations constantly coming on and off. So people are taking exposures for projected periods of time, which might be days versus quarters like it was historically. So we’re seeing people manage their risk in a little bit different way, and I think that’s reflective of the open interest as well. I think those are all a lot of factors going into it, fundamental being the main one, but a lot of it is some of the products, the way we offer people to manage risk right now, which I don’t see that as a bad problem. I see that as a good problem because open interest, we don’t get paid for. We get paid for transactions. And the way we’re structuring it now, I think that’s a much more powerful offering. But the open interest is a reflection of future trade. We’ve always said that the people, and we still believe in that. But at the same time, we’re seeing people participate in the market because of what I just outlined a moment ago with options and other products to transition from one rate to another, the fundamentals and foreign exchange being extremely quiet. And we’re also seeing massive directional changes in energy. As Derek pointed out earlier, we went from minus $37.50 to $84 a barrel in 1.5 years. So you think about the massive directional participation in the marketplace has been truly one way, and a lot of people just don’t believe that you can go from minus $37 a barrel to $84 a barrel in 1.5 years. So I think it’s just an adjustment to the world that we live in today, and people will, again, participate and hold more and more open into. But right now, I don’t see it as a bad problem because of what we—what I just outlined. And I’ll ask Sean to comment more.

Yes. Thank you, Terry. And thank you, Ken, for the question, just very briefly in terms of the numbers, year-over-year, the open interest rate is up 14%. In equities, it’s up 13%. In foreign exchange, it’s up 22%. So, a very strong year-over-year growth. In addition to that, another number we track very closely is the number of large open interest holders as reported by the CFTC. If you look at the second quarter of this year, and if you look across the financials products, rates, equities and foreign exchange, the average large open interest holder number across the second quarter was an all-time record high for the combined three asset costs. If you look at the third quarter, we beat the second quarter. We’ve had two back-to-back all-time record numbers of large open interest holders on average. If you look at our interest rates business, the most recent numbers from the CFTC indicated the rates business is just 1% below its all-time high in large open interest holders, and the foreign exchange business similarly is just a couple of percentage points below its all-time high. But I think, overall, the marketplace is extremely healthy and doing well.

And I don’t want to think we’re dodging the question because I think your question, Ken, is based on 150 million OI, which was a record open into several years ago. So I think what Sean is giving you is coming off of a different base, obviously. So we don’t want to be disingenuous either, but they are what they are. We’ve gone through a lot here in the last couple of years with pandemic uncertainty. People are not sure how they are going to manage risk, but I think we’re starting to see a return to that. Sean’s numbers are reflective of that and I think that’s what’s positive as far as the open interest story goes.

Great. Thank you very much.

Thank you.

Alright. We will take our next question from Chris Allen with Compass Point.

Good morning, everyone. I was hoping you can give a little bit more color on OSTTRA just in terms of maybe what were the revenues that were included in the P&L for 3Q, i.e., before separation in September. And also, what were the year-to-date expenses you can kind of think about what’s the kind of the adjusted starting point as we kind of contemplate for next year?

Yes. Thanks for the question. This is John. So yes, we’re very excited about the launch of OSTTRA. We think it’s going to be very positive for our customers. We will be able to offer them new and innovative products, improved workflow and analytics. And also, we’re going to be well positioned to really support the global banks, in particular, so very excited about OSTTRA. We’ve, like I said, launched it in early September. We’ve got an integration plan that is being executed right now. And so far, we’ve been very pleased with the leadership there and working with our partners at IHS Markit. So in terms of revenue, like I said in my prepared remarks, it’s about $22 million in revenue for the month September we would have booked had we not launched OSTTRA. Of that, $7 million is in transaction fees and $15 million is in the other revenue line. From an expense perspective, it was about $11 million for the month of September, with about $7 million of that was in compensation and the rest was split between technology, other and pro fees. In the equity and earnings section, equity and net earnings of unconsolidated subsidiaries was $8 million in that line, that $8 million is net of tax. And then we had $1 million in the other line in that section of our income statement. Obviously, when we had the company before the formation of OSTTRA, you would have had the tax effect, the $11 million in operating income. So, when you net all that out, it’s really no impact for the month of September. Now, looking at the expense level, the expense levels have been very constant in the $11 million range. So there is very little in the way of volatility over the last several quarters. So $11 million per month is a good run rate. And then when you look at the revenue, if you looked at it for a full quarter, if you took the $22 million, multiply it by 3 to give yourself a quarterly amount of $66 million. If you look over the last several quarters, the revenue has been in the $64 million to $66 million range per quarter. So those would be the numbers that I would work with in terms of run rates.

Thank you.

And we will take our next question from Owen Lau with Oppenheimer.

Good morning, and thank you for picking my question. So the volume of Bitcoin futures has been very strong. OI has been increasing, but there will be more Bitcoin futures trading value coming up. Could you please remind us of the value proposition of CME Bitcoin futures franchise and why ETF and other institutional investors will continue to go to CME instead of other trading venues? Thank you.

Sure. This is Sean jumping in. Thank you for the question. You may recall, it was back in 2017 that CME Group devised its new Bitcoin reference rate, which has become an essential reference rate for the industry. We also created a reference rate for Ether. So these reference rates are highly used by the world now and, again, were created by CME in conjunction with partners. So that’s one of the unique value propositions. In addition to that, we offer, as you know, asset classes across the spectrum, across the entire commodities spectrum, across the entire financial spectrum, across equities, rates, and foreign exchange. So I think the combination of all of the products that we offer is enormous. In addition to that, we are highly regulated. We are highly transparent, and we have an enormous distribution out to our partners. CME Group, you, I’m sure, know, has a 170-year history of being the most reliable exchange in the United States to offer partners. So I hope that helps to understand some of the value proposition.

Let me just add to what Sean said because I think it is important. You referenced the reference rates, and Julie Winkler and her team constantly are looking at different ways to bring value to the company, and this is just another example. And maybe to further the prior question that you don’t have to have transactable ideas in order to generate revenue in the future, and these reference rates have been very, very helpful for CME going forward. And as Sean touched on, what I think is really important to highlight is the derivative aspect of CME’s business, especially its crypto offering. You can imagine there are many people that are now more and more every day looking for some form of exposure as cryptos are becoming more and more acceptable. The—maybe the problem with that would be also the appreciation of the price of the product. People are maybe a little bit more concerned about where they go to get that risk, and they want to make sure they are on a regulated platform. Another reason the credibility of having a highly regulated platform is a benefit not only to our crypto franchise but the entire CME group.

One thing we want to add is that we have a very strong record of risk management, especially for both Bitcoin and Ether, and we manage that through extreme periods of volatility seen even early this year. So, we—this is true with every product that we bring to the market. We have a strong risk management experience, and Sean pointed that out. We have over 100 years’ experience steering product.

Alright. That’s very helpful. Thank you.

We will take our next question from Kyle Voigt with KBW.

Hi, good morning. So, you spoke a bit about the LIBOR transition and the record activity and SOFR trading. But Terry, it sounded a bit like the transition might be negatively impacting short-end interest rate open interest at the moment. So I guess I am just wondering, as the transition continues over the next couple of years, do you expect this to be a headwind to OI or volume over that period of time, or is this kind of just a near-term impact? And the second part of that question, maybe for John. Do you expect any impact on net fee capture to your short-end complex through the transition to SOFR? And maybe you could talk about if there are any fee holidays or incentives in place for SOFR trading at the moment and how long those will last?

So Kyle, I think there were about three or four questions embedded in your question between open interest cost of incentive plan. So, let me – on to Sean, touch on a few of those, John, and then I will also give you my opinion.

Yes. So, thank you, Kyle. Right now with huge growth in our SOFR futures and as I have said, we are also seeing enormous growth in our Eurodollar futures and options. So, we are seeing both marketplaces grow in parallel side-by-side. So, that’s actually a very exciting development. As you go into the next couple of years, that will also increase, and we expect to see an increase in the spread trading between the Eurodollars and the SOFR futures. In addition to that, you may recall we launched BSBY future, not too long ago, where we are also doing about 70,000 contracts a day depending upon the timeframe. So, the transition of the short-term interest rate business to a new rate, whether it is the BSBY or the term SOFR or SOFR is actually a very positive thing in regard to the inter-commodity trading between or the spread trading between the different instruments. So, that’s actually a very positive development. I also remarked earlier that we have seen enormous growth in the SOFR-linked products. Again, with an ADV of more than 1.6 million contracts a day in the third quarter, so that’s growing very strongly. In terms of incentives, yes, we have had incentives, as anyone who follows us closely knows whenever we start a market. And so we have had significant incentives in our SOFR futures over the recent quarters. The good news there is that means that that’s already priced into our revenues to a large extent. So, we will expect to continue those incentives for a period of time. But as you can imagine, as we have with all of our products, you know the history, I am sure, of our Bitcoin futures and how we have reduced incentives there, our Micro E-minis and how we reduced incentives there and how those RPCs grew pretty dramatically once those marketplaces got up and running. So, we would expect that as we get greater adoption of SOFR relative to Eurodollars that the incentives in SOFR would decline on a relative basis. So again, we are already spending a lot of money on incentives. That’s already baked in, in the last 12 months. And yes, we will continue to have some incentive spend, but I don’t expect any kind of a significant increase.

Yes. Thanks, Kyle. And just to echo what Sean said, I think over time, we believe that with the value proposition that we have, and we are already seeing a significant amount of trading happening in Eurodollars post the transition dates. So, I think our clients are very comfortable with our conversion program that we got in place and in the fallbacks we got set up. So, very, very excited about what the team has done in preparing us for the transition. I think they have done a remarkable job in working closely with our clients to ensure that, that happens in a very orderly fashion. In terms of fees, Sean is right. We do have some market maker programs in place. It’s embedded in the revenue that we have got right now. Over time, we would view SOFR being treated just like the rest of our short-term interest rate products. So, I don’t see there being any unusual headwinds because of SOFR versus any of our other short-term incentive products. This is something that we as a team, Julie, Sean, myself, and Derek and others, we look at our pricing all the time to ensure that we are pricing our products appropriately to maximize our top line and to create as much liquidity as we can across our platform 24 hours a day.

Kyle, let me just wrap it up by saying it’s really fascinating to me that when you look at the trillions of dollars that are benchmarked to LIBOR today, we are asking the world to transition in a very short period of time into something else. You can imagine, just use an example, look at the automobile industry. We are going to convert that, but we are talking about a 30-year conversion possibly. We are talking about just a couple of years, we are going to convert trillions of dollars of assets benchmarked to LIBOR into something else, which we believe we are in the strongest position of anybody to capture that risk offset. And that is with the products that Sean outlined. Now, that will not be just a measure of open interest, it will be a measure of many things as we go through this transition. To me, this might be the most exciting time in the history of interest rate trading that I have ever seen in my 41 years here at the CME. So, to me, I am very optimistic about it, but I will not judge it on open interest alone. I won’t judge it on one particular issue alone. There are many factors that are going to go into this. And Sean outlined some of the things that we have right now, not only on incentives, but with the BSBY product with Bloomberg, with the short-term SOFR rate and with the SOFR futures and options. We think we are in a really strong position. And one of the benchmarks is open interest; Sean gave it to you, we are the leader in that by a long shot. So, I am very pleased with this transition.

Understood. Thank you very much.

Thank you.

We will go ahead and take our next question from Brian Bedell with Deutsche Bank.

Great. Hi. Thanks for taking my question. I just want to go back to the micro size contracts and retail purchase additions broadly. I think a while back, it was—I think retail generated low-double-digit percentage of revenue. I just wanted to see if there was an update on that and maybe how that’s trended over the last couple of years since the creation of all the micro size contracts. And then I would imagine ETFs are considered an institutional customer given that who is actually trading. But I don’t know if you would put ETF usage on the underlying futures as part of retail or maybe if you could talk about it on a pro forma basis, I guess if that’s possible. And then just how you think broadly about that success in launching more micro contracts across the franchise?

Yes, it’s a great question, Brian. Let me ask Julie Winkler to make a few comments on that, and the rest of the team may play in as well. So, Julie, go ahead.

Yes. Thanks, Brian. No, you are correct. Retail is a single-digit contribution from a customer segmentation standpoint. So, still a very—we are on path for a very strong year in retail. It’s looking to be the second-highest revenue year on record for us. I think the participation there is definitely strongest in the equity suite of those micro products. And performance was a bit subdued through some of the quarter until volatility started to pick up a bit in mid-September. Since then, we have definitely seen further uptick in the business. But it kind of also speaks to just the diversity of our suite. The retail adoption of things like our agricultural products has never been stronger than what we have seen this year. So, ag revenue for retail in APAC still was up 86%, North American, up 30%. Overall participation in this is very strong. We are on pace to have about 375,000 traders in our markets this year, likely only surpassed by where we ended last year, which was a record year. We talked quite a bit as well about the new client acquisition in the space. That has been strong as well. We have brought on 134,000 new retail traders and really looking—specifically, when we looked at June, July and August, in 2021, we outpaced those levels that we saw in 2020 during those exact same months. How we are doing that continues to be the same thing that we have talked about before. It’s really about driving that retail traffic to our digital properties. We saw that activity more than double from where we were last year. Also, just the interest in our educational materials, we have had about 1 million retail traders visit those properties through Q3, which is great. Our partnership with those global broker partners that we have, the educational outreach efforts they make is a huge part of this. In Asia alone, our broker partners have reached about 1.7 million active traders year-to-date. We have seen our digital educational events activities up over 178%. So, I think it’s that continued focus on retail go-to-market that has kept activity very strong. Do you want to add anything?

Yes. No, I don’t think I have much to add, right. We have seen very—we have got good growth in our micro yield futures in about 8,000 a day. Our Micro E-minis month-to-date is doing about $2.4 million a day. So, nothing really to add.

Brian, did that kind of address all your concerns?

Yes, just on ETFs, those are considered institutional, I assume, right, or is there any way to think about it?

Yes.

Just with the Bitcoin usage on the ETFs, I am thinking you might get more retail participation de facto in that as well. I don’t know if there is any way to pro forma that?

We would get more retail participation from that, Brian. You are correct. They are institutionally driven products, the ETFs. But the more liquidity that’s pumped into the system by the institutional players always attracts the retail participants and conversely, the same way the larger pool of retail participants can attract institutional participants. So, we see it going both ways, and we see this as an example of that. So, hopefully, that answers your question, but I think you are right, onto Sean.

And maybe one additional comment. In terms of the micro Bitcoin futures, we are seeing huge growth on the back of the ETFs, so greater interest in our Micro Bitcoin futures. So month-to-date, more than 27,000 contracts. Average daily volume is significantly up from the year-to-date of 21,000, as I mentioned earlier. And open interest now at over 65,000 contracts in our Micro Bitcoin. So, we have seen enormous growth in our micro products, not just our institutional Bitcoin futures post the ETF launch.

So, not to counter my colleague, because it’s the proper thing to do on an earnings call, but I also would attribute a lot of that to the fundamentals in the marketplace. We also know crypto made an all-time high last week of 60 plus some odd thousand, which could be driving some of those micro retail numbers. But we do believe, as I have said earlier, they work in unison together to bring more volume on both sides.

Great. Very helpful comments. Thank you.

We will take our next question from Michael Cyprys with Morgan Stanley.

Great. Thanks for taking the question. Good morning. I was hoping you could update us on your ESG and sustainability products. What sort of traction and use cases are you seeing there? And maybe you could talk a little bit about the new product roadmap, what that looks like. And if you could also elaborate on the new sustainable clearing services that I think you launched and made available in September.

Both great questions. I am going to ask Derek to touch on the product side, and I will ask Sunil to touch on the clearing side. So Derek?

Yes. So, appreciate the question, Michael. So, I think probably the easiest way to start in our material that we pre-circulated on Slide 4, you will notice some very detailed comments about some of the products that we have launched and what those mean to our franchise, specifically on the environmental product side. As you know, we have launched in August, our nature-based GEO contracts. GEO is the global emissions offset contracts that complements the GEO contracts we launched earlier this year. We continued to see significant traction there, not just in terms of the traded volumes, but more importantly, the open interest that we are accruing and the deliveries that we are seeing of these contracts as well. So, since launch, we have actually now seen a peak—we hit a peak open interest record of just over 10,000 contracts on December 21st. We hit a new record just on Friday. What’s important about that is, while these contracts are now seen record open interest terms, we are also seeing record amounts of physical deliveries of these offset certificates as well. So, we have now facilitated the physical delivery of 146,000 offset credits across four separate delivery cycles. Just to put that into context for what that means for customers that are taking delivery of these certificates, that’s the equivalent of 146 million metric tons of CO2 equivalent. So, this is a market that started really about 2 years ago. We have partnered exclusively, as we shared with you on previous calls, with CBL, the largest spot platform in the voluntary offset market in the carbon markets. We are now delivering record amounts of volume through the platform and delivery of these certificates through the delivery cycles. We will have another one this week. This is a new market. We just launched our nature-based contracts in August of this year. So, that’s pretty significant traction early on. There is a lot that’s expected out of this conference in Glasgow, COP26. As we continue to work with the markets and connect where we are now on the global basis of where these kind of go, it’s a complement to the work that we have already done and continue to do on the equity side where we host the world’s largest ESG contract by nominal value, our S&P 500 ESG Index futures, which has seen open interest above $4 billion notional value, which is pretty significant. So, when you look at the space, whether it’s on the environmental product side, the traction that we are seeing in a market that we are at the cutting edge of developing on the voluntary carbon market side or how we are servicing the needs of customers that are looking for ESG-compliant investment vehicles, we are leaders in both of those spaces. So, we are happy with our positioning. We feel like we have chosen good partners. I think the market, as it adapts to a new world of carbon neutrality, we feel like we are in a strong position there with the success we have already had.

Thanks, Derek. Sunil, on that clearing?

Yes. So, thank you, Terry. So on sustainable clearing, we have seen a keen interest from our clients to actually track their hedges. They use our entire complement of products, not just what Derek went through, but they use our interest rate and FX and equity products to hedge their exposure. What is important for these clients is to track their activity used to hedge their green investments as an example. In clearing, we provide them a mechanism to actually track those exposures and report on them. This is a novel service. We have just started with a group of clients and we look to expand it to our product line.

Hopefully that gave you a little bit of color on that, Michael.

Great. Thanks so much.

And we will take our last question from Simon Clinch with Atlanta Equity.

It appears there are no further questions at this time. I would like to turn the conference back over to management for additional or closing remarks.

Okay. Well, thank you all very much for taking time out of your busy schedules. Once again, we wish that you and your families stay safe and healthy during these very difficult days that we are all dealing with. We look forward to talking to you next quarter. Thank you.

This concludes today’s call. Thank you all for your participation. You may now disconnect.