Cme Group Inc. Q2 FY2025 Earnings Call

Welcome to the CME Group Second Quarter 2025 Earnings Call. I would now like to turn the call over to Adam Minick. Please go ahead.

Good morning, and I hope you're all doing well today. We released our executive commentary earlier this morning, which provides extensive details on the second quarter 2025, which we will be discussing on this call. I'll 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, in the earnings release, you will see a reconciliation between GAAP and non-GAAP measures following the financial statements. With that, I'll turn the call over to Terry.

Thanks, Adam, and thank you all for joining us this morning. I'm going to make a few brief comments about our quarter and the overall environment. Following that, Lynne will provide an overview of our second quarter results. In addition to Lynne, as usual, we have other members of our management team present to answer questions after the prepared remarks. Our record-breaking performance in the second quarter demonstrated the growing need for risk management globally. For the first time in CME Group's history, average daily volume exceeded 30 million contracts for this quarter. Second quarter average daily volume of 30.2 million contracts represented an increase of 16% compared to the same period last year and included all-time records in each month of the quarter. In an environment of heightened headline risk and macro uncertainties, clients are increasingly choosing the transparency and capital efficiency of our essentially cleared benchmark products as they look to manage and mitigate risk. The strong growth this quarter was broad-based, with year-over-year volume growth in all 6 asset classes, including all-time quarterly volume records in interest rates, agricultural commodities and metals. In aggregate, our financial products volume grew by 17%, and our commodity sector volume grew by 15%. This continues to be a risk-on environment as evidenced by the continued growth in open interest or positions open on the books at CME, up by 7% from the end of Q2 2024 and 10% from year-end 2024. We are also seeing strong levels of large open interest holders, with new records in both interest rates and crypto futures set earlier this month. We had our highest-ever quarterly volume from our international business, which averaged 9.2 million contracts per day, up 18% from the prior year. This was led by a record 6.7 million average daily volume from EMEA, which was up 15%; and a record 2.2 million contracts per day from APAC, or up 30%. This record international volume was driven by growth across all asset classes and customer segments and reflects our deep integration into global markets. In recent quarters, we've talked extensively about our growing focus on retail traders and highlighted some of the large retail broker partners that have joined our multi-asset class marketplace to meet the increasing demand from this particular segment. In the second quarter, over 90,000 new retail traders participated in our markets for the first time, a 56% increase versus the same period last year. These new customers contributed to our Micro's ADV record of 4.1 million contracts in Q2 and demonstrated the appeal of our products to a broader base of users. The Micro E-mini NASDAQ 100 futures contributed 1.7 million of those 4.1 million contracts. Year-to-date, NASDAQ 100 futures and options trading volume at CME Group has climbed to more than 2.5 million contracts per day, or up 22% versus last year. Also, we're pleased that yesterday, we were able to announce a 10-year extension of CME Group's exclusive license to offer futures and options on futures based on the NASDAQ 100 and other NASDAQ indexes. This license will go through 2039. This extension ensures that our customers will continue to have the ability to trade NASDAQ equity index products alongside our S&P Dow Jones and FTSE Russell products and benefit from the related capital and operational efficiencies for years to come. In addition to the impressive volume records, we delivered record financial results for the second consecutive quarter. I'll now turn the call over to Lynne to review our financial results in more detail and look forward to your questions.

Thanks, Terry, and thank you all for joining us this morning. During the second quarter, CME Group generated revenue of $1.7 billion, up 10% from the second quarter in 2024. The average rate per contract for the quarter was $0.69, resulting in the highest quarterly clearing and transaction fees in our history of $1.4 billion, up 11% year-over-year. Market Data revenue also reached a record level of 13% to $198 million. Continued strong cost discipline led to adjusted expenses of $491 million for the quarter and $395 million, excluding license fees. Our adjusted operating income came in at a record $1.2 billion, up 14% year-over-year. Our adjusted operating margin for the quarter was 71%, up from 69.1% in the same period last year. CME Group had an adjusted effective tax rate of 23.3%. Driven by the strong demand for our risk management products, we delivered the highest quarterly adjusted net income and adjusted diluted earnings per share in our history at $1.1 billion and $2.96 per share, respectively, both up 16% from the second quarter last year. This represents an adjusted net income margin for the quarter of 64%. Capital expenditures for the second quarter were approximately $19 million, and cash at the end of the quarter was $2.2 billion. CME Group paid dividends of $455 million in the second quarter and approximately $3 billion over the first half of the year. Turning to guidance. We now expect total adjusted operating expenses for the year, excluding license fees, to be approximately $1.635 billion. That is $15 million below our prior guidance and represents 3% growth from last year's adjusted expense levels. All other guidance remains unchanged. We're very proud to deliver the highest quarterly volume, revenue, operating income and diluted earnings per share in our history. These strong results are the continuation of the growth and demand for our products over the last several years. Following 3 consecutive years of record annual earnings and double-digit earnings growth, the need for our products has driven 14% earnings growth in the first half of 2025. We'd now like to open the call for your questions. Thank you.

Our first question will come from Owen Lau with Oppenheimer.

So trading volume and hedging activities were very strong in the first half. CME had a record quarter again. But could you please talk about the macro backdrop for the second half? What are the key drivers that can sustain these strong hedging activities going into the second half? Is it going to be interest rates, commodities, crypto or something else?

So Owen, it's Terry Duffy. Your question is about the second half of the year, I assume, right, in total, not just quarter? Correct. Second half, correct. Yes. And so it's obviously really hard to predict volumes. We've always said that since the day we took this company public, it's difficult to predict. But we have seen, without a doubt, many things going around globally that need to be managed and mitigated through risk management. The markets have been massively resilient through a lot of the policies that have been going through, whether it's on tariffs or other issues in the United States. But it doesn't negate the fact that we're sitting at record levels of debt, not only here in the United States. We're sitting at increasing levels of debt throughout Europe now. I just you saw the other day where the U.K. government had to issue more debt to continue to run its country. It is at levels that I think are obviously unprecedented. And I think that people are going to need to manage and mitigate that risk. The question is, well, how does that transition into volume? It's really hard to predict. But I think that unless I missed something in the news, there's still massive unrest between Russia and Ukraine. There's still massive unrest between Israel and Palestine in the West Bank there. And so there are so many different things going on right now politically that could have impacts on multiple different asset classes. We feel very strongly that we can be here to help mitigate and manage that risk. Now we're not hoping for any disasters. I'm only pointing out factual things that are in the news and that are fundamentally math problems such as debt and issuance going on right now. So I don't know how that translates into volume, but I don't know how it does.

Our next question comes from Brian Bedell with Deutsche Bank.

If I could combine two topics, I'd like to focus on retail and the crypto ecosystem. Terry, you've discussed the emergence of retail and your optimistic outlook on its growth as a larger client base. Can you elaborate on the recent uptake? You mentioned gaining 90,000 new customers—how are you tracking that? Are these new retail traders coming primarily from online brokers? Additionally, how do you anticipate they will engage with different asset classes within the CME ecosystem, particularly equities and crypto? Moving on to the crypto ecosystem, how do you see it evolving over the next few years? What role do you envision for CME in that landscape? Could that involve listing perpetual futures, engaging in acquisitions in the tokenized area, or developing a tokenized capability at CME, if that aligns with your vision?

Thank you for your two-part question, Brian. I appreciate it. It felt like a bit more than two parts, but that's alright. Let me address it and I'll ask my team to contribute where necessary as they are noting some of your points. Julie and Tim McCourt will join in as well, and perhaps others. First, in my prepared remarks, I mentioned 90,000 new users for the first time, which is unprecedented in my experience here. This represents a 56% increase, which is very exciting from a retail growth perspective. I don’t think this trend is going to reverse. I've mentioned before to you and the other analysts that these users want to access markets, and we will ensure they have that access. I am very optimistic about this segment. I'm not in the business of predicting market directions, so I won't do that. However, I believe people now have access to markets that was previously unavailable, and I don’t see that trend slowing down. It will likely accelerate for many years as more people engage with different markets. Regarding your question about different asset classes, people tend to move from one asset class to another over time. As you know, when one asset class garners a lot of attention, many traders will follow. Currently, there is significant interest in crypto, and that’s reflected in the growth we’re witnessing. We also noted a considerable attraction to gold when its price reached $3,500 an ounce a few months ago, which is not surprising. Similarly, when crude oil prices rose to $125 a barrel a few years back, there was an influx of interest in that trade. There isn't a single dominant asset class, which is one of the advantages of CME; we offer a variety of classes that adapt to current market interests. People can now switch between asset classes quickly and easily, something they couldn't do 10 or 20 years ago, depending on the fundamentals at play. Your other question was about our continued engagement in crypto. Right now, I would say we are not a first mover in this space but rather a fast follower, and we have a lot to offer in our crypto franchise. Many individuals prefer the regulated platform that CME provides for trading crypto, as it gives them confidence. This is likely why we are seeing significant growth from more mainstream participants in today’s financial system who are using CME's reference prices based on our futures contracts. We will keep participating in that market. As for perpetual contracts, which I believe was another part of your question, they are not legal in the United States, though they do exist in Europe. We will need to see how regulations evolve regarding perpetuals. Certain products don’t lend themselves well to being perpetual. Primarily, deliverable products are not suitable for perpetual contracts. Cash settled products, such as those in the crypto markets, might work better as a perpetual-type contract, but many deliverable products simply wouldn’t manage risk effectively in that way. In energy and rates, where physical delivery is essential for risk management, perpetual contracts are not a viable option. I think the discussion on this will continue as we await regulatory developments. Perhaps my team would like to add more insights, Julie or...

Yes. I mean, Brian, thanks for the call-out on the retail business. I think I'll just double-click a little bit with some additional stats to support the points that Terry was making earlier. This was another record for the retail segment. We certainly did see an extremely robust entry of new traders to that 90,000 that we talked about earlier. And this is now our fifth consecutive quarter of double-digit retail client acquisition growth. And what has been fundamental across this is just that 3-pillar strategy that we've talked about on previous calls, which is partnering with those new-to-futures brokers that you referenced; expanding market access, and that is because of our diverse product speed; and also enhancing our trader education. So a few other things: I mean total participation across our marketplace for retail saw a significant 16% increase this quarter as well. And what was also great to see was overall growth across all major regions. So we saw North American leading that with a 19% increase in total participants, a very healthy growth coming out of EMEA as well as APAC. So those strategic partnerships with those new-to-future brokers have been driving, I would say, instrumental in driving growth as well. Yet if we look across our top 25 partners, we are seeing strong performance throughout all those partners. They are a key part of how we are able to continue to grow the complex and reach retail traders. And on the product side, we've mentioned the Micro record earlier, certainly, 4.1 million across the whole suite. 3.6 million of that in ADV was from equities. But I will also call out gold, which was up over 37%. Among retail, crypto with Micro Bitcoin, up 94%; Micro Ether, up 212%. So we're seeing that retail traders are accessing far more than just our Micro equity suite, which is great. And we also saw a nice jump in our rate per contract. We were up 7% from Q1 to $0.349. So we're happy with where things are at and clearly highly focused on the educational aspects, what we're doing with our brokers as well. We held over 100 client events just in Q2 to help educate traders. So we feel pretty good about the outlook going forward in the second half of the year.

Thanks, Julie. I'm going to ask Tim real quick to comment on crypto or anything else that Brian referenced, and then we'll get on to the next question.

Thank you, Terry, and thank you, Brian, for the question. I want to highlight that we saw about 190,000 contracts traded, which is an increase of over 130% compared to last year. The momentum continues in July, as we've been averaging nearly 260,000 contracts per day in our crypto segment, representing over $12 billion in notional open interest. The total notional has now exceeded $26 billion, with approximately 232,000 contracts in July. I also want to emphasize Terry's previous point about our impressive record of nearly 800 large traders in the complex. The strong momentum is persisting, and we look forward to meeting the needs of our clients in the cryptocurrency sector as one of the most trusted exchanges.

Our next question comes from Chris Allen with Citi.

I wanted to ask how you guys are thinking about capital deployment here, just given the level of cash balances sitting on the balance sheet right now and then the closing last year in the back half of the year. How are you thinking about prioritizing buybacks versus dividends, just given where the stock is? Any thoughts on inorganic growth opportunities in the current environment?

Thanks, Chris. I got a little siren in the background here in Chicago. Sorry about that. But I think we caught your question. I'll ask Lynne, if you heard it, to go ahead and respond to it.

Yes, of course. Thanks, Chris. I think the way we're thinking about capital deployment has not changed. Really, since we announced the buyback program, we've discussed that that's going to be an opportunistic program. So we still have our variable dividend structure and the ability to return cash through that valve, and we have the addition of the share repurchase that we can look to utilize if we see some disconnects in terms of trading versus performance. So I think that's going to be our approach when we think of that mix, and it will be dependent on market activity. On the inorganic side, as you know, we always get approached, just given our capital structure and our size, kind of ability to participate in those types of activities. It is always difficult in the exchange space, particularly in kind of international M&A. But I would say we look just as much as we always have. We just tend to be a bit more choosy in terms of when we pull that trigger, but we may look at other ways to execute on growth initiatives, things like the joint ventures we've executed or things like our commercial agreement and the extension with NASDAQ yesterday that you saw. So we look at growth opportunities, not just in the M&A lens but all different types of structures.

Our next question comes from Craig Siegenthaler with Bank of America.

This is Eli Abboud on for Craig. Can you discuss the impact of tariffs on your physical commodities business? Specifically, has the growing basis between your products and some of the European alternatives affected trading, particularly in the commercial channel?

Yes. Thank you for the question. I'll ask Derek Sammann, who heads up that part of our business for his take and what he's seeing in over there.

Yes, thank you for the question. Currently, there is significant uncertainty globally, including tariff-related issues and geopolitical tensions like unrest in the Middle East and the situation between Ukraine and Russia. These factors are prompting a reshaping of many global supply chains. With the U.S. now exporting unprecedented levels of energy, we are witnessing record outcomes not just for the first half of this year in various commodity sectors including agriculture, energy, and metals, but also record revenues. When we examine the specific impacts of tariffs, we see two main effects. First, the tariffs are causing both short-term and long-term disruptions in the markets, creating a cost basis difference that requires risk management. Our volume and engagement have surged across all client segments, with activity in the Asia-Pacific region up nearly 40% and in Europe, the Middle East, and Africa up over 22% this year. We experienced significant activity when the tariffs were first announced in April, which has continued into records in metals and energy by June, especially noted in the options market. The tariffs are also creating a price differential between our futures markets and the cash markets, known as a basis, which is reflected in higher levels of exchange of physical transactions. This introduces volatility in managing prices between physical delivery contracts and futures. We're witnessing increased activity not only from institutional clients in the commercial sector but also opportunities arise for participants looking to engage with these price movements. As mentioned earlier, we see record participation in gold trading, including significant interest in our gold Micros from the retail community. This presents both risks for some clients and opportunities for others, and we are here to help manage that risk. Our focus remains on serving customers across various geographies and client segments. Overall, in the physical commodities markets, we are observing a heightened risk-on environment and a record level of activity this quarter and in the first half of this year.

Our next question comes from Dan Fannon with Jefferies.

So given all the records that you guys have had in the first half of the year, curious what drove the expense guide takedown? So in terms of priorities, Lynne, is this just timing in terms of spend? Or are there other changes in terms of expense outlook that you guys are making proactively?

Yes. Thanks, Dan. I would say there's a couple of things that led to the change in guidance. One was the refinement of our views on the spending on the Google migration. So we have been looking to optimize that spend. And as we're getting kind of more applications into that environment, we're finding ways to minimize the incremental spend. So certainly, just a refinement on kind of the additional expense load from new applications moving and also a refinement of the model in terms of timing and level of increased spend from new things that we expect to come on over the course of the year. The other area I would point out is we are coming in a bit lighter on the professional services thus far this year. So we're using a bit less of consulting help, not just on the migration project, but overall across the firm. So those 2 items are leading to that $15 million change in guidance.

Our next question comes from Alex Kramm with UBS.

Two of the, I guess, newer buzzwords or topics over the last few months have been stablecoins and tokenization. I think Brian actually mentioned tokenization in his question. I don't think you really responded to that. But not sure if I have a really smart question on the topics, but just wondering from your perspective, where you're spending your time. Where do you see opportunities on both of those issues? And are there any potential risks as well that you see here? Any efficiencies you could gain as well, sorry?

Yes. Alex, thank you. The risks and benefits, will be cautious not to speculate on those, but I do want to give you an update on where we're at. As you know, we put out a press release as it relates to some of the stablecoins that we're looking to implement. So I'll ask Suzanne Sprague, who's been spearheading that on behalf of the company, where we're at and how it's progressing. So Suzanne?

Yes, thank you, Terry, and thank you for the question, Alex. Our main focus is on our partnership with Google. Earlier this year, we announced the Google Cloud Universal Ledger partnership initiative, which aims to bring tokenization technology to market for the 24/7 movement of value. We are primarily considering tokenizing cash and other noncash assets for our current ecosystem, rather than starting with the clearing space. We have now entered the second phase of our testing efforts, concentrating on our relationship with settlement banks and will eventually extend to our clearing members and clients. We are optimistic about launching a solution in 2026. At this stage, we haven't finalized the specific use case for the launch, but we recognize the growing momentum in tokenization and believe that the ability to move value around the clock will enhance efficiencies in our ecosystem, which we continually strive to improve.

Yes. And Alex, just to add and not that I need to because Suzanne said it, but I don't want to be overlooked. The word efficiency is critical as it relates to our efforts here on stablecoins and tokenization if we go down that path for us to create additional efficiencies. As you know, we've created capital efficiencies, but we also need to create other efficiencies, and we will continue to do so. And we believe with our multi-asset class exchange with the benefits that we have already, this could increase our value to our clients on a stablecoin, especially as it relates to risk management and tokenizing some of the cash. So we're very excited about this. But we will do it in a way that makes sense and, for the long run, not just to get something pushed out there for the short term.

Our next question comes from Ken Worthington with JPMorgan.

CME introduced new cash collateral requirements in the quarter or that got implemented early in the quarter. To what extent did the new requirements contribute to results this quarter? And I believe there was an extra 10-basis-point charge for noncash collateral if certain minimums weren't maintained. To what extent did the 10 basis points contribute as well? And then can you just give us average cash and noncash collateral balances for the quarter, please?

Thanks, Ken. Lynne and Suzanne, we'll have you address that.

Yes. So Ken, you're right. The new soft minimum went into effect on April 1. One thing to keep in mind, obviously, at the beginning of April and coming into this quarter, there's also a lot of volatility coming into effect at the same time that this new policy went into place. So we've seen a couple of things. One, the overall level of collateral that's been posted increased pretty significantly between first quarter and second quarter. So our total collateral posted this quarter averaged $316 billion. That was up from about $290 billion last quarter. Of that, about $133 billion was in cash, and $145 billion was in noncash collateral. So of the required amount, you had almost 48% posted in cash. I would note that the floor or the soft minimum was placed at 30%, and we obviously saw a lot higher than that this quarter. In times of high volatility, it's not unusual, and Suzanne can comment on this maybe a bit more, for us to see more cash posted at the clearinghouse. So some of the shift that we saw and that increase in cash balance likely was the result of that volatility. And as we progress through the year, as our customers get more accustomed to that soft minimum, we may see more of a rightsizing closer to that 30% target.

Yes. I think it's hard to anticipate for the remainder of the year, given all the variables we've talked about already that contribute to uncertainty in the environment. But generally, in periods of higher volatility and more uncertainty, people do stay more liquid. So I think that does explain why we continue to see those elevated levels even now that we've backed off some of the earlier volatility in April.

Our next question comes from Patrick Moley with Piper Sandler.

So I had one on the trial that's currently ongoing with your former floor traders. The damages that the claims are seeking at least in the media seem to be rather large, $1 billion to $2 billion-plus. So to the extent that you're able to comment on it, how are you thinking about this trial, your ability to win? And how should investors think about your reserving for any potential damages and whether that's had any impact on your capital return appetite in the near term?

Thank you for your question, Patrick. I appreciate it, but we cannot comment on pending litigation. As you mentioned, we are currently in the midst of this trial, so it's too early to speculate on what actions we might take. From the start, we have indicated that we have not set aside any reserves for this matter, and that remains our position. I won't be able to provide any further information regarding the trial.

Our next question comes from Michael Cyprys with Morgan Stanley.

I have a question about 24/7 trading. I'm interested in your thoughts on the main challenges preventing its implementation in the market. Could you discuss some strategies you might adopt to address these issues, particularly regarding stablecoins? Additionally, could you explain how you believe stablecoins could facilitate 24/7 trading? Also, please remind us how significant extended trading or global trading hours are, especially as we consider the potential scale and demand for 24/7 trading over time. I'm eager to hear any insights on how you envision demand and use cases evolving for 24/7 trading.

Michael, it's Terry Duffy. I want to make a few comments. We are speculating a bit about the demand for 24/7 trading during hours when markets are closed. First, there is a cost for firms to maintain staffing for continuous trading, especially with margin products. It will be a challenging decision for these firms to determine whether it's worth the expense based on demand. I personally believe that global 24/7 trading will eventually occur, but I'm unsure about the timing or which asset classes will be involved—this could be in 2, 10, or even 20 years. The evolution of markets suggests it is likely, but some products might not be suitable for 24/7 trading due to government regulations. You might see more continuous trading in areas like crypto, but it's uncertain for other markets like interest rates or foreign exchange, as central banks may have different views. Many stakeholders will need to contribute to the decision on what they believe is advantageous. Therefore, while I think certain products will accommodate this model and others won't, the timing remains unclear. Anyone on my team who has a different perspective, I’d like to hear it. That's our outlook, Michael. You're correct about the demand, but the costs associated with fulfilling that demand will need careful consideration. If demand is high enough, it will justify the costs, but if not, firms will likely avoid it. Ultimately, I see this as a situation driven more by specific asset classes.

Any particular asset classes you think this could be more conducive for and any other hurdles beyond the demand side?

Yes. I think I said it already. I think crypto will be the asset class that's already basically there today. The question is, do crypto futures, on a regulated platform, do they go there or not? Again, I don't know the answer to that. But right now, the cash market, as we all know, it goes 24/7 today. So again, that would be the asset class that appears headed in that direction.

Our next question comes from Kyle Voigt with KBW.

Just curious if we could get an update on FX Spot+ and how the client uptake has been since it launched in early second quarter. I know early days, but any sizing of how additive it's been to the broader FX franchise thus far and how you'd frame the opportunity from here.

Thanks, Kyle. I'll ask Mr. McCourt to make a comment on FX Spot+. Tim?

Yes. Thanks, Terry. And Kyle, thanks for the question. FX Spot+ is something that we introduced back in April. That is the combination, from a technology perspective, of the spot and futures FX market, and it's really gone exceedingly well in the rollout. So when we look at some of the notable metrics of the Spot+ offering, we see single-day volume of $2.7 billion, which is great for a contract that's only about 3 months old or an offering only 3 months old. But I think what's more impressively noted is that nearly 50 entities have actively traded on this new marketplace including a few dozen banks that have not previously interacted with our FX futures market. So that remains a central hypothesis of this offering that if we can bring new participants through FX Spot+ to enjoy the benefits of both liquidity pools on the spot and futures side and avail futures-based liquidity where CME Group continues to be a leader alongside our primary market designation in the spot market, that's a powerful combination for the marketplace and our clients. It's something that we also think, to point out, while still early days, we're very pleased with the market quality this has been able to deliver, where we have been able to improve the competitiveness and the market quality of a few of our spot-based currency peers that historically CME, through our EBS and FX Spot offerings, have not been the leader. So we're very pleased that we're seeing new participants, better market quality and significantly additive volume to our complex, all as a function of rolling out Spot+.

Our next question comes from Benjamin Budish with Barclays.

I was wondering if you could comment on your cash treasury trading business. It looks like your market share of overall treasury trading volume has stepped down a bit in the last couple of months. Curious if this is a function of competitive intensity, if you see more trading moving to voice. Any thoughts there on sort of competitive dynamics and what you're seeing in that market?

Yes. Thanks, Ben, for your question. I'll ask Mike Dennis to respond to that. Mike?

Yes, I appreciate the question. To begin, BrokerTec had an outstanding second quarter. Our average daily notional volume reached $949 billion, marking a 24% increase. In April, we experienced one of the highest volume months since February 2022, with an average daily volume of about $151 billion, up 39% year-over-year. Notably, on April 7, BrokerTec recorded one of its highest volume days, trading $322 billion in U.S. Treasury actives on our platform. This reinforces our belief that BrokerTec is the leading venue for liquidity, price discovery, and risk transfer. When comparing ourselves to others in the marketplace, we focus on central limit order books offering U.S. Treasury on-the-run actives. Our platform exclusively deals with on-the-run U.S. Treasury actives and does not handle off-the-runs or bills. In assessing competitors in that area, we believe our market share has remained steady from the first half of this year compared to last year. It's also crucial to note that BrokerTec is not limited to U.S. treasuries; we have a robust repo offering and achieved another record quarter with an average daily volume of $362.9 billion. Additionally, our RV curve experienced a second consecutive record quarter at $2.7 billion. Regarding competition, we have announced BrokerTec Chicago, which will serve as a second matching engine alongside our futures in the Aurora data center, with a launch scheduled for September 15. We are excited about this development, as many clients have already expressed interest in connecting to the new API and beginning testing. We believe this will enhance our client acquisition efforts, especially as clients engage in sharper tick increments on other platforms, and we anticipate attracting new participants to the cash markets.

Our next question comes from Alex Blostein with Goldman Sachs.

I was wondering if you guys could comment on changes in bank capital requirements following CCAR and potentially other changes related to SLR and a couple of other things that could perhaps allow banks to expand balance sheet size. And just curious how you could see your ecosystem impacted by this, whether it's in the rates business or any other products could potentially benefit from that.

Thanks, Alex. As you know, I'm sure you do know, Alex, we've been very vocal that the SLR requirements and some of the other requirements on banks have been onerous. And we believe that the capital that was originally deployed and continues to be deployed for risk management post Dodd-Frank is adequate. And to be adding to something on top of that seemed like doubling up on something you didn't need to have done. So actually, I was quite pleased to hear some of the recent announcements coming forward, especially on the supplemental leverage ratio as you commented on. And how does that translate into us? Hopefully, it frees up your balance sheet and others so you can continue to do more risk management in a more prudent way and not have as much capital tied up for reg issues that is probably unnecessary. But again, I think what's important is making sure the system is safe and sound, and that is the overriding opinion. But I think that from our standpoint, the way we look at it, if there are changes, I see it as a net positive for us. Mike, do you want to comment any further?

Yes. I think just to add to what Terry said, there's been no formalization yet on SLR. It's currently in a public comment period, but we do think that SLR relief could provide some balance sheet flexibility for bank clients, but the actual impact is going to depend on the bank and how the final rule is calibrated.

Our next question comes from Simon Clinch with Rothschild & Co.

I wanted to revisit the topic of retail traders that you're bringing on board. Terry, could you provide us with an idea of how large the base of retail traders on your platform is? Additionally, with the 90,000 new traders joining this quarter, do you typically observe these traders engaging in active trading right away, or is there a gradual progression before they achieve a certain level of trading activity?

Yes, that's a great question. It's challenging to answer because it's unrealistic to expect a new participant to hit their peak performance within the first week of trading. There is a learning curve for everyone entering any market, whether it's equities, options, futures, or ETFs. New participants typically won't dive in fully right away. When we mention 90,000 new participants, our goal is to support them with a strong educational system to help them understand the market and grow into their potential roles. Claiming that they can fully maximize their value from day one would be misleading. Reflecting on my own experience starting in 1981, I was trading much smaller amounts then compared to 2001, before I became Chairman of CME. It's about the evolution of a trader and their progression based on their prior experience. It's crucial to foster long-term participation, and while we have a large client base, I want to ensure they are educated and understand what they are getting into. I hope they are not going all in right at the beginning, as this could hinder their future. Ideally, they should engage with the market over a longer period, which benefits both them and CME. Now, I'll turn it over to Julie Winkler for more insights.

I believe Terry expressed it well. Traders come to us with various backgrounds. A crucial aspect for us and our retail broker partners is education. Over the past five years, we've noticed that the traders who approach us are significantly more sophisticated and knowledgeable about products compared to the pre-COVID era. This improvement is partly due to the rise of simulation environments and the use of enhanced technology within those platforms, including the new trading simulator we launched on July 12. These tools provide retail traders with more data and analytics, preparing them better when they start and fund their accounts. We also prioritize client retention, which for us means ensuring they are exposed to new products and understand the content. We have a comprehensive client education event process and collaborate with about 85 external traders who speak 13 different languages to support retail traders on their journey. Additionally, those traders who are more active tend to represent a significant share of daily activity, aligning with the 80-20 rule. Our aim is to help traders develop over time, focusing on product introduction. You can already see this in our Q2 results, which may begin with Micro equity, but our partners at CME have successfully cross-sold them into other products like crypto and metals.

Simon, hopefully that gives you a little flavor and color about how we're looking at the retail today and going forward.

Our next question comes from Bill Katz with TD Cowen.

Okay. Just maybe a bit of tough question to answer, but I'm sort of curious, just given the interplay of sort of a rising non-U.S. rising retail opportunity set relative to the base business and sort of the volume growth, how are you thinking about maybe the projection for RPC looking ahead?

Yes. So those are, I would say, kind of 2 competing factors there, Bill. So I think you need to think about as we continue to expand our international presence, that does tend to be nonmember activity, so that does tend to be at a bit higher RPC. On the flip side, when you're talking about the retail activity, they may be participating in more of the smaller contracts, some of the Micro, which does have a dampening effect on the average rate per contract. So for us, we are not focused on growing RPC. We're focused on growing that revenue base and growing kind of the opportunities that our clients have to trade. So I would focus more on that overall revenue picture than the RPC growth per se.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

This is Will Qi on for Ashish Sabadra. Maybe I just wanted to double-click on the international markets there. Continue to see great momentum. Wondering if you guys can provide a little bit more color on the drivers from geographic segments, maybe also how that sales coverage and efforts are progressing on those major geographies as well.

Thank you for that question. Julie, you want to talk a little bit about the sales in the international business real quick?

Sure. Yes. I mean, I think the record quarter of 9.2 million contracts, 18% increase, as Terry mentioned earlier. What was great was the fact that we saw international records really across nearly every single asset class, rates, up 14%; equity indices, up 38%; energy, 23%; ags, 3%; and metals, 14%. So I would say solid performance across all of the diverse asset classes and across our key customer segments as well. So we saw EMEA leading the charge there with that ADV up 15%. And what we saw similar to Q1 is significant growth from all of those Tier 1 countries. So those areas where we have our sales resources most focused on sales execution. So countries such as France, the U.K., Switzerland, UAE and the Netherlands. But also, I think in APAC, a great second quarter of volume, up 30% and significant increases there from Singapore, India and China. In terms of what are the drivers behind some of that, Derek mentioned it a little bit earlier in his answer. Definitely, as commercial participants continue to diversify their commodity hedging, we're seeing the sell side that are seeking global benchmarks, the ones that we offer and the liquidity that we are able to provide round the clock and also really some strong performance from the buy side, who, I think, are seeking the capital efficiency offering that we have here, particularly after the tariff announcement. So we see a lot of growth initiatives still on the horizon. Certainly, retail is a key aspect of our international volume, but also just the investments that we're making in other key strategic markets and leveraging things like other incentive programs to acquire new clients and continuing to offer regionally relevant products and expanding our data services. So a continued focus on that going forward. And we believe that, that will help to continue to fuel that international growth.

To build on what Julie mentioned, her team's work is similar to what we do in the U.S. regarding sales and outreach; they have a global sales team, not just one based in the U.S. Education is crucial, particularly on an international level. When our teams engage in sales and education, showcasing the significant liquidity available is appealing to participants globally. Additionally, the market efficiencies that can be realized through trading CME's products are very enticing for our international clients, and we're witnessing increasing engagement daily, thanks to Julie and her team's efforts. Thank you for your question.

Our next question comes from Craig Siegenthaler with Bank of America.

I was wondering if you could elaborate on the NASDAQ licensing agreement? Do the economics of the agreement change after yesterday's renewal?

There's no changes to the economic structure, Eli, just the extension out to 2039, but at the same economics.

And our last question comes from Benjamin Budish with Barclays.

I just wanted to circle back on the collateral balances. And curious if you could unpack a little bit how cash versus noncash traded month-over-month. I think you mentioned in the prepared remarks or perhaps earlier in the Q&A that given the higher volatility in April, you saw a bigger influx of cash. What does the exit rate sort of look like into Q3, just as we're trying to calibrate our models for the next quarter?

Yes. So it's still early, Ben, but so far in July, the average cash balance has held relatively steady at about $132 billion versus the $133 billion I mentioned for Q2. We have seen a bit of an increase in the noncash collateral that's up to $153 billion so far in July, and the total collateral average is at $321 billion.

We have no further questions. I would like to hand the call back to management for closing remarks.

Thank you all again for joining us this quarter. We appreciate it very much. We're very excited by the results we were able to produce. Again, record quarter. We will continue to stay focused on creating efficiencies, bringing new clients to our marketplace and all the other initiatives that we discussed today. So thank you again, and have a great day. Be safe.

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