CME Group Inc. (NASDAQ:CME)
Q2 2016 Earnings Conference Call
July 28, 2016 08:30 ET
John Peschier - Managing Director, IR
Phupinder Gill - CEO
John Pietrowicz - CFO
Sean Tully - Senior Managing Director, Financial and OTC Products
Kim Taylor - President, Global Operations, Technology and Risk
Derek Sammann - Senior Managing Director, Commodities and Options products
Bryan Durkin - Chief Commercial Officer
Ken Worthington - JP Morgan
Richard Repetto - Sandler O'Neill
Chris Allen - Buckingham
Michael Carrier - Bank of America Merrill Lynch
Brian Bedell - Deutsche Bank
Warren Gardiner - Evercore
Kyle Voigt - KBW
Rob Rutschow - CLSA
Andrew Bond - RBG Capital Markets
Alex Kramm - UBS
Good day and welcome to the CME Group Second Quarter 2016 Earnings Call. I would like to turn the conference over to John Peschier. Please go ahead, sir.
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, and Sean are on the call as well and will participate in the Q&A session.
Before they begin, I will 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.
Thank you, Mr. Peschier, and thank you all for joining us. It was another solid quarter for us, average daily volume in Q2 rose by 13%, the same close rate as our record first quarter. We had double-digit growth again from each of our bankside client groups, including asset managers, hedge funds, proprietary trading firms, corporate and retail. Despite the recent slowdown in volatility post-Brexit as measured by the VIX, we are trading up 10% compared to last year.
We were pleased to set an open interest record in the second quarter of over 115 million contracts, and we are near peak in our large open interest holding data in several product areas.
This morning, I will start with our secular drivers and then I will shift to a few product highlights. We have consistently expanded our global participation in spite of the challenging macro environment. We saw robust electronic trading activity outside the U.S., with Asia up-trending 1% versus Q2 last year. Latin America rose 16% and Europe rose 12%. Following the Brexit announcement, we had significant activity from outside the U.S., with 5.3 million contracts traded in Europe, and 1.9 million contracts traded from Asia the day after.
In Q2, the electronic volume from outside of the U.S. was 24%. In July, that had jumped to 27%, and the day after Brexit 29% of the activity was outside of the U.S. In Europe, volumes in five of our product areas grew by more than 20%, with the strongest growth in energy and equities, and the year-to-date ABV up 38% and 35%, respectively.
In Asia, Q2 ABV and energy rose by more than 140% and metals volumes jumped more than 80%. Latin America growth was also led by energy. In addition to the country of origin information that we share with you, we also track electronic volume for our 24-hour trading day. In Q2, volume during the Asian rounds grew by almost 40%, from 260,000 contracts per day last year to 360,000 this quarter. During European rounds, from 11:00 PM to 7:00 AM Central Time, volume grew from 750,000 per day to 1.1 million per day, up almost 45%.
Turing to our efforts in options, we remain the leader relative to other global exchanges, with Q2 options rising 15% and electronic options average daily volume rising 23%, to 1.7 million contracts. In Q2, the percentage of options that traded on Globex reached an all-time high, of 57%, up from 51% in Q1. We saw the highest electronic percentage to date in interest rates, energy, and metals. Electronic options reached a record quarterly AVB of 345,000, up 26% from the prior year. Lastly, in June, we are at the highest month ever in total VP options products, with 495,000 contracts per day, up 57%.
Moving on to our commodities portfolio, we had a very aggressive quarter, with energy, eggs and metals each up more than 20% in revenue. We also set new records for large open interest holders in metals and eggs, reaffirming that global customers continue to manage their commodities market risk exposures at CME Group. We track substitute products very closely, and we have out-performed peers in crude futures, crude options, natural gas futures, natural gas options, gold and copper so far in 2016. Energy was particularly strong, with Q2 average yearly volume of 2.3 million contracts, and July has continued to be robust, with volumes up 20%.
In Q2, crude was up 38%, natural gas rose 17%, and refined products increased 18%. The European and Asian activity in energy mentioned earlier highlights our extremely focused attention on our customers globally and the growing relevance of our product set. Growth in energy options has been meaningful, WPI options volume rose more than 20% to more than 180,000 contracts per day, while natural gas options were up almost 20% as well. Within energy options, we have grown from 49% electronic in Q1 to 53% in Q2, and after 57% so far this month, energy ABV in the second quarter was the second highest quarter ever, behind the record first quarter this year.
Our metals business during the quarter was phenomenal. Volume was up 41% and transactional revenues rose 35%. Our precious metals average daily volume was up 43% while copper rose 33% versus a year ago. Options activity was strong, up 32% compared to last year. Metals had the second best quarter ever, and we have outperformed substitute products at other exchanges by a significant amount. We were also able to achieve multiple all-time open interest records in copper, as well as set the all-time record for large open interest orders in both gold and silver in July.
Last but not least, our agricultural business had its highest volume quarter in our history. Ag options rose 26% and futures were 22%. Soybeans led the way, up 49%, while corn soybean meal, and hard-grain winter wheat, each grew more than 20%. It is worth nothing that there are increasing expectations of the likelihood of La Niña. We would expect that to impact both agricultural volumes as well as benefiting our natural gas markets.
Turning to financial products and starting with interest rates, average daily volume in Q2 was up 3% and year-to-date, we are up 7%. Within Europe, our options volume increased 28% during the second quarter. Recently, we have had progress developing liquidity and trading on the screen, with electronic percentage increasing from 23% to 25% from Q1 to Q2. Also, the electronic volume during the U.S. hours when the pits are open continues to increase significantly. Tech front futures continue to be robust as we have seen that expectations move around -- during and after the Brexit vote. Tech front futures averaged more than 142,000 contracts per day in Q2, up almost 140%. In addition, we spoke about the successful launch of the Ultra ten-year product last quarter, and volume has jumped from 35,000 contracts per day to over 60,000, and July is tracking at that same level. We've launched Swaptions clearing in the second quarter, with five approved clearing members now cleared dealer to dealer and cut from the trades.
In addition to Swaptions, our recently launched Brazilian real clearing offering began clearing in June and we are now at 24 participants who have cleared their product thus far. We continue to out-perform other related markets, indicating the proportion of activity shifting to our interest rate futures and options. For example, while we are up 7% year-to-date in interest rate volumes global dealer to client swap of clearing volumes were down 10% in the dollar fixed to floating market. We continue to capture market share in treasuries, which we talked about before, as cash treasuries are down 5%, while our treasury futures are flat. Our open interest rates continues to hit record elevated levels, with up to 50 million contracts in March and June, while rate-related open interest at most of the exchanges peaked several years ago.
Turning to equities, AVB was up 25% in Q2 to almost three million contracts. And as I mentioned, we are seeing great participation from clients around the world. We had solid activity in equity options, which drew 24% during the quarter. We were particularly pleased with the record of more than 440,000 equity options that traded post-Brexit before the U.S. market even opened. In addition, last week we announced the launch of S&P 500 total return index futures and the S&P 500 carry-adjusted total return index futures. These innovative products are intended to mimic the economics of total returns swap in futures form, allowing swap dealers and their clients to avoid higher costs as a result of new swap margin rules that are expected on September 1. This is another example of CME Group's ongoing commitment to meet the changing needs of our clients in an evolving global marketplace. The S&P 500 total return index futures will be available to trade by BTIC which is dated trade index opposing, and will further expand the U.S. major index BTIC offering, which traded a record $32 billion in Valley [ph] during Q2.
Lastly, our FX business was down 7% in Q2, as the trading environment was challenging due to Brexit. So far this year, we have outperformed the two largest FX platforms in terms of trading activity versus last year. Our FX markets performed very well during the post-Brexit day, but the markets were active and we had record British-spun activity, with more than 500,000 contracts traded that day.
Speaking of Brexit, we were very busy after the results came in, particularly before the U.S. hours. We had a record 350 million messages to process and as the slide in our previous presentation shows, we handled it without any issues. This is a tribute to our hard working colleagues, who were ready to handle strong activity when volatility spiked. We have had a tremendous opportunity during the last few months to deeply engage with our global clients as market rules continue to evolve, with uncertainty post-Brexit, and also the upcoming implementation of margin for uncleared swaps. We have been talking to folks about the great regulatory uncertainty and the U.S. regulations and, based on the results of this quarter, it is clear customers on every continent are comfortable with the U.S. regime. This was further solidified by the recognition and permanent QCCP status in Europe that we received in June.
The next potential catalyst for increased exchange trading and swaps clearing is in about five weeks, when the first phase begins to the market requiring daily initial margin and variation margin to the exchange of the bilateral non-centrally cleared portfolios in the U.S. There will be a 10-week margin of risk that will be put in place for uncleared swaps and there will be less netting available, compared to the five-day period for cleared swaps and generally one to two days for futures and options.
Based on many client discussions, we are accelerating internal product development to try to create a solution that can provide relief for participants, including intermediaries and end clients. I mentioned the S&P 500 total return index futures launch prior to September 1. Within our interest rate of FX areas, we are examining multiple new product ideas and looking at product construction. Within FX opportunities we are working on include clearing for OTC FX options and nondeliverable forwards. In addition, within rates, we believe this could be a catalyst for our Swaptions business and we're getting inbound calls from customers about ideas.
Lastly, I mentioned Repo clearing last quarter and we continue to make significant progress on the operational side in terms of technology and clearing and we're working closely with large banks, asset managers and hedge funds. In addition, we are planning to be operationally prepared to launch very soon after regulatory approval.
In summary, we continue to expand our global footprint and product offerings to create opportunities for our clients and our shareholders. We have worked hard to position the Company for success in a world that needs transparent, clear solutions for risk management now more than ever.
With that, I'm going to turn the call over to John to discuss the financials. Thank you.
Thank you, Gill, and good morning, everyone. Our team has been intensely focused on driving global revenue growth, operating our business as efficiently as possible, and returning excess capital to our shareholders in a consistent manner.
As Gill mentioned, we had another excellent quarter. Total revenue was up 11% compared to a very strong quarter in Q2 last year, with four of our six product areas delivering more than 20% revenue growth. Our adjusted expenses, excluding license fees, were flat with the second quarter of last year so almost all of the incremental revenue drop to the operating income line. Our adjusted operating margin extended by 3 percentage points from a year ago, and adjusted EPS was up more than 15% for the second quarter in a row.
This quarter we removed amortization from our adjusted results, and we provided a summary of the impact on prior quarters, both in our earnings, presentation deck, as well as in the income statement print file we post on our website. This change puts the reporting of our adjusted results in line with our U.S. exchange peers.
Our rate per contract for the second quarter was $0.782, up from $0.756 in Q1, due primarily to a positive shift in product mix, which was slightly offset by the member/non-member mix.
Market data revenue was $103 million, up slightly from the prior quarter.
Moving to expenses, excluding license fees and adjustments, our total expense was $270 million, exactly where we were in Q2 2015, which I am pleased to report, along with a solid topline growth. For the first half of the year, on this basis, we were at $534 million, up about one-half of one percent. For the second half, I would expect expenses to be about $548 million. The increase from the first half is based on our heavier spend on customer-related activity in Q4 and the acceleration of product development, which Gill alluded to. We will be lower than our initial guidance at the beginning of the year, which included amortization and excluded license fees by $4 million. Instead of being up 1%, we are guiding to a half percent increase on that basis.
We are ending the quarter with approximately 2,640 employees, up 40 from last quarter, driven primarily by entry level hires and hires in lower-cost locations. Our compensation ratio for Q2 came in at 14.5%, and is down from 17% in Q2 of last year. Looking at the non-operating income and expense line; our ownership in the S&P-Dow Jones joint venture drove more than $27 million in net earnings from unconsolidated subsidiaries, up slightly from Q1.
Turning to investment income, we received $2.6 million in dividends from BVMF [ph]. In addition, our investment returns rated through reinvestment of cash performance bonds and guaranty fund contributions during Q2 decreased sequentially, to $5.2 million, from $7 million in Q1. This is a result of lower average daily investment balances from the prior quarter and our net return during Q2 was 9 basis points. While we have been approved to establish an account with the Fed for house cash, it is not live yet and we continue to work through the operational details.
Turning to taxes. For the quarter, we ended at an adjusted 36.5%, which is where we guided. And now to the balance sheet. At the end of the second quarter, we had $1.34 billion in cash, restricted cash and marketable securities.
During the second quarter, capital expenditures net of leasehold improvement allowances were $20 million, as we continue to leverage more software and infrastructure as a service, which is included in expense. We originally guided to $115 million to $120 million for the year. I'm going to reduce that by $15 million, to $100 million to $105 million based on efficiency efforts and timing.
One final item I want to outline today is the new program we have available for equity members. These firms are required to hold shares in CME Group Class A common stock in addition to seats to receive equity membership privileges. Under the terms of the program, participants may substitute the assignment of their required shares by paying us a monthly subscription.
Currently, there are 370 institutions that are required to hold CME Group Class A common shares as part of their equity membership. A typical equity member's required to hold 20,000 shares per exchange in addition to seats. For most of the equity members, the subscription rate will be $7,500 per month per exchange. This will provide choice for the firms and potentially allow them to free up capital to deploy in other ways. Each of the 370 firms will have full discretion on whether or not to participate in the program. The timing on their evaluation and decision to participate is expected to lead to an orderly share lease over time and should be easily absorbed by the market.
As it is unclear on the participation level, we will update you next quarter on the uptake. At a 50% participation level, we would generate an estimated $20 million of incremental annual revenue and up to $40 million if all equity members switched to the monthly subscription.
In summary, I'm very pleased with the hard work this quarter across the entire business. Our secular growth drivers continue to deliver results, with or without volatility, our efficiency on expenses has been excellent, and since the first of the year, we have returned $1.4 billion in dividends.
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.
Thank you. [Operator Instructions] We'll take our first question from Ken Worthington from JP Morgan. Please go ahead.
Hi, good morning, thank you for taking my question. I'm still very interested in this account for house cash concept. So can you share maybe some of the operational details that you're working through? I can't really tell if they'll be interesting or not, but thinking they may be. And then when would you expect that to go live? This year? Next year? How quickly does that go fully operational?
Hi Ken, it's Kim. The operational details are not very interesting, actually. What we're working with the Fed on the setup for the account. I think we would anticipate that we would have the account active before the end of this year, probably in like a two- to three-month time frame. And right now it's available for house accounts only, and so that would be the amount of cash that we would have available to invest in it potentially.
Okay, great. Thank you very much.
Thank you. We'll take our next question from Rich Repetto from Sandler O'Neill. Please go ahead.
Yes, good morning, Gill. Good morning, John. Thanks, Gill, for the -- you know, you did an extensive product volume and even geographic review of how you're doing, how well you're doing. I guess my question is, do you guys target or -- what new products can actually impact your volume or your revenue, in a year's time frame if you assume -- I know this isn't reality, but if you assume a similar environment, what do you try to expect to get from these new products as a company, as an exchange? And then I guess the follow-up would be -- which are the big ones, which products are most impactful for that?
Rich, I'll start and then ask Derek and Shawn to comment if they want to. I think when you talk about product innovation here, you are always facing the uncertainty if it will be successful or not, but what we have started doing, particularly in the last six to seven years, and they've had a comprehensive plan, and part of that plan is talking to clients on a very broad basis. So in previous calls, we've spoken to you about the number of folks that tune into spend seminars that we put on, and that's an indication to us. And one example is the Ultra 10 ten-year bond that we launched and enthusiasm behind the bond and the corresponding volume that we got since launch has been great. And so we've got a pipeline on both the commodities side and the financial side, and our guys are pretty excited about some of the prospects there, so, I'll tell you, though, if Sean could comment on some of those things and then Mr. Sammann can talk about others.
Sure. In terms of the bottom line -- Gill on that since we were doing 60,000 contracts a day. So you can look at our rates, our PC, which will be available, and see that we're running at currently as several million dollars a year in terms of revenues, in terms of the run rate. If you look at Mexican pesos, so in our interest rate swaps clearing business, we now offer 19 currencies relative to the large competitor offering 17 currencies, so we've got two now unique value propositions in terms of currencies, both the Mexican peso and the Brazilian real. In terms of the Mexican peso, we have 1.5 million a month, is our current run rate. So while it is a small-time fee, it's actually having a significant impact on that business. If you look at the Brazilian real, as Gill mentioned on the call, we're hitting critical mass in the month of June.
To put it into perspective, a launch takes time for the new products to gain traction relative to building a critical mass of participants. In the month of June, we had a $5 billion equivalent total volume cleared. In the month of July -- sorry, that was in the month of May: $5 billion in the month of May. In the month of June, we had $35 billion. The Brazilian real, again, is a unique value proposition relative to our large competitor, it's a larger currency than the Mexican peso, so we do expect eventually to make more on the Brazilian real than we are currently making on the Mexican peso.
We've had big success in our equity products that we launched in November of last year. The dividend futures, which we've spoken about, are running about 1,000 a day; the bigger and more exciting thing there relative to future growth is we've got over 50,000 contracts in open interest. In terms of BTIC, we're trading this on the S&P 500; in particular, we're trading over 5,000 contracts a day.
If you look at new products, we hope that they drive to 3% or so of our topline growth. We have other new products that we're launching with Swaption; as I've said, it takes a while to build critical mass; with the Brazilian real, it took us from August of last year until June of this year to start getting at critical mass. We do expect with U.S. dollar Swaptions to hit critical mass hopefully in fourth quarter and begin to see significant growth starting then.
So we see strong growth across each of our product areas with topline of 3% plus. Derek, do you want to jump in?
Yes, I think it's -- from a product launch perspective, you know, Rich, we try to look at this in terms of either client need, market structure shift, and what is changing in the environment that provides an opportunity for us to provide a service that is not offered by someone out there. Another thing about product development opportunities is where there are global benchmarks that might be in disrepair or broken benchmarks, the client's not able to manage the risk the way they could. Those are market entry opportunities for us.
For example, our move into aluminum 18 months ago was a result of customers not being able to access their structural aluminum, get it out of their warehouses. So the growth in market share and revenue generation in our copper business has been largely helped by our entry in the aluminum market. In fact, Miller Coors announced just last month that they're going to be shifting their price benchmark from their North American aluminum procurement to the CME-based product that we launched 18 months ago.
Looking forward, another area of product opportunity in development is where we can add products to our overall portfolio. So as Gill mentioned, we expect record revenue generation in our agricultural products business. We announced last month that we will be launching European wheat contracts this year, and that's filled out what is already a globally utilized contract with a product that addresses any shortcomings in the current product. So great opportunities there getting into our product portfolio services, making it easier from a capital perspective or a corporation operational aspect perspective for our customers to manage all their risks, that's been our focal point for product development.
Okay, thanks for that 3% time, Sean. I'll get back in queue.
Thank you. We'll take our next question from Chris Allen from Buckingham. Please go ahead.
Good morning, guys. I'm just kind of curious. I see some great strength in agriculture and metals this quarter, and I think, Gill, you alluded to some of them driven by weather. I was trying to also kind of think about moving forward: where the growth is likely to come from here? Does it come from here, from current levels, and there's been some articles about Chinese retail investors getting involved in metals future trading and agricultural future trading. I just wonder -- is there any sense for what is sustainable moving forward, or what's been cyclical, and what gives you confidence maybe to grow from current levels?
Chris, as you pointed out, there's a regional growth starts story here, particularly outside of the U.S. and on the commodities front, it's been particularly strong coming from Asia, in both the energy and metals front.
Yes, I think we're particularly excited about the numbers we've been sharing with you guys about the commodities still current that we're growing in Asia. If you look at the energy revenues regenerated year-to-date, energy revenues is now representing almost 35% of the total revenues we're generating out of China and greater China as a whole. Our business in greater China being Hong Kong, China and Taiwan is up 227%. The metals, that specifically is our second biggest revenue source in the same region, and that's up 61%. So the opportunities that we've got when we own the -- on the metals side, our ability to position ourselves as a global benchmark in region with the sales efforts Brian and his team have been putting forth in region to make sure that we're attracting a customer base with global liquidity by time zone as well. That's how we see the opportunity continues to build international community.
I'll also add that if you look at the importance of the commercial customers to the commodities complex as a whole, we continue to focus on them being a primary driver of our access, because as you address those end user customer needs, that brings the other market participants across the bank, the others don't want to be where the end user customers are. So whether you look at the revenue growth of the franchise as a whole, the record level of large open interest versus the record level of the open interest as well, layered on top of the China growth, it tells a story of globalizing participation in our markets and globalizing access to those global participant bases on the commercial side.
Thank you. We'll take our next question from Michael Carrier from Bank of America Merrill Lynch. Please go ahead.
Just a question on the cash. So if we look at it unsequentially, it seems like -- as much. I know that dividends increase in a year or two. I just wanted to get a sense if there's anything from a timing standpoint, or maybe from the CAPEX standpoint. It just seemed a little bit less than expected.
Sure, Mike. It's not unusual for our cash balance to grow slower in Q2. The primary reason is that we have two tax payments in this quarter, and for this quarter, it was $416 million. And we also have our regular dividend of $202 million that happened this quarter, so it's not unusual for Q2 to be slower on quarter in terms of cash bill. So we have tremendous leverage in our business model and we've been able to return $1.4 billion in dividends year-to-date, so obviously that is a cash impact.
Okay, that makes sense. Thanks.
Thank you. We'll take our next question from Brian Bedell from Deutsche Bank. Please go ahead.
All right, thanks. Just anything you can cover about market data in terms of what the prospect is for some more pricing increases in that for 2017 and then other programs -- and then also the program that you talked about, John: is that revenue included -- would that revenue fall into the market data declines?
Hi, I'll take the market data; this is Brian. First of all, we've been monitoring closely our subscriber base since we implemented the full fare back in January and we're pleased to see we're not seeing any substitute reductions or consolidations in that regard. With that in mind, we've really been focused on developing new opportunities for revenue. One of the areas that we have increased emphasis on is our development of dry data and it's representing a very nice revenue stream for us. So you can expect to see more activities on that end. While we haven't announced any time of price increase in 2017, we will be expecting an increase that will impact certain segments and offerings associated with our market data.
So Brian, in terms of the new subscription plan, the purpose of the program is to provide our members flexibility. So the members either can hold our shares or they can free up those shares and pay us a subscription fee, so this gives our members a choice on how to deploy their capital and ultimately may make it easier for potential new members, especially those international members who may find holding CME shares prohibitive. So it's good for our current members, it's good for our potential new members, and it's good for CME because we will be generating recurring revenue from that payment and it's likely going to show up in our Other revenue line, not necessarily in the Market Data line. And obviously this is all incremental to our bottom line.
And the range is $20 million to $40 million, based on your estimate.
Yes, is about a 50% take-up. It's about $20 million, and if all members chose to do this program it would be $40 million. We don't have a clear line of sight in terms of what uptake will be, so we'll be able to update you next quarter, or as it rolls out.
Okay, great. Thanks very much.
Thank you. We'll take our next question from Warren Gardiner of Evercore. Please go ahead.
Great, thanks. Just going back to the last question on market data; derived data. I was just curious how interested you guys are, or to what extent you kind of explored adding to that business and, organically, just additional analytics or other clues that some of your peers have? Just maybe broaden and maybe improve your overall value added to that offering?
We're certainly open to any opportunities that can augment or enhance the strong and robust business that we have with respect to market data. As I've indicated, there are tools that we have at our disposal right now as we're developing new products internally that we really haven't leveraged to the degree that we believe that we can. Part of that is in the derived data space and developing new products as a result of that. So we're certainly happy to look at any opportunity to map the great robust business that we have today.
Just to add to that, one thing to remember is we do have a data investment in RJV with S&P. So that's an area that is also looking to grow and we're looking at nonorganic opportunities as well. So we're not only participating directly through, as Brian indicated, our data business here, but we'll also be participating with our S&P partners with the joint venture.
All right, great. Thank you.
Thank you. We'll take our next question from Kyle Voigt from KBW. Please go ahead.
Hi, good morning. Thanks for taking my question. I just have a question on pricing. So it looks like you began charging for brand trading in July for non-market makers. Can you give us more color on why you thought it was the right time to make this move? Whether or not you see any material difference in client trading activity since you made the change? And lastly whether there are any plans to end the incentives for market makers in the future? Thank you.
Hi Kyle. I think we've been building our market share in Branson [ph], really building our global participation in Branson. When you build markets you enter where the companies are, already present, you need to answer by providing incentives to make it easier to access and make it not too economically painful. So what we've done over the last probably 24 months or so: we've looked at the traction we've gotten, 10%, 12%, 13%. We now actually wrote out our brand options market as well last quarter. And we're at a point now where we said we think we've got a sustainable participation level across the pie chart as a whole.
Energy's up 25%, we've always said breadth [ph] is an important part of the story. The market is telling us it wants to trade on UTI. And we look at the differential fortunes between what's happening between what happens on the WTI side of the fence where our business is up about 45% to 48% and now breadth is up about 19%. The market's telling you it wants to trade on the WTI side of the ledger. So we've been successful in the commercial side of participation, and we believe at this point we're happy to be able to start to scale back some of those incentives, that liquidity itself is sufficient to maintain participation in the market. So any time market incentives are in place, they're always by nature temporary. If you have a successful value proposition that will hold, once you remove the incentives. And I think the overall performance of franchise speaks to the success and value we're bringing to the commercial participants.
Thank you. We'll take our next question from Rob Rutschow from CLSA. Please go ahead.
Hi, good morning. I believe the other exchanges in the excluded amortization of purchased intangibles argue that they're acquisitive and doing acquisitions as part of their business model. So I'm wondering if the change in the disclosure for you guys is a reflection of the change in your outlook on doing deals, or if it's just a change -- or just a belief that the market's not appropriately accepting the earnings. And if it's the latter, I believe the former CEO said that large deals are very unlikely. I don't believe we've heard Gill say that, so is large scale still very unlikely or are you looking to do some more acquisitions moving forward?
Hi Rob, this is John. Our view on M&A hasn't changed. We will be looking at all potential M&As to create shareholder value and grow in our strategic point of view, so we'll evaluate all opportunities. With regard to why we changed PI amortization, all our other U.S. exchange peers have taken amortization out of their earnings. Bath[ph 39;55] came out last quarter, excluding it, TIVO removed it from their results. We thought it was important to exclude it so the investing community can have an apples-to-apples comparison with the other exchanges.
Okay, thank you.
Thank you. We'll take our next question from Andrew Bond from RBG Capital Markets. Please go ahead.
Thanks, good morning. So when we look at your energy business, there is obviously a lot of positive takeaway that is fundamental and innovation on your part. The gross income that you're now seeing in competition from hedge pack and effect will continues to grow with interest rate lower priced. I'm wondering if you can give us your take on the factor as well from what you're hearing from customers, do you believe they're more likely to becoming more significant direct volumes or pricing generally?
Hi Andrew, it's Derek. I'll take that. I think if you start to look at the franchise as a whole, energy's business up 25%, we're seeing significant growth uptake on the WTI side. You're also seeing significant growth on the electronics side of our business. So when you're coupling that with the huge growth we're seeing in the core franchise we're seeing large open interest order, record levels, were seeing commercial participation and revenues generation from the commercial participants at record levels. We actually find that our business as a whole is beyond just any singular particular product slice. But when we talk about individual views on natgas itself, our natgas franchise year-to-date is up 12% and revenue is actually down 4% to natgas and we'll go to a pre-natgas launch, we are about 65% of the natgas auctions market natgas is about 35. If you look at the rolling 60-day average, we've actually increased our market share since FX was launched, with 68% isis and 20%, and FX is about 12%. So when you actually look at in our two-man race, we were 65% of the market and in the three-man race, we're 67% of the market; that's a bigger market.
So when you talk to our customer, what's important to them is a full range of products and services inside the asset class. So when you think about it at 76% market share, we have in the natgas futures the growing percentage of market share, which we're getting paid by our customers to deliver, on top of this fact that our overall franchise and TI -- I mean, if you talk about the footprint we're generating in China right now: that's what our customers want access to. They want access to global prices, they want access to a promised rate of global participation from the commercial side and the international footprint side, and we're in a process of electronifying the natgas options business because that's what makes you sticky. I want to remind everybody that when you look at the natgas value prop, they said, we're going to do a terrific rate and we're going to do it on a block basis. But you've heard us build markets for 15 years by electronifying them.
So we take our natgas options from 5% in electronics to 25% electronically over the past 18 months. That's why you're seeing this grow outside the market share in revenue generating products like natgas options, and you'll see us continue to push that, with the overall revenue story as well. So our revenue growth is up 21% in energy as a whole, isis revenue growth is up 14% in energy, and natgas is either flat or negative based on the incentives they're paying out.
Thank you. [Operator Instructions] We'll take a follow-up question from Rich Repetto from Sandler O'Neill. Please go ahead.
This is for John. In your CAPEX guidance, I guess $105 million, you've only done $36 million in the first half, so this definitely implies a big ramp in the second half. I just wanted to see where -- what that's targeted at and -- I know there's the treasury refill platform etc., is that a significant component, can we get some more detail on it?
There's just a couple of things to point out as it relates to CAPEX. On a year-over-year basis, CAPEX is down but that's primarily driven by our New York City staff's space buildout after the sale of the ninemax [ph] building. So if you exclude all the real estate, our technology expense for the first quarter is slightly at or higher than the second quarter last year, and about $4 million higher than the first half of last year. So we're continuing to invest in our technology footprint and I think the second half, we are making investments and continue to make investments in our technology platform through guidance we may refer to things like Repo, things like improving our capacity. So if you take a look at our slide -- Slide 8 in our deck, you see that the day after the Brexit vote, we had the highest message traffic in our history and it was -- it did not impact our speed whatsoever. So I think keeping our platform robust and keeping our platform improving with technology and improving its functionality, so that guidance that we'll be investing in in the second half of the year as we continue the trend.
Okay, thank you.
Thank you. We'll take our next question from Alex Kramm from UBS. Please go ahead.
Good morning, everyone. I came on late so I apologize if this was answered already, but I wanted to just touch base on Brexit for a minute but, not so much in terms of the risk here, but wondering if you're thinking about any opportunities coming out of it. I guess the way I would think about it is, you currently are the best house in the neighborhood right now with regulatory certainty in the U.S. whereas in Europe, there might be as lot of changes down the line. So is there an opportunity for you to engage with clients, say like listen, we are launching some new products here, you know exactly what you're going to get, for two, three, five, ten years. You could do more business with us or, is that not really the way to focus this?
Alex, there is opportunity. As you know, Europe is a very large part of our French and global basis. Yes they are, and yes we need -- there are opportunities and we are in full engagement mode with our client base regarding deeper participation into our marketplace and some of the opportunities that can market themselves fit very nicely in what we are seeing to be shifts or evolving client demands and client needs. And so one of the things we refer to in the earnings call and my former remarks was the opportunity that lays ahead of us. So Derek, Sean, Brian and their respective staffs are talking very intently to our clients to understand what their needs are. As you point out, the certainty of the U.S. regulation is a very large driver there, too.
Excellent. Thanks very much.
Thank you. And it appears we have no further questions at this time. I'll turn the call back to our speaker for any closing remarks.
Thank you for joining us today. The entire team at CME is focused on driving the topline for the future and operating the business as efficiently as possible. Let me illustrate that for you. When you compare the first half of 2014 to the first half of 2016, we have organically grown the topline by $332 million. At the same time, our expenses, including license fees and amortization, is down $14 million.
So thank you very much for joining us today, and we look forward to speaking with you next quarter.
Thank you. That concludes our program. You may now disconnect your lines, and have a wonderful day.
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