Greetings and welcome to the CME Group Fourth Quarter and Year End 2022 Earnings Call. As a reminder, this conference is being recorded, Wednesday, February 8, 2023. I would now like to turn the conference over to Adam Minick. Please go ahead.

Good morning and I hope you are all doing well today. We will be discussing CME Group’s fourth quarter and full year 2022 financial results. I will start with the Safe Harbor language, then I will turn it over to Terry and team 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, Adam and thank you all for joining us this morning. We released our executive commentary earlier today, which provided extensive details on the fourth quarter of 2022. I am going to start with just a few high-level comments regarding the year and then John will summarize our financial results and Lynne will speak to our expense guidance for ‘23. In addition to John and Lynne, as Adam said, we have other members of our management team present to answer questions after the prepared remarks. 2022 was the best year in CME Group’s history, with record average daily volume of 23.3 million contracts, up 19% from ‘21. The growth was led by our financial products, which finished the year up 25% to a record average daily volume of 19.5 million contracts. Options average daily volume across all asset classes also set a record with ADV of 4.1 million contracts, up 23% versus last year. And finally, our non-U.S. ADV increased to a record 6.3 million contracts. Throughout 2022, we continued our efforts on the LIBOR transition. We collaborated with the industry and the market participants to shift trading behavior, order flow and open interest to SOFR. And as a result, we are beginning 2023 with SOFR’s futures and options as the leading tools for hedging short-term interest rates with deep liquidity supporting a wide range of strategies across the forward curve. Customer demand continued to drive our industry-leading products and services innovation throughout the year. We enhanced our Micro product suite with additional contracts and in aggregate the Micros contributed nearly 3.5 million contracts of ADV to the overall record activity. During the year, we further invested in our S&P Dow Jones Indices joint venture to expand its offerings to include leading fixed income and credit indices. Our joint ventures and investments continue to produce meaningful results for CME Group. For 2022 on an adjusted basis, these investments have contributed nearly $350 million or 9% of our pre-tax income. 2022 also was a fundamental year for our Google partnership. We built out the cloud platform and successfully migrated some early applications. 2023 will be about accelerating our application migration, including launching data products in the cloud. We have an aggressive migration plan for ‘23 and look forward to reporting our accomplishments throughout the year. Risk management will continue to be critical for our customers as we move into 2023 with higher costs of doing business in general and uncertainty persisting across all of our asset classes. We continue to focus on what we can control, innovating and offering market participants, meaningful capital and operational efficiencies across a diverse relevant product set. So far this year, volume is averaging approximately 23 million contracts per day, near the average for all of 2022 and our focus will continue to be on growing in the short-term while also positioning the business for long-term sustained growth. With that, I will turn it over to John and we look forward to your questions.

Thanks, Terry. Financially, 2022 was a record year for CME Group with adjusted double-digit revenue and earnings growth. Driven by CME’s record annual trading volume, 2022 revenues were $5 billion, up 11% when adjusting for OSTTRA, which was launched in September of 2021. Our annual adjusted expenses, excluding license fees and before the impacts of our cloud migration, were approximately $1.425 billion, which was $25 million below our annual guidance. Our adjusted operating margins for the year expanded to 64.7% and adjusted net income was up 20%. For the year, our incremental cash costs associated with our migration to the field were $30 million and in line with our expectations. Turning to the fourth quarter, CME generated more than $1.2 billion in revenue with average daily volume up nearly 6.5% compared to the same period last year. Market data revenue was up nearly 8% from last year to $153 million. Expenses were very carefully managed and on an adjusted basis of $464 million for the quarter and $382 million, excluding license fees and approximately $9 million in cloud migration costs. CME had an adjusted effective tax rate of 22.8%, which resulted in adjusted net income attributable to CME Group of $698 million, up 15% from the fourth quarter last year and an adjusted EPS attributable to common shareholders of $1.92. Capital expenditures for the fourth quarter were approximately $23 million, CME declared over $3 billion of dividends during ‘22, including the annual variable dividend of $1.6 billion and cash at the end of the quarter was approximately $2.8 billion. Finally, in November, we announced fee adjustments, which became effective February 1. Assuming similar trading patterns as 2022, the fee adjustments would increase futures and options transaction revenue in the range of 4% to 5%. In summary, 2022 was the best year financially for CME Group. We served our customers well, successfully transitioned the majority of the volume of our LIBOR-based benchmarks to SOFR, executed on our cloud migration strategy, all while managing our costs very effectively. With that, I will turn over the call to Lynne to discuss CME Group’s 2023 guidance.

Thanks, John. We expect total adjusted operating expenses, excluding license fees, to be approximately $1.49 billion for 2023. Our guidance reflects our continued focus on cost discipline, which will moderate the impact of inflation and a full year of normalized travel and in-person events. In addition to our core expense guidance, we expect the investment related to the Google partnership and our cloud migration to be in the range of $60 million in expense, offset by a $20 million decrease in capital expenditures, bringing our incremental net cash cost for the migration to approximately $40 million for the year. Total capital expenditures net of leasehold improvement allowances are expected to be approximately $100 million and the adjusted effective tax rate should come in between 23% and 24%. We would now like to open up the call for your questions. Thank you.

Thank you. Our first question is coming from the line of Rich Repetto with Piper Sandler. Please go ahead.

Yes, good morning Terry – excuse me and John and Lynne. So as we start the year, Terry, I just wanted to get – stay broad and get your outlook on volumes for 2023 given that you were so positive last year and they certainly came through on financial products. But just seeing what your outlook and we know no one gets perfect right all the time, but anyway, the outlook on volumes?

Yes. Thanks, Rich. I think last year when I made the comments that I did, I think we saw the reflection in the marketplace by CME having the biggest year in its history. And I think that’s because of what was setting up whether it was geopolitically and just other fundamental factors in the market, whether it’s the price of rates at a given time, price of certain products, you could see that the market was setting up for what I thought was going to be a pretty exclusive year. Now it’s really difficult to predict future volumes as you know. So I am not going to try. I will make the reference, as I said in my prepared remarks that we are starting off in January with ADV roughly around the same as we ended last year, 22, 23 million contracts per day, which is a pretty exciting start to the beginning of the year. So it’s really hard for me to predict the broader – the balance of the 11 months we have left in this year. People talk about the age of depressions, the age of recessions I think it’s the age of uncertainty, Rich. And now the question is what does that translate into? So, I really don’t know, but I think, again, we are here positioned, as I have said in my prepared remarks, to give the offsets, to give the efficiencies for people to manage and mitigate that risk. It’s really hard to predict what’s going to happen to geopolitical events. It could be stacking up like we have never seen before. The debt ceiling issue, I mean, I’ve even had internal – I don’t want to say on arguments, debates with my own team about what does it mean because we’ve always had a debt ceiling that’s always been satisfied. We have a congress like I have never seen in the history. I am not so sure it’s going to be as easy as people believe that they can negotiate a debt ceiling agreement. So that will be interesting coming into Q2 and to the summer months to see what happens when that deadline arises where the Fed and the treasury can no longer move money around to pay that the country has built. So I think that’s got a big factor into it. We still have the Ukraine-Russian conflict, which seems to be not going away any time soon. So, I still think risk management is going to be at the forefront of people’s minds. And with the increase in the interest rates that we have seen over the last year, people that are managing money having to reissue new additional debt, they are going to need to lay off that risk. And I think our product suite lends to that. So I think there are a lot of interesting factors in there, but does that translate into volume is a tough one to come up at the end equation.

Understood. Thank you very much.

Our next question is coming from the line of Dan Fannon with Jefferies. Please go ahead.

Thanks. Good morning. I wanted to follow up on the pricing, the 4% to 5% increase that you mentioned, John, that’s I think above what the typical 1% to 2% we have seen from you in the past. So, maybe a little bit more detail behind that? And then also on the non-transactional side, as you think about maybe market data, is there pricing potential power there? And as you think about this year, any changes that we should be aware of?

Sure, Dan. Thanks for the question. Let me back up and take a look at all the kind of pricing changes and adjustments that are going to impact 2023. As I indicated in my prepared remarks, the transaction fees have been adjusted. And we made adjustments across all of our asset classes in our futures business. We take a very careful and targeted approach with the objective of not impacting volumes. As I said, assuming similar trading patterns as last year, the increase would be in the range of 4% to 5%. The impact of financial products and commodity products each is an increase of about 4% to 5%, so about 4% to 5% each of our financials and to our commodity product sets. The impact took effect on February 1. So you see two-thirds of the impact in the first quarter and a full quarter impact in Q2, that’s related to transaction fees. So let’s look at market data. Beginning January 1, we had an inflation adjustment to our market data subscriber licenses, which is also in the range of 4%, assuming similar conditions as 2022. In addition, we have seen the completion of our very successful SOFR First for Options initiative. That had about an $11 million in fee waivers, which lowered revenue and $8 million to increase license fees in 2022 that we will not have in 2023. So a number of adjustments across our revenue set. I think as we look at it, we create a lot of value for our customers and felt that this was appropriate to do.

Great. And so just to clarify on the market data, you had an $11 million drag in revenue last year that should normalize plus a 4% pricing increase?

No, I am sorry, that was SOFR. That was our SOFR Options – our SOFR First for Options program and that impacted our transaction fees. That was not included in the 4% to 5% that I just mentioned. This was in addition to that.

Understood. Okay, thank you.

Alright. Great. Thanks, Dan.

Our next question is coming from the line of Gautam Sawant with Credit Suisse. Please go ahead.

Good morning and thank you for taking my question. Can you please provide us with more details on the non-operating income outlook? Can you also provide a breakout of investment income, how cash within the clearing house is trending? And how you think the pace of clearinghouse cash balances could move over the next 12 months and where does the non-cash collateral stand?

Sure, Gautam. This is Lynne. I will take that. If you look at the non-operating income in the quarter, it increased by about $8 million versus the third quarter. That was driven partially by an increase in the earnings on the cash of the clearinghouse. That was up about $9 million to $95 million for the quarter. We saw average balances relatively steady at $117 billion, largely the same as what we saw last quarter. What we did see is an increase in the returns from 29 basis points to 32 basis points. Now, we didn’t change the keep that we have on the funds held at the Fed, but what we did do is look to optimize our returns using repo markets and other short-term deposits. We also saw an increase in the returns on our corporate cash. That was up $12 million in the quarter to $23 million. These two increases were offset slightly by decreases in the equity and non-consolidated subsidiaries. Those were down $13 million in total. That included a $4 million one-time gain that we saw in Q3 related to the S&P JV. In terms of the cash and non-cash collateral, it’s difficult to predict obviously where it will go going forward, but I can provide a little more detail on what we have seen so far in this quarter to-date. As I mentioned, the cash balances were relatively flat at $117 billion in the last two quarters. To-date, through February 6, our average balances are at $113.7 billion.

Does that answer your question?

Yes. And just what does the non-cash collateral stand?

Sure. So, we saw in Q3, it was at $94.9 billion, it was at $89.7 billion for Q4. And quarter-to-date, we are at $90.1 billion.

And just to go back to the clearinghouse question for a second, I think it’s really important to note, we strategically did not increase our keep because we knew there were alternatives that people could park their money in versus keeping it in our clearinghouse. That actually fared a tremendous amount of fruit by us making that decision because we were able to keep the numbers that Lynne referenced and continue to bring in the additional revenue that we may not have if we tried to increase our take and people would have gone to alternative investments.

Got it. Thank you.

Our next question is coming from the line of Chris Allen with Citigroup. Please go ahead.

Yes, good morning everyone. I was wondering if you could provide a little bit more granularity around market data, maybe just some of the products rolling out with the addition of Google. And when this year you saw the year-over-year increase driven by some price increases in new demand in terms of SOFR. So maybe you could give us a little bit of color there just in terms of how that kind of breaks down? And just on the Google migration, I thought that was $30 million in annual costs. I know you are talking about incremental $60 million. I am just wondering what’s this incremental cost related to just in terms of is it more migration or is it new product developments, any color there would be helpful? Thank you.

Yes. Thanks, Chris. We are going to let Lynne talk about the cost on the Google migration, because I think I will make sure we all stay in the same numbers and then we will turn it over to Julie to talk about the data.

Sure. So on the cost side, in 2022, we did see $30 million in expense in line with our guidance. The guidance for 2023 is $60 million in expense. Now we will see an offset to that as we are seeing a decline in the capital expenditures related to capital refreshes that are no longer required. So we have about a $20 million offset that we are seeing step back. But the $60 million in expense guidance will be approximately evenly split between professional fees and technology fees for this year.

Julie?

Yes. So, market data certainly was – had a very strong quarter again in the fourth quarter, we were up another 8% year-on-year and the increases is due primarily to both the value of our data, the new products that we are introducing and also the fee adjustments that we made back in January of 2022. And we also are seeing throughout the year favorable performance both in our drive data area in terms SOFR licensing, as you mentioned and also just organic across our professional subscriber devices and also non-display. And I’d say the one thing as it relates back to our new products and also our work with Google is we know that we have very valuable data and we know being able to produce more of that data in analytics and putting that in the cloud is going to be really what our clients are asking for. And so we are highly focused on looking at new ways to develop that with our partners at Google. We have got a number of deep dives underway with them on the innovation front, including things on data analytics, AI, ML, new APIs and also new ways to help our clients understand the data and analytics around their risk management. So we have already begun to launch a number of those products, those begin to be rolled out in forward. And some of it is also just our new product operating model that we are using. And so we are seeing an increased velocity in which we can put these products out, so things like in our data mined area. Some of our new benchmarks and indices are also being created through that. And so you’ll continue to see a rollout of – specifically as it relates back to the term SOFR revenue. This is revenue that was part of the licensing effort that the team is underway. At the end of Q4, we had over 2,000 firms that we have licensed for term SOFR products. And really, we’re continuing to see increased demand for that. That was up over 300 firms just since the end of Q3, just to kind of show the acceleration of that. These are – the revenue there is around people being licensed for OTC derivative product usage. And also, we’re finding in a lot of these cases, these are new customers to CME Group. So we’re also working heavily within our sales organization to convert those users and expose them into our trading business. And so with everything within market data, it’s what can we do to provide insights to our clients that will also create support and synergies and transaction based. I hope that helps us.

Thank you.

Thanks, Chris.

Our next question is coming from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Hey, good morning. Thanks for the question. I was hoping just a follow-up on the last discussion around cloud migration and expenses related to that. As you guys think about the future beyond 2023, and any incremental costs associated with migration. I was hoping you could flesh that out. But also bigger picture, as you think about CME’s expense flexibility on a go-forward basis. To what extent do you think this sort of limits your ability to be more flexible like we’ve seen in the past? Thanks.

Lynne?

Sure. So if we think about the Google migration, I think what John guided to last year, was that we would see about 4 years of incremental cash costs averaging $30 million cash cost per year. So we did see that $30 million in 2022. The cash cost for this year are estimated at $40 million. So we do expect over the next 2 years to have some incremental costs related to the migration. After that point, we see ourselves getting to breakeven and ultimately a cash flow positive for the investment. One of the reasons that we are pursuing this initiative is to increase our flexibility. And we will continue to see a move from infrastructure-intensive spend and moving into this environment where we have CapEx coming down, the coming down, ultimately, we will see more of the expense in the technology line as we are renting the capacity as we need it as opposed to building through infrastructure. So that is the migration that we expect to see over the next several years on the cost base.

Just one thing to add to that, when you think about the investments that we make in technology, things like artificial intelligence, big query, machine learning, we’re able to get that through Google without having to make the investment ourselves. So there is a lot of positives associated with the migration to the cloud, including flexibility, ability to launch products faster. When you think about the business cases, certainly going to be able to have better returns on our investment because we don’t have to build out the entire infrastructure, assuming success, we can build towards success. So a lot of real positives we think in the long run strategically with our relationship with Google.

Great. Thank you.

Thanks, Alex.

Our next question is coming from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Hi, good morning, folks. Come back to the – or actually talk about the interest rate franchise, obviously, record volumes and record revenue. There is a perception that as the Fed ends tightening that would reduce volumes, but we’ve got a number of other factors that could continue that strong volume. So just wanted to get your thoughts on that? Those being, obviously, the price increases and then also the new potential customers that, Julie, you talked about from the term SOFR, the introduction of those new customers. So maybe just if you can comment on that and also the 10-year – or the long bond complex in terms of what you’ve been saying historically about more treasuries making it into private hands and being hedgeable and then other things that you’re developing on the long end of the curve, not to mention that higher – I think high RPC on the treasury side versus the short side.

Thanks, Brian. Sean, do you want to go ahead and start?

Yes. Thanks very much for the question. Great question. In terms of the overall rates complex, obviously, a very good year this year, as you said, with record volumes strong open interest, record large open interest holders. In fact, if you look over the last decade, we’ve more than doubled the number of large open interest holders, so working very closely with Julie’s team, expanding our client base significantly. If you look at that growth in the market environment, obviously, the market environment has been a strong positive. In terms of the very long end of the curve to get specifically to your 10-year question, we haven’t actually yet seen a strong uptick that we – that I had expected in our treasury futures with the reduction in the Fed’s balance sheet. In fact, surgery futures are down slightly. This year, they are down 3%. So that marketplace is actually down. So how is it that we are up 7% so far this year relative to last year, which was a strong year. What we’ve seen is something that Lynne has mentioned, I think, on past calls, which is that now with the Federal Reserve having greater uncertainty as to whether they will be increasing rates or decreasing rates and with a much greater dispersion that you see in the economic numbers with some seeing a very strong economy and others seeing a very weak economy, we see greater demand than ever before for our interest rate options. So if you look at our short-term interest rate options this year, they are, in fact, up 40%. That’s obviously driven by the huge success in the investment we made in SOFR options last year. And if you look, in fact, now at our SOFR futures plus SOFR options, we’re doing 5 million contracts a day so far this year. So I think the outlook relative to the Federal Reserve having the opportunity or the potential for either increasing rates or decreasing rates makes greater need for our products than ever before.

Maybe if you could about the organic side. I think you talked about the new – the potential new trading customers from the 2,000 firms that you’re onboarding?

Yes, I’m really excited. Another thing that I’m very excited about is – think about what we did over the last couple of years was we migrated our single largest business, the short-term interest rate futures and options business from the LIBOR benchmark over to the SOFR benchmark. And what that’s meant is a significant investment in resources, time and money in order to facilitate that migration with our clients. What we’re going to get back to what we’re going to be able to get back to this year is innovation and new products. So I’m very excited about the new options products that we will be launching this year. We’ve got several of them in the pipeline. We’ve got some new future products in the pipeline. And you may recall that about half of the growth in our listed rates futures and options business since 2012 has come from new products. So we will be launching many new products this year that we are very excited about and getting back to that innovation. In terms of the additional clients, where we now have more than 2,100 new clients licensed with CME terms so far. I’ll turn it over to Julie.

Yes. So in terms of who those clients are. I think it might just be helpful if I just talk for a minute about some of the segments. Clearly, banks are the largest segments. They are the ones that are lending against this rate for all of the work they are doing across business loan, trade finance, commercial real estate. But some of those other groups that are more to that organic point that you asked about is for the first time, a lot of private lenders, so these could be specialized hedge funds, PE firms, insurance companies, those that definitely are lending and need this rate to be used. We’re also seeing licensees coming from the buy side and other investors running loan syndication, CLO debt. And again, those are use cases very specific to buy-side participants, and those are really touching across the globe. So we’re seeing that in Europe and Asia as well. And also just other fintech and service providers, so you can imagine there is a growing number of vendors that are going to need these rates for valuations, risk management, loan administration, accounting. And this is where our sales team is critical to be able to work those through the funnel. And also, you can imagine the education around that, right? So we’re continuing to work with commercial clients, corporate treasurers to help them understand both how that rate works, get them licensed and help them understand what other risk management products and data we have available for them. So we are working through this and as I mentioned, still have a good pipeline of opportunities across those segments that we’re working through right now.

Alright. That’s great color. Thank you so much.

Thank you, Brian.

Our next question is coming from the line of Alex Kramm with UBS. Please go ahead.

Hey. Hello, everyone. Just another one on the pricing side maybe for a minute. I know you talked about your impact of the price increase, the similar way every year where you say like, hey, adjusting same mix as we saw last year, it should be this or that and then obviously a higher level this year. But what we’ve also seen in recent years is that mix never really seems to be driving that upside that a lot of us expect. So I know you don’t have a crystal ball, but – a, now with the 4% to 5% that you’re talking about, maybe the question is how much do you think or we should expect to stick? And maybe just review what the biggest drivers of that mix are that has maybe worked against you on the pricing side recently? I know there was a lot of question, but hopefully, you got the gist of it.

Yes. Thanks, Alex. It’s very difficult, obviously, as you know, to predict how the mix is going to happen year in and year out. And I think what we’ve seen certainly over time as volumes build, the only real impacts we have are mix shifts to our RPC. So in other words, we generally don’t reduce prices. You saw an example when we wanted to change behavior where we adjusted and gave some fee waivers for the SOFR First Options, which obviously was hugely successful. But to put it into perspective, right, so if you look at what we did last year, we made a 1.5% to 2% price adjustment. At the time, I said that the biggest impact was going to be in the equity part of our business. And if you look at the RPC for equities in the fourth quarter of 2001, we were at $0.526. If you look at the in our equities complex today for the fourth quarter, we’re at $0.535 and this is on a 25.6% year-over-year increase in volume. So when you talk about it sticking, I would say that’s pretty sticking, especially when you consider volume incentives and the like that we have in our equity business. So we do take our pricing adjustments extremely seriously. We look at it on a product-by-product basis. We’re very surgical. We have regular discussions around it to make sure that we’re making the investments in market maker programs and incentive plans appropriately. And I would say that overall, when you look at our volume and pricing dynamics, I think we’ve been pretty successful and what we’ve done in terms of adjusting prices at the right time.

Okay. Fair enough. Thanks, guys.

Thank you, Alex. Appreciate the question.

Our next question is coming from the line of Simon Clinch with Atlantic Equities. Please go ahead.

Hi, guys. Thanks for taking my question. Maybe show up, I can go back to you, just on the points on the previous question about, I guess, the Fed balance sheet reduction and I guess the surprise that we haven’t really started to see the benefit of that yet in the long-term rates franchise. That’s something I’ve been puzzling here over myself in terms of substantially higher outstanding debt that’s out there, the shifting balance towards more public holders of that debt. And yet the open interest relative to those levels of outstanding that seems still seems to be relatively low to sort to what it could be. What do you think would be the actual catalyst or what’s holding back that thesis from playing out at this particular point?

Yes, I don’t see anything necessarily holding it back. I’m just looking at the fact. While in 2018, when the Fed is balance sheet by $500 billion, we saw a 26% increase in our treasury futures. The Fed – let’s maybe a bit careful here, right? The Fed didn’t start to substantially reduce its balance sheet until September. So it’s actually a very recent phenomenon, although it’s been about $500 billion. So as we know, the Fed is expected to reduce their balance sheet by more than $1 trillion this year. So I would wait and see. Again, it was – it had a very positive tailwind for our business in 2018, but as I said earlier, it has not yet shown us significant positive results this year. And that’s not yet.

Okay. There is more case of it’s just still early – point, I guess.

Yes.

Okay. Okay. Great. And I was just wondering as well, in terms of – just going back to crashes as well as a follow-up. How should we think about the overall levels of collateral requirements at the moment? And how that should trend over time? Because obviously, they have resurged during the last year and I am just wondering how we think about things normalizing over the next couple of years and the impact to the business?

Yes. This is John. I’ll jump in and then maybe Sunil can make a couple of comments. I would say it’s very difficult to discern overall collateral balances. When you think about it, really, it is a function of the trading that’s occurring on the exchange and the open interest that we have in our clearinghouse and the risk associated with those trades. So from our perspective, it’s really all about risk management and ensuring that the safety and soundness of the markets, and that’s very paramount. As Terry indicated, at the start, we’ve been doing a lot to incent our clients to keep our cash balances or to keep them the collateral in cash here at CME Group. We do it for two reasons. One, obviously, we earn more on it than non-cash collateral. But most importantly, from a risk management perspective, having cash is much more advantageous from a risk management perspective than non-cash collateral. So we try to strike that appropriate balance. Ultimately, though, it’s a decision by our clients each and every day in terms of whether or not it’s going to be cash or non-cash based upon the returns that they can get. So we’ve been, I think, really prudent in terms of how we’ve been approaching it. And obviously, it’s something that has benefited our clients because they get access to the Fed the Fed balance to the Fed. And then also, it’s been beneficial for us. I’ll turn it over to – I don’t need to turn it over to Sunil. I guess I hit it.

Thanks.

Hey, thanks, Simon.

Our next question is coming from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking the question. I was hoping we could spend a moment on the energy complex with volume a bit year-on-year in January. I was hoping you might be able to elaborate on what you’re seeing across the marketplace. How you see the opportunity taking shape for this year in energy? And maybe you could talk a little bit about how the customer participation has varied across your customer sets to what extent have elevated margin levels still holding back volume and activity at this point? And how you see all that evolving this year? Thank you.

Yes. Thanks, Michael. Appreciate the question. Following the largest demand shock, we ever saw in the energy market in 2020, followed by the largest supply shock ever ‘22. We’re actually starting to see the global energy market begin to normalize. One of the indicators we’re seeing there is financial players are starting to return to this market. One of those clear indicators we’re seeing of that this year so far, we’re seeing our open interest recover in our WCI complex. We’re up about 28%, up to about 1.8 million open interest since the end of ‘22. And that’s really a function of both margins normalizing, but we’re seeing hedge funds managers and particularly index trackers come back into the market. They exited largely in the challenging circumstances of last year. Despite the fact that it was a challenging year last year, you look at some of the points that really carry the franchise or carrying over into this year. Last year, our options market performed extremely well on the energy side with energy revenue on the option side, up 9% versus the previous year. Globally, we also saw continued growth outside the U.S. with our LATAM business and energy up 70% last year and our APAC volumes up 15% last year. Finally, we saw continued growth back on the client side, specifically in retail, with our Micro WTI contract in the fourth quarter, TI volumes up 28% to a little over 100,000 contracts. So, good global participation and good client segment participation. More importantly, when you think about where the energy markets are going, we continue to see the energy markets revolve and evolve around WTI as the central marketplace and price setter for both physical and financial markets. Couple of proof points here. Number one, the U.S. is now exporting a record level of 4.1 million barrels in Q4. We look to believe that, that export capacity will continue to grow. U.S. waterborne crude exports are not equal to Iraq and the number slot behind only Saudi Arabia. So U.S. is putting more WTI product out into the global markets. We are also expecting that and the market expects global oil production out of the U.S. to increase about 1 million barrels between now and 2024. So, that just increased WTI’s footprint globally. So, we like that we have got the strongest position in the export market and in that basis contract, those Argus grades contract, as I said, about 375,000 contracts open interest, 87% of that is commercial participation. That’s where customers price discover and WTI, and then they hedge their exposure out to the basis to the Gulf, and then it exports from there. So, we like the position that we are in, in terms of the centrality of WTI. We think we have got the right product mix and we got the client mix and financial players coming back in. So, like Terry said, we can’t predict what volumes are, but we can talk about the very strong structural position that WTI has in the global oil market going forward.

Great. Thank you.

Our next question is coming from the line of Owen Lau with Oppenheimer. Please go ahead.

Good morning and thank you for taking my question. Could you please give us an update about your strategy and outlook in the digital asset space? Do you see your clients pulling back? And then you recently launched three Metaverse reference rates and indices. What other reference rates or products would make sense for CME down the road? Thank you.

Thanks Owen. Tim?

Yes. When we look at the digital asset space and the cryptocurrency business at CME, we remain seeing very strong growth in our offering. So, just as a reminder, our approach to the cryptocurrency products as being the regulated venue, offering regulated products in a way that provides bonafide risk management and trusted access to the marketplace. We have seen that value proposition remain true in Q4 with some of the more widespread events in the cryptocurrency space, where we saw record volumes in November, record large open interest holders of 439 holders in the month of November. And that momentum hasn’t slowed down with respect to the adoption and continued growth at CME. What I mean by that is, let’s look at the number of accounts. Typically, we add about 450 accounts per month in our cryptocurrency business. And in November, we added 934, over doubling the normal account opening. And in January, we have seen over 700 accounts – new accounts opened with respect to trading cryptocurrency products at CME. That’s really a testament to the marketplace broadly turning to CME in times of stress in the rest of the cryptocurrency ecosystem. When we look at the product development front, we have focused on additional pricing products. These are non-tradable reference rates in real-time indices. We did in last month, introduced three new reference rates around the Metaverse, that complements some of the additional indices we introduced with respect to D5 sector in cryptocurrency as well as the more than dozen so more traditional cryptocurrency tokens that we also have reference rates on. And really, the strategy here is we want to make sure that CME, along with our partner, CF Benchmarks, remains one of the preeminent pricing providers for cryptocurrency as people need a trusted source to figure out on a given day, once a day with reference rates or real-time tick-by-tick, what these assets are worth. That is where we will continue to develop on the reference rate pricing, but we will listen to customers. We don’t necessarily have anything else in the hopper with respect to additional tokens, additional reference rate. We have almost 50 real-time indices and reference rates out there at present. And our product development will be, again, sort of in the Bitcoin and Ether lane as a function of the regulatory landscape that we find ourselves in. However, the one thing I will add is when we look at the broader ecosystem, the product development is not just a function of what CME can lift, but our products are being more increasingly used by other participants in the marketplace as the underlying for ETF, structured products, OTC trades. So, we are at the center of the growing ecosystem with respect to Bitcoin and Ether regulated products, and we expect that trend to continue in 2023.

Got it. Thank you very much.

Thanks Owen.

Our next question is coming from the line of Ken Worthington with JPMorgan. Please go ahead.

Hi. Good morning. Thanks for taking the question. You registered to launch an FCM last year. Where does that application stand? And in the wake of the collapse of FTX, is launching an FCM, a priority or even still makes sense?

Yes. Ken, I will take that. Listen, the FCM application that we launched is not exactly taking anybody away from their day job of following that process on the application. We are looking – and I am looking at a long-term market structure and what it’s going to look like. And I do believe, and I have said this, two congressional hearings prior to FTX’ collapse that if we are going to have a different market structure that we all need to participate and have things in place and rules in place in order to facilitate whatever the world is going to look like for tomorrow. Since none of us really know what the world is going to look like for tomorrow as far as what the FCM business is or not going to be, it was prudent for us to go ahead and get the application process in place. As I have said and I have said publicly, we are unwavering. I am unwavering about our commitment for our FCM model today. Whatever we do going forward, I would hope if in fact, the model has to change, that we can work with our FCMs to bring them along so we can have a bigger piece of the pie for everybody to be successful. So, I wouldn’t read too much into that. But when you are in a situation where the government appeared to be willing to approve technically a direct model without writing rules to the direct model and applying rules that were written back many, many years ago that are applicable only to the FCM model made no sense to us. So, I had to be prepared, along with my team to put certain things in place, just in case that was the decision of our government. I don’t believe that’s the case. I think there will be new rules. You heard Commissioner Johnson or you may have seen, in her public remarks from Duke University about wanting to write rules as it relates to a direct model, even if it comes forward. That is a very long, difficult process to write rule. And I have been around this business for 40 years, and I have been in Washington helping write rules and participated in the process. And it is very difficult to do. So, I don’t see that going anywhere soon. And – but for the same time, the FCM is nothing more than – it’s a wait and see for what the future may or may not bring. And there is nothing more to it than that can.

Great. Thank you very much.

Thank you.

Our next question is coming from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Hey, good morning everyone. I have a follow-up to an earlier question, but I wanted to hone in on energy specifically. So, now that your margin requirements have been declining and especially in energy, what has been the early feedback? And how much of a positive impact do you think this could have on volumes?

Yes. Thanks Craig. And as I mentioned before, we are in the process of seeing this market normalize. Now, the first thing we saw when you saw the disruptions of the Ukraine war happened last year, margins popped up. That did basically deleverage the number of financial fitters in the market may pull back. We did not see commercial participants step away because that risk continued to be sitting there on their books. I think as we have seen margins normalize, that’s one part of the overall equation. We certainly have seen, as I mentioned, the open interest trends turned very positively. As I said, our open interest in WTI right now versus the end of last year is up 28%. On the nat gas side, we are seeing similarly open interest is up about 10% from the beginning of Q4 last year. And the most important marker there is look at the open interest holders and the types of those customers coming back in. Our large open interest holders in natural gas have also grown up about 17% up to just about 420 versus the beginning of Q4. So, as we suspected, increased cost to transact, increased margin tends to initially push financial customers out, we have seen index trackers, retail in the form of micros start to come back. And that will be a process, and we see that reflected initially both in the large open interest holders as well as growth and rebuild of open interest. And more importantly, structurally, as I mentioned, we like our position in WTI and Henry Hub as the central points and being the largest export market in both of these products and setting the global price of both natural gas and oil globally. So, those are the markets we are seeing right now. That will be a slow build, but we like the trajectory this is on going into this year.

Thanks. I had a follow-up on the rate side, too. 10 years down like – can you guys hear me?

Yes, go ahead.

Perfect. Thank you, guys. So, the 10-year is down like 40 basis points year-to-date. The Fed could go on hold in three months to six months. Those will probably be negative factors for your rate complex, but at the same time, QT does continue and there are margin – lower margin requirements. So, like how should we think about all these kind of mix of positive and negative factors on the rate complex?

Yes. I think similar to my answer earlier, what’s pricing to the curve right now, obviously, the world goes to CME’s Fed funds futures to see what the expectations are in the market or the Federal Reserve. Currently, there is about 50 basis points or two more 25 basis points tightening priced into the curve. And then further out the curve, there is actually 200 basis points in easing. As I said earlier, the uncertainty about the Federal Reserve is, from my perspective, and if you look at the market like increasing, not decreasing, relative to the probability of either tightening or easing and in each case by substantial amounts. We see that the dispersion of economic data with the 517,000 non-farm payrolls, versus, for example, the ISM numbers, which are running in the high-40s, you have everything from the potential for continued boom to the potential for recession. In addition to that, you can look at the excess savings of households that remains post-COVID, which remains according to recent reports at around $2.6 trillion. So, enormous excess savings, enormous uncertainty, huge increases in rates from the Federal Reserve, I personally think that the uncertainty is very high. The rates could go either way. And what we have seen again is, overall, for our treasury futures, they have declined slightly relative to last year, down 3% in terms of volumes. But as I said earlier, our short-term interest rate options, which are reflective of that uncertainty of the Federal Reserve were up 40% year-over-year. So, I think that the environment is highly uncertain.

Let me just add to what Sean said, and this is just a personal theory that I think the Fed. When you say, Craig, that they could hold on their increases, I think when you looked at most of 2022, most of the participants were looking through a pivot. The pivot never happened. And we saw, to Sean’s point, the Fed share talking more hawkish even as of recently a couple of days ago. So, even if they were as a hold, I think people would anticipate that, that would mean a pivot, which would mean massive activity on refis and people waiting to do a lot of business as they are waiting for that moment that you were referring to as a hold. And if in fact the market was to do a pivot if that was to happen, I think it would be more activity, not less. So, even at a hold, I think that would not be bearish for CME, that could be very bullish for CME.

Thank you, Terry.

Our next question is coming from the line of Andrew Bond with Rosenblatt Securities. Please go ahead.

Hey. Good morning. Just following up on energy and specifically natural gas, 2022 was one of the tightest gas markets over the last decade. And this year, we appear to be set up for one of the more oversupplied markets in many years. We are seeing this pricing at the lowest level in 18 months. Can you talk about how this dynamic is likely to impact market participation and perhaps some of the structural shifts we have seen since natural – in the natural gas market since the Russian invasion?

Yes. And natural gas is an interesting one. It was directly – certainly impacted by the Russian invasion when you had that pipe gas coming from Russia directly into Europe, which is effectively the basis for the flow for the TTF contract. So, like crude, natural gas market is beginning to normalize. Now, given the unusually warm weather we have had both in Europe, which I think has failed a lot of Europe out as well as here in the U.S. The market was making sure that there was enough supply going into a normal winter. It’s now feeling oversupplied in a warm winter, which is not a terrible thing for the consumer, but is some interesting dynamics in the market. We actually are seeing – when we looked at last year, the full year, our Henry Hub volume was down a couple of percent, 2%, 3%, something like I think – I saw something a little bit of a larger magnitude and the downdraft. But as I mentioned before, open interest is up 10% from the Q3 low. So, we are seeing that market begin to normalize. And more importantly, we are seeing participants in the large open interest holders up 17% from the beginning of Q4. January is starting well. Overall, our nat gas complex as a whole was up about 1%, lead by options, up 8%. So, we are seeing some normalization of activity there. I think in the same way that we think about the structural position of our energy markets in the same way that we have seen the market evolve around WTI as that global physical market, we are seeing the same thing happen around Henry Hub. And Henry Hub is by far the largest natural gas market in the world growing the importance every year. That’s a function both of the significant production in the U.S., but the growing export capacity and volumes out of the U.S. as well. So, it’s not only is Henry Hub a huge domestic market, it’s becoming in light of the challenges to TTF, the global marker as well. TTF is going to have the position or the European market will have to begin to reference an LNG point out of Northern Europe. The TTF itself was taking pipe gas coming from Russia. So, in terms of where we are seeing client participation, similar to crude, we are starting some normalization, open interest up, client participations flowing back in and the centrality of Henry Hub global nat gas market puts us, we believe, in a very strong position. However, market dynamics evolve, whether we are going to be low and flat for a while or trending back up. That’s just a function of we are in the middle of gas season right now in an unusually warm winter. I think that’s part of the overhang in the price right now. But we like the dynamics. We like our position and just the magnitude of Henry Hub versus TTF is something like it, I think the Henry Hub market would you normalize by molecule size is about 20x the size of TTF. So, we like our position. We like our customer participation and the open interest trends are heading in the right direction.

Alright. Thanks.

Thanks Andrew.

And our next question is a follow-up question from the line of Alex Kramm with UBS. Please go ahead.

Yes. Hey. Hello again. Just one follow-up on the energy business, you got a bunch of questions on that. And I actually wanted to step back there for a second. I mean you said several times that you really like your strategic position. But when I look back over the last, whatever, 5 years, 10 years, 15 years, that business has been basically ex growth. And in the last 5 years, for example, I think it’s down 4% CAGR in revenue terms. When I look at your primary competitor, which obviously we all know and track, I mean I think at the same time, these guys have grown 5% revenue CAGR. So, there is a 9% delta. So, I hear you with the positioning, but I am just wondering like what structurally has happened there? And I know you have different product sets and so forth, but you still play in the same sandbox. So, hoping you can close that gap and maybe any idea like how?

Yes. Thanks. I appreciate it. I think you are right. We do have different products that’s in our energy franchise. When you look at our Henry Hub franchise and ICE’s LD-1, for example, those results have not been markedly differently in terms of performance over the last couple of years. Certainly, ICE has the basis market here and the TTF complex, which I think is under significant strain right now, in terms of what that means going forward as a long-term marker given some of the physical challenges where those gas flows are going to come from and what that now represents. But I won’t try to tell you otherwise, that TTF market has been on a good run for the last 2 years or 3 years. So, they are in product sets that we are not. We are in product sets that they or not. I would point to our global missions offsets contracts in the voluntary carbon markets as an example of a market that we are in that they are not in right now. They are in the compliance markets or in the voluntary market. So, when you break down the pieces on the like-for-like businesses, those results have not been markedly differently where the different results are. Some of their asset – some of their products are there in where we are not have been contributors to the bottom line growth. So, from our perspective, we – as I said, we look at the structural benefits and the positioning of our core complex in WTI in global crude, which looks very positive as well as the Henry Hub complex, both of those being the biggest markets, now the biggest export markets for those respective products. So, we just – as a going forward, we like what we have done. We have globalized our business. We expanded our options complex. But that outperformance, Alex, as I said, it’s really a function of they have been lucky to be in products where they have franchises that we are not operating in. And that’s, you got to be both good and lucky to be successful in this business, and we like our position going forward.

Very. Helpful. Appreciate it.

Thanks Alex.

And our last question in queue is coming from the line of Kyle Voigt with KBW. Please go ahead.

Hi. Good morning. Maybe a question for Terry, I know you agreed to an extension on your employment contract last year. But with that, I believe, set to end next year. I am wondering if you would be able to or will be willing to share whether you are open to extending your employment contract again? And also if you could address or provide any color as to how the Board views succession planning more broadly?

Yes. Thanks Kyle. And obviously, there is some confidentiality into the conversations that I have had with my Board, but I will just give you a general take on it. My contract goes to the end of 2024. I am committed to my Board that I will be here through 2024. At the same time, we will be looking at – we are looking at succession. And if in fact, the Board is not comfortable with that process, I told them I would say until they are. So, that’s kind of how we are leaving it. So, a lot could happen between now and then, obviously, but my commitment is to a company, it has been all these years, and it will not deviate from that. So, the Board knows that, but we all have a job ahead of us to make sure that we do the right succession planning and make sure it’s a seamless one. And that has the attributes to do multiple things from Washington to M&A and everything else. There is a lot goes on in these businesses. And there is not too many exchanges as we know in the world that people know how to operate. So, we got to find the right person, but we got – we have a lot of talent in not only in this room, but through the organization. And if in fact, the Board is in-comfortable with where we are at, then I will extend until they are.

It’s very helpful. Thank you very much.

And that is all the questions we have. I would now like to turn the call back over to management.

Well, thank you all for taking time out this morning and we hope you have a good day and be safe.

That does conclude the conference call for today. We thank you for your participation. Ask that you please disconnect your lines.