CBOE Holdings' (CBOE) CEO Ed Tilly on Q1 2016 Results - Earnings Call Transcript

| About: CBOE Holdings (CBOE)

CBOE Holdings, Inc. (NASDAQ:CBOE)

Q1 2016 Earnings Conference Call

April 29, 2016, 8:30 ET

Executives

Deb Koopman - VP, IR

Ed Tilly - CEO

Alan Dean - EVP & CFO

Ed Provost - President & COO

Analysts

Rich Repetto - Sandler O'Neill

Alex Kramm - UBS

Brian Bedell - Deutsche Bank

Kyle Voigt - KBW

Andrew Wong - RBC Capital

Chris Harris - Wells Fargo

Operator

Good morning, and welcome to CBOE Holdings First Quarter 2006 Earnings Call. [Operator Instructions]. I would like to turn the conference over to Deb Koopman. Ms. Koopman, please go ahead.

Deb Koopman

Thank you, good morning and thank you for joining us for our first quarter 2016 earnings conference call. On the call today, Ed Tilly, our CEO will provide an update on our strategic initiatives for 2016, then Alan Dean, our Executive Vice President and CFO will review our first quarter financial results. Following their comment, we will open the call to Q&A.

Also joining us for Q&A are Ed Provost, President and COO and John Deters, Chief Strategy Officer and Head of Corporate Initiatives. In addition, I would like to point out this presentation will include the use of several slides. We'll be showing the slides and providing commentary on each, a downloadable copy of the slide presentation is available on the investor relations portion of our website.

As a preliminary note, you should be aware that this presentation contains forward-looking statements which represent our current judgment on what the future may hold and while we believe these judgments are reasonable, these forward future performance, and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements, please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publically update any forward looking statements, whether as a result of new information, future events or otherwise after this conference call.

Now, I would like to turn the call over to Ed Tilley.

Ed Tilly

Thank you, Debbie. Good morning and thank you for joining us today. I'm pleased to report that CBOE holdings began 2016 with a record first quarter and diluted earnings per share and increase in revenue and operating margin. Throughout the quarter, we expanded our proprietary product offering while extending our global customer reach laying the foundation for continued growth in 2016 and beyond.

Our solid first quarter financial results were fueled by the ongoing growth of trading in our proprietary index products. It was the third consecutive quarter in which trading in our proprietary products exceeded 40% of our overall trading volume. Futures and Index options trading rose 17% sequentially and 28% year over year significantly outpacing the year-over-year increase of 3% for multiple listed options traded industry-wide.

Today I'll update progress made in the four point growth strategy we laid out for you at the beginning of the year which is to continue to develop unique products, expand our customer base, leverage strategic alliances and continue to define and the lead the options in volatility space globally

Product innovation including further developing and expanding our current product line is the cornerstone of our growth strategy. CBOE's S&P 500 index, SPX options continue to thrive and grow, after posting a third consecutive year of record growth in 2015, average daily volume in SPX options for the first quarter 2016 rose 15% from both the same period of last year and the previous quarter. The gains were driven largely by strong weekly trading which continues to attract new customers to our SPX marketplace. Building on the growing demand for SPX weekly's trading we launched Wednesday Weekly's on February 23rd. Wednesday expiring weekly's combined with our standard SPX weekly's which feature end of week expirations create additional trading opportunities and enable investors to better target specific expirations.

Wednesday Weekly is also aligned with the Wednesday expiration of VIX Weekly's futures and options creating new trading opportunities and synergies for the growing number of customers who employee both VIX and SPX products. We are pleased with the initial traction seen thus far. Wednesday Weekly's averaged 63,000 contracts daily in March, the products first full month of trading. And over 71,000 contracts through April 22nd,with a single day high of a 123,000 contracts.

Given the appeal of Wednesday Weekly's we plan to seek SEC approval to add Monday Expiring Weekly's which will allow investors to hedge their over the weekend risks. We expect trading growth to continue as we roll out marketing and educational programs, highlighting our new SPX weekly's products. This past quarter CBOE created a series of CBOE S&P 500, Buffer Protect Indexes that are designed to track the performance of an investment strategy combining a 10% downside loss buffer with upside participation capped at a targeted level. Our buffer protect indexes bring a new level of standardization and transparency to popular protection oriented payouts and facilitate the creation of products that allow investors to pre-define their investment outcomes.

CBOE began the [indiscernible] daily values for the Buffer Protect Indexes of April 1st. That's financial group and asset management firm that provides option-based investments through structured protective strategies and innovative technology solutions is the first to license the new indexes. You will recall that earlier this year, CBOE made a majority equity investment in [indiscernible] which now plans to use the buffer protect indexes to create products that are expected to be available through a number of full service broker dealer platforms. We view target outcome investing as an important step democratizing the use of options as it can offer the benefits but substantially reduces the complexity of options for retail and high networth individuals. We recognize that all investors are not the same. Some are attracted to short dated weekly's contracts while others have a time horizon a year or more and favor buy and hold investment solutions.

Our expertise in developing option-based strategy performance benchmark index combined with our partnership with Vest, provides CBOE with a unique advantage point for which to define and leave target outcome investing in the options space.

Turning now to VIX futures and options. Elevated volatility at the start of 2016 drove significant increases in VIX trading in the first quarter. Average daily volume in VIX options trading rose 55% over the first quarter of 2015 and 20% over the prior quarter, average daily volume in VIX future's trading was up 16% year over year and 15% over the previous quarter. Heightened levels of volatility tapered off throughout the quarter eventually falling below historic level, a levels by the quarter's end and into April. In other VIX news, we began overnight dissemination of the VIX index on April 15th. As you know, VIX measures the real time implied volatility of the S&P 500 options. Our implementation of our fully electronic market for SPX options during extended trading hours, that’s 2:00 a.m. to 8:00 p.m. central. Not only provides increased access to SPX trading but also enables us to calculate and disseminate VIX index values in that same period.

We are thrilled to offer market participants the opportunity to view volatility when used breaks overnight through the same lens used in regular U.S. trading hours. We expect that increased access to real time volatility information, coupled with the ability of overseas investors to reference the VIX index during their regular trading hours will drive increased fixed trading in a global marketplace.

Turning now to trading and FTSE Russell Index products, you will recall that CBOE became a sole U.S. provider of major FTSE Russell Index products in 2015 beginning with the Russell 2000 index RUT options in April. In the first quarter of 2016 RUT trading at CBOE was up 5% over the first quarter of 2015 when RUT options were still multi-listed and up 18% from the previous quarter.

On March 29th, we listed options on two additional FTSE Russell Indexes, the FTSE 100 and the FTSE China 50 enabling investors to gain exposure to the largest and most liquid segments of the UK and Chinese equity markets. the new FTSE options add to the growing international dimension of our index options franchise which began with the launch of MSCI products. I should note following sustained marketing and educational efforts, we are encouraged to see early trading in our MSCI index products and believe we can build on that growth going forward.

CBOE continues to leverage the marketing and education efficiencies afforded by a comprehensive suite of CBOE index options and volatility products. We plan in 2016 to further leverage our concentrated index option liquidity pool while expanding our global customer base through joint marketing and educational efforts with our index provider partners. Last week, we took a major step forward in broadening the global reach of VIX futures trading by establishing connectivity between CFE our futures exchange and Stellar trading systems, a major independent software vendor in Europe and Asia.

Stellar specializes in providing low latency solutions for high volume traders. Our connectivity with CQG, trading technologies and now Stellar trading connections CFE to the world's top futures execution programs significantly expanding our customer reach and bringing new efficiencies to VIX futures trading globally. We are now planning our Fifth Annual CBOE Risk Management Conference in Europe, RMC Europe, which will take place September 26th through 28th in County Wicklow, Ireland. I'm pleased to say we are preparing to open our CBOE London office, our first business development outpost in July.

In addition, we have engaged a full time CBOE consultant based in Hong Kong in order to have boots on the ground to support our ongoing development efforts in Asia. I will close here by saying we are obviously pleased with our strong first quarter results and while overall volume at April dropped from those first quarter highs, we continue to see increased trading of VIX futures and we accomplished several key strategic objectives.

Regardless of the macro-environment our team remains focused on developing new products, expanding our customer base and leveraging strategic alliances. This disciplined approach positions our company to optimally benefit from trading tailwinds and continue to lay the foundation for future growth when faced with headwinds.

So I will end here by thanking our team for their ongoing commitment to advancing our strategic plan regardless of market conditions. It is their focus that enables CBOE to continue to define and lead the options and volatility space globally and thereby best serve our customers and shareholders over the long-term.

With that I will turn it over to Alan Dean.

Alan Dean

Thanks, Ed. Good morning, everyone. Let me start with an overview of our first quarter results. Strong trading volume in our propriety products for the quarter drove solid first quarter results. Operating revenue came in at $162.3 million, 14% above last year's first quarter. Adjusted operating income was $80.6 million representing an adjusted operating margin of 49.7% up 100 bases points compared with 48.7% in the first quarter of 2015. Adjusted net income allocated to common stockholders was $49.9 million, up 18% versus the first quarter of 2015, resulting in adjusted diluted earnings per share of $0.61, a 22% increase compared with $0.50 per share for the same period last year.

Before I continue, let me point out that our GAAP results reported for the first quarter of 2016 and 2015 include certain unusual items that impact the comparison of our operating performance. These items are detailed in our non-GAAP information provided in the press release and in the appendix of our slide deck. Looking at our results further, starting with operating revenue, we reported increases in transaction fees and exchange services and other fees partially offset by a decrease in other revenue. Higher transaction fees accounted for most of the revenue growth in the quarter up $19.3 million or 20% compared with the first quarter of 2015 resulting from a 19% increase in the average revenue per contract or RPC versus last year's first quarter. Total trading volume was relatively unchanged from 2015's first quarter.

Looking at volume by product category, you can see there are higher RPC propriety products significantly outperformed the lower RPC multiply listed options with trading in our index options up 29% and futures up 16% over last year's first quarter. These increases were offset by lower volume and equity options and options on exchange rate of products which decreased 20% and 5% respectively. Our blended RPC including options and futures increased to $0.405 from $0.34 cents in last year's first quarter. The increase in RPC primarily reflects a favorable shift in the mix of trading volume with our highest RPC products and ex-options [ph] of future contracts accounting for 42.4% of trading in the first quarter up from 33.3% in the same period last year.

The RPC in our options business increased to $0.346 cents compared with $0.284 in the first quarter of 2015 largely due to the favorable mix of trading volume. Furthermore, the RPC for equity options and index options increased 10% and 1% respectively primarily a result of lower volume discounts and incentives. Revenue per contract at CFE, our futures exchange decreased 4% to nearly a $1.64 from a $1.70 in last year's first quarter reflecting the impact of higher rebates linked to volume and account type.

Looking at the sequential change in RPC the blended RPC for the first quarter was down slightly from $0.408 in fourth quarter primarily reflecting higher volume-related discounts and a shift in the mix of trading volume with index options. Engaging RPC going forward keep in mind that the RPC varies by index option and changes in a mix of volume by product traded impacts the average RPC for that category. The revenue contribution from our proprietary products continues to increase as a percentage of our total transaction fees. In the first quarter, proprietary products accounted for 85.8% of our transaction fees up from 81.3%in the first quarter of 2015, and 83.1% in the fourth quarter of 2015.

Looking at some of the other factors influencing operating revenue, exchange services and other fees increased by $1.7 million. This increase was largely due revenue contributed from CBOE Livevol technology services which became part of CBOE Holdings on August 7, 2015. Additionally, other revenue was down by $1.7 million, primarily due to a flow of revenue from fines. In 2015, revenue from fines was higher than normal particularly in the first three quarters of the year which could result in more difficult comparisons and other revenue in future quarters. Revenue from finances pulled with regulatory revenue and is used towards expenses as we incur to support our regulatory functions.

Turning to expenses, this next slide details total adjusted operating expenses of $81.7 million for the quarter and increase of $8.4 million or 11% compared with $73.3 million in last year's first quarter. Operating expenses for the quarter reflect higher costs for royalty fees, compensation and benefits, professional fees and outside services, and depreciation and amortization. Core operating expenses were $50.9 million and increase of $3 million or 6% compared with the first quarter of 2015. This increase primarily reflects higher costs of $1.5 million in compensation and benefits and $1.3 million in professional fees and outside services. The increase in compensation and benefits largely reflects higher incentive-based compensation which in-line with our improved financial performance.

The variance in professional fees and outside services primarily reflects higher costs for legal and other professional services. We’re reaffirming our guidance with core expenses for the year to be in the range of $211 million to $215 million. We do expect core expenses to increase on the back half of this year, as we noted in our previous earnings call under the regulatory services agreement with FINRA, we plan to complete our migration to FINRA's regulatory software in July resulting in an increase in fees for outside services. While this increase is expected to be offset somewhat by lower depreciation and amortization expenses due to the final write-off of certain regulatory software, it does shift some expenses into core in the third and fourth quarters that were previously in depreciation and amortization.

In addition, I want to call your attention to the fact we added accelerated stock-based compensation to our guidance, we expect to recognize it's R rated stock based compensation expense on a quarterly bases totaling $1 million for the full year. This expense is expected to be reported in compensation and benefits and included in our non-GAAP reconciliation as an adjusted financial measure. The accelerated investing of certain equity awards is based on planned participants reaching age and service requirements specified under our long-term incentive plan and award agreements.

Looking at volume based expenses, royalty fees increased by $4.9 million or 35% reflecting the higher trading volume and licensed products during the quarter. The royalty rate per license contract came in at $0.155 this quarter below the $0.161 we saw in the fourth quarter resulting from a slight shift in the mix of products traded.

Looking forward, I would expect the rate per license contract to be somewhere within the range we saw in 2015 of $0.146 and $0.163 depending on the mix of products traded. Before I move off of the P&L I want to comment on other income and expenses which had a favorable variance of $900,000 on an adjusted bases compared to last year's first quarter, this primarily reflects a $700,000 increase in investment income largely resulting from a higher dividend paying out by the Options Clearing Corporation, OCC versus the amount declared in the fourth quarter.

Turning to the balance sheet, we finished the quarter with cash and cash equivalents of $107 million compared to $102 million at the end of 2015. CBOE is a strong cash producing business. In the first quarter we generated net cash flows from operating activities of $97 million versus $78 million in the same period last year, largely driven by the increase in net income. Through March we use more than $19 million to pay dividends and nearly $47 million to repurchase our stock. Capital expenditures for the quarter were $9 million.

Looking out to the end of the year, we’re reaffirming our prior guidance of $47 million to $49 million for capital spending. The majority of our capital spending continues to be systems related particularly with the ongoing development of our new trading platform CBOE Vector. As we told you previously, Vector is planned to be up and running for our futures exchange CFE towards the end of the third quarter and we look forward to continuing to development of Vector for CBOE and C2.

At March 31st, 2016, we had approximately $115.1 million remaining under our existing share repurchase authorizations. As we have said in the past, first and foremost we’re committed to investing in the growth of our business, then we look to return excess cash to shareholders through sustainable dividends and share repurchases. In closing, we are pleased with our solid financial performance for the first quarter and are optimistic about the opportunities we see ahead as we continue to focus on deploying cash generated and value enhancing ways to reward our shareholders.

With that, we thank you for your time and attention this morning. I'll turn it back over to Debbie for instructions on the Q&A portion of our call.

Question-and-Answer Session

Operator

[Operator Instructions]. And the first question comes from Rich Repetto with Sandler O'Neill.

Rich Repetto

I guess the multi-listed market share question again. So you had an uptick in the first quarter due to the pricing adjustments but in April it's ticked down again. I'm just trying to see your outlook on this. It's below 15% of transaction revenue and probably just around 10% or 11% of overall revenue. So do you still regard the multi-listed platform market shares you know a priority for you?

Ed Provost

There is no question on our position on multi-listed options, it is a valuable part of our business. It not only provides the transaction fees as you mentioned but supports the revenue line items, as well. Through the first quarter, we ebbed and flow with the number one position, we’re within tenths of a point of the number one market share position. We feel as though we're optimizing revenue which is key for us. So haven't seen any significant shifts in flow, large block trades which tend to move away from some of the primary markets can account for some shifts in market shares. So all in all, we feel very good about our market share position and multiple listed options and nothing has changed.

Operator

The next question comes from Michael Carrier with Bank of America Merrill Lynch.

Unidentified Analyst

This is actually [indiscernible] on for Mike Carrier. Alan, I guess this is more of a question for you. Given the recent number of acquisitions, can you give us an update on your minimal level of cash that you need and also CBOE had a debt-free balance sheet. Has your philosophy on leverage changed given your M&A and capital management needs? Thanks.

Alan Dean

Good question, I'm glad you asked it. I appreciate the opportunity to update my thinking on cash and leverage. So it really hasn't changed even with the bolt ons that we’ve been acquiring over the last couple of years or so. $50 million to $70 million of cash I think is more than adequate to run our business especially with no leverage, no debt on our balance sheet which then if we needed to, we could go out and borrow money pretty quickly. Regarding taking on debt on our balance sheet, it's a subject that our Board takes up every quarter one we discuss capital allocation and so far our position hasn't changed. We like the flexibility that no leverage, no debt gives us on our balance sheet and so as of today no change in that position either.

Operator

The next question comes from Alex Kramm with UBS.

Alex Kramm

A quick question on the core index franchise, so CME had their earnings maybe you guys watched and they had a very small bullet on their presentation where they pointed out their S&P options market share has improved couple points year-over-year versus you guys. So I know obviously these are not the same products but they are somewhat substitutes. So just a bigger question about what you see out there in that core market of yours. Are you seeing other substitute products take some share? How are you thinking about it? How you’re pricing that business? And what substitute products in your opinion doing better than others, like for example OTC versus obviously [indiscernible] CME products, anything you could add would be great. Thanks.

Ed Tilly

Sure. Alex. We’re very mindful of the cost between the two complexes and whether or not they can be substitute products and as we have always said from a retail perspective one of the substitutes that certainly comes to mind is the most active ETF trade in the industry, so we’re always mindful of the cost advantages or disadvantages offered at CBOE. I think it's important to point out though in the first quarter, where our index complex, I will throw big speeches in there just for fun. It's growing 28% year growing compared to the industry singlest volume growing 3%. So this is a very important growth area for us. We have seen incredible uptake on the product extensions, the most recent and the ones weekly -- really only about a month and a half to two months of training, big uptake, a lot of activity. It really led us to the announcement this morning of launching subject to SEC approval, Monday Weekly, so we’re out there offering answering the demand from our customer side and really don’t see a sustained share loss or drain to the CME, but rather really accommodating much more demand in fine tuning expiration in the listed arena here at CBOE.

Alan Dean

Let me just add, Alex, that one of the things we continue to see in our [indiscernible] product and particularly as a growing use of the product by retail clients. Some of the retail firms are among the largest providers of order player and particularly in the weekly whereas as we had many years ago a product that was absolutely exclusively institutional, we have a very, very rich mix of both retail and institutional. We see that trend continuing.

Ed Tilly

And also I think it's important, Alex, to look at the similarly the way that we look at the ETN growth in volatility trading. So look at the CME growth in options on futures as complementary. If the entire complex of the S&P 500, if that exposure there is more demand globally, that's a good thing for CBOE. So encouraged by any growth we see in the 500, not a new contract in the industry but one that continues to grow year over year when compared to the competitive space that CBOE is in, as well.

Operator

The next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell

If you can comment a little bit, there is obviously new competitor in the market with volatility with the spike index. If you can comment on your sort of sensibility on your VIX franchise versus the other competitive calculations whether you think that will gain traction?

Ed Tilly

Yes. We have heard there's another volatility contract out there but the contract specs are out. So we really don't know what that contract is going to look like. So until there's specs out, it's kind of difficult to comment on. This is not the first challenge to the volatility franchise. I think [indiscernible] here in Chicago has a contract a couple years ago, IFC [ph] announced a volatile contract probably about a year ago. Nothing really in the market and again without the specs for this new contract, I'm not quite sure what to make of it but that said, we have benefitted from the growth of any listed volatility contract in ultimately where the liquidity is in our VIX futures and options. So likely if there's any success on any new contract, whether it's the one you're referring to or one of the others, the traders will have to go little liquidity that is our VIX futures and options. So we'll look to see what the specs look like and kind of make our moves from there.

Operator

The next question comes from Kyle Voigt with KBW.

Kyle Voigt

So it looks like you implemented a frequent trader program in April which gives rebates to end users if they reach certain volume thresholds during given months. Could you help us understand the thought process here? Maybe what it potentially helps you in terms of understanding your client base better and then lastly if you could give us any idea of how many clients have signed up for the program already and if you see any impact on fee capture going forward materially. Thanks.

Ed Provost

You actually summarized it pretty well. It's a program you can set it, it's intended to give end user customers the ability to identify themselves through the broker dealer that they route orders through and thus giving us the ability to directly communicate with market to and educate those end users. Often times we’re asked about whether business is incremental, how many customers that are using our products are new versus ones that have been with us for many, many years.

It's never been an easy question to answer because there is a layer between us and the end user customer that prevents us often from knowing who that is. So this is an attempt on our part to create a financial inducement for customers to provide their information through their broker dealer. It has been launched. We have a good number of clients that have signed up at this point and we will go to the details of those, but we’re very pleased with the extent to which customers have shown an interest in participating and again the primary business objective is to promote directly to those clients the existence of our products, how to use them and are there information that we can garner on how to improve those products. As to the financial implications, I'll let Alan speak to the financials.

Alan Dean

Kyle, I view this as market data that we're purchasing through a discount on our transaction fees. I think it has a value to us, but the good thing is we absolutely control the amount of discount that we give to customers through the acquisition of this market data information. So, no I don't expect that the discount will be material to our capture and our revenue per contract capture and I would think that in total it would be consistent with what you would expect with any company who might purchase market data information about their customers.

Operator

Thank you. And the next question comes from Andrew Wong with RBC Capital.

Andrew Wong

Just following up on VIX futures, volumes are tracking closely in-line with your strong Q1 volumes and we have seen a nice pick up in open interest but trading in VIX related ETP has declined somewhat. So I know the data you’ve on the end user is somewhat limited, but what do you think is driving the futures growth in quarter to-date in Q2 in place of the ETF volumes that have been a big driver in the past?

Ed Tilly

The hedging activity off ETNs tends to fluctuate with redemption in the ETN or the ETFs. So what we have noticed as you know volatility change and the perception of risks change, so then does the volume in ETNs and ETFs. I will point out that the assets are growing in the ETN and ETFs so the assets that are captured in those specific ETNs and ETFs are growing and as a result, those tend to be longer, positions that are held longer in the futures some of the options as opposed to like a day trader that you will see in a VIX futures contract as [indiscernible] increases we see a lot of day trader activity. So that’s carrying the futures along nicely and then the change in in perception of risk over the long term changes the assets under management and ETNs and ETFs which tend to be longer hold positions in both the futures and the options.

Operator

And the next question comes from Chris Harris of Wells Fargo.

Chris Harris

Wondering if you can provide your perspectives on the NASDAQ's acquisitions of ISE, whether you think that's going to lead to a big change in the market? I believe the plan over there is to lower pricing. And so maybe you could speak to how that might potentially affect RBC going forward for your guys?

Ed Tilly

I will let Alan tackle what we think will happen in pricing and really from CBOE's perspective, the value propositions here doesn't change at all. We’ve been completion with each of those medallions, whether they're owned, not part of NASDAQ or NASDAR with their existing medallions we compete with them head-to-head every day, that is a very much fee game and fee competition. But it doesn't change the CBOE value proposition. With 99% of the market share in broad based indexes the efficiency and scale at CBOE doesn't change just because ISE is part of NASDAQ. So from the day to day multi-list space it's still going to be head-to-head in fee game, Alan can speak to that ,but in the overall look at CBOE, the way you look, CBOE where our end users looks at CBOE that deep pool of liquidity in the index complex doesn't change just because ISE now is part of NASDAQ but to the potential fee compression as a result I'm sure Alan has some words.

Alan Dean

Yes, Chris, our outlook on pricing and the multi-risk category really hasn't changed and so notwithstanding this acquisition of NASDAQ by NASDAQ of ISE, I don't think anything has changed in price. This is a very competitive space with 14 exchanges all trading the same products. We here at CBOE, we want every options contract to come here. We are committed to a market leading position in the category. Ed Provost mentioned before about how the market share in multi-list category supports other revenue line items in our P&L.

I don't think this acquisition at all changes the landscape. As a matter of fact, it's possible if I were to buy something, I feel some pressure to make sure I show the results from that investment and so lowering pricing wouldn't be the way to do that. I understand that maybe NASDAQ might have said they're more efficient now and it will be interesting to see what happens. I don't expect anything earth shaking, anything new coming out of this acquisition. The good news is Ross, that now 85% of our transaction fees, over 85% emanates from our propriety and not this multi-list category. So I don't see anything new coming out from this acquisition.

Operator

And the next question from Ken Worthington with JPMorgan.

Unidentified Analyst

It's Amanda out here for Ken. Just touching market share of the multi-listed options again, with the declining market share there, as you mentioned the competitiveness of the space, what is the magnitude of pricing changes you think is necessary here for CBOE to maintain or perhaps even gain share?

Ed Tilly

Amanda, I want to make sure I understand your question correctly. Are you asking how far down pricing can go in a multi-list category? Is that what you're saying?

Unidentified Analyst

Yes. In your experience, with what you have seen so far, what type of pricing adjustments do you see as being necessary there?

Ed Tilly

Well, we're not a price leader, we're a price follower and with the objective of maintaining a market-leading share or near market leading share in the multi-list category. RPC is all over the map on exchanges. Some I have seen some numbers as low as $0.03 per contract and some past tense -- upwards of $0.10 or more cents per contract. And so I expect RPC to continue its load decline going down. I think it will level off somewhere. At some point exchanges will say, they'll need a certain level of revenue to support the costs associated with this business. Is it, $0.04, $0.05 per contract? $0.03, $0.06 somewhere in that range I would expect.

Operator

[Operator Instructions]. And we do have a follow-up question from Brian Bedell with Deutsche Bank.

Brian Bedell

Alan, if you can just talk about the RPC trends on sort of volume basis in the index complex, obviously market index options volumes are down almost like 20% in April versus the first quarter, to what extent -- I know there's a lot of different moving parts within the index options franchise but to what extent should we, if we stay at that level in the second quarter, how do you imagine that would impact the index options RPC?

Ed Tilly

Index options, we averaged $0.72 per contract traded for the first quarter. And looking at it by months, it was relatively consistent. It was $0.73, a little over $0.73 in January, $0.72 in February and a little above $0.70 in March. And it is very difficult to predict, but as a rule of thumb, the big volume amounts you should expect a lower RPC. Now, going forward, I think to use $0.72 what we reported in the first quarter is a pretty - you'll be pretty close in your model for the rest of the year at $0.72. I of course monitor the information that we disseminate about pricing on a monthly basis. They are rolling free month average and that should help guide you. But, no, I don't see any major moves in pricing in index RPC.

Brian Bedell

If I can just ask one follow-up question on the revenue in the fine side. Alan, if you could talk about the calibration of that in other revenue versus expenses, how should we think about that for the second quarter I guess if that remains depressed you know is there an expense offset to that?

Alan Dean

Yes. Well first of all, any revenue that we collect either in fines or in the regulatory revenue category has to goes to support our regulatory efforts. So it can't be used for anything else. We can't make a profit off of those two revenue sources.

Now, it's sort to governing, if we thought fines was going to have a fantastic year, we would lower regulatory revenue in concert with that and vice versa. Fine revenue was extremely difficult to predict and year-over-year our other revenue was down $1.7 million and that was $2 million was fines year over year and we had an increase in licensing fees to go along with that that offset some of that decrease. I think the experience that we saw in fines in the first quarter was extraordinary. I wouldn't expect that to continue the rest of the year and I would say that overtime I would think that we will be closer to -- it will be higher on average.

Brian Bedell

Was there an offset in the first quarter or?

Alan Dean

We take a longer view of the fine revenue, regulatory revenue rather than a month by month adjustment, it's a multi-quarter, even an annual look back to make sure that the revenue that we collect from regulatory sources is adequate given our expenses.

Brian Bedell

Right. That is weaker than we should consider that as a positive to the, in other words, you can reduce expenses if that's tracking weaker this year? Based on that?

Alan Dean

So if total regulatory revenue goes down in 2016, that would indicate that our regulatory expenses are down.

Operator

And next question is also a follow-up from Chris Harris of Wells Fargo.

Chris Harris

Sorry if this is covered already but just to tag along with the index RPC question, any thoughts about the outlook for futures RPC for the remainder of the year?

Alan Dean

Yes, I do. Glad you asked. Our revenue per contract was $1.64 and that was kind of over the map. It was $1.58 in January, $1.63 in February and $1.73 in March. It was low in January. We had the volume. The participation of volatility was a great market for high frequency traders for people coming and trading the market and providing helping to provide markets for that product. So I think that it was extraordinarily low in January and helped bring down the revenue per contract for the quarter at $1.64. So I would guess, again, it depends on volume and market conditions, but I would think that revenue per contract for the futures category would increase for the remainder of the year.

Operator

And we also have a follow-up from Michael Carrier of the Bank of America Merrill Lynch.

Unidentified Analyst

It's Sameer again, Alan this is another one for you, just on your full year expense guidance, you know, given the lighter revenues and like the seasonality of the volumes, how much flex is there in the expense guide given the deals and the investments that you made?

Alan Dean

Yes. There continues to be flex in the expense category and we have a track record of reducing expenses if we see sustained low volume and revenue here at CBOE. But we don't see that right now. We're coming off a fantastic first quarter. April volumes started out kind of slow but it's picking up now and so, no, we're sticking to our guidance and core expenses we expect expenses to pick up a bit later in the year. So no alarm bells going off here as a matter of fact, quite the opposite. We feel good about the quarter and the year as it looks right now.

Operator

Thank you. And that does conclude the question and answer session. So at this time, I would like to return the call to management for any closing comments.

Deb Koopman

We want to thank everybody for their time today and we look forward to talking to you on our next earnings call and we’re available for the rest of the day for any follow-up questions. Thank you.

Operator

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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