CME Group (CME) Phupinder S. Gill on Q4 2015 Results - Earnings Call Transcript

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CME Group, Inc. (NASDAQ:CME)

Q4 2015 Earnings Call

February 05, 2016 8:30 am ET

Executives

John C. Peschier - Managing Director-Investor Relations

Phupinder S. Gill - Chief Executive Officer & Director

John W. Pietrowicz - Chief Financial Officer

Sean Tully - Senior Managing Director-Financial & OTC Products

Kimberly S. Taylor - President-Global Operations, Technology & Risk

Derek L. Sammann - Senior MD-Commodity & Options Products

Bryan T. Durkin - Chief Commercial Officer

Terrence A. Duffy - Executive Chairman & President

Analysts

Kenneth B. Worthington - JPMorgan Securities LLC

Sameer Murukutla - Bank of America Merrill Lynch

Richard H. Repetto - Sandler O'Neill & Partners LP

Alexander Blostein - Goldman Sachs & Co.

Kenneth W. Hill - Barclays Capital, Inc.

Brian B. Bedell - Deutsche Bank Securities, Inc.

Kyle Voigt - Keefe, Bruyette & Woods, Inc.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Christopher M. Harris - Wells Fargo Securities LLC

Rob Rutschow - CLSA Americas LLC

Jonathan Edward Casteleyn - Hedgeye Risk Management LLC (Research)

Andrew Bond - RBC Capital Markets LLC

Operator

Please stand by. We are about to begin. Good day and welcome to the CME Group Fourth Quarter 2015 Earnings Conference Call. I would like to turn the conference over to John Peschier. Please go ahead, sir.

John C. Peschier - Managing Director-Investor Relations

Thank you for joining us this morning. Gill and John will spend a few minutes discussing the results and then we will open up the call for your questions. Terry, Bryan, Derek, Sean and Kim are on the call as well and will participate in the Q&A session.

Before they begin, I'll read the Safe Harbor language. Statements made on this call and in the slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC which are available on our website.

With that, I would like to turn the call over to Gill.

Phupinder S. Gill - Chief Executive Officer & Director

Thank you, Mr. Peschier, and thank you all for joining us. I'm proud of our colleagues' hard work and the resulting performance during a challenging year for the financial services space. In 2015, we delivered product and technology innovation in multiple ways, and we also reduced costs by driving efficiency throughout the organization, while improving our agility.

We set multiple volume and revenue records last year, with particular strength in Energy and Agricultural Products. In terms of volumes, we captured market share during the year across multiple products. In our non-transaction-related business, we had double-digit growth within both market data and our portion of the S&P Dow Index business. Those two line items make up approximately 25% of our pre-tax income. We have consistently expanded our global participation and we had a record level of non-U.S. volume and revenue during the year.

During Q4, non-U.S. trading volume growth outperformed the U.S., which has been a consistent trend. Electronic trading volume from outside the U.S. increased by 7% in 2015. The electronification of our options has been an important part of our success as well. In 2015, our electronic options volume jumped by 15%, to more than 1.4 million contracts a day. Our revenue from electronic options has grown by more than 90% from 2012 to $223 million this past year. During this time, we have invested in system enhancements, new products, and client education, which are driving significant usage of our diverse suite of option products.

A couple of quick points on our financial and commodity products, starting with rates. I'm pleased to say that we were able to expand our total Interest Rate futures, options and swaps revenue to more than $900 million this year, up slightly from the past year. That compares to approximately $600 million in 2012, prior to the swaps clearing mandate. Within fixed income markets, I would be surprised to find others that saw that same upward trend. For example, as many of you know, FICC activity is down fairly significantly during the last three years. We remain actively engaged with our customers, discussing the advantages of liquidity and capital efficiency that we are uniquely positioned to provide.

One recent area of significant success is the launch of our Ultra 10-year Treasury Note futures and options contract this past month. This contract provides hedging and spreading opportunities at the true 10-year point of the Treasury yield curve. This is the exact sweet spot where a lot of activity is clustered. I'm happy to say that this launch has been the most successful start of a new contract in our long history of innovation despite an uncertain and volatile trading environment, which is usually a difficult time for a new product to garner any attention.

With more than 140 market participants providing consistent liquidity across all regions, the Ultra 10-year Treasury Note futures has been trading more than 20,000 contracts a day over the last few weeks. Open interest has increased steadily since the launch and stands at more than 50,000 contracts, demonstrating this contract's relevance to our client base.

Open interest in our actively traded 10-year Treasury Note futures has grown by more than 10% since the Ultra 10-year Treasury Note launch, to almost 3 million contracts, thereby expanding the entire Interest Rate complex.

The world's largest and most complex options market is our Eurodollar Options, and total volume there was up 12% to almost 1 million contracts a day in 2015. The percentage of the volume on Globex increased each quarter during the year, from 14% in Q1, up to 22% in Q4. Our Eurodollar Options average daily volume grew to more than 2.1 million contracts per day in January, and record electronic Eurodollar Options averaged more than 450,000 contracts per day, tripling the volume from a year ago.

Turning to Equities, a couple of items stand out. Within options we saw a 7% volume increase during the year. Also in 2015, we were very pleased to secure long-term rights to the FTSE Russell indexes as a result of our partnership with the LSE.

On January 25, we launched the FTSE Emerging Markets and Europe Developed Markets products and we are looking forward to 2017 when the Russell 2000 launches on CME, and we think there's an opportunity to increase volumes meaningfully.

Finally, last quarter, I mentioned we had launched Basis Trade at Index Close functionality for equity futures and S&P 500 Dividend futures. Since the expansion of this so-called B tick (06:15) to the U.S. major indices in November last year, over 132,000 contracts have been traded. This is the business that has historically been done in a bilateral way of exchange.

In Commodities, we saw record volume in Energy and Agricultural Products. The impact of El Niño and the potential for La Niña, along with the normal dynamics, has resulted in increased usage of our products. We are particularly pleased with our results in Energy. Our total Energy revenue grew by 15% during the year, more than twice as fast as our closest competitor. We have taken share in crude oil futures and options, natural gas futures and options and within coal. During Q4, we were pleased to see the lifting of the 40-year ban on exporting crude outside the U.S. We think this bodes well for the long-term position of our Energy complex and also within the Metals complex, we achieved record levels of large open interest holders and we picked up volume in market share from competing exchanges in gold, copper, and iron ore.

Within our earnings presentation, you'll find a summary slide which highlights many of the initiatives we launched during 2015 to pave the way for continued growth on a global basis. I've gone through some of these on prior calls, so I won't go into any detail this morning.

Turning to 2016, our business has been quite active, as volatility has picked up. We've had a great start to the year, with a new record monthly ADV of 18.2 million in January, and record Energy volume. In addition, total options including electronic options were well above previous levels. Related to options, there are many firms utilizing more complex trading strategies, as the markets have become electronified. We are seeing enhanced liquidity within different strikes and expirations in many products, as many market participants have more data and better tools to manage heightened levels of risk.

There was an insightful report recently from the TAP group (08:33) on this very topic. Exchanges that have invested in meaningful options activity should benefit on a going-forward basis. One more point on January, the volume of outside the U.S. was 26% of the total volume, up from the 24% we averaged during 2015. It is very nice to see the global participation and increased activity throughout the entire day.

It is also worth noting that our open interest grew by 16.5 million contracts or 18% during the month of January, compared to the year-end, and all products have seen higher open interest. This is by far the largest open interest increase we have seen from the prior month.

In January, energy volume from outside of the U.S. grew by more than 80% versus the prior year, while equity volume rose more than 65%. While we don't provide guidance on our volume, we do know our product diversity is unmatched and has been very helpful over the years in different environments. We have had a large number of repeat clients who utilize our markets every day and an expanding number of new clients that we are pursuing with multiple sales campaigns. Clearly, there are diverging opinions related to volatility, global risk and political uncertainty. We don't control these things. Our work is centered on growing the number of tools available to our clients, to help them manage their risk.

With that, I'm going to turn the call over to John to discuss the financials. Thank you.

John W. Pietrowicz - Chief Financial Officer

Thank you, Gill. And good morning, everyone. CME had a solid fourth quarter in an excellent year. The full year revenue increased by 7% while total adjusted expense was down by 1%. During the year, we adjusted operating margins from 58% to 61%. Our adjusted EPS and net income year-over-year growth were both above 14% in 2015.

In Q4 last year, we had the second-highest volume in our history, which made for a tough comparison. I'll start with some revenue details for the fourth quarter. The rate per contract for the fourth quarter was $0.789, up 4% from $0.759 in Q3. Overall, we had an increased proportion of volume from higher-paying non-members during the quarter and also had strong Energy volume, which is one of our higher RPC products. The Energy RPC rebounded to $1.23 per contract, up $0.035 from the prior quarter, due to positive mix shifts within the Energy product line from lower priced Power to higher priced Natural Gas contracts and Energy swaps on ClearPort.

Non-member activity in Energy was also significant during the quarter. Adjusted operating expenses for the fourth quarter were $337 million, exactly where we guided. In terms of head count, we ended the year with 2,530 employees, basically flat relative to the end of the third quarter. Our compensation ratio for the year came in at 16.1%, compared to 17% in 2014. Looking at the non-operating income and expense line, our ownership in the S&P Dow Jones joint venture drove $25 million in net earnings from unconsolidated subsidiaries, which is up 13% from the prior year. We remain pleased with the investment we made in the index business, while also ensuring that we continue to offer the world's leading index futures products on CME.

Turning to taxes, for the full year, we ended at 36.4%, slightly below the 36.6% range we expected. As a result, the effective tax rate for the quarter was 35.9%. And now to the balance sheet. At the end of the fourth quarter, we had $1.87 billion in cash, restricted cash, and marketable securities. In January, we returned almost $1 billion to shareholders in our variable dividend. Earlier this week, we announced a 20% increase in our regular dividend from $0.50 per share to $0.60. Our dividend yield over the last four years has been more than 5%, and we plan to continue to return excess capital to our shareholders.

During the fourth quarter, capital expenditures net of leasehold improvement allowances were $28 million, and for the full year, we came in at $113 million. Our buildout of our New York office space has been completed. We have also made reductions in our data center footprint and we continue to examine opportunities for efficiency there.

Looking ahead to guidance for 2016, let me start with operating expenses. We will continue to be as efficient as possible as we execute on our strategy, with an eye to free up dollars to spend on growth initiatives. Going into 2016, we are providing guidance for total expense, excluding our licensing and other fee agreements. In 2015, our non-license fee-related expenses totaled $1.171 billion. Based on our current plans and business mix, I expect that to increase by a modest 1% to approximately $1.185 billion. As many of you know, the forecasted license fees are driven by your assumptions on Equities, Energy, and other Cleared Swaps volumes. In terms of revenue, as a reminder, we implemented the 2016 transaction fee increase across all six product areas beginning in January. And we expect the transaction fee revenue to increase approximately 2%, assuming the same volume levels and product mix.

In addition, our Market Data clients who previously received a fee waiver are moving from $42.50 per month per screen, to $85 per month per screen, which is the same level our other customers currently pay. We expect our market data revenue to increase by 4% to 5% in 2016.

A couple of additional items. For modeling purposes, at this point, I expect taxes to be at a similar level to 2015, at 36.5%. I expect CapEx to come in between $115 million and $120 million in 2016. In terms of capital expenditures, we continue to execute our Efficiency Program that we started last year to reduce operating expenses to pay for new growth initiatives, reduce the unit cost of critical systems by keeping costs flat while increasing capacity, and by leveraging more Software and Infrastructure as a Service, which tends to flow through expenses rather than capital expenditures.

In summary, I'm very pleased with the hard work this year throughout the company. As you know, operating leverage in our business is significant, and that was clearly evidenced this year. We plan to continue to grow our top line and drive as much revenue to our bottom line as possible and into our healthy, growing dividends stream.

With that, we'd like to open up the call for your questions. Given the number of analysts who cover us, we ask that you limit yourself to one question so we can get to everyone. Please feel free to get back into the queue if you have any further questions. Thank you.

Question-and-Answer Session

Operator

Thank you. We'll take our first question from Ken Worthington of JPMorgan.

Kenneth B. Worthington - JPMorgan Securities LLC

Hi, good morning.

John W. Pietrowicz - Chief Financial Officer

Good morning.

Kenneth B. Worthington - JPMorgan Securities LLC

First, could you talk about the – well, I guess, could you talk about the ongoing transition from swaps to futures in the Rate complex? Maybe where you're seeing evidence of progress, and from here, maybe drivers and catalysts and included in the response, can you talk about portfolio margining? I know Gill mentioned that conversations are still taking place, but are you getting uptake on the portfolio margining side and is that a catalyst? And then also the slide in OTC Clearing revenue. That seems to continue as well. So, swaps to futures. Thanks.

Sean Tully - Senior Managing Director-Financial & OTC Products

Yeah, hi, this is Sean Tully jumping in. Thanks for the question. It's been very exciting over the last few years in terms of what we've seen in terms of clients transitioning from swaps over to futures. If you recall early last year, Greenwich Associates published a study looking at our Interest Rate futures on a total cost analysis basis, relative to the swaps marketplace and saw that our Treasury futures, our Eurodollar Futures, our Deliverable Swap Futures, on a consistent basis offer you the same risk profile or a similar risk profile to interest rate swaps at a far lower cost. So, we have seen since 2012 when the mandate to clearance rate swaps got kicked in, a big increase, for example, in our penetration of the cash Treasury bond market. So Treasury futures back in 2012 traded 66% of the average daily volume of the cash government bond market. Last year, if you look at it, we were at 75%. So very significant increase in terms of our market share, relative to the rest of the marketplace.

In fact, last year, because of the jump in the gap, right, relative to the bond future, if you adjust for that duration jump, our equivalent penetration now of the cash Treasury market is about 78%. So we continue to see progress. We continue to see migration into our Interest Rate marketplace. If you look actually this morning, we are at over 62 million open interest in our Interest Rate futures complex, Interest Rate futures and options, a near-record. So, very exciting from that standpoint.

On the Interest Rate swap side, continued innovation. Continued innovation in that marketplace. There were challenges last year, relative to the CME basis, relative to LCH, but our continued innovation is allowing us to continue to get traction. So last year we saw a huge growth in our Mexican Peso Interest Rate swap clearing and we are now clearing approximately half of that marketplace. And then in December, we had our first trades in Brazilian Reais cleared interest rate swaps. If you get the Mexican Peso, since we are unique in offering that relative to the global marketplace, we are now clearing about half of the global Mexican Peso Interest Rate swap market and it's our third most important currency.

Other exciting developments we're seeing is the TN future. So relative to the increases in regulation, the increases in costs relative to capital requirements, on banks in particular, our TN future, a very exciting new launch, where we're seeing a migration into an exciting new product. So our TN future's the single most successful, actually, launch after the first few weeks in CME (19:01) history relative to ADV, open interest and number of large open interest holders. So already after three weeks, we're seeing 58,000 open interest this morning. We're seeing around 25,000 ADV recently and over 140 participants. So very, very exciting.

The increases that we're seeing in particular are coming from asset managers, hedge funds and corporates. Asset managers last year actually outperformed the rest of our market segments by about 9% in terms of – in terms of their growth in our Interest Rate complex. So we see a continued migration, and we're continuing to innovate on the swaps area. So, with the Mexican Peso and with the BRL, today we offer 19 currencies relative to our competition's 17 currencies. In addition to that, we do look to launch swaptions clearing earlier this year as another unique value proposition to the marketplace, offering unique credit and capital management tools.

Phupinder S. Gill - Chief Executive Officer & Director

Ken, just to sum up what Sean just walked through, if you look at the – and this is in part – part of what I said a short while ago, if you look at the income for the Interest Rate environment, the $600 million three years ago, in a very flat environment, in a continued flat environment, we grew that to $800 million...

Sean Tully - Senior Managing Director-Financial & OTC Products

$900 million. $900 million.

Phupinder S. Gill - Chief Executive Officer & Director

Excuse me, $900 million.

John W. Pietrowicz - Chief Financial Officer

Can I just add something there?

Kenneth B. Worthington - JPMorgan Securities LLC

Thank you very much.

John W. Pietrowicz - Chief Financial Officer

Ken, can I – let me just add something really quick here. You know, we went down a couple million dollars in revenue in swaps clearing, but as you recall, a couple of years ago, several years ago, as we started to introduce clearing of swaps, there's a lot of people that thought that we would (20:41) make anywhere between $500 million and $1 billion doing this business. We went out for it very aggressively to price this in order to build up our core business and to grow the revenue in our core business. And I think what Gill and Sean just walked you through is a couple million dollars down in swaps clearing but multiples of that in our core business. So, I think that strategy really worked to perfection.

Kenneth B. Worthington - JPMorgan Securities LLC

Great. Great. Thank you very much.

Operator

Thank you. We'll take our next question from Michael Carrier of Bank of America Merrill Lynch.

Sameer Murukutla - Bank of America Merrill Lynch

Hey, good morning. This is Sameer Murukutla for Michael Carrier.

John W. Pietrowicz - Chief Financial Officer

Good morning.

Sameer Murukutla - Bank of America Merrill Lynch

Just on the expense guidance, you know, the growth of 1%, it's pretty conservative relative to your peers. Can you give us some details on what your top-line outlook is, given the 1% growth?

John W. Pietrowicz - Chief Financial Officer

Well, as you know, we don't give out guidance on volume, which is the main driver relative to clearing transaction fees, but as we look at it as a management team, we're focused really on two things, managing our expenditures and growing our top-line and expanding our margins. So, you're right. We were expecting a very modest 1% increase in expenses and I think what we're looking at is two drivers, one being our Market Data revenue, which we showed was – where we showed the increase, about 4% to 5%, and then we've also used the lever in terms of pricing in our transaction fees. We provide a tremendous amount of value to our clients. So, we have a 2% increase across the board in our transaction fees. So, when you take a look at the month of January, we've had a record volume for the month of January. We've seen large increases in our options complex. So, the things that we laid out to do, growing internationally, growing our options complex, we've taken the opportunity to adjust prices. So, our top-line is – we're hitting on all levers there.

And on the expense side, just – one of the things that we're doing, like I said, is managing the expenditures very carefully, and we've really focused on efficiency, in light of – in light of security spending, regulatory spending, which we've made investments in over time. And we're continuing to look at our technological infrastructure. Also, we are looking at keeping our compensation relatively flat as well as we kind of manage the – the human capital here too.

Sameer Murukutla - Bank of America Merrill Lynch

Perfect. I appreciate the detail. Thanks for taking my question.

John W. Pietrowicz - Chief Financial Officer

Thanks.

Operator

Thank you. We'll take our next question from Rich Repetto of Sandler O'Neill.

Richard H. Repetto - Sandler O'Neill & Partners LP

Yeah, good morning and congrats on the operating leverage you exhibited in the model this year, over 100% incremental margins.

John W. Pietrowicz - Chief Financial Officer

Thank you.

Richard H. Repetto - Sandler O'Neill & Partners LP

Anyway, my question – Congrats. My question is on clearinghouses. Since I got one question, and so just today, there was a journal article about stress-testing clearinghouses in Europe, and Chairman Massad just talked about tests of recovering resilience here. So, I guess the question is, first, is there anything – do you have a view on what could be coming down the road? And will there be any incremental costs, or capital needed in the clearinghouse in your view?

And then the second part of it is Eurex also got approved as a clearinghouse here in the U.S. You're over there in London or in Europe, do you have any plans to expand the clearing beyond just the FX? I believe it's Metals that you clear right now.

Kimberly S. Taylor - President-Global Operations, Technology & Risk

Hi, Rich, it's Kim. With respect to the stress-testing issue for clearinghouses, we invest significant effort already in various types of stress-testing in the clearinghouse that we perform on a daily basis, including stress-testing of the risk waterfall and the capital that's needed for CME to contribute to that. So, we would not anticipate any impact from minor changes in regulation there.

Phupinder S. Gill - Chief Executive Officer & Director

With respect to the CME exchange in Europe, there are plans to expand beyond the Agricultural products, and the FX products that are there. And I ask Derek to make a comment there.

Derek L. Sammann - Senior MD-Commodity & Options Products

Yeah, I think we've actually been quite successful in building the European utilities business out there. So, if you look at the way – actually we just hit a recent open interest record of about 58,000 contracts, of which about 55,000 is in our European utilities slate of power, gas, and emissions. So, we're very excited we hit a new ADV record in cocoa, which is also clearing, traded on the European exchange, clearing through the European clearinghouse. So, we like the open interest build and the ADV. It's really accessing a brand-new client base for us that extends us into a footprint of users that are not traditional users of Henry Hub, or TI, or products that are part of our core record setting-franchise this year. So, good expansion and looking for more growth in 2016.

Richard H. Repetto - Sandler O'Neill & Partners LP

And I guess the question is – on the first part was, I know there's no incremental costs, but I guess, you're not expecting any major changes then, I guess, in the – in the guidelines for clearinghouses then?

Kimberly S. Taylor - President-Global Operations, Technology & Risk

Correct.

Richard H. Repetto - Sandler O'Neill & Partners LP

Okay. All right. Thank you.

Operator

We'll take our next question from Alex Blostein of Goldman Sachs.

Alexander Blostein - Goldman Sachs & Co.

Great. Good morning, everybody.

John W. Pietrowicz - Chief Financial Officer

Good morning.

Alexander Blostein - Goldman Sachs & Co.

I have a question for you guys on the – question for you on the energy business. How do you expect the lift of the US oil export ban, I guess, to impact the business and, I guess, Gill, I heard you talk a little bit in the prepared remarks that you guys are excited about the opportunity, but maybe provide a little bit more granularity either into specific contracts, strategies, or new users you potentially could target, given this change. Thanks.

Derek L. Sammann - Senior MD-Commodity & Options Products

Yeah, it's Derek. I'll jump in here. We're actually- we've already seen a pretty significant increase in participation in the levels of activity across our entire suite of products.

There was actually an article out this morning on Bloomberg talking about a product that we just launched nine months ago, the LOOP storage contract that reflects exactly the infrastructure shifts and the market dynamic shifts that are now reflective of a waterborne WTI product. So, we've got the participation levels where not only did we hit large open interest holder levels in 2015, we actually saw record levels of Chinese participation and revenue generation. In fact, the greatest revenue generator for us in China in 2015 was our Energies complex, about 82% growth year on year there. So, this is a product that the story is one of a globalizing waterborne product, the market now, I think the first shipment actually left the Gulf Coast last week and headed for Japan.

So, this is something we've been positioning for, for the last 18 months or so. We put ourselves in a position with both the innovative new storage contract with LOOP launched about nine months ago, in addition to our globalizing sales efforts to make sure that wherever there is an interest in energies, we're going to make sure that we are pounding the pavement with our customers.

And finally, on page 12 of the deck that we circulated, you will actually notice that 22% of our energies revenues now come from outside the U.S. That's up from just 18% last year, two years ago. So, we are seeing significant – a significant growth in the participation in January, particularly as a continuation of that trend. So, we're globalizing our footprint. We're expanding our customer base and there's – and that gas piece I'm happy to go into as well. But I think I've got my time used up on this one.

Alexander Blostein - Goldman Sachs & Co.

Got it. All right. Thanks. Thanks for the color there, guys.

John W. Pietrowicz - Chief Financial Officer

Thank you.

Operator

We'll take our next question from Ken Hill of Barclays.

Kenneth W. Hill - Barclays Capital, Inc.

Hi, good morning, everyone.

John W. Pietrowicz - Chief Financial Officer

Good morning, Ken.

Phupinder S. Gill - Chief Executive Officer & Director

Ho.

Kenneth W. Hill - Barclays Capital, Inc.

So, I wanted to ask, you guys have a number of investment companies that are pretty interesting as far as portfolio companies you have on the technology side. One of them is Dwolla, which tends to get the most attention in the digital payment area. I was wondering if you could talk about the investments you're making in clearing and payment infrastructure. And then how you actually see that evolving. So I'm assuming that has a lot of implications for your customers and for you, as well, on the expense side. So, when do you think some of these kind of newer companies might bring that technology to market to impact people in a meaningful way?

John W. Pietrowicz - Chief Financial Officer

Sure, Ken. This is John. We do have a venture group, CME Ventures, that has been investing in technology companies that we see as potentially being important to us in the long run. So, we've been investing in real-time payments. We've been investing in Blockchain. We've been investing in Big Data, computing technology companies, and the like.

So, it's important for us because what we're able to do is by making these investments, we can get a kind of a view of the kind of the future, if you will, and bring that kind of that innovation back into the company. And one of the things that we have a strong culture on is innovation and bringing this knowledge into the company helps us in terms of our long-term planning

Phupinder S. Gill - Chief Executive Officer & Director

Yes, and just to add to what John said, if you look at some of the emerging technologies and the investments that we have made, they translate very neatly into use cases for us. And so we have a bunch of folks running a bunch of use cases across not just the payment and the settlement side but across many aspects of the operations of the firm, with the – with the intention to reduce not just our costs, but the costs of connecting into our client base. And – and in turn, reducing our client's costs.

Kenneth W. Hill - Barclays Capital, Inc.

Okay. Great. Thanks for taking my question.

John W. Pietrowicz - Chief Financial Officer

Thanks, Ken.

Operator

Thank you. We'll go next to Brian Bedell of Deutsche Bank.

Brian B. Bedell - Deutsche Bank Securities, Inc.

Hi. Good morning, folks. Maybe just on the international theme, John, can you talk about what type of RPC trends you see from the non-U.S. users versus the U.S. So, if you are penetrating that market faster, especially on the Energy side increasingly there and also on the Rate side, is that something that can drive material lift to the RPC over and above your forecast?

And then if you could also just comment on the program to incentivize users on brand (31:51), where we stand on that right now?

John W. Pietrowicz - Chief Financial Officer

Sure. When you take a look at the – when you take a look at the RPC from outside the U.S, it tends to be higher than within the U.S., because those clients tend not to be members of the Exchange. They pay a higher rate. So outside the U.S., it's about 37% higher RPC than within the U.S., which – and also when you heard Derek, penetrating outside the U.S. in the Energy space, Energy tends to be one of our higher RPC products. So it's really – it's an important growth area for us, both from a rate per contract, but also from a volume perspective. I'll turn it over to Bryan to comment on the clients overseas.

Bryan T. Durkin - Chief Commercial Officer

Yeah, I think this demonstrates our very targeted campaign approach to selling and it's delivering results across all of our asset classes. We have seen an 81% increase in activity out of the Energy complex, the main drivers have been from Asia and some of the emerging EMEA markets and in particularly, we've seen some nice new business coming from new commercial clients. We've generated about, I think, 88 or close to 90-something commercial clients globally, and a third of that is coming out of international. So you're going to see more and more efforts in that regard in terms of our targeted approach to these clients.

We've been also very heavily intensifying our efforts in our cross-selling. You've heard me talk about that in the past, and we generated new business from new firms, as a result, I think about 500 new firms and that's broken down to 121 asset managers, 88 new commercial clients, and about 300-plus hedge funds. Again, a third of that is coming out of international.

John W. Pietrowicz - Chief Financial Officer

I'll say there, just jumping in, specifically on the Energy side, with Brent particularly we actually rolled back some of the incentives in January, so that's going to help the RPC a little bit. We're continuing to grow the business, about 140,000 ADV, maintaining about 12% market share and most pleasingly, we're actually seeing an increased market share of the Brent CI spread that are traded as a listed spread. We're up to about 40% of that market and on bigger days we're closer to 50%. So RPC help and we're getting into a more diversified client base by adding more Brent participation on the commercial side.

Brian B. Bedell - Deutsche Bank Securities, Inc.

Great. That's super helpful. Thanks so much.

John W. Pietrowicz - Chief Financial Officer

Thanks.

Operator

We'll take our next question from Kyle Voigt of KBW.

Kyle Voigt - Keefe, Bruyette & Woods, Inc.

Hi, good morning. Thanks for taking my question.

John W. Pietrowicz - Chief Financial Officer

Good morning, Kyle.

Kyle Voigt - Keefe, Bruyette & Woods, Inc.

Just a couple for John on the market data guidance. I guess we had expected a bit of a larger uptick in revenues, given the full elimination of the fee waiver this year. Can you help us understand what your assumptions are for subscriber attrition for 2016 as you move to 100% of the full monthly rate, and then do you already have insight into the customer attrition at this point in the year? And then, I guess lastly, is just can you just remind us when the last time when you adjusted monthly prices for the market data terminals and how often you typically review this pricing.

John W. Pietrowicz - Chief Financial Officer

Sure, thanks, Kyle. As I indicated in the prepared remarks, we're expecting a 4% to 5% increase in terms of overall market data revenue. As you know, we're moving – we've moved our – or grandfathered fee waivered clients from $0 to $42.50 and now up to $85, the same as our other customers. With respect to attrition and the like, we don't have that information now as we're going through the first billing cycle for customers at the $85 level.

So our base core, previously the non-grandfathered clients have remained relatively stable. The grandfathered ones, I think we'll have a little bit more insight as we go into billing at the full rate.

Bryan, would you like to comment on it, from what you see from a customer perspective?

Bryan T. Durkin - Chief Commercial Officer

I just feel that we've done a very good job in terms of stabilizing any reduction in the terminals and you can see that over the course of the past year-and-a-half since we put in the elimination of this waiver. We've seen consistent activity and I would say some additional take-up from those at the full rate. And in terms of those that were grandfathered, we've also seen consistent usage from that group, and we're monitoring it closely as John indicated but we're pretty confident that we went through the main consolidation since we eliminated that fee waiver. And we're really focused now on delivering new products and augmenting the data business that we have today.

Kyle Voigt - Keefe, Bruyette & Woods, Inc.

And then, sorry, also on the monthly – how often you typically adjust the monthly prices for market data terminals and how often you review that pricing – or when the last time you reviewed that?

John W. Pietrowicz - Chief Financial Officer

Yes – sorry, Kyle, this is John. We generally have increased prices every two years. And the last time we did it was two years ago.

Kyle Voigt - Keefe, Bruyette & Woods, Inc.

Okay. Thank you.

Operator

We'll take our next question from Patrick O'Shaughnessy of Raymond James.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Hey, good morning and welcome back to the call for Kim.

Kimberly S. Taylor - President-Global Operations, Technology & Risk

Thank you.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

So, it seems like the clearinghouse equivalence rule is kind of coming to a head. I think February 21 is the EMIR deadline in terms of determining whether U.S. clearinghouses are compliant for European banks. What do you see as the resolution of this issue?

Phupinder S. Gill - Chief Executive Officer & Director

Hey, Pat. I'm going to ask the chairman to answer.

Terrence A. Duffy - Executive Chairman & President

Pat, this is Terry Duffy. Thanks, Gill. You know, Pat, we've been working on the equivalence issue for quite some time now, and we've been working with Chairman Tim Massad actually since the day he's been sworn in, into the administration to take the role at the CFTC. This has been a big issue. This has been a long road, working through all the different issues. We feel very confident that we've gotten all the issues resolved. I met with the chairman along with Gill and Kim and a few other folks just a couple days ago, and I assure you that chairman Massad understands the magnitude of the potential market disruption if in fact the U.S. is not deemed equivalent prior to the February 21 frontloading date. So, that being said, it gives us some comfort, but we'd like to see it ahead of time.

That being said, we have seen some recent articles, I think in Risk magazine, where a couple of banks have made comments as to what they may or may not do, come February 21, and then you've heard from some other participants saying that they feel very confident and they're not overly concerned about this.

This is an issue that we are very focused on and we will stay focused on until it's granted. But, again, I think the chairman has recognized that there could be market disruptions and that would be the worst thing that could happen – not only to the U.S. market, but to the European participants as well, if equivalence is not granted to the United States. So, we feel confident that we will get this done.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Thanks.

Operator

Thank you. We'll go next to Chris Harris of Wells Fargo Securities.

Christopher M. Harris - Wells Fargo Securities LLC

Thanks, guys. The S&P Dow Jones venture had a very strong year. I'm wondering if you can expand a little bit on what the drivers of that were. Was it just volumes, strong volumes or was something else going on there? And then anything you guys can share about the outlook would be helpful too.

John W. Pietrowicz - Chief Financial Officer

Sure, this is John. In terms of the JV, we are very pleased with our investment in the – in our joint venture with McGraw-Hill. And the general drivers for the business are assets under management, as well as license fees generated from exchanges that utilize their trademark and IP. So, it would be primarily CME and the CBOE. And, so we end up profiting from activity both from the move from active to passive investing, which is a megatrend in the investing space, as well as trading activity on both from futures and options, as well.

So, we think – we were very bullish on that business. It has characteristics very similar to ours, a lot of leverage in their model. And, I think we're very optimistic in terms of the trends in investing and, the position that the JV has globally.

Operator

Thank you. We'll take our next question from Rob Rutschow of CLSA Americas.

Rob Rutschow - CLSA Americas LLC

Hi. Good morning. Thanks for taking my question.

John W. Pietrowicz - Chief Financial Officer

Good morning, Rob.

Rob Rutschow - CLSA Americas LLC

You give some very helpful commentary on the non-U.S. I had a couple of small follow-ups. You have a lot of new clients, but are those the ones that are driving additional non-U.S. volume or are you seeing better penetration from older non-US clients, and those new clients are kind of a pipeline for additional growth?

And then secondly, are you seeing – are you taking some share from some of the non-U.S. venues that have look-a-like contracts for – especially for some of your commodities products?

Bryan T. Durkin - Chief Commercial Officer

So this is Bryan. I'm going to break it down into three categories. One of the benefits of having the broad swath of Interest Rate products that we represent, we're able to reach the client base, particularly within London. We've brought in some new business, particularly in the shorter end of our yield curve that we just haven't tapped before and that's a strong testament to the product complex that we represent.

Also, I think I alluded to earlier our intensified efforts on cross-selling. So, from existing clients, what that means is going in, working with them through strong rigorous marketing and education programs and helping existing users understand how we can complement their business, for example, with Metals, having them come in and do some activity into our Foreign Currency products to hedge their foreign currency risk. That has been very successful.

So, to be able to back that up, new business from existing customers, what we have seen – existing customers now trading over, I think, it's 1,700 new products that they hadn't tried before. So, it's new business from existing customers, and then it's also new business from new customers, which I outlined – new business from new customers which I outlined earlier.

Again, it's a combination of targeted sales, bringing together our marketing, our strategy and our business line units together to go out there and call that new business.

Rob Rutschow - CLSA Americas LLC

Okay. Thank you.

Operator

Thank you. We'll take our next question from Jonathan Casteleyn of Hedgeye.

Jonathan Edward Casteleyn - Hedgeye Risk Management LLC (Research)

Hi, good morning.

Sean Tully - Senior Managing Director-Financial & OTC Products

Good morning.

Jonathan Edward Casteleyn - Hedgeye Risk Management LLC (Research)

The earnings trajectory – hi, good morning. The earnings trajectory of the exchange is going way up. The stocks multiple is coming down a little bit, though. So, I'm surmising that there's some fears about the trading community. And so I'm just curious if you can talk about the breadth of the user base. And, in 2011, you had a big step up in activity, only to be met with declines in 2012 and 2013. So curious, are there any signs that maybe it's different this time, that the activity levels are more sustainable, just from a breadth standpoint going forward?

Bryan T. Durkin - Chief Commercial Officer

This is Bryan again. I mean, if you look across the client segments, we actually for the past year, year-on-year, saw anywhere from single digit and I would say single-digit from the proprietary segment to double-digit growth, double-digit covering our hedge fund asset management community, as well as our retail. One of the things that we really haven't emphasized here is our very strong targeted focus on building up our retail client base. I think this year alone we opened up close to 50,000 additional accounts in that arena.

Again, the targeted sales approach across all of these asset classes, bringing together Derek and Sean's team, has enabled us to – to penetrate those markets. An interesting one, particularly in the commercial and corporate side of things, seeing about a 8%- close to 10% year on year growth, that's a real positive for us in the context of our overall Interest Rate business

Phupinder S. Gill - Chief Executive Officer & Director

This is Gill. I just want to emphasize one thing that Derek touched upon a short while ago, and this is a testament, again, to the investment that we have made over the years in growing our sales force around the world. And that is – and the people, relationships, and education campaigns that we have run in China. The past two months, as the upheaval in China has intensified, we have seen a very large number of trade, traders that are seeking opportunities outside of China and that's been driving a significant portion of the international growth that Bryan is referring to here.

You're also seeing the open interest for the entire exchange growing significantly, which is another thing that you did not see in the years that you mentioned, right? So these things, together with the product development, that has been done across the board, is what I would say, differentiates us in this environment from the – from the past ones.

Terrence A. Duffy - Executive Chairman & President

And let me just give you my- this is Terry Duffy- my short take on this. Because, participants are interesting. They come and go, and they go from asset class to different asset class. But of one of the things that we've been talking a little bit about this morning, is the growth in the open interest in our options products and I really believe that when you look at options growth, that's what preserves your futures contracts. So that's what continues to attract new futures participants. So, we've done a really good job of bolstering our options products with the growth that we've seen in them, that you've got to realize they don't turn over as much as our futures but what they do is they help the Risk Management product, which is the futures contract and you need – you need to have bigger growth in your options in order to garner more participants in your futures and that's exactly what we're doing. So we expect that mix – always goes up and down, but this is something that I have never seen in my 36-year history to see the options growth outpace the futures growth and that's a great healthy sign for this company.

Jonathan Edward Casteleyn - Hedgeye Risk Management LLC (Research)

Thanks so much for your thoughts.

Operator

Thank you. We'll take our next question from Andrew Bond of RBC Capital Markets.

Andrew Bond - RBC Capital Markets LLC

Thank you. Good morning.

Sean Tully - Senior Managing Director-Financial & OTC Products

Good morning. Andrew.

Andrew Bond - RBC Capital Markets LLC

Hi guys. I wanted to follow up on Ken's question and get your take on the basis spread with LCH. Clearing activity has been a little light to start the year off, with LCH. And I'm wondering if you think it's primarily related to the basis spread. It appears it's come in a bit over the recent weeks, but do you think CME can meaningfully grow clearing activity as the spread settles around these levels and how does it affect the Interest Rate complex as a whole and futurization, I guess?

Sean Tully - Senior Managing Director-Financial & OTC Products

Yes, this is a – excuse me, Sean jumping in again. In terms of the basis, it has been stable in January and it's really, the level of the basis is really kind of irrelevant to clients. What's much more important is the bit offer spread that they get coming in and the bit offer spread they get going out, and the level of rates they get coming in versus the level of rates coming out. So we don't see that as highly significant to the marketplace. One of the things we have seen is a very large increase in the dealer to dealer activity on CME Group, so we see the dealers hedging their positions on CME with each other. So if you look at that, actually, on recent days we've had dealer-to-dealer activity on the platform, as much as 30% of the overall volumes.

One of the things I said before, again, if you look in addition to that, the migration over the futures, I slightly misspoke. In 2012, we actually had 56% penetration of the cash Treasury bond market, 66% in 2013, and then last year, 75%. So we see also a very large migration over into our futures.

Andrew Bond - RBC Capital Markets LLC

Great. Thank you.

John W. Pietrowicz - Chief Financial Officer

Thank you, Andrew.

Operator

Thank you. With no further questions, I'd like to turn the conference back over for any additional or closing remarks.

Phupinder S. Gill - Chief Executive Officer & Director

Thank you all for joining us on this call and we look forward to talking to you in the next quarter. Thank you.

John W. Pietrowicz - Chief Financial Officer

Thank you

Operator

Thank – thank you for your participation. That does conclude today's conference. You may now disconnect.

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