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CME Group Inc. (CME)

October 04, 2011 11:00 am ET

Executives

Laurent Paulhac - Managing Director of Over-the-Counter (OTC) Products & Services

Brian Yeazel - Portfolio Manager

Derek Sammann - Managing Director of Foreign Exchange and Interest Rate Products

Kimberly S. Taylor - President of CME Clearing House Division

Craig Steven Donohue - Chief Executive Officer and Member of Strategic Steering Committee

Bryan T. Durkin - Chief Operating officer and Managing Director of Products & Services

Terrence A. Duffy - Executive Chairman, Chairman of Executive Committee and Member of Strategic Steering Committee

Phupinder S. Gill - President

John C. Peschier - Managing Director of Investor Relations

James E. Parisi - Chief Financial Officer and Managing Director of Finance & Corporate Development

Joseph Guinan - Founder, Chairman and Chief Executive Officer

Kendal Vroman - Managing Director of Commodity Products - OTC Services & Information Products

Kathleen M. Cronin - Managing Director, Secretary and General Counsel

Unknown Executive -

Julie Winkler - Managing Director of Research & Product Development

Colin M. Lancaster -

Glenn Hadden -

Julie Holzrichter - Managing Director of Global Operations

Alice Hackett - Managing Director of Global Client Development & Sales

Doug Cifu -

Ric Gwin -

Analysts

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Unknown Analyst -

Alex Kramm - UBS Investment Bank, Research Division

Roger A. Freeman - Barclays Capital, Research Division

John C. Peschier

Good morning, everyone. I want to welcome you all to the CME Analyst Day. We appreciate you being here. I'm John Peschier, I head up Investor Relations. I know there's a lot going on in the market right now, and I know you're all very busy, and we appreciate you taking the time. We're going to work to make this a very interactive program today, give you an ample opportunity to ask questions. We have a lot of new material that we created to make it a little more interesting in giving you a different perspective on the business.

You can reference our forward-looking statements in the deck as well as on our website for those of you listening.

In terms of the logistics, very important, the restrooms are back to the right, near where you all came in. If you need wireless connectivity, you can do so and there's no password necessary. We're basically going to go through until about lunch time with no breaks. So if you need to get up and leave the room, feel free to do so.

As I mentioned, we're going to have ample opportunity for Q&A. If anything comes up and you need any assistance, just let anyone on our team know.

In terms of our objectives today, we're going to talk a lot about the business, we're going to talk about the past, the present, the future, in terms of where we think we're going. We think we're pretty uniquely positioned with a very durable franchise, even in markets like we're seeing right now. So we're going to talk a fair amount about that. The other benefit is you're going to see a deeper level of CME employees and see some of the talent that we have within the company, which we think is certainly worth noting within the exchange base. We're going to start today with this group and you're going to see several others here who will help address your questions. And then lastly, I think most interesting, you'll get a chance to talk to our customers. We have 6 customers from different areas. We have a couple of asset managers, we have a dealer, we have a hedge fund, we have an electronic market maker. So I think you're going to see the diversity represented here, which again is somewhat unique to CME in terms of the diversity of our customer set.

So in terms of the agenda, you all have this in front of you so I won't go through in great detail. Craig is going to start and give you his view from a big-picture perspective. Brian is going to talk about operations, whether it's OTC, clearing, technology, co-location. We're going to update you on a few things there. Derek is going to talk about financial products and he's also going to moderate the first panel that we have with 3 participants in the financial products area. We're going to break for lunch about 30 minutes. It's going to be a boxed lunch. You can eat outside and then also bring your lunch back in here. And then in the afternoon, we're going to address the commodities area, talk a little bit about what we see going on in that market. We have our second panel that Ali Hackett's going to moderate. She's our Head of sales. And then we're going to finish off by talking about the global opportunity, as well as a brief look at financials.

So that's the agenda. And at the very end, there'll be a 30 minute period to ask any final general questions. So with that, I'm going to turn it over to Craig. Thank you.

Craig Steven Donohue

Good morning, everybody. Just to echo John's welcome, we're grateful that you took time to be with us today and I think you'll find that we have a really substantive and engaging agenda planned for you today. I thought I would actually be pretty brief this morning and just share with you really a kind of high-level summary of our progress over the course of the last year. And then as John indicated, that will be followed by much more detailed discussions across each of our different business portfolios. And then as John indicated, we'll host 2 customer sessions, which I think are always very useful. In the past, you've given us really positive feedback on that and I think it helps to see CME Group through the customer perspective and I think it also highlights the broad diversity of our

[Technical Difficulty]

Sorry, my Britney Spears headphone is not working very well. Highlights the broad diversity of our products and services and also our customer base. As you know, liquidity is such a key part of our business. And so, customer relationships and expanding and deepening the involvement of our customers in our business, as well as acquiring more customers, is really an essential part of how we continue to grow as a company.

I think many of you are well acquainted already but I thought I would just touch briefly on some of the pretty significant internal changes that we've been making over the course of the last 1.5 years, really reflecting the fact that following the combinations of the CME and the Board of Trade and then NYMEX and COMEX, we're really trying to scale our capabilities on a global basis, recognizing the unique products and services that we offer, and we think the growth opportunity for our business around the world. Just in the last year, thanks in part to Bryan Durkin's leadership, we've really begun to think differently and to make sure that our leadership and our human capital is where our customers are, or where our growth opportunities are. And so as a result, in contrast to say 2 years ago, our global FX and metals businesses are now run out of London, with 2 new people that we've brought onboard. Our energy interest rates and clearing services and global sales functions are run out of New York. And agricultural commodities remains here in Chicago. But I think it's a testament to our commitment to really being very close to our customers and making sure that we are where the market is. So I think those are very positive changes.

We're also continuing to build our presence globally. We have a significant workforce today in London as well as Singapore and a variety of other places where we have strategic relationships and partnerships. And all of that really helps us not only to scale, but to really focus on the discrete growth opportunities that we have in these different regions and with different customer segments and with particular products versus just kind of a shotgun approach. And so we'll have more to say on that later, but I think you can see that we've made a tremendous amount of progress in that way.

We've also really ramped up our sales efforts. One of the things that we felt we really needed to do is to separate the business line management function from the client development and sales function so that we could be sure that we had people who are really focused on developing and executing the growth strategy for each one of our businesses, and managing that business in terms of new innovation, in terms of products and product extension, in terms of the P&L, in terms of the competitive positioning and whatnot. And then separately, as you've learned and as you'll see throughout the course of the day, Ali Hackett is here to run our global sales force. And we've got an entire group of people now that are really very intently focused on servicing our customers, developing deeper relationships with them, expanding their trading and clearing with us, and then most importantly, really focusing on acquiring new customers rather than just leveraging the existing customers that we have. So that's a process that is well underway, thanks to Bryan and his team, that is taking root very well within our organization. We still have work to do to get it to work really, really well. But I would say in the short time that we've undertaken, that's had a very, very positive effect. And I think you'll hear that actually from some of the customers that you'll see today.

Other areas where we've invested for growth obviously include co-location services and OTC clearing. As I think Julie will probably talk about, we've seen very, very strong demand for our co-location services beyond what we had initially expected in 2012. We'll start to see revenue realization from that. It's a very attractive business for us, and it also, I think, expands the range of business that our customers will do with us.

And then, as you know, we were also an early investor in OTC clearing. I know that's been a long journey for not only us, but for you as well. But I think the investments that we've made are really beginning to bear fruit. You might have seen yesterday, we published that we had a record month in OTC clearing. And so, we're very positive on that development. We cleared $45 billion of interest rate and credit default swaps. We have 15 active clearing member firms and more than 500 customer accounts. So some very positive developments on that side as well.

I thought I would just touch briefly on the kind of rule-making process. I know that, that also has been front and center for many of you in trying to really figure out sort of the shape of this industry and what the impacts are for the long run. I think the deeper we get into this process, the more we are of the view that this is positive for CME Group and for exchanges and clearing houses. Ironically, I think some of the delays and a lot of the complexity, coupled with the external environment, have actually been positive contributors. We're seeing, as I mentioned, people migrating more toward swap clearing even without the rules being finalized, I think recognizing that it's time to do that. We've also seen a lot of our customers, and hopefully our team here will have a lot to say on that. As we're talking to them about OTC clearing, they're engaged with us very much in a discussion about how they can make better use of standardized listed futures and options contracts as substitutes and alternatives to the swap market, as they're looking at the total cost of trading comparisons between swaps and futures in light of the new capital and margin requirements.

On the regulatory front, we would like to see this get resolved as quickly as possible with one major caveat, which is that we have always felt, and we've been consistently of the view that it has to be done right. And so, you've seen us be a strong adjutant for cost-benefit analysis. As you, I think, well know, many of the proposals have pretty profound implications for the cost of doing business, not just for professional market participants, but for end user customers as well, and very significant market structure implications for market participants as well. We do believe that the CFTC is now taking that responsibility more seriously, and we're certainly encouraging them to do that. We're also trying to ensure that in the crafting of the final rules, that they really adhere to the principles-based system, which is really what Congress intended and that they not be overly prescriptive in the crafting of the final rules. There's still much more work to be done on that but I think in the end, we will get through this. We'll start to see some of the major rule makings coming here in the fall and then through the spring. But in everything that I'm seeing, I think it's very positive for our business model and for our growth opportunities.

So at that point, at this point, I'm going to sort of wrap up, and thank you for your time and your attention, and turn it over to Bryan Durkin.

Bryan T. Durkin

Well, thank you, Craig, and good morning to all of you. I'm very honored to be here with each of you to talk about the progress that we have made in the context of building upon our great platform as CME Group. And the emphasis that I hope to leave you with today is a greater intensity behind customer focus, driving greater value and positioning ourselves in the context of being a growth-oriented organization, where we further penetrate the international opportunities that face us with respect to the products and services that we offer.

As Craig alluded to, we went through a recent transformation of our products and sales team, which I'll get to in a little bit more detail in a few moments. But most definitely, the recalibration of that team has led us to some very transformative results in the context of being able to better position ourselves with the client segments to do business throughout our markets and utilize the products and services that we offer as part of CME Group.

The underpinning of our ability to offer those products and services is most definitely led by the technology that we provide as part of the holistic offering, whether it be from our Globex trade matching engine, which is accessible to 150 countries throughout the world, whether it's through the straight through processing and clearing and risk management services that we provide. The tenants and the underpinnings of the products and services that we're able to go out to market with is very much reliant on the technology and the innovation of our team and being able to continue to innovate and bring forth the tools that are required of the market users that come to us and do business.

And then lastly, with respect to our clearing offering, which is unsurpassed in terms of its performance over the years from the exchange traded perspective, Kim and Laurent will be taking you through our progress with regards to extending that model in the OTC side of our offering.

When we talk about global operations, we want you to have a perspective of the broad picture that we represent as CME Group. And under those global operations, we'd like you to have a picture of the client development and sales organization, what it represents in terms of driving greater opportunity and value for our client base, as well as the markets that we offer and the services that we offer. Secondly, very critical to our offering are the Products & Services business alignment. And Craig alluded to earlier the structure of the business line management and the expectations that we have of them in terms of appropriately and effectively understanding the client segment, the market opportunities, the competitive initiatives that are out there that breed opportunities for us in terms of growing our markets and the products that we offer.

The research and product development is inextricably linked to the offerings that we represent for us to ensure that the products and services that we are offering to the marketplace are meeting the risk management needs of that end-user community. We work very much in alignment in that respect in trying to stay ahead of the curve, and I think a little bit later today, you'll hear some very fruitful results with respect to new product offerings, new service offerings that have borne tangible results with the user community.

With respect to the clearing services that they represent, obviously, from the history that we've had, our CME Clearing offering in place, we're very proud of the track record with respect to our risk management efficacy and our ability to manage the multitude of products and asset classes that come through our systems every day. That is through the leadership and the innovation of Kim Taylor and her team, and she'll be speaking a little bit later about where she plans on taking that offering, as we represent our OTC initiatives.

Information technology, Globex in particular, is the leading edge technology in terms of the platform that we represent and provide the marketplace with access to very deep and liquid markets. We're very proud of the fact to be able to say that, that platform is accessible through 150 countries located throughout the world and through our innovative team in developing a global network. Having strategically positioned points of presence located throughout the globe, we are seeing the benefits of more and more clients connecting into those hubs and bringing business into our exchange-traded platform.

With respect to operations, Julie Holzrichter, who oversees our global operations organization 24/7 without having stellar operations and being there and providing their customer base with continuity in service, with very clear and transparent rules with respect to trading on our markets and with ease of access to those markets in providing customer support, in terms of linking up and hooking into the various products and services that we offer, none of this would be successful. So hopefully, you'll hear in a few moments the initiatives that Julie has underway to continue taking those global operations to the next level.

Just to refresh some of you on the realignment of the Products & Services division, less than a year ago, we decided to divide up some of the responsibilities across the Products & Services division. And really, this was to enable us to better align our resources and target our energies more directly and squarely in alignment with the customers that bring business to our markets every day. We've had this organization structure in place for a shy of 10 months and hopefully in the next couple of slides, you'll some of the fruits of those labors in terms of the penetration that Craig represented earlier into new clients coming into our markets. The ability to better offer the products and services out there from a cross-sales perspective has definitely been a movement forward through Ali Hackett's leadership.

In the context of cross-asset selling, we have aligned our resources to be adept at being able to go into a client segment and be able to speak across the broad array of products and services that we represent. Being able to do that more effectively, utilizes the customer's time. This is all about intensifying our focus with the customer, making sure that we can provide value for that customer in the context of the robust risk management tools that we offer across a broad array of asset classes.

As you well know, in terms of the business lines and how they're represented, we're covering the broad spectrum of the marketplace. We have the broadest array of interest rate products, which Derek will be speaking to you about later on today, in terms of how we're performing in those markets. Foreign currencies has been a tremendous area of growth for us, particularly in the area of our international focus, having positioned strategically our leader of that business line in London has been a very strong value proposition for us in the context of where we hope to be able to take that business going forward.

With respect to our equities business, we're performing very strongly in that regard, and we've extended the offerings with respect to the products and the product innovation associated with our equity business line. Derek will also get into that in a little bit greater detail during his presentation.

The agricultural marketplace, the energy and metals will be covered by Ken Vroman in a little bit later. And again, we're seeing some strong growth prospects with respect to the performance of each of those respective business lines.

As we look at the demographics of the client segments that are doing business on our exchange, we like to close trackly the performance of not only the products themselves, but where we're seeing our clients interest peaking in how often and to what depth are we seeing our clients expanding their use of the asset classes that we represent. Up until a couple of years ago, it wasn't uncommon to see most of our firms primarily focusing on 1 to 3 asset classes. That trajectory has definitely changed over the course of the last 12 to 15 months. And as this slides represents to you, taking a look at the number of asset classes that are traded by the top 100 firms that bring business to our marketplace, we're seeing a very positive and a very interesting trend in terms of firms expanding the number of asset classes that they are trading in our markets. 74 firms are now very consistently trading 5 to 6 asset classes where traditionally, they had fallen into the 3 to 4 asset class category. We're very pleased with those trends, and we think that it is underscoring the efficacy of the program that we put in place to better target our clients and to have a very strong understanding of each of the respective client segments that do business in our markets in understanding the types of tools, and the types of risk management capabilities that they are looking for.

In the context of building out that marketplace, our focus within products and sales and across all of the operations has been heavily focused on building the international presence. As you look towards the activities that are occurring across the globe, particularly as it pertains to Europe, as well as in Asia, we're quite proud of our ability and our track record in building liquidity 24 hours around-the-clock. Currently, approximately 20% of our business is actually coming out of the international zones. While a lot of that business may very much be coming during what you would consider the traditional U.S. time zones, we're really pleased to see the trajectory that's building up across both the European time zones, as well as the Asian time zones. Our current growth rate from the London time period is 39%, and our growth rate within Asia is 48% versus 19% for the U.S. time zones. This is an excellent, I think, representation of the investment that we're making with our resources in intensifying our efforts to further penetrate the international sector and be able to provide consistency and liquidity across all of these asset classes during their relevant time zones.

Another area that I found quite interesting and I thought you would find equally interesting is the increase in the user base, in new users coming into the market. Traditionally, when you speak about asset managers, many will reflect on asset managers as being more intensified in the OTC arena. We're seeing quite a very positive growth trend with respect to the asset manager community, and I thought you would find it very interesting to see as opposed to just me talking about it, showing you some tangible proof, in terms of their focus and their activity coming into the exchange traded products as well. If you take a quick look at this slide, it's giving you a fairly holistic representation of our asset manager community based upon the available data to us. And it's showing a high interest across this community within the equity interest rate, foreign currency asset classes that we represent.

Not only is it very interesting that they are trading these products with a great deal of consistency, but if you take a look at their composition of the open interest which gives an indication of their stickiness to that product and you look down the list of what that represents, there's a significant portion of that open interest that is being maintained and generated by that client segment.

How we get there and are able to accomplish the stickiness to our markets and be able to establish the penetration growth targets that we have for our markets in our international bases is very much reliant upon the technology that we are able to offer to our community. We have consistently and I there's many, many familiar faces out there and I know you're familiar with Globex, and in our representations on Globex and have watched that platform transcend itself over the inception of the past 15 years. What has happened in the dynamics with Globex in the past couple of years I think is unsurpassed in terms of the performance, the consistency, the reliability of that platform.

So I thought I would just show you how we're tracking in that respect, in terms of what the user base is experiencing in accessing this platform 24 hours by 7. And what we're providing you with is a snapshot of the order entry messages and the order entry updates that come through our system on a daily basis. It wasn't too long ago that we thought reaching 10 million orders -- order messages in a day was quite a big day. Today, what we're averaging is around 250 million order messages. It's not uncommon to see ourselves peaking at a level of 0.5 billion messages is coming in, in a trading session, and what's very important to us is as that system is being pushed to those levels that we have the capacity and the scalability to be able to support that level of activity, becomes very critical at all points but particularly during volatile markets. The user base is expecting consistency in terms of round-trip times, and we're very proud of the new generation of the Globex platform that has transcended us to be able to meet those consistency milestones.

While our order entry messaging has gone up over 129%, we have been able to reduce our round-trip times by almost 40%, our round-trip times are in the very, very low single digits now around 2.5 milliseconds. And we're very proud of what that represents and we've seen the fruits of those labors, in terms of the increase in activity.

Taking this one step further through the innovation of technology that's occurring on a global basis, the user base has become far more sophisticated and very demanding in the context of their expectations of the technology that we offer and we can represent to them. In that context, the user base has demanded and has requested the accessibility to co-location facilities and we've met those demands in the development of our most recent state-of-the-art data center, which Julie will be getting to in a few moments, offering those co-location services to our client base. We're really quite proud of the take up of those services, and it's certainly meeting our targets and expectations in terms of the commitment to outfitting the co-location facilities. We have over 100 firms that have committed themselves to occupying that space and setting up their environments. And we fully expect to be able to reach our milestones of $40 million to $45 million in terms of revenue in 2012. So we're off to a very good start with respect to our endeavor. We committed ourselves to going live at January 29 and giving you an overview of where we are. In terms of project plan, we're well-positioned to meet those timelines.

So before we get into the OTC end of our offering that Laurent will kick off and then Kim will finish off, I just hope that this very brief overview has given you the confidence that we are well-positioned to maximize our growth. We've intensified our efforts to the realignment of our Products & Services division. It's bearing fruit in the context of our further cultivating our existing client base in penetrating new clients, new users of our markets on a global basis to come in and access both our exchange traded and our OTC products and services. Secondly, what we are seeing is an increase and more active interest in risk management offerings. And that's transcending itself, both in our OTC clearing services, our ClearPort clearing activity, as well transcending itself into the exchange traded product base.

And then lastly, all of this access to the products and services is only as good as the technology and the capabilities and the accessibility and the flexibility of providing that access in a holistic basis to this marketplace. Hopefully, you are seeing through the efforts that we've made in the investments in the technology that we're able to provide that accessibility and that's transcending itself in terms of our overall performance, which you'll be able to see later on today through the presentations on each of those business lines.

With that, I'll turn it over to Laurent to talk about our OTC services.

Laurent Paulhac

Well, thanks, Bryan. I'm going to spend a few minutes talking to you about how we've been doing recently for OTC clearing capability. As you know, clearing OTC product has been a high priority for us at CME Group. And actually, we focused on that now for quite a few years.

Our product offering still feels like it remains relatively new in the marketplace but we're starting see some exciting and encouraging results as of late especially in August and September. We've actually worked very hard in building and broadening OTC clearing away from pure energy and commodity and supporting interest rate swap, credit default swap, as well as foreign exchange. The clearing solutions that we've worked on, on rates, on credit and FX have actually been designed from the ground up to support client clearing. And actually, we are leveraging our CME Clearing model that we've used for decades as well as all of the expertise that we've built. But even though the product was designed from the ground up for [indiscernible] clearing it works very well for D to D interdealer clearing as well. In fact, actually I would say we take particular pride in the fact that we work collaboratively with a large group of buy-side firms, a good number of swap dealers, as well as clearing members in the design of those solution and we've gotten very good feedback as to how this product was built.

The OTC vision that we have for clearing OTC product is actually -- remains pretty straightforward and simple. It's focused around delivering the multi-asset class clearing capability to our customers that bring a key number of benefits to our clients and key number of principles. So number one, strong customer protection is paramount and central to the offering and it really leverages our risk management expertise, as well as a credit rating of course and the time-tested agency model of our clearing solution.

Capital efficiency is also a very important tenet to our solution, leveraging margining -- portfolio margining when it applies, as well as the ability to provide margin offsets between OTC clear solution, as well as our futures products. And then, we shall extend as importantly as the other key features is a consistent and very efficient workflow that's really bringing a lot of value to our customers and reducing operational risks. So what our customers tell us generally about what they like about our solution is the fact that our product is actually a realtime clearing solution. They have the ability in -- once they've executed a trade today, electronically over the phone, to be able to clear those products in near realtime or realtime in some cases when APIs have been put in place.

Automatic netting and compression so that they can manage and reduce risk as quickly as possible. The ability also to close out any position that they currently hold in the clearing house with any counterparties that makes the market more efficient and actually bring substantial pricing value to the customers. The fact also that we have a pre-clearing allocation mechanism that's very well-honed and very well-developed and provide more efficiency to our clients. And of course, full transparency, full transparency about how risk management model works but also how end of the pricing is being structured. So all of these capabilities have been very important and have led to some recent results. So I'll move to the next slide to actually talk about how our customers have recently really focused on what I would call voluntary clearing. All of us have been thinking that over the course of 2012, there will be a mandate for clearing. We didn't quite expect such meaningful adoption of voluntary clearing in the second half of 2011.

So a couple of important data points that should help you to understand what's happening with our clearing solution now, we have for interest rate swap clearing, we have actually 14 clearing members that have been signed up to the solution; and for CDS, we have actually 10 clearing members that have been signed up to our service. In terms of buy-side momentum, we have cleared today with 15 distinct buy-side institutions that represent about 500 different subaccounts that have open interest in the clearing house today. So that's quite material, in fact. When we looked at a voluntary clearing, we didn't expect that much adoption early in the process. And those numbers are growing. We are spending a lot of time with clients, over 80 different distinct institutions of testing actively on the -- with CME right now and working with a very large group of additional buy-side firm in term of on-boarding and educating the marketplace.

In terms of statistics, we've cleared about $38 billion of interest rate swap representing today as of this morning about $35 billion of open interest. Just to note, our largest clearing day is about $7 billion that we've done in one day back in September. For CDS, we've cleared over $7 billion total and about open interest of $6 billion and our largest clearing day for that -- for a single day was $1.7 billion.

So we're very excited about the recent growth and we're very focused right now actually on servicing our clients. What we found is that OTC clearing is a very high-touch service and we're spending a lot of time with our customers, deepening our relationship with not only the buy-side but also the sell-side. Over the next few quarters, we're continuing to push out our solutions, spending a lot of time with customers but actually over the next few quarters, we're going to spend a lot of time with our dealer clearing members and focus on interdealer clearing as well. So what I'll do at this stage is actually turn it over to Kim who will focus our open clearing environment.

Kimberly S. Taylor

Thanks, Laurent. As with building any of our businesses, building the OTC clearing business is -- has a lot to do with the network effect and this slide highlights not only the fact that it's an open access. So there's lots of ways into the clearing house, but also I think it highlights the network that we're building. You'll see that along the top line market serving Bloomberg, that's a series of platforms that we have connected to. We're connected with a series of the industry-leading platforms and also some of the expected emerging platforms. I would say we're connected to or in the process of connecting to approximately 20 of the trade affirmation platforms or expected trade execution platforms that we'll be operating after the mandate.

So one of the things there that we're trying to do is ensure that our customers have the ability to take their current operational workflows and seamlessly transition them into a cleared environment to reduce the operational adoption hurdles and ensure that we will have access to trade execution flow in the clearing service.

In -- sort of in the middle, you'll see the list of the clearing members. Laurent mentioned we have 14 clearing members for interest rate swap, and 10 for CDS. The clearing members are listed there. You'll see that, that among them are the major dealers in both of those products that's in the over-the-counter. And you'll also see over on the right, the new clearing members that have started since the first day. One of those, I think, is of particular interest to mention, Bank of New York is not what people would see as a traditional dealer in either of these product sets. They do trade the products, facilitate customer activity, but they're focused on providing access to their custodial clients to a choice of another opportunity for clearing services. So part of building out this network is also ensuring that the customers will have an ample choice of clearing providers.

And then toward the bottom of the slide, you'll see the list of the new products. The other main element of building out the network and the service is to broaden out the product offering so that the customers have good coverage for the products that they trade. One of the things that they've told us is they're very interested in being able to clear more of their tradable product sets under one roof. And so you will see that we're doing some significant expansions in the rates offering by the end of this year, with the currencies that are listed. That actually gives us market coverage of approximately 90% of the addressable market in the interest rate swaps arena. We're also broadening out the credit default swap product set and we're adding additional non-deliverable forward and some other major pair cash settled forward products to the cleared offering as well. Those -- some of those are at the request of the earlier adopter clients.

John C. Peschier

So at this point, we're actually going to open up for questions. If anybody has questions about the OTC business, technology, the sales force realignment, we'd be happy to take those. We'll start right here.

Question-and-Answer Session

Unknown Analyst -

Maybe for Kim at first. What are the implications of the merger with LCH.Clearnet with another exchange or financial institution? What does that mean for OTC clearing for CME?

Kimberly S. Taylor

We can't obviously comment directly on other people's merger activity. But I can comment generally on the difference between a horizontal right now. The clearing provider that you mentioned is operating as a horizontal industry utility type of venue. That provides them with certain benefits in the eyes of some of the client base. And that will change if it becomes a vertically integrated clearing house. So there's different configurations. We're always watching what the competition is doing. But I think we feel like the structure of the corporate structure is actually less important than the clearing offering. And we feel that our clearing offering for clients is very compelling.

Unknown Analyst -

I actually had 2 questions, 1 for Bryan and 1 for Laurent. Bryan, you highlighted a lot of the progress the company's made in realigning Products & Services, but just curious whether we look at the international growth or the penetration to other complexes. I mean, one thing you didn't touch about was the fee schedules and pricing. So could you just talk about is the fee schedule where you all want it to be with the realignment of Products & Services and if not, where would you expect to see some kind of tweaks and revisions?

Bryan T. Durkin

So far, with respect to our efforts in intensifying our growth particularly on the international side of things, we're quite pleased with where we're positioned across all of our asset classes and the value proposition that we're offering and the liquidity that we're offering within each of those segments. We're seeing a great deal of take up with respect to those products. And we don't see anything on the horizon at this point in time.

Unknown Analyst -

Okay. And then, Laurent, you touched on a lot of the benefits of OTC clearing, but just curious what the pushback you're hearing from potential clients you're trying to add on and some of the tweaks you've made along the way to address those.

Laurent Paulhac

Sure. We're working with a very diverse group of institutions on the buy-side. As you know, our market entry strategy for OTC clearing has been very much to focus on the buy-side and build open interest. And then over time, the operating interest builds up and dealers do the large trades with their clients. They would have a natural -- we'd see a natural value in actually clearing the offset in trade that they would do in the other market with us as well. So with respect to what customers have told us is there are some clients that are very focused on being ready for the mandate and are working through a very detailed timeline with respect to readiness and we're working with them, we're educating them, working through the on-boarding process. We have a some other clients that are much more focused on counterparty risk and the current market conditions. And as part of that, what we've done is actually we've, as Kim described, we've substantially accelerated our product rollout with -- on October 17, we're launching our Euro swap capability. In December, we'll actually be adding anywhere from 1 to 4 additional currency. So it can really cover the vast majority of the risk that exist out there in IRIs. We also -- we spent a massive amount of time on operational efficiency. What we're finding is customers are very focused on risk. And then once they get very comfortable with CME in clearing their business, the next step is how to make it simpler and faster and really focus on the operational efficiency. So we've done a lot. We've done a lot with our ClearPort platform, we've done a lot of, as Kim said, in terms of connecting to the various third-party messaging platform. And this is an offering that's going to evolve for years. As I mentioned, we find this offering to be very, very high-touch and we spent a lot of time with clients. We're very client focused in terms of adding new feature and we will continue to operate that way because it's working pretty well so far.

John C. Peschier

Okay, I think we have a question at the back.

Unknown Analyst -

Just to address the cross-margining opportunity, have the regulators specified which products between OTC and futures might actually fall into that bucket or what they could leverage?

Kimberly S. Taylor

Have the regulators specified which products?

Unknown Analyst -

Right, in terms of your futures customers, in terms of whether they actually get across -- they can use the existing capital under the futures market for your OTC offering.

Kimberly S. Taylor

I think the regulators have not kind of specified what -- they haven't laid a program from their point of view. We've had conversations with the regulators on what we intend to seek approval for. And the conversations have gone, I think quite positively and the regulators have indicated some preferences in the way that they would like us to structure our offering. So, for example, very likely in order for our customers to capture the efficiency, the capital efficiency between interest rate swaps and interest rate futures, they will need to shift their interest rate futures, the relevant interest rate futures positions into the account where their swaps live instead of vice versa. So the regulators have voiced some kind of structural preferences that will be more attractive from their point of view, but they haven't specified a list of products that we'll be seeking approval for the list of products.

John C. Peschier

Will go here to Roger and then to Rich.

Roger A. Freeman - Barclays Capital, Research Division

Kim, just a follow up on that. So it seems that likely that there is going to be some sort of cross margining that seems like a positive recent development as opposed -- they're just tinkering with how that's going to be done. Just a few months ago, it seemed very much up in the air whether it will be done at all.

Kimberly S. Taylor

We have absolutely always intended for there to be risk offsets, but we did need to have some early conversations with the regulators and we've gained some incremental comfort along the way that they will be receptive to an offering. We're actually seeking to put in our application before the end of the year. We're waiting for a few more rules to emerge before we can finalize it, but we're very hopeful that we will have it sometime early next year. At the very latest, we intend to have it before the mandate.

Roger A. Freeman - Barclays Capital, Research Division

Great. And then just one other question. On the CDS front, does it seem likely that we could have 1 pool of liquidity, or 1 pool of open interest that's customer oriented on 1 exchange, and then dealer open interest on another? It seems that that's not a very efficient market structure as far as any potential across or netting of positions in the swaps.

Kimberly S. Taylor

Well, I think as Laurent mentioned, our offering is designed and initially focused on attracting the buy-side that does come with a dealer side to the trades. I think there will be some natural incentives for dealers to place offsetting at the very least, place offsetting trades to the trades they facility to their clients at the clearing house where their clients choose to clear.

John C. Peschier

Go ahead, Rich.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Kim, I just want to clarify something on that question. So the ability of this $35 billion or whatever the customer OTC IRS volume right now. So you could not move any offsets, of futures positions into the portfolio to offset on margin?

Kimberly S. Taylor

At this point, we do not have the regulatory approval necessary to do that. We're working -- we're very close to having a filing, and we've had some positive conversations with the CFTC. I believe they'll be receptive to our offering, but it does need regulatory approval.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then, just another on the clearing. So another platform has gotten in litigation over the pricing -- it appears the pricing of the product. And, look, how can you assure -- what's your best view on why that occurred? Like, is it because it's an FCM-cleared interest rate product or is it because that specific platform had issues? To the best of your knowledge, is this an industry problem that we're starting to see with the methodology or is it more specific to that platform?

Kimberly S. Taylor

Again, it's very difficult to comment on other people's activities. But from the general understanding that I would have from the press, it seems to be that it is a challenge about the mark-to-market price. That boils down to a challenge about the mark-to-market price on the transaction. We are a very neutral third-party provider, and we take a lot of care. Julie's organization takes a lot of care in ascertaining the best estimate we can on market conditions and setting our settlement, our mark-to-market prices based on that. And that's a very rigorous process that we have. I don't know if you want to add anything to that. So I don't think it has anything to do with the FCM model, if that was the real question.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

And then one quick one, I'm done with -- but for Bryan. So Slide 13, you show that the number of the top 100 clients trading and I think 5 or 6 products or assets went up by 10 or 11. So how many of those increase in 10 would you say a true asset manager versus say, a liquidity -- electronic -- I don't want to say high-frequency tradable electronic liquidity provider now traded more multiple products out of that 10 increase in the past year...

Bryan T. Durkin

I'd like to pitch that question over to Ali so that you can hear from our Global Head of Sales in terms of the progress that we're making in growing the business in that perspective, and giving you her viewpoint on how that has transcended itself and she'll address your question.

Alice Hackett

Great. I wouldn't necessarily have a breakdown for the high-frequency. I think that's the group that probably goes across most products generally and naturally. It is the asset manager community slides that I think addresses perhaps not you're direct question, but what our intent is in the new structure and where we think we have quite a big opportunity. It's not just the asset manager community. Actually, it's the corporate's commercials. It's the banks, it's the dealers. It's quite a bit of what Laurent talked about by having a focus and what really makes me excited about what we're doing today is the markets' conversion. And the conversion is happening between OTC, it's happening with the listed products. And if we are not there speaking with our clients and living through their pain, their challenges, their risks and everything they need to develop, and then be intuitive in terms of how we're developing, we're not going to be there in the long-term. This slide is the real slide. It was the first 100 clients. It's going to be the next 100 clients. Over time it's not just about bringing in new clients. It's also about deepening the relationships and being able to bring into the clients, not only the OTC products but many of our clients today are looking at just the world in general and their exposure and saying when we think of hedging and taking out the risk quite a bit of our customer base are also looking at how do I acquire exposure and our diverse product suite gives what's there.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

I just wonder what the answer is to that, though.

Alice Hackett

I don't have a direct breakdown to the first 100. I'm saying that it's actually a quite diverse breakdown. I don't know the exact number. But of that, we have 6 different client segments. So it's not just -- if you're asking about the uptake, all of our customer segments are having an uptake across products.

John C. Peschier

I think we're actually going to switch now. I know there's more questions, but hopefully as we into the products, we can touch on them. Next, Derek could come up and talk about the financial products. And I thank some of you guys who have to get back to work for participating.

Derek Sammann

Thanks, John. So we appreciate being here today. I think, as both Craig and Brian have laid out, what we're going to try to do is give you a slightly different view and to a degree, a more drilled-down view into some of our businesses. I've spend more time with John and Jamie talking to a lot of you in the investor conferences and at individual analyst and investor meetings. We're going to try to provide to you in this next 40 minutes a more granular view of what we're doing in our financial products. And then the second panel is going to be an opportunity for us to, for the first time, provide answers to a lot of your questions coming directly from our customers, as opposed to me telling you what our customers are thinking and saying.

So I'd like to start by picking up a theme that was hit on both by Craig and Bryan in that when you look at our business and on our financials side being defined as the aggregate of FX, interest rates and equities, you'll see a very healthy growth rate, and you're also going to see a diversification of our business across asset classes. You've seen this slide before. We'd like to break this down slightly differently, and I'd like to talk about some of the key levers that on the business management side in the reorg structure that Bryan has brought to the organization, what we focus our business line managers on, what kind of levers we have to pull, how we position ourselves, how we focus on the underlying core strengths of our franchise and those levers that we have in our control, stripping out the macro factors, stripping out the rates environment, what are we doing to grow our business.

One of the first things I'd point to here is that while we're seeing growth across our businesses, you'll see a fair number of percentages. On the left-hand side, we wanted to split down for you where the business resided in the fourth quarter of 2004. 71% of that 5 million contracts ADV was in interest rate business, 25% was in equities and just 4% was in our FX business. Fast forward to Q3. We've doubled those total volumes. We've now had growth in all segments, but an outpaced growth in our smaller businesses, particularly FX has doubled that business, almost tripled in fact. The rates business has continued to go, but the equities business has had an even faster growth. So important that we focus on the components of our financials portfolio and what we're doing to grow this business.

I tried to capture on the left-hand side kind of 4 primary drivers and levers that we pull and we focused on from a business management point of view. The first of those has already been touched, and Ali made some comments, and Bryan set this up. What we're doing to diversify and globally expand our customer base. There were some slides earlier that represented the percent of open interest. Howard, you asked a question on kind of the trading volumes and the split. I'd actually focus on this particular point.

If you look at the Eurodollar futures, as an example, about 15 months ago, asset managers represented 8% of our open interest. Asset managers and Eurodollar futures now represent over 20% of our open interest. And this is an important statistic to look at when you look at our ability to not only cross-sell additional products into client segments, but actually go create new demand amongst client bases that we haven't really touched on before. So a lot of our focus on the business side in conjunction with Ali on the sales side is understanding the value proposition, how we can touch our customers, how we can sell products with our particular value proposition in light of the pending Dodd-Frank impacts on regulatory capital and margin requirements. These are all things that enhance and increase our value proposition. And our metric for success of that is who's trading our product, but more importantly, who's holding that open interest and how diversified and how well we're growing these client segments.

The second bucket is really focused on product development. And I've got 2 slides inside the presentation that really speak to that, and hopefully, you'll get a really strong understanding for what we focus on. And Julie Winkler, who runs our Research and Product Development team, is at the back of the room here, and it's her and her team that worked with our client sales teams, worked with our business line managers to both understand opportunities, challenges faced by our global customers, and then provide solutions in the term of new products that actually help them grow, expand, diversify their business. We have to partner with our customers. And I'll talk a little bit about that. As Bryan foreshadowed, relative to the some of the client-led product design and enhancements we brought forward in the form of the Ultra Bond or the Weekly Treasury Options. So we'll touch on that in a moment.

Laurent and Kim touched on a little bit of the OTC piece, and this really breaks down into 2 pieces. On one hand, we've been very, very good at selling our listed products and developing new products and exchange-traded derivatives. That's our bread-and-butter business, that's where the bulk of our revenues come from, and that still is an increasingly strong value proposition in light of the current landscape. But what we're also doing, what you heard earlier, is providing the flexibility to also provide a suite of OTC clearing solutions or otherwise solutions for the customers in the form of products or otherwise. So it's about the customer flexibility and the customer choice. What is the customer need? Is it in the form of a swap? Is it a cleared swap? Is it a form of perhaps they want the standardization of a listed product but we don't have the right product for them? So you got some examples relative to the rate space that I'd like to talk through to give you a real granular understanding for what looks like, what success looks like, and you'll hear on the panel following this conversation from the customers themselves what that means to their business, how we're aligned as partners with them in building our business, helping them build their business.

And the last piece on this is leveraging, as I phrased it, leveraging the multiasset class OTC to drive our core. And I think you heard this in some of the comments earlier that very often as we're out trying to solve customer problems, understanding what the needs, what the desires, what fears are from our customers as we come through the rule makings process at Dodd-Frank, invariably this starts an OTC conversation. What services do they need? How is the world going to change? What kind of infrastructure is going to support what is a future state of a cleared business? But what we find is, that actually provides an opportunity, generally led by the customer, to get a better understanding for our listed products. I see growth in open interest. I see diversity in the client base. I see new products being launched. Tell me about that. So it's provided us an opportunity to bring customers to our listed derivatives business, where right now, there's significant margin and regulatory capital efficiencies, and the customers want to know more about that. And some of the penetration levels you're seeing in the various metrics we talked about are a reflection of that.

I would want to hit one more point here, and I know that Bryan and Craig referenced this point, that as we upgrade our business to globally compete going forward, we've gone about the process of looking at our talent across the organization and understanding what sort of talent we need to lead our businesses. And the financials are a perfect case study for being able to invest in areas of our business that we believe have high-growth opportunity but where we also need to be close to our customers, where we need to bring in OTC swaps and otherwise OTC global experience into our firm to position us for long-term growth.

And that really is reflected in what Craig mentioned before. In each of equities, interest rates and FX, we've hired new global heads. In the case of equities and interest rates, they both started on August 8. Sean Tully, who comes from WestLB London, had 10 years with Citi New York previous to that, has joined to run our global interest rate business. And we're placing Sean in New York, where we're closest to our biggest customers and where that's the epicenter for the interest rate swaps business. Similarly, Mike Kilgallen joined us also on August 8 to run our global equities franchise. Mike also is based in New York to be able to position us to touch our clients more directly and bring some external experience to where these markets are going. We talked about convergence. We need people to take us there. And finally, Roger Rutherford that joined us on November 30 to run our global FX business. We put Roger in London. That's the epicenter for the global FX business. Roger brings sell-side experience. He brings ECN and broker experience, and he brings with him that network that touches every part of the global foreign exchange business. So this is how we're going in diversifying our business.

What I'd like to do, and I promised I would talk a little bit about the product development and give a very, very clear link to you all in terms of where product development starts, what are the implications and what are the results. And this slide breaks down into 2 pieces. You're seeing half of it on the screen. You've got the overlay in your printed decks [ph]. What I wanted to do was be able to show you what it means to be able to develop an opportunity to grow markets regardless of the shape of the yield curve. I'm going to make this very interest rate-specific today, so we could really talk about how we grow. If the curve is inverted, flat, upward-sloping, kinked in the middle, our goal and our responsibility is to be able to bring products to market that help our customers grow. And in so doing, also you'll see on the following slide, our ability to grow our business regardless of the shape of the yield curve is an absolute must for our product management portion of our business.

So what you have up here on the screen is, in January 2010, this was our product set. Broadly speaking, these are the big buckets. We had our Eurodollar curve, out to 10 years and 40 expirations in quarterlies. We had our T-Bond, which was kind of our long-term product, 2s, 5s, 10s, et cetera. But what we found was, we were coming through QE1 looking at QE2, we found a very unique yield curve. We were asked by our customers, "Hey, help us grow our business. We have a yield curve that is probably going to be flat for a while, but we actually need to be able to grow our business." So I'm going to overlay now the products that we've launched since January 2010, primarily starting with the Ultra Bond and the implication of what is meant to actually launch these products.

So what we've done is a we've been able to focus on the long end of the curve, and because of the shape of the yield curve, our old 30-year product wasn't really a 30-year product. We had asset managers and duration risk managers saying, "Your 30-year doesn't work in this yield curve environment. I need to have a product that actually creates a basis product versus the underlying." So we had gone through working with Julie's team, and this came directly out of our customer base, a need to adapt our products to give them products that they can grow, and then actually track and mitigate their risk, particularly on the asset manager and institutional side. And really important, from the Ultra Bond side, to point out that this has not been a cannibalistic relationship to our existing what we call the classic T-Bond. Both pools of open interest have grown. Trading volumes in both have grown. We have explicitly denominated points on the curve to give explicit duration risk to our customers that actually tracks to underlying. So that's an important story to tell.

Talking about the Weekly Treasury Options. I mean, one of the advantages of working for multiasset class exchange is that we get to deploy best practices across our asset classes. The weekly options products have gone from equities to FX to interest rates. And in this particular case, the Weekly Treasury Options had been a tremendous success. These products we launched in January of this year, and already in the first 9 months of this year, we've traded almost, I think, just about 2 million contracts. And when you take the sum of all of the products, the Ultra, the Weekly Treasury Options, the new Mid-Curve Options, expirations we've listed, these to date, since January 2010, had been helping to drive 33 million contracts of volume and currently are responsible for over 2 million contracts of open interest. So there's a direct relationship between solving client demand, giving them products to help them grow their business, and thus, commercializing these products. And I'd be remiss, if I can see Jamie in the room here, in not noting that these products we've listed all come with revenue. The bulk of these products, particularly the product extensions like the Ultras, the Weekly Treasury Options, we don't have to fee-waive to get people involved in these products. The client demand has led the product development. Development of the right product has led growth. That's led to revenue generation. So we're not in a greenfields development circumstance, where oftentimes you'll have to fee-waive for to create time to gain liquidity. These are generated revenues from day 1. So this 33 million contracts, a large chunk of that is revenue generation. So I wanted to make sure to call that out.

When we think about the product development process, what we're really doing in large part is adding additional points on the curve. We're creating certainty in the long end of the curve. We're giving very granular-level tours to manage risk at the short end of the curve. The Eurodollar Mid-Curve Options, being able to provide a view on our shorter-term products for a deferred month Eurodollar future are all appealing to a broader set of market participants and make our portfolio of products that much more usable. And I think you'll find in the customer panel that follows, you'll hear some of that because some of the panelists are actually the ones that encouraged us to actually develop these products and bring these products forward.

And finally, and Julie would attest to this, I think the most successful product development we undertake is that which is led by client-demand, solving client problem. And it comes back to Ali and the group that was developed under Bryan's watch here to build out a global sales organization, understand your customers' problems, give them products they need to grow and we can grow together. We become a strategic partner to them, and you can see the tangible results in our turnover in volumes.

This is a slide, I think, you've all seen before in various guises. As we were preparing for this, we wanted to be able to represent the story of what we're seeing happening in our markets. And what we're seeing here is that we continually -- I continually get the question, as do many of my colleagues, about how do we plan on growing in a rate environment that's flat or potentially flat for a period of time. So in fact, historically, pulled the data back to 2000, we've taken the aggregate ADV across our both Eurodollars and interest rate products with some notes [ph], so that's an interest rate number. We've overlaid that with the Fed funds rate. And it might be hard to see on the screen, but on your slides, you'll see we've isolated the periods of rate stability. And where you see rate stability, we've proven again and again to be able to grow our business in volume and in open interest. And a lot of that is because we've taken the time and the focus to continue to develop products to solve customer needs because we're able to grow a business that thrives, regardless of the shape of the yield curve, this actually allows us to grow during periods of rate stability. We've been in effectively 0 for 2.5 years now. We're looking at the product development roadmap we have now. We look at the success and the pushout of liquidity across the curve. That's the next 2 slides we're going to talk about. That's the result of listening to our customers, engaging our market participants, understanding where they see volatility coming, where they need litigants, where they need abilities to put positions on and where they need to trade, what they need from us. That's what we solve for. That's what Ali's team does, that's what Julie helps us do and that's what the business line management is responsible for. The results are these sorts of figures.

I'd like to drill down a little bit into the following 2 slides and again make this very, very contextual to the rates business. I'd like to look at first, what we've done on the future side and what we've done, on the following slide, on the option side. And this is very important that we're able to articulate to you what we're proactively doing to address our customer concerns about a low- and flat-yield environment. What we're doing about addressing the concerns that there might be less short-term volatility, but there's a lot more middle- and back-term volatility. How can they mitigate their risk? How can they put positions on? There's a very detailed slide, 2 slides in, to answer many of your previous questions about how do people trade our products. We're leading to that, but what we need to do is provide you a bit of a roadmap of how we get there, how we think about being able to provide a liquidity and build a market that is useful to our customers.

So what we've mapped here on the futures side, this is Eurodollar futures, we've taken a look at the Back 32 versus the Front 8. And we've looked at the 7-year CAGR for the Back 32. It shouldn't surprise that the Back 32 CAGR is significantly higher than the Front 8. It might be surprising to some of you that our Front 8 has been in double-digit growth for 7 years. I want to talk a little bit about what that looks like in the long term, but also let's not lose sight of what we're seeing on the year-to-date volumes with that Back 32 volume up 83%. That now represents almost 1/4 of the entirety of our Eurodollar futures franchise right now. And as a kind of an analog to our Treasuries business, our Ultra T-Bond ADV is up 165%.

But I want to focus on 2 things. Number one, the blue line is the absolute value in ADV terms of our Back 32. The green line is the percent of total that, that represents. So in the span of going back to 2004 and a couple of years of challenging rates environments, we're continuing to grow our business, but we're diversifying and growing our business along the curve. Developing the liquidity doesn't happen naturally. It doesn't happen by itself. It's listening to customers. It's understanding what they need from us. Sometimes, it's technology, and we heard that before. Bryan spoke about that. Julie spoke about that. How can they leverage Globex and they're quoting them [ph] in their QPS to be able to participate and build liquidity across the curve. Sometimes it's market structure. Sometimes it's market-making programs. It's also us being able to go out to the customers and understand where they see volatility on the curve, where should we be focusing on efforts to be able to bring liquidity in so that they can track their business, they can hedge their exposures and they can take curve positions all the way across the Eurodollar curve from the front quarterly all the way up to the 40th quarterly.

When we think about the percentage of business representative of a Back 32 against significant jump in this last year, we're now seeing not only that jump into the third and fourth year but the fifth and sixth year. So we see that as volatility moves out the curve, we've got the liquidity and we're focused on building participation out the curve. I'd be remiss in not touching on options as well. And since we're trying to give you a very detailed understanding for how we think about building our business to appeal to our customers, another example on the rates side of what we've done with our Eurodollar Mid-Curve Options, how the customers are seeing more opportunity to either put risk on, manage risk or take risk off by using the entire curve of options on our side. So when you look at the growth, this is not only a driver of options volume for the sake of options volume. But as many of you know, some people trade our options a proxy for futures and others trade out the neutral. So every time you trade a position on the option side, you're generally going to have a futures hedged against that so that flows into our futures business as well. So building and focusing on liquidity out the curve is being able to lean on the liquidity built on the futures. That makes it easier for options to build out the curve. And as we get participation in our Mid-Curves, that just puts more volume in back into our futures business. So it's a very virtuous cycle. So being able to understand the asset manager needs, the duration risk managers, the institutionals, the banks, the props, the hedge funds, every one of our client segment has different reasons for trading across our curve. But unless we've built out liquidity as points on this curve and focus on that as a key business line management deliverable, this isn't something that sells itself. We have to go build that, bring it to the customers and show that this can be the most effective way for them to hedge their risk.

I do want to spend just a moment on statistics. And I hope it's not too detailed but I think it's really important. And I'm going to pointer here, if you look at this 20% penetration number, so in 2008, roughly 20% of the total options was done via the Mid-Curves. Important to note that previous to 2008, about 80% to 85%, let's just say the majority of the Mid-Curve Options business was happening just in the first year, so the reds. What we're seeing all this growth here isn't happening in the first year. It's happening on the blues, the greens and the golds, years 2, 3 and 4. It's the same story as what we focused on in our futures. It's pushing customers further out the curve. It's building liquidity. It's building applied functionality. It's building an access to our markets. So that's telling the story to our customers, "You can come here and manage your duration risk on any point on the curve." So very important, I didn't want to let that slip that this is actually quite the migration not out of the front, but that additive volume is really adding from the back part of the Eurodollar options curve.

There's a lot on this slide. I'm not going to read this out. As I spent our time with John and Jamie sitting with many of you, invariably, you guys asked me the question, "How do customers trade your product? What do they do? What are their strategies? Why aren't people interacting in the reds and the whites anymore?" And we went back to our customers, we went to Julie's team and said, "All right, let's pull together some key talking points to be able to give you guys a sense of who's trading our products and why." And this is where the customer panel following this is going to be very helpful for context of why it is people still trade across our entire curve. I'm not going to read through it. This can be a takeaway. Happy to engage any of you either offline or at future meetings. But I would probably talk to the 3 primary buckets that we've dropped these reasons into. First and foremost is curve spreads, putting positions on that either give you a particular exposure to risk. I think the curve is going to move like this at a particular point in time. Or I think this is what it looks like now, but it's going to move differently, therefore, I need to hedge that. So it's either mitigating the risk or getting exposure to a risk, taking a position, taking off position, hedging something you have in swaps. By providing a liquidity across all the various points on the curve, we're able to provide very effective ways for customers that interact with our markets.

Secondly, synthetic OTC trades and swaps replication. Because we now have the more granular points on the curve, you can very effectively replicate an OTC swaps position with the aggregate tools and products that we have access to that we provided liquidity in. It's one thing to say you have a list of products. It's very much a different thing to say you got liquidity and open interest across these points as well. Because if you can't get out, you don't want to get in. So the development of liquidity across these curves make this a very attractive way for customers to look at very cost-effective ways for interacting with our markets. And thirdly, hedging event risk and OTC books. Kind of linked to the second piece, but it's down to the legs and the pieces that customers have access to in their books and how they want to try to hedge those positions out.

So I would probably finish this particular slide in stating the obvious, that there are very few people that employ any of these strategies that are just executing it outright. Almost everyone of these employees have some sort of either a strip or combination of trades across the curve or across products, futures and options, treasuries and Eurodollars. And what that means is it's added to volume, it's people that are either coming on putting positions on or trying to hedge an OTC position, so it's a healthy ecosystem of users. So I hope this provides a framework. Don't want to debate whether or not these are used a lot or a little, but that this is coming directly from our customers and that how we know customers are interacting with our markets.

I was meant to talk about financials as a whole. This has devolved kind of into a very interest rate-specific conversation. So I'd like to spend a couple of minutes on foreign exchange and the last few minutes on equities. Many of you know the story of foreign exchange. We've had a -- we've set the title here as Steady Long-Term Growth and OTC Market Participation. This is a familiar graph. It's upward to the right. It shows the dollar notional value of our business traded going back to 2000. The bottom, which tracks very closely to what it looks like on the top graph is our penetration of the OTC markets. And it's the story we've telling you about how we're growing, how we position our global franchise, how we position ourselves with, for the most part, new clients to CME that typically trade OTC. We're now able to increasingly appeal to customers to trade their FX in the form of futures, not leading cash, adding futures. And what that means is we find a very healthy mix of participants trading futures against cash. There's a basis trade there. Our markets are so liquid that people see our futures as analogous to spot, so they're trading in and out and managing the small amount of basis risk. So the more that we're able to leverage our global sales force and increasingly our OTC current capabilities as a value add, the better penetration we're going to have into a broader client base. We've had terrific success.

I think that the press release went out yesterday, and I think Bill Parke kindly let me add a little blurb on the back end, mentioning we hit 10 individual volume records across our currency pairs in September. And I think that's important to note because 5, 6 years ago, we had some concentration risk. You guys saw it. We've talked about that. Concentration risk in 1 or 2 major currency pairs. The bulk of this growth and the numbers are up on the slide here are really focused on emerging markets and ex-pit activity. And we talked about emerging market and ex-pit activity, you're talking about things that Jamie loves to have us talk about, which is high margin. You're seeing a high degree of nonmember business, much higher in the emerging markets than what we see in our majors business associated with this emerging markets business. So high degree of nonmember participation and a lot of this business is happening ex-pit. Increasingly, we're leveraging, working with Laurent's team to leverage the ClearPort API to have customers send us ex-pit transactions, blocks or EFPs directly and using the technology we've developed. But I think the interesting point about this push into emerging markets is it's a growth opportunity, it's a new client base for us and that comes in at nonmember rates, given the mix that we're seeing. And that's really driven by the customers' concerns about counterparty risks. So good story to tell there.

The ruble and real volumes, as I mentioned, high RPC business, and ones that if you look at the underlying market structures in a lot of these emerging market currency pairs, this is not an electronic streaming environment. Most of these emerging markets are coming through voice brokers. They're coming through intermediated transactions. There's not an -- there are not many ECNs that have liquidity straining in a lot of these currency pairs. So in order to capture that and in order to make our product useful, provide the benefits of central clearing, we're actually engaging to a greater degree some of the brokers in the interdealer space. And these guys are actually out executing and brokering transactions in our FX futures. So what that means is we're able to provide products and services hooked up via the ClearPort API, much like we've done in the energies market. But they're actually out there brokering our FX options or FX futures. So it broadens our distribution. And if you're an IDB or someone in the intermediary side, you get an access to a customer base that you're really limited to if you just talk to the interdealer community. So terrific opportunities there. We're seeing nice growth on that side of our business.

Finally, I'll finish up with just a couple of moments on the equity side. When you look at the graph, I think we wanted to be able to state, really, what is the size and what is the relative scope of [indiscernible] equities business. And I'll cover this in just couple of minutes and get to questions. But when you look at the dollar notional turnover volume of our S&P E-mini franchise relative to the aggregate of underlying cash markets, you can see it's roughly twice the size. So that implies the scale, the magnitude, the scope and the customer access we have in these markets. The second 2 bullet points underneath that graph really speak to the respective EMEA and Asian penetration rates relative to the underlying regional markets. So we pulled up the stat here that our equity E-mini futures are trading more during the EMEA day than the underlying regional markets and the FTSE product. Regionally, in Asia, same situation, that our business trading during Asian hours are trading roughly equal to what you're seeing transacted at HKEx with the Hang Seng and H-Shares futures. So that's something that gets lost a little bit in some of the presentations when you see 15% or 17% of our business traded outside the U.S. Relative to these regional markets, our penetration rates are spectacular. I think that's the point we want to make very, very clear.

Similarly, on the options, new product side. I think everybody is aware of the great growth we've seen in our equity options business, up roughly 80% year-to-date and a spectacular quarter in Q3. On the new product side, as we talked about the weekly treasury options following on the heels of our weekly equity options, the weeklies are up to 30,000 a day in the quarter that we disclosed. And I think in March, we launched the S&P Select futures. And those, I believe, have an ADV about 1,000 contracts, open interest of about 5,000 or so.

So with that, I appreciate you indulging me in talking a lot about the rates business. I hope that was helpful to provide some context for some of the detailed questions that you've asked me and my colleagues over the years. But with that, I think we'll open it up for questions.

Unknown Analyst -

You talked about the new products and the interest rate complex you introduced since, I think, early '10, did 33 million in cumulative volume. Can you give us a sense for what that's run rating in September so we can size it against your current sort of $5-plus million ADV in interest rates?

Derek Sammann

Yes, in terms of the percent business that represents now?

Unknown Analyst -

Yes.

Derek Sammann

Yes, we can pull that out. I don't have the stats. I want to say that the Ultra Bonds are right around 50,000 a day on or thereabouts. I want to say the Weekly Treasury Options are on the order of, early in the week, they tend to be kind of 12,000 to 15,000. If you get into a week of nonfarm payroll, for example, we've had a peak of 60,000. So probably on average, they're doing about 15,000 to 20,000 a day ADV, something along those lines. The Mid-Curves, again, I'd probably want to pull the figures for you. It's all there, I just want to have it...

Unknown Analyst -

Products you've just introduced since 2010, like how meaningful they are to run rate volumes, I'd be interested in.

Derek Sammann

I'm going to look to maybe Julie here, I'm sure she's got a macro answer for that. Julie, you've got a headline stat?

Julie Holzrichter

Across all new products, [indiscernible]

Derek Sammann

Across all products.

Julie Holzrichter

[indiscernible]

Unknown Analyst -

And that's just on the interest rate, and that's all new products...

Julie Holzrichter

All asset classes.

Unknown Analyst -

All asset classes to present. And the start date was when?

Julie Holzrichter

June 1, 2011 [ph].

Derek Sammann

Let me come back and give you the breakdown stats for rates. And I probably want to split that between STIRs and treasuries as well and give you a split by the options.

Unknown Analyst -

When you guys got a client and you're talking about potentially substituting futures products that would be equivalent to OTC, does hedge accounting come up at all? Is that a barrier for people to using the standardized futures?

Derek Sammann

I'm sorry, as what come up?

Unknown Analyst -

Hedge accounting?

Derek Sammann

Yes, that's interesting. For the most part, that's a corporate issue. And I think that the bulk of our corporate sales efforts to date have been focused on kind of the energies and metal side of the business. And this is a perfect example. It's a great question that Bryan has really challenged us to do, to look at how we traditionally touched the customers. And if you look at we traditionally touched our customers, we've kind of gone on a life-of-the-product basis. Now by leading with a client segment basis, it'll understand holistically, let's talk to aircraft manufacturers. We can talk to the global agri-food businesses. Let's talk to the airlines. And by understanding that, we're understanding from the corporate side, there are hedge accounting issues. It's FAS 133. It's IAS 39. We've been hearing for years that the accounting standards were going to change and be adapted to allow more cost-effective products to qualify for hedge accounting. We haven't seen it. We are engaging with a couple of industry groups in trying to get ourselves in a position to advocate for some change that I think would be beneficial for the market as a whole. But I think you hit on a point with the corporate that I think we see as a terrific opportunity to really more effectively penetrate the corporate sector, the Forbes, the IBMs, the Xeroxs of the world. And I think this is the structure that Bryan has developed with us, and I think it's going to be a vehicle for getting there. So with the corporates, yes, but really that's a limited impact on the corporates for the most part.

John C. Peschier

All right, go back here to Alex.

Alex Kramm - UBS Investment Bank, Research Division

Yes, just coming back to the question from earlier here. When you think about the short-term September a little bit more, I think a lot of us here in the room have noted the falloff in open interest and volume to some degree, too. So just hoping if you can get us a little bit more color on what you're seeing when you talk clients. I think when we anecdotally speak to some folks, it's been like macro funds have let that rate hike expire or some people, given that we are late in the year, have taken some risk off their books. So just a little bit more color.

Derek Sammann

That's a great question. What we've looked at that, we asked ourselves the same question. What we've done is we've gone back historically and looked at the last 4 Septembers and see what the dropoff in the open interest has been. We had about an 18% or 19% dropoff in, I think, peak to trough, John, from this September. And that's in line in the last 4 or last 3 previous Septembers between 17% and 19%. So what we're seeing is we're having this conference kind of at the bottom of every annual dropoff in September. We're watching it closely. It's in line with every other change as positions come off as deep in amount of future or options come off, associated futures come off. With those, we see that start to rebound. But for us, it's not out of line with what we've seen in the last 4 Septembers. And it's been -- even the splits across the product has been fairly consistent.

Unknown Analyst -

In terms of new product development, have you guys think about the economics of new product in terms of is there internal ROI that you want to meet or is there just an overall client demand number?

Derek Sammann

Yes, fabulous question. I think as we have continued to focus on particularly the business line management side of what does a business line manager responsible for, how we think about the owner of those businesses versus how we think about touching clients, one of those pieces, and we've worked very closely with Julie on this, is asking that very question. Access to resource for developing new products and rolling it out is not free, there's always a tradeoff. What we've tried to do is be much more methodical and be much more, I think, deep-thinking in terms of what resource are we consuming in this cycle, more importantly, what resources are we consuming from our customers that otherwise would be deployed differently, maybe solving their problems. So I think if you look at the most effective -- I mentioned this before, the most effective and successful product development initiatives we've had, had been those that had been directly led from the customers. And when you have a customer demand that we can quickly address in the form of a Weekly Treasury Option or an Ultra Bond, it's far easier for us to roll those products out, sort of an umbrella of product extension. It's an additional point on our existing curve. And typically, what we do with those products is we don't fee-waive. We don't have to provide a bunch of waivers or QPS otherwise or other financials to get in. So we focus on those that are most successful client-led, and those are the ones that tend to be the most profitable for us as well. So I think you're going about that deeper process of how we create, leverage and grow business cases for our initiatives. And that's something that we've gotten a lot better at over the last year. And you're going to see us get even better at that as we continue to bed [ph] the responsibilities between our business line management and our sales process.

Craig Steven Donohue

I would just follow on to that to say that there's definitely internal performance expectations that we hold the business line owners to. So in the context of rolling out new products in the go-to-market strategy and the investments that we make in instituting those new products, it definitely hits them in terms of are we meeting our overall performance expectations from an internal perspective. So there's a motivator there from the ownership of that product base as well to deliver the results.

John C. Peschier

All right. We have time for 2 more questions. So I'm going to go with Niamh and then Dan there in the back.

Unknown Analyst -

Derek, can you give us a sense of a magnitude on how successful you've been on converting former over-the-counter swap users into the listed futures business? Maybe if you have any open interest figures on that. And then what your sense is in how that market will develop over the next, say, 3 years?

Derek Sammann

Yes, that's a great question. I'm going to take a personal stab at that, but I think the gentleman at the back of the room between the hedge funds, the banks and the asset managers, I think, can provide a perspective that I think could be refreshing and different than me telling you what I think they think. From the perspective of conversion, we're seeing that the success we're having in our underlying penetration of actually creating clear volumes in and of itself has led, and Laurent and Kim have been part and parcel of this, to be able and sit down talk to customers about the efficiencies. What we're finding right now is a lot of the conversation is understanding the impact on these particular businesses with things like Basel III and Dodd-Frank. Let me give you 1 particular context, our new global head of interest rate, Sean Tully, just joined us from WestLB, and he was at Citi before that. They've just gone through an exercise. He ran their global swaps book. They just gone through a Basel III exercise to understand the impact of Basel III to their global swaps book. And by their reckoning, that was going to be a tripling of their capital and regulatory capital held against their business. So that kind of gives you an indication as to what the potential impacts of different participants are in this market. I think the panelists after this will give you a very, very direct feel for what they're thinking. But it's safe to say also the number of unanswered questions so far, rulemakings that have yet to be identified. And I don't know if Laurent or Kim have anything to add on the rulemaking side of that. But there's still some open questions that we're trying to cycle through.

John C. Peschier

Yes, I think we'll go to Niamh, and then we're going to let Dan ask the first question of the panelist.

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

And if I could go back to your chart on the Page 12, the bottom chart, you were talking about how you've managed to grow despite a difficult environment. But I'm trying to understand what other catalysts and just how you've grown your interest rate volume even if the rates were flat, for example. That was the chart I was referring to. During that time, you were substantially improving latency and high frequency trading was growing. You were moving from pit to screens as well, so they were positive catalysts that you instigated during that time. And my concern is that we don't have those catalysts anymore. And, yes, you've got new products, but they're probably $15 million to $30 million in revenue, which is maybe 1%. So how do we think about what are the catalysts are for this big complex?

Derek Sammann

Yes. I think we touched on a lot of these already. I mean, I'm not going to try to tell anybody here that product development is going to save us. I think what you've heard from Craig, what you've heard from Bryan, what you've heard from Kim and Laurent are all the areas that we're investing in our business from the client penetration side, of our existing client base, how deeply are we penetrated across every one of the assets classes. And with the benefit now of having global product heads in the regions of excellence where the primary epicenter of those businesses are allow us a conversation and access to a customer we didn't have before. So we're just -- honestly, I think we're seeing the very beginnings of that penetration process. Let's talk about the other part of the client sales base. It's how you go develop new clients. What is our clients acquisition process and how effective are we in going about finding new clients and bringing them in? The tailwinds to our business are things like regulatory capital, the margin requirements. As the rules have been written right now, Dodd-Frank itself has significant implications that are broadly positive for our business. And to the extent that we're seeing customers saying, "I've always done business this way, I understand there's a shift," they're trying to find cost- and capital-efficient ways to build their business going forward. So we've talked a long time about how -- what the relative sizing of our derivatives market are relative to the broader OTC market, and that conversation right there you can see the vast opportunity we have for our client base to at least begin to add a list of derivatives product into what they're already trading. Might that get to a wholesale shift in the futures? I find that hard to believe. Is there a significant client-capture opportunity there? Absolutely. We're back to customer flexibility. What of the products and services that offer our customers choice, and LP and Kim can certainly talk to this in terms of what we're doing to attract them to our markets from an OTC or current swaps perspective, but you've got that working for you as well. So there's that piece. There's the client acquisition piece. There's the services piece. And I think you've got some the issues of -- volatility is not going away anytime soon. We've got rates -- an election cycle coming next year. We've got European issues that aren't going away anytime soon. Certainly happy to follow up afterwards. There are a number of macro drivers that I think are beneficial. We try to lay out between my presentation, Craig's comments and Bryan's points what we're focusing on the levers that we have control of to pull to the drive that business.

John C. Peschier

Okay, thank you. So at this point, we're actually going to ask the 3 customers to step forward and take a spot on the table and give us a minute or 2. Thank you.

Derek Sammann

That was a smooth transition. That was fabulous. So carrying on, I think this is going to be, I think, a very useful panel here because a lot of the things that you've heard from Craig, Brian, Kim, LP and myself, I think, they're going to carry a certain amount of weight. It's a very different perspective when hear from the customers themselves. Glenn, good to see you.

Again, the more I spent time with John and Jamie with you all, I'm trying to answer your questions on behalf of our customers. So what we've done is assemble a panel of, I think, representative customers across our businesses. There's going to be a slight flavor here towards the rate side because that kind of consumes our conversations typically. But I think what you have here is between Glenn representing the dealer portion of our business. We've got Colin and we've got Brian representing hedge fund and the asset manager portions of our business. And what we're going to ask them to do is spend just a couple of minutes talking about how they interact with our markets, why they make the choice that they do, what's important to them, what they see coming down the turnpike in terms of the questions that were raised here, implications for Dodd-Frank, capital charges, et cetera, and how they interact with our markets.

So what I'd like to do is quickly make an introduction, have each one of these gentlemen do a brief introduction and spend a few minutes talking through what they do, how they do it, what choices they make, what's important to them. And hopefully, as we go down the group, a few minutes of each, we'll have an interactive dialogue, and we'll leave a couple of minutes for questions at the end.

So what I'd like to do is, first, introduce Glenn Hadden. Glenn is representing our sell-side or our dealer space today from Morgan Stanley. And his bio is -- or at least our overview is up behind us. Speaking of Glenn, ahead of time, I understand a little bit about where and how Glenn interacts with our markets. But it's not my story, it's Glenn's story. They are users of our Ultra product. They're involved, to a significant degree, in our block marketing activity and I think has some views in terms of what's beneficial to Morgan Stanley, what's beneficial to Glenn as he trades his book and manages his risks. So with that, I'll turn it over to Glenn.

Glenn Hadden

Appreciate it, thank you. So my name is Glenn Hadden. I run interest rate sales and trading globally at Morgan Stanley. Throughout the course of my career, I guess, over the past 7 or 8 years anyway being on average, approximately between 5% and 10% interest collectively of Treasury note and bond futures contracts. So I definitely quantify myself as being a pretty significant user of CME products.

And as a result, how we think of this exchange and these products is very important to our business because when we think about the size of the growth of the U.S. Treasury debt stock, it's increased by approximately 4x over the past decade. And certainly as a relative asset class, the ratio of the S&P market cap to the Treasury debt stock outstanding 10 years ago was approximately 5x, now it's approximately equal. So Treasuries as an asset class are gaining importance to our clients, not just in the United States but around the world. And as a result, there's been a heightened focus for us on Treasury futures.

And the reason why is that in an environment where balance sheet and the metrics around balance sheet have become perhaps the most determining factor of an importance of a business and from a regulatory standpoint, the critical valuation of a safety of an organization, it's definitely incentivized not just my firm and a lot of my counterparties in the dealership community, but a lot of our clients to begin trading futures as well, simply because it offers a lot of relief as far as the absolute use of leverage.

So what that's done, its created 2 different sets of opportunities. Number one, it's allowed those clients who explicitly want to have essentially an off-balance sheet Treasury exposure to migrate their activity to futures instead of cash. But the other side of the spectrum, it's allowed those arbitrageurs to effectively -- who at least understand the relationship between cash and futures actually create liquidity for those actual end users who wanted the off-balance-sheet-edness of futures. So from our standpoint, the exchange has provided a very valuable service in allowing this. And of course, you're seeing the growth in OI increase commensurately, where back in 2004, for example, the 10-year note future had an open interest of less than 500,000 contracts. It peaked at over 3 million in the summer 2008. Now it's just over 2 million right now. So you've seen that commensurate growth. And I suspect that going forward, as we get into Basel III or SIFI type of environment, and certainly a Dodd-Frank environment, you're going to do see, I suspect, a large increase in our participation certainly and I think also our competitors and clients in the futures products.

And of course, the one caveat I would say, and this is, I think, being addressed, one of the perversions of the Volcker Rule right now is that Treasury bonds are exempt from the proprietary-ness clause of the Volcker Rule, however, Treasury futures are not. So we've been talking with the Treasury Department. Obviously, it's in their best interests to lower their cost of borrowing to actually exclude this, too. But that's kind of one thing that we're most focused on now is will there be an exemption for Treasury futures in the Dodd-Frank, Volcker component as well?

Derek Sammann

Glenn, can I ask you maybe to talk just a moment or 2 also about the kind of the use of the Ultras that we rolled out in January of last year and kind of what that's meant to you and then how you've been able to help grow your business as a result?

Glenn Hadden

Okay. Well, this actually very important because obviously, with Operation Twist, or as we call it, Operation Torque, what the Federal Reserve is going to do is not necessarily change borrowing costs per se. They're really trying to influence the yield curve and creating this artificially low real term structure. And in doing so, they are very category of the explicit in saying that they are manipulating the yield curve. So you've got this disparity now between where the Fed is actually buying securities and the private clearing rate. However, the Treasury Department still has to issue approximately $14 or so billion of 30-year bonds a month. So as a result, you're going to have this back-and-forth-edness in a point of the curve that's got much, much fewer participation, almost 0 foreign holders. And as a result, there's going to be this significant volatility that occurs between Fed purchases and Treasury sales over the course of the month. And as a result, with no previous security really longer than 15 years, it was very, very difficult to trade that part of the curve and raise borrowing costs for the Treasury Department, certainly. By having Ultra long contract, and you've seen the growth of it is actually significantly higher cycle over cycle over cycle for the last couple of years, it's allowed for more participants to be involved in this effectively underwriting process between the Treasury selling and the Fed buying.

Derek Sammann

Great, thanks. So Colin, from the hedge fund perspective, you're Senior Managing Director. And what you bring is a slightly different perspective as a hedge fund and as global macro. So you're probably interested in the range of products in which you had engaged CME and I know that you guys are big users of our weekly treasury auction as well. So maybe spend a few minutes talking about how you interact and make your choices.

Colin M. Lancaster

Yes, thank you. First, a 2-minute commercial on Balyasny, the firm that we are a part of. But BAM is approximately a $4 billion hedge fund complex headquartered here in Chicago but with significant offices in both New York and Hong Kong as well. BAM as a whole is largely a fundamental equity long/short shop with a very active trading focus. Our team is a bit unusual in that the firm as a whole generally touches CME across the equities business. Our team is a discretionary global macro group though, so we trade rates, FX, equities, credit, commodities. So we touch CME across virtually all of the product sets. Look, from our perspective, the most significant shift that we see in the markets and I'm a real live example of this because I've had a dozen calls just over last 2 weeks, but on our investors, they want to understand the types of counterparty risk that we're taking. And obviously, with our core investor base being pensions and the institutional allocators who are fiduciaries to that money themselves, that they want to understand that particularly in light of the '08 experience. So from our perspective, that is probably the most significant shift and change that's happening in the markets right now as our investors push us away from OTC product into something that they feel much more comfortable with. As far as the weekly treasury options, you're correct in that we've been very active users of that. We found them -- our team, at least, has found them to be quite addictive. But I think that one of the things, and you guys heard this from the last panel, but we do appreciate the fact that since 2007, we've had a regular dialogue with representatives of the CME to talk about product development. So our group in particular have been active advocates of more specific points in the curve, particularly as yield curve shapes have changed. The ability to think about sovereign spreads and obviously, it's a product that's developing now, but we at least have appetite for more of that, and our team also has a fairly significant emphasis on the emerging markets. The ability to trade FX in Latin America and Asia, that type of development and the overall diversity across different geographic regions becomes very important. We like consistency across asset classes and regions, and that's obviously something that we rely on the CME to deliver so.

Kendal Vroman

Terrific. And Brian Yeazel, representing the asset manager side of our business. You've heard a lot about participation of the asset managers across our businesses. We've referenced some of the specifics. I'm kind of coming to back to Harris' question earlier on the participation on the open interest side for your dollar futures, but what's interesting is, as an asset manager, similar to what Colin said, you probably have -- we see you as a customer but you have your own customers, and I think you are mentioning that many of your customers were asking you about counterparty risk and how you're going about mitigating that from their exposure point of view. So I'm wondering your perspective on that, what you see is the implication then for maybe how market shifts over the next 1 to 3 years.

Brian Yeazel

Sure, absolutely. Good morning, As mentioned, I'm Brian Yeazel. I work for Mason Street Advisors. Many of you may not know that name. We're the registered investment advisor arm of Northwestern Mutual Insurance Company, which I'm sure many of you are familiar with. And if you're thinking Northwestern Mutual, you think classic, old line cash asset manager. What are they doing using these types of products? Well, we do manage assets for multiple clients within our platform. We have the insurance client, obviously, we have a in risk a client, we have mutual fund clients, we also have a charitable foundation. And one of the reasons that we have used CME products throughout the history of Northwestern Mutual is that in the regulatory environment and the different issues that face each of our various clients, we found that futures, and in particular interest rate futures, are the common thread that we can put in all of our client platforms to manage interest-rate risk. Most recently, we found them also as a very good way of managing counterparty risk especially as the Frank-Dodd after Carments [ph] come in play. As Derek mentioned earlier, there's a lot of uncertainty yet regarding what those requirements will be and how they'll affect various clients that we have. But in the near term, we know that we've been using the -- not just the interest-rate product from the CME, but we've also expanded into foreign exchange futures for our clients because it does help mitigate that counterparty risk in the near term. I'm certain that in the future, as some of the requirements of Dodd-Frank become more clear, that many of these products will -- we will still find an advantage in using the CME products. A couple of products I did want to touch on briefly is there's been a lot of talk already that I've heard about, the ultra contracts. We have watched the development of that market with great interest, as many of the clients that Derek mentioned had told him earlier, there was a gap in the interest rate line-up that CME was offering, that the third, the ultra contract now fills. So as the open interest in that product increased, we were able to enter that product and now, we're very active users of that particular product. And I think in light of the supply-demand imbalances that are being created by the Fed, trying to buy out most of the supply in the 30-year space, as a long asset manager will probably find even more reasons to use that product and expand our use of the ultras going forward. Another product that we have recently begun using, I think it was 2 years ago -- we, historically, as we hedged the currency risk of our clients, we've always used forward [ph] contracts. That created some problems from a counterparty standpoint again and we've started looking at the FX futures that the CME offers and discovered that would be a great way to reduce our counterparty exposure in the forward contract space. So now, as part of our core currency hedging program, we do use the FX futures as well and it's probably taken 50% to 60% of what we had been doing in forwards now we're doing -- we're hedging with the FX futures.

Derek Sammann

Brian, I wanted to maybe indulge, if you could. We talked a little bit about the change in duration and kind of what's going on across the curve and I have made some representations earlier that there are lots of different ways that guys like you across the client spectrum use our products and put strategies on and put them off. How important is it for you not to have discrete points on the curve but kind of the points with liquidity along each one of those curves? You guys in particular probably have some duration risk that maybe some of the other guys don't in particular.

Brian Yeazel

That's true. We have duration risk again. The ultras help us manage that quite nicely. The other thing we find is that it's where your positioned on the curve in the current environment that matters the most. And for some of our clients, we have some reasons for not wanting to use cash treasuries to shift the curve exposure of our insurance client in particular, and the futures become a very efficient way for us to adjust our curve exposure. And we've been, over the last 6 months, have become much more active in using futures almost exclusively now to manage and adjust that curve exposure as market conditions change.

Derek Sammann

That's great. Glenn, I wonder if I can come back to you for a moment. Well, we talked last week a little bit about kind of the choice and execution venue between x the transactions in the form of blocks or EFPs, using the floor, using Globex. I know that you guys are active in the block market and the kind of expat [ph] activities. How do you see that looking now, particularly as OTC participants who used to buy lateral execution are looking at maybe other ways to maintain the execution relationship but seek the safety of futures? How do you see that playing out?

Glenn Hadden

Okay. Well, I'd like to think of our client base -- maybe you can segregate the uses of derivative products into 2: number one would be the risk managers, at risk and risk managers; number two would be more the alpha generators. The risk managers are not necessarily going to change their hedging strategy and off balance sheet entities or vehicles because of the issue that was brought up in the last panel regarding hedge accounting. However, the alpha generators are going to find and try to seek out the lowest cost and simplest form of execution. So as a result, what's going to occur simply as we get into a Dodd-Frank -- post Dodd-Frank clearing environment, you're going to see a tectonic shift of these alpha generation entities, the hedge funds, et cetera, moving from the OTC-driven market to listed. And simply, it's a function of 2 things: number one is technological ease, going to CEF universe, going to make the markets much more technically and technologically difficult to transact in because of the inherent, at least, proposals now by the CFTC; and number 2 is simply is cost to do it, for example, to do a 10s, 30s yield curve switch in interest rate swaps for a 100 million notional would cost approximately $3 million in initial margin in a post clearing environment. But do it on a CME with the same exposure between the T long [ph] and the ultra long contract, it will cost 750k, so a quarter as much. So as a result, you're going to see more and more entities switching over to the futures market. The issue, of course, is in order to maintain their anonymity, they're going to, I think, want to show less to effectively to the pit and do more block trading. And that's something that we have long sternly believe understood and really captured over the past couple of quarters, but we think our market share, given by what we've seen as opposed to blocks and what we printed, it's roughly around 20%. And that simply is a reason of clients wanting to do more activity in futures but actually not going to the pit and having to effectively show their hand, where they have to trade at multiple prices, we then get one price. So I think the future, as far as the growth of interest in CME futures, is going to come more in the block sphere. And one plug, I think, is that if you could certainly reduce the block thresholds, I say without any hesitation, you're actually driving more volume to the exchange simply because existing numbers are a little bit above the kind of normal size of average alpha generation fund we trade.

Derek Sammann

That's great. Colin, I'd like to come back to you. One of the topics we discussed last week and it's been raised here today is on the topic of OTC clearing. I think everyone was trying to figure out what the implications are, how they might deploy it, what portion of the business might come in the curve swaps. Everyone's making determination as to what that looks like. Maybe you can opine a little bit from your perspective kind of what you see. I know you looked at our platform, I was talking a little bit about that. How do you see OTC clearing playing out? What does that mean for Balyasny?

Colin M. Lancaster

Yes. From our perspective, there's no question that, that will be an important piece going forward. Obviously, in the environment we've been in with the uncertainty as to what the legislation ends up looking like and just the rule changes along the way, BAM as a firm is not yet committed to any one direction. But certainly, with the types of what I would describe as pretty intense pressure to help mitigate against counterparty risks and movement away from OTC is that this is something that is going to be very important for the firm as a whole going forward. One quick thing I wanted to look back with. You had a question from the last panel on overall volumes that I wanted to hit because I think our trading is a pretty real-life example of what we're seeing from a volume perspective, but obviously, just from a seasonality perspective, the last couple of years, this has been a tough time of year. And our group in particular, coming into August, coming out of earnings season, we just didn't see much in the way of catalyst for good stuff to happen. In fact, it seemed that it was going to be a period, a quiet period, where there could only be negative headlines. So I think we are pretty representative of the global macro community as a whole. Our own trading is down about 60% from what you would normally expect and the capital that we're using, we're only using 20% or so of the capital that we have available to us. So I do think that there is just a phenomenon in the markets right now with the types of derisking activity that occurred leading up to this period, but also I thought that this was going to be a rough patch that has certainly impacted volumes. We'll see when that normalizes, but I think that we are a good example of what you're seeing on a more global basis with people that have our profile.

Derek Sammann

Okay. Last question for you guys, and I think we've got about 5 minutes for questions from the audience. Maybe, Brian, starting with you, you've got lots of choices for where and how to transact with interest and I think that the room would be interested in what's important to you guys. What do you look for? Is it liquidity? Is it robustness of the current mechanism? Is it the effectiveness of the hedge? Is it relationship and partnership with the underlying exchange or platform? What are things important to you? And probably, Colin, I'm going to ask you guys probably the same questions before we open up to questions from the group.

Brian Yeazel

Well, as I mentioned earlier, liquidity is a key factor for us and the size of transactions that we do when we come into the market. I can't transact in a market that only has 50,000 contracts outstanding. I'd swamp it. So we need contracts and products that have enough outstanding, open issuance, as well as daily trading volume but I can get the large block trade down in 1 or 2 trading days. And we find that the CME products fit that quite well to establish interest rate products through very deep, very liquid markets. And they're very efficient, very low cost for us to trade. And when we do our calendar rules from quarter-to-quarter, we're talking a quarter basis point, a quarter of the unit spread, very, very efficient for us to transact in. So that's primarily it. The second thing that we look for, of course, is the diversification that we get from using the products. For example, when we go into -- we didn't talk about our equity side of our house, but we do use the M&Es and the S&Ps quite frequently, we find that to be a very highly correlated hedge with our equity positions. Similarly, when we use the FX product, we're looking for something that has a high degree of correlation between -- versus the cash market that we would normally operate in. So the products that the CME has, they've demonstrated the correlations that we need to be very effective as the hedging mechanisms for our trade.

Derek Sammann

And Colin, I just got the "hurry up" signals. So you got to abbreviate it.

Colin M. Lancaster

Okay, I'll be quick. I mean, from our perspective, it's liquidity and transparency of pricing. I mean, that's what matters. If we get into something, we want to make that we're going to be able to get out of it, increasingly, particularly with our EM focus. We like the consistency across regions. We like what you're doing in Brazil. We like what you're doing in Asia. And I think that, that's going to grow over time as well, but that will also be important.

Derek Sammann

And Glenn?

Glenn Hadden

Yes, I would concur with both of my colleagues. Of course, one of the items, too, is that any given time, we've had more than 10 billion notional outstanding of OI at Morgan Stanley of CME products especially in treasury futures having a very well defined and clear set of rules regarding how the exchange works, how the settlement process works, how the margining works, how the daily closes work, et cetera, et cetera. It gives us a high degree of confidence that the hedge between cash and futures is going to be maintained.

Derek Sammann

Great. And I think with that, we've got a couple of minutes for questions.

Unknown Analyst -

That was really helpful. Following up on this last question, you all touched about liquidity and what CME offers to you, I think most notably on the futures side. But as we move over the next few years into a lot more of the OTC clearing side -- and maybe, Glenn, this is for you, what are your key thoughts on what are your clients looking for as they choose between the various clearinghouses that are going to offer OTC clearing? How important is it that it's the futures and the swaps together? And ultimately, when do you think they would start to move?

Glenn Hadden

Well, it's going to come down to costs, ultimately. That's the absolute, a final decision. So in as much as all exchanges, all clearinghouses are going to be regulated as far as our capital and credit ratings, it's going to come down to the efficiencies you get from a treasury standpoint. So is there a cross margining with other products effectively?

Derek Sammann

Let's go to Howard [ph] and then to Rich [ph].

Unknown Analyst -

Glenn, you touched on this a bit. But curious for all of you, how do you think about the value proposition and the cost of trading CME products versus other substitute products, whether they be OTC or at other futures exchange?

Glenn Hadden

Okay. Well, as far as OTC, as I mentioned, from a cost standpoint, straight initial margin, it's going to be approximately 4x expensive to trade in a post Dodd-Frank cleared world, OTC relative to listed. So clearly, that's one aspect. The second aspect is most of my clients have not got the technological budget to invest in trading effectively in a CEF universe. Okay? It requires a lot of connectivity and a lot of technological upgrade. So as a result, it's going to force by that nature. Many of these clients look towards futures as opposed to any other product. The last item, of course, is as analysts evaluate organizations such as Morgan Stanley, the biggest single user of our balance sheet at Morgan Stanley is me and my business intimate products. Obviously, their mostly treasuries on our balance sheet. But again, as long as the analyst community focuses on our overall gross leverage, if we can move our treasury exposure from cash to futures, it's going to give us a lot less leverage issues, essentially.

Colin M. Lancaster

I think that's the biggest shift to what you mentioned from an overall cost perspective and the efficiencies that you get. There's no question.

Unknown Analyst -

I guess this is close to what Howard was asking, but I know this is more towards Glenn. But when you talked about capital efficiencies and driving some decision on where you trade, you're a member of NYPC, so how do you look at the capital efficiencies there versus the actual cash treasury and the future potentially and you're an owner as well? So how do you look at trading versus those flat the CME?

Glenn Hadden

Well, we benefit not just as a bank but as an industry by having a very robust, competitive framework. So inasmuch as we can have as many possible competitors to create more and more liquidity, it's best for everybody involved, not just intermediaries, but also young clients, too.

Unknown Analyst -

Okay. And one quick follow-up. Derek, you talked about -- what do you call it? The Back 32 with Front 8. The Front 8 looked like they were up, I think you call it the Front 8, 15% year-over-year as well. So I guess, to the panel, the very short-term interest of Euro-dollar contracts, the CME seeing an increase year-over-year, and could you talk about what's driving that? Is that just because all of a sudden the Fed changed, people were thinking who is going to be, hikes later on and they gave you the frozen picture? Or I'm surprised that the short-term...

Derek Sammann

So Rich, your question is why are people still trading the...

Unknown Analyst -

Yes. Why is it up 15%, I guess, year-over-year...

Derek Sammann

Like the spread or otherwise?

Glenn Hadden

Okay. Well, from our standpoints, the notional amount of contracts and those amount of swaps outstanding, which are underlying this euro-dollar complex, there is still a growing number of contracts. So as a result, it's forcing us to really kind of hedge our stub risk essentially, which really isn't the front couple of euro-dollar contracts. The second aspect, of course, is in uncertain environments stemming from Europe as far as how bank fund is ultimately going to react, it's going to benefit entities by having their funding hedged out as far as they possibly can as a bank will do, which really is the first 8 contracts.

Colin M. Lancaster

Yes. I was going to say, Europe, I think, is a very significant driver of that activity.

Derek Sammann

Go ahead.

Unknown Analyst -

This is I guess for Colin and Brian. Just in terms of your growth in your futures volume transaction, Colin, it sounded like yours is probably more adopting new products versus moving, say, from OTC swaps into futures, but correct me if I'm wrong. Brian, it sounds like more of a transition. I guess, really, on the transition, like in FX and then you were saying, is that -- what's driven that? Is that changes to the product side? Is it then marketing better to you? Is it just learning the products better? What causes the shift?

Brian Yeazel

I think it's a combination of factors. One is I think we view that we were waiting for the liquidity developed in a product. We weren't initially convinced that it was there, and they did a good job of coming and marketing to us and showing us when the correlations with the cash or the markets. And two, that the increase in the volumes was sufficient that we felt there was enough depth of liquidity that we could operate in that space without having an impact on moving that market. The other thing was that we've become more sensitive to the counterparty risk as the regulatory environment is changing, and the time was right for us to -- the timing is right. We felt the need to reduce that counterparty risk in the forward space by using a listed product.

Colin M. Lancaster

I think the other thing that I had mentioned and that relates to our business is sort of a bet on where the world is going as far as, overall, the alternative space, so hedge fund assets under management globally and in particular end strategies that look more like ours. And obviously, because macro, historically, has done well in a period of distress, you see assets moving to that space. So I think part of it is just this growth in the interest in the underlying strategy, and you have more people like us taking in more assets, quite frankly.

Derek Sammann

All right. I think we're going to take our last question then we're going to go to management.

Unknown Analyst -

I want to follow up on the FX question. First, for the panel and then for Derek. I guess I'm trying to figure out, is there any increase or decrease in your demand for interest rate futures following the Fed's announcement in August to keep rates steady through 2013? It seemed intuitively there could be a decrease, but I just wanted to hear the panel's thoughts on that. And then for Derek, are the any parts of your customer base that have seen or would see potentially a significant dropoff in volume with rates ringing low for some period of time, right? I have heard from some banks that they're backing off of their use of futures. I just want to get your thoughts on that.

Derek Sammann

Okay. We'll start with panel.

Glenn Hadden

As far as the Fed funds complex, absolutely, there's going to be less interest because there really is no need to effectively hedge that risk anymore. However, the Fed is still very active in conducting its monetary policy. In fact, the Chairman was on TV this morning, talking about what they're actually doing with Operation Torque. It's simply -- they are switching from focusing or trying to influence the short rate part of the curve, not -- we had the 0 bound, to the long part of the curve. And as a result, instead of really, the ultra long contract is the new Fed funds essentially. So you're going to see a diminished interest in Fed funds futures but you're going to see a commensurate, I think, in large offsetting growth in the ultra long contract.

Colin M. Lancaster

I agree with that. Look, I think what we look for as a user is more specific points on the curve to trade, more opportunistically based on how policy changes and where the buying is occurring there and just the supply and demand imbalances. But I generally agree. I think the long end is where you're going to see a lot more activity and that's where the interest is going to be for the foreseeable future now.

Brian Yeazel

I agree.

Derek Sammann

And I think to the extent that what is the change in customer patterns over the last 6 to 8 weeks, we're not seeing any drastic changes. I mean, what we have done is we try to gird ourselves for regardless of the shape of your curve and extended periods of rate stability, as we talked about the products we brought out, and we're continuing to focus on those products that give more granular points on the curve to trade. What we're seeing is the macro tailwind. You've heard this is a theme throughout the day, is that the customer concerns around counterparty risk, around the fairly enormous existence of swaps portfolios out there held bilaterally and the implication for what those had mean to come either on exchange or at least become cleared. The volatility hasn't disappeared. I think there was a question on the previous conversation regarding has volatility disappeared with the Fed changes. That would be to neglect the conversations around Europe and what's going on over there around the election cycle for next year, around some of the bailout conversations that are happening. So I think there's residual volatility and that, combined with the positions that customers are trying to figure out how best to handle in a post Dodd-Frank world, that's creating macro tailwinds for us. So we haven't seen shifts in patterns of activity to say that certain segments are stopping. We are seeing, as we mentioned, pretty significant growth in the back end of futures and options. We haven't even talked about treasuries much. This has really been stir focused because I think that's really the brunt of the bulk of your questions here, what's the implication for euro-dollars. We try to focus on not only the macro factors that are supportive of growth, but what we've done to position ourselves with increase in our client base, expanding our product set and positioning ourselves for capturing swaps business or at least swaps hedging portfolios on exchange. Okay. I want to thank the panelists. We really appreciate you guys coming out. I know you're busy, and we appreciate your insights. So thank you.

Kendal Vroman

Good afternoon. I should also introduce Julie Winkler. I think you've met Laurent and Bryan earlier in the day. Julie is the Managing Director and Head of Research and Product Development.

I'm going to give you a quick overview of our commodities business today. And obviously, commodities as an asset class has performed very well over the last decade and we're particularly happy with the way our benchmark products have performed over that timeframe as well. In particular, during difficult times of the credit crisis, they held quite nicely, as you can see in this graph, in terms of their growth.

I'll get more into the strong secular trends that are behind that in just a moment, but it's also important for you to know that we're investing heavily in this business as well to both grow it and compete effectively. You may have seen the acquisition we did recently with Elysian. We've rebranded that as CME Direct, and that is essentially a distribution play for our energy business to reach market participants that have henceforth been difficult to get to, as well as our ownership on the back-end of Confirm [ph] Hub, which is a service that provides straight-through processing. So you see us extending our business on the front end, as well as -- and making it easier to use on the back-end with straight-through processing.

As well, we also look to build out our team on a regular basis. Just Friday, we hired Gary Morsches to join us as our new Head of Energy, and we're excited to have him onboard. He's based in New York.

As you think about the secular trends that are facing our business, the need to manage risk around commodities is not going to go away anytime soon. The market fundamentals that are at play in this marketplace in terms of demand, as well as the inventory levels that are at a very low place, are going to continue to drive the commodity products into the future, as well as the growth of the emerging markets. As sad as it is to say, these commodity markets do benefit from and drive the need for risk management around things like political unrest and natural disasters. If you just think back to last year and the horrible earthquake that took place in Japan, it basically threw the entire global nuclear paradigm around energy into question. The volatility that drove in carbon and power and oil and natural gas was amazing, and things like that continue to happen on a regular basis.

The world ag markets have severely depleted supplies. The USDA estimates that the total grain stocks-to-use ratio is now at 13.1%. It's down about 1.3% from a year ago and 17.6% from the year before that. The way to think about that ratio is essentially, it's how much cushion do you have between what you have in stock and what you use, and the main takeaway is its thinner and declining. And we think that trend will continue. And food prices are going to continue to grow. As you think about the emerging middle class in places like China and India and their increasing amounts of disposable income to spend and the desire to use that newfound buying power on things like goods and services, it will drive commodities' growth as well.

Certainly, we continue to enjoy growth from a customer base perspective as we find more and more interest from our existing customers and we expand our business into the over-the-counter markets and globally as well.

So getting into energy specifically, a very strong franchise, around 1.7 million contracts a day with a 4-year growth CAGR of 13% around key benchmark products and crude oil, WTI contract, the Henry Hub natural gas, and our refined products as well.

We have a business around options that is strong and robust. For crude oil options, we have 90% of the market share. We have deep open interest around 35 million. And as I said before, as we extend our technology services with CME Direct on the front end and Confirm [ph] Hub on the back-end, we also leverage tried and true technology in Globex and ClearPort as well.

So I think you would probably find it strange if I didn't have something to say about Brent or WTI. I have a lot to say about it, actually. At the end of the day, you can read this, but it really is a situation where WTI is a transparent product that has deep production and a robust cash market behind it. At the end of the day, Brent does not have those same -- cannot post those same issues. When you think about production alone, growth in WTI production has been 20% over the last 5 years. Production in Brent has been down 30% over the same period. So at the end of the day, when we look at Brent versus WTI, we do think that WTI has a consistent, a dependable and straightforward convergence mechanism with strong participation from the cash market in a way that Brent does not enjoy.

In addition to that, as you think about how easy is it to hedge, when you think about a product in WTI that has twice the open interest, 43% more volume on a daily basis since September of last year, when we look at the bid/ask spread between Brent, ICE's Brent and CME's WTI, they're twice as wide. So effectively, if you're a hedger, it costs you twice as much to hedge using Brent as it does in a liquid and deep WTI market.

One of the things I'm sure you guys watch as we do is market share and how it shifts back and forth between CME and ICE on the Brent product. And suffice it to say, we look at this as something that flows back and forth between the 2 products and generally flows from when the products are trading based on the fundamentals on how those products are trading. And we continue to see this ebb back and forth, where over the summer, we gain quite a bit of market share back, and recently, ICE has taken some back. So it's something we look at, but for the pieces we control and the pieces that are outside of those macroeconomic drivers, as long we're winning those pieces, we keep that in context as we think about this market share.

Where we have more head-to-head competition is respect with where WTI is trading. As you can see, the trend here over time we're increasing our market share for the amount that WTI that has traded on CME as well.

So at the end of the day, how do we think about WTI versus Brent? And like we do across our business all the time, we went and talked to our customers. So we're very much a customer-led organization. And for us, we went out and asked, "Are these issues with Cushing? How do you view them? Is the WTI contract broke? Is there something we can do to help the contract?" And we didn't do that just from a U.S. basis, because you might get a biased viewpoint from commercials and market participants that just operate in the United States. On a global basis, we canvassed our customer base and a resounding response was, "Do not mess with the WTI contract." It is not broken. It is reflecting fundamentals, okay? And this is bolstered by the fact that the industry, the market mechanism around WTI continues to dump tens of billions of dollars into this marketplace around developing production, about developing pipelines, about developing storage for these markets. And so at the end of the day, when your customers are telling you it's not broken and you consider -- and you continue to see the growth in that market and you continue to see the investment of capital around that marketplace, we take great comfort around that.

In specific, a lot of the issues around Cushing we see coming, you see investments. The industry is making around several pipelines that are going to come online in the next 18 months or so to help address that issue. Brent, I think, has a different story to tell. That contract is not converging. It's thinly traded around expiry. It has declining production. And increasingly, we are thinking about an opportunity where the ICE contract is around a 15-day expiry and the market has moved to a 25-day expiry around that contract. So we're looking at and thinking about the opportunities around the transparent product that is consistent with industry norms and has a straightforward convergence mechanism that the marketplace can depend on. So you'll see a lot happen with the Brent contract, I think, in general over the course of the coming years as we both wrestle with some of the changes in the marketplace.

But we don't just think about the world as WTI or Brent, and we wouldn't sit here and say that one is a perfect global benchmark. You'll hear a lot about that as well. In fact, we think Brent is a strong benchmark. We think WTI is a very strong benchmark. But where we think of consumption coming from in the future, we don't think that either Brent or WTI are what will be the benchmark for Asia. The East of Suez market is more likely to be serviced -- or a new benchmark, we think, and we'll push for it, is the establishment of a new benchmark for the East of Suez market based on the DME contract. As you know, we have a partnership in the Middle East based in Dubai with the Omani sour crude contract, which today, it's not influenced by OPEC, it has a nice, healthy average daily volume of around -- between 3,000 and 4,000 contracts on a daily basis, it's growing very strongly, and we're spending our time with commercials and players in the Middle East to help drive that as a benchmark. And from a longer-term perspective, we really view that there'll be an Asian benchmark, and we think it'll be Omani sour crude, WTI and Brent. And these will cover the globe as the predominant benchmarks.

So moving away from energy and speaking quickly about metals, metals is a very nice story for us. As you think about year-to-date, ADV is up 39%, 84% growth quarter-over-quarter, records this year in gold, silver, platinum and copper, our options business is up 48%, our open interest is up 50%, our ClearPort volume is up 109%. So again, clearly, there are some great tailwinds in this business. And we think about it -- as we think about it, how much farther it can go, and I was talking to Harriet Hunnable, who is the head of our metals business and based in London this morning, and she said, "When you think about the Asian opportunity, people own precious metal in Asia almost as a birthright." She said, "and when you think about the infrastructure, whether in the availability of precious metals to the common populace in those areas." She said, "We estimate it's between 5% and 10% available." So as you think about China, imagine that 5% to 10% of the population can actually take and get a hold of precious metals. So then you take that, those 2 things, and you think about that infrastructure getting built out and you think about that demand growing over time, and you can continue to see as one example that the precious metals franchise is probably going to continue to grow as that middle class grows, as I said before, and as their disposable income increases.

Additionally, we've seen great growth in the over-the-counter markets and great interest this year as well. So we continue to see growth on ClearPort. We have an active customer outreach program. We have a strong pipeline of people interested in getting it set up on ClearPort to clear the over-the-counter metals as well. But it's not just about precious metals, we also see an opportunity in the ferrous markets as well, somewhat fragmented, somewhat early stage competitive environment there. But from our perspective, we have what's called a virtual steel mill, and what this essentially does is all the component parts of making steel, you can trade or clear with CME. And so at the end of the day, we feel like this is a more robust offering than any of our competition has. And we're going to look to grow that over time as well.

So finally, as you think about ags as the kind of the final piece of the puzzle here, we continue to have great growth here. We've had record days in most of our grains this year. We have significant growth in our livestock. We have a wonderful 4-year CAGR here of 22%. Again, as I've talked about the global demand for food and higher protein foods and higher cost foods, is a long-term driver that makes us feel really good about this business as well. And we've established strong global partnerships as well. We developed Bursa Malaysia with the Malaysians, which trades principally the crude palm oil contract that went into Globex in September of last year. And since that time, we've seen record growth in their average daily volume on the back of Globex's distribution and technology. Additionally, you'll see an MOU that we established with the Ukrainian government to establish a benchmark product in black seaweed. We think that's complementary to the existing wheat benchmark that we have and another example of where we're looking to globalize our business on a regionally relevant way.

So in summary, this is a very strong franchise. It's been around for a long time. It's experiencing wonderful tailwinds, but we also see strong secular trends that we expect to continue for quite some time. And we think we have the right products and the right technology and the right customer outreach to continue to take advantage of that.

Derek Sammann

Okay. We're going to open it up for questions now for Ken or anybody on the team about the commodities area.

Unknown Analyst -

I know you guys can't comment specifically about this, but just hypothetically, would you see a lot of, I guess, potential overlap when the metals exchange? Do you think that your products and their products would be complementary?

Kendal Vroman

I think you answered your own question. At the end of the day, we don't -- we stand very close on the situation with LME, but we can't say much about it. From an overlap perspective, I think you can look at it, they have a copper contract and we have a copper contract, and that's the principal areas where we compete.

Unknown Analyst -

Ken, I just want to dig a little bit more into your ClearPort comment about new interest. Could you just maybe quantify that or talk about where that demand is coming from in terms of new users, whether it be by specific product areas or regions or customer types. ClearPort expansion, just where...

Kendal Vroman

Oh, ClearPort -- well, here, outside -- principally, ClearPort has been centered around natural gas in the energy market. But we're seeing -- we've got some of our ag swaps up there and we're increasingly listing some precious metal contracts around there as well, and the interest is for those marketplaces and those participants who haven't had the benefit of being able to take advantage of the ClearPort service, there's quite a bit of demand. And as our customer outreach efforts focus on that, we're seeing a return on that.

Unknown Analyst -

Ken, I see the words "information products" in your title, what can you share in terms of what you're doing in the index business today and what the CME vision for the index business is over the next few years?

Kendal Vroman

I'm going to punt that one. Information products for me is actually market data, and so our market data business reports up into me. The index services business reports into Bryan and is underneath Scott Warren, so maybe I'll let Bryan comment on that a little bit.

Bryan T. Durkin

We have made, obviously, a substantial investment in our index business. We view that it is a growing business in the context of our relationship with Dow and development of new products, and again, risk management tools that I think both complement our existing portfolio and also brings us into a wider arena globally in terms of the development of the index business in general. So we're going to continue investing in it, and it's a very -- it is proven to be very successful for us and we look forward to continuing our growth in that regard.

Unknown Analyst -

Ken, can I touch on position limits? It seems like the CFTC is finally getting towards maybe imposing something in the spot month product, and it seems like where you're seeing a lot of concentration is in the smaller contracts. And what area are your customers most concerned about? Or what area would you kind of be worried about when it comes to imposing these rules?

Kendal Vroman

Yes, I think we're going to have a Washington session here towards the end, but I'll give you a quick reaction and I'll ask any of my colleagues to weigh in as well. I mean, certainly, we pay close attention to the global kind of regulatory landscape and position limits particularly as it relates to our energy business. There's something that we pay a lot of attention to as does our customer base. Essentially, when you talk to our commercial customers, their concern is really not surprisingly their ability to risk manage their business and a concern around how position limits will affect their ability to actually do that. And as -- we spent a lot of time with our customers, and as you'll hear from Craig and Gary, a lot of time in Washington as well, working on this. But at the end of the day, our customers are very concerned about that. We hear and we pay a lot of attention to the differentials between an FSA-regulated environment versus a CFTC-regulated environment and what might emerge in Asia as well, and our customers are doing the same thing.

Julie Winkler

Can I just say, certainly, we've had a lot of ongoing dialogue with the CFTC throughout the course of Dodd-Frank as they move into rule-making. And so I think with some of the delays that we've seen, we certainly know that there's some dissension even within the CFTC about the best approach going forward. So I think that's contributing a little bit to the uncertainty that our customers are feeling on this issue.

Unknown Analyst -

What's the general relationship between underlying commodity prices and futures volumes? I mean, commodities across the board have been moving up for 4 or 5 years now, but as we start to discount some slack and commodities, should we see some corresponding slack in futures volumes? And then on a go-forward basis, does it really matter if the markets are in contango or backwardation? Is there any sort of an implication of volume there?

Kendal Vroman

I think, certainly, as you talk to somebody like Tim Andriesen, who's the head of our ags business, corn price and corn volatility are great indicators of volume in corn, et cetera. So as you think about the growth in the underlying commodities driving futures volume, there's definitely a relationship there. But I think everything that we see and look at, we think that the drivers that are driving that business are going to continue into the future. And as we see that driving the growth that we have today, we think it's going to continue to drive it tomorrow. As far as contango versus backwardation and how it affects our volumes, I think -- I'll let Julie answer that. At the end of the day, and some of that has -- some of the contango, I think, in the Brent contract, has changed and you see some of the volumes maybe reflecting that as well, but Julie?

Julie Winkler

Yes, I mean, I think, in general, when you look at commodity investing, I mean, it's grown from a $10 billion to a $400 billion business in just under 10 years. And so when we look at it, we don't see a difference in price levels, as Ken correctly pointed out. It's really about the volatility and not the actual price level. The secular trends here with supplies, certainly on the ag side, as tight as they are, all the investments going into the energy markets. Those are the things to really look at instead of just the absolute price levels. In terms of contango and backwardation and whether that drives volume, certainly, what we've been seeing with the Brent market, specifically, is tied to fundamentals, and so again, not an explicit cause or driver of volume depending on which way that it is at the time.

Unknown Analyst -

Okay. One last question from Rich [ph], and then we'll move on to panel.

Unknown Analyst -

Ken, in most markets, we've seen like electronics, we see -- when they go from pit to electronic, you see volumes rise dramatically. Is there any impediments to a metals market that would -- if it was traded to the pit, is there anything that we don't understand about that market that wouldn't behave a pit metals market might -- would expand as other markets have when it goes electronic?

Kendal Vroman

If I understand your question correctly, are you saying if there's a pit-traded market in the metals, if that electronifies, is there any reason why that wouldn't expand like as we've seen in other marketplaces? Yes? Not for my perspective, no. I mean, I think we see this play out time and time again across asset class, across products and across markets. As you increase distribution and as you increase access to your products, growth occurs.

Derek Sammann

All right. Thanks, Ken and team. We're actually going to switch out now and bring the second panel. Ali Hackett, who was up here earlier, is going to moderate this panel. Again, I think it represents a fairly diverse group of CME clients and should build on what you saw earlier this morning.

Alice Hackett

First of all. I want to thank the panelists for coming today. They're our clients. And in keeping with our model of asking our clients the question as opposed to pitching them on our products, I'm going to ask all 3 panelists to start off. I'll put your slide up and just maybe for a brief few minutes, talk about what is it that the CME can do or does that can help best grow your businesses. And I'll start with you, Doug, because you're slide is up there.

Doug Cifu

Thank you very much, Ali, and thank you for having me today. We're an electronic market making firm. We're one of the largest electronic market making firms in the world. We don't use the acronym, high frequency trading and anybody who uses it in the room will have to find. And I'm happy to talk about those issues as well. But we view our partnership with the CME as one of the most important assets in our firm. We're a broad marketing making firm across asset classes so we will trade energy products, FX products, metals products, fixed-income products, frankly, anywhere where in the world, any time of day. And so one of the fantastic things about the CME is really the consistency of their technology and the reach of their platform. So let me be specific.

We have ventured with the CME and partnered with them to expand to new markets. For example, last year, Craig Donohue was kind enough to invite us down to the BM&F down in Brazil, introduced us to the marketplace. We got a great deal of comfort from the fact that the CME had this global partnership with the BM&F and it really helped us get us introduced to that marketplace and we are now co-located in one of the largest market makers down in Brazil because of the certainty that we had that the CME would be there, so it's really a global partnership for us.

We're doing the same thing in Osaka. We're looking at Malaysia and in any other market frankly, that the CME will venture to is a very, very important growth area for our firm. And I think the strategy that they have about being a global technology provider and a global platform and a global partner in price discovery and in clearing of products is really the right strategy for them. And frankly, it's very, very important to our firm.

We spent an enormous amount of time around technology. Our firm is as much a technology firm as it is a trading firm. And so we have incredible experience with the Globex platform with the matching engine, with the gateways and the connectivity to the CME. They've been in the forefront of evolving that platform, to make sure that it's robust and can handle frankly, the flow that they have and we'll see.

We're excited about the new co-location project that they've undertaken. I know we're not allowed [ph] out here but it's a sort of all-around technology. We're excited about the new co-location project that they've undertaken and we think it will be very advantageous to what we do in terms of really providing the tightest bid/ask around the world and we view ourselves as a wholesaler of price and the CME, as a terrific partner in terms of distributing that price around the world, so we couldn't be happier with our relationship with them.

Alice Hackett

Joe, I'm going to ask you the same question.

Joseph Guinan

Sure. CME has always been the gold standard as a futures exchange. All the other exchanges in the world try to imitate and replicate the various features of the CME. This has been the case with listed products as well as with the various other services incorporated into the exchange.

As an FCM, Advantage hopes the other exchanges will continue their imitation since that will require them to take the steps necessary toward increasing automation and efficiency that will allow RFCM to process more volume with fewer personnel.

I want to mention a few of these programs that CME has developed, which provides for economies and efficiencies to the FCM community; the broker payment system; the give-up payment system; the combined fee system, the front-end clearing system; delivery plus, which helps you electronically transfer receipts from one counterparty to another; firm soft; firm contact; E-rep, which has numerous reports available and accessible 24 hours a day; the certification environment for parallel testing; and the interest earning facility. These are just a few of the many programs unique to the CME Group, which are extremely helpful to the FCM community and allow us to process our firm processes between 1 and 2 million contracts most days, occasionally 4.5 million, 5 million. But we process this volume efficiently because of the CME systems that they've developed.

In the electronic trading world, the CME has always led the market. They were the first exchange to use multi-cast to send out prices. All the other exchanges were on TCP. Now all the other exchanges have followed the CME lead. They have the longest record of superior technology, which other exchanges are now imitating nicely. CME continues to lead with its new DC3 facility. This will be the new flagship facility for the industry to try and imitate. It also provides the CME with the most robust business continuity plan in the industry.

The exchange is aided by a very helpful and accessible staff. As a tiny example of this service orientation, our Chicago clearing manager e-mailed the exchange this past Saturday at 4:50 a.m. with an issue we had. Within 3 minutes, he received an e-mail back followed by a phone call.

I think much of the culture at the CME was the benefit of the evolution from a member-owned exchange. The members certainly wanted responsiveness and the public company, CME, has kept it and improved it. More importantly from my perspective, the CME has kept its decision-making process intact from its member-owned days. We often see large organizations or governments take actions without enough care given to the possible unintended consequences of each action. The CME is extremely careful to rollout its enhancements after careful review of the possible implications for each subset of its large and diverse client base. Importantly, it continues to monitor and study the effects of each enhancement in search to ensure there are not unintended consequences.

Alice Hackett

Thank you. I think the most important thing I'm hearing from you, Joe, is that you have different requirements and challenges for how you grow your business. Doug has different challenges for how he grows his business. And then Ric, you have different challenges for how you grow your business. And our role is to hear you and respond. So can you speak about how you see the CME, Ric, help you grow your business?

Ric Gwin

Absolutely. I'm coming at this a little different angle coming from the buy side. I run the derivatives portfolio for the Nationwide Enterprise, which includes our general account, both in the property and casualty side, the life side, our bank, our pension plan. And we use a wide variety of derivatives both exchange traded and over the counter to manage our exposures. The normal exposures of any insurance company, credit equity, the curve so on and so forth.

I think with the buy side, it's not as much about growth. It is as much about Dodd-Frank and helping us, we're not really sure what's coming at us. We know it's going to cost a lot. And I think partnering with a credit house which is CME, with regards to costs and margin requirements and new product development to fill a possible void on down the road with how we do business today or to support the new way that we were going to be forced into managing our risk, I think it's going to be the key.

Alice Hackett

Actually, one of the conversations that took place this morning was around fixed income and with the Fed being on hold and rates being flat for many years, there was a question about interest rate growth. And maybe the 3 of you can address where you would have answered the question in terms of how it would affect your businesses.

Doug Cifu

Yes, sure. I mean, I wasn't here this morning so I'm not sure what the answer was given but -- I mean, we view, at Virtu -- I mean, we're a large market maker and a participant in, as I mentioned, in across a broad swap of asset classes. We view that suite of products as perhaps our most significant growth opportunity in 2012 and 2013. A lot of money has been printed in the last 12 to 18 months, it needs to be priced. Folks like Ric and others will be reevaluating their portfolio on where they are in the curve and adjusting. And as a market-making firm, we will be there to provide prices. And so it is certainly an exciting opportunity for us. We're excited about the new Euribor contract that you all launched just this past week. We're a market maker in that. We try to be, we're a market maker in the on the run, treasury futures. So any product in the suite that you guys will launch, we will be supportive of, that we think makes sense and we think the products that you've launched recently makes sense. But we think that there will be a lot of assets that need to be priced and priced correctly in the next 12 to 18 to 24 months and we certainly intend to be there. So we're excited about that as a growth area for our firm.

Alice Hackett

And Ric, you specifically, being an asset manager, in owning spread products, maybe you have a twist that's similar to Brian Yeazel this morning.

Ric Gwin

Absolutely, I mean, obviously insurance company. We're a big fixed-income player so we're always managing our rates. Insurance comes around, I don't want to speculate with derivatives so I'll say that we manage our curve exposure in a variety of ways. So if you're using the futures, exchange rate of futures and interest rate swaps. And again, I think the idea of post-Dodd-Frank, what happens to interest rate swap business, especially in the long end of the curve. I mean, is there a migration to you use more long-dated futures contracts such as the Ultra. That's a question that's in our mind with how the marketplace is going to react to Dodd-Frank, especially when it comes to liquidity in the long end.

Alice Hackett

I think Doug, you mentioned how the CME helps you in your global expansion. And most people think of the CME as a U.S.-based exchange. I'm going to throw it to Joe. How about, in your growth globally, how do you see the CME helping you?

Joseph Guinan

Sure. Our client base -- a lot of people find an FCM through the Internet and so our client base has really become quite global. People coming in from Korea and former Soviet bloc, so we really see a whole -- global diversity of the professional traders coming from all around the world. And you don't have to have a branch office and like the old brokerage model, where you wouldn't get a client unless you had a branch office in that town. Now with the Chicago headquarters, we get clients from all around the world and it's very exciting. And just to comment briefly on that interest rate example you mentioned, from '91 to '93, when Fed funds were frozen at 3%, CME volume was okay. And then in '94 when the Fed hiked rate 6x, volume exploded. And some people that might not wanted to hedge when rates were 3%, I think we'll have a different view when rates are as close to 0 as they are now. So I think in the next year, 1.5 years, you're going to see everyone that needs to hedge get in and hedge. And then whenever rates start moving, I think you'll see volume in the exchange go up by well over 100%.

Doug Cifu

Yes, I think it's interesting here. Ric talked about interest swaps and the CME. I mean, to us, that's very -- an exciting development. I think it's exciting to the folks here from the CME and it should be exciting to everyone in the room, which is to say that as that asset class, which by notional sizes, probably the largest asset class, if you will, in the United States. As that asset class becomes centrally cleared in some format and there are screens that developed somewhere and whatever SEFs end up winning, I can't prognosticate sitting here today how many there will be and who -- what their names will be. But there will be SEFs and there will be centralized clearing of that asset class. That's exciting to our firm as an electronic market-making firm because it gives us an opportunity to provide prices in an asset class that frankly is closed to us today. I think it’s exciting to the CME as well because they will be a winner in one form or another whether those prices are in Globex or not. Whether they are in the clearing house I think it is inevitable and its statutory as Ric said that this will happen. And from my firm's perspective, our firm's perspective, that's an exciting development. And I think the CME will play a very large role in that. I can't imagine that it wouldn't, frankly.

Alice Hackett

I heard Glenn speaking a little bit this morning about price. When we talked about price and we do this quite a bit, how can in terms of OTC and futures and your decision? So I'll look a little bit, I'm sure. I had made the assumption, Doug, that Virtu wouldn't be involved but?

Doug Cifu

Yes.

Alice Hackett

Maybe, Ric, you can speak a little bit?

Ric Gwin

Well, again, you look at -- it's another component now with regards to how we manage our risk. I mean, it used to be interest rate swaps, some treasury futures. I have some portfolio managers that prefer one or the other. But most of the time, it's trying to model the risk and come up with the best instrument. I think an added component once we start creating interest rate swaps, will not only be the best instrument for hedging the exposure but then also the costs associated with it, what kind of margin are you going to have to put up, treasury futures contract versus an interest rate swap. Is there capital costs associated with that? What are you going to about the basis risk? So the point being is that there's going to be added complexity from an execution standpoint, with all the additional analysis, that's going to need to take place before you even get into a position to execute the trade, so that cost will need to be managed at this point forward for sure.

Alice Hackett

I'm just going to stay on you for one second because I heard a question from the audience about where do you see growth in terms of agricultures going forward? And you're an asset management with equity and fixed-income exposure, Joe and Doug, are going to be in any product that the clients want. How about from the asset management perspective?

Doug Cifu

Well, with rates, where they are right now and where they're going to be for the foreseeable future, I mean, we're looking for yield. I mean, we're looking for alternatives to our normal equity and fixed income, heavy credit portfolio. So we started to venture out and look at commodities and other alternative assets and hedge funds base, dipping our toes right now for sure. But I think that again, if we keep in the environment for a long period, we are going to need either chase yield which is a scary situation or look for alternatives, so I think that we're going to be on the path of looking at alternative type of investments including commodities.

Alice Hackett

And when you look at -- well, I don't know if when you look at commodity exposure, you're looking to first outsource it to bring it in-house, outsource?

Doug Cifu

Right now, we're looking at hedge fund managers and CTAs to use -- to manage that exposure for us.

Joseph Guinan

Absolutely.

Alice Hackett

And from the -- and in terms of how we prioritize our resources, and this is really for any of you, I'll throw it to Joe, if we were to just prioritize our resources, how do we best prioritize? The CME is very diversified, we have many products, where do you see your demand coming from, so we best queue up with you?

Joseph Guinan

Well, I think the market might be thinking that the next year is going to be kind of quiet on the fixed-income side and I think they might be surprised. So I'd like to think that the Fed can win a war when they're in a war. And I think they're in a war to reflate the economy and I think they will win it and as we start to see signs that they're winning that war next year, I think that the fixed-income, that the CME will be a big recipient of the volume. It's interesting the way the volume has rolled around for us as an FCM. We used to be primarily a fixed income firm and then we developed a big energy business. And then in the past 1.5 years, it's been a very big metals business. So -- but my guess is that we might roll back towards interest rates in the next year within -- because rates don't wait until you actually see the full recovery to start rising. They usually -- if you get a few months with some decent employment growth, I think the interest rate market will start to take off in volume.

Doug Cifu

I would agree with that. As I said before, I mean, I think the rates here isn't growing. Again, I would emphasize the international expansion that you all have undertaken through your partnerships. I mean, to me, that's an exciting development. I think it's the right strategy. It's not huge capital-intensive strategy. But you get the brand and you get the execution and you get the technology licensed out there. To us, that's an exciting development and frankly, we would like to see a broader reach of the CME globally, because we are a global market-making firm. So the more we can partner with great firms like the CME and understand the technology and then help us, if you will, with the market structure and the local marketplace that we're trading and that's a huge advantage for us.

Alice Hackett

Thank you.

Unknown Executive

Right now, we'll open up for questions. I think Howard here has a question to start.

Unknown Analyst -

Joe, I think your firm is a CME clearing member. But Doug and Ric, your firms aren't. So I mean, you all seem to be pretty substantial, happy customers of CME. But just curious about that decision as to the extent that you can address it, why or why you aren't maybe a clearing member in addition to that?

Joseph Guinan

It's a great question. I mean, we are a full corporate member so we've bought the shares and the seats and whatnot. We chose -- in equities we're a subclearing broker-dealer, so we've made a decision in equities to do that. It's really just a question of capital allocation for us. Fortunately, there are firms like Joe's firms that are very efficient FCMs. And so we elect and the various products that we trade and we trade every product virtually that the CME has to use FCM partners in those products. At some point, given our execution of volumes, it might have become advantageous for us to become a self-clearing member, sure. But it's really just a question of allocating capital to self-clearing as opposed to paying relatively de minimis execution cost to an FCM to do that for us. But we get the advantages of member rates because we've bought the 7 seats and the 15,000 shares so we've made that capital investment with CME.

Ric Gwin

We've actually started going down the path of leasing the seat. Our volumes are up now with our exchange rate of futures business to the point where economically, it makes a lot of sense. To me and on down, in a post-credit world, to purchase a seat, to be determined at this point in time but it's something that we're definitely will have an arrear.

Unknown Analyst -

And then, Doug, just a follow-up, I mean, is there a breakeven point that you think you're doing it yourself is accretive to sort of like outsourcing and using someone else's?

Doug Cifu

Yes. I mean, really it -- again, it's a simple mathematical exercises, the execution cost of paying an FCM versus the internal cost of having to self-clear instruments, which we do in equity, so we know what that cost is plus the cost of capital from having to have x amount of capital up into the -- in the guarantee fund, so it's really not much more complicated than that. I mean, we're a huge volume player in all the asset classes that we trade. So candidly, we get really good deals from the FCMs because they like our volumes, so they make it really, really compelling not to be a self-clearing member. Unlike in equities where the marketplace hasn't evolved as much and so we have not 1 but 2 self-clearing broker-dealers so.

Joseph Guinan

I'll just throw one other point why it's sometimes makes sense for big firms to not be self-clearing. When there's the most stress in these financial markets or any market, that's also when there's sometimes the most opportunity. And if a big trading firm is on call for a day with its clearing firm, that's usually not a big deal, but you can't be on call if you're self-clearing. So you need to have a higher level of excess capital for the amount of risk that you want to take in the market if you're going to be self-clearing.

Unknown Analyst -

Doug, as being a member of Virtu, one of the world's largest market makers, I'm just curious to get your perspective on the FTT and what impact they may have on your trading volumes?

Doug Cifu

Well, we're certainly not in favor of it and we've worked closely with our friends at the CME and other global exchanges to lobby against them. And from a philosophical policy perspective, we don't think it makes a lot of sense. I mean, it's been put out there, if you will, as a punitive tax against the banks, whatever that means. The banks, all the academic studies that we have looked at and we actually commissioned a study on this last year, make it very clear that liquidity is like water or sand. It will move to whether it's not an FTT. If you ask the Swedes from the early 90s, they'll tell you that the derivatives market essentially evaporated overnight when they put in place the transaction tax and it will move to London. Secondly, the banks or whoever is executing or is not going to end up paying the transaction tax because everybody in this room and particularly Ric that'll end up paying the transaction tax because spreads will just widen and the cost will get passed along to the ultimate end-user. The banks aren't going to pay it. And frankly, we wouldn't pay it either. We will just have to widen our spreads. So it's not something that we're in favor of. We think it's bad policy. We think that the English, the Swedes, and the Swiss, and the Singaporeans, and the Americans, hopefully, knock on wood, will be smart enough to oppose it. So I don't think that it'll end up being having the force of law in 27 jurisdictions throughout the EU. Several of them, like the Belgians, may commit suicide, if you will, and enact it on their own and see their markets completely evaporate, that's their own policy choice to make. I think it's bad policy. I don't think it will be enacted throughout the EU. And I think it's actually bad for trading volumes and for spreads. That's what all of the academic literature -- if you cut through all the politics and the BS around it, that's what all the academic literature says.

Unknown Analyst -

I think all of us would agree with you that the FTT is not an economical solution. But do you have any experience with, has this happened in other countries? And if so, what's been the impact on trading volumes?

Doug Cifu

Yes. I mean, there's a stamp duty. There's a stamp tax in London right now and so there's an active CFT market that essentially circumvents the tax and there's exemptions for market makers so we don't pay a stamp duty. In the U.K., it's one of the reasons that firms like ours need to be either in London or in a EU jurisdiction so they get passported and to avoid the tax. Hong Kong has a stamp duty tax. Korea has a transaction tax. What you see is you see single stock futures evolve. You see options markets that evolve. So people evolve marketplaces to circumvent in order to avoid or to not pay a transaction tax, if you will, in a particular asset class where a transaction tax has been promulgated. So it ends up not really being enforced, if you will, because there's ways to trade around it, if you will, and all it does is widen the spreads. So if you look at the spreads on the Hong Kong Stock Exchange and compare them to the marketplaces here where you have essentially sub-$0.01 pricing, I mean it's stark in its contrast. So it just makes it a lot more difficult for firms like ours to tighten spreads which ultimately benefits the end user.

Unknown Executive

A question back here.

Unknown Analyst -

Yes, Doug, you mentioned before looking forward to the senior launch at the Euribor product to be with the existing live product. I wonder if each you could give us some thoughts in terms of how you view competing products across futures exchanges, whether the current level of competition is healthy or you're going to see more of that going forward?

Doug Cifu

Well, you've asked me a difficult question because I am at CME Analyst Day, so I won't be able -- a little careful about what I say. I mean, look, we view competition in asset classes as a healthy thing for the marketplace. Vinnie Viola who is the founder and the former Chairman of the Merc is with me in the room now, has always said that when you've got multiple participants in the marketplace, we don't fear competition as a market maker, we just think it grows the pie. And so I think the CME has fantastic products in the Energy business, they do a great job. They're very forward thinking. They work extremely well with the marketplace. And obviously, they have a major competitor in that marketplace. So we encourage the CME to do the same thing vis-à-vis other products and whatnot. So we think it makes the marketplace more efficient. We think it ultimately ends up growing the pie because firms like ours can provide efficient prices between marketplaces, so we would encourage increased competition. Again, I understand there's a back-and-forth, if you will, with respect that, from some folks in this room so I'm trying to be respectful as to how I answer the question. But certainly, with respect to the Euribor contract, we're excited about that because it gives us a real opportunity to provide tight prices between that product and essentially, what would be its look-alike contract.

Unknown Analyst -

Sorry, one more question for Doug. Virtu, wonderful. All 3 firms I'm sure are wonderful. I just know a little bit more about Virtu. But in your comments, you showed excitement about the new opportunities in Brazil with Euribor contract. So I guess the question is what about the -- are we at saturation point in the existing in regards to high-frequency trading or automated trading? Are we saturated given a constant level of volatility? Are we there? And so that's why the focus has been on these new opportunities?

Doug Cifu

No. First of all, you owe me $5 because you used the high frequency trading, Rich but you can pay me later so -- as electronic market makers, Ric?

Ric Gwin

Electronic liquidity provider.

Doug Cifu

Liquidity provider, there you go. I'm trying to proselytize the world. In terms of saturation point in the domestic market, I don't think so. I mean, it all depends upon investor confidence, if you will, and what people are and how people are managing portfolios and what they're shifting into. You would think that folks will come off the sidelines and shift into these products. I mentioned some of the new products and the new marketplaces as essentially virgin territory for us, if you will, as a market-making firm so that's why we're excited about it. That's not to say that we're not equally committed to the energy markets, which I've been around for a long time, which the CME does a fantastic job in as well. And metals is an area that has had increasing scrutiny and it's an area that we are frankly not the #1 market-making firm in and so it's an area that we're intently focused on and want to grow on. So I focus on these new opportunities because in my head, I know that there's more -- frankly, there's more P&L opportunity from 0 to something than there is from where we are today. But I don't think that we're fully saturated. In terms of high-frequency trading and what the size of it is, is it sort of played out? I mean, certainly, spreads have compressed dramatically in the last 10 years and even in the last few years. It's a very competitive marketplace. I think one of the things that we do very well is have scale and partner very well with folks like the CME and other global exchanges and that helps our business a lot. So I think it's going to be very difficult, Rich for new entrants to come into the marketplace without taking excessive risk, which is something we don't do. We don't take any risk, we don't need think. So it really is a scale business, market making and we think that we've fortunately built enough scale that we can be successful.

John C. Peschier

We have one back there.

Unknown Analyst -

Appreciating of course, that we're at the CME Analyst Day and it's a public forum, what would be feedback you would give to CME on what they could do differently to either entice you to trade more actively, use their products more, so again, not something maybe that they don't do well but what could they do better going forward?

Doug Cifu

I've been talking so much so if you guys.

Ric Gwin

I've got a short answer about the ultra liquidity but -- ultra bond contract liquidity but I won't go there. Again, I think that with Dodd-Frank, our model with regards to how we manage our risk is out the door. And frankly, I don't know what the new model looks like. So I think that the CME has been doing a fantastic job working with Washington with regards to trying to shape the regulation. They've also been doing a really good job with regards to the buy side and getting our opinions and allowing us to help them understand our concerns, our business and what we think is going to happen on the other side of Dodd-Frank. So I think just that partnership with -- I'll be stingy here for a moment, with the buy side with regards to new products and new services that will replace the old way of doing business because the old way of doing business, well it's gone, it will change. So much more partnership with regards to new products, services, technology obviously, very dependent upon that now.

Doug Cifu

I mean, to me the most exciting I've heard today is actually what Ric has said, because to have someone from the buy side up here talking about new products and growing with the CME is the most exciting thing from my perspective. As a market-making firm, we can trade with ourselves all day and with our competitors but we are there to provide prices for folks like Ric that really want to discover prices. So the fact that he's here that the CME has a great relationship with them, that he's looking at new products that he knows that his world is evolving from an OTC swaps market into essentially clear to hopefully price discovered market is the most exciting thing that I've heard today. And to me, that the growth story of Dodd-Frank in 2012 and 2013.

Joseph Guinan

And from my perspective on that same question, I think just continuing to make all the different programs I mentioned earlier that the CME has continued to take them to the next generation, continue to lead them forward. The matching engine now with the other exchanges in the world have become very close to us fast. But continue to try to make the matching engine faster, keep faster, enable to handle even a higher capacity of transactions per second because my guess is by 2013, the number of transactions going through is going to blow away what we're seeing right now. And I have one other comment on your question to this gentleman about -- we're not calling them high-frequency traders, market marker traders.

Alice Hackett

Electronic market marker

Joseph Guinan

But the -- he enters new markets. So he looks for new markets to enter because he's already in an existing market. I watch a lot of new algorithmic traders come into the marketplace regularly and if the market was fully saturated, they wouldn't be able to come in and survive and thrive. So I can attest as an FCM that we're watching new entrants come in with high-volume trading. We're calling it a market-making type trading. And every year, we watch, not everyone that comes in succeeds but many come in and certainly, many of those succeed.

Unknown Analyst -

This is for Ric. What is your understanding, just from maybe your discussion with the regulators as to ultimately, whether the insurance industry is going to be exempted from the clearing -- mandated clearing?

Ric Gwin

According to our attorneys, that will be impossible, the way the regs written at this point in time. Our expectation is that with Nationwide, we'll be a major market participant and we're voting out our infrastructure as such.

Unknown Analyst -

Okay this explains why you are looking at these other products. But that seems to be somewhat at odds with some of the commentary coming out of others in the industry?

Ric Gwin

I just -- I'd love it, I mean, if you would like to write a letter to the regulators for us, I mean, I would have truly appreciated that but I just don't see that happening, so that would to make me happier. But I think we've concluded that we'll be clearing interest rate swaps pretty soon.

John C. Peschier

Okay. I think we're good for time. Doug, Joe and Ric, thank you very much for your time to come out here. Hopefully, you guys are still trading, get back in your firms or somebody else's. So we really appreciate you coming by.

Ric Gwin

Thanks, John.

Doug Cifu

Thank you.

Joseph Guinan

Thank you.

John C. Peschier

So we're going to have a minute or 2 to switch out and then we'll have 2 more subjects to touch on and then we're going to open it up to a final Q&A.

[Break]

John C. Peschier

Okay. We're going to start the next session to talk about our plans for the Global business. In the past, you guys have heard a lot about our partnering strategy. We're going to give you -- provide some additional kind of specific information. We're also going to talk a bit about some new data we've been requiring from customers in terms of where trades come from which I think will be interesting to many of you.

This is Gill. We call him Gill because we have trouble pronouncing his first name so everyone calls him Gill. He's probably the most entertaining CME employee. So hopefully, he displays some of that here today and he'll give you a good perspective about the Global business. Thanks.

Phupinder S. Gill

Thanks very much, John. Hi. Thank you for being here. Thank you for being here at this late hour, actually. You know throughout the day, you've heard Bryan and his team, and Kim and Julie Winkler talk about the business of CME group. And in each one of these presentations there's an international element to it. What I'd like to do for a few minutes here is to put our global opportunities into some context and talk about what CME group is doing from this point out.

Specifically, when we began this process some years ago, we knew what we had. We knew we had world-class infrastructure. We talked about this for a short while here. We also knew that we had a series of very, very good benchmarks. We also knew what we wanted to actually do. We wanted to globalize our client base and we wanted to enhance the value of CME Globex as the center for benchmarks. What I'm going to talk about here actually covers that theme and you will see that in a short while here.

Specifically, I want to talk about 3 things where the global opportunity is concerned. I want to talk about the whys. Why are we focused on what we are doing outside of the U.S.? And then clearly, I want to talk about what exactly are we doing? And finally, in terms of the results, how are we doing? And these are a series of interesting slides that I'll walk you through as fast as I can so we can get to the Q&A.

In terms of why we're doing what we're doing, I want to show you 4 snapshots back in time. You may be able to see this more clearly, in the background here shows 1980. So let me paint the picture for you as to what we saw back then in 1980 where the demographics were concerned. You have a young India and China, a large young India and China, a poor young large India and China. And then on the right side, you have the Brazilians who were young and doing quite well. And then you had the United Kingdom, Japan and the U.S. Why is this important in the context of what we're trying to say here? Because this is what we saw back then and the reaction that we had with respect to the U.K., CME put in a significant amount of effort to get the exchange life up and going. And then just starting way back in 1981 or 1982.

In fact, the first rulebook of life was almost a mirror image of CMEs and I believe they said "thank you." With respect to the Japanese, that was, for the next 5 years, there was a series of large Japanese houses that had come to join CME. These were the large banks and large brokers that joined CME Group. So this between 1980 and 1990 where CME introduced a bunch of innovations with respect to the euro dollars, the S&Ps and we saw a bunch of growth, part of that growth was fueled by what we did in reaction to what we saw.

In 1990, 10 years later, a much larger China, a much larger India. Slightly older, richer, the Brazilians were now very actively involved in the gray markets at Board of Trade and also in the financials. You flip back another 10 years. In China, again, emerging, Brazil continues to do well. Japan is an aging economy and India continues to come up, which brings us back to now, where China is much larger as is India. And the opportunity set there is very, very large. I want to spend a couple minutes in China, if I can.

If you look at China, a couple of interesting stats that you probably do know but it's worth repeating because it talks about the opportunities that might exist. China is the #1 importer of soybeans, #1 importer of edible oils, #2 producer of corn, #2 producer of wheat. 60% of the domestic requirements for oil are being imported and I think to a point that Ken was making a short while ago, more than half of the consumption of gold comes out of India and China.

And recently, as most of you know, there were 3 firms that were picked by the CSRC to begin the process of trading directly from the mainland. That's the reason why we have significant activity outside of the U.S., and it's beyond India and China. And India and China are just serving as an example -- as examples, because we spend a lot of time there in developing both of these marketplaces particularly in China.

Now in terms of how we're doing what we are actually doing, you do need staff. We have all these relationships around the world as some of our guys have talked about a short while ago. In terms of the headcount that support our activities around the world, in 1990, we had 115 people outside of the U.S. As we stand here now, we have about 210. Now each of these alliances that we have around the world take into account, the state of play in the country or the exchange that we're trying to deal with.

Take the Bursa Malaysia, for example. In the Bursa Malaysia, you have a tiny exchange that actually trades a benchmark. It trades a global benchmark. On the cash side, palm oil is consumed much more than soy oil is. On the derivative side, soy oil trades 10x more than palm oil does, so the opportunity set is actually quite large there.

And what we had was a localized distribution but once they made up their mind to have a global distribution, they signed a deal with CME. And I think as recently as 1.5 weeks ago, they announced record volumes in the 31-year history of the exchange. And if you remember, before we merged with the New York Mercantile Exchange, we had similar results there too.

As another example. If you look at the National Stock Exchange of India, here, you have a very large country with a very large client base. The issue there is the clients can't trade outside of India. So we do need to give them the exposure. We do need to get involved because change is being done in India. And the question for us is how do we expose Indian nationals to the products of CME group and cross-licensing is one such approach. And we have tailored our approach depending on the country that they are trying to deal with. All the while, exposing our products to a new client base. All adding a benchmark product to the Globex matching engine. It doesn't matter whether their benchmark trades at CME group or whether it clears at CME Group. It does matter that it does trade on the Globex engine and it makes the Globex engine more attractive to our global client base.

Now with respect to driving international progress there, again, 3 areas that we want to talk about. What we are doing in the major financial centers in Asia and Europe. We'll talk about that in a short while. What we're doing on the commodity side, in the product development side and the client development side. And finally, the work that we are doing to get into what have been, up to this point in time, semi-open markets or even completely closed ones.

In terms of our presence in the major financial centers, we launched CME Clearing Europe in May. There's been activity every single day. We actually had a very large August and September in comparison to what we were doing on the OTC side here in the States. But the volume, up to this point in time has been small. But the important point here is that there has been volume everyday that we have been open.

Where FX and the Metals businesses is a concern, this is a point that Brian made and I think Ken repeated the point and at the introduction, Craig also mentioned this. The people that run our FX business and our Metals business are doing so out of London. I'll show you a chart in a short while that explains the relevance of that.

But I think everybody said it though, it gets us closer to our client base. And building our clearing membership in Hong Kong and Singapore is relevant from an international growth perspective for a couple of reasons here. Most of you know we've had a mutual offset arrangement with the Singapore Exchange since 1984. And since that time, there have been several large banks that are based in the U.S. and large FCMs that are based here in the U.S., that have created subsidiaries in Singapore and started to trade in the exchange and the surrounding exchanges there.

We did not see the same reaction coming from the Singaporean or Asian firms over here with the exception of the firms in Tokyo that I talked about. Not until a couple of years ago, now we are seeing a healthy pipeline of firms that have joined us both from the same Singapore Exchange and also for some of the Chinese firms that are based in Hong Kong. Phillips Securities, for example, is a clearing member of CME, Straits Trading is a clearing member of CME. Recently, in March, Bank of China International has also joined CME as a clearing firm. So it's not just the firms that are regulated by the CSRC, but also those firms that are being regulated by the PBOC, which is the bank commissioners in China.

And with respect to our sales team, 5, 6 years ago, we had a very small sales team in Asia, there may have been 2 folks in Singapore, and maybe one in Tokyo. That has changed, our Singapore office now has a staff of 32 guys. And it has really helped us with respect to both the education and the sales effort. This is largely as a result of the good work that Brian and Ali Hackket and their teams have been doing.

In terms of product development, Ken Vroman talked a little bit about mining crude, he also talked about a big weed [ph] opportunity in the Black Sea. And there's an interesting opportunity that's emerging, not just in iron ore, I have iron ore as an example here because of the changes in the contract pricing structures that are ongoing now with China, it's a very large client. They've been able to, alter is a kind word, they've been able to alter the nature of some of the agreements that they have signed, which has made clearing of these iron ore contracts more attractive to counter parties, including Chinese firms. And we expect this to continue not just in iron ore but beyond that.

I talked about some of the work that we have been doing in these historically closed or semi-open marketplaces. These are 5 examples that we are working through now.

One of the more exciting ones is the work that our team has been doing in China. We spent a lot of time there. Between the senior management of the companies, between Craig, myself, Terry Duffy and some senior members of our Board, we're in China about 12 to 15 times a year, largely building relationships. We began our relationship with China in an earnest fashion about 11 years ago. And I think it's now beginning to be rewarding for us. Some changes are about to occur. We can't speak as to when these things might occur because we don't know. But when they do occur, we do believe that it will be good for CME, given the work that we have done to place ourselves there.

Brazil, we talked about. Japan has the same cross listing -- cross-licensing arrangements as the ones in India. And in South Korea, South Korea is a market that is closed. There is no after hours trading, by doing the deal with KRX, we introduced after hours s trading and we've been working intently with the regulators in the exchange to get DMA improved. In spite of DMA not being approved there, you've seen a recent bump up in the average daily volume of the KRX contract from 10,000 to 20,000.

Finally, how are we doing? Recently, we launched what is known inside of CME, as the Country of Origin Program. What this is, is it allows us with a great level of accuracy to determine where the trades are coming from. Up to this point in time, we had always said -- we have always fought through the information from our hub at about 14% to 20% of our trades are coming from outside of the U.S., but we had no clear indication here as to how correct this was, we knew within a small margin of error, it was right. But now for the first time, I'm going to show you information for the week of September 18. And the reason we're doing this is we just launched this about 1.5 months ago.

And what we found was that 80% of our volume, which represents 25% of the revenue that we make, actually comes from outside of the U.S. And on the market data side, it's more interesting. 44% of our market data revenue actually is from outside of the U.S. So our market data, our information is spread very widely outside of the U.S.

In terms of who's doing what and where, in Europe, for all the non-U.S. trades, what's interesting to note in terms of the opportunity set that only 11% of the European trade is in energy. And in Asia, 13% in metals. And in South America, even though South America is quite small at 1%, there's an opportunity in the Ags. The Brazilians have been very large user of our grain markets for years and years and that continues to represent a significant growth opportunity for us.

And this is an interesting slice of those charts. Here, it tells you that outside of the U.S., about 40% of our metals business comes from outside of the U.S., 1/3 of our FX business comes outside of the U.S., and a healthy mix of the rest also comes from outside of the U.S. It tells you a couple of things that we have our folks in the right place, supporting the metals and the foreign exchange business and there's lots of opportunity in all the asset classes to continue to grow our business around the world.

In terms of rate of growth, if you look at the various time slices, but you have seen these charts in previous presentations and as you might expect in what has been traditionally the European time zone, about 36% of the flow comes from Europe during the traditional U.S. hours, 83% comes from the States, and what's been known to be the Asian hours, about 25% comes from Asia.

With that, I'm going to stop here and open it up for questions that you might have. And I only want to say one thing, this is only the beginning of the internationalization program that we began some years ago. There's a lot of work left. But the result that we have seen have been entirely very encouraging for us. With that, I'd like to open it up to any questions you might have.

Unknown Analyst -

How concentrated is our International business? So if you look at the top 100 customers in the U.S., what percent of the volume does it represent, vis-a-vis the top 100 internationally?

Phupinder S. Gill

When you talk about the -- how concentrated is our International business?

Unknown Analyst -

Yes.

Phupinder S. Gill

In terms of where it's coming from?

Unknown Analyst -

No, in terms of the top 100 customers, what percent of volume do they represent for you guys?

Unknown Executive

International [indiscernible]

Bryan T. Durkin

It would probably be close to the 20%, I think. I think 20% of the total...

Phupinder S. Gill

It would be 20%. I would imagine that if you look across the board, 20% of total volume comes from outside of the U.S. Your question was among the 100 top customers that CME has, how many of those...

Unknown Analyst -

I just want to know how concentrated it is. You guys have spent a lot of my -- adding a lot of overhead to expand your customer list. So is it an 80-20 rule or -- and how much of an additional opportunity is it from penetration or from new customer growth?

Phupinder S. Gill

I think the significant amount of growth that we have seen internationally has been new clients, and the potential for growth has been an extension of that client base. One of the principal reasons we do any of these alliances around the world is to gain access to a client base that we otherwise would not have access to. So you're working through intermediaries that are belonging to some of the exchanges and bringing them on board. So the growth that you have seen in the last, I would say, 18 to 24 months had been very specifically because of the expansion of the sales force that we have had both in Asia and Europe, combined with the change in focus on the sales side. So that's driven a lot of the volume that we have had. But with respect to the top 100 clients of the CME and how many of those top 100 clients are trading outside of the U.S., I don't have that answer.

Alice Hackett

I would see the 80-20 rule prevails. I mean, the extension of the products, the penetration of the current customer base, and the current customer base doesn't look like it used to, right? If you're a U.S.-based customer, you've expanded internationally. We see some of our largest customers actually expanding geographically and as they've expanded geographically and their office is located in different locations, we've been able to capitalize on their growth. So the 80-20 rule.

John C. Peschier

I would add just one other part of that, and that is if you look at the 25% of revenue that's almost $600 million, $700 million of revenues. So the people that we referenced in sizing that relative to what we're starting to see, we think, is fairly attractive investment.

Unknown Analyst -

Just following on the customer base, the growth you're seeing International, do you have any color in terms of which type of customers are driving it, whether it's local financial institutions, commercials, prop trading firms, any color on who's driving the growth on -- in the different regions?

Phupinder S. Gill

I don't know...

Bryan T. Durkin

I'll take that. We're really seeing it across all of the client segments quite frankly. Particularly in the European timezone, we're definitely seeing strong takeup on the proprietary side, as well as the asset management side of the business. And additionally, for those banks that haven't traditionally looked to our products, we're seeing some growth particularly in the area of second-tier banks. With respect to Asia, I think the concentration or the dispersion of business has been largely with our intermediaries as well as our corporates. Definitely, we're seeing a higher takeup from those segments.

Phupinder S. Gill

The intermediary sales in Asia are driven mostly by their client base, which tends to be small institutions. The opportunities set by the intermediaries in China, in Asia, excuse me, our concern is on the retail side. So what you're seeing coming into us is at the highest rate, but not tapped into the retail market yet.

Unknown Analyst -

When I think about the international opportunity, I really see 2 different sides to that. There's the inbound and the outbound where customers are accessing the products of your partners. Clearly, you're more excited about the inbound opportunity as you want to see that international volume migrate into CME products, but where does the breakdown sit today? Would you say of inbound volume versus outbound volume?

Phupinder S. Gill

In terms of other routing with places like BM&F?

Unknown Analyst -

Correct.

Phupinder S. Gill

I'll take the Bursa Malaysia. Where Bursa Malaysia is concerned, the large portion of the volume that is coming from the hub in KL is coming to Bursa Malaysia, and the introductory stage is now on. We've had 5 FCMs that have been trained by us, by our sales staff to begin to start to sell to their client base. In terms of the statistics of trades coming in from Brazil, Bryan?

Bryan T. Durkin

With respect to Brazil, we're seeing nice 2-way flow on both ends. I think originally, when we entered into our order routing arrangement, we were seeing folks setting up shop and giving them access to the Brazilian markets. However, we have intensified our efforts with respect to our business development and our sales personnel in the South American region, and particularly leveraging our partnership with the BMN&FBOVESPA. And we are the recipient of nice flows coming in to our product base as well, particularly as it pertains to our equity indices and our agricultural products. We're going to continue to intensify our efforts in that regard, because we definitely see the interest and the need to access our markets. With respect to Korea, it's also opened up doors for us in the context of providing trade matching services to them overnight. It did give us a segue into the local FCMs there to increase our exposure from a cross asset selling perspective where, as Gill alluded to, we're working very hard to open up the access for -- to meet the demand to be able to access our markets directly.

Phupinder S. Gill

The vast majority of the volume coming from Korea comes to CME Group, the flow, because it's after ours.

Unknown Analyst -

In just looking at Slide 63 here where you show where there might be less penetration within given geographies for various products. I was wondering if you guys have a sense if that's occurring because those asset classes are traded less frequently in those areas? Or if it's because you have greater competition in those areas and people are doing more, let's say, metals in Asia through other channels or if it's just underpenetration in that asset class, in general?

Phupinder S. Gill

I think if you look at the asset classes and what you're seeing here with very few exceptions, these have been the traditional uses of our markets because there have been benchmarks. And what you have seen here in terms of the opportunity sets are places where we can actually grow the markets a lot more than we have up to this point in time, there are alternatives. If I look at Asia and I look at the 13% penetration that we have here, you can think about the alternatives that do exist and not exchange-based alternatives that are viable right now in Asia, but the OTC market in Asia seems to be where they are at. So if you think about how can we grow the marketplace here, the reorganization that we just did that we are organizing ourselves, both by DLMs, as well as by the sales, by the client types. You're going to see the penetration increase tremendously here in terms of the opportunities there. And that's what we are seeing here. Is that right?

Unknown Executive

Yes.

Alice Hackett

That's the use of our global benchmarks in those regions is certainly indicative of these numbers as well. And if you just think about who's holding right the underlying treasury debt, it's primarily Asia and Europe. So we would expect those interest rate numbers to be relatively high in those regions, and as Gill pointed out, doing a lot of investing in terms of new products and also increasing liquidity 24/7, so that we can see those other numbers increase those levels.

Unknown Analyst -

Just got a couple of questions, one for the 16% of the volume coming out of EMEA, what proportion of that is from the U.K.? And then secondarily, if you could give us an update on developing market makers for the sovereign yield products in Europe?

Phupinder S. Gill

In terms of where the vast majority of that 16% is coming from, I would say a very healthy chunk of it is coming out from our London hub. And the breakdown specific right now I don't have, but I would say, at least 60% of that volume comes from the London hub. And the second question, again, sorry?

Unknown Analyst -

With the developing or the development of the sovereign yield spread products in Europe, and if you could give us an update on the status of the market makers involved in that product, maybe in comparing it with your LIBOR [ph] products that you're just starting up?

Alice Hackett

Sure. I think the introduction of the Sovies in May kind of came in an opportune market time. And so we've been actively working to recruit additional market makers into that product. We got some wonderful feedback on the way about -- this is really a very unique design that you guys are offering up. But obviously in order for us to use it, we need deeper liquidity. And so we've had a number of market makers that we've been working with over the last few weeks that have been in testing. We've seen a little more volume kind of as they tested their systems over the last couple of weeks. And so I think as Europe hopefully settles down, we will feel increased interest in that product. And certainly, getting liquidity there is our first objective.

John C. Peschier

Okay, thank you very much. Thank you, Gill. We're going to switch now to Jamie Parisi, our CFO, who's going to come up and talk a little bit about the financials.

James E. Parisi

All set. All right, good afternoon, everyone. Before I jump into a quick financial review, and I stress the word "quick" given the time of day, I'd like to personally thank everybody for taking the time to travel out here. And for those of you that have signed to the webcast, thank you for spending time with management here today to hear what we think is a very bright future for CME Group.

Hopefully, as my colleagues have come up here, you've noticed that there's a very deep, deep level of industry expertise and experience represented there. But let me tell you that it also permeates down throughout the organization. Along with this experience comes a long-term focus. So we have managed through business cycles before, innovating products, platforms, services that sometimes take years to get traction, while delivering solid long-term growth and value creation.

So let's take a look at how we've performed through the most recent business cycle. And for this chart, we're starting in 2006. We decided to start there, because it was the first full year prior to our major consolidation efforts that we undertook in '08 and '07 and it's also precrisis. We're also putting everything on a per-share basis here. So that way we can control for the major acquisitions of NYMEX and CBOT.

And then lastly, the revenue number that you see on here for 2011 is just simply an annualized 2011 number. It's not meant to be guidance. It's just the methodology we're following for this chart. So working down from top to bottom, you can see our revenue, our operating income and our expense on a per-share basis over a 5-year period. And what strikes me when I look at this chart is that during this 5-year period, we experienced probably the worst financial crisis that anybody in this room experienced in their professional lives, and yet CME Group was able to deliver 10% growth on the revenues for each year throughout this, on average, through this period.

Likewise, we continued throughout the period to invest in new growth opportunities for ourselves. And as a result, our expenses grew at 7%. So when you take that revenue growth and that expense growth and combine it, and our operating incomes grew on average during this period 12%, and our operating margins expanded by about 6 percentage points. So that's a little bit of backward-looking information. And I know you guys are always asking us about what's in front of us. So what I want to tell you is that we are very focused on beating these metrics going forward.

In fact, on the revenue side, we're going to strive to grow the business at a greater than 10% level. And that's not on a revenue-per-share basis but on an overall revenue basis. Now on any given year, we may fluctuate around that, as you've seen historically, but we're always going to be striving for that above 10% growth. We just announced -- and some of the things that we're doing for that to set ourselves up well for that for 2012, we just announced last Friday an increase in our market data pricing above 15%. That will add about $20 million to $25 million of additional revenue in 2012.

And as Bryan touched on earlier, we're very excited about how the co-location efforts are sizing up for us. There's a lot of good interest there. And as Bryan mentioned, our guidance on that is about -- has been increased to $40 million to $45 million for the coming years. So that's an increased range from the $30 million to $40 million range that we previously noted.

When you look at our co- location project as an example, it is a good example of our long-term focus. It's an investment that we began making several years ago in hopes of generating that -- answering that customer need and generating that revenue, and we're about to see the fruits of those efforts starting in early 2012.

While we continue to invest in our capabilities for the long run and new initiatives and whatnot, we are targeting expense growth of not to exceed 5% a year for the coming years. If you do the math on all this guidance, if you look at the revenue growth, even if you took the lowest revenue growth that we've got up here of 10% and you combine it with that 5%, you would see that our operating margins would expand by about 1% or more each year.

So I think some of those reports of the demise of our operating leverage were a little bit premature, as operating leverage is alive and well in the CME business model. When we think about this operating leverage, when we combine it with the volumes that get pumped through our system, it does generate a lot of cash for CME Group.

Now obviously, the next question is what are we going to do with all that cash? Well, we've been investing in growth opportunities. We'll continue to do that. We'll look for smaller capability-enhancing acquisitions, as we've done all along, filling gaps where we need to. But even with all that, we still generate excess cash. And we've said all along, we're going to return it to our shareholders in the form of dividends and buybacks.

And if you look on this chart, over this course of this year, so far, we returned about $0.5 billion of cash to our shareholders, and that's one aspect of it. The other thing to keep in mind is this was a year where we said we're going to bring our debt down to a 1x debt-to-EBITDA level. So earlier in this year, we paid $420 million of debt balance. So when you think about the stakeholders and our capital structure, we've paid out over $1 billion of cash this year in that regard.

With respect to stock repurchases in the third quarter, we purchased 590,000 shares, bringing the total share count that we've taken out since the authorization in May to about 800,000 shares. And I said there's just a few slides, and we're in the home stretch here. And this is my last slide and I think the last slide that you'll probably see in today's presentation, but it's an important one.

We are so transparent with the key volume that drives our financials, our average daily volume metric, that it's easy to get caught up in daily, weekly, monthly, quarterly fluctuations in that. So what we try to do here is to put it into more relevant longer-term perspective and put it in the form of rolling 4 quarter volumes.

And then you can see here that we, prior to the recession in '08, '09, we were growing at a healthy clip. We took a hit in '08 and '09, and we're growing again at a healthy clip apparently. Now as this growth is turning -- is translating into increasing margins, if we look in the current year through the first half of this year, our operating margins are about 63%. And that compares favorably to the trough of the recession there. We were at about 60% margins, and the peak that we had prior to that for a full year was in '08 where we hit about 62% margins.

So we're growing fairly well out of the recession. While our markets like most every other company worldwide felt the sting of the economic dislocation, in '08 and '09, we are back on track and are delivering growth. And I believe we have a bright future. We still have a lot of opportunity to penetrate the growing domestic customer base and the global customer base that Bryan and Gill talked about earlier. We also are working to continually improve the customer experience at CME through enhanced technology and clearing offerings as Laurent and Kim and Bryan talked about earlier.

In addition to all of these efforts that we're taking to grow the business going forward, we stand ready to benefit due to the -- our best-in-class product and customer diversity, as the macroeconomic environment advances in the coming years. In short, there are many shareholder value-creation opportunities in front of CME Group that we are focused on and that we will deliver on for both the short and the long term. And with that, we're going to just open it up for questions across the board, not just necessarily on the financials.

Unknown Analyst -

Jamie, thanks for the presentation. I don't know if you can go back to that prior slide for a second, but it looks like that increase that we're seeing now looks very similar to the '07 increase. Can you talk about the potential for sort of a derisking on your volumes?

James E. Parisi

I can touch on that and if any of my colleagues want to jump in. I think if you look at the environment today it's a lot different, right? Back in '07, you had a lot of leverage on the books at major market participants here in the U.S., in particular. And you've seen a lot of that come off over the course of this crisis. And during that '07, '08 time period, you also saw our open interest declining somewhat in there. And now you've seen over this past year a nice steady increase in the open interest, notwithstanding the recent decrease just around the world.

Unknown Analyst -

Jamie, I think on the last conference call, you said that you're going share some details on cost efficiency measures following like an annual budget review in the fall, and I don't know if that's happened yet. But I don't know if that 5% or less expense guidance was kind of in line with that budgeting process.

James E. Parisi

Yes, we've started the budget process. We're not completed with it yet, but the 5% is certainly in line with our goals for that process. And we'll fill you in more as -- when that process is complete on our fourth quarter earnings call.

Unknown Analyst -

Yes. Can you help us on the -- the product that you're -- the OTC product that you're going to clear as a result of Dodd-Frank, any information you could give us on sort of how we should think about revenue per contract that might be for a clearing-only function. And then if you look out 18 months and think about the prospect of some of that business becoming an OTC-cleared-only product, some of that business actually moving to your products, because of some of the things we hear on the panel with capital efficiency and counterparty risk. Do you think that, that business moving from OTC to cleared is a bigger opportunity than just clearing what will be left in OTC? And just trying to get some order of magnitude and some information around that opportunity.

Unknown Executive

Jamie, would you like to take that?

James E. Parisi

Sure. As we look at the OTC products, we haven't sized the revenue opportunity around that publicly yet. We're still working on that. There's still a lot of regulation that needs to be settled before we can get to a good number there. But as we've said all along, it's likely somewhat of a lower-margin business that our existing business, only because we're working with partners in here and we're likely to share some of the economics around it. I do think that there is a good opportunity to drive more volumes onto exchanges you've heard from everybody here today, and it's going to depend on what asset class it's in, in terms of what the revenue uptake on that will be. But I would anticipate that as you're seeing those volumes come to the exchange, it will at least be at the average rates that you're seeing for each of the asset classes today, if not somewhat higher because you're going to have, perhaps, a higher customer mix in there.

Unknown Analyst -

[indiscernible]

James E. Parisi

I think it's a little early to say. I don't know if anybody here has a different point of view.

Unknown Executive

Do you want to start?

Phupinder S. Gill

I think if you listen to the clients on the panels this morning, at least one of them was very hopeful or thought that the business would move to the futures, not the least of it. His reason was the lower margin requirement. Now if that is true, and we don't know what's going to be true, if that's true, you can expect some significant growth. I think for a large swath of our clients, they would continue to do what LP and Kim said they would do. They would either continue to clear, because they're concerned about the conditions in the world, or they would be preparing to actually clear. But I think a very, very large bunch of these guys are going to start clearing only when it's mandated. And once that occurs, then you would -- the cost issues come into very large play.

Unknown Analyst -

Jamie, just on the financial goals, can you just share any more color you have in terms of how you all get to the 10% plus revenue goal over time? And then on capital management, I mean when does the company get to a spot where we start talking about goals in terms of percentage of net income that goes towards share repurchase or dividend or CapEx and other?

James E. Parisi

On the latter part of the question around the capital structure, I mean, we've been I think pretty clear on the -- our capital structure guiding principles. We've said, "Look, we want to hold about $700 million of cash on the balance sheet." We want to maintain some flexibility, while maintaining a good credit line. We want to maintain that very high investment grade rating, right? So taking all that into account, we're going to return everything that we generate in excess of that, in excess of the small investments in growth that we're talking -- that I mentioned earlier. So it's really a return of anything above that, and we've been I think fairly clear about that. So I think we're at a point now where we are returning that excess capital to the shareholders. And then, I'm sorry, repeat the first part again?

Unknown Analyst -

How do you get to the 10% plus revenue goal over time?

James E. Parisi

Sure. I think as we look at it, you first look historically we've been able to grow the business on a historical basis. It's about 15% a year on average over a very long period of time, a higher percentage more recently. And then when we just look at all the other opportunities in front of us in terms of tapping into those customers that we haven't yet gotten to on a domestic front and then the customer base globally, I think there's a lot of opportunity there for us to grow that revenue as well as developing new product along the way to meet customer needs. So you heard a lot of today from Derek and Bryan and others and Gill, how we're going to generate more customer leads and more business coming through the system, that all comes into that guidance.

Unknown Analyst -

I'm sorry, just one quick clarification on the capital management question. So CapEx has been ranging let's $175 million, $200 million, we take that out everything else goes to the shareholder in terms of share repurchase or dividends, barring strategic acquisitions or something else.

James E. Parisi

I would say that's the general framework. Look, we're going to operate with a long-term view, and it may fluctuate up or down in any given quarter, but that is the view.

Unknown Analyst -

So 2 questions. First, just on the revenue target, if you look at -- I think when you look at the broader financial sector, a lot of the financial firms are starting to cut back. So if we are stuck for the next 3, 5 years, in like a 1% GDP environment, what's the volume outlook or the revenue growth outlook? And then more importantly, just on that 5% expense growth, how much of that is manageable or how much of it is variable that you could take down, if need be? And then the second one would just be on the interest rate products. The uptake on the medium- to long-term products has been pretty significant. In terms of the duration though and the velocity after the uptake takes place, any kind of color on what the velocity will be versus the short-end products?

James E. Parisi

Bryan would you like to touch based on any of the revenue side on the growth [ph] there?

Bryan T. Durkin

Sure. I mean, first of all, with respect to the longer end of the yield curve, nothing is better than getting the affirmation from the users of those products today, which was very heartening to us in terms of what they see as the long-term effects in the efficacy of those products, particularly the Ultra Bond. We've, as Derek indicated, we've I think done a very fastidious job of covering the entire spectrum of the yield curve, and we put in well-working programs to help build liquidity in those products. The last couple of years has been a very strong track record in terms of building on of that liquidity. And so I think what you've seen here is very tactically building in the back end of the euro-dollar complex, as Derek referenced earlier, the activity that's occurring in the front end of that curve. You heard a commentary from very active users of that market that they don't see that going away in the short or medium term. The uncertainty of what's happening with the 0 interest rate program continues to lend itself to volatility in these markets, which has translated into strong user base coming into each of those product sectors. We are seeing a translation of business coming into those markets as a replication of the activity that occurs in the OTC markets. So to your question earlier in terms of what might we expect in terms of traditionally OTC user base coming into the exchange-traded derivatives, we're already the beneficiary of seeing that translation of business occurring today, as folks are moving to manage that risk in a cost effective manner and get the benefit of the central counterparty clearing.

John C. Peschier

I think we have somebody else back, at the back.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Okay. So you talked about the buyback, Jamie, and I think before it was predicated that in recent conference statements as well that there was no big acquisitions in the near view. So was that -- I guess you're reiterating that guidance right now, I guess that will be the first part of that?

James E. Parisi

We haven't changed that guidance.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then what state tax is in -- or what state should we use for the tax, put it that way? What state tax rate? What state? Are we staying in Illinois, so we're moving or doing anything else like that?

Craig Steven Donohue

I'm sorry, what was your question? I was making fun of Howard for a minute? I'm sorry, your question was what state tax?

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Yes.

Craig Steven Donohue

It's hard to draw that conclusion yet. I think we've -- and I've said this publicly, we have worked with several states in order to do what's in the best interest of all of you, the shareholders of this company and that's what we're going to continue to do. We think the outrageous tax liability that we have here in Illinois, the burden is completely inappropriate and the way they account for taxes is not right. So I am working along with the rest of the team here with the governor, the President, the Senate and speaker, along with the mayor, to see if we can rectify that problem. Meanwhile, we have other proposals out from other states that we think will be viable alternatives. But to think that we're going to worry about if someone's kids are in school here, that's going to influence our decision, we're not going to let that happen. And I can't be more clear about this. We have a fiduciary obligation to you as the shareholders, and we're going to do what's right. And we don't have a fiduciary obligation to the city scalper [ph] of the State of Illinois, it's to the people who own the CME Group, and that's what we're going to do.

Unknown Analyst -

So Terry since you spend a lot of time in Washington, can you just update us on your views on the regulatory situation. I mean, specifically, it looks like the CFTC continues to kick this can down and to get alignment with the FSA. So I'd be interested when you think we're actually going to get some final rules, and specifically, what came up today was the capital requirements of the margining and you think when we're going to get some resolution? So that customers can actually compute what their imputed costs will be.

Terrence A. Duffy

Yes. I'll maybe ask Kathleen to comment a little bit more and Craig, but especially on some of the rules and the timing. But I will say that they came out today, where they canceled a congressional hearing, where the congressional hearing was going to be around positionally -- as this is being one aspect of Dodd-Frank. And the reason why they canceled it because the commission assured the members of the committee, including Chairman Levin, that they would go forth with a proposal to vote on position limits by Oct. 18. So we'll see if that happens. They have kicked at that particular issue down the road for a while now. So we'll see how that goes. I don't know how the vote's going to come out on that. We've been working this very diligently because we think there's some rule writing that don't make sense. So hopefully, others will see that, too. I don't know how the rule comes out. As far as -- there's some other things you may or may not have seen recently, there's 2 Republican senators that have now put an amendment onto this bill, as it relates to the Chinese currency and how the American government's trying to force the hand to put a tariff on Chinese goods coming into this country, because they won't let their currency float. They also put an amendment on there to push Dodd-Frank back all of Title VII for another year. So people can never better opportunity to digest it. I don't know how that's going to fare in the U.S. Senate. That's going to be debated all week. So we'll be watching that carefully. Some of the other timing on the rules, Kathleen or Craig may want to comment on.

Kathleen M. Cronin

I'll just say that, as Terry pointed out, the Chairman Gensler has indicated that the position limits rule will likely be coming for a vote on October 18. There's been a couple issues that have been pushed, as various commission meetings have been pushed, including a set of rules relating to clearing obligations, which I believe will include the margin requirements. And so it may be coming at the next meeting. It may not. One thing we've seen is there's a lot of dissention within the commission about what to do. And so they're having difficulty finding consensus on some of these key rules. And so they keep getting pushed later and later, but I think it's likely we'll see something within the next few months on that.

Unknown Analyst -

My question was closely related to the last one, but I guess just on position limits, can you provide a little context on how you're thinking about the physical versus cash-settled ruling with the CFTC and how that impacts your business relative to ICE?

Unknown Executive

[indiscernible] question.

Craig Steven Donohue

Yes, just maybe to level set for everybody. It's worth explaining that the CFTC's current or original proposal is essentially to allow market participants to hold 5x as many positions as the limit in cash-settled futures and cash-settled swaps, that price off of the actual physical delivery, price discovery futures contract. And there's a number of nuances to that. Actually, the proposal initially was that you could hold that level of exposure, if you actually had no positions in the actual physical delivery, price discovery futures contract. Our view has consistently been that, that's wrong, that, that will actually, first of all, encourage current market participants to move away from the primary market and the physical market that most people actually use for price convergence purposes with the cash market. And secondly, our concern has been that it actually will increase the opportunity for manipulation, because obviously, when you have a much larger cash settled swap or futures market that prices off of the physical market, you have the potential to manipulate the physical market in a way that allows you to take profits in the related cash-settled market. There's been, obviously, very good examples of that. Amaranth was certainly one of them. And then more recently the CFTC itself has even brought its own enforcement case with a similar kind of fact pattern. So there's a number of aspects to that. One is this kind of conditionality requirement, which is that you can have that level of exposure during the expiration period, if you have no positions in the physical contract. That, I think is not likely to be sustained during the final rule making process. And then the question then becomes, what's the ratio? We have a sort of unusual situation there in that. If you looked at, and to try to get your question about sort of the competitive effects, in the WTI market where we're the primary market in physical price discovery, ICE Europe has the cash-settled market, which is roughly 24% of the total WTI market. And pursuant to the CFTC's actions and limiting the no-action relief that they granted to allow U.S. investors access to that product, they have the same limit, which is 1:1. So their limit would be the same as the WTI physical contract. In the nat gas market, you may know that they have actually 5x relative to the Henry Hub physical contract. So there's already kind of an anomaly in that when the CFTC approved that, they never published that for comments. So we're working through that process. We've advocated for no conditionality and for 1:1. I don't think that the changes themselves are likely to be that consequential from a competitive perspective in the energy market, because of the dynamics that I just described that have already played out. Certainly if we had a 5:1 or 4:1 kind of ratio in the final rule, that would then certainly create the opportunity for us, since the rule applies to 28 different commodities, many of which we have a dominant franchise in, for us to create and list our own cash-settled futures or cash-settled swaps that would price off of the physical contracts in things like corn and wheat and soybeans and cattle and hogs and other things. So from a business perspective, if that's the way it comes out, it's probably a net positive for us. Notwithstanding that, we've been vigorous in opposing it, because we actually think it does raise fundamental market integrity and manipulation-risk kinds of concerns. So sorry for that detail, but I think it's necessary to try to understand where CME Group really sits on that issue. It's probably good for our business, but we take a long-term view of our business. And as Terry said many times, our whole business is built on credibility and market integrity. And we don't want to see the markets devolve in a way where, for the wrong reasons and for reasons of regulatory arbitrage, people are just migrating toward second-order derivative products like cash-settled swaps and futures that's just priced off of the real market.

John C. Peschier

I think we had a question at the back, and then we'll go up here.

Unknown Analyst -

As the OTC marketing clearing continues to grow, just want to check back in here. Is there any further capital requirements of CME with regards to the clearing house, if you were to start clearing significantly higher notional values? And anything else on the capital side with regards to OTC, if that continues to build, any changes in what you guys are thinking there?

James E. Parisi

With respect to the capital, our capital commitments to the clearinghouse, the $700 million of cash we want to hold on the balance sheet that I mentioned earlier, we've already factored into that, cash that we want to be holding as part of our skin in the game for various of the OTC efforts that we're undertaking. So I think we've taken a pretty conservative approach there and included that, those amounts already in that $700 million. As it looks right now in terms of capital requirements from the regulators, it feels -- it seems, it appears to us that we're in good stead with how we're situated right now. But those rules aren't finalized, and I think that we'll continue to analyze them and comment on them where as needed.

Unknown Analyst -

I just wanted to follow up a little bit on the -- go back to the financials presentation for a second. Just to follow up on Rich's question a little bit. So if again, if you're sticking to sort of your previous guidance of no large sort of acquisitions on the horizon, but thinks more of a smaller kind of bolt-on nature as they come, can you give us a little more color on kind of how you approach this, I mean, what's -- are there some product lines that are better suited than others or that sort of thing or where gaps are, if you will? And I mean, are we generally looking at our preference for cash versus stock? What's your general sort of philosophy with regards to that?

James E. Parisi

So I think I heard a few questions in there. I'd say first on in terms of the bolt-on acquisitions, you've seen us do a few of them already. The most recent one was the Elysian acquisition, which is now rebranded CME Direct. We helped fill in a gap and a functionality for us on the OTC front. So it's that sort of thing that we're talking about. I'm horrible with these multipart questions. The next part was?

Unknown Analyst -

Well, for example, cash versus stock. I mean, you're generating a lot of cash, obviously, and your share stock historically has been...

James E. Parisi

It's a balancing act, right? There's a certain constituencies of our shareholder base, prefer dividend, certain prefer buybacks. We're always analyzing it and you saw us increase our dividend earlier this year. We put that buyback authorization in place this year. So it's an ongoing analysis, and we're going to -- the important thing is, I think, that we're going to be returning this to the shareholders.

Unknown Analyst -

I'm Sorry, and one last thing on that. Where is sort of the dividing line between a smaller acquisition and a big one, so to speak?

James E. Parisi

I'm not going to answer that.

Craig Steven Donohue

The same dividing line between art and pornography. You know it when you see it.

Unknown Analyst -

Jamie, now that you're collecting data on the point of origin, country of origin for trade, does that give you the ability to potentially have more income becoming for the international side and potentially be paying lower than 42% tax rate, separate from the state tax question, but can you be deferring some -- deferring repatriation of some of that income on the international side and potentially lower the tax rate?

James E. Parisi

And so your question's really on the federal tax side and not around being able to identify more of our revenue coming from outside the U.S. It's a component of being able to do that. It's not the only thing you need to be able to do that. If you look at a lot -- what a lot of companies do in our circumstance, they have to migrate some of their, let's call it, means of production, if you will, overseas first. When you do that, you end up creating a tax liability in the originating jurisdictions. So you'd have an upfront tax liability in the U.S., if you did that. So there's a whole analysis that would we need to go through. It's certainly something that we're focused on and working on.

John C. Peschier

We're going to take 2 more questions so, Niamh?

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

If I could, Craig or Jamie, we've heard a lot about the OTC opportunities today, which is quite exciting, and also from the buy side, it's interesting to hear them thinking about switching into futures. But is it still -- should we still think about next year, 2012, as more of a transition year, as people kind of get on board and you figure out the economics rather than kind of a year for some real incremental upside to the bottom line?

James E. Parisi

I'd say absolutely, yes. If you look at what we're doing so far this year. We're starting to show some good early traction. It's still at relatively lower levels compared to the overall market. And we are waiving fees currently. So there's going to be some time there, particularly as the rules get finalized and people get familiar and eventually are required to clear. So there's going to be timing in there, there's going to be some incentives for -- that we'd likely put on to enhance or incent people to put the clearing, put trades in the clearing. So I'd say, yes, we're still in the building phase next year.

Unknown Analyst -

There's been quite a bit of rumblings and consternation lately about the deverticalization of futures clearing in Europe, given the scrutiny of the NYSE and Deutsche Boerse deal. As a management team, could you potentially envision Europe going a different direction from the United states on this issue, and how do you think it could impact your global growth outlook?

Craig Steven Donohue

I'll take that. I mean, first of all, I think out of respect for the process that Deutsche Boerse and New York Stock Exchange and the regulatory and competition authorities are going through right now, I think it would be unfair of us to sort of inject ourselves into that with a lot of commentary. But it remains to be seen yet what the EU will do, and we're obviously paying attention to that. I guess what I would say to maybe try to address your question is that clearly over the last decade, there's been a strong movement toward vertical arrangements in trading and clearing, and certainly not toward horizontal arrangements. I think in the limited instances where you've seen efforts to promote interoperability between and among clearinghouses, they've generally not met with much practical utility and certainly haven't been embraced by market participants. And then thirdly, I would just say that we've always been of the view, and I think correctly so, that while it all sounds great, in the end, it's not clear that there's real end-user customer demand for it. It's not clear that it actually reduces costs. It is clear that it increases operational and cross-border legal regulatory and bankruptcy types of risks, among other things. The U.S. Congress, just as recently as the passage of Dodd-Frank, had the wisdom to acknowledge that interoperability arrangements actually have the potential to dramatically increase systemic risks where you have credit relationships between and among clearinghouses that have very different credit profiles and different operating aspects to them that can actually create a contagion risk that can go from one clearinghouse to the next. And so they actually made it very clear that under no circumstances is a clearinghouse required to accept interoperability arrangements from another clearinghouse for that reason. So there is I think a lot of precedent already. The global markets are -- derivative markets are global. They are primarily or predominantly I should say vertical in terms of how they're structured. The clear direction in the marketplace has been toward vertical. And yet we have more competition than ever before. So it remains to be seen. I don't think we can handicap or predict what European authorities will do. But I think I always look at the fundamentals, and I think the fundamentals speak loudly in favor of allowing vertical and horizontal structure to compete. And I think the market has actually spoken pretty decidedly in favor of vertical structures.

John C. Peschier

Okay. Thank you all for those good questions. We're actually going to turn it over to Terry to make some final remarks.

Terrence A. Duffy

They wrote me some remarks here. So I just threw them away because I'm not very good at that. I'd much rather just talk off the cuff, because that way we never know what's going to come out, which makes it a little more exciting that way.

First, let me say thank you all very, very much for spending a very long day with our management team here at CME Group, and I hope you've come away with a greater appreciation of what we're trying to effectuate as far as what we're doing today and what we want to do in the future.

Obviously, there a lot of familiar faces around here. So this is maybe some of the same old, same old that you're seeing. I would just tell you that we are committed as a group to bring value to each and every one of you and the people that you represent. We are not here to just collect a paycheck and go forward. We are dedicated to this organization, a lot of us have been here for many, many years. I'm a big believer you always leave something better than what you found it. And we're not there yet, we're going to continue to do so.

So I want to let you know you have our ultimate commitment to work as hard as we can to effectuate change as we go forward. One of the things that we've seen historically throughout the futures business, especially the exchange business and its clientele, is maybe some adversity amongst either the buy side and the sell side against the exchangers exchanges versus the sell side or the exchangers versus the buy side.

We are working very, very hard to make sure those relationships are exactly where they need to be. And I think we've made very strong headways, and it's not just because of regulation or what happened in '08 and '09. I think it's because there's a value-added proposition that CME has along with its clients. We understand who our clients are, and we're going to continue to stay focused on them, both on the buy and sell side.

So I think those relationships, they've really come a tremendous distance over the last couple of years. One of the other things I just wanted to touch on a little bit is when we're looking -- someone asked about acquisitions. And we realize that this is your money. And we want to be good stewards of that money. So we are always staying focused on that, and that's one of the reasons why we believe very strongly that we have put a lot of pieces in place over the last couple of years to help grow this business. And we're going to continue to do so. So I want to thank each and every one of you for being here today, and anything we can do as a team, we're always here to help. So thank you for your continued support of CME Group. I hope you enjoyed today.

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Source: CME Group Inc. - Analyst/Investor Day
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