The operator welcomes participants to the Cboe Global Markets Third Quarter 2023 Earnings Call and introduces the speakers. The Vice President of Investor Relations provides an overview of the agenda and mentions the use of slides. The CEO, Global President, and CFO will discuss performance, strategic initiatives, and financial results for the quarter. The call will also include a Q&A session with other executives. Forward-looking statements will be made, but actual outcomes may differ from what is expressed or implied.

Cboe reported record third quarter earnings, with net revenue increasing by 9% and adjusted earnings per share by 18%. This was driven by record activity in their derivatives business and growth in their Data and Access Solutions business. The derivatives business remains resilient, with a growing customer base and recurring options products. The Data and Access Solutions business saw a 9% increase in organic net revenue.

The net revenue in the cash and spot markets business decreased due to low volumes in global equity markets. However, the company's solid results were attributed to their strategy to build a strong derivatives and securities network. The speaker, who has been a Cboe Board member for four years, is now focused on three key priorities: sharpening the company's strategic focus, effective allocation of capital, and talent development and succession planning. The company's CEO will be working on refining the strategy to drive revenue and earnings growth, increasing efficiency in investments, and prioritizing talent development and succession planning. The call was then turned over to David Howson to discuss the results of their strategy.

During the third quarter, Cboe's strategic growth priorities of Derivatives, Data and Access Solutions, and Digital yielded solid results. The company is preparing to launch Margin Futures in the first quarter of 2024 and has made leadership changes to support global growth. Record results were seen in the Derivatives business, with a surge in volumes for flagship products and the fastest growing segment being zero data expiry options.

Investors use zero DT options for hedging, income generation, expressing market views, and capturing intraday risk. These options have become more popular, comprising 48% of all SPX volumes in the third quarter. However, other expiries, such as monthly SPX options, also see high volume. VIX options are also in demand for hedging against black swan events, with ADVs surging 60% year-over-year. With macro and geopolitical risks increasing, there is strong global demand for these products, with ADVs for SPX and VIX options during global trading hours increasing 95% and 10% respectively year-over-year. These derivatives products are well positioned for any market environment.

The VIX plan-based products offered by Cboe provide customers with a diverse range of options for risk management and income generation. Cboe is continuously expanding its suite of data products, including benchmark indices and credit volatility indices, to enhance the trading ecosystem. The launch of single stock options on the Cboe European Derivative Exchange is expected to drive further growth, and the company's Data and Access Solutions business saw record results in the third quarter due to an increasing global customer base and a growing portfolio of market data solutions.

Cboe's data offerings and cloud strategy allow for the packaging and delivery of high quality data to customers globally in a consistent and cost-effective manner. The adoption of Cboe global cloud by customers outside of the Americas reflects the company's expanding global footprint. Cboe's global cash equity business has a strong presence in seven of the top 10 global equity markets and saw a 17.9% increase in market share in the third quarter. The technology migration of Cboe Japan is expected to further expand the company's unique block trading network. In Europe, Cboe's market share for equities is 23.2% and Cboe BIDS Europe remains the largest block trading venue in the region.

Cboe Clear Europe's market share grew in the first quarter, while market share for Canadian equities rose and US equities fell. The global FX business had a record quarter, with net revenues increasing by 6%. Cboe delivered another outstanding quarter and sees strong momentum heading into the end of the year and 2024. The company's strong foundation and focus on derivatives, cash, and spot markets, as well as Data and Access Solutions, will continue to drive innovation and value for shareholders. The third quarter saw a record increase in net revenue of 9% to $481 million.

In the third quarter, the company experienced growth driven by strong results in Derivatives Markets and Data and Access Solutions. Derivatives Markets saw a 15% increase in organic net revenue, while Data and Access Solutions had a 9% increase. Cash and Spot Markets saw a decrease of 6% due to a muted trading environment. Adjusted operating expenses increased by 4%, but adjusted EBITDA grew by 12%. The Options segment had the highest growth, with a 14% increase in net revenue and a 28% increase in higher priced Options ADV. North American equities net revenue increased by 2%, while access to capacity fees and proprietary market data both saw increases.

The US industry volumes are a challenge for the segment, with net transaction fees down 11%. However, the Europe and APAC segment reported a 2% increase in net revenue, driven by non-transaction revenues and favorable foreign exchange trends. The Futures segment saw a 14% increase in net revenue, with double-digit growth in net transaction fees, access to capacity fees, and market data revenue. The FX segment also saw a 6% increase in net revenue, marking the tenth consecutive quarter of year-over-year growth. Cboe's Data and Access Solutions business saw a strong 8.7% increase in net revenues, driven by additional subscriptions and units.

The increase in pricing for Access and Capacity fees was due to the first pricing increase in over five years for physical connectivity to the multi-exchange network. The company intends to continue growing its user and unit base while remaining mindful of competitor pricing and supporting innovation. The segment has seen overall acceleration and organic net revenue growth, positioning the company well within its full year and medium term guidance range. Proprietary data sales and access in Australia have shown strong growth, and the company plans to continue focusing on global content distribution. Adjusted operating expenses increased by 4% due to higher technology support services and professional fees, as well as increased travel and promotional expenses. This was partially offset by a decline in compensational benefits due to a one-time benefit for executive changes. The company does not expect this impact to be recurring.

The company has lowered its full year 2023 expense guidance range by $12 million to $754 million to $762 million. The three components of the expense notes are expenses from 2022 acquisitions, core expense growth, and growth investments. The incremental 2023 expenses from the 2022 acquisition remain at $30 million to $31 million, while core expenses are expected to grow by 8%. Growth generating investments are expected to be in the range of $21 million to $24 million, which is slightly lower than the previous range. The company is reaffirming its organic total net revenue growth range of 7% to 9% for 2023.

Cboe is reaffirming its medium term guidance of 5% to 7% organic net revenue growth, with a current growth rate of 7% to 10%. The company expects a benefit from the other income line due to its investment in the 7Ridge Fund. They have increased their expected benefit range and maintained their full year guidance for depreciation and amortization. The effective tax rate on adjusted earnings is expected to be lower than previously guided. Net interest expense for the third quarter was $12 million and is expected to be in the range of $11 million to $12 million for the fourth quarter. The company returned $58.5 million to shareholders through dividends and increased its share repurchase authorization. They also paid down $99 million on their term loan facility, resulting in a slightly lower leverage ratio of 1.3x.

Cboe Global Markets has paid off $75 million of their term loan facility and is comfortable with their debt profile. They plan to continue investing in growth while driving margin efficiencies. Ken Hill has been promoted to Treasurer and Vice President, Investor Relations. Fred Tomczyk, the new CEO, thanks the team for their achievements and is excited about the future. During the Q&A session, he is asked about the three key priorities he mentioned, and elaborates on the area of refining the strategic vision.

Fred Tomczyk, a board member, believes that the current strategy of focusing on new asset classes and geographies is a good one, but also emphasizes the importance of having a strong organic strategy. He believes that the management team should work together to create a strategy that aligns with current trends and takes into account Cboe's strengths. This will involve a common frame of reference, competitive analysis, and a SWOT analysis, which will then lead to key strategic actions over the next few years.

The speaker discusses the company's focus on improving efficiencies and stabilizing margins in the future. They also mention their capital allocation strategy, which includes investing in organic initiatives, paying dividends, paying down debt, and potentially engaging in share repurchases and focused M&A transactions. The company is prioritizing discipline and a deliberate approach to their capital allocation.

The speaker, Fred Tomczyk, is the new CEO of a company and has been in the position for six weeks. He is focused on stabilizing and improving the company's EBITDA margins. There is a question about narrowing the company's strategic focus and potentially divesting some aspects of the business. Tomczyk clarifies that there was not a disagreement with his predecessor, but rather a desire to provide more focus for the organization and allocate capital more strategically.

David Howson discusses the exciting new events and product launches coming up in the Digital business and margin Futures in the New Year, as well as the Asia Pacific Re-platforming later this year. John Deters emphasizes the importance of integrations for past acquisitions and the potential for improved returns on invested capital. Chris Isaacson mentions the potential for divestitures in the future, but currently has no plans. The team is confident in their strategy for the Digital business and believes there is still demand for the asset class of margin futures. Craig Siegenthaler asks a question about the potential for divestitures.

In response to a question about the recent deceleration in index options volume, Fred Tomczyk, CEO of a financial company, attributes it to factors such as increased hedging and institutional engagement. He also mentions the sustained success of their Zero Day trading complex, which has seen record numbers in October and has been consistently performing well over the past 18 months. Overall, Tomczyk expects this trend to continue.

The company is looking towards the future with uncertainty in the marketplace due to factors like the Fed, inflation, and geopolitical issues. They believe their volatility toolkit will help manage risk and options provide a durable recurring income stream. They have seen growth in index options and global trading hours. One area that was not mentioned as a potential divestiture is the European derivative expansion, which has faced limited appetite from clients. The company's patience with this project may be limited.

The launch of European derivatives is still in its early stages and it is too soon to determine the impact on expenses. There is demand for liquidity in the US from clients and the success of the European options expansion is still uncertain. The growth of index options and futures in Europe has been positive, with new participants and market makers. The potential for growth in the European derivatives market is still significant.

The speaker discusses the speculation surrounding the future ownership of Cboe and mentions the importance of succession planning in his prepared remarks. He also shares a personal experience of being told by his Board to prioritize planning for his own succession when he became a CEO at a young age.

The speaker discusses the importance of having talented individuals and good leadership in the organization for a smooth succession. They also address rumors of Cboe being for sale and emphasize the need to stay focused on running the business. The speaker is then asked about expense trends, specifically the cost of the consolidated audit trail, and they mention potential improvements from the SEC and their thoughts on expenses for the next two years.

Jill Griebenow and Fred Tomczyk discuss the recent noise surrounding the company's CapEx and how they have firmed up their guidance for the fourth quarter. They also address the core cost and CAT cost built into their expenses and how it will moderate in 2024. They mention that their core expense growth is expected to be around 8% in 2023 and that they will share full year projections in February. The next question is about the development of the consolidated tape in Europe and how it fits into the company's overall strategy. They also touch on the derivatives market and their goal of reaching a $25 million annualized revenue run rate by 2025. Fred Tomczyk emphasizes the benefits of a consolidated tape for the European market.

Cboe Global Markets is focusing on expanding its fixed income markets in Europe, with plans to potentially provide a consolidated tape in the future. They also see potential for growth in their single stock options business. The company is confident in its ability to raise prices in areas where they provide value, such as their Access Solutions business.

The speaker explains that the company has seen significant growth in their SPX and zero DT transactions, with a focus on expanding distribution and access to their data products internationally. They also have the ability to adjust pricing for SPX options, but are currently focused on maximizing revenue and market share. There is also potential for growth in global trading hours and international capabilities.

The speaker discusses the SEC's proposal to ban volume-based pricing for exchanges and how it could impact competition. They believe that government-imposed price controls are not beneficial and that competition between trading venues is important. They also mention that higher costs may be passed on to end users and they prefer to compete on a level playing field.

The speaker discusses the recent proposals and innovations in the index options suite, specifically focusing on the SPX dailies. They mention the current availability of SPX weekly expiries and the balance between liquidity and managing the number of strikes and series. They also mention Cboe's pioneering role in offering longer dated options going out for a full year.

Cboe is expanding its range of strikes and expiries for its utility, which is beneficial for insurers, asset managers, and buy side funds. They are customer-led and focused on providing value and liquidity to their end-customers and investors. They recently added a fifth week of dailies based on customer demand and will continue to add more strikes if the market wants. Cboe Digital has also launched a crypto futures trading product and has further derivatives products in the pipeline, with the unique advantage of having spot and margin futures on the same technology platform under the same regulatory umbrella.

The speaker discusses the unique value offered by their platform, which allows users to trade both spot and futures contracts over the same APIs and connections. They also mention the potential for approval of spot Bitcoin ETFs in the future and how their ecosystem will benefit from this. They note that their transparent, regulated, and customer-driven model aligns with current regulatory trends. The call concludes with the speaker thanking participants and expressing a desire to meet in person again in the future.

This summary was generated with AI and may contain some inaccuracies.