Greetings and welcome to the CME Group First Quarter 2023 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Wednesday, April 26th, 2023. It is now my pleasure to turn the conference over to Adam Minick, Senior Director, Investor Relations. Please go ahead, sir.

Good morning and I hope you’re all doing well today. We will be discussing CME Group’s first quarter 2023 financial results. I will start with the Safe Harbor language and then I’ll turn it over to Terry. 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’ll 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 provides details on the first quarter of 2023. I'll make a few brief comments on the quarter and current outlook, and Lynne will summarize our financial results. In addition to Lynne, we have other members of our management team present to answer questions after the prepared remarks. John Pietrowicz is also on the call with us this morning. John will be staying on with CME through at least the end of the year as a Special Advisor to the company. Among other things, John's responsibilities will continue to be to work with Investor Relations activities. But this is the first for John to be on the call not in the CFO role. So John, please don't jump in when Lynne is speaking. I'd like to thank you, John, for your over eight years as CFO as well as your important work at CME prior to that. John has been a key part of every major milestone our company has achieved over the last 20 years. And we thank him for his many contributions to our business and we look forward to continually working with John throughout the balance of the year. With that, I will turn to a few comments regarding the first quarter, which was continued evidence of this new era of uncertainty. As I said in my Financial Times op-ed from February, risk management has been elevated from a supporting player to the star attraction as investors are managing portfolios with near constant market challenges. Following the best year in CME Group's history, first quarter 2023 average daily volume increased 4% from an extremely strong first quarter 2022 to 26.9 million contracts and was just short of our all-time quarterly record average daily volume in the first quarter of 2020 of 27 million contracts. This quarter included our all-time highest single-day volume of 66.3 million contracts on March 13th. All of this and other things have led us to the highest adjusted diluted EPS in the history of CME Group. Throughout the entire quarter, there were shifting perceptions about the Fed's near-term rate path as well as significant banking concerns in March and the continued development of the SOFR market led to the increasing need for the management of interest rate risk. This drove 16% growth in our interest rate ADV to the record 14.5 million contracts. Record March SOFR future's ADV of 5.2 million contracts exceeded the previous record seen in Eurodollar futures. And since quarter end, we successfully completed the migration of our Eurodollar open interest to SOFR without issue on April 15th. In addition, our past investments in building out our options franchises are paying off. With such a turbulent macroeconomic backdrop, options are an increasingly important risk management tool. First quarter options ADV grew 26% year-over-year to a record 5.8 million contracts, including double-digit growth across interest rates, equities, and metals and 30% growth in non-US trading activity. First quarter options revenue grew 12% to a record $218 million. The first quarter was a great example of CME Group seamlessly doing what we are designed to do. The significant volatility spikes and associated turmoil affecting the banking sector in March further highlighted the systemic importance of sound risk management practices by institutional participants. There are no guarantees, but hedging can provide certainty. And the significant first quarter activity highlighted that some of today's most important trades are to manage risk. The future is more uncertain than ever, but we know we can expect a whirlwind of geopolitical and economic hurdles to persist. And we will continue to focus on innovating and offering market participants meaningful capital and operational efficiencies across a diverse and globally relevant product set to manage their risk. With that, I will turn the call over to our new CFO, Lynne Fitzpatrick, to cover the first quarter financial results.

Thanks, Terry. CME had the best quarterly results in our history. During the first quarter, CME generated over $1.4 billion in revenue, up 7% compared with a strong first quarter in 2022. Overall revenue growth outpaced volume growth of 4%. Market data had a record revenue quarter, up 9% versus Q1 2022 to $166 million. The need for our products and data to manage risk in an uncertain market environment continued to build on the strength seen last year. Expenses on an adjusted basis were $459 million for the quarter, and $362 million excluding license fees and approximately $12 million towards our cloud migration. CME had an adjusted effective tax rate of 23.4%, which resulted in an adjusted net income of $882 million, up 15% from the first quarter last year and adjusted diluted earnings per share to common shareholders of $2.42, the highest adjusted quarterly net income and EPS in our history. Capital expenditures for the first quarter were approximately $16 million. CME paid dividends during the quarter of over $2 billion, and our ending cash balance was approximately $1.7 billion. The team at CME Group remains focused on providing the risk management products needed by our clients and driving earnings growth for our shareholders. Before we open up the call for your questions, I'm going to briefly hand it back to Terry.

Thanks, Lynne. And before we get to your questions, as Lynne said, I want to take a few moments to acknowledge Sean Tully, who announced his decision to retire from CME Group in June of this year. Since joining us in 2012, Sean has been a strong leader for our financial products business and continuing to grow that through the period of tremendous growth and transformation. I especially want to recognize Sean for his outstanding job that he and his team did in the interest rates to facilitate the successful transition from LIBOR to SOFR. This was no small feat. As many people on this call remember, we had many conversations prior to the transition about whether we were going to be able to transition or where others were going to do. Sean and Aga and others did an amazing job of bringing 99.99% of the SOFR business here to CME Group. And now it's the largest contract in the world, supplanting what Eurodollar futures used to be. It's really an amazing accomplishment. Following Sean's retirement in June, Tim McCourt, who has been overseeing our equity index and foreign exchange cryptocurrency business will assume Sean's responsibilities and lead the organization covering our financial and OTC products as well, the utmost confident in Tim's ability to manage this broader portfolio. So, Sean, on behalf of everybody here, we'll have more accolades with you off the call. But thank you for everything you've done, and maybe you could say a few words to people that you've been talking to for so many years.

Yes. Thank you so much, Terry. It has been an honor to work at CME Group these past 11 years to work with you, Terry, and the entire outstanding team at CME with all of our customers, with our investors, with our analysts, and with our regulators. Together, we delivered enormous value to market participants, including several billion per day in margin efficiencies and many new products, including many new options, many new currencies in OTC swap clearing, ultra 10-year futures, SOFR futures and options, and CME term SOFR. And for investors in the first quarter of 2023, we delivered all-time record revenue for our rates business with SOFR futures and options ADV exceeding the best-ever quarter for Eurodollar futures and options ADV historically as well as delivering a 9.8% compounded annual growth rate in revenue for the rates business since the first quarter of 2012. Last, having worked closely with Tim McCourt and Aga over the last several years, I am very confident that the financials business is in extremely capable hands going forward. Thank you to all of our customers. Thank you to all my colleagues, and thank you again, Terry.

Thank you, Sean. Appreciate it very much. With that being said, we're going to get into your questions now. And Sean will be participating in that. So, I'm sure you will enjoy his answers as always. So, with that, we'll turn it over to you for your questions.

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

Yes, good morning Terry and team. And first, I'd just like to echo your comments and congrats, John P. and Sean, as well on the transitions. Anyway, so Terry, you brought up that risk management focus that you mentioned in your editorial, pretty timely with the banking crisis two weeks afterwards. But down at the FIA, we talked about sort of the longer-term impact that it could have on risk management and utilization of the CME product. So, I was just trying to get an update after what time has passed and just get some insight, I guess, from Terry and Sean about the conversations you have had with risk management focus on these mid-tier banks, what might change, and what might it mean to the CME going forward?

It's hard to predict the future, Rich, but we did say down at the conference you're referring to in Boca because of what's going on and if you look at history, some of the things that have gone on, we are returning to seeing our business grow because people understand that they need to manage risk in order to continue to stay in business for themselves. So some of these second and third-tier banks who did not hedge some of their portfolios, this is a big push by not only Sean and Tim McCourt and their teams but also by Julie Winkler and her sales team to cross-sell. But again, I think what's important here is we talked about some of the second and third-tier banks mostly will be doing swaps, which we think is actually fine for us because they're normally going to be doing a swap against a larger bank, and that larger bank will be doing the layoff in CME Group. So we see that as a net positive, and that's how we've been going through this internally with our own folks here, Rich, since we saw each other probably down in Boca and putting more work into that. So Julie and her team have been doing that along with Sean and Tim, and I'll let them comment. But that is a big push that we're looking at to show people the benefits even if you're doing a swap, we think there's a benefit to the liquidity that we provide for the banks to lay off that risk from the swap.

I'll just say that we have initiated a sales campaign specifically focused on regional banks across the firm. And we are very focused on providing them with the interest rate swaps and other products that they need in order to better manage their risk. We are very excited about offering them that, especially with our OTC interest swap clearing. And as Terry said, whatever swaps they do in addition to potentially increasing our OTC swap clearing business, the backside of those swaps will be hedged by larger banks either using our futures or the BrokerTec US treasury platform. So the better people manage risk, the better it is for themselves, and the better it is for CME and CME shareholders.

Tim or Julie, anything else?

I would just add, I think the relationships with a lot of these regional banks has definitely been something we've been working on as we've got the term SOFR benchmark here at CME Group. This was a key asset of which these individuals, these firms needed access to this rate. And so getting out, licensing those firms up was an activity that we've been doing over the last 1.5 years. And so those relationships are still relatively new, but the fact that we have them within our clients' outreach is a key part of this. And a lot of it is education, and this is something that CME Group has a very long history of doing very well and something that we'll continue to do with these firms.

Yes, definitely. And the focus on risk management couldn't have been more timely. It's been great working with both Sean and John. Thanks.

Thanks a lot, Rich. Really appreciate it.

Thank you, Rich.

Our next question is from Dan Fannon with Jefferies. Please go ahead.

Thanks. Good morning, and congrats to both Sean and John as well. A question is on market data. Obviously, the price increase that went into effect drove some of the sequential growth and I guess, record revenue. But you talk about also increasing subscribers. So just curious about this is a good starting off, or jumping off point here for revenue. And then ultimately, where these subscribers are coming from? Is it mostly retail, or how we can think about momentum in the market data business?

Why don't I have Lynne start, and then we'll go to Julie?

Sure. Thanks, Dan. So if you look at the market data revenue this year, we did grow 9% off of the first quarter last year. You have the impact of the price increase, which went into effect in January. As a reminder, that was about a 4% increase for market data. Also within this line, you do have about $4 million in audit fees and catch-up payments for prior period activity. These do tend to be more episodic. For comparison, there was about $1 million in this type of fees in Q4. So it's a combination of that pricing increase as well as the increased subscriber count, which I can turn to Julie to talk about what she's seeing there.

Yes. So, thanks for the question, Dan. Certainly, last year, throughout 2022, we also saw continued strong demand for our professional devices and our real-time data. We offer the largest suite of proprietary data of anyone. And I think people especially post-pandemic have seen the value in that and the fact that we've continued to invest in the data sets that we offer and the technology and how they are receiving that data. So, Q1, we saw just a continuation of that trend. And also, there's other aspects of the business, particularly as we think about organic growth under our non-display licensing. So, this is where people have needs to utilize our data and other algorithms and trading applications. And so this is another part of the business, up almost 9%. And alongside all of this, we've set up in the last two years this dedicated sales team. And I'd be remiss without saying that is having an impact on the results, right? We are in a position where historically, we had not been out there selling market data and explaining to people what was actually available. And I think we're starting to see some uplift from that as well. So, it is institutional users to your question. This is not coming from new retail participants.

Great. Thank you.

Our next question is from Alex Kramm with UBS. Please go ahead.

Yes, hey, good morning everyone. I feel like this is a throwaway question that we ask every time after we have a big quarter like we had in the first quarter, but I guess it has to be asked every time, obviously, with April off to a slow start. I know we see this, again, time and time again, you have a lot of volatility, a lot of changes in the environment, and then things get a little bit quiet when people have to lick their wounds a little bit. But curious, Terry, if there's anything you would point to that speaks to the underlying fundamentals of the market, any particular slowdown in any particular client types, or anything that would make you think differently around what you're seeing so far this quarter? I know it's hard to predict, but it's got to be asked.

No, and I appreciate that, Alex, and it does need to be asked. And I think a couple of different things here at play in April. April is historically one of the slowest months in the industry and for whatever reason. It's been that way for a number of years. Don't have the reason why that is the case. One of them, I guess, would be that we don't have a role in April. So, that's one thing of interest. But one of the things I look at is really not just only our company. I look at the broader industry across the Board. And if I thought that we were the only one suffering in a lower volume environment in the month of April, while everybody else was gaining, I'd be a little bit more concerned. And I'm talking apples-to-apples in the futures world. So, that is not the case. Everybody is kind of on the same pace in April as they've been historically. So, this is nothing new. And it's a phenomenon that's gone on for years. When I was younger, we saw the month of August being traditionally a slower one because of European holiday shutting down and things of that nature. Things just kind of move around a bit. For whatever reason, this happens to be the slower month that we've seen over the last several years. But what's interesting about April is we've had our metals complex up. Our ag complex is up, and our energy is up 33% and metals ag running around 15%, energy up still over 3% for the month of April. So, that is a bright sign. So, the beauty of CME Group, Alex, as you know, we're not just one asset class. We're a multi-asset class organization. So, when we do see slowdowns, we have said historically seen pickups in others, and I think this is an example of that, maybe not for the volume of 66.3 million, but we are definitely seeing an uptick in other asset classes when others are down.

All right, fair enough. I'll jump back in the queue.

Thank you, Alex.

Our next question is from Brian Bedell with Deutsche Bank. Please go ahead.

Great. Thanks. Good morning. Congrats to John, Sean, and Lynne as well. I have a two-part question, primarily focused on the debt ceiling negotiations. First, how do you view the negotiations and the ongoing discussion regarding the Fed cycle, particularly the potential volatility in the 10-year yield and its impact on volumes? Any insights on that would be appreciated. Secondly, Terry, what are your thoughts on whether this round of debt ceiling negotiations is similar to those in the past? Do you think a resolution will be reached smoothly, or do you believe this time is different? Additionally, if a default scenario were to occur, how would that affect treasury futures?

This is primarily a speculative question, as I've witnessed past debt negotiations come down to the final hour. There was significant negotiation between the Speaker and President Obama back in 2011, so the outcome is unpredictable. I can offer some observations about the current situation in Congress. The Speaker plans to propose legislation that includes substantial cuts over the next decade, which the President is likely to oppose. In exchange, the Speaker is proposing to raise the debt ceiling by $1.5 trillion. While this may pass the House, it could fail if just five votes are lost. The current dynamics are quite interesting, but it's unlikely this legislation will progress in the Senate or with the administration, leading us to further negotiations. Anyone familiar with political processes knows the Speaker of the House went through 15 rounds of votes, with some individuals looking to leverage the situation for their own interests. Though I wasn't part of those negotiations, it's clear that negotiations were taking place. The current Congress is different, with Republicans in the majority in the House aiming to implement considerable cuts. Regardless of personal opinions, this is simply an observation. I wouldn't be surprised if initial efforts don’t lead to a significant outcome, and we will need to see how things develop. Historically, representatives are reluctant to return to their districts as the ones who voted against raising the debt ceiling, which could negatively affect the U.S. economy. There are concerns about a potential downgrade, not that I’m predicting it will happen, but there are those who firmly believe in addressing government spending. This isn’t my opinion; I'm just relaying theirs. I anticipate that this negotiation will be more complicated than in past instances. Regarding the Fed cycle, I’ll leave it to Sean to discuss its implications, and perhaps Sunil can address the significance of this for treasuries.

Yes. Thanks very much for the question. Thank you, Terry. In terms of the Fed, just looking at our futures markets, it's expected that the Fed will tighten by 25 basis points at the upcoming FOMC meeting likely and then over the next year and a half, reduce rates by 200 basis points. So, obviously, there's huge uncertainty built into that yield curve that people are going to need to manage. Going from this extraordinary tightening cycle, excuse me, to a very quick, large easing cycle. And the exact timing of that creates an incredibly uncertain environment where people are going to need to hedge risk. So, I think that cycle will continue to be positive for us. Bigger picture in terms of treasury issuance in regards to the debt ceiling, in the first quarter of this year, the US Treasury only issued $64 billion net of coupons. So, with a $1.4 trillion deficit, the treasury is not issuing a lot of coupons. And obviously, $64 billion in new issuance is unsustainable. They've been driving down the treasury general account in order to be able to do that. So, I would expect a very large increase going forward in US Treasury issuance in order to cover that very large deficit and that would, at some point, provide a very nice tailwind for our business. And with that, I'll hand it over to Sunil.

I will discuss two areas: operations and risk. From an operational standpoint, the Treasury Market Practitioners Group has released a document outlining best practices for managing maturing securities and coupons. CME collaborates with SIFMA and other industry groups to ensure proper operational alignment. Regarding risk, we have dealt with similar situations in the past and take them very seriously. As Terry mentioned, we are also considering the current political environment. Taking all these factors into account, we manage risk related to our collateral and interest rate markets, both short and long term. For instance, March was one of the most challenging periods for rates, and CME clearing and its members handled it effectively. I have full confidence they will continue to do so.

Brian, your question is very relevant and there's a lot of attention on this matter. We can only do what we can here. Our role is to manage risk for those analyzing these situations consistently. Regarding the 15 rounds to elect a Speaker and its potential impact on the debt ceiling, some might argue that they are unrelated. We can only assess based on the limited information available at this time. As Sunil and Sean mentioned, we are preparing to help our clients manage risk. I agree with Sean that this situation may create a favorable condition for us, regardless of how the government resolves the issue. Thank you for your question.

Yes, that’s a lot of great color. Thanks so much everyone.

Thanks Brian.

Our next question is from Kyle Voigt with KBW. Please go ahead.

Hey, good morning. I just want to make sure I'm understanding the dynamics around the LIBOR transition correctly. Because as you noted earlier in April, we did see a material step down in Eurodollar futures open interest as the product transitioned. But we didn't really see a commensurate step-up in SOFR futures open interest at that time. So, if we look at aggregate futures OI for the rates complex, it's not down year-on-year. I'm just trying to understand whether to interpret that change in OI trend over the past couple of months as more related to a short-term dynamic around the LIBOR transition or whether this is a result of the extreme interest rate volatility we saw in March, and if that caused any deleveraging more broadly across your user base. So, any additional color helping us understand what's kind of driving some of the OI changes in rates specifically, given the moving pieces here would be very helpful.

Thanks, Kyle. Sean, do you want to start and then?

Very good question. Thanks, Kyle. The interest rate business just went through was really the single largest transition in its entire history. And Kyle, I'm very glad to say that if you look at the year-over-year open interest for the interest rate futures and options complex is up 2%. Yes, it's only up 2%, but it is up 2%, having gone through that transition. You are correct. We saw a small uplift in the overall open interest, but only small. If you look at what we did on April 15, we converted each and every Eurodollar future and each and every Eurodollar option into its respective SOFR future and SOFR options. As you can imagine, there are participants who would have had offsetting positions between those two different instruments. And therefore, those trades would have compressed. If you look at the first quarter, another question we've gotten a lot historically is what was the basis trading or the spread trading between SOFR futures and Eurodollar futures. And that was in the first quarter, about 150,000 contracts a day. So, we saw a compression. It was very uncertain from my perspective. And at my level, we do not see the individual accounts and the individual account positions. They are confidential inside the FCMs. So, we would not have known what level of compression we would have gotten through that process. And you can see the results. Again, I am heartened that overall, open interest in listed futures and options is up year-over-year.

And Kyle, I think some of the things you look at is also if you had a concern, did anybody else pick up open interest in a listed product such as SOFR and why we didn't get it. And as I said in my earlier comments, 99.99% of all open interest is here at CME Group. So, we didn't see that. And for whatever reason, people take down risk or add risk. That is their decision. As we said earlier, we're here to manage it. So, open interest fluctuations up and down are something that we've all seen historically in this business forever.

Very helpful. Thank you.

Thanks Kyle.

Our next question is from Owen Lau with Oppenheimer. Please go ahead.

Good morning and thank you for taking my question. So, CME has a strong balance sheet. Could you please give us an update on the M&A strategy? And any gaps that you would like to fill both locally and internationally, given that the valuation of many companies has come down quite a bit? Thank you.

Sure. Thanks Owen. So, certainly, M&A is something that we are comfortable with and we've used a number of different tools over the years from large-scale M&A to creation of joint ventures to our most recent investment in the index joint venture with S&P last year. We're always looking at what is out in the market and looking for opportunities for us to create value for our shareholders. We do feel that we are coming from a position of strength though, given some of our past transactions. So, we don't feel a pressure to act unless we see something where we really can create that value. So, I would say that nothing has changed in that regard. It's something that is part of our tool chest that we are happy to use when we see the right opportunity come up.

Got it. Okay, thank you very much.

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

Hi, good morning guys. Thanks for the question. I was hoping you could spend a minute on competitive dynamics in the equity derivative space. Obviously, SPX options have seen really nice growth, and a lot of it came from the dailies. Understanding that it's a different product set than E-mini and micro and mini futures for you guys. But are you seeing any evidence of substitution away from your complex? And if so, what sort of customer group is that mostly prevalent in? Thanks.

Thanks, Alex. Tim, do you want to go ahead and address that?

Thank you, Alex, for your question. When we analyze the growth in the equity options sector, it's clearly a story of expansion. CME is experiencing significant growth, with our equity options on futures reaching a record Q1 average daily volume of over 1.3 million contracts, a 7% increase from the full year of 2022 and an 11% rise compared to Q1 of 2022. This growth is influenced by a long-term trend of more short-dated options being introduced to the market due to demand for precise risk management. The introduction of same-day expiring options, or zero days to expiration, is a key development in this trend, with CME offering these options daily for five weeks in the S&P. We've rolled out products that meet our customers' needs, and we've seen over 41% growth in same-day expiring options in Q1 versus the full year of 2022. Additionally, we experienced over 50% growth in Q1 compared to the previous year's full volume for options with expirations longer than a week. The situation at CME involves not only same-day options; we have robust growth and increasing open interest, with a Q1 average open interest for equity options of 5.2 million contracts, representing an 8% year-over-year increase. However, looking at CME more broadly, this is not just about equity options. We achieved a record Q1 average daily volume of 5.8 million contracts across all options, marking a 26% growth compared to Q1 of 2022, and set quarterly records in both equity and interest rate options. Additionally, our metal complex options grew by about 24%, and our non-US option average daily volume increased by about 30% compared to the same period last year. Thus, we are not only expanding but also seeing our participants managing all of their option-related risks here at CME without shifting to other markets.

Derek?

Yes, I want to add that this is a significant differentiator for CME Group, as we have core benchmark liquidity in every major asset class, particularly in options. Options are essential because they enhance the stickiness of the futures market for our customers due to the capital and operational efficiencies provided by the offsets in our clearinghouse. Tim highlighted the success we've seen across the franchise, and as Terry noted at the beginning of the call, we achieved record revenue of $218 million in Q1 this year, reflecting broad growth throughout the franchise. Customers are increasingly using options as a key part of their overall risk management strategies, and we are noticing a shift toward short-dated options. We set a record of 1.4 million contracts in our weekly options across the entire franchise, although this did not drive the overall record of 5.8 million contracts, which accounted for about 25% of our options complex, down from 30% in the previous quarter. Our growth is evident in term risk management tools across the curve, with end users and open interest holders being our largest client segment, particularly on the buy side. This trend was notably strong in our energy sector and Henry Hub natural gas offerings. Our natural gas options business increased by 16% despite tough comparisons from last year, and we have continued to see growth in April. Energy as a whole is up about 3% this year, primarily driven by activity in Henry Hub gas options and futures. It's a comprehensive story that sets us apart from competitors, highlighting our term open interest and its implications for transactional revenues, volume, and client acquisition. We're pleased with our progress in building our front end and remain committed to serving customers globally, and the data we shared today emphasizes a strengthening franchise for futures and options.

Okay. Thanks for the detail. But just to be clear, you're announcing substitution with competitive products and equity options?

That is correct.

Thanks, Alex.

Our next question is from Chris Allen with Citi. Please go ahead.

Yes, morning everyone. Maybe you could just talk a little bit about pricing and rate per contract. I was wondering if you could give any color what the price might look like on a full quarter basis if the price increases had been there? And on the member mix shifting, is this just something you're seeing in the first quarter of this year, or has it been a longer-term trend? I know you've had new sales efforts in different asset classes too, whether it's regional banks or other players on FX and things like that. So, just trying to get a better sense of pricing trajectory moving forward.

Sure. Chris, this is Lynne. I'll start on that. If you look at the pricing increases overall, we saw a $0.013 increase on 23% increase in volumes sequentially. So, we saw a really strong capture there. What we're seeing if we look year-over-year, where volume levels are a bit more similar going from about 26 million contracts a day last Q1 to nearly 27 million contracts a day this year, we saw a 3% uplift in RPC. So, if we take a step back and look overall, we still feel comfortable with that guidance we provided at the 4% to 5% increase based on the full year, assuming similar volume to 2022. We feel like that has really pulled through. What we're most excited about is we are seeing continued strong liquidity and tight bid-ask spreads across the products. And we're not seeing an impact to our markets based on these changes. In terms of the changes on the member mix, that is going to ebb and flow. It depends on the product, and it depends on the time. I don't see an overall long-term trend on that.

Chris, you only saw two months out of a full quarter impact. So, you'll see a full quarter impact in Q2.

Understood. Thanks.

Thanks Chris.

Our next question is from Ken Worthington with JPMorgan. Please go ahead.

Hi, good morning. I wanted to follow up on Alex's question on zero date options. We're hearing more market makers are using them to delta hedge. Is there any pricing advantage that you see in zero date options versus futures? If so, why wouldn't this trend sort of continue? And do you have an estimate of how much of the E-mini business is really used to delta hedge by your institutional investors?

Yes. Thanks Ken. So, I think it's an interesting question, right? One, I don't necessarily agree with the concept that zero DTE options are a replacement for futures. I mean, fundamentally, options are nonlinear products that have very dramatically different risk profiles intraday that do not line up with the one form movement of the index that a future does. So, I don't think it's replacing because I think that is not necessarily a fit-for-purpose hedge in replacement of E-mini options. The one thing that I will say that's great is when we look at the totality of the equity ecosystem, our E-mini complex at CME is the leading price formation for equity index products across the globe. As such, we are also the preferred hedge vehicle for the totality of index trading that goes on, whether that's hedging SPX options, whether it's hedging OTC swaps, whether that's hedging ETF activity. So, these are things that we all see that risk recycling into our market as the primary venue for equities. When we look though also at the market maker activity relating to your question from just what's publicly available as a function of RPC, trading those options in lieu of E-minis is not a cost-effective strategy for market makers or members in CME. And I don't necessarily think that is happening from the fundamental economics available at CME versus other venues.

So, Ken, we appreciate your question, appreciate your hearing, but I think there's some talking in their book. But I think Tim gave a pretty specific example about true risk management, what it is. So, thank you for that question, though.

Great. Thank you.

Our next question is from Michael Cyprys with Morgan Stanley. Please go ahead.

Great. Thank you. Good morning. Continuing with the options theme but a different question here, coming back to the strong and record options activity that you guys are seeing. Can you just talk about the sustainability of this level of activity? How broad-based is that across your customer set? And what would you say is the opportunity for continued options usage across your customer set? And maybe you could talk about some of the steps that you're planning to take over the next 12 to 18 months around product development to drive continued growth and options from here?

Yes, that's a great question. The growth of our options is accelerating our future growth. As we've mentioned, it's a compelling value proposition for customers using options for portfolio hedging and the unique cross-margin efficiencies we offer. Regarding the participation across client segments, we have a wide range of participants driving this growth. Our buy-side participation in options reached a record, increasing over 40%. Proprietary trading firms are up in the mid-20% range. We've also seen growth in retail, commercial customers, and banks. This participation is broad-based. I want to emphasize that customers are using options because they are increasingly adding them to their portfolios across the curve. We're seeing growth in open interest in equities and across all asset classes. Moreover, our overall franchise is performing at record levels, and non-US growth is outpacing domestic growth at 30%. We see growth across client segments and geographies, with our EMEA options business up 41%, our LatAm options customer business up 29%, and our Asia-Pacific business up 16%. This sustainability relates to our client efforts and the front-end work we've done with CME Direct, which is providing record participation and revenue generation, broadening our access either directly or through our partners. We are also building option-specific sales assets in Europe and Asia, and we're beginning to see the results. Julie can elaborate on the sales campaigns we execute each year and how we train customers to access our front-end while providing educational resources in Europe and Asia to enhance their participation in options. Overall, we continue to see substantial growth outside the US, and we are committed to developing products that meet customer needs.

Thanks, Derek. Appreciate it.

Thank you, Michael.

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

Hi everyone. Thanks for taking my question. I was wondering if I could just get some housekeeping numbers for you from in terms of the cash collateral versus noncash and sort of what the earned rate was on the cash collateral as well, please?

Lynne?

Yes, if we examine the cash collateral for this quarter, we generated $93 million from those balances. The average balances decreased slightly from the previous quarter but the rate increased from 32 basis points to 33 basis points. To break it down, in Q1, the average balances in cash were 109.6 million, compared to 117.6 million in Q4. On the non-cash collateral side, the average balances in Q1 reached $99.2 billion, up from $89.7 billion in Q4. It’s important to note that the earnings from non-cash collateral are reflected in our other revenue line.

Okay, great. Thank you.

Thanks, Simon.

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

Thanks. Good morning everyone.

Good morning.

I have a follow-up to Chris' question, but wanted to really focus on the rates business. The rates RPC was down 1% quarter-on-quarter despite the 1Q hike. So I'm wondering if you can comment on the underlying organic trends which impacted the blended RPC and explain why revenues per contract trended lower despite the hikes?

Sean?

Yes, sure. I'm happy to do that. If you look at the first quarter and actually, if you look at the year-to-date, our treasury futures overall year-to-date are only up 1% in terms of their volumes. So, the huge growth that we saw in the first quarter was driven by the short-term interest rate futures. And as you know and as we have reported many times, the RPC on our STIRs complex is about $0.10 below our Eurodollar complex. So, that massive increase that we saw on the short end driven by the silver futures and options as well as the huge growth where we do have some volume tiers, right, led to a somewhat lower RPC. If you look at the RPC for SOFR futures and options post the February 1st increase, SOFR futures and options RPC are now matching the historic levels of Eurodollar futures and options. So we have delivered the volumes and the RPCs for those products. And that drop in RPC relative to the much stronger growth in STIRs is not a surprise, it's as expected.

Yes. And if I could just take it to the higher level, Craig, if you look at the growth in volume versus Q4, our rates business was up 47%. So that 1% decrease that you're seeing in RPC really shows that the changes in pricing, including the roll-off of some of the SOFR incentives, all of that is offsetting the higher volume tiers that you would see with that really strong growth in volume. So that RPC result was particularly strong in rates.

Great. Thank you. Appreciate it.

Our next question is a follow-up question from Rich Repetto with Piper Sandler. Please go ahead.

Yes. Just a follow-up for my friend, Derek, in energy. And you got to be breathing a little sigh of relief as the year-over-year comps dramatically go down from 1Q to 2Q. I think last year, energy after the Ukraine crisis settled out or didn't settle out, but the impact sort of settled out, the volumes went down 23%. So, I guess the question is, Derek, is can you just give us an update on energy overall with the health of the energy complex? And you've seen 2 million or so ADV. But again, it will be much easier comps 2Q going forward.

Thank you, Rich, for the great point. In the first quarter, our energy average daily volume was just under 2.1 million. Compared to the full year of 2022, where we had a significant increase, this reflects a 3% rise from last year and a 14% increase from the fourth quarter. The trend aligns with our expectations. More importantly, our open interest in WTI futures has increased by about 1.9 million contracts, following a similar trend in Brent. Throughout the year, we have seen a return of financial players, including ETFs, hedge funds, and asset managers, contributing to the open interest trends. As the influence of previous high margins began to lessen, more financial players returned, increasing ETF participation and broadening the market overall. We are particularly excited about the central role of WTI as the global benchmark in the crude oil market, which is evident in the record export levels, with the US exporting over 4 million barrels a day in Q4. Recognizing the need for WTI to connect explicitly with the export community, we developed a range of crude grades contracts back in 2018. These contracts, mainly traded in Houston, Permian, and Midland, have seen increased activity from customers involved in both domestic and export markets, with a recent record open interest of 490,000 contracts. This reinforces WTI and connects it directly to the global export market. We also set a daily trading record on February 8th with 57,000 contracts traded, largely driven by commercial and physical players. Additionally, our Henry Hub franchise has seen similar growth, benefiting from new LNG facilities in the US and the success of low-price gas development, pushing our market share back above 80% in a competitive landscape. This has positioned Henry Hub as a primary basis for trading and pricing LNG cargoes, particularly as it replaces lost Russian gas to Europe and Asia. Overall, we are confident in the volume trends. As Terry mentioned previously, our commodity volumes are generally up in the second quarter, with energy volumes showing a 3% increase in April, primarily driven by Henry Hub. There is a lot to be optimistic about, and I look forward to addressing any further questions later. We are pleased with our position in both the natural gas and crude oil markets.

Thank you.

Thank you, Rich.

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

Thank you, everyone. I wanted to follow up on the SOFR-LIBOR transition. I understand this was a significant effort for both your team and the industry, with many resources dedicated to it. Now that this is largely complete, I’m curious about what lies ahead for SOFR. Do you believe SOFR is being utilized in the same manner as LIBOR was in the past? What are the differences? Is there still a need for further education on how SOFR differs, or do you think that work is finished? Can SOFR potentially grow even more in the future? Additionally, I wanted to ask about the OTC transition that occurred on Friday. It seems there were substantial clearing volumes, and I believe you charged for that service. Could you clarify whether we should anticipate significant OTC revenue in the second quarter? It would be helpful to compare that to the first quarter's run rate to avoid surprises, as it appears to have been a good revenue day for you.

Thank you for your questions, Alex. I appreciate you bringing those up. Regarding your first question about SOFR replacing Eurodollars or LIBOR, the data from the first quarter clearly shows that SOFR futures and options have surpassed all previous records in the 40-year history of Eurodollar futures and options. SOFR futures and options are being utilized as significantly as Eurodollar futures and options ever were, which is a very encouraging development. Additionally, in terms of our long-term strategic positioning, the interest rates business is now better positioned than it has ever been in its history. This improvement is largely due to the global banking system adopting CME term SOFR for lending, with over $3.7 trillion in loans across nearly 90 countries linked to CME term SOFR and CME's SOFR futures. With more than 2,400 institutions licensed to use our products, we see a vast opportunity for cross-selling and enhancing our relationships, especially with regional banks that need to license CME term SOFR. This has been very beneficial for us, especially in light of the fact that US dollar LIBOR is now under the administration of ICE Benchmark Administration and has been designated as a safe harbor under US law, with CME term SOFR set to be used in ICE’s US dollar synthetic LIBOR starting July 1st for managing legacy contracts. This shift presents a significant opportunity for us and enhances our strategic position. Looking ahead, I am extremely excited about our future growth. We made significant improvements when we launched SOFR futures and options, particularly in how we quote and trade packs and bundles. This redesign is aimed at facilitating the launch of options on SOFR packs and bundles later this year, offering a listed, cleared, and standardized alternative at a lower total cost compared to the OTC market. I believe this presents a substantial opportunity for our SOFR business, which was not achievable with Eurodollars as they were not originally designed with this approach. We are also very enthusiastic about our €STR futures, which are now the most liquid European short-term risk-free rate contracts globally, as well as our TBA futures and other features we have introduced. The pipeline for further development is stronger than ever.

To conclude Sean's point, I won't reiterate what he said, so please go ahead.

Sorry, OTC conversion and fees, I did miss that question. Sorry. So, we did charge. You are correct. We did charge that conversion. And it was a much lower charge than we normally charge and I think we posted $10. So, it was $10 per swap. That is the published fee. So yes, we did charge for that event.

But Alex, you were right to point out about the conversion into our futures market and the growth thereof. As you just heard from Sean, we believe that this is obviously an ongoing marathon, and we will continue to build on to this franchise. But we are excited for the future. And the distraction of moving our Eurodollars to SOFR is over, which allows us to do the other things that Sean referenced. That's the exciting part from my standpoint where I look at this. So the growth is a very exciting perspective going forward. Thank you for your question.

Excellent. Thanks again.

And it appears we have no further questions at this time. I'll turn the call back to management for closing remarks.

Well, I want to thank all of you for participating in today's call. And I especially want to thank my entire team at CME Group. The global employee base all throughout the world has been able to deliver the results that we were able to present to you today. And I think it's massively important to continue to drive opportunities and efficiencies to your customers because as we do that, we will drive value to our shareholders. That's the equation we live. We thank you all very much. I want to thank again my entire team. Thank you.

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day everyone.