The paragraph is an introduction to the CME Group's Fourth Quarter 2024 Earnings Call. The operator informs participants that they are in listen-only mode until the Q&A session. Adam Minick begins the call by noting that executive commentary has been released, provides a legal disclaimer about forward-looking statements, and mentions that detailed information is available in SEC filings. Terry Duffy then discusses CME Group's record performance in 2024, highlighting a 9% increase in average daily volume to 26.9 million contracts, and notes that a financial overview and 2025 guidance will be presented by Lynne, with other management team members available for questions afterward.

The paragraph highlights significant growth across multiple asset classes, with record-setting volumes in interest rates, foreign exchange, metals, and agricultural sectors. The company's international business reached an average of 7.8 million contracts per day, marking a 14% increase from the previous record in 2023. They have achieved substantial margin savings of approximately $60 billion daily for clients across all asset classes. Commodities were the third fastest-growing asset class in 2024, with increased volumes in metals, energy, and agriculture, generating $1.7 billion in revenue. This growth was led by the buy side, particularly global multi-strategy hedge funds, and was most significant in the EMEA region with a 34% increase in volume. Strong client acquisition across institutional and retail sectors drove this growth, and the line between these sectors is blurring due to technological advancements.

The paragraph discusses a new type of trader entering the market, leading to growth in the financial system, with several large retail brokers joining to meet demand. The company has increased investment in marketing and education, resulting in $1 billion in revenue from new clients over five years and strong volumes in early 2025. Various global economic factors create market movement and a need for risk management solutions. The company achieved record financial results, with 2024 being the third consecutive year of record revenues and earnings. Revenue grew 10% to $6.1 billion, with all-time records in all asset classes, and expenses were $1.59 billion. The adjusted operating margin rose to 68.3%, with $3.7 billion in adjusted net income and 10% earnings per share growth.

In the fourth quarter, CME Group reported over $1.5 billion in revenue, marking a 6% increase from Q4 2023, with market data revenue growing by 9% to $182 million. The company effectively managed expenses, reporting $520 million in adjusted expenses and $436 million excluding license fees, leading to an adjusted net income of $919 million and adjusted earnings per share of $2.52, up 6% from the previous year. Capital expenditures were around $28 million, with $3.1 billion in cash at year's end. In 2024, CME Group declared $3.8 billion in dividends, including a $2.1 billion annual variable dividend. For 2025, the company projects adjusted operating expenses of $1.65 billion, capital expenditures of $90 million, and an adjusted tax rate of 22.5% to 23.5%. Fee adjustments effective February 1st are expected to boost transaction revenue by 1% to 1.5%, and market data fees increased by 3.5% from the start of the year. Also announced is a 10-basis-point non-cash collateral surcharge effective in April for participants not meeting cash margin requirements, potentially impacting rates on non-cash collateral or cash posted at the clearing house.

The paragraph discusses a company's focus on managing trade costs and the impact of fee changes on their financial results. They report successful financial performance, achieving 10% revenue and earnings growth, marking their third consecutive year of double-digit earnings growth. During a call, Patrick Moley from Piper Sandler asks about the company's retail strategy, particularly the rollout of futures to Robinhood's 24 million customers. Julie Winkler responds, highlighting the importance of retail in new client acquisition, noting a significant portion of their growth is driven by the retail sector, with increases in trader participation and new client acquisition.

The paragraph discusses the growth across all regions and asset classes, with FX and metals leading. There has been a significant increase in volume, particularly in the retail business, with a focus on education and expanding the customer base. The micro equity suite, crypto, and commodities have seen notable uptake. Partnerships with brokers like Robinhood are expanding, contributing to international performance. The company is optimistic about future growth, thanks to its diversified product offerings and global partnerships.

Terry Duffy discusses the evolving definition of retail participants in trading markets, highlighting the blurring lines between institutional and retail traders. He emphasizes the role of technology and artificial intelligence in changing market access and risk management, which will broaden the scope of what is considered retail trading. Duffy also addresses the approval CME received to establish its own futures commission merchant (FCM), stating there is no current intention to utilize it, but it's important to be prepared for future changes without disrupting existing FCM partnerships.

The paragraph is a segment of a conversation during a company's earnings call, where Terry Duffy and Lynne Fitzpatrick discuss the company's capital allocation strategy, particularly focusing on share buybacks. Lynne explains their approach to capital allocation, mentioning recent dividend increases and the payment of a variable dividend as key uses of excess cash. She describes share buybacks as an opportunistic strategy, forming part of the company's broader approach to returning capital to shareholders, which also includes dividends. Alex Kramm from UBS asks for clarification and updates on the company's share buyback strategy and receives the explanation from Lynne.

In the paragraph, Michael Cyprys from Morgan Stanley asks about product development opportunities related to climate events and severe weather patterns. Derek Sammann responds by highlighting that their existing products and services are already being utilized in the market, particularly in agriculture and energy sectors. He notes significant growth in the agriculture markets due to weather impacts and increased activity in natural gas markets, which is becoming a primary energy source. This growth reflects in both increased open interest and options, indicating substantial market participation to manage risks from climate events. Terry Duffy also indicates he has additional comments to add.

The paragraph discusses how changing weather patterns are leading to increased use of energy products, particularly in weather-driven markets where options play a significant role. It highlights the growth and sophistication of this market, evidenced by the large open interest in weather-related contracts and how these impact pricing for various indexes and transactions. The discussion extends to the energy transition economy, with notable expansion in battery metals such as cobalt, lithium, and spodumene, and the launch of a physical ethanol contract. It emphasizes the importance of industrial metals, particularly copper, in reinforcing the energy grid and the resulting record growth in these markets. Overall, the paragraph underscores the demand for market-based solutions in energy and metals through CME Group products.

The paragraph discusses the growth of CME Group's commodities asset classes, with significant increases in agriculture, energy, and metals for 2024 and into 2025. Terry Duffy mentions concerns raised by Fed Chair Powell about the potential inaccessibility of mortgages due to insurance issues and highlights the importance of risk management products. There's an indication of plans to develop products tailored to industry needs, though nothing specific is announced yet. The paragraph concludes with a question from Benjamin Budish about retail product expectations, particularly in relation to equity indices' dominance and competition with other S&P derivatives.

The paragraph discusses the growing importance of the retail business in risk management and trading, driven by advancements in technology that enable individuals to manage their own risk. Terry Duffy emphasizes the need for speed in facilitating retail accounts and the significance of defining "retail" in the industry. Julie Winkler adds that CME's diverse product offerings, particularly their micro equity suite, attract retail customers, although macro trends may influence this preference over time. Overall, there is excitement about the potential growth and evolution of the retail market.

The paragraph discusses the strong interest in commodities, particularly in the APAC region, and how this interest is influencing the company's strategy to introduce new products like micro ag contracts and attract customers with diverse offerings. It highlights a trend where new participants in futures are coming from different segments, such as existing CFD providers, and emphasizes the importance of product education and building awareness. The company sees strong growth from existing partners and aims to cross-sell popular products. Terry Duffy adds that to attract new retail clients, it's crucial to offer products they feel familiar with, suggesting customization of products to enhance participation.

In the paragraph, a discussion takes place about expected changes in trading fees and incentives, mentioning a total fee adjustment of 2% to 2.5%. Lynne Fitzpatrick clarifies that the 1% to 1.5% trading fee increase includes incentive changes. The conversation also touches on potential customer choices regarding collateral, which could affect revenues differently based on whether customers choose cash or non-cash collateral. This choice will ultimately impact pre-tax earnings, as the effect on other revenue or non-operating income depends on customer decisions. The interaction ends with Chris Allen from Citi asking for further clarification.

The paragraph discusses a securities clearinghouse initiative led by Terry Duffy and Suzanne Sprague. The application for the clearinghouse was published in the Federal Register, and they are working with the SEC for approval. Suzanne highlights the potential benefits of the license in terms of value creation for customers and emphasizes collaboration with the Fixed Income Clearing Corporation (FICC) to expand cross-margining programs. The focus is on capital efficiencies for both their clearing offering and partnership with FICC. Despite potential delays, they believe the benefits of freeing up capital for clients are significant.

In the paragraph, the discussion revolves around the potential benefits of margin efficiencies and rate efficiencies, specifically within the CME Group, following the regulations brought by Dodd-Frank. Participants, who were initially opposed to these changes, are now benefiting from central clearing and balance sheet offsets. While the exact margin-saving potential for the industry is unclear, the increase in clearing members taking advantage of existing programs, like the Fixed Income Clearing Corporation and new CME offerings, indicates potential growth. The importance of choice for market participants is emphasized as the clearing mandate evolves. Suzanne Sprague notes the complexity of predicting exact savings due to various factors, and the conversation ends with Terry Duffy thanking Chris Allen and the operator moving to the next question.

Terry Duffy discusses the challenges and risks facing the global economy as of mid-February 2025, emphasizing the high levels of debt in the United States and the political debates around spending and taxes. He mentions the impact of even minor interest rate changes on business balance sheets. Duffy also touches on geopolitical issues and President Trump's extensive agenda, noting that these factors contribute to the complexity of the economic environment. Despite these challenges, he predicts continued market activity as people work to manage and mitigate risks.

The paragraph discusses the involvement of commodity index funds in managing risks related to tariffs, weather, and foreign exchange fluctuations, which could become more prominent by 2025. The speaker is optimistic about CME's six asset classes despite potential global economic dangers. Additionally, there is a discussion on capital return strategies, touching upon buybacks, dividends, and the potential for mergers and acquisitions (M&A). Terry Duffy addresses the uncertainties surrounding M&A regulations, noting that it was challenging to complete deals under the Biden administration's Department of Justice, but there is speculation that this could change.

The paragraph discusses the cautious approach to mergers and acquisitions (M&A) being taken, with a focus on maintaining a strong balance sheet and being selective about opportunities that align with core competencies. It highlights the importance of a steady influx of clients and ensuring that the customer base is well-educated and engaged. The speakers underscore the need to build the business through both traditional M&A and other innovative methods while ensuring a future pipeline of clients and activity.

In the paragraph, Terry Duffy addresses a question from Brian Bedell about the blurring of lines between retail and institutional traders. Duffy clarifies that this blurring refers to the evolving definition of retail clients, highlighting that professional retail traders now have access to advanced technology and tools that were once only available to institutional investors. This shift is not about changing definitions yet but indicates how technology is making retail traders more sophisticated and bridging the gap with institutional clients.

The paragraph discusses anticipated changes in the definition of retail interactions within financial markets, though specifics are yet to be determined. It suggests that advancements in technology and risk management will broaden the scope of clients FCMs (Futures Commission Merchants) can handle, despite initial hesitance due to risk. Julie Winkler adds that the sophistication of retail traders is increasing, with greater usage of data and analytics for trading decisions. There's also a rise in online community interaction for sharing trading ideas, contributing to retail trading dynamics. The company experienced a strong quarter, with significant growth in non-professional device usage reported by vendors and brokers, indicating robust demand and interest in retail trading.

The paragraph discusses trends in data and analytics within the marketplace, noting the growing sophistication of retail clients and their increased use of options. The conversation shifts to the company's revenue, where they reveal limited disclosure on specific retail contributions but mention that two-thirds of their new client acquisitions over five years contributed 5% of transaction revenue. Additionally, Lynne Fitzpatrick provides an update on cash and non-cash collateral levels, indicating slight changes in cash balances and noting that changes to non-cash collateral fees won't take effect until April.

In the paragraph, Terry Duffy addresses concerns around the regulatory environment related to interest rate and US Treasury contracts. He clarifies that the CME's issue is not with LCH being registered in both the UK and US, nor where depositor funds are kept, but rather with the default and resolution processes being under the sole jurisdiction of the Bank of England. He emphasizes the potential risks of the large rate swaps market being cleared by LCH, particularly if the US has no authority in case of a default, which could negatively impact the US Treasury market given its size.

The paragraph discusses the importance of the US having resolution authority for sovereign debt management under the Treasury Department, emphasizing the progress made in understanding the issue. It mentions a convoluted response from a new Commerce Secretary nominee during a committee questioning. Additionally, the conversation shifts to pricing in futures and options, noting a slight decrease in the rate adjustment compared to the previous year. The focus remains on balancing pricing adjustments with maintaining healthy trade volumes to achieve high incremental margins.

The paragraph discusses the need to balance changes in clearing, transaction fees, data, and collateral, which have affected their client base. There have been shifts away from clearing and transaction fees, with notable increases in contracts for crypto, metals, natural gas, and agricultural commodities. Terry Duffy responds to Owen Lau's question about the CME's potential expansion into the crypto space amid growing regulatory clarity. Duffy emphasizes their cautious approach, highlighting their initial launch of Bitcoin in 2017. He notes that any new derivative products for cryptocurrencies beyond Bitcoin and Ether will require consultation with the SEC to ensure regulatory compliance, and they will not proceed without thorough discussions with the agency.

The paragraph discusses CME Group's approach to cryptocurrency trading, emphasizing their commitment to being a regulated and transparent venue. Tim McCourt highlights the company's strategy of waiting for regulatory clarity before launching new cryptocurrency products, focusing on demand-driven development. February saw record trading volumes with nearly 700,000 contracts on February 3rd. The company continues to innovate in Bitcoin and Ether products, like Bitcoin Friday futures. Owen Lau then inquires about the fourth-quarter futures and options revenue per contract (RPC), noting an increase from the third quarter due to a shift towards higher-priced commodities and less volume tiering. Terry Duffy prompts Lynne Fitzpatrick to respond.

The paragraph discusses the pricing structure for different asset classes and how it varies based on trading volume. As volume increases, the bias is towards lowering prices, and the opposite is true when volume decreases. The pricing is structured by individual asset classes rather than across the entire enterprise to incentivize trading activity. Terry Duffy highlights the importance of understanding the client's needs rather than just looking at the notional value of a product. The pricing estimates assume a similar mix and volume level as the previous year, and there is an acknowledgment that the RPC (Revenue Per Contract) can fluctuate based on product growth and usage by participants.

The paragraph discusses the increased activity of global multi-strategy hedge funds in the commodities market, as mentioned in previous calls. The trend, which became noticeable over the past 18 months, significantly contributed to record volumes and revenues in 2024, particularly in regions like EMEA and APAC. The buy-side community was the fastest-growing client segment, and this growth helped achieve record performance because their business typically carries a higher revenue per contract (RPC), especially in commodities. This increase in activity may be tied to cyclical factors like inflation and macroeconomic volatility, or it could indicate a longer-term growth trend in this user base.

The paragraph discusses the shift of talent from bank trading and commodities desks to multi-strategy hedge funds, highlighting this as an investment by the buy-side to diversify income streams beyond traditional equities and fixed income. It notes significant growth in buy-side activity, particularly in physical markets, contributing to a 34% growth in EMEA in 2024. The business is reported to start strong in 2025, with notable increases in agriculture, energy, and metals sectors. There is also an emphasis on a growing interest in options trading, complementing futures. The authors stress the importance of diverse client participation, including buy-side, banks, commercial customers, and retail, which drive new product development to meet unmet needs, exemplified by new contracts and products like physical ethanol contracts and micro ags.

In the paragraph, Terry Duffy discusses the importance and constant nature of certain products, despite their fluctuating presence in the media due to global issues like inflation and food supply. Kyle Voigt asks Lynne Fitzpatrick for clarification on pricing changes, confirming that the 2% to 2.5% pre-tax impact includes transaction, market data, and collateral fee changes. When Kyle inquires about the impact of a 10 basis point fee on non-cash collateral balances, Lynne explains that exact figures cannot be provided as it depends on customer decisions and will be updated over time. She notes that cash collateral currently makes up a high 20% of the total, and variations will depend on individual firms. The conversation then shifts to Madeline Daleiden from JPMorgan.

In the paragraph, Madeline asks about BrokerTec's market share trends and its leadership possibly moving to Washington at Phoenix. Mike Dennis responds, noting that BrokerTec's market share against FINRA TRACE slightly declined in Q2, but improved in January with a 29% rise in ADV and a market share increase of 0.5% from December. He emphasizes BrokerTec's strategic importance to CME Group, noting revenue growth of 7% in Q4 and record ADV in US and EU repo for 2024. He mentions strong client adoption of new trading options and highlights potential benefits BrokerTec can offer when a new clearing mandate is implemented. Madeline thanks them, and the discussion moves on to the next question from Simon Clinch.

Terry Duffy and Julie Winkler discuss the growth in their data business, which saw a 9% revenue increase to $182 million due to factors like a 3.5% price hike effective in 2024, and rising interest from professional and non-professional subscribers in real-time data. Institutional clients are increasingly using their data for financial products, leading to innovations like enterprise drive data licenses and new analytic offerings. Additionally, another 3.5% price increase took effect for the core business on January 1. Simon Clinch asks Lynne for an update on the Google Cloud spending plans for 2025, including fourth-quarter 2024 spending and investment priorities.

In the paragraph, Lynne Fitzpatrick discusses the financial details of a migration project, mentioning that $22 million was spent in the fourth quarter, with $18 million allocated to technology and $4 million to professional services. The total annual spend reached $85 million, and the 2025 guidance includes $115 million for the migration, mainly focusing on technology. The current year's focus is on migrating non-latency sensitive applications and enhancing capabilities and services. Simon Clinch and Terry Duffy provide brief responses, and the operator concludes the call, inviting further questions and the next quarterly discussion.

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