Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

CME Group, Inc. (NASDAQ:CME)

Q2 FY08 Earnings Call

July 22, 2008, 8:30 AM ET

Executives

John Peschier - Director of IR

Craig S. Donohue - CEO

James E. Parisi - Managing Director and CFO

Rick Redding - Managing Director, Products & Services

Analysts

Richard Repetto - Sandler O'Neill & Partners L.P.

Niamh Alexander - Keefe, Bruyette & Woods

Michael Carrier - UBS

Michael Vinciquerra - BMO Capital Markets

Howard Chen - Credit Suisse

Robert Rutschow - Deutsche Bank

Daniel Harris - Goldman Sachs

Donald Fandetti - Citigroup

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Operator

Good day, everyone, and welcome to the CME Group Second Quarter Earnings Call. As a remainder, this call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. John Peschier. Please go ahead, sir.

John Peschier - Director of Investor Relations

Thank you all for joining us. Craig Donohue, our CEO, and Jamie Parisi, our CFO will spend a few minutes outlining the highlights of the second quarter. And then we will open up the call for your questions. Terry Duffy, our Executive Chairman; Rick Redding, our Head of Products and Services and Kim Taylor, our Head of Clearing have also joined us this morning 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 accompanying slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, including our most recent Form 10-Q, which is available on the Investor Relations section of the CME Group website.

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

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

Craig S. Donohue - Chief Executive Officer

Thank you, John, and thank you for joining us this morning. I am going to be covering several topics today. First, I'd like to provide some commentary on our second quarter results and then I would like to discuss some of current efforts within our core business, as well as our longer term growth initiatives. And finally, I would like to make a few comments regarding the NYMEX transaction.

During the first half of 2008, volume growth was 20% compared to the prior year. While we have seen reduced activity in some product areas, which I will touch on, we're bolstered by strong volume activity in all other product areas. Over the long run, we believe derivatives exchanges with size and scale and product diversity will be best positioned for continued growth. We are pleased with trading activity in July thus far in what is a normally slower treading period and in a non-roll month, July volumes were averaging more than 12 million contracts per day, up about 1 million contracts per day from Q2. Total CME Group average daily volume for the second quarter was 11.1 million contracts, up 7% on a pro forma basis compared with the prior year.

CME Group's diverse product base saw multiple records in the second quarter. We realized record FX volume in Q2 and June with record average notional value of $107 billion during June, up 35% from the prior year. CME FX is now firmly established as the second largest liquidity source in global FX market.

In June, we achieved record commodities average daily volumes of 1.1 million contracts and strong equities volume growth of 19% versus the prior year. While we experienced double-digit growth rates in equities, FX and commodities, current market conditions stemming from the ongoing credit crisis have impacted certain interest rate trading strategies. We view this as a cyclical slowdown rather than a long-term issue.

As we have discussed over the last few months, multiple factors have affected short-term interest rates and treasury products. For example, interest rate markets continue to reflect dislocations between Eurodollars and overnight rates, and as a consequence, Eurodollar options where down 26% in the second quarter, while Eurodollars futures were up 11%.

The shorter end of the treasury yield curve has also been more active with two-year note futures up 13%, five-year note futures up 21%, but like Eurodollars options activity, both the 10 and 30-year treasury futures are down 23% and 21% respectively. This trend of greater activity in shorter term instruments versus longer term is also highly evident in both the cash treasury market, as well as other sovereign debt futures markets such as the Bund, Bobble [ph] and Shots [ph] at Deutsche Börse.

Although these cyclical factors are affecting some interest rate product trading strategies, participation from core customers continues to be very much in line with historical average percentages, with bank at roughly 15% to 20% and buy side customers at approximately 80% to 85%.

While macroeconomic factors remain out of our control, our main focus is on understanding the effects of those factors on our customers and toward that end, we are constantly looking at ways to innovate within all of our product lines and to expand our distribution and enhance the speed and functionality of our platform.

CME has a number of new interest rate products in different stages of development that are specifically designed to meet customer needs in the current environment. Just yesterday we announced that CME cleared swaps, the first centrally cleared OTC interest rate swap to offer all market participants the balance sheet and operational efficiencies of futures will launch on September 2nd.

We have also announced that applied intercommodity spreads for treasury futures and swap futures will launch on Globex in Q4. These new products and trading functionality will facilitate the execution of waited treasury curve spreads, as well as treasury versus swap spreads, involving intercommodity spreads between two, five and 10-year treasury note futures and 30-year treasury bond futures, as well as between five, ten and 30-year treasuries versus swap futures spreads.

Options on Eurodollar futures calendar spreads designed to help market participants better manage risk exposures specifically tied to the slope of the Eurodollar rate curve will also be available in mid-August. Seven-year swap futures are planned for late September and in the first half of 2009, we expect to launch the treasury Eurodollar spreads referred to as TED spreads.

Finally, we are currently planning to expand our Fed Funds product offering to potentially offer new trading opportunities for our clients and we will be providing more information about that in the very near future.

In addition to planned product launches to capitalize on our core business and secular growth opportunities, we continue to focus on the fundamental growth drivers that, we believe, will provide ongoing value to our shareholders. We will pursue near-term value creation through mergers and acquisitions where appropriate and obviously we will continue to leverage our robust and scalable Globex platform to provide value-added transaction processing capabilities for strategic partners.

Finally, we have multiple exciting long-term non-core growth opportunities that we're actively pursuing to meet customers' needs and strengthen our position in global exchange markets.

Moving on to transaction processing, NYMEX transaction processing continues to rise with Q2 volumes up 46% from the period last year. Additionally, we have seen the NYMEX WTI contract capturing market share from the ICE WTI contract with ICE's market share of volume in July dropping from an average of 27% to 25% during the first half of the year.

Additionally, we remain on track with our strategic partnership with BM&F with CME to BM&F order routing coming online in September. That will allow Globex participants to trade BM&F products with their existing Globex software and connectivity. And we will also be launching our new Sao Paulo Telecommunications Hub at that time. Following the initial phase implementation, then the BM&F to CME order routing will become available in October. CME's products and services team is working closely with BM&F team to educate customers prior to the upcoming launch.

During the second quarter, we also had a number of joint customer events and meetings with CME customers related to be BM&F products and with customers in Brazil where we highlighted the availability of CME's broad suite of products through the BM&F to CME order routing connection.

Next, I would like to take a moment to talk about how pleased and proud we are to have reached a number of very important milestones towards the successful completion of the NYMEX acquisition. On June 16th, The Department of Justice granted us clearance to proceed with the acquisition without conditions. In the mean time, during the second quarter, our integration team has made tremendous progress on our integration plans.

On July 18th, CME Group and NYMEX Holdings, Inc. agreed to vest and final revised terms, which reflect our disciplined and yet pragmatic approach to successfully completing this transaction. On Monday, we filed the revised registration statement on Form S4, which was declared effective by the SEC and announced that we mailed a definitive joint proxy statement to shareholders of record as of the close of business on July 18, 2008.

To reiterate the revised terms, we will maintain our original exchange ratio and cash consideration per share. We have increased the consideration payable to members to $750,000 proceed from the $612,000 proceed we had previously agreed to while permitting the 816 NYMEX members to retain their core trading and membership leasing rights, similar to CME and CBOT members. Importantly, the revenue sharing rights contained in Section 311(NYSE:G) of the NYMEX bylaws will be eliminated as provided for in our earlier agreement.

Additionally and based upon feedback from both NYMEX's leadership and the NYMEX community, we have revised our agreement so that CME has committed to maintain the trading floor in New York through 2012 regardless of profitability, and thereafter so long as the profitability and revenue thresholds in our original agreement are met.

We have also committed that NYMEX members will receive differentiated lower pricing versus non-members on existing products for so long as CME and CBOT members receive such differentiated pricing in CME and CBOT products. This also reflects the pricing strategy that we have employed successfully at CME and CBOT for many-many decades.

In addition, the NYMEX senior management team has agreed to reduce their severance benefits and obtain savings with respect to other merger costs by approximately $30 million. Therefore, the net increase from CME amounts to $82 million in cash, which includes the increased consideration.

We have consistently stated that we will be disciplined in this transaction and this adjustment is certainly consistent with our message to our own shareholders.

Finally, as part of our revised offer for NYMEX, we amended our existent ASP agreement to defer the mutual early termination right by one year until the sixth versus the fifth anniversary of the original agreement and we extended the term of our original ten-year transaction processing agreement by an additional two years from 2016 until 2018.

As we have highlighted before, the strategic benefits of this deal includes the diversification of our product offering, enhanced OTC opportunities for the combined company, and the opportunity to leverage CME Group's size and scale to achieve higher growth rates in both NYMEX and COMEX products. The deal is also financially compelling with approximately $60 million of expected cost synergies and additional potential growth opportunities.

In particular, we believe the combined company will be well positioned to continue to capitalize on the global derivatives growth trend. CME Group and NYMEX have each been developing significant new joint ventures and commercial relationships on a global basis, enhancing our ability, as a combined company, to jointly market and cross-sell our diverse products across an even broader customer base around the globe.

While CME Group has been active in the U.S., Europe, Latin America and Asia, NYMEX has been actively pursuing growth in the U.S., European and Middle Eastern markets. This combination of CME Group and NYMEX will also provide direct benefits to our highly valued customers and clearing member firms. Customers will benefit from simplified and streamlined access to a more diverse set of highly liquid products.

Our clearing member firms will also realize direct benefits through reduced costs associated with the combination of clearing operations and other operational and development savings. Additionally, our clearing member firms will benefit significantly from combined shareholder requirements that will reduce the number of equity shares needed to maintain clearing privileges.

We have scheduled the shareholder and NYMEX member votes for August 18th. Assuming a favorable outcome, the transaction would close shortly thereafter. And based on the feedback that we are getting, we believe that we will be able to successfully complete this transaction, thereby realizing significant new cost synergies and facilitating substantial new revenue and growth opportunities for our combined shareholders.

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

James E. Parisi - Managing Director and Chief Financial Officer

Thank you, Craig. I am happy to report that CME Group posted another solid quarter financially. The GAAP results for the second quarter were outlined in detail in the press release. In summary, we delivered net income of $201 million or $3.67 per share. Included within these results were $6.7 million of CBOT merger-related operating expenses, $13.2 million of costs related primarily to changes in the fair value of the company's FX hedge associated with our investment in BM&FBOVESPA and a $3.6 million increased in non-operating expense related to the CBOE ERP guarantee.

We provided a reconciliation between GAAP and pro forma results in the back of the press release. And we have also posted both GAAP and pro forma historical quarterly income statements on our website.

As I move on to the details of the income statement, please note that the comparisons I reference are based on the pro forma results.

Our total pro forma revenue rose 10% to $563 million in the second quarter. Average daily volume was up 7%, led by strong equity volume and record FX volume, each of which were up over 25% versus last year. At the same time, the average rate per contract was up 1.4% to $0.648 in Q2 and up from $0.63 in the first quarter of 2008. The sequential increase was due primarily to a higher non-member mix. Additionally, FX and commodities volume grew faster than other products, positively impacting the product mix.

Quotation data fees were $60 million for the quarter, up 23% from Q2 of '07 due in part to the addition of CME revenue to this line, and to the $5 per terminal price increase instituted this year. At the end of the quarter, we had approximately 293,000 users subscribed for the base devices, down approximately 6,000 compared to last quarter.

Our second quarter processing services revenue was $19 million, up 32% versus last year and up 2% from the first quarter. In Q2 '08 NYMEX volume on CME Globex averaged over 1 million contracts per day, up 46% from last year, and the related revenue totaled $18 million, which averaged $0.27 per contract.

I will now take a few minutes to review expenses. Total pro forma operating expenses for Q2 were $213 million, up 1% versus Q2 last year and slightly lower sequentially despite the addition of expense related to our acquisition of CMA. Expenses came in below the guidance we had previously provided for the second quarter. The primary drivers of the positive variance relative to guidance were approximately $2 million of one-time benefits during the quarter, primarily in the legal and technology expense lines, lower than expected deferred compensation in Q2 due to declining equity markets in June, and a reduction of discretionary expenses during the quarter.

We mentioned in our second quarter volume release that in the third and fourth quarters of 2008 we expect to realize merger-related synergies associated with expiration of the e-cbot trading platform contract, which will reduce expenses by approximately $8 million per quarter.

Additionally, we currently expect full year 2008 pro forma operating expenses to be closer to the bottom end of the previously stated guidance range of $855 million to $870 million, excluding our pending acquisition of NYMEX. Partially offsetting the savings from the expiration of the e-cbot platform contract are the following: Increased depreciation related to higher CapEx in the second half of the year, which I will discuss in greater detail; the full impact of our June stock options grant in the second half; and the higher marketing expenses. As we mentioned last quarter, we also intend to continue adding staff in order to execute on our global and OTC strategies.

Total compensation-related expense was down $3 million compared to Q2 of 2007 and remained relatively constant compared with the first quarter of this year, totaling $74 million. There are three components of this expense: salaries and benefits, bonus and stock-based compensation.

Salaries and benefits totaled $58 million, up $1.7 million sequentially. As of June 30th, the CME Group headcount stood at 1,950, down 40 since the end of the first quarter.

Next, our employee bonus accrual totaled $8.6 million, which was $1.6 million lower than Q1. And finally, the stock-based portion of our compensation was $6.6 million, which was up $250,000 relative to the prior quarter due to our annul grant in mid-June.

Operating margin was 62% on a pro forma basis, up from 59% in Q2 2007. Non-operating income was down in Q2 versus Q1. This resulted primarily from the suspension of the securities lending program during the entire second quarter, as well as lower rates of return on invested funds. We made a discussion to reinstate the securities lending program on July 7th, and are currently participating on a limited basis.

As a reminder, we also stated in our second quarter volume release that are pro forma results for the first and second quarters, as well going forward exclude the impact of our FX hedge related to our BM&FBOVESPA investment. We are excluding this because the offsetting impact of changes in the value of the underlying investment due to FX fluctuations do not flow through income statement. Year-to-date, these change more than offset the impact of the hedge. Looking back, excluding the $2.2 million impact of our hedge in the first quarter would have increase Q1 pro forma diluted EPS by about $0.03.

Our pro forma pretax income was $357 million in Q2, up 10% from the second quarter last year. Net income for the quarter was up 11% at $215 million and diluted pro forma EPS was up 12% to $3.93.

Moving on to the balance sheet, as of June 30th, we had $1.2 billion of cash and marketable securities and short-term debt of $165 million, resulting in a net cash position of approximately $1.0 billion.

Cash earnings from the quarter totaled $207 million. Capital expenditures, net of leasehold improvement allowances, totaled $44 million in the second quarter, driven by $36 million of technology investments including $30 million of construction related to data centers. The remainder of this spend was for construction related to staff space and merger integration efforts.

Year-to-date, our capital expenditures totaled $77 million and we still expect capital expenditures in 2008 to total $225 million to $235 million. Our spending in the second half will include efforts to enhance the speed, functionality and capacity of our Globex platform, the ongoing build-out of our new data center, and construction at our various locations.

So far in July, we are averaging 12 million contracts per day, up approximately 7% compared to the full month of July last year.

Now turning to other matters, at the end of June, we announced that our Board had authorized a share buyback program of up to $1.1 billion over the next 18 months. We have been restricted from purchasing our shares due to our normal earnings blackout, and we are currently restricted based on mailing our revised proxy. However, we expect to begin the buyback following the close of the NYMEX transaction.

In addition, we intend to declare a special dividend of $5 per share following the resolution of the NYMEX transaction, which would be paid to CME Group shareholders regardless of the outcome.

Our new capital structure initiatives reflect the high operating efficiency and relatively low capital requirements inherent in our business model. Finally, as an update on financing the NYMEX transaction, I am pleased to announce we've received committed financing from Bank of America and UBS totaling $3.2 billion, providing us the financing necessary to complete the merger.

Additionally, we have been working closely with the rating agencies and have received a counterparty credit rating of AA from S&P and a reaffirmation of our short-term ratings from both S&P and Moody of A1-plus and B1 respectively. These ratings take into account the effects of the NYMEX transaction.

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

Question And Answer

Operator

Thank you, sir. [Operator Instructions]. We will go ahead and take our first question from Roger Freeman with Lehman Brothers.

Unidentified Analyst

Hi, good morning. It's actually Alex Grant [ph] for Roger. So, first off, thanks for the updated thoughts on the market environment and delevering, I was hoping that you could perhaps give a little more detail on all the different areas that are having impact in percent... perhaps how much are they having impact in terms of deleveraging maybe either higher volatility in interest rate, maybe some money flowing out of hedge funds and of the options markets in terms of the volatility, and also in terms of the volatility, could you perhaps contrast the equities sector which is obviously seeing a lot of the benefit from the higher volatility versus interest rates where you are not really seeing any benefits?

Rick Redding - Managing Director, Products & Services

I think there is... this is Rick. There is a number of questions in here and let me just start by talking to the overall environment. I mean, obviously you saw from our results that in June in particular, the equities and FX volumes are extremely strong along with our commodities area. The... those volumes continue to perform very well and those markets are functioning quite well.

The places in the interest rate area that have been weaker for us have been the Eurodollar options, the 10 and the 30-year treasury futures. In contrast to that, the Eurodollar futures actually have been fairly strong, and the 10 and 30-year options have held up pretty well in that environment too. So, let me talk a little bit about the environment and what we see in talking to our customer base.

On the Eurodollar options side, the volatility has spiked kind of at historical... in an historical perspective, it is at record level or has been at record levels. Eurodollar volatility was about 14% in March. It spiked to over 50%, it came down in kind of the May period and spiked again in late June, early July. Implied volatilities in Eurodollars are over 36% now, these are extremely high levels. A lot of the trading strategies that the hedge funds and some of the banks put on in the environment where Eurodollar volatility was lower just have not worked in this higher volatility environment. That coupled with the spread between fed funds and LIBOR, which is blown out to about 75 basis points made some of these trades very unfavorable to some our players.

On the longer end of the curve, when we are talking about the 10-year and 30-year treasuries, as Craig mentioned in his remarks, a lot of the futures volume is exactly what we're seeing in the cash market. For the cash market for 10-year and 30-year treasuries, those volumes are down as well. You also see the same thing in Europe, as Craig mentioned, with the Bund [ph] volume at Deutsche Börse.

In this credit crisis what you have seen is people run to the shorter end of the curve and you do see that reflected in the 30% increase in two-year futures volume and the 20 plus percent increase of volume in the five-year treasury futures. So this is very consistent with what's going in the macro environment. That continues to be of interest to all of us. These tend to be cyclical factors. We don't have a crystal ball on when those change, but I think the whole market is looking for the financial services companies to show some signs of recovering. I think you will see the fed funds and LIBOR spread come in once people have more faith in some of the banking institutions and that will provide for a more normal environment.

Unidentified Analyst

Okay. Now, do you see any sort of ripple effect that maybe because some of your clients, maybe more the fundamental clients are less engaging than the black box guys cannot really interact with the lower order flow or is it really just a couple of areas that are not really helping out right now, but it doesn't really affect the other issues? For example like if there is lower options activity that drives lower futures activity as well because the futures trade just related to those option strategy?

Rick Redding - Managing Director, Products & Services

In general, that's correct, but as we mentioned, the Eurodollar futures volume is up about 11%. So it's doing pretty well on its own, but obviously options volume would help drive further growth there. But to your point, we don't see this across all our asset classes. But in fact, you see extremely good volumes on the equities and FX and commodity side. So this is not some general shrinking of the balance sheet across the board in all the asset classes. And I think you've seen in the energy market strong volumes there as well. So this is very much related to a couple of areas in the interest rate products and we are seeing very strong growth in our other areas.

Unidentified Analyst

Okay, good. Just moving on to the CBOT integration, I don't know if I missed that in prepared remarks, but did you actually give a number of annualized realization so far? I think it was $87 million last quarter.

James E. Parisi - Managing Director and Chief Financial Officer

We're still on track as... we are still on track to hit the run rate by the end of the year through the second half for the year, our, I should say, the total amount that we will realize in synergies for 2008 is around $100 million, similar to where we were in the last earnings call.

Unidentified Analyst

Okay. And then lastly and I'll jump back in. You I think mentioned that the quote users came down by about 6,000 sequentially. Is that more on the bank side or do you see that on the buy side as well, any additional color on that end?

James E. Parisi - Managing Director and Chief Financial Officer

We don't have view all the way down to the end... down to the end user customers; they come through the quote vent. We do know that some of that decrease is tied to implementing enterprise-wide license agreements as on the CBOT.

Unidentified Analyst

Okay, thanks very much.

James E. Parisi - Managing Director and Chief Financial Officer

Thank you.

Operator

We'll take our next question from Rich Repetto with Sandler O'Neill.

Richard Repetto - Sandler O'Neill & Partners L.P.

Good morning, guys.

James E. Parisi - Managing Director and Chief Financial Officer

Hi, Rich.

Craig S. Donohue - Chief Executive Officer

Hi, Rich.

Richard Repetto - Sandler O'Neill & Partners L.P.

Just one quick follow-up on the interest rates for Rick. You talked about the mix being the same across the entire complex. I guess two quick... on the interest rate, is the mix the same for the interest rate complex? And I see you adding new products like the speared... the TED spread. Like which do you think... which if you were a betting [ph] guy, would you see a recovery in the long-end futures or would you see your new products contributing more before you think that recovery will happen?

Rick Redding - Managing Director, Products & Services

Yes, Rich, there is a lot of questions in there as well. So let me take them kind of one at a time. Let's take the last one first, if I may. We don't have a crystal ball as to what the economic environment will look like. I mean, I think a lot of that depends on the factors affecting the banks and the investment banks and just the overall credit environment. There is a number of things going on that we are working on very hard while this crisis is happening and that is coming up with new products, also using our technology to make trading more efficient. And that is trying to put some of these spread products up, trying to think about next year putting up some TED spread type things and make trading more efficient, because we have seen over time, as we improve the efficiency of the execution, it makes more opportunities available for people in the market.

I mean, this is a fairly complex issue on what's going on in volume, because if you actually look at the Eurodollar future volume, you are seeing a lot of the activity is actually in kind of what we call packs and bundles, and some of these trades further... a little further out than in the front months, where I think people are kind of refocusing their efforts on what the interest rate environment will be a year or two years out. So this will continue to evolve over time and as the macro climate changes, I mean, even within the last three or four months, we've seen the macro climate change pretty dramatically. Just think about when people were thinking about rates were going to go up at the end of the year and it was 100% built into the fed funds contract.

To your first question, Rich, talking about the percentage mixture, when you go across all the kind of categories of our users, you really haven't seen much change Q1 to Q2. The numbers percentage-wise are almost identical. So we're not seeing some fundamental wholesale bailing out of the market by any one group of activity. It's the macro climate that we are in that are affecting all trades.

Richard Repetto - Sandler O'Neill & Partners L.P.

Okay. And I guess my one follow-up would be for Craig, get the... you started to enter the OTC business with the cleared swaps. Just a little bit more color on what your view for the rollout there, and then an update on CDS because I know the banks have kind of come up with the solution that keeps it centrally cleared, but not exchange listed. What your feelings are for CDS as well?

Craig S. Donohue - Chief Executive Officer

Alright. Well, on the first topic, Rich, I think the response from the market has been very positive. As we have been talking to the people about the value of the cleared swap, we have been impressed by the interest level that we have. So we are hopeful that that will be successful. As you know, I think everything that we try to do in the over-the-counter market is something that takes time. But... so we will see, but we are happy to be launching and we do think that the reception from the customer base so far has been very positive.

On the CDS effort, we've mentioned publicly that we are looking very aggressively at ways in which we can structure solutions to enhance the marketplace which could include both execution as well as clearing services. We think the CME Clearing House in particular is very well position for that. Given the critical math of activity that we currently enjoy in listed derivatives and all of the different asset classes, we obviously have a very robust clearing solution, very high reputation for integrity and independence and neutrality, and certainly we think time to market advantages as well given that the Clearing House is already operating well capitalized and just in a strong position. So we are working aggressively with market participants on both the buy side and the sell side, and certainly working with the regulatory community as well to try to structure an offering that will allow us to be a solutions provider in the credit default swaps market.

Richard Repetto - Sandler O'Neill & Partners L.P.

Okay. I am assuming you didn't mention CMA, but I am sure that that's integral to your efforts there.

Craig S. Donohue - Chief Executive Officer

Yes, I think CMA is very useful. Obviously, part of what we had in mind in terms of that acquisition apart from the fact that we think that it's just a strong company with good growth prospects is that they play a critical role in the credit default swaps market. They have a lot of very good strong customer relationships, then the quality of the data and the pricing information is extremely valuable to whatever we might choose to do in the space.

Richard Repetto - Sandler O'Neill & Partners L.P.

Okay, thanks guys. I will get back in the queue. Thank you.

Operator

Our next question comes from Niamh Alexander with KBW.

Niamh Alexander - Keefe, Bruyette & Woods

Good morning, thanks for taking my questions. If I could just follow up on NYMEX, Craig, one of your final comments that related to feedback you are getting about the revised terms of the deal that you felt positive. Can you expand a little bit on that?

Craig S. Donohue - Chief Executive Officer

Well, I mean, there is not a lot more to say other than just obviously we have a lot of connections points with the NYMEX community. I know that both Terry and I have received a number of calls since the time that we announced the revised agreement indicating strong support for the revised agreement, and I think we have done a good job working with the NYMEX leadership to respond to the comments and the feedback that we were getting from the NYMEX community. And I think that's resulting in a good base of support for what we're tying to do.

Niamh Alexander - Keefe, Bruyette & Woods

Okay, that's helpful, thank you. And then with regard to NYMEX, I mean, there has just been a slew of Washington-related headlines regarding derivatives trading that's really caused a lot of consternation for exchange investors. What part of the NYMEX stream... revenue stream might be impacted by some changes here or how did it impact your decision making process and your thoughts on kind of revising the valuation terms?

Craig S. Donohue - Chief Executive Officer

Well, I mean, certainly we have factored into what we have now done the overall environment, but I have to say that at the end of the day, if you look at most of the bill language and the legislative activity, the thrust of almost all of it is toward enhancing the transparency and regulation in the energy market in a fashion that I think is already very consistent with not only CME Group's core business model, but NYMEX's as well.

For example, NYMEX is obviously a fully transparent, fully regulated, designated contract market, already subject to the complete regulation and oversight of the commodity futures trading commission. They have position limits or position accountability requirements, large trader reporting requirements and hedge exemption processes. And so, if you look at the legislation on balance, it's mostly targeted toward the exempt commercial markets, or the foreign boards of trade, on which they might be trading either exact substitutes or near identical substitutes of, say, for example, the WTI crude oil contract. And essentially, the legislation is attempting to sort of cure some of the deficiencies in those markets, or perceived efficiency where they may not have large trader reporting or position limits or other regulatory conventions that allow regulators, including self regulators, to have insight into the level of activity that market participants have in a given contract.

So we're comfortable with where that stands. I think importantly, it seems for the moment anyway that nobody is very strongly focused on margin requirements. I think people have understood that margins are really essentially a risk management tool and a financial safe guards tool for the functioning of the clearing house and not a tool for manipulating people's trading activity in the market.

Niamh Alexander - Keefe, Bruyette & Woods

Okay. That's helpful color. Thanks. So basically, I mean, you didn't entirely change our outlook on the valuation. I guess that the terms didn't change. If I could just go back to Rick, sorry to keep bugging you on the interest rate stuff, but I noticed that the pit volume has really declined and I know that's more so the options. Is that again just a spike in the volatility? I am just trying to get a sense of maybe whether we are kind of looking at that may be bottoming soon and the drag on the growth might be alleviated going forward?

Rick Redding - Managing Director, Products & Services

Most of that pit volume is... what you are talking about is in the reduction of Eurodollar options. It's almost mostly related to that. And that is the volatility question on... and what we just talked about.

Niamh Alexander - Keefe, Bruyette & Woods

Okay, thanks. And then just last real quick, on the credit derivatives subject, I guess you competitor ICE announced an acquisition of an inter-dealer broker in the credit derivatives space this past quarter. Is that an avenue we might expect CME to pursue also for growth into that product area?

Craig S. Donohue - Chief Executive Officer

Niamh, it's Craig. I think that that's not really where we're focused. I mentioned that we're working with customers involved in the market, both on the buy side and the sell side. And without being critical of ICE in any way, our preference is to try to work directly with market participants rather than at least in this area through another intermediary.

Niamh Alexander - Keefe, Bruyette & Woods

Okay, thanks for taking my questions.

Operator

Our next question comes from Mike Carrier with UBS.

Michael Carrier - UBS

Thanks. Just a question on some of the new product initiatives and maybe this is for Rick, if you look at whether it's the cleared swaps that you announced and just some of the other ones you announced earlier in the call, just trying to get a sense. Seems like there has been a lot of product innovation and how much is it being driven on the clients side where you... before you actually even have the product, you can kind of get a sense of what you expect in terms of volumes or demand versus I think you were mentioning that a lot of these products increased efficiencies in the market and then that should have a follow-on effect of volumes?

Rick Redding - Managing Director, Products & Services

Yes, there is kind of two levels there: one is using the technology and using some business changes to drive incremental volume and the other is more traditional product development. I mean, obviously, as the economic forces change, it allows exchanges and people to look at the market and begin to innovate to meet the needs of what's going on. I mean, as the credit crisis has happened, it's actually... we've looked at a bunch of new products and, as Craig mentioned, we're launching several of those in the second half of the year. And a lot of that's driven by the changing conditions and what we hear from our end clients as to what's needed in the marketplace. I mean, obviously, the credit crisis has made people really sensitive to the credit guarantee of our clearing house and the importance of that. And also from a capital savings standpoint is ability to net positions down from that CCP [ph].

Michael Carrier - UBS

Okay. Is it in a particular client segment where you're seeing the demand, let's just say, for the cleared swaps? And then do you have any type of, like, fee on these products?

Rick Redding - Managing Director, Products & Services

We are seeing it across a number of segments on the buy side, whether it be from kind of the traditional loan-only players or hedge funds or on the prop groups. I mean, a lot of things like cleared swap, because you are putting it into an exchange model, you don't have to have the ISDA agreements on all the things that makes it difficult for a number of those kind of prop groups to trade the product. So there is really different needs from the buy side that are being met with these different products.

Michael Carrier - UBS

Okay. And just a follow up on the regulatory or the political front, particularly you guys mentioned in regards the oil markets in your view there, is there anything else? There's some talk on the OTC market in the soft [ph] agriculture getting some clearing in there, and then also just on the clearing on the OTC market, but just wanted to get your view, is there anything that's coming up or more front and center besides just the oil markets that you are seeing?

Craig S. Donohue - Chief Executive Officer

I am not sure exactly what your question is. I would may be offer two insights. One is that we have filed a exemption petition with the CFTC to permit clearing of agricultural commodity swaps, switch we think is very innovative and very supported by the industry as a way to better manage basis risks in our kind of standardized futures contracts. So that's out for comment right now. But I think that's a good business opportunity, but also again a type of innovation that responds to emerging market needs right now given the volatility in commodity products. And again we think that there is a lot of support within the industry for that.

And then may be the other part of your question, which seems very broad, is it sounded like your question was is there a regulatory impetus to drive more OTC business towards central counterparty clearing services and assuming that is your question, I don't know that that would be a forced result, but certainly you can see that there is a strong encouragement happening from certainly the New York fed and I think even more broadly among other regulators for the dealer community to move towards central counterparty clearing in the credit default swaps markets. So there's certainly, I would call it, encouragement versus intervention.

Michael Carrier - UBS

Okay, thanks a lot.

Operator

Our next question comes from Mike Vinciquerra with BMO Capital Markets.

Michael Vinciquerra - BMO Capital Markets

Thanks very much, good morning. Could you guys mind giving us an update on what's going on with FX market space? It's kind of falling off the radar screen to some degree. I know you've put some incentive in place at the beginning of the year. Are those starting to have any impact in terms of participation?

Rick Redding - Managing Director, Products & Services

Mike, this is Rick. As we said, FXMS has been a disappointment to us. We thought we will be further along than where we are right now. However, we still think there is opportunity in the counter space on the FX side and we are working with the management of FXMS to kind of come up with a revised offering.

Michael Vinciquerra - BMO Capital Markets

Okay. So at this point we should kind of consider the current offering as kind on hold and you're looking to kind of revise the way you're participating in that market. Is that what I am hearing?

Rick Redding - Managing Director, Products & Services

Yes, we are looking at all of our alternatives at this point.

Michael Vinciquerra - BMO Capital Markets

Okay. And then it looks like you guys had finally kind of hammered out the deal with the trading right to CBOT, trading rights over the CBOE, and now of course there's questions being shown up as to who is going to qualify for the settlement that you guys were able to agree to. Obviously you guys have an economic interest in what goes on. And I am just curious if you have any sense for how that's going to shake out and whether or not your ERPs are actually going to hold their value based on what some people are talking about?

Craig S. Donohue - Chief Executive Officer

Mike, I think that's an area where at least for the moment there is not a lot of opportunity for us to comment. I am sure that you know and other recognize that our economic interest in this is relatively small relative to the larger economic interest of all of the ERP holders or people who are essentially holding all of the various component parts. That is still in a process of being resolved pursuant to the settlement by the class council and certainly council or the Chicago Board Options Exchange. And so, we are working toward a resolution that will be consistent with our shareholders' interest, but there is a lot of other moving parts to that.

Michael Vinciquerra - BMO Capital Markets

Okay, fair enough. And then just two number questions for Jamie, I guess. The Russell contracts; can you estimate for us what the total contribution to revenues was this quarter? We showed somewhere may be around $10 million to $11 million; is that in the ballpark?

James E. Parisi - Managing Director and Chief Financial Officer

If you just... if you take the Russell, ADV was about 230,000 a day. And just I would say just generally apply the average RPC for the e-manies [ph] of the good estimate of about $0.60 to $0.67 per round turn if you can get there.

Michael Vinciquerra - BMO Capital Markets

Okay, okay. I think we are in the ballpark there. And then also I noticed that the foreign exchange RPC has actually dropped pretty noticeably. Is there anything in particular there that we should be aware of in terms of... actually trends in terms of client participation or who's actually been coming to that market, is it simply volume thresholds that you are hitting?

James E. Parisi - Managing Director and Chief Financial Officer

It's volume thresholds and it is also just the fact that as overall volumes grow there, and the ex-pit volumes stays constant or decreases a little bit, that is going to pull down the average rate because there is a high rate on those contracts. So it's a mix issue and a it's hearing issue within that contract.

Michael Vinciquerra - BMO Capital Markets

Okay, very good, thank you guys.

Operator

Our next question comes from Howard Chen with Credit Suisse.

Howard Chen - Credit Suisse

Good morning, everyone. Hello.

Craig S. Donohue - Chief Executive Officer

Hi, how are you?

Howard Chen - Credit Suisse

Well, how are you? Just another, Rick... on the interest rate complex, Rick, is there a specific reason why there isn't more of a one-to-one contract volume trade off as volume shifts from longer to shorter duration product? Is that an issue of convexity, different sizes of equity pools [ph] or there is just something else going on?

Rick Redding - Managing Director, Products & Services

Yes, there is a number of uses of the longer dated products that because of things like people trying to extend duration or with convexity that the shorter in trades don't necessarily help them with. Some, Howard, is in the underlying fundamental reason why people are using the shorter term products, and we think that's a factor of the credit crisis and just kind of the safety of people putting money at the shoulder end of the curve. For example, there are customers that do asset allocation trades, for example, that pretty much have to use the ten-year product. That's not transferable into using, say, twos and fives. Obviously, the mortgage business is generally... I mean, if you look at the duration of your average home loan, it's probably about seven and seven and a half years. So the longer end of the curve, kind of between the five and tens, is where you need to be that, for example, the two wouldn't help you much in.

Howard Chen - Credit Suisse

Okay, thanks, Rick. And then switching gears, Jamie, to the expense guidance. Just to be clear, if your full year $855 million to $870 million expense guidance on a GAAP or on pro forma operating basis? I mean, I think in your release at the end of the quarter, you spoke to operating expenses in the range of $218 million to $221 million and I mean, from what we looked at, it came in nicely below that.

James E. Parisi - Managing Director and Chief Financial Officer

Right. It's all... as we give out that guidance, it's on a pro forma basis.

Howard Chen - Credit Suisse

Okay. So, I guess, with regard to just the quarter that ended, I mean, what changed between the release that you put out at the end of June to kind of the earnings release?

James E. Parisi - Managing Director and Chief Financial Officer

Yes, thanks. Howard, there is a couple of a... a few items actually. There were some benefits that we saw in terms of one-time benefits for the quarter on technology spend, there were some credits that we got back through some good negotiations that weren't included and anticipated when we put in that guidance. Additionally, we also had the deferred comp was come in lower for us than we had anticipated. As you saw, the equity markets get really hit in June. We didn't have that worked into the guidance at that point. And then just generally speaking, we've seen a good expense discipline and people pulling back on some of the discretionary expense items.

Howard Chen - Credit Suisse

Okay, thanks, that's all really helpful. And then last one for Jamie or Kim. I mean, this morning, S&P assigned a AA long-term counterparty credit risk to the... rating to the company. Can you discuss the impact, if any, on the business and specifically the clearing operations in collateral management now that you are a AA-rated entity?

James E. Parisi - Managing Director and Chief Financial Officer

Keep in mind, that AA rating that we were assigned today is at the holding company level.

Howard Chen - Credit Suisse

Yes.

James E. Parisi - Managing Director and Chief Financial Officer

That's not a clearing house or even a subsidiary rating.

Howard Chen - Credit Suisse

Okay, because... alright, thanks for the clarification, because they speak to the clearing house in the release.

James E. Parisi - Managing Director and Chief Financial Officer

Right.

Howard Chen - Credit Suisse

Okay. So no impact, you would say, on the clearing operations in any way?

James E. Parisi - Managing Director and Chief Financial Officer

No not at all.

Howard Chen - Credit Suisse

Okay, great. Thanks so much.

Operator

We'll move on to a question from Rob Rutschow with Deutsche Bank.

Robert Rutschow - Deutsche Bank

Hey, good morning.

Craig S. Donohue - Chief Executive Officer

Hi, Rob.

Robert Rutschow - Deutsche Bank

Hi. I was wondering if I could follow up on Howard's question related to expenses. I guess you guided us or given us some indication of how much CMA would add in revenue and expenses, and obviously you did come in a little bit better in terms of the expenses. And so I guess I am wondering why you haven't reduced the range of guidance for expenses by the run rate that you achieved this quarter. And also if you can kind of give us some more details on how CMA actually did play out this quarter.

James E. Parisi - Managing Director and Chief Financial Officer

CMA played out according to according to plan. So there is no major change there from expectation on the expense side. And then on the... as far as your other part of the question, there is a thing, there is expenses going forward like... you know that we've got increased CapEx coming at us in the second half. So that's going impact depreciation. We've got a higher marketing and... a higher marketing spend and a higher staff spend going forward as we continue to grow our global efforts. And on the stock option side, you know that there is the full year impact of the grants that were just done in June. So there are something that are pushing up on the expenses in the second half. So that's why we have left the guidance where we have. We did change it slightly to say that we're going to be closer to the bottom end of that guidance. That's a change from our prior status.

Robert Rutschow - Deutsche Bank

Okay, that's helpful. I guess second question would just be talking about the rates a little bit more the way contract volumes, is there any impact from the spread between ECB rates and fed funds being so wide in terms of carrying costs and any impact there?

Rick Redding - Managing Director, Products & Services

I think that that pre supposes a customer base that can move between those pretty easily. I mean, a lot of the users are tied to hedging their underlying kind of dollar rate exposure here. So, I mean, there are customers that can move in between those two products. Hedge funds obviously can drop or expand. But a lot of your banks are pretty much tied to dollar-based assets trading here.

Robert Rutschow - Deutsche Bank

Okay. And my last question relates to pricing. Obviously we haven't heard anything lately out of the ELX, but I am wondering what your capacity is to cut prices if you need to and sort of your outlook for pricing going forward.

Craig S. Donohue - Chief Executive Officer

I'll start with that and maybe Rick will want to add. But as may or may not know, we generally provide the lowest cost pricing for the largest liquidity providers and high volume or high velocity traders. When we look at pricing in our products across the various asset classes relative to other existing exchanges and platforms, we are considerably cheaper and that's been a pricing strategy that we have employed very successfully for decades. So I don't think we'll be in a position where we need to do that and I guess more importantly, I think if you think about pricing, it's generally such a small component of the total costs of trading and the liquidity that we afford, and therefore the trading opportunity for the non-hedger is pretty significant in terms of the tick size relative to the fee that we charge. So I think we will be in a strong position there.

Rick Redding - Managing Director, Products & Services

And, Rob, I think the one thing that is really key that Craig just touched on is that's kind of the all in cost, and that's driven by the liquidity. And when you see market environments that are difficult like this, people tend to go to markets that are extremely liquid. And that's where our products have been playing into that very strongly here.

Robert Rutschow - Deutsche Bank

Okay. Thank you.

Operator

Our next question comes from Daniel Harris with Goldman Sachs.

Daniel Harris - Goldman Sachs

Good morning. Hey, Jamie, this one is for you. How should we think about your decision to reenter the SEC lending business here? If I am thinking about right, it had grown into a $4 million or $5 million business in 1Q and it has been a little bit lower on a net basis. And so, what should we think about going forward in 3Q in terms of your participation rate?

James E. Parisi - Managing Director and Chief Financial Officer

Right. I mean, I think the first quarter was a little bit abnormal in terms of the level of income that we generated from securities lending, as you pointed out, somewhere in the neighborhood of $5 million, I think. If you look historically, we were closer to the $1 million and $1.5 million range more recently. Going forward here, we are going to be engaged on a slightly limited basis, and then expand from there as we get... as we gain comfort. So I think in that $0.5 million to $1 million and $1.5 million range is probably the range... is probably the area that we will be in going forward per quarter.

Daniel Harris - Goldman Sachs

Okay, thanks, that's really helpful. And then on the CapEx front, you talked about you guys were about $77 million year-to-date and the full year target is $225 million or so. So roughly I think around the same amount per quarter as you guys had in the first half. What is it that you guys are actually spending that money on? And then if you can give me sort of a better sense of how I should think about D&A going forward as you do that?

James E. Parisi - Managing Director and Chief Financial Officer

Sure. The significant portion of the spend going forward is going to be on technology, as we continue to improve the functionality, speed, and reliability of our systems. Also, we are in the process of building out a third datacenter in the suburbs. So that's a significant draw on the capital spend. So we'll continue to build that out. And then, as we have done through the merger with the Board of Trade and as we've reallocated our staff among sites, we are having to incur some CapEx there to build out office space. And even before we did the Board Of Trade transaction, we had put... we had leased some space outside of our current complex to move some of our back-office to, that it was less expenses space. But there is some upfront investment associated with that. So, that's what you are seeing come through in the second half, primarily technology with some real estates. Depreciation is going to have to go higher in the second half as a result of this significant spend.

Daniel Harris - Goldman Sachs

Okay, that's helpful. And then, I guess, this is just more of a general question. If I look at the open interest trend, I know you guys have addressed this before, a lot of it has to do with the options in volatility, but you have got e-manies [ph] in commodities growing pretty nicely and rates and FX are down. How should I think about this in terms of the current volatility? And do you anticipate that if that Eurodollar volatility goes down that this is a number that would go up, which should just... and it's not a perfect indicator by any mean, but sort of help us think about when volume trends can move higher?

Rick Redding - Managing Director, Products & Services

I think you're looking at it correctly, Daniel. A lot of those strategies that people were employing in kind of a lower vol environment would probably work again. So this is cyclical and driven by the macro effects in the market. But with these kind of high volatility levels in Eurodollars, it's difficult to see some of those trades coming back in the near term.

Daniel Harris - Goldman Sachs

Okay. So, then if the number stay around here, if volatility stays around, say, there's a lot of it there, nothing fundamental really changing just cyclical and we should look for as volatility may be declining for that to bump back up?

Rick Redding - Managing Director, Products & Services

Yes. I mean, it's a little complex there because I mean your premise I agree with, but you will also probably see volatilities changing into long end into the curve if short end is coming in as well. I mean, there's probably something else is going on in the overall macroeconomic environment and that could be positive for us.

Daniel Harris - Goldman Sachs

Okay guys, thanks a lot.

Craig S. Donohue - Chief Executive Officer

Thank you.

Operator

We'll take a question from Don Fandetti with Citigroup.

Donald Fandetti - Citigroup

Hey, Rick. Just wanted to get an update on your outlook for the algos, I think they are around 40% of your volumes. I mean, do you think that that's capped out or is there any opportunity to push that higher or cut it a bit [ph] lower?

Daniel Harris - Goldman Sachs

It's a general trend, Don, that more and more people are using algorithms for trade execution, whether that be on the cash, kind of equity market, as they use them for order management systems. But in the future side, we're seeing more and more algorithmic traders buy just to share number of them as that trend continues to get efficiencies in trading.

What you also see in futures world that's different than in the cash world is you see these algorithmic guys trading across asset classes, and as more asset classes have come on to the platform that provides more opportunity for them. So we continue to see the algorithmic guys increase. We're seeing more algorithmic guys growing outside of the U.S. as well, which is a positive trend for us.

And you also see the holding periods of some of these traders are really short term. You are starting to see some firms develop now they have a longer term holding periods. So everyone's not trying to do the same trade anymore and that gives us courage that... the encouragement that that trend continues.

Donald Fandetti - Citigroup

Okay, that's all I have. Thank you.

Operator

And our last question will come from Jonathan Casteleyn with Wachovia Securities.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Hi, good morning. You have talked about order routing with BM&F for.... since the beginning of the year. Just wondering if there has been any release of economics on that potential routing agreement.

James E. Parisi - Managing Director and Chief Financial Officer

There has not been at this point, Jonathan.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Okay. And then just a way to think about it, is it the percentage of new incremental orders and if you can just refresh my memory BM&F does around 2 million contracts a day; is that roughly a ballpark?

James E. Parisi - Managing Director and Chief Financial Officer

Sounds about right, yes. And in terms of the way it works is that orders that will come through Globex from outside of Brazil will count towards the agreement.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

So it is incremental. There is no way to capture existing its incremental volume; is that correct?

James E. Parisi - Managing Director and Chief Financial Officer

That's correct. And we hadn't disclosed very specific methodology for measuring that, but obviously that's reflected in our agreement with BM&F.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Right. And then just quickly on NYMEX, the $60 million in synergies being that you have increased the commitment to the building, can you just largely flush out where they come from? I mean, my calculation is just 21% of operating expenses for NYMEX, it's a larger percentage than usual to be stripped out. Can you just kind of give us a little more detail there?

James E. Parisi - Managing Director and Chief Financial Officer

Yes, on the synergies with NYMEX, first of all, if you look... if you strip out of their expense base their direct expense to us and then strip out depreciation, I think you get closer to 40% of the expense base that we are taking out. And that's broken down roughly 60% or so in salaries, and then the rest is spread cross professional fees, tech support, and other.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Okay, great. And then just lastly for Rick. I just want to understand, you talk about may be a slack in volatility, meaning volatility coming down would assist the interest rate complex. What exactly is your proxy there, your volatility proxy?

Rick Redding - Managing Director, Products & Services

Well, I mean, Jonathan, just to be clear, I think it's the Eurodollars where we are experiencing the really high volatility, it's not the treasury complex. So

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Right

Rick Redding - Managing Director, Products & Services

So the treasury is... I mean, volatility to go up and probably give us some tailwind. Just looking at implied volatilities, basically looking to see what the implieds are from the options market.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Okay. So I would ask you for one catalyst, I mean you have articulated really well why you think we're here. One catalyst going forward to get that... to get the Eurodollar franchise going, what would it be?

Rick Redding - Managing Director, Products & Services

I think the continued issues in the credit markets are giving people some pause and that's why I think that spread between fed funds and LIBOR gives you some sort of indication of the markets view of health of the banking and investment banking sector.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Understood. I appreciate that, thank you.

Craig S. Donohue - Chief Executive Officer

Jonathan, it's Craig. I think this is probably clear in the answer, but I just want to make sure that you are not thinking about it incorrectly. In terms of the question you asked about BM&F, the revenue sharing provisions that we have, it's not incremental above aggregate baseline volumes that's incremental above baseline, offshore order flow into the BM&F environment. So it's more specific than that. So you shouldn't be thinking of it as order flow above the baseline. If it's 2 million contracts a day, for example, that would not be the right way to think about it.

And then just secondly, just to accentuate the fact that part of the reason we're also doing this in addition to the potential transaction processing revenues is also to gain additional inflows into CME Group products, but it's a two-way connection. So, in October, as I mention, there will also be the BM&F to CME order routing component that will kick in.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Okay. And would you expect similar pre-tax margins to the existing relationship with NYMEX as being an extension of the processing? I mean, would you expect similar results whenever gets going?

Craig S. Donohue - Chief Executive Officer

That's probably not a bad place to start.

Jonathan Casteleyn - Wachovia Capital Markets, Llc

Okay, alright, thank you.

Craig S. Donohue - Chief Executive Officer

Thank you. Thank you very much for being with us for the quarterly earnings report. We look forward to talking with you next time.

Operator

Thank you, sir. This does conclude today's teleconference. We thank you for your participation, have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CME Group, Inc. Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts