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CME Group Inc., (NASDAQ:CME)

Q4 2008 Earnings Call

February 3, 2009 8:30 am ET

Executives

Craig S. Donohue - Chief Executive Officer

James E. Parisi - Chief Financial Officer and Managing Director

Richard H. Redding - Head of Products and Services

Phupinder S. Gill - President

John C. Peschier - Managing Director, Investor Relations

Analysts

Richard Repetto - Sandler O'Neill

Roger Freeman - Barclays Capital

Niamh Alexander - Keefe, Bruyette, & Woods

Howard Chen - Credit Suisse

Michael Vinciquerra - BMO Capital Markets

Mike Carrier - UBS

Kenneth B. Worthington - J.P. Morgan

Daniel T. Fannon - Jefferies & Co.

Robert Rutschow - Deutsche Bank Securities

Donald Fandetti – Citigroup

Brian Bedell - Bank of America

Operator

Welcome to the CME Group’s fourth quarter earnings conference call. As a reminder, today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the conference to John Peschier.

John C. Peschier

Thank you for joining us today. Craig Donohue, our CEO, and Jamie Parisi, our CFO, will spend a few minutes outlining the highlights of the fourth quarter, and then we will open up the call for your questions. Also joining us for participation in the Q&A session are Rich Redding, our Head of Products and Services, and Phupinder Gill, our President. Terry Duffy, our Executive Chairman is unable to join us today as he is in Washington, D.C., testifying before Congress.

Before they begin, I will read the safe harbor language. Statements made on this call and in the accompanying slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. More detailed information about factors that may affect our performance can be found in our filings with the SEC, including our most recent Form 10-K and forms 10-Q, which are available on the Investor Relations section of our website.

During this call, we will refer to GAAP and non-GAAP pro forma results; a reconciliation is available in our press release, and there is an accompanying file on the Investor Relations portion of our website that provides detailed quarterly information on a GAAP and pro forma basis.

Now, I would like to turn the call over to Craig.

Craig S. Donohue

Good morning and thank you for joining us this morning. 2008 was a year marked by unprecedented dislocations in financial markets. Against this challenging backdrop, CME Group continued to effectively operate our core businesses, execute on our growth strategy, and deliver solid financial performance. I am pleased to tell you that on a pro forma basis, 2008 revenues increased 11% to $3.1 billion, and operating income increased 20% to $2 billion compared to 2007. Additionally, operating margins grew to 65% compared with 60% for 2007. These resulted in earnings per share of $16.17 for 2008, representing growth of 16% from 2007. Jamie will discuss our financial performance in greater detail in just a moment.

In terms of volume, 2008 was a year of immense challenges, and CME Group was able to achieve annual volume growth of 4% despite these challenges. Getting into individual products, we saw outstanding performance in our E-mini products which achieved 37% annualized growth. Within E-minis, we are really excited about the growth we have seen in our E-mini Dow product. For the first 8 months of 2008, Dow Jones average daily volume of 192,000 was 74% of Russell average daily volume. For the last quarter of 2008, Dow average daily volume of 264,000 contracts is now 144% of Russell ADV. The Dow has become established as the number three product in the US equity futures market, and we believe that this speaks to the strength of CME Group’s overall equity franchise including the benefits of our extensive Globex distribution network and our deep liquidity across multiple benchmark equity index products.

CME ClearPort saw annual growth of 43%, with particular strength during the third and fourth quarters. CME ClearPort has been a promising addition to our capabilities, and I’d like to spend a few minutes discussing what we see happening there. A key strength of the CME ClearPort is its flexibility which allows new products to be listed very efficiently. To that end, we listed a total of 141 new products on CME ClearPort in 2008 with 97 added in the four months following the completion of the NYMEX acquisition. We also listed Ethanol Swaps on January 26th, the first non-NYMEX product to be available on CME ClearPort. We have a strong product pipeline and will continue to build on this success by introducing new products rapidly throughout 2009.

Getting into specific products, in the energy products, we have seen some very positive open interest trends in the Brent contract. The Brent market share as measured by open interest was 27% at year end 2008, up from only 11% at the end of 2007. Our Brent market share continued to grow in January and is now at 38%. We believe this growth is driven by the benefits of the security and flexibility of CME ClearPort coupled with CME’s robust exchange traded energy platform.

Our PJM power contracts which just recently launched on December 8th grew to average daily volume of 88,000 in January which is a tremendous success for a new product launch. Another noteworthy trend on CME ClearPort has been increased interest from our global non-US customer base. We saw an over 400% growth in Q4 in European and Asian-specific petroleum products, and we are now clearing approximately 8000 contracts per day.

CME Group energy products grew 19%. Here again, we saw favorable open interest trends, this time in the WTI complex, where open interest increased 13% from year end 2007 to year end 2008, and from 3.2 million contracts to 3.7 million contracts. CME Group Metals Products had an outstanding year, with annual volume growth of 40%. The percentage of metals contracts electronically traded grew to 86% in December, up from 79% in January. We see this growth in electronic trading as an indication of significant growth opportunities ahead.

To give you some additional insight into our volumes, I want to provide some detail about trends within our major customer segments. Currently, we can segment information for combined legacy CME and CBOT products. We can track our member activity fairly closely, which we categorize into four segments: Bank proprietary trading, large hedge funds which include approximately the top 25 hedge fund participants, buy side proprietary trading firms, and finally our smaller member firms and active individual traders. In addition, we have a fifth segment, the nonmember customer category which is composed of buy side customers.

On an overall basis, our volume from Q3 ’08 to Q4 ’08 was down 21%. All five customer segments had a reduction in their trading activity which we believe was driven by the continuing credit crisis, extreme volatility in key products, and the normal seasonal slowdown. Of the segments identified above, the group that dropped the least was our nonmember buy side customer segment, where volumes fell by 13% from Q3 to Q4. The nonmember volume as a percentage of the total increased from 18% to 20% from the third quarter to the fourth quarter contributing to a higher fourth quarter rate per contract. The buy side proprietary trading segment’s volume contribution represented approximately 34% of our volume, down 1% from unusually active third quarter levels of 35%. Overall the group has increased its percentage by the total of 2% from the first half of the year to the second half.

The bank proprietary trading and small member firm active individual trader categories had sequential volume reductions in line with the 21% overall drop in volume. This means their relative size remained unchanged from the prior quarter. Bank proprietary trading contributed 16% of volume, and small member firm active individual trader members contributed 22% of volume. Lastly, the large hedge funds group reduced overall trading volume by 32% and they now contribute between 8% and 9% of overall volume.

We have heard feedback that this segmentation is useful to understanding our business, and we intend to continue to update you on these customer trends as we are committed to providing you with as much transparency as we reasonably can.

Moving on to review some strategic accomplishments from 2008 and to discuss our strategy going forward, 2008 saw CME Group execute on multiple strategic fronts. We are very pleased to have completed the NYMEX acquisition and to be focusing on integration. We have said that NYMEX was an important strategic asset for us, and we have moved rapidly to leverage the opportunities it offers. This includes implementing strategic cross selling efforts to make sure that legacy NYMEX, CME, and CBOT customers have extensive information about the powerful suite of products now available at CME Group.

In addition to making good progress on the NYMEX integration, the fourth quarter also saw the completion of CBOT integration milestones. A key benefit of these mergers has been our strength and ability to globalize our business, and we are seeing significant results from our global efforts. For 2008, our non-US trading hours volume was 17%, up from 14% for the full year 2007. Additionally, we continue to make progress with initiatives in Brazil, Korea, and Dubai. Entry into each of these markets and other global markets certainly has many challenges; however, we see these as long-term efforts that position us both to help grow our partners’ businesses and to create strong relationships that will ultimately facilitate global growth for CME group products. We also implemented technology updates that reduced average futures response times by 71% from year end 2007 to year end 2008. In addition to these speed enhancements, these ongoing technology investments increased the reliability and flexibility of our Globex platform. They allow us to create new functionality that increases liquidity for existing products and make viable new trading strategies while continuing to increase speed.

Moving on from our accomplishments to some of our growth plans, I mentioned at the beginning of the call that 2008 was a year of challenges. Clearly, we see negative impacts from the credit crisis into 2009; however, balance sheet constraints and counterparty credit risks remain major concerns of all market participants, and we believe that these trends and expected trends in future regulation trend toward the central counterparty clearing model. In this environment, the value of the safety and soundness of CME Group’s central counterparty clearing capabilities continues to be highlighted. We see many opportunities stemming from these trends.

The key concern for us in thinking about how to help customers address their counterparty credit risk concerns is to meet customers’ needs. For some customers that may mean using our core futures markets with integrated execution and clearing services. For other customers, their needs may be better met with clearing only services and some customers may seek a combination of these two models. What we are very aware of is that preferences and needs are specific to each asset class, and so we introduced new clearing services and as we do that we will have differentiated offerings for various products.

Getting into the specifics of how we can use our proven clearing expertise to address customer needs, there is of course our exchange traded business model. We are actively working to educate non-traditional customers as to the compelling reasons to use our markets for their hedging needs, and this will be a significant effort for us throughout 2009. We also offer standalone OTC clearing services via CME ClearPort. We believe the recent market turmoil has really driven business to this offering, and we are working very closely with customers to develop additional products that address their needs using CME ClearPort.

In addition to the OTC clearing services we provide through ClearPort, we are moving forward with several other key initiatives in this area. We achieved key milestones with CMDX, our credit default swaps platform, receiving approvals from the Fed, the CFTC, and our own internal risk committee during the fourth quarter. We are in the advanced stages of review with the SEC and continue to make progress there. We continue to work actively with market participants to demonstrate the advantages of our offering and have begun to work with those participants on our operational readiness. We are also continuing to refine and improve our cleared interest rates swap offering and are receiving positive feedback from market participants.

Beyond these initiatives, when we look at 2009, there are many unknowns related to the macro-economic environment. We have recently been encouraged by data indicating some improvements in the underlying credit markets, but these trends have not been in place long enough to drive trading volumes. There are obviously many questions and concerns about what happens to volume going forward and we regularly get asked what indicators would point to a recovery in our interest rate volumes.

At CME group, we think it’s clear that futures markets don’t operate in a vacuum; they are critical parts of the capital markets as a whole. In general, like many firms we believe that stability in the underlying markets will be a key factor that will allow our volumes to return to historical growth levels. At the same time, recognition of the benefits of the exchange central counterparty clearing model has never been stronger. Immediate concerns may be creating a negative volume environment, but the longer-term trends are very favorable for CME Group. We are cognizant of the need to prioritize opportunities and invest wisely in this climate. While we are aware of the challenges facing us, we also believe firmly that our long-term growth prospects are very strong. We will continue to execute on our strategy and seek to capitalize on those opportunities.

With that, let me turn the call over to Jamie.

James E. Parisi

CME Group turned in a solid financial performance in the fourth quarter, especially considering the overall economic environment we are operating in. Today, I will go through the details of Q4 on a pro forma basis as if we owned NYMEX and CBOT for all periods considered. The pro formas also exclude the impairment of the BM&F Bovespa investment for which I will provide further detail.

Let me start with the pro forma results for the fourth quarter. On a pro forma basis, we generated $692 million in revenue, $433 million of operating income, and earnings per share of $3.58. Average daily volumes were down 14% compared to the same quarter a year ago, driven mainly by decreased activity in our interest rate product line. However, a strong rate per contract and disciplined expense management helped offset this cyclical volume decline. The overall rate per contract for all CME Group volume was $0.858. Changes to this rate are more easily understood if we break it up between our legacy CME Group rates and the NYMEX rates. The rate per contract for the legacy CME business was $0.713, up 8% sequentially and up 10% versus Q4 of ’07. The primary mix drivers of the increase were lower percentage of interest rate products and a higher proportion of nonmember activity, particularly in the E-mini and interest rate product areas.

On the NYMEX side, the average growth rate was $1.67, up 7% sequentially and 14% year over year, driven primarily by a larger percentage of trades cleared through ClearPort and higher post-trade activity as well as slightly higher percentage of non-member volume in the NYMEX products overall. Quotation data fees totaled $87 million for the quarter, up 17% from Q4 of ’07, but down 5% sequentially. Last quarter, we had a one-time $4 million benefit from a market data audit assessment that we mentioned on our last earnings call.

At the end of the fourth quarter, we had approximately 433,000 users who subscribed for the base devices across CME, CBOT, and NYMEX products, down 4000 sequentially. As you look to model 2009, please keep in mind that we have not implemented a price increase as we have in prior years, and we are beginning to see a reduction in screens due to reduced headcount on the street.

I will now take a few minutes to review expenses. Total pro forma operating expenses were $258 million for Q4, down 4% sequentially and down 3% versus Q4 last year. Our largest expense, compensation and benefits, was down $7 million sequentially to $83 million. The primary drivers were synergy-related headcount reduction, a lower bonus accrual, and unused vacation that did not carry over to 2009.

Our combined headcount at the end of 2008 stood at 2300 people, down approximately 120 on a pro forma basis including CME, NYMEX, and CMA during the year. We reduced the workforce by 230 positions related to the CBOT merger and NYMEX acquisition and added approximately 110 positions primarily in our technology area and our global sales and business development areas. For 2008, our total employee bonus was $45 million including NYMEX, down 34% compared to the prior year.

Looking ahead to 2009, our target employee bonus would be $47 million based on reaching our internal 2009 cash earnings target. If our cash earnings for the year is 20% above our cash earnings target, employee bonuses would be approximately $69 million. If we are more than 20% below our target, the bonus will be a minimal amount for non-exempt employees. We expect compensation expense to jump to $90 million to $95 million for the first quarter. This is a larger than normal sequential increase due primarily to the following: In Q4, we had a reduction in compensation expense of about $3.7 million based on negative equity market returns related to deferred compensation. In addition, the bonus accrual in the fourth quarter was lower than normal, and we had a lower vacation accrual than expected.

Non-compensation expenses were down about $3 million sequentially, and down slightly versus Q4 last year. During the quarter, we expensed approximately $1.4 million related to our CDS initiative. We realized NYMEX-related expense synergies of $4 million with about $3 million of that from headcount reduction. In terms of the CBOT integration, we have basically reached our target with one lone item outstanding, which is the continued operation of our data center based in New Jersey which supports NYSE’s Metals business. These operations are scheduled to be handed over to NYSE at the beginning of Q2.

Q4 pro forma operating income was $433 million, up 3% from the same quarter last year despite the volume reduction. Compared to a year ago, revenues rose 1% while expenses were down 3%. Our Q4 operating margin was 63% compared to 61% in Q4 of ’07. Within the fourth quarter, non-operating expense category, interest expense and borrowing cost were $35 million and drove the non-operating expense of $30 million. The yield on our cash and marketable securities balance is now below 1% driven by reduced short-term interest rates and our conservative investment policy leading to a decrease in investment income.

In terms of securities lending, we had net securities lending income of about $5.2 million driven by longer dated and higher yielding NYMEX securities investments compared with CME’s traditional overnight investments. In the near term, we intend to be very selective in our ongoing securities lending business, and we expect minimal net securities lending income this year as we wind down the NYMEX portfolio. Pro forma net income was $239 million and diluted EPS was $3.58. For the quarter, our pro forma effective tax rate was 40.7%. Looking at 2009, we expect an effective tax rate of approximately 41%.

Turning to the GAAP income statement; as you saw in the press release, we impaired our investment in BM&F Bovespa. Please turn to slide 16 in the presentation which details the values of the investment over time. As many of you know, we entered into an equity swap with BVMF whereby we exchanged 2.2% of our shares in return for ultimately 5% of BVMF. Our investment was valued at $631 million when we closed the transaction in February 2008. Between then and the end of 2008, the value of our investment dropped to $263 million due to the change in the value of BVMF shares and adverse foreign exchange rate movement. The decline in BVMF share price is in line with performance of the exchange sector overall.

At the end of 2008, the value of our investment represented a premium of about 6% compared to the value of the CME Group shares BVMF received from the equity swap. However, GAAP does not allow us to take this into consideration and requires us to consider whether the decline in the value of BVMF will be recoverable in a reasonably short period of time which we consider to be approximately 6 months from the end of 2008. We concluded that the decline in value is not likely to be fully recoverable prior to June and so an impairment had to be recorded. The portion of the loss attributable to currency move is recorded through the balance sheet while the loss related to the value of the shares runs through the non-operating income section of the income statement. The after-tax impact of the write-down was $167 million or $2.49 of reduced EPS on a GAAP basis.

We believe BVMF stock price reflects current cyclical factors in the public company exchange sector and continues to present attractive long-term financial and strategic opportunities for CME Group. The last comparison on the chart illustrates the fact that since the beginning of the year, BVMF have recovered faster than CME, and the current value of $282 million is actually a 41% premium to the CME Group shares held by BVMF.

Moving on to the balance sheet, as of December 31st, we had $600 million of cash and marketable securities, and total debt of $3.2 billion resulting in a net debt position of approximately $2.6 billion dollars. With regard to our debt, in addition to our $1.7 billion dollars of term debt, we currently have approximately $1.5 billion in commercial paper outstanding which is backed up by a $945 million 3-year revolver and a temporary $1.3 billion bridge facility.

As we mentioned last quarter, there are quarterly continuation fees associated with the bridge loan, and the next one is scheduled to be $6 million on February 18, 2008. In the fourth quarter, we expensed a similar continuation fee of $2 million. If we replace the bridge prior to February 18, 2008, the continuation fee would be eliminated, but we would have an acceleration of the upfront fees and expenses related to the origination of the bridge financing to Q1, which would be $5 million. As I have said before, we are focused on reducing our debt to EBITDA ratio to below one time. Therefore, at this point in time, we intend to prioritize that pay-down.

That brings me to our $1.1 billion share buyback authorization. Since our last earnings call, we purchased 638,000 shares of stock with an aggregate value of a little more than $150 million representing approximately 1% of our basic shares. In total, since the beginning of the program late in Q3, we have spent $250 million and repurchased the shares at an average price of $272. Like many companies, the uncertainty in the financial markets has altered our thinking a bit about capital management since June when this program was announced. As I mentioned, our main priority is to make progress in reducing our debt levels. So, while our authorization remains in place, we have stopped purchasing shares for now to devote our excess free cash flow to debt reduction.

Capital expenditures net of leasehold improvement allowances totaled $81 million in the fourth quarter driven primarily by $63 million spent on technology including the continued build-out of our data center with the remainder spent on office space build-out. During Q4, we spent approximately $2 million of capital related to our CDS initiative. For the full year, our pro forma capital expenditures totaled $205 million. We anticipate between $200 million and $225 million of capital expenditure in 2009 driven by technology-related products and the completion of our construction in Chicago and New York. During the year, we will continually monitor the capital spend based on market condition.

Finally, I will now turn to expense guidance for 2009 for CME Group. Traditionally, we have seen an 8% to 10% annual growth in expenses during the period from 2001 and 2007. In 2008, pro forma expenses actually decreased by 2%. The realization of cost synergies more than offset normal expense growth which is typically driven by technology and new initiative spending.

Looking to 2009, volume is more difficult to predict than usual for both you and us. Currently, the consensus ADV is 11.2 million contracts with consensus expense of $1.05 billion dollars. We do not provide guidance related to volume, but I wanted to give you some sense of where expenses would be under two different scenarios based on our current plan. If volume is similar to 2008, around 13 million contracts per day, we would expect pro forma operating expenses to be up approximately 2% compared to 2008. At the consensus volume level of 11.2 million contracts, we would expect 2009 pro forma operating expenses down from 1 to 2% versus 2008. Looking to next quarter, we expect expenses to increase from Q4 to Q1 as expenses in Q4 ’08 would have been closer to $265 million without the compensation-related benefits I mentioned earlier which positively impacted this quarter.

One final note; we are doing everything we can to reduce discretionary spending throughout the company and it is a focused area for every employee. At the same time, we have significant long-term opportunities, and we will continue to spend on areas that we think will bear fruit. In January, we averaged 9.5 million contracts per day, and we have seen a slight improvement in the second half of January to about 10.1 million contracts per day relative to December at 8.2 million and the first half of January at 8.9 million.

In summary, despite the macro-economic challenges impacting financial markets and our customers, we continue to be well positioned moving forward. Taking a look back at 2008, we made tremendous progress building out our offering for the long term as Craig mentioned. From a financial perspective, our pro forma revenue for the year was up 11% to more than $3 billion dollars while operating expenses dropped 2%. We delivered 60% growth in both net income and diluted EPS. I believe we are well positioned to navigate through and ultimately benefit from the current economic environment.

With that, we would now like to open up the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from Rich Repetto from Sandler O’Neill.

Richard Repetto - Sandler O'Neill

The first question is for Jamie on the expenses; I just wanted to see if you take even your adjusted Q4 run rate 265 and that would get you to $1.06 billion. So, I guess on the lower end, if volume was 11.2, that looks like what you are predicting or right around there. I am just trying to see where the NYMEX synergies and how you phase them in and the CBOT, the data center in Q2; that is what I am not seeing come out of the run rate here.

James E. Parisi

Rich, just to be clear, I am not predicting our volumes will be in terms of the NYMEX synergies. We said that we would get $60 million out of the NYMEX transaction in terms of cost synergies and I believe that we will get somewhere between $30 million to $40 million of that in the coming year, and of course do all we can over time within the year to be very diligent with respect to expenses.

Richard Repetto - Sandler O'Neill

Okay, and maybe just one follow-on to there. If volume was lower than say 11.2, I ran the math; it just looks like there is an incremental margin in there of like 10%, like the expenses only vary by about 10% of the potential revenue impact. So if volume was down below that, is this thing sort of linear on a percentage basis or what?

James E. Parisi

If you just think about it, the things that move the most with the volume are going to be the license fees and the bonus, right? And the bonus drops of at a certain point; once we get down the 20% below our target, the bonus goes down to almost zero. So, you have to keep that in mind. So, it is not quite linear.

Richard Repetto - Sandler O'Neill

Understood. Last question, I guess, Craig and Jamie. When you looked at the buyback and given where the stock price is now, I know the target is to get the EBITDA ratio below 1, but I am just trying to see the way the different factors putting the reduction in debt ahead of what looks like a pretty depressed stock price.

James E. Parisi

We first realized that when we put the authorization in place, that was back in June, and that was a bit of a different world for everybody, right? But the things that we are looking at are bringing the debt to EBITDA level as we said at one time, and then two, our debt as a percentage of our overall capital structure has increased significantly over the last several months because of the decrease in our equity value. Those things weigh on the decision as well. So, it is bringing all those into consideration along with the stock prices as well.

Operator

Our next question will come from Roger Freeman with Barclays Capital.

Roger Freeman - Barclays Capital

The first question on the interest rate volume outlook; I know it is always a tough question to talk about, but if you think about some of the key drivers that could move volumes higher; mortgage refinance is picking up, treasury issuance to finance the bailouts, and LIBOR spreads normalizing; how do you think about what has the biggest potential impact? LIBOR spreads have already normalized and doesn’t seem to be any impact from that, but maybe the other two?

James E. Parisi

Yes, Roger, I think, there are several ways to look at this, and on the short end of the curve looking at the Fed funds, LIBOR spread, it is starting to stabilize, but that has only been in the last 10 days. Clearly, as Craig mentioned, one of the things as the capital markets start perhaps to heal themselves before futures volumes are going to normalize, and 10 days is not going to enough time to measure any kind of meaningful futures growth. The other thing that you did mention that we spent a lot of time analyzing is looking at coupon-bearing treasury issuance. If you look at that historically, that has had a pretty positive correlation, a very strong positive correlation, to treasuries futures volume. So, those are two of the things that we look at internally, but again, the overall capital markets have to heal themselves to get back to that normalized run rate that we have seen in the past.

Roger Freeman - Barclays Capital

Your hedge fund participation, it’s down to 8%. Is there anything, other than really de-levering to think about what drove that, and then secondly, as you look at activity now, it actually looks like January was a pretty good month for the industry. Are you seeing any increased activity in the futures space and probably your hedge funds in January?

Richard H. Redding

Several of the hedge funds that we deal with in that large category, what we’ve seen is, in general, they reduced their exposure, but it really wasn’t a phenomena where a lot of people thought just in the fourth quarter, we actually saw those percentages actually come down throughout 2008. A lot of that money was put on the sidelines by a lot those funds as they raised cash. It didn’t necessarily have to do with any redemption, and if you start to analyze that by product segment, you actually can come to some different terms that it’s really been the interest rate product where we’re seeing their participation drop significantly. When you think about the energy markets or the equity markets, some of those markets we’ve actually seen the number of hedge funds increase and some of their volumes increase in those markets. So, it has really been the interest rate products where we saw the significant drop in hedge fund for participation.

Roger Freeman - Barclays Capital

Okay, and then on CDS, it’s interesting for all the pressure the government has put on everybody at large, it seems like the industry has been ready and they’re dragging their feet, but my question is, as this delay continues, how do you see your chances here, because we’re hearing pretty good feedback from the marketing presentations that CME is making the broker dealers. So, I assume delays are actually favorable for you?

James E. Parisi

No, I would say that this is a really complex area. There has been a lot of work done, not just by CME Group, but certain other competitors as well, working a lot of the very complex regulatory issues. I think we’re in great shape. We’ve cleared the vast majority of the hurdles in terms of gaining clearance from the New York Fed and approval from the CFTC. The SEC has been working very very well with us actually on the requested exemption order that will allow us to commence services, and that has given us more time to work with the community of people who are active in the CDS market, and I would say based on the reports that we’ve been getting very recently, I’m very encouraged by the reception we’re getting from the buy side and the sell side. So we’re making good progress, and I think hopefully we’ll get through the regulatory process really near term here and be able to implement our services.

Operator

Our next question will come from Niamh Alexander with Keefe, Bruyette, & Woods.

Niamh Alexander - Keefe, Bruyette, & Woods

You talked about credit derivatives clearing, but I think interest rate derivatives clearing might be even bigger for CME, and I am just trying to understand, how is the soft clearing initiative? Have you been able to get a client’s attention to focus on that? How should we think about the next move there, because there seems to be a lot of regulatory driven pressure to shift a lot of these OTC onto the central clearing mechanism?

Richard H. Redding

I think that’s a very good observation because one of the things as Craig mentioned on the CDS side, it’s also true on the interest rate slot side that both the buy and sell side are starting to seriously sit down and come to some conclusions about how to move forward in this space. It really is getting at the issue of how to reduce a firm’s balance sheet and getting these into a centrally cleared facility has even become more important over time, not just to get rid of counterparty risk, but to bring the overall leverage down at a lot of these firms. We think that as time has gone on and people are really understanding what we’re trying to do in that space; we’ve learned some things and we’ve come a fair way in that space, and now we’re looking at it more as a clearing opportunity for people to be able to put their positions in, clear them at CME, and be less focused on the execution side.

Niamh Alexander - Keefe, Bruyette & Woods

On the clearing opportunity, should I think about maybe structuring something to incentivize the dealers to get involved similar to maybe what ICE is doing in the credit space?

James E. Parisi

We’ve looked at a number of different proposals, and we’re actively working with both buy and sell side firms to get them engaged and involved in the process because one of the things that we think is crucial in this solution is bringing both sides to the table.

Niamh Alexander - Keefe, Bruyette & Woods

Okay that’s helpful, and then just lastly, LCH are telling that they’re currently carrying some slots, is that correct?

Craig S. Donohue

Yes, that’s correct.

Niamh Alexander - Keefe, Bruyette & Woods

Okay fair enough that’s helpful. And then if I could just clarify something with regards to CBOE, because you still own the position from the former CBOT guys, is there still a bit of an overhang there, do current shareholders of CME, are they kind of holding on to stock pending of potential IPO of CBOE, once that vote is passed now, are we kind of past us?

Craig S. Donohue

You might remember that what we had done actually was we had acquired various ERPs in the merger process with the Chicago Board of Trade where we offered various CBOT full members the opportunity to actually transfer their ERP to us in exchange for a lump sum payment. We are planning to participate in the settlement that has been agreed and which is now pending before the court. There’s an appeal that we expect to happen based on the judgment of the court, but ultimately, we’re confident that the settlement will be reached, approved by the court and we will be participating in that.

Niamh Alexander - Keefe, Bruyette & Woods

Okay, that’s helpful, Craig. So, thus far what CME and before that the former CBOT shareholders who are still holding CME stock, just so I understand the time line, technically do they have to kind of wait for the settlement or do they still need to hold the stock up until any particular IPO?

Craig S. Donohue

That timeframe has expired now, so the eligibility for participating in the settlement in terms of the requirement of owning the stock is no longer applicable.

Niamh Alexander - Keefe, Bruyette & Woods

And then just lastly for James, the licensing fee, I got it wrong, I thought it would drop a little bit more now with the expiry of the Russell contract, and was there a price increase or some other contracts that you’re re-negotiating with the NASDAQ, a contract that you re-negotiated?

James E. Parisi

Actually, there’re some small increases last year, we did some re-negotiations, but keep in mind it’s not just license fees, it’s also the fees associated with the clear ClearPort. You can’t just look at equity volumes when you’re looking at that line.

Niamh Alexander - Keefe, Bruyette & Woods

Okay, so when you say fees, is that rebate for some of the IDBs of ClearPort or does that come under the net revenue?

James E. Parisi

That’s correct.

Niamh Alexander - Keefe, Bruyette & Woods

It is rebate.

Operator

Our next question will come from Howard Chen with Credit Suisse.

Howard Chen - Credit Suisse

Just a few followups on the expense and capital management commentary, James, on the expense guidance in that no volume growth scenario and 2% expense growth, can you split up that 2% expense growth between incremental NYMEX synergy realization versus core investment spending and where is that incremental investment spending going?

James E. Parisi

If you look at it, the NYMEX synergy saving should be in the neighborhood of $30 to $40 million in the coming year.

Howard Chen - Credit Suisse

Incrementally?

James E. Parisi

Good point; we realized about $4 million of that off in 2008. And then, the line we’re seeing the most significant impact is I would say on the compensation line.

Howard Chen - Credit Suisse

The scenarios are helpful, but any thoughts on what kind of expense outlook would be if we stay at current volume levels, something closer to $9.5 million for the course of the year?

James E. Parisi

I’ve said on the expense guidance, but you can rest assured that we’re going to keep a very close eye on expenses and we’ll be monitoring them throughout the year looking for opportunities to save.

Howard Chen - Credit Suisse

And then, given the amount of free cash the business model generates even at the current volume levels, it seems like to me I believe you can both de-lever and repurchase stock, in your assumptions how much cash flow are you holding back when you think about de-levering the balance sheet here?

James E. Parisi

I can’t give you a forecast on that, but with regard to the debt, remember we levered up and with the expectation that we’re going to be brining that down in rather short order and I’ve made that point all along, rather short order down to one time. So, that is where our focus is. A piece of the financing is the bridge financing, it is a 364-day facility that was put in place at the time of the NYMEX close. So, at some point, we need to refinance that and we’ll potentially bring that down somewhat as well. So, we’re very focused on managing the debt position at the moment.

Howard Chen - Credit Suisse

And then, I think I know the answer to this, but I guess previously the guidance had been that you would exhaust your billion dollar buyback program by year end 2009, are you still committing to that or is that now currently off the table because of the environment?

James E. Parisi

I wouldn’t say off the table, but it is less likely. We’re just going to continue to monitor the environment and see how it plays out.

Howard Chen - Credit Suisse

Okay and then finally on this and not to beat it to death, but is there a level of the equity to where the tune kind of changes versus debt pay-down or is it simply just wanting to get your cap-debt to EBITA ratios down and then knock some of the stuff out?

James E. Parisi

I’m not going to peg out a level for you, we’re just going to continue to monitor the situation and make the best decisions that we can.

Operator

Our next question will come from Michael Vinciquerra with BMO Capital Markets.

Michael Vinciquerra - BMO Capital Markets

Clearly, one of the places of strength has been at ClearPort, I was just wondering if you guys could share with us where the strength has been in terms of the volume, I’ve heard it’s in the OTC oil, but may be you can provide us with a little bit more detail on that.

James E. Parisi

As you say, ClearPort has been extremely strong for us in Q3, Q4 and also in Q1 so far. Where we’re seeing a lot of activity and ClearPort has actually been on the oil and petroleum side. We’ve also seen, as Craig mentioned in his remarks, the start of power and that’s been very very successful for us, which started in December. So, it’s been the oil side and now the power side is moving pretty dramatically. We’ve seen, as Craig I think mentioned in his comments, very dramatic increases in the Brent contract on ClearPort. Craig gave the numbers early on, and in what we’ve seen is customers moving quickly to that product much faster than we even anticipated.

Michael Vinciquerra - BMO Capital Markets

Now, as you add new products to ClearPort, are there any issues with the way it’s structured in terms of, there’s a default fund; as you add products, does it increase or decrease the risk of any of the current participants at all?

Phupinder S. Gill

The default one will scale according to the risk that is taken on to the books of the firm that is going to clear all these things. So, the dynamic nature of the default fund is such that as the risk exposure of the firm goes up, so does the amount that the firm had to put into the guarantee fund.

Michael Vinciquerra - BMO Capital Markets

And then just finally back on the debt, James, what are the current rates in the two different pieces of the debt, and which one that you would be more likely to be paying down over the next year?

James E. Parisi

The overall space rate is somewhere in the neighborhood of 4%, and as we look forward, we’ve got a maturity this year, a 1-year maturity of $250 million and then we also have flexibility obviously on the commercial paper side, and then we’ve got 3-year and 5-year maturities as well.

Operator

We’ll go next to Mike Carrier with UBS.

Mike Carrier - UBS

Just one question on the rate per contract, the mix shift in the product is relatively straightforward, but in terms of the customers, what’s driving the increase in the non-members, is it certain products and then what customer group there is a more of a decline in members?

Craig S. Donohue

We’ve been seeing an increase on the customer side of the business, whether it’s from people concerned to that counterparty risk moving into the exchange or as importantly is in these times people go to where liquidity is and people tend to go to the more standardized product because that’s where liquidity is. So, we’ve seen people move both for kind of credit concern reasons and also just for straight-out liquidity.

Mike Carrier - UBS

Okay, and then just away from ClearPort, if you look at your other growth opportunities in some of the international clients markets and also on the over-the-counter side whether it’s on the clearing or the transaction side, when you look over the next 2 years, which one do you think has the greater opportunity from where you stand today?

Craig S. Donohue

I think it’s hard to pick one over the other. Obviously, as we mentioned earlier, I think the time is right for us to be increasingly successful with OTC clearing services. You can see how successful we’re being in ClearPort generally, and I should mention that we’re now getting into an array of products on ClearPort that gets very much outside of oil and gas swaps and power and what not. So, credit default swaps, interest rate swaps, I think these are all areas, we have plans for agricultural commodities swaps and for foreign exchange products as well, and I think that that will be significant for us over the coming 2-year time pricing that you’re asking us about. At the same time, I think that the initiative that we have in Brazil and Korea and Dubai are significant. We’ve got infrastructure that we’re putting in place. We have licensing arrangements. We have joint product development opportunities in all of those 3 cases that I think can be valuable for us. So, those for the next 2-year time pricing that you’re asking about, I think it’ll be valuable to us.

Operator

We’ll go next to Kenneth B. Worthington with J.P. Morgan.

Kenneth B. Worthington - J.P. Morgan

I want to talk a little bit about the success you’re having in the Brent OTC contract, and you indicated that the market share is going up; now, given market conditions, I would expect that, generally speaking, over the next couple of years we’d see a migration from the OTC business to on-exchange, but it seems like in this product you’re seeing the reverse happen, and I know it cleared, but why is the interest moving kind of away from the on-exchange to the over-the-counter product?

Craig S. Donohue

I think it has to do still with kind of the changing nature of the customer base. A lot of that is coming from what I will call more commercial type users that are not as focused on turning over volumes on a rapid basis as opposed to say a hedge fund or a proprietary trading group. So, a lot of it in this case is an issue over credit and they want to put it on to the exchange and hold those positions in that way, they’re not as concerned about the execution of the trade.

Kenneth B. Worthington - J.P. Morgan

And is there any read-through to the other products that you hope will go from a bilateral to OTC cleared and may be eventually on-exchange or is it just really kind of unique to agricultural and energy products here where the customer mix is different?

Craig S. Donohue

I think there are consistencies across the over-the-counter market because when you think about the over-the-counter markets, they’re all bilaterally negotiated. So, the finer note in that is that it has really been on in any kind of platform to begin with because a lot of that is voice brokered or some is on some electronic systems, but it’s the clearing that when you think about has been a huge value-add the exchange can provide to the people used to dealing in the over-the-counter market.

Kenneth B. Worthington - J.P. Morgan

And then, flushing out ClearPort a little bit more, you’ve got ethanol up and running, what is the outlook for the expansion beyond the energy products and are there particular classes that are going to be easier to move into ClearPort than others?

Craig S. Donohue

You saw the ethanol swaps moving last Monday. I think it’s safe to say that an area that we’re particularly focused on there is in the agricultural area. I think we signaled that we filed several petitions with the CFTC to allow agricultural products to move on there, and a lot of the same type of corporates use agriculture products in the same way that they use energy products. So, that’s an area we’ll move as soon as we can get regulatory clearance on.

Kenneth B. Worthington - J.P. Morgan

And then just lastly, on the interest rate swap side, LCH currently has a product, I don’t know if you can share, but can you say what you would like to do in clearing of interest rate swaps with what LCH is currently doing?

Craig S. Donohue

We should probably let LCH speak to what their offering is. If I can just speak to what we think about, we have to be a little less candid because we haven’t made some of these announcements yet, but a lot of that marketplace when you look at it revolves around IMM dated futures position specifically in the euro-dollar area. There are also products that are not to those dates. So, we hope to build some flexibility in our systems to provide kind of a pretty robust solution into that market.

Operator

We’ll go next to Dan Fannon with Jefferies & Co.

Daniel T. Fannon - Jefferies & Co.

Wanted to just clarify, following the SEC approval for your CDS platform, is there a next step where you’ll be able to be up and running thereafter?

Craig S. Donohue

SEC will be the final regulatory approval that we’re waiting for. So, after that we’ll be ready to begin offering services. Obviously, one of the things that we have to do is work with the user community to gain not just our own operational readiness which we’ve been working very hard on and is complete, but we have to be able to interface with the community of users that will be active with us, so that will be the next step, but regulatory approval wise, the SEC will be the final.

Daniel T. Fannon - Jefferies & Co.

Okay and then shifting to your customer base and kind of the breakdown, wondering if any of the sub-sectors have shown any difference in activity or improvement thus far in January. Obviously we know that some of the volumes are still down in January, but are any of the sub-sectors acting differently than the way you described for the fourth quarter, and also as you kind of look out, which one of these segments do you think should start to see an improvement first or who will kind of lead to an increase in volumes?

Craig S. Donohue

I think it’s hard to predict how 2009 will unfold but I think what you typically see in December numbers is kind of your proprietary trading group segment slowdown for kind of seasonal reasons. So, I think if you look at 2008, the fourth quarter trading from the prop groups is typically down a little bit and you’ll probably see that come back in January, but I want to caution that a lot of the customers and non-member folks that we’ve seen come in in the fourth quarter continue to be pretty robust users, and that’s what is important as they’ve come for the liquidity or for the credit intermediation, those type of customers tend to stay around and trade for a while.

James E. Parisi

We mentioned earlier in the call that the proprietary trading segment volume was up 2%.

Operator

Our next question will come from Robert Rutschow with Deutsche Bank Securities.

Robert Rutschow - Deutsche Bank Securities

First question was on ClearPort, can you give us a little bit more detail on what drove the increase in rate per contract, and I’m wondering if with additional products being launched if we should expect possibly some pricing pressure on the RPCs going forward?

James E. Parisi

I think on ClearPort you did see some post trade activity that had a higher rate per trade on it that helped with that rate. So, I think that’s the key driver on the ClearPort RPC.

Craig S. Donohue

One thing I would add is it really is a product mix issue because some of the products that we’ve launched recently are kind of lower RPC products because the product themselves are smaller. So, I think it’s difficult to just make some general statement about where RPC will go and I think it really depends on what the product mix looks like, and in ClearPort, unlike the future’s business where products are all priced similarly within an asset class, there’s a really high variance and in ClearPort between certain products. For example, some get a few cents and some actually get $15, so it depends on the size and the product.

Robert Rutschow - Deutsche Bank Securities

Okay, If I can shift gears a little bit, we’ve talked about expenses quite a bit, but what I’m wondering is exactly what have you guys budgeted in 2009 for speed improvements and for capacity expansion, and if we were to say, sort of a worse case scenario, like maybe Japanese rate contracts in the 90s or something, where your volumes went down, would you be able to redistribute horsepower internally to place this where it’s needed without spending as much overall on capacity expansion? And is it really a needle mover at all?

James E. Parisi

I think the capacity expansion is really more reflected in our CapEx spend and then to a lesser degree in the expense side, and on the CapEx we gave a range of $200 million to $225 million for the coming year, and included in that is significant build-out of our data center that we’ve been working on now, and so if order volumes were to pull back dramatically; remember that it’s orders that come through the system, not the volume, not the actual contract volumes, but order volumes that drive capacity; if orders were to crawl up dramatically, you can imagine that we might adjust our build-out of the data center. We’ll continue to monitor and we’re going to be very cautious on it, and keep in mind that the data center, we’re building up the infrastructure for it, and then internally all the computer systems and all that are very modular, we’ll build out the computer systems as we need them.

Robert Rutschow - Deutsche Bank Securities

Okay. One other question; I see that you excluded the intangible amortization from your core number. Was there any impairment testing there done on CBOT or NYMEX, and is that possible in the future or likely?

Craig S. Donohue

The last part of the question was impairment on CBOT or NYMEX? We review that on a regular basis as we did for the end of the fourth quarter and we did not reach the conclusion that those were impaired. What was the question on the amortization?

Robert Rutschow - Deutsche Bank Securities

Really I guess, excluding the amortization isn’t indicative, but did those impairments possible or likely?

Craig S. Donohue

That’s correct.

Robert Rutschow - Deutsche Bank Securities

Is there a level of revenue or earnings where we would start to think about that?

James E. Parisi

I am not going to get into that sort of forecasting, but I think when you are talking about excluding the amortization, are you talking about the $5 million adjustment on the pro forma…

Robert Rutschow - Deutsche Bank Securities

Right, yes?

James E. Parisi

That adjustment was, there is some very short-life intangible assets that are amortized and to make things comparable across all periods that’s what was removed. It wasn’t a write-off or anything like that. It was a pro forma adjustment.

Robert Rutschow - Deutsche Bank Securities

Can you also just give us a little bit more detail on CMA if that had any sort of impact this quarter from a revenue perspective or earnings?

James E. Parisi

I would say it was in line with prior quarters generally on a net basis. The business is steady there generating cash and income.

Operator

We’ll go next to Donald Fandetti with Citigroup.

Donald Fandetti - Citigroup

Craig, just wanted to see if you are generally comfortable with what you see shaping up on the regulatory front and do you see any major changes?

Craig S. Donohue

Obviously that’s an area where there’s a lot of activity and a lot of discussion, and we’re very actively involved in not only understanding what people are talking about and looking at, but also very actively involved in helping make sure that people understand how well our industry and our exchange in central counterparty clearing, how it functioned during this time of economic crisis; I think generally speaking as we’re looking at a wide array of initiatives and studies, some by the government and some by the private sector, that it’s fair to say that the vast majority of the focus right now in legislation and regulation is on the problems in the housing markets, the mortgage finance process, the securitization arena, the problems with the rating agencies, and I think some of the systemic risk issues that have been posed by these very very large financial institutions that are either in some respects unregulated or lightly regulated, and the good news in that, if there is any, is that most of that really doesn’t relate to what we do or many of the problems that we encounter weren’t really in the area of the Commodity Exchange Act, the Commodity Futures Trading Commission, or the futures industry. You have to be vigilant on these things as we are, but I think that there is broad recognition and understanding that our markets are not really involved in most of those things that I was just talking about and to the contrary I think people actually recognize that we’ve been one of the best functioning parts of global financial markets during the course of the last year and the economic crisis.

Operator

We’ll go next to Brian Bedell with Bank of America.

Brian Bedell - Bank of America

A question for Rick; can you talk about to what degree new products created in the fourth quarter influenced volumes, and then if you can detail what your outlook in the fourth quarter of ’09 would be, and you’re not so much predicting volumes, but just talking about the products that are coming online in the first quarter, including January that you’re particularly excited about?

Richard H. Redding

A lot of the new products development and a lot of the products we rolled out in the fourth quarter; we had a pretty emphasis in the second half of the year on ClearPort. I think you’ll see that continue in 2009. A lot of those ClearPort contracts are driven by our customers or channel partners in the IDB space and those products tend to get acceptance earlier and faster than trying to build the benchmark futures product has. As I have always said, building a benchmark futures product takes two or three years before you really know whether you’ll have an ongoing success. That’s why one of the things that we mentioned earlier, the PJM contracts that we launched, were extremely successful right off the bat, which was very encouraging to us to see what we can do with not only in the oil space and natural gas space, but also in the power space. We have launched some products to try to address some of the issues on the interest rate side. Again, we launched OIS futures and OIS options. We continue to think about how the interest rate game is changing. Also focused on treasury issuance and what may be coming there and thinking about the products along those lines.

Brian Bedell - Bank of America

How successful have the OIS futures and options been so far?

Richard H. Redding

They’ve been trading fairly well, but again, look at any new product; it’s difficult to move the bottomline for quite some time on any new product, so put that in perspective.

Brian Bedell - Bank of America

To what degree do you think lower volatility will impact; I know you mentioned in the past that the extreme volatility kept traders away, particularly in the early parts of the fourth quarter; are you seeing any relief on that front yet?

Richard H. Redding

We will just have to go market by market because some of the markets still have pretty extreme volatilities in them. What happens at those extreme volatility levels is that market makers are left comfortable providing a lot of size there, so they have to reduce the amount they put in the books. So, what you see in those extreme times is that the book actually gets smaller driving lesser volumes. We do see in some of the markets the volatility is reducing; you’re starting to see the books rebuild, and we think over the longer term that becomes positive for volumes. We would almost have to talk product by product on each one to know what we see right now.

Brian Bedell - Bank of America

Just on one product, maybe, are you seeing any improvement underlying in interest rates yet?

Richard H. Redding

It’s very different; I should go out of the curve, the volatility in the euro-dollar complex is still extremely high by any kind of historical measure and so there is still a lot of uncertainty around that market. Volatilities actually in the treasury markets are not that high. What you’re seeing in almost every one of the treasury markets is kind of mid teens to upper teens in a lot of those. So, those are the ones that are really affected by the high volatilities. I think there are a lot of other factors in the treasury market that we need to work through. Obviously, issuance is going to be an issue throughout the year. I think some of the issues you saw in the fourth quarter in the repo market and treasury sales. The treasuries put a position paper out on that or making changes to the way sales happen in the cash treasuries which should help a lot of participants in the market because a lot of the participants in the treasury market at the end of the day are relative value traders, and in that situation it’s pretty hard to trade cash and futures strategies and head any of those spread levels that you’ve seen in the past directly.

Brian Bedell - Bank of America

If the Dow situation improves, that should help?

Richard H. Redding

Absolutely. Bring a lot of those relationships back into normalcy which should allow people to trade both cash treasuries and futures a lot more easily.

Brian Bedell - Bank of America

A question for either Craig or Rick; just on thinking about timing for the CDS platforms and the interest rate effort; clearly you know you’ve got to get the approval on the CDS and then connect to the broker dealers. Should we be thinking of that in our models as really something all in; you’re starting in the second quarter assuming the SEC does come around and approve this in the next two or three weeks or so, and then should we be thinking of this also as CDI rather than a single name?

Craig S. Donohue

I think that there’s not much more that we can say on that in terms of giving you a guidepost. We’re not going to be doing this until we clear the regulatory process and that’s not for us to determine. I’ll just reiterate what I said before which is that we’ve been working very very well with the SEC. They’ve been very collaborative with us. I do believe that we’re at the advanced and final stages of the process with them, but ultimately it’s their determination when to grant the exemption order that we’re requesting. On the operational readiness side, again, this is a very big priority for us, and so we’ve been able to advance those efforts and you might remember even from late last year, we believe that we’re operationally prepared, but we will have a lot of work to do and as you can imagine many of the participants from the CDS market, and this isn’t true just for CME group, this will be true for ICE Trust and other competitors as well. You’re dealing with a large number of institutions that have tremendous stresses in the organization right now including the stresses in the operations area of the firm. That remains to be determined. I wish I could give you a better answer to that, but it’s going to be highly dependant on the firms themselves, and so, we’ll have to see.

Brian Bedell - Bank of America

Right, I was trying to get a sense on that, whether it’s based on several weeks or several months, but I guess like you said you really can’t predict that given the stresses in your main customers, right?

Craig S. Donohue

Right, exactly.

Brian Bedell - Bank of America

Right, and then on the interest rate platform and interest rate swap clearing effort, that is more not as advanced, correct? So, should we be thinking of that as more like a second half…?

James E. Parisi

A lot of the stresses that are on those same participants and markets are going to be there for them to do their systems on the interest rate side as well.

Brian Bedell - Bank of America

Just on expenses; on the second scenario there, where you’ve got the 11.2 million contracts, what are you assuming on the employee bonus on that, and if you can’t be specific, should we think of that as something that’s more like in the middle of the range or is the 11.2 million volume scenario at the 20% below the target area.

James E. Parisi

At 11.2 million, we would certainly be below target.

Brian Bedell - Bank of America

The expense philosophy a little bit; I know we talked a lot about this quite a few times, but if volumes are extremely weak, what’s your philosophy in general about the gross initiatives that you have because obviously that will help a great deal if you’re building connectivity and penetrating accounts globally, and so you have to make a decision; do we go ahead and spend ahead of the revenue here in the hopes of building revenue just to counter the macro backdrop or do you pull back and say, “Okay, we are trying to meet EPS numbers and we’d rather have lower expenses.” Which camp would you tend to be in 2009?

Craig S. Donohue

Our focus is really on the long run. So, I’d say we’d be focused on the gross initiatives.

Brian Bedell - Bank of America

Lastly, on the subscribers; you mentioned that you’re starting to see a downtick in January, any kind of indication of how significant that is, in terms of the number of terminals that your clients have?

James E. Parisi

We were actually referring to the fourth quarter. So, we have not provided any info on January at this point.

John C. Peschier

Thank you everybody for joining us today and we look forward to speaking with you next quarter.

Operator

This does conclude our call. We’d like to thank everyone for their participation. Have a great day.

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