Cme Group Inc. Q4 FY2023 Earnings Call

Greetings, and welcome to the CME Group Fourth Quarter and Year End 2023 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. 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 released our executive commentary earlier today, which provides extensive details on the fourth quarter and full year of 2023, which we will be discussing on this call. I will start with the safe harbor language, 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 as Adam said, thank you all for joining us this morning. I’m going to start by giving a little color on the broader environment. Following that, Lynne will provide an overview of our financial results and our 2024 guidance. In addition to Lynne, we have other members of our management team here to answer questions after the prepared remarks. 2023 was the best year in CME Group's history with a record average daily volume of 24.4 million contracts, up 5% from 2022. This growth was led by records in both agriculture and interest rate products, which for the year were up 17% and 16%, respectively. Options average daily volume across all asset classes also set a record with ADV of 5.1 million contracts, up 23% versus last year. Lastly, our non-US average daily volume increased to a record 6.8 million contracts. Last year, I referred to 2023 as a new age of uncertainty. And that uncertainty extended throughout the year. We experienced continued inflation, rising cost of capital, increasing geopolitical tensions, and shifting perceptions around the Fed's interest rate policy. All of these factors contributed to our customers' growing need for risk management, capital efficiencies, and demand for our products. Following the very strong performance of our business in 2022 and 2023, we have seen speculation that our interest rate business could face headwinds based on the expectation that the Fed will start to lower interest rates this year. In my 40-plus years in the industry, I've observed that regardless of whether rates are going up or down, our volumes are typically higher during periods when the change of rates is uncertain as is the case today. I've never seen such a disparity in opinions on what the Fed may or may not do, and I believe that is a tailwind for CME Group and our rates products. I mentioned earlier that our interest rate volume was up 16% in 2023 with four Fed rate hikes during the first half of the year, building off record volume levels of 2022. In contrast to the view that a rising rate environment is optimal for our interest rate complex, our volume actually grew and accelerated since the Fed stopped raising rates in July of last year. In the six months from August of ‘23 through January of ‘24, our rates volume is up 24% year-over-year. I would also like to comment on the dynamics in the crude oil marketplace. Following the Russian/Ukraine war and other geopolitical factors that influenced the price of energy, WTI or West Texas Intermediate has become even more relevant to our customers in Europe and Asia and cemented its position as a primary reference price for crude oil globally. As the primary market for WTI trading, we continue to generate growth and expanded end user client participation through developing and investing in new contracts such as CME Group's Argus Gulf Coast contract. In a very short period of time, these contracts have generated significant commercial participation with current open interest over 500,000 contracts. As indicated by the open interest, it's clear that the commercial participants prefer CME Group's Argus Gulf Coast contract. We continue to remain focused on the growth of these contracts along with creating capital and technological efficiencies in the entire suite of CME Group's energy complex. This anchors CME Group as the global leader in West Texas Intermediate. Moving into 2024, we continue to see a wide range of views as it relates to the health of the global economy, whether it's inflation, unemployment, or monetary policy. Also, there are ongoing geopolitical tensions and supply chain disruptions continuing in certain parts of the world. Additionally, we're approaching political elections in over 60 countries this year. The uncertainty of those elections and the policies that could come from that are basically unknown to all, which only leads to market participants continuing to manage risk. All that being said, 2024 is still very much the age of uncertainty, and our products remain critical risk management tools for our clients. We have seen this reflected in our strong start to 2024, where we delivered our highest January average daily volume in our history of 25.2 million, which is up 16% relative to last year. With that being said, I'm going to turn the call over to Lynne, and we look forward to taking your questions.

Thanks, Terry. In addition to the volume records Terry discussed, we delivered record financial results in 2023. Our revenue of $5.6 billion grew 11% compared to 2022. Our annual adjusted expenses, excluding license fees, were approximately $1.526 billion including $56 million related to our cloud migration. In aggregate, our adjusted operating expenses were $9 million below our annual guidance. Our adjusted operating margins for the year expanded to 66.9%, up over 200 basis points from 2022. We delivered $3.4 billion in adjusted net income, resulting in 17% earnings per share growth for the year. During the fourth quarter, CME Group generated more than $1.4 billion in revenue, a 19% increase from Q4 2022, with average daily volume up 17%. Market data revenue grew 9% from last year to $167 million. Expenses were very carefully managed and on an adjusted basis, were $490 million for the quarter and $393 million, excluding license fees and $16 million in cloud migration costs. CME Group had an adjusted effective tax rate of 21.7%, which resulted in adjusted net income of $865 million. Our adjusted EPS was $2.37, up 23% from the fourth quarter last year, and represented our tenth consecutive quarter of double-digit earnings growth. Capital expenditures for the fourth quarter were approximately $23 million and cash at the end of the year was $3.1 billion. CME Group declared over $3.5 billion of dividends during 2023, including the annual variable dividend of $1.9 billion, which was paid in January. Turning to 2024 guidance, we expect total adjusted operating expenses, excluding license fees but including cloud migration expenses, to be approximately $1.585 billion. Total capital expenditures net of leasehold improvement allowances are expected to be approximately $85 million, and the adjusted effective tax rate should come in between 23% and 24%. Finally, in November, we announced transaction fee adjustments, which became effective February 1st. Assuming similar trading patterns as 2023, the fee adjustments would increase futures and options transaction revenue approximately 1.5% to 2%. Taken in aggregate with the fee changes for market data and non-cash collateral, which took effect January 1st, the fee adjustments would increase total revenue by approximately 2.5% to 3% on similar activity to 2023. In summary, we are very proud of the results we were able to deliver as a firm this year, driving 11% revenue growth and 17% adjusted earnings growth from our previous record year of 2022. We'd now like to open up the call for your questions. Thank you.

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

Thanks. Good morning. Maybe, Lynne, just to start on expenses, can you talk about what the areas are for investment in 2024, and how that might be different than what we saw last year? And then also just on the Google partnership, can you update us on the progress there and maybe what you are expecting in terms of contribution as we think about 2024 and 2025 from that relationship?

Okay, sure. I'll start on the investment piece. So if you look at the guidance, we are expecting expenses to increase by $60 million year-over-year. That is inclusive of the migration spend. So of that $60 million, about $15 million is an increase in the migration expense. As a reminder, we do expect to have incremental migration expenses this year and next year before we get to cash breakeven and ultimately cash flow positive. The remaining $45 million in increase is related to core expense growth and that's in the 3% range, very similar to what we've seen historically. In terms of Google, I'll let some of my…

Dan, Sunil and Julie will.

In terms of progress on Google migration, we intend on making substantial progress with migrating clearing, business information systems and market regulatory systems to the cloud platform. Some of these regulated workloads are of course subject to have no objection approval from regulators, but we intend on making significant progress even on the data side. I'll now hand over to my colleague, Julie Winkler, who will talk about data and data product.

Thanks for the question, Dan. On the client side with Google, we've really been focused on areas that we believe are going to enhance our clients' abilities to really engage in our market and utilize these offerings. The technology with Google Cloud is something that we're able to leverage. And so we've been really focused on where we can enhance our data service business. Things like performing the trade execution analytics that we've talked about, which is something very unique in terms of our ability to use proprietary data and benchmarking. And we expect to be rolling that out here in 2024. And also a lot of interest from our clients around supporting them to help them better manage their risk. And so looking at how we do that both with data and analytics that we are providing with them. So we're on track. We've continued to roll out a number of new data services products throughout the year. And as Sunil pointed out, the speed and velocity at which we're able to deliver has certainly increased now that our core data is in the cloud.

Great. Thank you.

Thanks, Dan.

Thank you.

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

Yes, good morning, everyone. I’d like to revisit the pricing comments from your prepared remarks. It seems that a 1.5% to 2% increase on the future side aligns with a pre-inflation or high inflation scenario, possibly on the lower end. Can you elaborate on your approach to the price increase this year? While inflation still appears elevated, I’m interested in understanding the extent to which client feedback and competitive dynamics are influencing this, if at all. Thank you.

Sure, Alex. Thanks. I think we look at it in several pieces. One is the clearing and transaction fee, which did increase in the 1.5% to 2% range, but keep in mind, we do think about the different levers of pricing and how they impact different parts of our customer base. So we did increase the collateral fees this year, going from 7 basis points to 10 basis points, and we did increase the market data fees as well. So in aggregate, the total fee change will result in about 2.5% to 3% in total increase in revenue. We want to make sure we're taking that balanced approach because different fee changes, like the transaction fees will impact certain segments, whereas collateral fees will impact different segments. We're always looking to balance that impact and make sure we're not overly burdening one part of our customer base.

Fair enough. Thank you.

Thanks, Alex.

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. So CME and DTCC just launched the enhanced cross-moduling arrangement. Could you please talk about the initial feedback from your clients, and please remind us of the implications for your clients and CME longer term about this initiative? Thanks a lot.

Thanks, Owen. I'm going to turn it to my colleague, Suzanne Sprague, the President of our Clearinghouse, and she heads up our Clearing and Risk, and she can give you some fairly good color as it relates to the DTCC arrangement.

Yeah, thanks, Terry, and thanks for the question. Although it is early days of the program since the launch just a few weeks ago, we do have eight clearing members that are live with the program, and some portfolios are already seeing consistent savings of 75% to 80%. So we're happy with the uptake of the program that we've seen so far, although it is early days and we continue engaging with those clearing members to increase the onboarding and the efficiencies that they're able to achieve through their portfolio savings.

And Owen, I think just to add to what Suzanne said, as you know, and others on the line know, over the last year or so, our former colleague that headed up their business, Sean Tully, talked about the efficiencies that would go along with getting us into the offsets with DTCC and in the ranges of anywhere from 40% to 80%. And so Suzanne's numbers of 75% to 80% are on the high end of what we were originally looking for. So this is a very exciting opportunity for us and more importantly, our client base.

Very helpful. Thanks a lot.

Thank you.

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

Hi, good morning, and thanks for taking the question. I wanted to dig further into your comments, Terry, on energy and market share and sort of business shifts in that market. You call that Argus as sort of a preferred crude contract. I was hoping to get more color on crude more broadly and also what you're seeing in gas. So for crude, what are you seeing in terms of share and participation? And to what degree is the addition of Midland to the Brent marker altering behavior? And in natural gas, it seems like options in globalization seem to be the story here. Was hoping you could provide some perspective.

Sure, Ken. There’s a bit to clarify. I’ll address some of it and then ask Mr. Sammann to comment on the gas and the latter part of your energy question. Regarding our Argus contract, it's important to note that it originates from the same region where there's also a competitive contract trading. We highlight that our contract enjoys significant commercial participation, reflected by over 0.5 million open positions compared to others in the region with similar risk profiles. This is a positive indication for us. As for market share, Ken, having been around for a long time, as I mentioned earlier, when markets experience a ten-month stretch below $10 a barrel in energy, we observe fluctuations in behavior and percentage points shifting back and forth based on daily happenings. This is not surprising to us. We’ve seen this historically since acquiring the New York Mercantile Exchange. So, this low-volatility environment comes with these behaviors, and with that context in mind, I’ll ask Derek to discuss the gas and options as well, which was the other part of your inquiry.

Thank you. I want to emphasize that our WTI franchise encompasses more than just our CL contract. There are several ways we are investing in, innovating, and expanding our overall WTI portfolio in this stable and low-volatility market. One example is the crude grades contracts, which demonstrate growth with significant involvement from commercial end users. This reflects WTI's inclusion in the Brent assessment, further establishing it as a global benchmark. Additionally, we are expanding our WTI options franchise by adding weekly expirations on Mondays and Wednesdays, which has driven 35% growth in our crude and refined options business this year. We are also investing in our micro contracts, achieving an average daily volume of over 100,000 contracts with 50,000 unique traders. These products serve as an excellent entry point for new clients, many of whom have never traded an energy contract before, allowing us to onboard new customers. Overall, these initiatives within our WTI portfolio reinforce its status as the primary global benchmark and significantly contribute to the overall growth of our energy franchise heading into 2024, with energy up 21% and particularly robust options growth of 87%.

Yes.

Pivoting over to natural gas, Ken, you're right. It's a significant story, and I think when you look at the fact that the US has now become a significant, both producer and exporter of natural gas, that really has positioned Henry Hub as a central benchmark globally for LNG as natural gas continues to be consumed globally. When you look at that business over the course of last year, you've seen significant growth. Globalization, you're absolutely right, when you continue to see the growth that we've seen in 2023, we saw our European nat gas volumes up almost 50%, and we're seeing that business up almost 100% so far in the first six to seven weeks of 2024. When you look at both the commercial participation, natural gas was up 30% with our commercial participants last year. It's up 50% so far this year, and the buy-side clients was up 50% last year and 80% this year. So, it's a global story. It's a story that's being adopted by buy-side and commercial participants, and it's a global story for us. I think the last piece of that is the central role that options continues to play in markets as volatile as we have seen in natural gas. Options are the optimal tool for the way customers interact with this business. So, when we look at our nat gas options, this has set a record last year of over 150,000 contracts, up over 40%, and the vast proportion of that was on screen. And 2024 has started extremely strong with almost 300,000 contracts so far a day, and nat gas options up over 100%. So, overall, it's a globalized story. It's one where we continue to engage and one that's real to our story.

Ken, hopefully that gives you a little bit of color on the energy markets in the Gulf Coast and other places.

That was excellent. Thank you.

Thanks, Ken.

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

Thank you. Good morning, everyone. I appreciate the opportunity to ask my question. I have a two-part inquiry. First, I seek clarification on the upcoming market data price increase of 2.5% to 3%. If I exclude the collateral increase from 7% to 10%, it appears that the market data increase might be less than the increase for the RPC. I would like to understand that better. Secondly, could you discuss the impact of the DTC arrangement on incremental trading volume? Specifically, how much do you anticipate that the increased capacity for clients will translate into greater trading volume and higher rates?

Okay. Thanks, Brian. Lynne will touch on the data as the market data pricing changes that you referenced. And then I'll have Tim McCourt and probably myself touch a little bit on the trading volume as it relates to DTCC and the arrangement associated with it. Lynne?

Yeah. So the pricing changes that went into market data were in the range of 3% to 5% across the majority of our data products. The total impact is going to come down to the subscriber count, the customer and product mix, just like we see on the transaction side. But most of the products went up in that 3% to 5% range.

Does that get to your question on the data, Brian?

Yes, that answers that. Thank you.

Okay, so on the trade volume question that you had is relates to the DTCC arrangement, is that the second part?

Yes. In terms of your expectations for volume improvement, given the capacity improvement from the client base that's trading and rate interest.

We're always cautious on expectations, but let me go ahead and have Tim start a little bit with the client base on how they're reacting to it. And I think you got a little bit of a flavor for it on the previous answer that Ms. Sprague gave as it relates to the clients that are using it already getting the 75% to 80% efficiencies with their margin portfolios. But Tim, let me turn to you for some comment.

Thanks, Terry, and thanks, Brian. As Terry said, it's very difficult, almost impossible to forecast the impact on trading volumes going forward. But if we look back over the years, increasing capital savings and delivering capital efficiencies to clients has been a strong tailwind for our business in terms of increasing the ability of our clients to manage risk at CME by unlocking those capital efficiencies. And if we look at an analog, perhaps, is when we look at the portfolio margin savings or our futures and options conflicts against the cleared interest rate swap business, that has grown over the last several years to about $7 billion to $8 billion of savings per day. And we've seen commensurate growth in volume NOIs. Hard to draw a strict relationship, but tried and true is increasing capital efficiencies, increases the ability of our clients to efficiently manage their risk, provide enormous volume benefits in terms of the offsets available, and we'll continue to watch it developing, but hard to give an exact number at this point in time.

And Brian, the only thing I would add to that, you have to look at what we talked about earlier today, and you see the entire 2023, especially going into the end of Q3 and the beginning of Q4 of 2023. We saw the record open interest in our treasury complex across the curve, which is very encouraging for us. So, from our standpoint, owning a cash platform and owning the largest listed business in the world, this is very exciting for us. We've talked all along about futurization of products. You're seeing that more and more every single day, the electronification of different products. And with the growth in our rates business going into last year, I think was just another example that with the record open interest in trade coming into our treasury complex. So, from the growth, it's hard to say what the growth is coming from or what's driving it, but by owning both platforms, we get the benefits either way, and we saw the benefits really materialize on the future side in 2023, especially in Q4.

That's great perspective. Thank you.

Thank you.

Our next question is coming from the line of Benjamin Budish with Barclays. Please go ahead.

Hi, good morning, and thank you for the question. Terry, in your prepared remarks, you mentioned expanding participation among end-user clients. Could you elaborate on that a bit, particularly regarding the energy sector? Additionally, are you noticing increased activity from your current clients on the rate side? Are there also new institutions getting involved in risk management practices? Thank you.

Yeah, thanks, Benjamin. And I'll start with the rates just for a minute, and my colleagues can jump in if they'd like, especially Julie Winkler, who's in charge of our new client acquisition. But on the rate side, I think a lot of it goes to what I just said on the futurization of the marketplace and people trading more and more futures contracts versus maybe particular other venues. And that's an ebb and flow situation. So I'm not saying it's going to continue at the pace it continued in '23, and I'm not saying it's not either, though. So I like the way the trajectory is. And I think a lot of the clients, when you look at what happened with the duration risk through 2023 for a lot of different participants, they are now looking at using the marketplace, which are most deep liquid markets, which are ours, to mitigate and manage that risk. So I think we're seeing it from them. As you know, the direct clients, we can see, but some of them are coming through our major banks, so we don't know exactly who the client is to the person or the entity. But you can definitely see that people are looking at the fundamentals that are going on around the world and using our marketplace to use it. So I think that's part of the new clients. On the energy side, I think when you look at the new clients, I think you'd have to be exceptionally excited by the commercial energy participants that Derek referenced, especially in the Gulf Coast contracts. We're looking at close to 80 different commercial participants that are trading in those Argus contracts that we referenced earlier. So that's a growth for us on the energy side. So this is all part of it. So we're not just looking at retail or other proprietary trading. We're looking at true commercial participation, which is a reflection of the health of anyone's marketplace. So I think that's what's really exciting for us as we look at the new clients coming into our marketplace. And I'll ask my colleague, Ms. Winkler, to make some further comments.

Yeah. I think Terry is absolutely right. And the two segments that I would just hone in on, Benjamin, that we saw particularly double-digit growth from last year was really the buy side and the commodities, or sorry, the commercial segment as well. And so when we look at that, we saw really strong ADV from asset managers, again, double-digit, the semi-buy side clients that really are looking at our products because of the regulatory environment, the liquidity, and also the capital efficiencies that we offer. And so the products that I'd say they were most interested in and what we saw, almost half of that growth was coming from interest rates with all of the volatility and movement that we saw last year, but also a lot of interest in our commodity suite. So hedge funds, managed funds that are really looking at CME's agricultural portfolio, and also more esoteric products, things that we offer like milk and lumber, because they're looking to diversify the risk profiles and also access those uncorrelated markets. And so it's another sign of our really diverse product portfolio, meeting customer needs. On the commercial side, double-digit growth, both in terms of revenue and ADV last year. And that was really as they were looking to hedge their physical positions, manage that risk exposure, saw good uptake in some of our new industrial metals, the energy companies that we talked about before. And I think this trend speaks to the transparency, the efficiencies, and the well-regulated futures markets that we offer. And then internationally, I think, particularly in Europe, on the short-term interest rate side, we saw some really strong performance and also interest across our commodities and FX suite. So I think we have a lot to build on as we look into 2024, but very strong performance in those areas last year.

Thanks, Julie. And, Benjamin, let me end on this note as it relates to that. I think it's really important and we don't state it enough. As it relates to our rates business, especially, you look at some of the largest participants who I referenced earlier, between their activity in swaps and futures, and futures is a critically important point here, they're saving roughly $7 billion to $8 billion a day in margin efficiencies where they could deploy that capital in other activities, whether it's trading other parts of their business. That's hard to replicate. And that's a benefit to the largest clients in the world that can use that money to be deployed elsewhere. So that has grown substantially since 2015. So that's been a big growth driver for us over the last 8.5 to 9 years as well.

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

Hey, everybody. Good morning. Thanks for the question. I was hoping we could dig into the equity business a little more and specifically just talk about the competitive dynamics between you guys and Cboe's contracts. We've seen the divergence and kind of volumes in market share for a couple of quarters now. So just curious to hear what you're seeing with respect to underlying clients and what you have in the works to narrow that gap. Thanks.

Yeah, it's a good question, Alex. I'll turn it over to Mr. McCourt. He'll start and I'm going to jump in as well, and maybe Ms. Winkler also. So go ahead, Tim.

Thanks, Alex. I think before we get to the market share point, it's important to note that equity options on futures here at CME had a record 2023 doing over 1.4 million contracts and had consecutive record months in Q4 as we headed into the end of the year. And also, important to note here in January on the recent activity up over 1.5 million contracts per day. So our equity option franchise at CME is continuing to grow, but there are certainly dynamics in the marketplace around the same day expiring or zero DTE options that are changing the dynamics. But it's important to know that it is a growth versus growth story. Here at CME, our same day expiring options on the S&P 500 E-mini future are up 70% in Q4 2023 versus 2022. But it's also interesting to note they only make up about 26% of our volume in Q4 of 2023. And our open interest is up between 20% to 24% outside of zero DTE when we look over 2023 and 2024. So it's a very strong growth story here at CME. It's not only a zero DTE story. And when we look at the relative participation of our market, it is important to note that we have gained share since the low that we observed over the summer at the peak of some of the zero DTE trading, trading picking up several percentage points of share back. It's also important to note when we look at our global offering nearly 24 hours a day, we remain the leader across the globe, particularly in non-US trading hours, where that relationship is practically inverted against SPX and E-mini options remain the product of choice for those investors outside the US and outside of the normal US trading day. So you really have to look at all the facets of our business which continue to grow and continue to serve a vital part of risk management for our clients and the marketplace.

To build on what my colleague mentioned, it's crucial to highlight that, as a risk management institution, we are focused on significant amounts of open interest tied to portfolio margin, which cannot be duplicated by other entities. We are truly excited about our equity franchise. While we acknowledge the growth in zero DTEs, it's important to note that our zero DTEs expire into futures, whereas theirs expire into cash. This distinction seems to be more appealing to retail participants compared to professional ones. Therefore, we are actively exploring various options as the landscape continues to change.

Very helpful. Thank you.

Thank you.

Our next question is coming from the line of Kyle Voigt with KBW. Please go ahead.

Hi. Good morning. So last week you announced that you'll be rolling out US Corporate Bond Index futures this summer. I think other venues have attempted to launch credit index futures in the past, and it historically has proven difficult for those products to gain sufficient adoption. Just wondering if you could go into some detail about why you think the time is right for this product, why your effort may be different here, and then also provide some color on customer demand that you're seeing for the product as well?

Thanks, Kyle. Tim?

Thanks, Terry. Thanks, Kyle. Great question. We're pleased to announce earlier this month that we entered into the IPO arrangement with Bloomberg to offer futures on their corporate bond futures for both high yield and investment grade with futures coming online summer of 2024. Still all the details are coming, but it's important to note, I think when we look at credit, is in this market with the increasing rate environment and the increasing dynamics and relationships diverging between equities and rates market, Introducing credit products to the market makes complete sense to offer another tool to our clients to manage the risk as it manifests in all parts of their portfolio, whether it be equity, rates, or single name credit. I think it's also interesting to note is that when we look at this universe in general and partner with Bloomberg, we are also tapping into a well-established ecosystem around these indices around other exchange traded products and structured products that are available. So this is a very welcome tool for clients. We've heard overwhelming feedback over the last several months during the validation process that this will be additive. It will help them in other parts of the credit market. And we're looking forward to bringing these products to market, work with our participants to make sure that they continue to grow. And I would just encourage you to stay tuned for more details as we approach this.

And so Kyle, let me make a few more points on this. I think you said it in your question, timing. Timing is everything as it relates to certain products and certain product launches. So I don't think a lot of people would have believed that the short end of the curve was going to continue to be the attraction point for as long as it has been to date. We listed a T-Bill contract where someone would say, well, geez, we haven't had that since 1980 or 1981. Why did you bring that back out? Well, the cost for us to do that is very de minimis. And we can get these contracts out there quickly. And if people need to manage risk, even if it's small at that current period of time, it's a good thing for CME. So I think when you look at the corporate bond market, timing is everything. And we're not trying to nail the timing perfectly, but we want to make sure that these products are available if in fact people need to manage their risk more closely today than they did when others listed these contracts. So you never know and again, these are not big lifts for CME. We can continue to do it, but we also have other value-added propositions that some others don't when we list new contracts.

Great. Thank you.

Thank you.

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

Hi, good morning. Thanks for taking the question. I wanted to ask on post-trade services, the JV that you have with S&P, OSTTRA. It's been nearly three years since the OSTTRA JV was created. I was hoping you could speak to the growth that you've seen, how well penetrated is the offering today, and speak to where you see some of the biggest growth opportunities ahead in post-trade services and some of the steps you guys are taking to accelerate growth? And then also, if you could touch on the competitive backdrop, that would just be interesting to hear. Some others are looking to take share in processing and risk management.

It's a great question, Michael. We haven't talked too much about that. So I appreciate the opportunity to discuss it real quick on the call. I'm going to turn it to Lynne, but I'm going to make a few comments as it relates to it as well because I think it goes into the strategy we originally acquired NEX in the cash markets and also the post-trade services that came with it and what our thought process was. So I'll save those comments and I'll let Lynne go first.

Yeah. So, thanks Mike. I think one of the things that we've been excited about is the JV that we were able to establish with originally IHS and now S&P. It was bringing together additional assets in the space to bring scale to that joint venture. So being able to cover multiple asset classes from FX, interest rates, credit, being able to have the services span across that back office of the customer base has been really important and is a good foundation to grow from. So, I think we've been excited about the prospects there. There certainly are always competitors in that space and people looking at that space. It's one that continues to need improvement in terms of where banks are looking for efficiencies. We've talked a lot about capital efficiencies. This is an area where it is important to the customers to have that service and have consistent approach there. So I think it's one where we continue to look for opportunities to expand the reach of that joint venture now that it's a trusted provider across a lot of the major asset classes.

I have nothing more to add than that because I think Lynne summed it up. That's where I was going to go with the benefits of once we acquired the business, getting focused on the cash markets to complement our futures markets was something we're really excited about with NEX. And then when you look at the post-trade services and now having the JV, I think that was nothing but a bonus for us to be able to do that with IHS and then ultimately with our partner at S&P Global. So I think Lynne summed it up quite well.

Great, thank you.

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

Hi guys. Thanks for taking my question. There's quite a bit been written about the hedge fund basis trade recently, and I was wondering if you could talk a little bit more about, I guess how you think that that particular trade has scaled, how it's impacted your business, and what you would expect if or when it starts to unwind as the Fed shifts from QT to QE at some point? Just some thoughts on that would be really useful. Thank you.

Thanks, Simon. Tim?

Great. Thanks, Simon. As we've talked about over the last several months, the basis trade remains an important part of keeping these markets in line and the efficient transfer of risk between the related markets of cash and futures. It's something that gets a lot of talk, I think, just given the increase in the size of that trade, but it's also important to remember when we look at how that trade has grown and the participants on that trade with respect to increasing the size over the last several months and years is, it is proportionate to the debt outstanding and the debt issuance of the market. So, it's scaling in sort of a linear fashion to that. And it's important to put it in context. Just can't discreetly look at the size of the trade and compare it to something over a decade ago without the larger context of what's going on with respect to the debt market issuance in the treasury markets themselves. So it's something that remains efficient for the marketplace. It's an important part of the risk management tool. And something also important to remind folks in this discourse on this topic is that we do have our own margin and risk management system with respect to the treasury futures side that remains as it is regardless of whether you're trading against the basis or trading in outright. We have all our risk management in place. So I think it's just important for people to understand when they're looking at the basis trade to really understand the benefits it provides to the market and make sure we're accurately talking about the future side and the cash side. But I think it's something that will continue. And it's, as similar to my other comments, very hard to speculate on what might happen in the event of an unwind or as we continue to move further into the QT cycle in the rates environment. That's something that, as Terry said in his opening remark, it's more important that in these uncertain times that we are here to help clients manage that risk, and we'll do that regardless of what's happening in any of the one specific asset classes but it's something that we'll have to make sure we're continuing to serve our clients’ needs. That's what's important going forward rather than necessarily trying to quantify an impact from a volume perspective.

Thanks, Jim. Thanks, Simon.

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

Yeah, good morning, everyone. Thanks for the question. I wanted to ask on energy, which obviously globalization is having a positive impact here, and I think longer-term energy transition will be structural catalysts. Kind of curious how you're thinking about energy transition impacting other asset classes, namely whether there's an impact you see in ags and metals and then the growth opportunity moving forward?

You got it, Derek?

Yeah. So I think we've talked about this in the past. We're seeing the lines of distinction blurring between energy traders, ag traders, and metal traders. So when you look at kind of the growth of the commodities portfolio, and Julie touched on this a little bit earlier, overall, the portfolio grew very strongly last year, metals up 15%, ags up 17%. So it's not just a function of crossing asset class lines, it's functionalizing adoption of our benchmarks as well. We're seeing our biggest grains traders move into energy. We're seeing our biggest energy producers move out into things like soybean oil and voluntary credit market. So that's the benefit of having a single platform, where we have been able to put up record volumes in participation in our commodities portfolio as a whole. Julie also referenced earlier the strong participation we've seen from buy-side and commercial customers across ags, energy, and metals. We saw buy-side client growth last year, up 30%. Commercials across all energy, ags, and metals were up 15%. So I think it's a story of making sure, Terry mentioned this point earlier, having the right products in the right market circumstances. We have the benchmarks. We have the liquidity, futures, and options, leading technology, best-in-class capital efficiencies across these asset classes. And I think it's generated the results that we put forward.

Thanks, Chris.

Thanks, Chris.

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

Good morning everyone. My question is on the November pricing schedule update. You didn't increase pricing on a rate. So we're curious to why you didn't touch rates.

Let me elaborate on that a bit, Craig, because I want to clarify the situation. It's important to keep in mind that we just completed a significant transition from LIBOR to SOFR. We felt it was essential to allow the market to continue developing, even though we've become the primary platform for SOFR. I believe we are at about 100% of the market, with around 99.9% now at CME. From my perspective, as I assess pricing with my team and evaluate some of the rates businesses, it was crucial to let that benchmark continue to develop. I didn't think it was the right time to raise rates on mature products while we're navigating a period where risk management remains vital. As I mentioned earlier, we've seen a substantial shift from cash into futures, and I don't want to disrupt that momentum. I want to allow it to keep progressing. Ultimately, my considerations with my team regarding the pricing of the rates revolved around the maturity of the SOFR futures contract and its associated options.

I would like to add that, Craig, as we incentivized the SOFR product over the last couple of years, we've experienced some natural pricing increases as those incentives have phased out. These increases were not directly tied to exact pricing changes but were related to the incentives that have gradually diminished as the product has matured.

Does that give you a little color why we did it, Craig?

No, that's perfect. Thank you, Terry.

Thank you. Appreciate it. Thank you, sir.

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

Hey, hello again. I think we have a little bit of extra time. Just a couple of modeling cleanup questions here. One, just to come back to the pricing question from Craig. Can you actually, from a modeling perspective, help us where we would see the biggest impact on RPC? I know we can probably look at your pricing schedule, but it's thousands of lines. And then I have another one after that.

Okay. Lynne?

Yeah. It's fairly well spread. I would say equities in agriculture probably were a bit higher than some of the other asset classes, but it's fairly well spread with the exception of rates, which we just discussed.

Great. Thank you. And then my other one, I don't think anybody has asked yet, but can you just give us an update on balances in the Clearinghouse cash and then obviously non-cash collateral, the return you had, and then maybe related to that, when I look at some of the data that we track on that, it seems like the cash balances have been super consistent over the last one, two quarters. So just wondering if there's anything you would point to why we may have found a floor to those declines that we had seen in cash balances over the last couple of years? Thanks.

I'm going to jump in before Lynne does and I'm going to ask Suzanne too also, you can go ahead. But I think what's interesting is, Alex, on that point we've seen some really massive fluctuations in that cash balances that go up and down in a very short period of time. I mean, I'm talking about days. So it's really hard to say if there's a floor on that or not or if there's a ceiling on that or not because it does fluctuate and I think after you saw some of the recent numbers as of yesterday, I think it caught some people offside a little bit and that we don't know what that means to our cash balance at the Fed or not. So I think it's quite fascinating what's going on right now and I think that's going to be a bit of a pattern this year. So I don't want to draw too much conclusions on where that balance is going to be at or not but it's really going to be hard for us to predict what our floor could possibly be on it. Go ahead, Lynne.

Yeah and just to provide you a little more of the data, Alex. So for Q3 our average cash balances were $91 billion. In Q4, the average was $75 billion, and we've seen that $75 billion continue in the early parts of Q1. The earnings on the cash balance were consistent with last quarter at about 36 basis points. On the non-cash side, in Q3 we were at $137 billion on average. In Q4, that went up to $153 billion. Just a reminder that was at 7 basis points in Q4 and increased to 10 basis points here in Q1. In the early part of Q1 through February 6, our average is $160 billion on that fee eligible non-cash.

Fantastic. Thanks for the follow-up.

Thanks, Alex.

And our last question in queue is a follow-up. It's coming from Owen Lau with Oppenheimer. Please go ahead.

Hi, thank you for taking my follow-up. So it has been more than one month after the launch of spot Bitcoin ETF. Could you please talk about how it has impacted CME Bitcoin futures and futures ETF? Do you think it's a net positive for CME? Just want to get your thoughts on this space. Thanks a lot.

Thanks, John. Tim can comment and I won't be able to help myself, I'll make a comment as well.

Thanks, Owen, for the question. Certainly we've seen finally the long awaited approval of the spot-based ETFs on Bitcoin. And it's certainly an interesting and positive development for the ecosystem more broadly. We're hearing from customers, our futures remain a central tool for the market makers of that ETF for those who are looking to create or redeem against the futures instead of the cash process. So it's something that we've also seen strong growth both on open interest and in volume of our complex in response to the run-up that's also remained here into February. To put that in perspective, January was our best month ever in terms of average daily open interest, tapping four consecutive months of average daily open interest all-time highs, where the average daily open interest reached a record of almost 23,600 contracts, which is the equivalent of about $5.1 billion US dollars. But also on the volume side, the futures suite reached an all-time high of about 67,000 contracts or almost $6 billion per day in January, and our micro suite for the crypto products grew four times, a four-fold increase in September, all in response to the market dynamics around the ramp to launch and the subsequent trading activity of the launch of the spot Bitcoin ETF. We also remain the top Bitcoin futures exchange by open interest, and we expect this ecosystem to continue to grow as we see the interrelated products being adopted by the market and CME Bitcoin futures and our Bitcoin reference rate will remain at the center of price discovery for this continuing growing ecosystem.

And, Owen, the only thing I would add to that, we've heard for a lot of years, what does it mean when an ETF versus a future? Are they competitive in certain asset classes? All we have seen is the futures continue to grow as they list ETFs, as people need to do risk management, as other people are taking passive interest in some of these ETFs. So I think the ecosystem is good as it continues to grow. Tim just outlined some of the numbers. So I don't see this any different than some of the growth of our other products. I actually am very encouraged by this.

Thanks a lot.

Thank you.

We have no further questions. I'd like to turn it back over to management for closing remarks.

We want to thank you all very much for covering CME. We're excited by the quarter. We look forward to talking with you next quarter. We think it's going to be a busy year and look forward to answering any other questions you have for us on follow-ups as we go forward. Thank you.

That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.