CME Group Q3 2023 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
October 25, 2023
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Operator

Greetings and welcome to the CME Group Third Quarter 2023 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Adam Minick. Please go ahead.

Adam Minick
Senior Director, Investor Relations at CME Group

Good morning. I hope you're all doing well today. We will be discussing CME Group's third quarter 2023 financial results. I'll start with the safe harbor language, then I'll turn it over to Terry.

Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They 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 statements. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website.

Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures.

With that, I will turn the call over to Terry.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Adam, and thank you all for joining us this morning. We released our executive commentary earlier today, which provides details on the third quarter of 2023. I'll make a few brief comments on the quarter and current outlook and Lynne will summarize our financial results. In addition to Lynne, we have other members of our management team present to answer questions after the prepared remarks.

Turning to the most recent quarter. Average daily volume of 22.3 million contracts was less than 1% off the record Q3 high set in Q3 2022, while our revenue grew 19% to $1.34 billion, which is the highest Q3 revenue in CME Group's history. As we've mentioned throughout this year, we are operating in an environment that unquestionably requires risk management. With so much uncertainty in the world we live in, we're continuing to work closely with our clients to help them navigate uncertainty and manage their risks. This is particularly true in the interest rate markets today. We see divergent market views around inflation, unemployment, monetary policy and ongoing geopolitical tensions, all impacting future interest rate expectations, regardless of whether rates rise, fall or hold steady.

The shape of the yield curve and interest rate views continue to shift and our customers need to manage that risk. As a result, we have continued to see growth on top of the record year in 2022 for our interest rate business. This was our highest Q3 for our interest rates complex, up 6% from the same quarter last year. We saw particular strength in the treasury complex, which was up 16% in the quarter and is off to a strong start in Q4 as well. Completing the successful migration of Eurodollars to SOFR, we continue to list other products to complement our interest rate complex today. Our European short-term rate or ESTR contracts traded a record 10,000 contracts per day in September, our newly listed treasury bill futures launched on October 2 and we have traded over 15,000 contracts in the first three weeks. This is one of the most successful launches of a rich product ever.

Our broad product offering and focus on capital efficiencies such as the enhanced cross margining agreement with DTCC going live in January of 2024 continued to enhance the value proposition for our customers using our products to manage their interest rate exposure. On the commodity side, third quarter 2023 volume was up 15% in total and included a highest ever Q3 volume for our agricultural products. Our energy complex also performed well with volume increasing 16% from last year. We believe the current environment for this asset class will continue to bring new clients as well as existing ones to manage their exposure in our global benchmark. We believe the strong macroenvironment combined with our diverse set of asset classes and strategic execution across our growth initiatives positions us well for continued growth in 2023 and beyond.

With that, I'll turn it over to Lynne to cover the third quarter financial results.

Lynne Fitzpatrick
Chief Financial Officer at CME Group

Thanks, Terry. During the third quarter, CME generated $1.34 billion in revenue, up 9% compared with a strong third quarter of last year. Clearing and transaction fees and market data revenue each grew 9% versus Q3 '22. Expenses continued to be very carefully managed and on an adjusted basis were $448 million for the quarter and $369 million excluding license fees, both lower than the second quarter this year. This quarter, our investment in the cloud migration was approximately $13 million. Our adjusted operating margin for the quarter expanded 66.5%, up approximately 240 basis points compared with the same period last year.

CME Group had an adjusted effective tax rate of 22.8%, which resulted in net income of $818 million and adjusted diluted earnings per share of $2.25, each up 14% from the third quarter last year. Of the $110 million increase in revenues versus last year, we were able to drive 90% for the bottom line with adjusted net income of $99 million. As a result of the strong expense discipline throughout the firm, we are lowering our core expense guidance, excluding license fees the $1.475 billion, a $15 million decrease from our original guidance of $1.49 billion. We are maintaining our guidance of $60 million for our cloud migration expense for a total expense guidance of $1.535 billion excluding license fees.

We continue to manage our capital expenditures effectively with an eye towards our move to the cloud. As a result, we are lowering our capex guidance $85 million. For the quarter, our capital expenditures were approximately $18 million. CME paid out $2.8 billion of dividends so far this year and cash at the end of the quarter was approximately $2.5 billion. Our strong financial results this quarter continued to build on the strength achieved in the first half of the year. This quarter, we delivered our nineth consecutive quarter of double-digit adjusted earnings growth. Our global benchmarks, data and strong focus on innovation and execution continue to address the needs of our clients and deliver results for our shareholders. Please refer to the last page of our executive commentary for additional financial highlights and details.

We'd now like to open up the call for your questions. Based on the number of analysts covering us, please limit yourself to one question and then feel free to jump back in the queue. Thank you.

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Operator

[Operator Instructions] Our first question is from the line of Dan Fannon with Jefferies. Please go ahead. Your line is open now.

Dan Fannon
Analyst at Jefferies Financial Group

Thanks. Good morning. Terry, a question for you on M&A. You've been vocal about your financial capacity to do additional transactions. I was hoping you could talk about kind of the scope and what you're looking at. And also in the context of the current environment, why now have valuations come in or your competitors distracted with other deals or other tasks? So curious about the current backdrop of what you're thinking about and really the scope and what that may look like.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. Thanks, Dan. I think that's a reason why people sometimes need to read the whole story and not just the headline. Because if you read the whole story, I haven't said anything different than what I've said for several years is I was only stating facts to the point where our capacity is much greater than everybody else's because we've stayed very disciplined and very focused as it relates to our M&A transactions that we've done. I was only referring to our EBITDA being lower than 1 times compared to some of our competitors who are at multiples of that.

When asked the question, if deals are to be offered, I made the reference to the comment that where else would you want to shop something, but the CME, it doesn't mean that CME is interested, but that's all I was referencing. So my appetite for this hasn't changed a bit. We have not looked at anything that to a point where I said, okay, we want to do a deal. I was only referencing what I've been saying for a number of years and unfortunately the headlines say what they're going to say. So there's not much more I can say about the net, Dan. But again, nothing has changed from our discipline. And again if I -- we see something and I've said this publicly and I believe this, we see something that benefits our users and benefits our shareholders, we will take a very strong look at it to build and grow this great company. That's all I was saying.

Dan Fannon
Analyst at Jefferies Financial Group

Great. Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks Dan.

Operator

Thank you. Our next question is from the line of Patrick Mally with Piper Sandler. Please go ahead. Your line is open.

Patrick Mally
Analyst at Piper Sandler Companies

Yes, good morning. Thanks for taking my question. Terry, I was hoping you could maybe just give us your updated thoughts on the outlook for volumes heading into year-end just given some of the evolving yield curve dynamics we've seen in this kind of heightened geopolitical uncertainty. And then coming into this year, you talked a lot about how great the setup was for CME's business. So maybe if you could just talk about how that maybe compares now to -- or how it's played out relative to your expectations and how it may be compares to the setup we're now looking at heading into 2024? Thanks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. I think the good -- and thank you, Patrick. I appreciate it. I think it's really hard to predict the future and I try to be careful, but the setups that we saw in 2022 what you're referring to and 2023 were something so glaring that you had to call it out because of the geopolitical events, what was going on with inflation where people were calling it transitory versus you sprinkle $3 trillion in three American public hands. You know that it's not going to be transitory. So I was only sprinkling out the favorable events that we were seeing fundamentally. But I thought was good for every single one of our asset classes and it was actually very good for us as you know with the record year in 2022 and then amazing quarter this quarter in 2023 and as Lynne said our nineth consecutive quarter of double-digit revenue growth. So those are all very impressive numbers.

I don't think the setup has changed, Patrick. When you look at what's going on right now is going to be much different for 2024. I think we're going to see a little bit of the same, but who knows. It's hard to predict what the volumes will be associated with that. But there was a massive amount of uncertainty out there. When we made comments like we did in '22 and '23, we also didn't have the unfortunate situation we're seeing in the Middle-East today. So there's another added component going on to that and then we also have other situations as I said earlier as it relates to our energy complex where people are looking for more production coming out of the U.S. and Derek [Phonetic] and touch more about that throughout the Q&A, but again, I think that bodes well for CME's products. But beyond that, I'd be careful what I say.

Patrick Mally
Analyst at Piper Sandler Companies

All right. Great color. Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks.

Operator

Thank you. Our next question is from the line of Alex Kramm with UBS. Please go ahead. Your line is open.

Alex Kramm
Analyst at UBS Group

Yes. Hey, good morning, everyone. Just quickly on the regulatory side, seems like the SEC is getting closer to mandating treasury clearing on the cash side. Obviously, you have your arrangement with DTCC now in place starting in January, so good position there I guess. But like more broadly just wondering how you think treasury clearing would changed the marketplace both on the cash side and maybe even in the future side, customer behavior, new customers. Anything -- I assume you have some thoughts on it. So anything would be helpful. How market structure may change if that happens?

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. No, thank you very much and it's a great question because it's a great unknown to what's going on out there and what is being proposed and what may happen is still being hammered out. I'm going to ask Susanne Sprague who is the President of my Clearing House to give you some comments on the reg side of it. She is working closely with her team as they're watching this and then I'm going to turn it over to Tim McCourt from an opportunity perspective what he is saying as it relates to the complex if in fact some of these things happen or even if they don't. So maybe we'll give you a little two part answer here, Alex, if you don't mind.

Suzanne Sprague
Senior Managing Director & Global Head of Clearing and Post-Trade Services at CME Group

Yeah, thanks, Gary. We do think generally the benefits of central clearings will bring the marketplace into a strong position for things like our cross margining program with a fixed income clearing corporation. So you are correct to put those dots together, then it will potentially enable higher participation in that program. We do today have the program that's eligible for common clearing members and so the enhancements will benefit those common clearing members within the program and therefore increased activity through clearing of treasuries generally should translate to more eligible activity that could benefit from cross margining between BME and the fixed income corporation. So we generally believe the benefits of central clearing plus those enhancements to the cross margin program will position us in the industry well for taking advantage of more capital efficiencies in this space. I'll turn it over to Tim McCourt to add anything else as well.

Tim McCourt
Senior Managing Director, Global Head of Financial and OTC Products at CME Group

Sure and thanks, Alex, for the question. I think when we think about the opportunity why we remain excited and very optimistic that the cross margin agreement is finally coming online in January of next year is because this is something that we've seen before in our other markets. When you unlock the capital efficiencies of related products, it significantly increases the risk management capabilities of the marketplace and can lead to increased trading velocity in the product, but as Terry said, it's hard to predict the future.

If we look at some of the other areas we've unlocked capital historically, portfolio margining of futures versus swaps is probably a pretty good analog to look at and that's been in place since 2012. Since that's been put in place, the average daily savings have grown from $1 billion in 2013 to a little over $7.5 billion today in 2023 and at that same time, our rates volume grew 109% in open and just doubled in the complex. And our cash market participation went from about 54% to over 100%. So certainly unlocking capital is beneficial to the volume and velocity of the complex and we're optimistic about what we can do once this comes online early next year.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Hopefully that gives you a little color to your question, Alex.

Alex Kramm
Analyst at UBS Group

Very good. Thank you guys.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Appreciate it.

Operator

Thank you. Our next question is from the line of Owen Lau with Oppenheimer. Please go ahead. Your line is open.

Owen Lau
Analyst at Oppenheimer

Hey, good morning. Thank you for taking my question. So it's somehow related to the last question, but I think you talked about government budget deficit in the past leading to more treasury issuance, which could increase like more hedging activities. Could you please unpack a little bit more on that relationship? Are you saying when we see more treasury issuance that should like kind of induce higher trading activity? I think any more color would be helpful. Thanks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah, Owen, Terry Duffy. And one of the things that we have said historically and if you recall some of the comments and our former colleague Mr. Sean Tully made over the years that when the Fed no longer is acquiring some of these treasuries that the demand for them will have to go somewhere else. The Fed does not hedge their treasury portfolio as you know. The other people that acquire the issuances coming out from the government need to hedge those. So it's hard to predict what the issuance is going to be. But again, those -- the parties that will be taken the issuance if it's not the Fed are traditionally people that hedge those in our marketplace. So that should benefit CME. So Tim, maybe you want to add anymore to that.

Tim McCourt
Senior Managing Director, Global Head of Financial and OTC Products at CME Group

Yeah, sure and thanks, Owen. When we look at the net issuance of treasury securities, they increased significantly in Q3 compared to Q2, up almost 80% and that's not surprising. If you remember, this is really looking at the replenishment of the treasury general account, which reached a record low of just under $50 billion prior to the debt ceiling and at the end of the September that balance stood about $672 billion. Now it's important to Terry's point to look where that debt is being issued and comments made previously a lot of the issuances go into T-Bills on the short end of the curve. That's what we saw in Q1, Q2 and that pattern has not changed here in Q3.

So with respect to how that can impact our complex in treasuries, one would assume that if we look back over historical distributions of how the treasury has look to issue debt, there's only so much that can go into the front end of the curve. It was perhaps a little bit below the historical norms the last several years where the treasury has taken advantage of the lower rates further out the curve, so one can reasonably conclude going forward. They would look further out the curve to be more in line with your traditional or historical allocation where that's where our complex that CME has all the historical products as Terry noted the growing treasury complex from both a volume and then OI perspective.

We would expect that issuance further out the curve in the coupons and bonds to increase the velocity as the marketplace looks to digest that issuance, hedge the related trading activity of it and with the introduction of our T-Bills earlier this year that's off to a great start, we now also have tradable products across the entirety of the curve and even better suited for that risk management needs of the marketplace as they find ways to absorb this increasing debt being issued to the market.

Owen Lau
Analyst at Oppenheimer

Got it. Thank you very much.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Owen.

Operator

Thank you. Our next question is from the line of Brian Bedell with Deutsche Bank. Please go ahead. Your line is open.

Brian Bedell
Analyst at Deutsche Bank Aktiengesellschaft

Great. Thanks. Good morning folks. I have a couple of questions. I'll get back in the queue for the second one. The first question I have is on just on the -- I guess there is some talk of a more regulatory or potentially more regulatory scrutiny around basis trading within futures and treasuries. And just wanted to get your perspective on how you view any potential scrutiny there or the merits of that trade and I don't know if you're able to potentially size the impact on volumes. I know it can be -- can change quite dramatically over cycle. So maybe tough to do, but just wanted to get a sense.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. And Brian, it's Terry. I'm going to turn it over to Tim. But sometimes there's problems looking for solutions as they say or solutions looking for problems. And this is a government that is fine trying to introduce new legislation where there is no problem with the basis trade is something that will continue to move and as well it should. And the basis trade is actually what keeps the markets in line. So we feel very strongly that this is going to continue to keep the market efficient and the more you explain that to regulators to show them what kind of potential chaos you could introduce if in fact you have additional regulation that takes people out of that trade, which widens the basis. They may not like that outcome. So let me turn it over to Tim to give you a little bit more color, but I would be cautious to draw the conclusion that any kind of pending regulation is coming down the pike any time soon. Tim?

Tim McCourt
Senior Managing Director, Global Head of Financial and OTC Products at CME Group

That's correct, Terry. I think the one thing I would add is that the existence of basis between cash and futures market is not an isolated theme on to the treasury market. We see this in almost all of our asset classes here at CME and the fact that you can independently trade the basis as a stand-alone risk parameter is an important key element to keep these markets aligned an arbitrage free. It's something that we've seen is vital to the marketplace for this purpose and it's something that we also see remaining in this market. It's not surprising with rates traversing the range that they have that you're going to see different behavior of the basis that we have in previous decades when we've seen similar activity. And it's something that we engage with the market.

And the one thing I would note is that it's also important that CME also has the ability to trade cash treasuries on BrokerTec and the futures, which is also both leading price discovery mechanism. So we're the natural home this rate to take place and we continue to work with the marketplace in how we can increase the efficiency of this trade going forward and work even more closely with market participants to make sure we unlock the value that still exists between bringing the BrokerTec and our futures business together at CME. Thank you, Brian.

Brian Bedell
Analyst at Deutsche Bank Aktiengesellschaft

Yeah. Thank you.

Operator

Thank you. Our next question is from the line of Kyle Voigt with KBW. Please go ahead. Your line is open now.

Kyle Voigt
Analyst at KBW

Thanks. Maybe just a question on expenses. Good to see the lower expense guide today. But just given the slightly higher kind of inflationary environment and still relatively tight labor market, just wondering if you could remind us how you think about steady state organic expense growth on a medium-term basis for this business in the current macro backdrop? And then second part of that question, as we're approaching the end of the year here, can you also just remind us how the Google related expenses are expected to unfold into 2024 versus 2023 level? So I think there was spend for the first four years, but just maybe give us an update on where you stand with that spend today and when that starts to wind down.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thank you, Kyle. Lynne you want to address both of those issues?

Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yeah, sure. So overall expense guidance, if you look at our estimate for this year that's up about 3.6% on our forward expenses despite the inflationary environment. So I think what we've seen from us over the years is really tight expense discipline and expense control. We're always looking for ways to minimize the -- run the business expense to become more efficient so that we can have more of our expense base going through to growth initiatives and helping to grow the bottom line. So I think we have a strong track record there. If you look back in history, it's averaged between that 3% to 3.5% over the last several years.

Certainly, as we look forward, we'll continue that same type of disciplines and we'll look to provide guidance as we get closer to year end. On the Google front, we did guide that we would have four years of incremental cash costs in the range of $30 million per year on average. So our expense guidance for this year, this is our second year is $60 million in expense, offset by $20 million in capex savings to get to a net $40 million. We had $30 million in net expenses last year. So we have two more years where we think there will be an incremental expense associated with the Google migration before we start to see breakeven and ultimately cash-flow positive.

Kyle Voigt
Analyst at KBW

Great. Thank you very much.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Kyle,.

Operator

Thank you. Our next question is from the line of Benjamin Budish with Barclays. Please go ahead. Your line is open.

Benjamin Budish
Analyst at Barclays

Hi. Good morning. Thanks for taking the question. Terry, in your comments you talked about the kind of uncertain rate environment and ongoing need for participants to manage risk. Earlier in the year, you talked about the opportunity with regional banks, but maybe just at a high level, how do you see that opportunity more broadly? Is it kind of new participants that haven't been on CME's platform before? Is it more involved hedging from existing participants? How do you see kind of like the medium-term TAM coming from that environmental need that you see? Thanks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. I think it's hard to for us to describe if it's the regional banks or the bigger banks hedging. I mean, Suzanne can help me with more color on that as who the exact participants are because they come in through one of the bigger banks anyway, even the smaller ones do. So we're not quite sure which one is laying off the risk.

Suzanne Sprague
Senior Managing Director & Global Head of Clearing and Post-Trade Services at CME Group

Yeah. I would agree with that. It's generally appealing I would say for both of those groups or folks to engage with us on an ongoing basis, especially now with the uncertainty and the rate environment to think through the offerings that we have from a capital efficiency standpoint as well as general risk management standpoint for ensuring that there aren't additional micro or macro events that will I guess circulate in the industry. SVB is one example of a lot of engagement that we've had feeding up to and afterwards with clients about the way that we provide services and clearing solutions to allow people to manage risk as well as the product side.

So I think it is hard to specifically identify what portion of those participants might be new and existing. But we have been engaging pretty broadly in the marketplace around those events to make sure that the products and services as well as the way that the clearing house offers risk management services are accounted for and available for market participants more broadly to get ahead of any other events that might be circulating in the industry.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

And just to add to that and thank you, Suzanne. That's a great answer. But just to add to that, Ben, the duration risk that we saw take down SV8 has not gone away. As we talked about earlier in our comments, the issuance that is coming out from the government seems quite large in order to run and pay our bills in this government and the demand has been a little bit lighter. So in return whether they like it or not, rates are continuing to be very stubborn regardless of what the Fed does or does not do.

So I think that we're not suggesting there'll be more duration risk. But what I am suggesting is that people are going to have to manage that. And so whether it's the biggest the banks or the mid-tier banks, the risk management associated with duration not only is it not going away. In my opinion, it's increasing because of the fundamentals of the overall treasury market in general. So from our standpoint, we think that will lend to more people mitigating and managing risk to our treasury complex from all different sizes of the banking world. That's all, Ben?

Benjamin Budish
Analyst at Barclays

No, that was great. Thank you so much.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Okay. Thanks.

Operator

Thank you. Our next question is from the line of Chris Allen with Citi. Please go ahead. Your line is open now.

Chris Allen
Analyst at Smith Barney Citigroup

Good morning, everyone. I was wondering if you could provide color on the average collateral balances for cash, non-cash in the quarter and then respect to the yields and then where they stand at present.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Lynne?

Lynne Fitzpatrick
Chief Financial Officer at CME Group

Sure, Chris, happy to. So if you look at quarter three, the average cash balances were $91 billion, the yield on average 6 basis points. For noncash, we averaged $137 billion yielding 7 basis points. If you look October to date, the cash balance has trended down. We're seeing average cash balances of $71 billion and a shift into the non-cash collateral, which is up to $152 billion. I would point out that on the non-cash collateral side, we did announce a fee change that takes effect in January where the charge on the non-cash collateral will be increasing from a blended 7 basis points up to 10 basis-points. Just to give that a little sizing, if you apply that change to this quarter's average volume that would have added $10 million to the revenue associated with the non-cash collateral, which rolls through other revenue.

Chris Allen
Analyst at Smith Barney Citigroup

Great. Thanks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Chris.

Operator

Thank you. Our next question is from the line of Ken Worthington with JPMorgan. Please go ahead. Your line is open.

Ken Worthington
Analyst at JPMorgan Chase & Co.

Hi, good morning. Thanks for taking the question. As you go into year end, maybe could you talk about how you're thinking about price increases in data and trading for 2024 particularly in the context of the fairly sizable changes you made in 2023?

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Okay. Ken, thank you. I'm going to ask Lynne to start and then Julie Winkler who heads up our data organization as our Chief Commercial Officer will participate as well. So Lynne?

Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yeah. So as you know, on the clearing and transaction fee side, we typically announce any changes there later in the year. It's typically around the late November time frame. Our approach is the same as it's always been. It will be a bottoms up approach looking at all the different markets, looking at the health of the markets, the value we've created, the health of our customers and the total cost of trade, including not only clearing and transaction fees, market data fees, but also the cost of collateral and making sure that we don't do anything from a fee perspective that would impact volume or liquidity given our high incremental margins. So as I mentioned, we have increased that non-cash collateral fee effective in January that runs through other revenue and Julie has announced some market data fee changes, which take effect in January as well. Julie, do you want to walk through this?

Julie Winkler
Chief Commercial Officer at CME Group

Yeah. I mean, Q3 was another record quarter of $167 million in data revenues, so up another 9% year-on-year. And I think the strong growth also is something that as we look into 2024, yes, there will be some fee adjustments, but we also are looking for continued new product development, active sales efforts, continued education and also our enforcement efforts. So it should be noted even in this quarter, we saw about $4.9 million in nonrecurring revenue that was reflective of both those period activities from subscriber adjustments as well as that audit revenue that we sometimes talk about.

And so as similarly with the transaction-based business that Lynne just referenced, we're continually evaluating the pricing of these data offerings. We have a very large and diverse set of offerings. So it's difficult to really specify a specific increase to forecast for 2024. Many of our data products, however, will see price increases next year ranging from 3% to 5% kind of reflecting that price to value approach. However, again, this is dependent on both subscribers as well as that nonrecurring revenue that occurs in most quarters. So hope that's helpful.

Ken Worthington
Analyst at JPMorgan Chase & Co.

That was great. Thank you very much.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Ken.

Operator

Thank you. Our next question is from the line of Alex Blostein with Goldman Sachs. Please go ahead. Your line is open.

Alex Blostein
Analyst at The Goldman Sachs Group

Hey, good morning, everyone and thanks for taking the questions. I was hoping you can opine on some of the potential new competitive dynamics and developments in interest rate futures, markets with FMX futures potentially entering this space and partnering with LCH. Now we've seen this movie before, right, multiple times and all these kind of attempts have been unsuccessful. So I wonder whether not this might feel different given LCH position as the largest pool of clearing in the swaps market. Maybe just a reminder of sort of the benefits that customers get by keeping everything in futures and the savings across the portfolio that can get versus the alternative of trying to kind of cross margin between futures and swaps. Thanks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Alex. And I'm going to ask Tim and maybe somebody of my other colleagues around the table to comment as well. But when we're looking at the FMX proposal, we haven't seen all the details. And I think it's always really hard to comment on exactly what the competitive offering is going to be other than what you just referenced. I understand what you said. I think with the announcement of DTCC and the offsets that we are going to be able to supply to the users is going to be extremely powerful benefit to the participants of the marketplace. And you also have to remember that FMX is coming from a position of zero futures trading today.

And where we are sitting on as Tim has referenced record open interest in treasury complex, listing new products and listing the benefits thereof. We are ready and able to compete with anybody and competition is something that has made CME what it is today. But the benefits that we continue to work on, you've heard me say this for years that we are going to continue to look for capital efficiencies in each and every one of our asset classes. We are delivering on every one of those asset classes to deliver capital efficiencies. That does not go lost on the participants in a capital intensive world.

So when you're talking about new offerings with LSE and what they could potentially offer versus what we have, we think we have a massive compelling offering for our clients that saves them additional funds. So I like our position and I think we were in a position of strength. Again, I think a lot of people -- Alex, as you know very well when the LIBOR was going away and everybody was going to convert from Eurodollars us to SOFR that people thought it was a jump ball and we felt we were in a very strong position to transition a 100% of that business into CME SOFR products, which we did because of efficiencies to everything we have to offer.

And those go from the back office to my sales team right across the entire organization that creates those benefits. So I like our position. Again, I think you said it at the beginning of your question, we've seen this movie before. I don't want to quote you wrong, but I think that's what you said. And we will continue to take every party that wants to compete with us very seriously. But at the same breath, we think we have a very strong powerful compelling offering for our clients. Tim, you want to add to that?

Tim McCourt
Senior Managing Director, Global Head of Financial and OTC Products at CME Group

Sure, thanks, Terry and thanks, Alex. So I think to just to add a little more color on that picture is when we look at the gravity of the complex at CME to Terry's point, this is unmatched. And the one thing I want to further remind the marketplace about is you can unlock tremendous amount of capital savings and efficiencies at CME today and the marketplace is doing it. In addition to the $7.5 billion plus margin savings from our portfolio margining portfolio, let's look at some of the numbers with respect to the open interest with record average daily open interest in our treasury complex of just under 19 million contracts in the third quarter, a record average daily open interest in our SOFR complex of about 11 million contracts and with a record large open interest holder population of 3,175 participants. That is an enormous amount of gravity that although LCH maybe the leader with respect to their interest rate swap clearing offering, I like the gravity and the size of the complex that's going to be unmatched about the capital efficiency you can add into at CME, the sheer function of our position on the futures side, which we expect to only be more and more important to the marketplace as we head into 2024.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Hopefully that gives you a little color on how we're thinking about it, Alex, but again, we take it everything seriously and -- but I think, again, our offering as Tim has said and I said is very compelling.

Alex Blostein
Analyst at The Goldman Sachs Group

Yeah, very helpful guys. Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Alex.

Operator

Thank you. Our next question is from the line of Michael Cyprys with Morgan Stanley. Please go ahead. Your line is open.

Michael Cyprys
Analyst at Morgan Stanley

Great. Thank you. Good morning. A two-part question, just following up on the capital efficiencies. Beyond the cross margining with DTCC, just curious what other steps you might be able to take as you look out the next three years to further enhance that. And then the other part of the question is just around the regulators proposing new capital rules for banks that can make some bespoke off exchange derivatives just more capital intensive. Just curious your take on that, where you see the biggest opportunity to bring derivatives from OTC to the exchange traded marketplace.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Michael, both really good questions. The latter one is -- we've dealt with in 2017. I'm assuming you're referring to the Basel III what's being proposed on the second part of your question.

Michael Cyprys
Analyst at Morgan Stanley

Yes.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Okay. So on the first part on the capital efficiencies, I'm going to turn it over again to Suzanne Sprague and she can touch on both, but I'll give you my thought process on the Basel III as well.

Suzanne Sprague
Senior Managing Director & Global Head of Clearing and Post-Trade Services at CME Group

Yeah, thanks, Terry. So we do look forward to extending the enhanced cross margin program to the client level. We have had quite a bit of conversations with ourselves and the Fixed Income Clearing Corporation as well as clients on the importance of continuing to broaden that program. So we don't have any timelines to commit to at this point in time, but it is a focus of ours jointly to be able to expand those enhancements to the end client level, which I think will help even more with things we've already covered on the treasury mandate and needing more capital efficiencies to address things like increased capital costs under the Basel proposal. And I think Terry will hit at a high level to Basel proposal.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. Let me just comment on the practicality, Michael, and I know that you've been in there for a little while now at your firm and understand how this works. There is zero consensus amongst the regulators as it relates to some of these proposals in Basel III. Actually, there is really opposing views to that which makes it very difficult to move something forward where you have internally at a regulator not the same people supporting the proposal. The markets need to remain efficient and I guess again another solution looking for a problem with Basel III. We have never had an issue under the margin that we're holding that needs to have a capital hit associated with it. We only think that would add to the lack of liquidity to the overall marketplace and make markets less efficient than they are today and that's not healthy, especially as we laid out the fundamental places that we are in the world today and with the issuance coming forward.

We need to manage this. There's risk in everything we do in this life, including the treasury issuance and who is using it or not. We think we have a very good platform and we think that the rules that are in place right now makes sense for the users. And if you want to just continue to add capital charges that everything we do, I guess, we can constrict it to zero and we won't have any more risk in the system, but we won't have any economies around the world either. So I do think it gets to a certain point. Again, like I said earlier, this was proposed in 2017 and it was not agreed upon then and the -- so we'll see where this goes. We are meeting with people in Washington. Now my Washington folks are trying to explain the detriment to such a proposal could bring to the overall marketplace.

Michael Cyprys
Analyst at Morgan Stanley

Great. Thanks so much, appreciate it.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Mike.

Operator

Thank you. Our next question is from the line of Craig Siegenthaler with Bank of America. Please go ahead. Your line is open.

Craig Siegenthaler
Analyst at Bank of America

Hey, good morning, everyone. So in the quarter, there was another instance of vertical integration between an exchange or actually technically a DCM and an FCM. So now we have coin based MYX [Phonetic] with vertically integrated business model. So first, I wanted to get your perspective on what this means for the ecosystem. And then -- and also CME already registered its FCM last year. I think partly reaction to FTX has moved. So what are your updated objectives for that business now?

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

So Craig, again, I've been also talking a lot about market structure and how market structures always have a shelf life and we don't know what the next one is going to look like, what we all need to be prepared for it and that's what CME will always do. We'll be prepared for anything that comes our way. That's one of the reasons we file for the FCM application, not just because of FTX, but not to say you're wrong because that was part of the reasons why, but it was again around market structure. I think what these vertically-integrated models that is being proposed such as MYX and I think coin base is the other one you referenced? The conflict of interest question for the clients is huge and it would be big for us too if we decided to go ahead and deploy an FCM.

So we would have to be very careful about that ourselves, but at the same breath, I think that if they're going to go down this vertically -- this integrated model, they need to write rules associated with. This was my entire complaint around FTX that they were trying to make existing rules fit for their business proposal. So if in fact we're going to have integrated models of what MYX is proposing today and go into business in the United States, you need to right rules with them because the Commodity Exchange Act clearly states in the year 2000 that those rules were written with intermediaries in mind, not on a direct model. So not saying you couldn't have intermediaries in the direct model, but the rules are not clear on that.

So I think there's a long way to go. I think one of the reasons they are not getting much attention today on that is because of their size, which I think is wrong to look at it that way. It shouldn't matter their size. Who is to say they can get bigger tomorrow, who's to say we can't do something different to mile as well? So I think there needs to be always be rules and the rules of the road need to be applied, so people understand them. We do not need situations like '08 and other ones that we can all describe because of people trying to advance businesses that they think is in their best interest without having the public's interest at heart.

So again, we've always been a neutral facilitator risk management. We will continue to do so. We like the intermediary model and again -- but we don't know what the future's going to hold, but I do. I am very concerned about some of these existing platforms and the government needs to look at them and write rules from, if in fact they're going to allow them to stay in business.

Craig Siegenthaler
Analyst at Bank of America

Thank you, Terry.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thank you.

Operator

Thank you. Our next question is from the line of Andrew Bond with Rosenblatt Securities. Please go ahead. Your line is open.

Andrew Bond
Analyst at Rosenblatt Securities

Thanks. Hey. Good morning. One for Derek on the energy business, so energy markets, particularly natural gas markets have experienced some structural shifts benefiting North American markets following the Russian invasion of Ukraine. And more recently, with the geopolitical events in the Middle East, are you seeing more of a continuation of these dynamics? And can you talk about the potential longer-term impact of the geopolitical events of late on your markets?

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Andrew, thank you. We appreciate it. And Derek?

Derek Sammann
Senior Managing Director, Global Head of Commodities, Options & International Markets at CME Group

Yeah, thanks, Andrew. Yeah, I think this is kind of proof positive of what we've been talking about for the last couple of years that structurally the U.S. has an incredibly strong position given the position we have both in crude oil as well as natural gas. As you know, we're currently exporting record amounts of oil from U.S. at 4.6 million barrels a day. We're also exporting a record levels of natural gas while based on Henry Hub pricing at record levels from our U.S. capacity point of view. So as we've talked about that structurally positions CME's WTI franchise as kind of the leader in that space and certainly positions WTI as a global benchmark as the U.S. continues to export the marginal barrel outside the U.S. with challenges everywhere else.

Natural gas, as you pointed out has done a really, really strong point for the energy franchise overall. When you look at the -- what's going on from an uncertainty point of view, options continue to be a significant proportion of our customers' client behavior. So we like our position in both natural gas and crude oil. When you look at the volume and growth of the both futures and options, strong in Q3. More important, we continue to see that strength in October with our energy options up 81%, overall energy up 26% in October. So really strong year this year, continuing really strong year into Q4 and the position that we have as the swing producer, both in natural gas and crude oil I think positions us well long-term in what we think is a potentially multi-generational energy shift.

Andrew Bond
Analyst at Rosenblatt Securities

Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Andrew.

Operator

Thank you. Our next question is a follow-up from Alex Kramm with UBS. Please go ahead. Your line is open.

Alex Kramm
Analyst at UBS Group

Yes, hello again. Just a quick one on the interest rate business again. You guys -- Terry mentioned the LIBOR, SOFR transition obviously that's now behind us and successful. But just maybe looking back on that, I think early on there were some concerns that SOFR would not be the best replacement for Eurodollar and that maybe it won't meet certain trading strategy. So now that we're sitting in here I don't know six months after the cut off, is the marketplace different at all? Are you seeing certain strategies not being applied anymore? And is there still room for innovation for you or is SOFR to Eurodollar basically now the same thing as it once was? Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

So I'm going to let Tim answer as well, Alex. But. I will say the following, that the reason why people believe that SOFR might not be as good as Eurodollar is because of pure uncertainty. When you know a certain way for so many decades of how you're going to price short-term interest rates and all of the sudden the governments say, you have to change them, it's the uncertainty of the marketplace for starters. As far as it goes to the strategies, I think Tim already outlined the open interest in trade and SOFR. So you would have to say the answer to question number two, are people not doing certain strategies is no. So question number three is there opportunity for people I think was the last thing you had asked for the SOFR versus what was not know LIBOR and I'll turn it to Tim.

Tim McCourt
Senior Managing Director, Global Head of Financial and OTC Products at CME Group

Yes, thanks Terry, and thanks, Alex, for the question. I think what's interesting is when we see several months after the transition and we look at the SOFR complex at CME year-to-date through Q3, I believe we're already about 14% above the best year in Eurodollars previously and we still have a whole quarter to go, which is exciting. They're certainly adopted, certainly being integrated. We're seeing similar strategies with respect to the various option strategies that futures the outright, the spreads, but we're really pleased with how the ecosystem is coming along. But the one thing I would add is we also have new additional short-term interest rate products that can be spread against SOFR.

When we look at the introductions of T-Bills and as Terry said in his opening comments with respect to us leading and taking a really strong roots in the ESTR market overseas, these are all new things that are additive to the ecosystem that didn't exist when Eurodollars were around. So we're very optimistic for the future and further buttressed by our efforts on the CME churn SOFR front with respect to licensing and the IP and the gravity that we're lending to that complex. These are all great things that continue to position not only SOFR, but the rest of our rate complex given the interrelatedness and the spread strategies that exist as we head into next year.

Alex Kramm
Analyst at UBS Group

Excellent. Good to hear. Thanks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Alex.

Operator

Thank you. Our next question is a follow-up question from the line of Brian Bedell with Deutsche Bank. Please go ahead. Your line is open.

Brian Bedell
Analyst at Deutsche Bank Aktiengesellschaft

Great. Thanks for taking my follow-up. It's on RPC. Just some of the drivers in the third quarter that you mentioned were I remember mix and product mix. I think that was mostly on the product mix side between asset classes. I was wondering if you could comment a little bit about were there any outliers within the asset classes that significantly impacted the RPC? And then it looks like geography-wise or non U.S. was actually up a little bit sequentially and I thought that was -- usually it's typically higher RPC. So maybe just some comments on that? And then also just on options versus futures, if you can remind us on the differentials there? I think Derek you mentioned the options volumes in energy in particular were up nicely in October.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah, Brian, two parts to your question. So I'm going to ask Lynne to comment on the RPC and then as Derek to comment on the international business which you're correct does carry a higher RPC than the traditional some of the stuff here in the U.S., but go ahead, Lynne.

Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yeah. So if we look at the overall RPC of $0.707 versus the prior quarter of $0.724, so down $0.017, the drivers for that were really lower proportion coming from commodities products. It was about 18% this quarter, down from about 19.5% last quarter. We did also see a slight increase in member mix and the contribution from my growth overall. In terms of the specific asset classes, I wouldn't call anything out as unusual per se. I would just point you to if you look at the year-over-year basis on very similar volume, we saw a 12% uplift on RPC. That's driven by a couple of things. You do have a lower proportion coming from my growth. You have an increase in the commodities as we've seen that rebound in this year and you are seeing the impacts of that pricing change rolling through.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Lynne. Derek, you want to talk a little bit about the non U.S. business as it relates to the RPC?

Derek Sammann
Senior Managing Director, Global Head of Commodities, Options & International Markets at CME Group

Yeah. Thanks, Brian. We are seeing some continued really strong growth and building on the back of what was a record 2022 for non U.S. business. We're building on that again. Our Q3 international volume was up 7% this year and that was led by some of the higher RPC products. Our ag non U.S. business was 32%, energy up 30%, rates were up 16%, metals up 10%. Also what you saw and I think you might have mentioned this, our non U.S. options continues to grow extremely strongly. So our non U.S. options volume is up 31%, while the overall options is up 21%, so good strong story within a good strong story.

So we saw EMEA be a particular standout there relative to the volumes and I think we're -- the efforts we put into place, boots on the ground, you heard us talk about the investment we're making and the majority of our sales force now being outside the U.S. is accelerating both our new client acquisition opportunities as well as reinforcing and cross-selling into our existing customer base. So our non U.S. business continues to be a source of strength and new client growth for us. And I think we'll see that we're on track for another record year for that side of the business across asset classes and we like our position going into '24.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

So just to sum that up, Bryan, because I think it's a really important question. Not a particular asset class, whether it's degradation in the RPC so much, it was more the mix of member versus non and then we have some of these really outliers -- not outliers, but some higher rate RPCs and some of the energies as Lynne referenced and it's a very sensitive tool. So that can move it a little bit and that's what you saw.

Brian Bedell
Analyst at Deutsche Bank Aktiengesellschaft

That's great. Can you remind us on the RPC of options versus futures in general?

Lynne Fitzpatrick
Chief Financial Officer at CME Group

Yeah. So the total RPC for options this quarter were $0.658.

Brian Bedell
Analyst at Deutsche Bank Aktiengesellschaft

Got it. Okay. Perfect. Thank you so much for that really complete answer. Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Brian.

Operator

Thank you. Our next question is from the line of Owen Lau with Oppenheimer. Please go ahead. Your line is open.

Owen Lau
Analyst at Oppenheimer

Thank you for taking my follow-up question. I think CME recently launched the WTI crude oil Monday and Wednesday with the auctions. I'm just wondering how much incremental opportunity and demand for this [Indecipherable] products, not just in energy, but in the whole CME platform. Thank you.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Owen. Derek?

Derek Sammann
Senior Managing Director, Global Head of Commodities, Options & International Markets at CME Group

Yeah. So on the weekly stuff, yeah, we had really great success across the entire franchise of launching additional points of maturity curve. We've recently launched Mondays and Wednesdays in energy, particularly in WTI. We've actually set a number of records there. We had an all day record ADV about 43,000 contracts on the 1 September and that was after the addition of the Mondays and Wednesdays. We set a single day record on the same day of about 15,000 contracts. When you look at that opportunity for us, we've talked about this before. Certainly, in a world with as much risk as we see on any given pay, on any particular asset class, adding additional maturity points and granular levels of risk management have proven to be successful.

We sort of -- we plumbed that path with equities. We've incrementally rolled that in other asset classes and I think over time, we found our customers have adopted those more broadly. Those are additive to the OI pool. Those have created more opportunities for spreading across maturities, but I would also note that our record options growth is accelerating, not just on the front end of the curve, but across the entire maturity curve. So we're seeing growth there where the short dated pieces are additive to the growth, but it's actually being led by farther out across the curve. So we see those as additional tools and nice additive pieces of growth, but not the primary source of growth.

Owen Lau
Analyst at Oppenheimer

Got it. Thank you very much.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Owen. Thank you, Derek.

Operator

Thank you. Our next question is a last question from a follow-up from Craig Siegenthaler with Bank of America. Please go ahead. Your line is open.

Eli
Analyst at Bank of America

Hi. This is Eli [Phonetic] from Craig's team. Thanks for taking my questions. I was wondering...

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Can you speak up just a little bit, Eli? I think it was Eli and not Craig on the phone.

Eli
Analyst at Bank of America

Yeah. This if you Eli from Craig's team. Thanks for taking the question. I was wondering if you could give us a sense of the potential impact of approval of the spot crypto ETFs and your crypto complex. What proportion of volumes do the futures based ETF managers contribute to that complex today? And if we see like a migration from the future based vehicles to spot would that threaten the viability of that complex?

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Yeah. Good question, Eli. Thank you. Tim?

Tim McCourt
Senior Managing Director, Global Head of Financial and OTC Products at CME Group

Thanks, Eli and thanks, Terry. Certainly, a freshening question given the recent moves that we've seen in Bitcoin. I think one thing to note is that before we dive into the nuances of the ETF, we've also seen tremendous volume and OI growth year in the third quarter for our crypto complex. Just this week we saw over 130,000 contracts trade worth about $7.6 billion. That's our largest day in the crypto complex since the wake of the FTX collapse in little over a year ago. So when we saw also a record OI in our Bitcoin futures over 20,000 contracts, which is equivalent of more than 100,000 Bitcoins and this really speaks to the fact that we are a institutional grade offering for the crypto community.

So it's not surprising that we are the underlying for a lot of the futures based ETFs, which have done phenomenally well in terms of serving the marketplace to date. Certainly, there is a belief that some of the uploading of price to almost 35,000, 35,000, we've seen this on the belief of spot based ETF approvals. I'm not here to comment on whether that's going to happen. But what I can tell you is that we do see the introduction of additional structural products, whether that be spot or other underlying base in the crypto community will be additive to our complex at CME on two fronts. One, these markets are highly interrelated where futures will not only be the underlying to some of these products. They will also be the hedge mechanism for market makers as well as market participants looking to hedge their digital or ETF based Holdings.

And the second thing to always keep in mind is we also have the CME CF Bitcoin reference rate, which is the underlying for a lot of these ETFs coming to market. So not only will be additive to our futures based volumes as we've seen in other asset classes such as equity, it's also to keep in mind that these products take root and grow the market. There will be additional revenue generation opportunities from the licensing front as a function of AUM and derived license fees here at CME as the IP owner of the underlying.

Eli
Analyst at Bank of America

Thanks guys.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

Thanks, Eli.

Operator

Thank you. And there are no further questions. I will turn it back over to management for closing remarks.

Terrence A. Duffy
Chairman and Chief Executive Officer at CME Group

I want to thank you all very much. Excellent questions today. We appreciate it very much and we wish you a good day and everybody stay safe. Thank you.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Adam Minick
    Senior Director, Investor Relations
  • Terrence A. Duffy
    Chairman and Chief Executive Officer
  • Lynne Fitzpatrick
    Chief Financial Officer
  • Suzanne Sprague
    Senior Managing Director & Global Head of Clearing and Post-Trade Services
  • Tim McCourt
    Senior Managing Director, Global Head of Financial and OTC Products
  • Julie Winkler
    Chief Commercial Officer
  • Derek Sammann
    Senior Managing Director, Global Head of Commodities, Options & International Markets
Analysts

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