Good day, and welcome to the CME Group First Quarter 2022 Earnings Call. At this time, I would like to turn the conference over to John Peschier. Please go ahead.

Good morning, and I hope you are all doing well today. I’m going to start with the safe harbor language, then I’ll 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 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 will turn the call over to Terry.

Thank you, John, and thank you all for joining us this morning. We released our executive commentary, as John said, earlier today, which provided extensive details on the first quarter of 2022. Also, as John said, I have John, Sean, Derek, Sunil and Julie Winkler on the call or in the room with us this morning. I will start, and then John will provide some comments before we open the call for your questions. Trading activity during the first quarter jumped 26% from the last quarter with average daily volume of 26 million contracts per day. Average daily volume was up 19% versus the first quarter last year driven primarily by record quarterly equity index ADV, which was up 30% year-over-year. In addition, interest rates average daily volume was up 21% for the same period. Energy and foreign exchange ADV both grew 6% compared with the first quarter of 2021. In total options, ADV increased 32% to 4.6 million contracts, including significant activity outside of the United States. In Q1, non-U.S. average daily volume grew to 7.3 million contracts. We saw 17% growth in Europe, 22% growth in Asia and 28% growth in Latin America. Contributing to the record quarterly equity index ADV, the Micro E-mini products represented 43% of the activity, growing 36% from the first quarter 2021 to a record average of 3.4 million contracts per day. Additionally, equity options increased 81% for the first quarter last year driven by record activity across E-mini S&P 500 and the NASDAQ 100 options. Within interest rates, both SOFR futures and options had record quarterly ADV, averaging a combined 1.2 million contracts per day. The growth in our SOFR franchise has been a major objective for our team, and the increased volatility in rates during the quarter did not slow the momentum in this transition. At the end of the quarter, SOFR futures share of the Eurodollar futures trading had increased for nine consecutive weeks. It surpassed Eurodollars trading just last week for the first time, averaging 1.37 million contracts above the 1.33 million Eurodollar contracts traded on the same day, a major milestone in the industry shift away from LIBOR to SOFR. The uncertainty around the Fed will adjust the rates in terms of how much and how often can be seen in the 313% growth in the first quarter of Fed Fund futures ADV compared with the first quarter of 2021. The innovative new products we’ve launched across the entire yield curve in recent years are more important than ever. You can see this recent front-end volatility driving record quarterly ADV in the three-year treasury note futures as just one example. Additionally, we already have 60 participants trading the 20-year U.S. bond futures contract that we just listed at the end of the quarter. In terms of other new products, customer demand and the ever-apparent need for risk management across our global products continues to lead new product launch opportunities. During the quarter, our micro size contract suite continued to grow with recent launch of Micro Bitcoin and Ether options as well as the planned launch of micro copper futures in early May. Micro WTI futures reached a record monthly ADV in March of more than 226,000 contracts and have traded more than 16.8 million contracts since their launch in July of last year. Our ESG offerings expanded with our launch of core global emission offset futures or as we refer to them, C-GEO. Voluntary offsets have become an increasingly popular tool for entities striving to reduce their carbon footprint and achieve carbon neutrality. Building upon the successful introductions of our GEO and NGO contracts, these contracts are intended to align with the core carbon principles overseen by the Integrity Council for the Voluntary Carbon Market. Within crypto, we launched two new reference rates for Bitcoin and Ether, providing a once-a-day reference rate of the U.S. dollar price of the two digital assets published at 4:00 p.m. New York Time, as the New York calculation window has the second most traded hours for Bitcoin futures behind the London rate. In addition, just this week, with our partner CF Benchmarks, we launched 11 new cryptocurrency reference rates in real-time indices. The digital asset market continues to expand, and there is an increasing demand for regulated cryptocurrency information. And finally, new option products continue to offer more flexibility to manage short-term price risk. As Fed policy and economic uncertainty have implications on metals markets, we announced the early May launch of Monday and Wednesday gold, silver, and copper weekly options, which complement the existing Friday, weekly end-of-month and quarterly options on these markets. With the backdrop of ongoing geopolitical uncertainty, evolving central bank policies, inflation, supply chain constraints, and other economic challenges, risk management has never been more important. Our team executed extremely well during the first quarter, resulting in many trading volume records. We were especially pleased with the record results in our market data business, which reached a high watermark of $152 million in revenue in Q1. Looking ahead, with the supply of critical global physical commodities fragmenting, the reference of several of our global benchmark products continues to increase. We continue to provide our clients a secure and transparent way to significantly mitigate and manage their risk. With that, let me turn the call over to John to provide you with some financial highlights.

Thank you, Terry. In the first quarter, CME generated around $1.350 billion in revenue. When accounting for the effect of the formation of OSTTRA, our joint venture with S&P Global that launched last September, our revenue increased by over 13% for the quarter. As Terry noted, market data revenue reached a record high, growing 5% to $152 million. We observe considerable interest in our globally relevant product offerings. We managed our expenses very carefully, which were $425 million for the quarter on an adjusted basis and $344 million when excluding license fees. This includes about $6 million related to our cloud migration. The operating leverage in our model is substantial. Again, when excluding the formation of OSTTRA, revenue rose by roughly $158 million when comparing the first quarter of 2022 to the first quarter of last year, while adjusted expenses only increased by $22 million. CME's adjusted effective tax rate was 23%, leading to an adjusted net income of $766 million, a 19.5% increase from the first quarter of last year, and an adjusted EPS of $2.11 for common shareholders. Capital expenditures for the first quarter were about $22.5 million. CME distributed over $1.5 billion in dividends during Q1, and cash at the end of the quarter stood at about $2.1 billion. Alongside helping our clients manage risk, we are progressing in our partnership with Google. We have finished the discovery phase of our application analysis and have started building the technical foundation for migrating to the Google Cloud platform. Our initial focus is on transferring trading data to the cloud and utilizing Google’s exceptional data management capabilities. We will also aim to migrate our corporate and clearing systems in this first phase. In summary, the CME Group team is dedicated to our clients and to executing our strategic priorities. Please refer to the last page of our executive commentary for further financial highlights and details. With that brief overview, we’d like to open the call for your questions. Thank you.

Thank you. We will take our first question from Rich Repetto from Piper Sandler. Please go ahead.

Good morning Terry, John and team. Hope everybody is healthy and safe and your families are as well. But Terry, last quarter, you spent a fair amount of time talking about the unique setup for volumes, and this was even before Russia invaded Ukraine. So the second best quarter in ADV sort of played out. So, I guess my question is an update on this setup because you have seen a volume pullback probably since mid-March with a decline in volatility. So, an update on the setup and then also how you managed, I guess, this volatility in the quarter. There have been articles about margin breaches and pretty extensive margin calls with all the volatility as well.

Yes. Thanks, Rich. I mean there's a lot packed into your question, and I did refer to how we were positioned well at the last call or people to manage their risk in a very uncertain world and I believe is what you’re referencing. And I think we’ve done a really good job of that and reflecting in the numbers of our first quarter. So, we are quite pleased to be able to manage the risk that we’ve been able to do in every major asset class around the world that people participate in here at CME. So that being said, I have never measured a year on a quarter. I like to measure the year-on-year. So, I think there’s a lot more left to this year with the – I think you’re referring to the volume at April probably being at just over 20 million contracts a day, which is now from the $26 million that we had in the first quarter with the volatility coming off a little bit and what does that mean. I don’t think it means anything. I think this means that we have to measure the entire year. We’re seeing what can happen when people need to manage risk in a real-time basis, and that’s what we provide the deep liquid markets for them to do that. We’ve seen, and no one saw coming, some of the unprecedented events that we have seen over the last six to eight to 12 weeks in this country around the world. So, I’m really pleased with that. How does that translate into future volumes? It’s hard to predict there, Rich, as you know. On the margin, there are – we’ve had massive moves in markets. So the CME does move its margins up and down, as you are aware, and then we have a minimum rate. And then there’s our member firms that we don’t control what they decide to charge their clients on top of what the margin required by CME is. Every firm seems to be different. We do communicate with firms as it relates to their everyday business, and they do talk about risk and volatility and margins, and we all know that they charge something a little bit different. So that’s out of our control. What we’re here to do is make sure we can provide deep liquid markets for people to transfer. We want to be cautious about talking about margins because we’re talking about risk. And when we’re talking about some of the most unprecedented times in the history of the world, we want to be careful not to be dismissive of some of the margins that have happened during these times. So, I would say not unexpected to see some of the margins going up significantly at the firm level because I don’t think anybody has ever seen a boots on the ground or on the European soil since World War II. So, I think that those are – there’s so many different factors going into it, which is causing the margin increases at the firm level. So again, we’ll let this play out through the balance of the year, and we’ll stay focused on letting people manage their risk.

Great. Thanks, Terry.

We will take our next question from Dan Fannon from Jefferies. Please go ahead.

Thanks, good morning. I guess, John, on expenses, clearly, good discipline as you highlighted in the quarter. But typically, the first quarter is your highest period for compensation or even overall expenses, maybe the fourth quarter in some years. But given the strength of revenues that you saw in the first quarter, can you talk about the trajectory of expenses from here? And what is really the ramp in addition to the Google numbers you mentioned? It just feels like the start of the year on the expense side was rather low.

Thanks, Dan. Thanks for the question. Yes, in terms of the expenses, the entire team here at CME Group has done a tremendous job, not just this year, but for many years managing our costs. All the employees are here at CME are focused on ensuring that we spend as efficiently as possible, and you can see that as evident in this quarter’s results. We also, as I mentioned in the prepared remarks, we’ve got tremendous leverage in our model, and you can see that reflected in our 68% margins for the quarter. We do expect to see a higher level of expenses in the following quarters as we see the full impact of our employee merit increases, which we put on pause last year, and those became effective in March. So you’ll see that play out for the rest of the year. Also, as I mentioned in our guidance last quarter, we expect to see about $30 million for an improving business environment, including increased travel, marketing events, and customer-facing resources, which we’re expected to see ramp up throughout the year. We, as an organization, will always be diligent on our costs. But thinking, as Terry indicated in his remarks, we are well positioned to serve our clients and manage their risk in this really uncertain time, and we want to make sure that we’ve got the resources to do that. And we’ve also seen an improving operating environment where we expect to be able to do more traveling and in-person marketing events to help our clients.

Got it. And I guess just a clarification. Did some of that start, though, in the first quarter, I mean, the travel and events? I mean that was happening in 1Q though, correct?

It was, but not to the extent that we expected in the back half of the year, especially in Asia, in particular. That’s an area that you really haven’t seen open up as much as you’re seeing it in Europe. And we’re seeing more kind of in-country events than cross-country events, so international travel, in particular. So, we expect that to be ramping up. And also, as I indicated in our discussion last quarter, we are making investments in customer-facing resources that we expect to see ramp up throughout the year, especially in our international offices.

Great. Thank you.

Thanks, Dan.

From UBS, we will now move to Alex Kramm.

Hey good morning everyone. A quick one from me just on the net investment income on the – I guess, in the clearinghouse or with the Fed. It looks like that’s decently better than I thought. Can you just give us an update on what the average balance was, maybe what the basis point fee was that you realized? And then, more importantly, since we got a fed hike towards the end of the first quarter, how we – what’s the realized rate that you’re getting now? And have you seen any change in behavior? And any updated thoughts on where we’re going to go as we likely will have more and more fed hikes coming here? Thank you.

Yes, sure. Thanks, Alex. So in terms of our non-operating section of our income statement, I’ll just cover both. That’s up about $11.5 million sequentially. It’s two major pieces. One, as you indicated, the earnings on cash held by our clients at the clearinghouse, which is up about $5 million. We saw higher average cash balances of about $2.2 billion. Our returns were 7 basis points, up about 2 basis points from last quarter. As you indicated, in mid-March, the Fed increased rates to 40 basis points. So, we are returning 27 basis points to our clients, and we’re keeping 13 basis points ourselves. So, if you look at it that way, all things being equal, you should see a difference between the 7 basis points and the 13 basis points going forward. So, I think the – currently, our average cash balances through April – so our average cash balance at the end of Q1 was $152.2 billion. The average cash balances for the month of April is $161 billion is the average that we have through April. We did see the ending balance in Q1 of about $200 – I’m sorry, ending balance of $165.5 billion in Q1, and we’re seeing the ending balance on $425 million of $159.3 billion. So the amount of cash at our clearinghouse is still pretty robust. The second piece in our non-operating portion of our income statement, as I said, $5 million of the sequential increase of $11.5 million was related to earnings on cash held by clients at the clearinghouse. The other piece is the earnings from our S&P Dow Jones joint venture, which was up about $6 million sequentially and up about 16% year-over-year, and that JV continues to perform extremely well.

Excellent. Thanks for all the color.

Yes. Thanks, Alex.

We will take our next question from Alex Blostein from Goldman Sachs.

Hey, good morning. Thanks for the question, everybody. I wanted to go back to some of the earlier comments around Google. It sounded like you guys have completed your initial analysis of what you can sort of do together. So, I was hoping to get an update on your thoughts around revenue opportunities and maybe some of the product launches that this venture – now that this venture has had a couple of months to mature.

Yes, I’ll take that, and I’ll kick it over to Sunil and Julie also for some comments. But yes, we’re making really good progress. If you want to think of it this way, we’ve done the deep due diligence on our applications as we prepare to migrate to the cloud. So that takes a lot of work where we basically are analyzing each application, determining what the right course of action is as we migrated to the cloud. As I’ve indicated in the past, this is not a lift and shift. It’s really a lift, analyze the applications and look at optimizing them and then automating it when we get to the cloud, right? So at the end of the day, once the applications get to the cloud, we should have a much more efficient application suite and – in the cloud. So that’s our objective. And as I indicated previously, this – at the end of this, it will be a much more efficient operation of our applications so that it’s got good financial characteristics over the 10-year period of the agreement. But also our expense levels, assuming all things being equal in terms of trading activity and the like, should be at a lower cost as well. So excited about that. So that’s the first phase. We are looking at moving our market data and trading data to the cloud. We do have an offering now with Google. We’re looking to expand the capabilities of that offering, and that is ongoing. What’s great about Google is they’re excellent at managing large amounts of data, and we will be looking to move our data to the cloud and offering analytics and other capabilities around that data. Also, during this process, as we indicated last quarter, we’ll be moving some of our risk models to the cloud. Why is that important? Well, as Terry indicated, risk management is critical in this uncertain time, and we want to be able to give our clients all the insights to help manage their risk as we can. And I would say last is kind of our corporate system. So it’s the stuff that we use internally to run and operate the business. We’ll be looking to leverage the cloud for that. With that, I’ll turn it over to Julie and Sunil for some comments.

Yes. As John pointed out, getting the data into the cloud is certainly a big piece of additional product development that we can do on top of that. So, as we mentioned last quarter, it was a big opportunity for us now to be able to complete our listed CME futures and options data into the cloud. So, we moved all of our options data into GCP earlier this month. And so now we really have a full suite of that, both futures and options data, available in historical and real-time format for our clients to be able to access. And the team is actively working on some additional projects based on the unique data sets that we have here at CME and with the wide range of benchmark products that we have available. There are some unique total cost analysis and other benchmarking that we can do. So, we are actively working on that and excited to be able to really test that with customers as we proceed in an agile way of that product development. So, we’ll expect more as the year progresses.

And then I’ll speak to the margin calculation. We do have a real-time margin calculator that we host internally. What we plan to offer with Google is a margin calculator wrap. As Terry pointed out, risk management is very important for our clients. And we want to give them the ability and the flexibility to launch these calculators as necessary during the day to track their exposures. So this is something that we target to actually deliver this.

Yes. That’s kind of the near-term things that we’re focused on. I think what’s important is the long-term strategy that we have around the migration of the cloud and providing our clients easier access to the markets over time, which I think, as we all indicated at the time we did the transaction, that’s really what we’re very excited about is kind of the long-term opportunity here.

Gotcha. Thanks for the color.

Yes. Thanks, Alex.

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

Great. Thanks. Good morning, folks. Maybe just focus on the micro franchise. Obviously, first quarter was extremely strong in the micro complex. You’ve got, obviously, the market volatility backdrop and increasing take-up or usage of these contracts plus obviously, innovation from new products. Maybe just – I know you don’t like to make volume forecast going forward, but in thinking about that product innovation and how retail customers are using these more, maybe how your agreements are forming on the online brokerage side, for example, how should we think about the outlook for that for micro volumes as the year progresses based on those factors? And obviously, 1Q was very strong.

Brian, it’s Terry Duffy. Let me – I’m going to turn it over to a couple of folks because that question is encompassing among many asset classes, which are represented in this room, Sean and Julie, but let me kick it over to Julie to start with to give you a little sense of where we’re at. But you’re correct. We cannot predict the volumes associated with any of our products, and we won’t do so. But as I did say at the earlier comment to Rich is this is a long year. We are very excited about the first quarter. And when we saw the volatility that you’ve referenced earlier in Q1, that was very aggressive volatility due to the beginning of a war. So now that we think volatility becomes normalized, that actually bodes better for the entire franchise than extreme volatility that we saw in Q1. So, I want to make sure I get that point across. I wish I would have said it earlier to Rich, but I wanted to emphasize that again more because I think it plays into your question not only from the micro contracts, but obviously, the large-sized contracts as well. So Julie?

Well, thanks for the question, Brian. I’ll just maybe start with some broad comments about kind of retail and the micro piece of that and then turn it over to Derek and Sean to talk a little bit more about the financial results in their business. Q1 for our retail business was a record quarter, and so revenue there was up another 7% higher than that highest quarter on record that we had before in Q1 of 2020. And a lot of that certainly was driven by the micro performance. I’d say it continues to see strong growth around the globe. So North America led the pack there really being up 34%. And when we look at the participation numbers, which is a key part of helping us work with our broker partners, the number of retail traders is still up almost double digits in this quarter. We’re continuing to see that our model in working with our distribution partners is bringing net new traders into the marketplace that is well outpacing what we saw in 2021. So the acceleration is still there, which is great. On the micros front, this has really been, I’d say, a continued story from what we’ve seen since we launched is that this is a critical component of our new client acquisition strategy. Because of the size of these contracts, we are seeing people start entering our marketplace and getting familiar with our products through this micro suite. And as Terry had mentioned earlier, a lot of the strategy here is on continuing to add net new products into that micro suite, which has been a key part of that growth as well as the volatility that we did see in Q1 naturally leads itself to a higher uptake of micro participation. The kind of some of the other trends, just to wrap up from my side, the number of traders that begin as micro only and are graduating, we are seeing that increase, and we’re seeing that as clients move on from micro to standard products, that, that revenue, on average, is also making them more sticky to our business. And so I think it’s important. A key part is getting the clients in, but it’s also helping them continue their journey into our other products here at CME Group. So with that, maybe I’ll turn it over to Derek first.

Yes. I think the micro story has actually played out really well. As you recall, we just launched the Micro WTI contracts in July of last year. And certainly, going into now the asset inflation story that we’ve seen in energy over the last four months, it couldn’t come at a better time. I’ll pick up on a comment that Julie made. This is a new client acquisition story for us. If you look at the participation levels that we’re seeing in our contracts, we’ve traded – through Monday, we traded over 19 million contracts since launch. Almost 40% of our volume is trading outside the U.S. We have 55,000 unique traders, of which 28,000 of those customers have never traded a CME Group product before. So these are net new customers into our environment, specifically in energy and increasingly seeing the opportunity to cross-trade these customers out across other asset classes. So over 100 firms have put trades up, and what’s most important about this product is the global reach of the – since launch, over 48% of our volume in micros has come from outside the U.S. across 130 territories. So this is a terrific tool used by our partners and distribution points out in Europe and Asia to bring net new customers to us. And in Micro WTI, 31% of this volume is coming from pure retail traders, again, generally new participants into our world. So good new client acquisition story and it certainly complements our market, particularly in light of the fact that we’ve seen crude oil go from $60 to $100. That means our large contract went from a $60,000 contract to $100,000 contract. So these micro contracts at this point are a $10,000 contract well-sized for the risk tolerance of retail traders. With that, I’ll pass it over to Sean to talk about what we’re seeing in equities.

We are very pleased with the growth of our micro products, the Micro E-minis, which have seen a year-over-year growth of around 29% in average daily volume. This month's data shows growth of about 29 to 35%. Overall, we are processing approximately 3.2 million contracts daily. On February 1, we increased the fees on these contracts, raising the Micro E-mini member fees from $0.04 to $0.05 and the nonmember fees from $0.25 to $0.30. This increase in volume alongside increased fees is very satisfying for us. New product growth continues to contribute significantly to our overall growth. Since 2010, new product launches within the financials unit generated an average daily volume of 6.92 million contracts in the first quarter, bringing in $173 million in revenue, reflecting a 28% increase from new product launches since 2010. We have also updated data on new products launched since 2017, which does not include many of our most successful products, like our Ultra Bond future and Ultra 10-year futures. Notably, new products launched in 2015 within the financials unit achieved an average daily volume of 5.39 million contracts in the first quarter, accounting for over 20% of the entire exchange volume and generating more than $96 million in revenue.

So Brian, I hope you can see that the micro complex, what Julie and the team said, is a feeder of new client acquisition, which is extremely important. Derek emphasized that, and I can’t stress that enough. This is not cannibalization from one contract to another. These are new clients coming into this company that were never here before. And whether they’re trading micros or the larger contracts, is based on the risk tolerance. And they’re managing risks. These are not the pure retail traders. When Derek referenced retail, these are not people that are trading like sports contracts. These are people managing risk. These are participants in the market on a daily basis. So I think it’s really important that we emphasize that point. But thank you for that question.

Yes, that’s super helpful. I’ll get back in the queue for follow-up. Thank you.

Thank you.

We will take our next question from Ken Worthington from JPMorgan. Please go ahead.

Hi, good morning. Mentioned in the release, that one of the 2Q initiatives is in base metals. What does the initiative entail? And what are the results you hope to achieve? And then to what extent is the timing based on the disruption we saw this past quarter in nickel markets at LME and some dissatisfaction that the market is seeing there?

Go ahead, Derek. Why don’t you comment on the...

Yes, Ken, I appreciate the question. Yes, it’s certainly an interesting time in the base metals markets over these last couple of months. I think that the – what we saw was a significant and unexpected market disruption in nickel specifically. As you know, our COMEX business, since we bought that and integrated that into CME Group back in 2008, 2009, started as a largely precious metals business, and 85% to 90% of the volumes and revenues coming from the precious side. Over the last 10 years, we’ve significantly invested in growing out our base metals business led by copper, now aluminum, steel and a couple of other products. What we’ve been able to establish is credibility in the use of our COMEX copper contracts, specifically which meant that when this actually happened with LME, we immediately started to get calls from our own base metals customers experiencing the disruption in the nickel market and having concerns to express not only in the nickel market but about the broader suite of best metals products where they’re trading right now, specifically aluminum. So you saw us announce yesterday that we’re going to be announcing or launching aluminum options. We actually were able to execute two successful physical aluminum options totaling 500 metric tons of U.S. aluminum to specifically help the physical participants in the aluminum market. So while customers are coming to us about the immediate disruption in the nickel market, as you probably know, we don’t have a physical nickel market today, that’s afforded us an opportunity to be able to more easily put those customers over into our liquid COMEX base metals product already, and we’re seeing that movement over. The work we’re doing right now is engaging those customers to find the easiest way to move them into our liquid contracts, and we’re certainly having ongoing conversations with them about what they would like to see as an alternative nickel market. That is a big complex market that requires physical delivery outside the U.S. So we’re conversing with the industry and the commercial participants to see what they would like, but the immediate opportunity is what we’re seeing in our liquid markets right now, copper, aluminum, et cetera. So a good opportunity for us.

Great. Thank you.

We will take our next question from Owen Lau from Oppenheimer. Please go ahead.

Good morning and thank you for taking my question. Could you please talk about the driver of the strong sequential growth of your cryptocurrency futures and options ADV from the fourth quarter to the first quarter? When the spot market was down like maybe around 40% sequentially, I mean, is there any way to hear about whether people feel more comfortable, let’s say, owning physical Bitcoin and Ethereum for long term to use derivatives to hedge the position in terms of just like selling simple selling the tokens? And then also, finally could you please remind us how CME can monetize the cryptocurrency reference rate? Thank you.

Okay, Owen. Sean, do you want to take the first part about the crypto? Or would you...

Yes. In terms of the hedging, we think that a regulated exchange, highly regulated by the CFTC is a highly trusted exchange, right, in terms of margins is very important and a huge value proposition for customers who trade in the cryptocurrency space. So we have built a very good and strong business in the first quarter, running more than 50,000 contracts a day with approximately 61% growth in the ADV, a lot of that growth coming from the micro contracts, in particular, the Micro Ether contract. So we’ve seen very, very strong growth with participants looking to trade on a trusted regulated exchange, namely CME. In addition to that, we’re very pleased with the increases in rate fees that we instituted in February, similar to the ones I mentioned earlier in the Micro E-mini. If you look at our Bitcoin non-member fees, for example, we raised them by $1 from $4 a contract to $5. For members, we raised them from $2.50 to $3. On the Ether, similar increases. For non-members, we raised them from $3 to $4; for members, from $1.50 to $2. So we are very pleased with the growth in volumes, the growth in the innovative new products on the micro side, and we’ve also recently launched the Micro Ether contracts and the micro options contract. So further pleasing results with growth in those contracts with increasing fees. Last thing I’ll mention is in regards to our recent announcement in April of 11 new currency reference rates. If you look at these new reference rates, how do we commercialize them and why are they important? Those 11 currency indexes represent more than 90% of what I would describe as the potentially efficiency-creating currencies for the marketplace. So these are non-stable coins, non-meme coins. These are currencies that have the potential to improve the way payments are made across the financial system. How would we monetize those? Look at what we did originally. We originally launched the Bitcoin and the Ether indexes. And a couple of years later, we launched the futures. And as you know, we are gaining substantial revenues from those futures today. So that is the primary commercialization opportunity.

Thanks and appreciate it.

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

Hi, good morning. Maybe just a follow-up on Ken’s question on the LME nickel event. Just wondering if you could provide a bit more color on kind of the key differences in risk management practices at CME or explain in more detail why something similar couldn’t have happened at CME. And then also, do you think the U.S. regulators will be looking closely at that LME event? And could that cause them to take any or reevaluate any things such as position limits or make changes to clearinghouse oversight more broadly?

Kyle, it’s Terry Duffy. Let me take the back part of that question on the regulatory side, and I’ll let Sunil Cutinho take the front side, which is the risk management. So on the regulatory front, you’d be purely speculating on what the agency may or may not do. You got to remember this came out of an FCA-regulated marketplace. The way they tore up trades on one side is something that we do not do here, and Sunil can walk you through more of the risk management associated with the way we manage risk versus how they manage the risk. Whether the position limits come under question, position limits probably would not have had any effect on what the outcome here was on LME was more on the risk management itself, not the exact position limits itself. So the concentration of risk is a different thing than the position limit. So these are different factors. I don’t see our government taking this up in any which way, shape or form due to what happened in nickel. I mean, there’d be no reason to. So – but at the same time, I’ll reserve that. I will be testifying in Washington in May not only on a host of things but – not on LME, but mostly on risk in general. So that may come up. We’ll see how Congress feels about it then. So let me ask Sunil to talk more about the risk side.

Thank you, Terry. So from a risk perspective, CME takes a very proactive approach with an early warning system. We not only look at margins, but we look at counterparty credit risk. From a counterparty credit risk perspective, we look at our clients’ exposures, a clearing firm’s exposures. In the U.S., we have a feature called large trader. This typically highlights traders or clients or clearing firms with positions that cross a certain threshold with respect to the overall open interest given that we stress test these clients and we also look at their exposures relative to the total market. Based on that, we have a number of tools to address exposures. So this has created the resiliency that we bring to the market even in times of great stress. So at the end of the day, I think it’s our risk management posture that is not just based on margins or guarantee.

Kyle, hopefully, that gives you a little bit of color. But I mean, again, this is their situation, not ours, and we don’t want to comment too much further on their situation.

That’s helpful. Thank you very much.

From Compass Point, we will now move to Chris Allen. Please go ahead.

Yes, good morning guys. Excuse me. Thanks for taking my call. I wanted to ask about the – basically, how you – any thoughts you may have around how market structure is going to evolve in the crypto markets. We have FTX applying for direct current with the CFTC, and many crypto companies have different market structures that would be allowed under the current regulatory framework in terms of exchanges having institutional brokers, even market makers. So do you see any potential changes coming from what the crypto industry is pushing? Or do you see more potential for them being required to adapt to current market regulations and structures?

Chris, it’s Terry Duffy. Again, as I said, I’ll be testifying on May 12 specifically on this topic, along with some other folks. It’s always difficult to predict what the ultimate outcome is. But I don’t see any knee-jerk reaction into market structure that’s going to change in any direction. And let me be clear about this. If there is a market structure change in any direction, it won’t preclude CME from participating in such market structure changes that could benefit this immensely if, in fact, we see that to be the case. I don’t know that to be the case, but I don’t want people to think that crypto is the only one that has the ability to have its own separate regulation and the rest of the world has to sit idly by as they go unregulated or exempt from a whole host of issues that we’ve all been in compliance with today. So I do not see that to be an outcome whatsoever. So it’s a very frustrating topic to some degree, but at the same time, we’ll be patient. We’ll go through it. We’ll give our views exactly as it relates to their application. The flaws in their application are glaring, to say the least, and we will be opposing that application. The industry is very concerned about some of the things there in NetApp. So again, you can’t just create an application and pass it because it’s a new asset class. The CFTC also has to look at innovative new products. I will tell you that you cannot say that you have innovation for the sake of innovation. It’s got to be still under the principles-based regulatory regime that is highly outlined in the CFTC today, and you can’t go outside of that just for the sake of innovation. So it will be fascinating to see how this all plays out, but I do not see anything playing out in the near term at all.

Thanks. Appreciate it.

We will take our next question from Simon Clinch from Atlantic Equity. Please go ahead.

Hi, thanks for taking my question. And I wanted to jump back to just your thoughts around the international opportunity outside U.S. trading volumes and how – I guess, what you think the next steps are in terms of driving that volume higher? As I’ve noticed that since about the sharp rises through sort of 2017, 2018, the percentage of volumes in international has sort of plateaued to some extent. And I was just wondering if there’s any particular reason for that or if really we should expect that to be moving a leg higher as we move forward and what drives that. Thanks.

Simon, I’ll turn it over to Derek for that response.

Yes, good question. Yes, we’ve seen really significant growth as our investments in our non-U.S. personnel and infrastructure has continued to grow. If you actually look at 2021, we set a record all-time volume year for our business, and we actually – and I think it was about $5.5 million for total year 2021. We just missed setting an all-time record quarter in first quarter of this year. We came in at just $7.3 million ADV for the quarter, just missing an all-time record. It was our second best revenue and ADV quarter, as I said, up 18%, 19%, respectively. We see continued growth on the international option side, specifically. That’s an area of growth for us, and that is also an area that brings not just options business to us but associated futures hedging as well. If you look at the extent of our growth across the regions in Q1, we saw LatAm growing 29%, APAC growing 22%, and EMEA business growing 18%, and our rate per contracts actually hung in their well given the high percentage of our options business that was getting done. Yes, we’re seeing micros broadly being a large non-U.S. participation area for us. And that’s – while that’s had some downward pressure in the RPC, typically, non-U.S. participation comes at a higher rate per contract. So volume and revenue has actually been quite well aligned there. I’ll turn it over to Julie to talk about some of the ways in which we’ve allocated additional sales staff and looked at our global reallocation of resources to Europe and Asia specifically, and we’ve just undergone a reorganization of our leadership globally as well to make sure that we can focus on the next 10 years of growth and unlock that – those steps in line with the commercial side of the business. So Julie can talk about some of the stuff we did on the sales side.

Yes. And John mentioned it earlier, right? A key component of our sales strategy and go-to-market opportunities is really about having people on the ground in region, building relationships with clients, understanding their needs and driving the educational opportunities that we have within the region, which is a huge part of particularly what we do in Asia not with our own staff, but also with a large network of third-party educators that we work with to help continue to promote our products. We have allocated additional resources internationally to continue that growth that we have seen. Say, as I look at the sales engagement numbers, the biggest year-on-year growth that we saw in sales productivity actually came and was led by our APAC region, where that was up over 100% versus what we saw in Q1 of 2020. And so a lot of this is about continuing to build out the teams. We have been very successful at leading a very focused approach with our country planning, and we’ve been working at that throughout the years and have really in a place now that we’re able to take that to the next level as we put more resources on the ground. We have found, right with that focus, and with that, we can really drive greater execution. And a lot of what we’re looking at as well is just the product opportunities. So with the new client acquisition that we’re seeing with Micro, with our partners in the region, with Asia starting to open back up. Our Singapore office will be opening in the coming weeks; we’re excited about being able to drive more in-person events in the region, which is a key part of our strategy as well. So engagement there, again and outreach has been extremely high and more resources, we believe, will lead to increased growth going forward.

Derek?

And Simon, just to put an exclamation point behind that, in the materials that were circulated this morning on Slide 3, you’ll see a couple of graphs on the upper right-hand side. They’re showing the percent of each of our asset classes that are trading from outside the U.S., and you see some pretty healthy gains and consistent growth there. This is obviously Q2 – or Q1 2022 versus Q1 2021, but this is a consistent and, I’d say, a regular trend that we’ve been employing with the commercial resources and the products we’ve been pushing out there. So happy to go into more detail offline, but I hope that gives you both the product level and regional level sense of where we’re growing that business and the continued growth we’re seeing as a percentage of these asset classes growth as well.

That’s really helpful. Thank you.

We will take our next question from Gautam Sawant from Credit Suisse. Please go ahead.

Good morning and thank you for taking my question. Can you please expand on BrokerTec expanded protocol suite, including RFQ and streams plus the USD market profile launch? And how do these new products impact the competitiveness of your offering relative to peers? And where are you seeing the initial utilization of these newly launched capabilities?

Sean?

Sure. This is Sean jumping in. We’re pleased with how BrokerTec is performing this year. If you look at year-over-year, year-to-date, ADV for U.S. treasuries, it’s up 12%. If you look at the year-over-year month-to-date, ADV, it’s up 36%, doing overall this year, about $136 billion a day. So the U.S. Treasury business, I’d say, doing quite well. In terms of new protocols, we’re very pleased with the growth of RV trading or relative value trading that I’ve talked about on the earnings calls before, creating new efficiencies where you have – mentioned lower bid offer spreads and a very liquid market because of implied, that isn’t available anywhere else. In terms of the RV trading, we’re very pleased with March 29, a record day of more than 4 billion, again, on a base ADV this year about $136 billion, a significant positive impact; last month, $2.5 billion ADV. We certainly see greater and greater traction and greater customer usage of that product on a continuous basis in recent history. So we’re very pleased with that. In terms of BrokerTec Stream, we’re very excited about the current migration of EBS over to Globex and the use of this new and far superior technology. In particular, we’re very pleased with the new technology, QDM or quote-driven markets 2.0, that’s going to be applied to our EBS Direct business, again, in particular post-migration. We will be and we have announced using that same technology for BrokerTec later this year. So we’re very excited to have a state-of-the-art direct streaming technology where we have a unique value proposition to offset, for example, limits across the central limit order book and direct streaming again, something else that no one else can do. In addition to that, on BrokerTec, a couple of other items that I think may be of interest, U.S. repo is up 27% year-over-year, year-to-date. And in the first quarter, we had an all-time record U.S. repo for BrokerTec USA. In addition to that, we had an all-time record in EU repo, which is running likewise, around 12% growth year-over-year. So all-time records in U.S. repo, all-time records in EU repo and strong growth in U.S. on-the-run treasuries. The last thing I’ll mention in the repo side is we have spoken before about how we have built a new offering, we call it BrokerTec quote, which is helping to electronify the dealer to customer business in the repo market across the globe. That business, likewise doing very well. We had a record month recently of more than 17 billion a day, and we do what we call a term adjustment. So in other words, the dealer to customer repos tend to go on for several days and the term adjustment well over 200 billion a day. So significant positive progress on the BrokerTec business.

Thanks, Sean.

We will take our next question from Michael Cyprys from Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for taking me in here. Just a question on M&A. I’d just be curious to hear your latest thinking on the M&A front, just the industry has consolidated over the past decade. So I’d just be curious to hear your perspective on what’s left at this point in terms of opportunity on the M&A front for CME. And how much time are you spending on this today versus the past few years?

Michael, it’s Terry Duffy. Obviously, M&A is always something that people want to look at. You don’t want to be dismissive of potential opportunities that could benefit your shareholders and, obviously, your user base to create more efficiencies. You are correct, though, in your opening statement, where you said a lot of it is consolidated in the vertical silos that we have seen around the world already. So the question will be what do you see outside of that? And I think that people are looking multiple different directions of how they can create efficiencies in the businesses. One of the reasons I was so passionate with my team about doing the Google transaction, it allowed us to have the greatest technology in the world as we implement new products coming across, which might create opportunities that we don’t even know today or tomorrow as it relates to M&A. So I think that’s how people are going to be looking at it. You’re correct, though, the landscape has shrunk over the last decade. And the deals that we all used to talk about 10, 12 years ago are pretty much wrapped up. But we continue to look at it to see how it will benefit CME. But I think, again, the technology that we have. I can’t emphasize that enough, is really important for us as we go forward.

Great. Thank you.

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

Great. Great. Thanks for taking my follow up question. Maybe just – you talked about the Google Cloud in terms of the market data and analytics that you’re developing. You cited this also in the recent launch more analytical tools in the earnings commentary. Can you – maybe tough to predict, but is it possible to try to think about a time line of revenue contribution from that? And if it’s too early, I understand, but trying to understand if that’s something that can materially impact this year’s market data revenue. Or is that more like a 2023 and 2024 story?

Yes. Brian, I think it’s tough for us to predict that, to be honest with you. I think we had a record quarter in our Market Data business, which we are extremely excited about. As you know, that’s been a problem for us over the years, and we really got Julie Winkler to her credit, it’s gotten that business and growing it exponentially. Good job. The beauty around the Google transaction is what I said earlier—it just allows us to do so many different things going forward. So I’m really excited by that transaction. Whether we can put revenue associated and I think that’s really premature, I think, as I said, it just opens up so many different opportunities for CME going forward, not just in market data, but many other businesses as we referenced. Julie, do you want to comment any further?

I’ll just add, we’ve been working over the last couple of years, right, to bring greater commercialization to that business. And that, I believe, is part of what you’re seeing in the record results this quarter. And this is not just about making sure that our professional subscribers have access to all of our real-time benchmarks but also understanding what other needs they have and what other data you potentially can create and monetize, and we’re also seeing some great growth in our benchmark business. And so what we’ve been able to do in just nine months with our term SOFR licensing with now 900 different firms license with over 4,000 licenses, that’s a new revenue stream for that didn’t even exist nine months ago. So extremely focused on where there are growth opportunities, and through CME’s trading business, we also can create good opportunities, and that is definitely top of mind with revenue generation in the future.

Okay, Brian.

As we have no additional questions at this time, I will turn the call back over to management for closing remarks.

Let me thank you all again for joining us today. We appreciate it very much. We’re quite proud of our quarter. We will continue to work as we go through the balance of the year. So thank you all very much. Stay safe, stay healthy. Thank you.

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