The CME Group first quarter 2024 earnings call began with an introduction and a reminder of the Safe Harbor language. The company's performance in the first quarter was strong, with high average daily volume and a growing need for risk management globally. The CEO, Terrence Duffy, and CFO, Lynne, will provide an overview of the financial results, followed by a Q&A session with other members of the management team.

The second quarter of 2021 has been the third highest quarter for the company, with only the first quarter of 2020 and the first quarter of last year surpassing it. Despite no major macro events or changes in Federal Reserve rates, the company saw record high average daily volumes for treasuries, options, equity index, energy, and non-U.S. products. This strong activity in the first quarter led to record financial results. In April, there has been continued growth in physical commodity products, with metals seeing a 76% increase in ADV. The CPI release on April 10 also resulted in high trading volumes, highlighting the market's sensitivity to economic indicators.

In the first quarter, CME Group saw a 30% increase in revenue, reaching nearly $1.5 billion. This was driven by strong market dynamics and growth in all six asset classes. Market data revenue reached a record high and other revenue increased by 37%. Adjusted operating margin was 68.9% and adjusted net income and earnings per share were the highest in the company's history. The company also paid dividends of approximately $2.3 billion during the quarter.

The speaker discusses the company's record quarterly earnings and strong start to the second quarter. They attribute this success to consistent high demand for their risk management products. The call is then opened for questions, with the first being about the record activity in the U.S. treasury complex. The speaker mentions the impact of CME DTCC cross-margining and the opportunity for revenue with U.S. treasury clearing. They also address the question of whether this is the peak of treasury activity, stating that it is difficult to draw conclusions due to current global and domestic situations.

The speaker argues that if the Fed cuts, it will generate more activity in the treasury market, and that this activity does not necessarily have to go up to generate activity. The DTCC and clearing corporations are seeing increased participation and margin savings, and the portfolio margining program has delivered record savings. The treasury complex has seen steady growth in volume and open interest, and the congressional budget office predicts it will continue to grow in the future.

The total net issuance in Q1 was mostly coupon-heavy and the treasury complex had a record Q1 of 7.8 million contracts across futures and options. The Fed's actions and opinions surrounding interest rates are generating a lot of activity in the market. There is also a potential risk for duration risk among those holding treasuries.

The CME Group is in the process of filing an application for treasury clearing, which will not take effect until 2026. The company has seen a significant increase in activity in the commodities and metals markets, particularly in the gold market, with healthy participation from both commercial and buy-side clients. This growth in activity has led to questions about the role of gold in the market, but the company is prepared to move forward with the application if it benefits their participants.

In the first quarter, the base metal side of the business saw a 15% growth, driven by factors such as global growth, China, and electrification. This has been beneficial for markets like copper and aluminum, which have seen record growth. The growth has been strong across client segments and regions, and the options business has also set records. The CEO adds that all six asset classes are performing well, with a recent influx of customers in the metals market. This diversification of customers is a trend that has been observed for 22 years. Overall, the company is seeing healthy growth across all asset classes.

Terry Duffy, CEO of CME, addresses the topic of potential M&A opportunities for the company, stating that while they are not actively seeking deals, they are open to considering them if they make sense for shareholders and clients. He also mentions that the current market conditions, with all six asset classes performing well, may present opportunities for M&A. In response to a question about market data, Duffy explains that there were some one-time revenues in this area, including an audit, but that derived data has become a more stable revenue source for the company. He also mentions the partnership with Google in this area.

In the paragraph, Julie Winkler discusses the success of the data services business in the past quarter, with a revenue of $175 million and a 6% increase. The main source of this revenue is the professional subscriber base, which accounts for over 80% of the total. However, there were also some unpredictable spikes in revenue due to contract renewals and variable components. Winkler also mentions the ongoing collaboration with Google to commercialize the data business and the implementation of transaction cost analysis for better decision-making.

Craig Siegenthaler asks about the upcoming launch of credit futures in June and the potential size of the market and expected volume ramp based on conversations with key participants. Terrence Duffy acknowledges that it is a good question but cannot fully answer it yet as the contract has not been released.

Tim McCourt discusses the potential opportunity in the credit market for CME, given their strength in interest rates and equity. The launch of credit futures on June 17 is expected to attract clients and offer margin efficiencies of up to 70%. This will allow clients to manage their credit risk and may contribute to the growth of the market.

The speaker is discussing the positive feedback from clients and the potential for success with the launch of a new contract in June. The questioner asks about the company's debt levels and potential for refinancing, and the speaker explains that they will evaluate their approach and consider current interest rates.

The speaker discusses the maximum target for M&A and the use of debt and equity in transactions. They mention the portfolio margining agreement with DTC and its impact on volume growth. They also address the potential impact of the treasury futures dynamic on the cross-margining agreement with DTC. The speaker then mentions that they do not have the revenue for EBS and BrokerTec in the prepared quarterly summary.

The speaker is asking about the contribution of portfolio margining in treasury volumes and whether it is helping or just a result of market dynamics. They also ask about the potential complications with the DTC agreement in regards to treasury clearing. The response is given by Suzanne Sprague, who mentions that there has been an increase in new clearing members taking direct membership to take advantage of the cross-margin program between the company and the fixed income clearing corporation. The company's focus is on growing participation in the program and extending it to customers. Tim McCourt may have more to add on the topic.

The speaker discusses the relationship between CME and DTCC, highlighting the significant growth in margin savings and the increase in volume and open interest in the interest rate complex. They believe that unlocking further capital efficiencies will have a positive impact on their complex. The speaker also mentions their obligation to file a treasury clearing application with DTCC and their preparedness for potential changes in market structure in 2026.

During a conference call, CME Group's Lynne Fitzpatrick and Brian Bedell discuss the company's relationship with DTCC and its revenue from cash markets and trading. They also mention that the company's energy market share has been shifting towards ICE and WTI, and ask if CME is doing anything to regain market share.

During the first quarter, the company's market share did not shift and they did not see the market share that the questioner was referring to. The company's energy business saw strong growth, particularly in their buy side and commercial customers, and their non-U.S. growth in energy was up 38%. Their market share for WTI contracts compared to ICE's was flat at 74%, but their market share for WTI options increased to 89%. This is due to the increase in U.S. crude oil production and exports.

The growth of non-U.S. customers in the energy market is leading to an increase in WTI and Henry Hub exposure. This is reflected in the significant growth of WTI futures and options, as well as the growth of grades contracts. The majority of this growth is attributed to commercial customers looking for exposure to the global export market. Similarly, the Henry Hub franchise is also experiencing record volumes and market share, with a significant increase in options trading.

The speaker, Terrence Duffy, responds to a question about FMX's upcoming launch in the competitive rates market. He acknowledges the presence of competition and takes it seriously, but also highlights the advantages of CME's services, such as pop margining and FIC, which have been successful in offsetting costs for clients. Overall, he believes that CME is well-positioned to compete in this market.

The speaker believes that capital efficiencies are crucial in the business world. They mention a recent accomplishment and the benefits it brings. The speaker also mentions that they are not able to walk away from the significant amount of money they are receiving due to this accomplishment. The next question is about the company's expense guidance, and the speaker explains that there are some projects that will ramp up throughout the year, leading to higher expenses. They also mention that there was no particular pause in spending, but rather timing of project-based spending, and they are comfortable with their guidance. The next question is about investments that may have been paused in the first quarter, and the speaker mentions some projects that will ramp up throughout the year, leading to higher expenses.

Michael Cyprys asks about the limited growth in CME Group's cash rates BrokerTec business and interest rate swaps. Tim McCourt explains that volatility has favored internalization of flow and less activity in the CLOB, but the U.S. repo market has had a strong quarter. He also mentions the value proposition of the BrokerTec platform and looks forward to showcasing other aspects of their business.

The interest rate swap business at CME had a strong quarter in Q1, with near record levels in the major three Latin American currencies that they clear. This growth story is important in managing risk for the interest rate complex and meeting the needs of clients. The success in OTC markets and providing risk management for BrokerTec is complemented by record futurization in the treasury complex. Treasury futures now make up a record 113% of the cash market in terms of value traded daily. The Google cloud migration progress is ongoing and partnerships with Google are helping with innovations for the back end aims of the migration and dealing with co-location clients.

The speaker discusses the possibility of CME's markets being moved into the cloud, stating that they will wait until the work is complete and the data center is finalized. They will only make the move if it is more efficient for clients. The team is currently working on migrating non-market workloads and adding risk information to their data platform for potential future monetization.

Benjamin Budish from Barclays asks about the potential growth of the market data offering and the penetration of potential subscribers. Terrence Duffy defers to Julie Winkler, who discusses the interest from customers in the risk management capabilities and the ability to provide data and insights faster. She also mentions strong demand for professional subscribers and the benchmark and price discovery services offered to customers.

The speaker discusses the strong participation in the business, both globally and regionally. They mention the importance of providing data sets and new offerings, as well as leveraging their existing products. They also highlight record cross-selling and positive results. The questioner asks for an update on cash and non-cash collateral rates, which the speaker provides.

The speaker asks about the size and strength of the network for interest rate futures at CME, and specifically how many firms provide liquidity and how much they account for. The response is that the exact number of firms cannot be disclosed due to the anonymity of the market, but the network is strong and global, with a mix of customer personas and record-setting activity. The network is vital for participants to manage their risk.

Brian Bedell from Deutsche Bank asks a question about cash collateral and rates. He also asks about the progress of basis trading and how the acquisition of TradeWeb may affect it. Tim McCourt from CME Group responds, stating that basis trading has been a consistent trade in the market and that CME is uniquely positioned to facilitate it. He also mentions the importance of working with all types of participants and the potential for growth in the trade. Terrence Duffy thanks Brian for his question.

The operator introduces a question from Owen Lau about the potential classification of Ether as a security by the SEC, and CME Group's response to it. Tim McCourt explains that the CFTC has deemed Ether a commodity and CME Group will continue to list Ether futures and options under their exclusive jurisdiction. Terrence Duffy clarifies that while CME Group is involved in the crypto market, it is not a significant portion of their business. The last question is from Michael Cyprys about CME Group's migration to the cloud and potential opportunities for new services and revenue in the future. Sunil Cutinho will address the capabilities of the cloud migration and Julie Winkler will discuss potential commercialization.

The company has made margin calculation services available on the cloud, including current and historical calculations, and now intra-day calculations. They are also introducing optimization tools for clients to move positions between risk pools. The company is unique in providing these services and plans to release APIs and offer market data distribution through the cloud. This will allow for more customization and has been live with Google for a few years.

The company offers flexible data packaging and distribution options for customers, including the ability to create safe and secure cloud environments for using data from multiple sources. There are also potential commercialization opportunities through analytics and APIs, but this may take some time to develop. The ultimate goal is to use data to support risk management and transaction-based businesses. The specific ways in which these opportunities will be monetized are still being determined.

The Operator apologizes for technical difficulties and thanks everyone for their patience. Terrence Duffy thanks everyone for participating and mentions that all six asset classes were up in Q1, showing the health and expansion of clients. He also mentions that open interest is up and new participants are coming in, making CME Group an attractive option. He thanks everyone for participating and reminds them to be safe. The Operator then concludes the call.

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