CME Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 12, 2025
Skip to Participants
Operator

Welcome to the CME Group Fourth Quarter twenty twenty four Earnings Call. At this time, I I would now like to turn the call over to Adam Minnick. Sir, please go ahead.

Adam Minick
Adam Minick
Investor Contact at CME Group

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 fourth quarter twenty twenty four, 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.

Adam Minick
Adam Minick
Investor Contact at CME Group

They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results and outcomes 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.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Adam, and thank you all for joining us this morning. I'm going to make a few brief comments about our record year in 2024 and some thoughts on the current business environment. Following that, Lynn will provide an overview of our financial results and our 2025 guidance. In addition to Lynn, we have other members of our management team present to answer questions after the prepared remarks. 2024 was the best year in CME Group's history and our fourth consecutive year of record volume with average daily volume increasing 9% to 26,900,000 contracts.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

This growth was broad based with volume increasing year over year in all six asset classes, including all time volume records in our interest rate, foreign exchange, metals and agricultural complexes. It was also a record year for our international business, which averaged 7,800,000 contracts per day or up 14% from the previous record set in 2023. In addition to our impressive volume results, we continue to provide unmatched capital efficiencies for our customers. We have previously discussed that within our interest rates alone, the breadth of our offering results in margin savings in excess of $20,000,000,000 per day for our clients. It is worth noting that this margin savings applies across all the asset classes we clear.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

As you may have seen in the commentary we released this morning, our customers are now saving approximately $60,000,000,000 per day across all six asset classes. Commodities were the third fastest growing asset class in 2024 with metals volume up 23%, energy up 17% and ags up 13%. These businesses combined to generate a record $1,700,000,000 in revenue in 2024, up 16% versus 2023 and are off to another great start in 2025. Commodities growth came from every customer segment led by the buy side, where we've seen significant increases in activity by global multi strategy hedge funds as they expand in commodity focused strategies. Geographically, the fastest growing growth came from EMEA, where our year over year volume was up 34% across the commodities business.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Commodity options also demonstrated strong growth with volumes up 29% versus 2023. Our growth has been driven by strong new client acquisition across both institutional and retail sectors. I've said many times in recent years that it's going to become more and more difficult to distinguish between retail and institutional trading behaviors. Technology is equalizing the access to data and improving the flow of information. This is bringing a new type of trader into our markets and will continue to grow the overall financial system.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Over the last year, several large retail broker partners have joined our markets to meet this customer demand. As discussed throughout this year, we have increased our allocation of expenses to marketing and education of potential new clients. Given the strong financial results, we further increased this investment during Q4. In total, new clients added in the last five years have generated approximately $1,000,000,000 of revenue, including approximately 5% of transaction and clearing revenue in 2024. Moving in to 2025, we continue to see strong volumes to start the year with new volume records in January and ongoing customer needs through efficient trading and hedging solutions.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Shifting views around the global economy, persistent inflation, potential for changes in tariffs and ongoing geopolitical tensions all contribute to potential market movement and the need for effective risk management, which we will continue to provide to our clients. In addition to the impressive volume results I've outlined, we've delivered record financial results. With that, I'll turn the call over to Lynn to review these results in more detail.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Thanks, Terry, and thank you all for joining us this morning. As Terry mentioned, we had very strong financial results, delivering our third consecutive year of record revenues and earnings in 2024. Our revenue of $6,100,000,000 grew 10% compared to 2023 and included all time revenue records in all six of our asset classes. Our annual adjusted expenses, excluding license fees, were approximately $1,590,000,000 including $85,000,000 related to our cloud migration. Our adjusted operating margin for the year expanded to 68.3%, up over 140 basis points from 2023.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

We delivered $3,700,000,000 in adjusted net income resulting in 10% earnings per share growth for the year. During the fourth quarter, CME Group generated more than $1,500,000,000 in revenue, a 6% increase from Q4 twenty twenty three on similar volumes. Market data revenue grew 9% from last year to $182,000,000 Expenses were very carefully managed and on an adjusted basis were $520,000,000 for the quarter and $436,000,000 excluding license fees. CME Group had an adjusted effective tax rate of 21.8, which resulted in adjusted net income of $919,000,000 Our adjusted earnings per share were $2.52 up 6% from the fourth quarter last year. Capital expenditures for the fourth quarter were approximately $28,000,000 and cash at the end of the year was 3,100,000,000.0 DB Group declared dividends during 2024 approximately $3,800,000,000 including the annual variable dividend of $2,100,000,000 which was paid in January.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Turning to 2025 guidance, we expect total adjusted operating expenses excluding license fees, but including cloud migration expenses to be approximately $1,650,000,000 Total capital expenditures are expected to be approximately $90,000,000 and the adjusted effective tax rate should come in between 22.523.5%. In December, we announced transaction fee adjustments, which became effective February 1. Assuming similar trading patterns as 2024, the fee adjustments would increase futures and options transaction revenue by approximately 1% to 1.5%. Market data fees were increased by 3.5% at the beginning of the year. Additionally, we announced a 10 basis point non cash collateral surcharge effective in April for participants that do not post at least 30% of their margin requirement in cash.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

This change will ensure a minimum level of cash for risk management purposes. The financial impact of this requirement will be dependent on customer decisions and may result in an increased average rate on non cash collateral or any increase in cash posted at the clearinghouse. As always, we focused on the total cost of trade for our clients and considered the impact of the collateral fee changes when reviewing adjustments to the clearing and transaction fees this year. In aggregate, the fee changes and cash minimum could add 2% to 2.5% to pre tax income assuming similar volume and collateral levels. In summary, we're very proud of the results we were able to deliver as a firm this year, driving 10% revenue growth and 10% adjusted earnings growth from our previous record year of 2023.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Consistent with the growth goal we discussed coming out of 2022, this year represented our third consecutive year of double digit earnings growth. We'd now like to open up the call for your questions.

Operator

Certainly.

Operator

The first question will come from Patrick Moly of Piper Sandler.

Patrick Moley
Patrick Moley
Sr. Research Analyst at Piper Sandler Companies

Yes, good morning. Thanks for taking the question. In the release today, you mentioned that retail remains a bedrock of the new customer acquisition strategy. You're currently in the process of rolling out futures to Robinhood's twenty four million customers. So I know it's still pretty early, but I was hoping you could talk about maybe how additive you think that this rollout could be to volumes this year?

Patrick Moley
Patrick Moley
Sr. Research Analyst at Piper Sandler Companies

And then if you could just maybe speak to the broader retail strategy, and any other opportunities that you see out there on the horizon?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Patrick. Let me turn it over to Julie Winkler. She can discuss a little bit about that and I'm going to chime in after she's done.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

Sure. Thanks for the question, Patrick. On the new client acquisition front, about two thirds of that $1,000,000,000 number that Terry referenced in his comments are driven by our retail business. Q4 was another really strong quarter for us in terms of total participation being up, the number of traders being up 6% and that NCA number was up another 23% year on year. All regions, we saw growth there as well.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

And that was great because we saw that really also across all of our asset classes with kind of FX and metals certainly leading the charge there. The micros volume is in product, I think, has continued to be a sweet spot for us in our retail business. So that volume was up 2,800,000 contracts in ADV in Q4, so that was up 11%. And what this all has meant and you referenced it is we've been working with many new futures brokers over the last year. I think their interest in coming into the space is that sophistication of trader that Terry mentioned earlier.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

A lot of this is about reaching this customer base with education and growing awareness. And what is also appealing is our very diversified product offering. So while we have the micro equity suite, we are also seeing a lot of uptake in crypto and commodities as well, which is great. Robinhood did launch a couple of weeks ago. They are continuing to do a phased rollout among their customer base.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

So very similar to what we've seen with other broker partners as they enter into this space. We're excited about that and certainly opportunity to work with all of these global partners. We have about 100 that we partner with around the globe. And we do have some other additional ones coming online as we look ahead into 2025. And I think the other kind of context around this is just this retail business is also a huge contributor to that international performance as well.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

And so as we see retail grow, that is a big contributor to those international results with the $7,800,000 in ADP, which was up another 13%. So we're excited with our diverse product offering, the global appeal of our products and certainly being able to partner with these great broker partners and provide an education and awareness. So we feel like the outlook is good.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So Patrick, what I would just add to what Julie said is that I think, as I said earlier, the lines between institutional and retail are continuing to get more and more blurred. We're referring to our current retail business, which is more of a professional style trader. I think the definition of that retail participants going to continue to evolve over the next several years and we might be saying something a lot different about what a retail participant looks like. So to say what it could look like just that one particular broker or another may not be fair. How they access markets, the ease of accessing markets, the new risk management tools that technology and artificial intelligence will allow us to deploy will help us broaden the scope what we define as retail today, tomorrow.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So that's what's more exciting to me than just a current retail trader, even though it's an exciting business. I think that's going to continue to evolve and be defined in different ways in the upcoming years.

Patrick Moley
Patrick Moley
Sr. Research Analyst at Piper Sandler Companies

Okay. Thanks for that. And then one quick follow-up, Terry. In the fourth quarter, you received approval from the NFA to establish your own futures commission merchant. You did put out a press release after saying that you're committed to the existing FCM model.

Patrick Moley
Patrick Moley
Sr. Research Analyst at Piper Sandler Companies

But just was hoping you could maybe talk about what strategic benefit does this give you going forward? And would there ever be an instance where you would look to utilize it? Thanks.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

I don't know if there would be a situation for me to utilize it or not. At this given moment in time, there is not. And I have said that we will not dislocate our current FCM partners with our FCM license that we now hold. I think it's important and I've said this for a lot of years, you cannot try to get prepared when things change. You need to be prepared prior to that happening.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And this is just another step in us putting pieces of different parts of the equation in place if in fact market structure changes, behavior changes or the business changes a little bit. I'm not going to wait or the future of this company will not wait until that happens and try to deploy those type of assets that you don't have at the time. So it's really important for us to have those in place. My viewpoint has not changed. I am not looking to dislocate or disintermediate any of my FCMs today.

Patrick Moley
Patrick Moley
Sr. Research Analyst at Piper Sandler Companies

Okay. Thanks. That's it for me.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Patrick.

Operator

The next question will come from Alex Kramm of UBS. Your line is open.

Alex Kramm
Alex Kramm
Managing Director - Equity Research at UBS Group

Yes. Hey, good morning, everyone. Just quickly on capital allocation and more specifically on buybacks. I don't think you've spoken since you got the authorization for the $3,000,000,000 Any updates or can you just elaborate a little bit how you're thinking about buying back stock? Is it consistent?

Alex Kramm
Alex Kramm
Managing Director - Equity Research at UBS Group

Is it more dependent on what the stock is doing? And then of course, what have you been doing with it so far? Have you been buying stock? And what are the near term plans? Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Alex. Lynn?

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes. Thanks, Alex. So I would say, as you saw with our most recent announcement on our dividend last week, we raised that from $1.15 to $1.25 We continue to view that as an important use of our capital.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

And just a reminder that we did pay out the variable dividend here in mid January. So our excess cash that we built up over the course of last year just was paid out in that variable dividend. So as we look to go forward, with this new lever we have with the repurchase program, I would describe it as opportunistic, reviewing this as kind of the third means that we have to return capital to our shareholders and we'll continue to use those three levers that we have.

Alex Kramm
Alex Kramm
Managing Director - Equity Research at UBS Group

All right. That's it for me.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Alex.

Operator

The next question will come from Michael Cyprys of Morgan Stanley. Your line is open.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

Hey, good morning. Thanks for taking the question. Just wanted to ask around product development opportunities around climate events, just given we've seen more severe weather patterns and natural disasters and events in recent years. Just curious how do you see the opportunity to help product set more fulsome? It seems the insurance industry may have some challenges from some of these events.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

To what extent can a capital markets based contract be part of the solution?

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

How are

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

you thinking about that?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Yes. Thanks, Mike. I'll let Dirk address that and then I want to give a comment also.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

Yes. Thanks, Mike. The short answer is the market's already using our products and services today. You make a great point about weather patterns. That's one of the primary drivers of what's going on in our record activity in our ags markets from 2024.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

And if you look at where we're starting 2025, our ag business is up 32% year to date and growth in almost 20% of open interest as well. So I think we're seeing significant participation where folks are looking to understand the impacts on real economies. They're playing that through our ag markets and our grains and oilseeds markets. We're also seeing that play through the energy markets, particularly nat gas, since nat gas is becoming increasingly the power source for both heating and cooling. When you look at our record results in the last year from nat gas and carrying over into this year, most important our options is up 61% last year.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So as these unplanned but now to some degree expected dislocations in weather patterns, we're actually seeing folks increase their use of our energy products to adapt for that and using options as a large proportion of that. You also rightly mentioned our weather driven market. We are the largest weather driven market out there. We finished the year at about 90,000 contracts open interest. 70% of that is in the form of options.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

And that tells you, I think we've got sophisticated end user buy side and commercial customers using that market, not just directly in our own derivatives, but that actually sets a lot of the prices for a number of indexes and OTC transactions to trade off the back of that are indexed to and then hedge back into our weather market. I think kind of the last piece to this that we're seeing this play out is in the energy transition economy. When you look at our metals business, we are the leader and putting up substantial growth in our battery metals business, whether it's cobalt, lithium or the spozamine product we launched just a few months ago. As folks are looking at not just the disruptions to market, but what the alternatives are, they're playing that through our battery metals market, they're playing that through our ethanol contract. We're the largest ethanol market out there and we just launched the physical ethanol contract last week and the first two trades were actually two large agricultural customers.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So the last piece of that is what we're seeing in the industrial metals market. So as more work is put into the grid to reinforce our energy sector here in The U. S. And globally, that runs right through the middle of the copper market as well as the battery metal market. And those are two markets where we're seeing record growth.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So, we certainly see that the weather driven niche itself has room to grow, but we're seeing the market already adopting market based solutions in CME Group products. And that's why Terry referenced at the top of the script that our commodities asset classes, energy, ags and metals are the three fastest growing products in 2024 and are out of the gate strong in 2025 with ags up 32%, energy up 25% and metals up 14%. So we'll continue to talk to our customers and fill that need in on the portfolio, but we're seeing them already use market based solutions here at CME Group.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Just to add to that, Mike, I think what the comment that I read yesterday by Chair Powell about talking about how mortgages could be unattainable in many parts of the country due to insurance reasons and you raised this in your question. And I think it's a much bigger concern than people are thinking about. Derek referenced our products today that can help manage and mitigate some of those risks. But we're looking at other ways to continue to roll out products that might be more tailored towards that industry. Again, this is just in the pipeline where nothing to announce now.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

But I do think that is becoming more and more of an issue when it's not so much about can you qualify for a mortgage, can you qualify for a mortgage and get insurance also. So that's a big issue. And again, I think that's another reason why risk management is going to be a priority in the out years going forward.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

Great. Thank you.

Operator

The

Operator

next question will come from Benjamin Butish of Barclays Capital. Your line is open.

Benjamin Budish
Benjamin Budish
Director at Barclays

Hi, good morning and thanks for taking the question. Terry, I was wondering if you could talk a little bit about a little more about your product expectations on the retail side. Curious, it looks like looking through some of your micro products, the equity indices have been sort of the lion's share. I'm curious what your sort of expectations are in terms of engagement? How do you think about maybe for that product specifically competition with other sort of S and P derivatives?

Benjamin Budish
Benjamin Budish
Director at Barclays

And then I'll have a follow-up on pricing.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Okay. Thanks, Ben. I look at the retail business as Julie referenced, it's a massively growing business. And as I said earlier, technology is just enabling more and more participants to facilitate their own risk management, learn these products. I think education is absolutely key for retail.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And those are a couple of things that we are really focused on making sure they understand what they're doing. But with retail, as you know, the speed to market is critically important. They don't want to sit around and wait for two weeks to be facilitated to try to open an account. They need to expedite that process. So I think that business will continue to grow and bolster.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

More and more people today, the young people today are managing their own risk. That's only going to continue. It's not going to go the other way. I'm really excited about retail. And as I said a moment ago in the previous question or two, I really think the definition of retail is going to be critically important to the growth of that industry and see how we define it.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Is it more mainstream versus professional? Is it a combination? Does it professional just get a little bit larger? And there's a lot of different factors here. I think a lot of those can all come true at the same time.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So this is pretty exciting. I'm going to ask Julie to comment more on the retail as it relates to the growth of it.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

Yes, it's a great question. I do think similar to my answer from earlier, I think the diversity of our product suite is a real differentiator for CME. So while we have historically seen retail customers come to us first to trade our micro equity suite, I'd say that trend is tends to shift, given those strong macro trends that Derek spoke about earlier. The commodities interest there, especially when we look over to APAC, is really strong, which is kind of contributing to our recent announcement as well about the microag contracts coming. So we believe both with that as well as what we see with crypto, it's interesting that we are attracting customers with new products differently than maybe what we had in the past.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

I think the other trend that supports that is some of our new to futures participants are actually targeting a different segment, right? So they may be existing CFD providers. And so their entry point to come over into futures is going to be different than our traditional partners in this space. But the great thing is we're still continuing to see great really strong year on year growth from our existing partners as well. So a lot of this comes down to building awareness, making sure they have the product education that they need and our team is working very closely with them on that front.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

And this allows us to easily cross sell with what is interesting and what products are moving at that point in time.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And just to add to that, then you referenced competition and Julie touched on a little bit. For us, with all the different asset classes that I referenced in my opening remarks hitting all these new highs, It is really important that you introduce new potential retail clients into something they feel they know something about today. So if you come up with a very difficult product for them to try to understand, so if you listed a sulfur contract to the retail participants, they might have a different more difficult time participating in that than they would in a gold, silver, oil or some of our other contracts that are more mainstream that they hear about every single day. So the question is how can we customize those products for their ability to participate? And those are the things that we're working on.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So I think from a competitive standpoint to your competitive question, Ben, along with the crypto, we're in a really strong position to introduce these to a whole new audience of retail participants.

Benjamin Budish
Benjamin Budish
Director at Barclays

Great. I appreciate all the color. And just one housekeeping question maybe for Lynn on the sort of pricing change expectation. I just want to make sure I had it correct. The fee adjustments on the trading side, 1% to 1.5%, and then adding the sort of fee changes to cash minimum.

Benjamin Budish
Benjamin Budish
Director at Barclays

So that add another 1% on top. So the total is 2% to 2.5%. And I also wanted to double check, does the transaction fee piece, is that sort of net of incentive changes or is that the sort of pricing changes in isolation?

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes. So the incentives are included in that. So that's the expectation. We always are looking at not just rack rate changes, but also incentive changes. So if you look at that one to 1.5, that is inclusive of the changes being made there.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Now the thing you have to be conscious of on the other element, so the collateral fee is going to be based on customer choice. So it could lead to a higher, rate that we capture on the non cash collateral that would flow through other revenue. But it also could mean that our customers would post more cash, which is the goal of this, structure because we want that cash from a risk management perspective. So if we see a shift to cash, you would see more of that come through in the non operating income. So when we talked about that 2% to 2.5%, that's a pretax earnings number because we don't know yet if we'll see the increase in the other revenue or in the non operating income.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

It will depend on that decision by the customer base.

Benjamin Budish
Benjamin Budish
Director at Barclays

Okay, very helpful. Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Ben.

Operator

The next question will come from Chris Allen of Citi. Your line is open.

Christopher Allen
Christopher Allen
Managing Director at Citi

Good morning, everyone. Thanks for taking the question. Wanted to ask about your securities clearing build out there. Just kind of where that stands currently. You talked in the past about having this as an option, if the marketplace demanded it relative to the kind of incumbent.

Christopher Allen
Christopher Allen
Managing Director at Citi

So I was just wondering where that kind of stands and how you think about it from a revenue opportunity standpoint longer term?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, because it's a good question. And I'll turn it over to Suzanne Sprague, our Chief Operating Officer and Head of Risk and Clearing. Suzanne?

Suzanne Sprague
Suzanne Sprague
Chief Operating Officer at CME Group

Yes. Thanks, Chris. So we're pleased that our application for our securities clearing house has been published now in the Federal Register in January of this year, and we continue engaging with the SEC toward approval. We are excited about the opportunities that that license could bring in terms of generating additional value for our customers. We also continue partnering very closely with Fixed Income Clearing Corporation to expand our cross margining program with FICC, not only for the existing house account structure that's in place today, but to expand that offering to clients as well.

Suzanne Sprague
Suzanne Sprague
Chief Operating Officer at CME Group

So capital efficiencies is a large focus for us as we've talked about already on this call and both with our own security clearing offering and continuing to expand that partnership with FICC, we're looking forward to being able to deliver that in a larger way.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So Chris, sometimes you hear folks, especially recently say that this could be delayed. And that's not a surprise. Anytime you implement a new policy, everybody thinks they might be ready, but they're not. But I think what's really important, Suzanne touched on it and we've been touching on this for quite a while, is the benefits that this clearing offering offers to the clients by freeing up a bunch of capital for them. So even though it may be delayed and some people think that they don't want it, when you look at the savings, they're just truly undeniable.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

When we're referencing $60,000,000,000 of margin efficiencies, when we're referencing $20,000,000,000 of rate efficiencies alone within CME, these are and I testified a lot back in 2010 during Dodd Frank. And the biggest opposers are the biggest beneficiaries today of central clearing and the offsets that they get to free up their balance sheet in lieu of some of the other requirements that have come at them on their balance sheet. So this is a huge bonus for the participants going forward. So again, whether they use fixed offering or whether they use ours or someone else's, we think this is a benefit for the industry. So we're looking forward to pursuing it.

Christopher Allen
Christopher Allen
Managing Director at Citi

And just on that point, have you done any work to kind of quantify what the margin saving potential you would theoretically see for the industry?

Suzanne Sprague
Suzanne Sprague
Chief Operating Officer at CME Group

No. At this point, it's hard to tell. I think choice is important here. We have seen an increase in clearing members to take advantage of the existing house account program with Fixed Income Clearing Corporation. And with expanding it to client, that presents additional opportunity for clients to be able to maintain that relationship that they have today in the marketplace and gain the efficiencies at the clearing level through the existing structure as well as bringing online new offerings through the CME Securities Clearing House.

Suzanne Sprague
Suzanne Sprague
Chief Operating Officer at CME Group

So there's a lot of moving parts, I think. Choice is key for these market participants, especially as the clearing mandate evolves. It's hard to anticipate what those numbers will look like given all of those variables.

Christopher Allen
Christopher Allen
Managing Director at Citi

Thank

Christopher Allen
Christopher Allen
Managing Director at Citi

you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Chris.

Operator

The next question will come from Dan Fannon of Jefferies. Your line is open.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Thanks. Good morning. Terry, I was hoping you kind of you could expand upon your comments on just the outlook for activity, knowing you obviously don't have a crystal ball, but maybe just discuss the setup as we sit here in kind of mid February of twenty twenty five after several record years of growth for you. What are the kind of building blocks you think of growth and activity as we think about 2025 from a transaction perspective?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Yes, Dan, my outlook really hasn't changed a lot over the last several years. I think it's going to be a very difficult environment for a lot of companies and individuals around the world and you need to manage and mitigate that risk. I mean nothing's really changed from a year ago except we acquired just a touch more debt. So when you're looking at $36,000,000,000,000 here in The United States of debt, $36,500,000,000,000 1 point 9 trillion dollars deficit, you have the political issues in Washington about people trying to cut spending, potentially cutting taxes. There's so many moving parts right now.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

It's hard to say that people can will not be apt to manage that kind of risk because it has such an impact on everyone's business, what rates do or don't do. Even the smallest rate increase or decrease could have a massive impact on a balance sheet with these kind of numbers outstanding. So I think geopolitically, we're still looking at the conversation around deregulation, which we haven't really gotten to in President Trump's agenda. He's dealing with other issues right now. He's got a very large agenda.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So it's going to be fascinating, but I think all these twists and turns that he has presented, which is exactly what the American public devoted him in to do and he's telegraphed it to a tee, so this is not shouldn't be a surprise. They all have a cause and effect on the economies, not only United States, but globally. And I think people need to mitigate and manage that risk. So I do believe that you're going to continue to see a very active marketplace. Derek referenced some of the commodity products, I think, and I referenced them in my early remarks for a reason.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

I actually think that you'll start to see more commodity index funds participating trying to manage that risk whether it's due to tariffs, whether it's due to weather, whether it's due to a lot of things. And then of course, when you look at foreign exchange right now, foreign exchange is jumping around quite a bit because of the potential tariffs that we haven't seen in a while. These are all things that you don't we haven't seen, they've been a little quiet lately that could come to the forefront in 2025. So actually I'm pretty optimistic again across all six asset classes for CME. There's a lot out there, Dan, as you know.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And so even though we feel like our lives are going well and things are going good, there are still a lot of dangerous places, especially economically around the world that we have to deal with. So and I think that's what we're here to manage.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Great. That's helpful. And then just as a follow-up, in terms of capital return, I understand the buyback and the dividend, but on an inorganic or M and A perspective, can you remind us around the framework of how you're thinking about that? And ultimately, has that changed at all given maybe looser potentially standards around M and A that maybe broadens what you would be looking at under the current administration versus prior?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Yes, I'll take the second part of the question and then I'll give the first part to Lynn. It's yet to be seen what the regulations are going to be around M and A or not. It was a difficult environment under the Biden administration for the DOJ perspective to get some deals done and even IPOs out the door. People are talking about how this could be different this year. It's really hard to draw a conclusion down when we're a couple of weeks into the year and we haven't seen a whole lot of activity just yet on deregulation or new companies coming forward.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So I think that's going to take some time to get into the system to see if that materializes one way or not. And I will let Lynn talk about the former on the repurchase.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes. So I think Dan, our approach to M and A is the same that it has been. We put ourselves in a good position from a balance sheet perspective. We're very conservative there. So that if the right opportunity comes up, we have the capacity and the ability to act.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

But we tend to be a bit more choosy, I guess, I would say, and not as acquisitive as some of the others in our space. We typically are looking for things where there's a clear path to value and something that is in our core competencies if that's risk management, running markets, creating capital efficiencies for our clients. So we continue to look, just as we always do. And if the opportunity were to be there, we're more than happy to execute on M and A.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Dan, we're focused on so many different things. But one of the things I keep telling my team is, you have to be able to look over your shoulder and see a pipeline of clients coming down the future in some way, shape or form, because there's a lot of business turning around right now and not seeing anybody. That's not the situation for CME and we're going to make sure it continues that way. So we are looking at not just some of your traditional ways if you want to call it M and A, but other avenues on how we build this business. But it's really important as I referenced earlier to make sure that that customer base is continually educated and coming into your doors at the pace that they need to come in here with.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

But it's important to make sure you look over your shoulder and know there's a pipeline of participants coming. Coming. And that's what we are working towards and doing right now.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thank you.

Operator

The next question comes from Brian Bedell of Deutsche Bank. Your line is open.

Brian Bedell
Director at Deutsche Bank Securities

Great. Thanks. Good morning. Thanks for taking my questions. If I can come back to the retail theme and Terry, especially your comments around the blurring of the retail users, It sounds like it's mostly between individuals and professionals.

Brian Bedell
Director at Deutsche Bank Securities

I mean, just in terms of identifying that, I guess, the simple question is, aren't they all coming in from retail oriented FCMs or is there a mix that you can tell? And is the blurring simply on, say, retail professional traders and then how you treat them differently from retail? And then the tangent question to that is, to what extent are they interacting directly with CME in things like data and analytics as opposed to say at their retail brokerages? And is that to what extent is that an opportunity to create more vibrant data and analytics for that retail class?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Yes. Thanks, Brian. Appreciate the question. And again, what I was referring to in my opening remarks between retail blurring was more on the institutional, not splitting the hairs of what a retail client is today versus what it might look like tomorrow. I did reference that I thought that the definition of retail is going to change over the years.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

I didn't reference that it's changed to date. So I think what I'm referring to when I say they're blurred, I'm referring to the retail versus institutional today. Why? Because the professional retail has technology and a lot of other tools that did not have five, six, seven, ten years ago that they do have today. And they're coming more at a much cheaper cost than they historically have.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So that was my comment around blurring between current retail and individual. Now as it relates to retail to retail versus the individual that you referenced, I think that definition will change as well. It just hasn't been defined yet what it's going to look like. So I want to make sure I'm clear on that. I'm not saying that's changed to date.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

I'm suggesting that it will change tomorrow. And why will it change? I think it is going through our existing FCMs today. I think it will continue to go there as they continue to embrace, bring in new tools to allow clients to that they feel comfortable with managing. There's been kind of a pushback from some people about not wanting to have certain clients in their FCMs because of the risk profiles associated with that and I can certainly understand that.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

But I do believe that some of the new technology tools and risk management protocols will allow that universe to grow. So that's what I was referring to. As it relates to the data and analytics, I'm going to ask Julie to comment on that.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

Yes. No, great question. And I think we have seen some great trends there. I think it plays to the point earlier about just the growing of these users. They are big users of data.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

They are looking at analytics to make their trading decisions. And I also think, right, that trend towards, you know, just how these communities are connecting online and getting trading ideas from one another is also contributing to what we're seeing with this retail flow. So as it relates back to our data business from we had a record quarter, certainly we are up 9%, but specifically, as it relates back to this non professional device usage, we saw an increase just even from Q3 to Q4 of almost 40% from our vendors and our brokers in terms of increased units that they were reporting to us on a non professional or retail basis. So the demand and the interest is there. And our retail brokers are also offering things in that way.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

They know they need to provide robust data and analytics in order to continue to attract and educate them about what's going on in the marketplace. So I think that is a key component as we think about this. I think the other trend that I would look at is, we're seeing a lot of increased usage of options among the retail client base as well. And that again, I think speaks to increased sophistication and we're seeing a lot more of our retail brokers being in a position to offer options. As 2024 progressed and looking into 2025.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

And I think that blends nicely with just the need for data and analytics as well.

Brian Bedell
Director at Deutsche Bank Securities

That's helpful. And can you cite like what portion of your revenue you think is coming from that retail or pro tail or is that too difficult to assess?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

We have broken out some of the retail revenue, but not by not so granular by individual. I think, Julie, you have some

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

Yes. I don't think we've historically disclosed what that portion is. What we've said is of our new client acquisition, that's two third of the $1,000,000,000 that we've seen over the last five years, which was contributing 5% of our transaction revenue.

Brian Bedell
Director at Deutsche Bank Securities

Got it, got it. And then if I could just ask one last one for Lynn on the cash collateral, if you can go through the rates coming into 1Q on the cash collateral? And has there already been any change with the new program coming into this year?

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes. So if you look at the start to this quarter, The U. S. Cash balances have ticked up a bit from where they were in Q4. So we had $75,000,000,000 on average in cash in Q4.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Quarter to date, we're running at $77,000,000,000 On the non cash collateral, we were at $178,000,000,000 in the quarter and quarter to date Q1 is $175,000,000,000 Now the change on the non cash collateral fee and the cash minimum does not take effect until April. So you won't see that change this quarter.

Brian Bedell
Director at Deutsche Bank Securities

Got it. Okay, great. Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Brian.

Operator

The next question will come from Bill Katz of TD Cowen. Your line is open.

William (Bill) katz
Senior Equity Analyst at TD Cowen

Okay. Thank you very much. Just sort of coming back to the regulatory backdrop, Terry, I'd be curious what is the sort of the most recent update as it relates to the competitive backdrop on the interest rate contract and the U. S. Treasury contract?

William (Bill) katz
Senior Equity Analyst at TD Cowen

I know there's been a lot of back and forth during the quarter in terms of some congressional commentary, but what's the sense here in terms of the sort of the regulatory scrutiny around U. S, non U. S. Interplay for that part of the platform? Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Yes. Thanks, Don. I think the change is more clarity. And I think there was a lot of miscommunication of what I was saying and what CME was saying as it relates to the competitors offering, which was that LCH is a duly registered clearinghouse in The UK and The U. S.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

I totally agree with that, where the monies of the depositors could be kept in U. S. Banks or non U. S. Banks, I totally agree with that.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

So I never argued the things that they said I was arguing about. I argued about the default and resolution of the Lending Clearing House, which falls under the exclusive jurisdiction of the Bank of England. Now if you took the rate swaps market that's cleared at LCH, it's bigger than the damn country, that is going to be a massive focus for the Bank of England when you look how big that market could be if there was ever a default. If they were to try to clear U. S.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Foreign sovereign debt on futures, which is larger than the cash market on a turnover basis in that country and The U. S. Did not have a seat at the table or have any authority on default and resolution, we feel that that's detrimental, not only to the U. S. Treasury market to the people who own that debt.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Because when you tear up trades, it's not where even a small portion, if someone gets sick, we all get a cold. When you're talking about a market as big as $28,000,000,000,000 if someone gets sick, we all get cancer. That's a bad outcome. So it's important for The U. S.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Under sovereign debt under the Treasury Department. And you heard what Secretary Bessent said at the hearing that it's important that The United States Of America has the resolution authority embedded in The U. S. So again, I've been making this argument for a long time and I think people are realizing it and we'll see where it goes. But I feel good that people are understanding the differences now versus where we're at just a few short months ago where others on the other side were trying to confuse the issue.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And even our new Commerce Secretary, which will probably be voted on this week, when asked in the committee by Senator Cantwell, he gave a very convoluted answer that had nothing to do with what I just referenced.

William (Bill) katz
Senior Equity Analyst at TD Cowen

Okay. Thank you. And maybe

William (Bill) katz
Senior Equity Analyst at TD Cowen

just coming back to pricing for a moment.

William (Bill) katz
Senior Equity Analyst at TD Cowen

I just want to make

William (Bill) katz
Senior Equity Analyst at TD Cowen

sure I understand this. Just looking at my notes from a year ago, I think your pricing in futures and options was up 1.5% to 2%. And I think I heard today a bit of a lesser rate, about 1% to 1.5%. A, am I thinking about that on a like for like basis? Is that the right way to think about it?

William (Bill) katz
Senior Equity Analyst at TD Cowen

And B, if that is the case, can you talk a little bit about maybe the puts and takes of where you saw the greatest pricing capabilities maybe by either trading class or geography or by clientele type? Thank you.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

Yes, Phil, thanks for the question. So you're correct. The adjustment on the clearing transaction fee is a bit lower this year than it was last year. It's not unusual for us to pull different pricing levers. What we're always trying to make sure is that we don't impact the velocity of trade coming across our system.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

To us, it's not just focused on RPC, it's how do we continue to drive healthy volume given the high incremental margin that we deliver that we achieve on that next trade. So you have to balance not just changes on clearing and transaction fees, you got to look at the changes on data as well as the changes on collateral. And as we talked about, there was this new soft minimum that was put in on the collateral side, which did have an impact to our client base. So the mix shifted a bit away from the clearing and transaction fees. We want to look at where those changes were impacted the most.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

We made changes in the crypto complex as well as metals, both on the micro side and options, also in nat gas and our grains complex in our agricultural commodities. So those were the contracts that we saw the largest increases this year.

William (Bill) katz
Senior Equity Analyst at TD Cowen

Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Bill.

Operator

The next question will come from Owen Lau of Oppenheimer. Your line is open.

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

Good morning and thank you for taking my question. So you mentioned crypto multiple times on the call with increasing regulatory clarity. How does CND think about further expansion into this space? Would you consider launching more derivative products for tokens other than Bitcoin and Ether? And what does it take to go there?

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

Thanks.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Owen. And I think it's a very interesting asset class. As you know, we were one of the first to come out with a crypto with Bitcoin in 2017 under the regime and rules that we put forward and we think that was a very smart way to approach listing Bitcoin. And then you can see in the numbers today, it's reflective of the growth of that product and along with ether. As far as other products goes, I think it's going to be really important for us to consult and work with the SEC to make sure we get their comfort level about what's deemed a security and what is not.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And that is yet to be decided from that agency. We continue to work with them, but we will not front run them in any way, shape or form on other cryptocurrencies until we have much deeper conversations. But there are some there's an appetite out there. I'll turn it to Tim McCord, who runs that asset class to talk a little bit more about the potential appetite for those other currencies.

Tim McCourt
Tim McCourt
Senior Managing Director and Global Head, Equity & FX Products at CME Group

Great. Thanks, Terry. And Terry is absolutely right. Our long standing approach to the cryptocurrency business at CME Group is to be the trusted and transparent regulated venue. And we're going to continue to wait for the regulatory clarity and certainty before we introduce additional products on additional tokens and cryptocurrencies.

Tim McCourt
Tim McCourt
Senior Managing Director and Global Head, Equity & FX Products at CME Group

We've been rewarded to date because of that because the secret to our success is listening to clients for demand driven product development to meet their risk management needs in this new asset class. It continues to grow and when we look at just even this month in February, we had our largest trading date in cryptocurrency

Tim McCourt
Tim McCourt
Senior Managing Director and Global Head, Equity & FX Products at CME Group

with

Tim McCourt
Tim McCourt
Senior Managing Director and Global Head, Equity & FX Products at CME Group

almost 700,000 contracts trading on February 3, continuing to establish records across Bitcoin and across ether in both standard and micro sized contracts and continuing to innovate in the Bitcoin and ether lanes. That is where we have the certainty and clarity at present with our regulators. We continue to introduce products like the Bitcoin Friday futures, the financially cash settled Bitcoin Friday future options and continuing to introduce additional order types and transactional handshakes around Bitcoin and ether and that will continue to grow in 2025 and we look forward to working with our clients and the regulators to see what additional products make sense in the future.

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

Got it. That's super helpful. And then quickly going back to the fourth quarter futures and options RPC, it was $0.71 up from $0.666 in the third quarter because of mix shift towards higher price commodity activity and less volume tiering. Could you please unpack a little bit more on that volume tiering And how could it potentially impact the RPC in 2025? Thanks.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Lynn?

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

So it's separate for each asset class and the products within that asset class. So it really depends on the volume that we're seeing flow through. You will see a downward bias as you see large increases in volume and the opposite is true as you see decreases just because of that structure. It's an important part of our structure because we do, as I mentioned earlier, want to see that incremental trade. And we do want to help our clients and incent them to continue the trading activity.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

So it does provide a little bit of flex to our pricing structure, but that mix is really important. So you will see pricing on that individual asset class basis. It's not across the whole enterprise, if that helps.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And let me just add to that,

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Owen. I think Owen, just to add to that, our philosophy around whether it's a full Sky contract, a micro or mini, we look at the constituency who's participating in this. We don't look at just the notional value, which may have been a historical look at the way we did things ten, twelve years ago. So I think that can also have an influence on the RPC depending on how those products grow that are the people that are using them. So it's going to fluctuate as Lynn said, but we feel from a pricing standpoint, we're understanding the client better versus just looking at the product and saying, here's the value of the product, so we'll charge a half if it's a half a contract.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

That doesn't make sense to me. It all depends on what's the use in the case for the participant.

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

Got it. So just wanted

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

to understand better. So does that 1% to 1.5% capture that volume tiering or this is not

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

the right way to think about that?

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes. So the assumption for when we put forward the pricing estimates, it's assuming a similar mix and volume level as the prior year. So if you had changes in those elements, it would adjust that percentage, but we're basing it based on a similar trading experience as we saw in 2024. That would be the impact.

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

Got it. Thanks a

Owen Lau
Executive Director & Senior Analyst at Oppenheimer & Co. Inc.

lot.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, John.

Operator

The next question comes from Kyle Voigt of KBW. Your line is open.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Hey, good morning. Maybe I just wanted

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

to come back to the commodities discussion, but more specifically around the increases in activity by global multi strat hedge funds that you mentioned in your prepared remarks. I guess, can you just expand a bit on when you start to see those or a material pickup from that user base? What specific products are you mostly seeing those users trade? And I'm just trying to get a sense of this is cyclical because there is simply more going on with inflation and tariffs and macro volatility or whether this is the start of a secular trend in growth from that user base?

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Kyle. Derek?

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

Yes. Kyle, it's a trend we pointed on previous calls. 2024 was a record year for us in the commodity side, as Terry mentioned, not just on the revenue side across all each of those asset classes, but by penetration into particularly EMEA, but APAC and Julie mentioned a little bit of that as well. When you actually look at the fastest growing client segment among that record generated activity in 2024. The fastest growing client segment was that buy side community.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So this isn't a trend that we're seeing emerging. We saw this emerge over the last eighteen months. It accelerated into the back end of twenty twenty four, helping us put up the record volumes and most importantly the record revenues because that eyesight business tends to come at a higher RPC for us in already high RPC commodities products. So that's a trend that we've seen in place for the last twelve to fifteen months. Given the movements and headcount from places like bank trading desks and commodities trading desks into multi strat hedge funds globally, we see this as very much an investment by the buy side community to build this out as an alternative income stream beyond just typical equities and fixed income.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So we are seeing, I would say, some secular trends of growth and the enhancements on buy side serving client need who are seeking access to physical markets in a way that we haven't seen in a very, very long time. So I would say that that has been a significant component in growing our 34% growth in EMEA over the course of 2024. And as I mentioned in one of my earlier comments, our business kicking off into 2025 has started extremely strong with our overall business up in Ags up 32%, Energy 25% and Metals up 14%. So we see the secular trend. And the only other point I would make inside of that is that and Julie mentioned this before, we're seeing an increased participation, not just on the future side, but an outsized growth in options as well.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So that was an area we saw record growth in 2024 and we're seeing that kickoff very strong in 2025. So we see this as additive to the overall customer mix that we have. Julie spends a lot of time working with myself and Tim and Mike making sure that we have healthy ecosystems of each different kind of clients in our markets. Buy size is crucial to come up alongside banks, commercial customers and retail and our client segmented sales teams bring to us ideas and opportunities for unmet need and that is a source of new product development. That's one of the reasons we built out a physical ethanol contract, micro ags and short dated options in ags as well.

Derek Sammann
Derek Sammann
Senior MD & Global Head of Commodities Markets at CME Group

So we see that a secular continuing and continuing to trend from the last twelve months.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

And Kyle, I just think that when you look at the world today and what's going on, not just with inflation, but the amount of people that we need to continue to feed, these products, even though they come and they go, it appears from the front page, they are always critical to each and every one of us as we go forward. So I don't know if I want to call them secular, secular or whatever. I think that they're constant. And the question is what page of the newspaper are they on. So we're going to have ebbs and flows, but these are products that we are very excited about.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

We have been for a lot of years and I think they'll continue to go forward and people will need to use them.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

That's great. And if I just ask a quick follow-up for Lynn, really sorry, but just to be very pre tax impact that you mentioned, that is an aggregate figure inclusive of the transaction fees, correct?

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

As well as market data and the collateral fee changes, correct.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Perfect. And then on the collateral fee changes, roughly what percentage of the noncash collateral balances would that additional 10 basis point fee apply to today if no customers change their cash collateral allocations, just for modeling? Thank you.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yes. So we can't break that out right now, Kyle, just given it's a customer based decision. We'll continue to provide updates as we see the change roll through, but there's still a couple of months for them to optimize their positioning. If you look at the total cash collateral versus the total collateral, you're going to see that in the high 20s percent right now, but it's going to be based on the individual firms, not the aggregate.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Yes. Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Kyle.

Operator

The next question comes from Ken Worthington of JPMorgan. Your line is open.

Madeline Daleiden
Madeline Daleiden
Equity Research Associate at JP Morgan

Hi, good morning. This is Madeline De Leiden on for Ken. Thanks for taking our question. May you please talk about BrokerTec and the updated market share trends there with leadership likely moving to Washington at Phoenix? Do you feel that this puts BrokerTec in a better or worse position in the coming years to drive higher market share?

Madeline Daleiden
Madeline Daleiden
Equity Research Associate at JP Morgan

Thanks so much.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Madelyn. I will ask Mike Dennis to address that.

Michael Dennis
Michael Dennis
Global Head of Fixed Income at CME Group

Good morning, Madelyn. I appreciate the question on BrokerTec. When we benchmark ourselves for market share around BrokerTec, we focused on the FINRA trace number. Our share versus trace fell slightly in Q2 is down about 1.2%. January is much better with ADV up 29% month over month and market share ticking up about 0.5% versus December despite volatility remaining near recent lows.

Michael Dennis
Michael Dennis
Global Head of Fixed Income at CME Group

I think one thing that's important to highlight around BrokerTec is BrokerTec is more than just essential limit order book for U. S. Treasuries. BrokerTec is a strategic asset of the CMD Group and it helps us drive our core futures and options business. Overall revenues for BrokerTec were up 7% in Q4.

Michael Dennis
Michael Dennis
Global Head of Fixed Income at CME Group

We have a strong business in both U. S. And EU repo where we saw record ADV in 2024 across the repo complex. So additionally, we've had some solid client adoption in some of our newer trading modalities, which we launched via our relative value curve offerings, which include cash spreads and cash butterfly spreads. And then lastly, one thing I want to focus on as it relates to BrokerTec is when the clearing mandate happens, we feel that BrokerTec can provide benefits as clients adapt to this new regulatory landscape.

Michael Dennis
Michael Dennis
Global Head of Fixed Income at CME Group

So I hope that answers your question.

Madeline Daleiden
Madeline Daleiden
Equity Research Associate at JP Morgan

Thank you.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Madeline.

Operator

The next question is from Simon Klinch of Redburn Atlantic. Your line is open.

Simon Clinch
Partner at Redburn Atlantic

Hi. Thanks for taking my question. A lot of them have been answered already, but I was wondering if you could talk about the market data business. You mentioned that there's I think it was 3.5% pricing taken already this year. How should we think about the breakdown of volume growth here and the growth going forward given it's been consistently in that kind of high single digit range for some time now?

Simon Clinch
Partner at Redburn Atlantic

Thanks.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Joel, you want to address that?

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

Yes. Thanks for the question. The data business, we had a very strong quarter, right, at January in revenue, up another 9%. And that was driven, I would say, by a couple of different factors. Certainly, the we had a price increase of 3.5%, that took effect throughout 2024, but also that we're seeing interest in professional subscribers and access to our real time data.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

And that is contributing to the growth of the business as well as that non professional component that I talked about earlier as well as the Drive Data business. Because we haven't talked about the Drive Data business, just the detail there is that we continue to see increased use of our data by institutional clients as they look to create more of their own financial products and things like indices and benchmarks for their end customers. So we're looking at some new things in terms of enterprise drive data licenses that really give clients more flexibility in that regard. And then we're also continuing to evaluate what additional analytic offerings that we can provide. So a lot of good innovation there across the entire suite that I think really bodes well for a strong outlook there as well.

Julie Winkler
Julie Winkler
Chief Commercial Officer at CME Group

And as Lynn mentioned, we have another 3.5% of pricing increases that took effect on January 1 for the core business.

Simon Clinch
Partner at Redburn Atlantic

Great. That's really useful. Thank you. And just as a follow-up, maybe this is more of a housekeeping question for you, Lynn. Could you give us the latest update on the Google Cloud spend for 2025 and what the spend was in fourth quarter twenty twenty four?

Simon Clinch
Partner at Redburn Atlantic

And also just give us a sense of the priorities for that investment. You've already talked about the marketing element of going after the new retail customers, etcetera. But I just wonder if you could flesh that out a little bit more for us. Thanks.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

Sure. So in the fourth quarter, Simon, the total spend was about $22,000,000 on the migration. That was about $18,000,000 within technology and about $4,000,000 within professional services, bringing the total for the year to about $85,000,000 Within our guidance for 2025, it's including $115,000,000 related to the migration. That will, skew a bit more towards, the technology side versus the professional services just given where we are in our migration timeline. The focus for this year is, continuing to migrate some of the non latency sensitive applications.

Lynne Fitzpatrick
Lynne Fitzpatrick
Chief Financial Officer at CME Group

So we have a number of our clearing systems moved, our data systems. We're continuing that progression as we move through 2025 and continuing to work with our partner on the opportunities for building out additional capabilities and services for the client base to use that data in a more effective way.

Simon Clinch
Partner at Redburn Atlantic

Okay, great. Thanks very much.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

Thanks, Em.

Operator

And that was our final question for today. I will now turn the call back over to management for closing remarks.

Terrence Duffy
Terrence Duffy
Chairman & CEO at CME Group

We want to thank you all for joining us today. We appreciate very much. Look forward to any follow-up questions you may have and look forward to talking to you next quarter. Thank you very kindly. All stay safe.

Operator

Thank you all for your participation on today's conference call. At this time, all parties may disconnect.

Executives
Analysts
Powered by Quartr

Key Takeaways

  • In 2024 CME Group achieved a record year with average daily volume up 9% to 26.9 million contracts and volume gains across all six asset classes, including a 14% increase in international trading to 7.8 million contracts per day.
  • Commodities were a standout, with metals volumes up 23%, energy up 17% and agricultural volumes up 13%, driving a record $1.7 billion in revenues and strong momentum into early 2025.
  • Full-year 2024 financials delivered a 10% rise in revenues to $6.1 billion, an adjusted operating margin of 68.3% and $3.7 billion in adjusted net income, translating to 10% EPS growth.
  • For 2025 CME Group forecasts adjusted operating expenses of ~$1.65 billion, capital expenditures of ~$90 million and a 22.5–23.5% effective tax rate, and expects trading fee changes plus a new 10 bp collateral surcharge to boost pretax income by 2–2.5%.
  • New client acquisition remains robust—about two-thirds of the $1 billion in revenue from clients added over the past five years comes via retail channels, and CME sees a blurring of retail versus institutional trading driven by micro contracts and crypto offerings.
AI Generated. May Contain Errors.
Earnings Conference Call
CME Group Q4 2024
00:00 / 00:00

Transcript Sections