Oct 28, 2010
Executives
James Parisi - Chief Financial Officer and Managing Director of Finance & Corporate Development John Peschier - Managing Director of Investor Relations Terrence Duffy - Executive Chairman, Chairman of Executive Committee and Member of Strategic Steering Committee Craig Donohue - Chief Executive Officer, Executive Director, Member of Executive Committee, Member of Marketing & Public Relations Advisory Committee and Member of Strategic Steering Committee Bryan Durkin - Chief Operating Officer and Managing Director of Products & Services
Analysts
Alex Kramm - UBS Investment Bank Niamh Alexander - Keefe, Bruyette, & Woods, Inc. Edward Ditmire - Macquarie Research Christopher Allen - Ticonderoga Securities LLC Michael Carrier - Deutsche Bank AG Rob Rutschow - Credit Agricole Securities (USA) Inc.
Donald Fandetti - Citigroup Inc Richard Repetto - Sandler O`Neill Patrick O'Shaughnessy - Raymond James & Associates Howard Chen - Crédit Suisse AG Kenneth Worthington - JP Morgan Chase & Co Michael Vinciquerra - BMO Capital Markets U.S. Daniel Fannon - Jefferies & Company, Inc.
Jonathan Casteleyn - Susquehanna Financial Group, LLLP Roger Freeman - Barclays Capital
Operator
Good day, everyone, and welcome to the CME Group Third Quarter 2010 Earnings Call. [Operator Instructions] At this time for opening remarks and introductions, I would like to turn the conference over to John Peschier.
Please go ahead, sir.
John Peschier
Thanks, and thank you all of you for joining us this morning. Craig Donohue, our CEO; and Jamie Parisi, our CFO will spend a few minutes outlining the highlights of the third quarter, and then we will open up the call for your questions.
Before they begin, I'll 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 Forms 10-K and 10-Q, which are available on the IR section of our website. Now I'd like to turn the call over to Craig.
Craig Donohue
Thank you, John, and thank you for joining us this morning. I'll be discussing our performance in the third quarter and providing updates on a few of our strategic initiatives before turning things over to Jamie to review the financials.
CME posted solid third quarter results with average daily volume up 14% from the same period last year. Net income of 21% to $244 million and earnings per share of $3.66, up 20%.
The foundation of our performance lies in our product diversity. Energy and metals contribute 32% of transaction fee revenues; interest rates, 27%; equities, 21%; and foreign exchange and commodity products contribute the remainder.
The breadth and diversity of our product line is beneficial when we face macro economic headwinds, in particular, market segment. Importantly, I'll note that though we've seen volume performance within the individual asset classes varies throughout the year, we have continued to see open interest build from quarter-to-quarter in everyone of our product lines.
Open interest currently sits at 92.4 million contracts, up 12% compared to the same period last year and just below the all-time record of 95 million. To review some of our volume statistics, third quarter average daily volume was up 14% versus the same period last year and was down 15% versus the second quarter of this year, due to extraordinary performance in Q2 and the typical impacts of seasonality during July and August.
Turning to interest rates. Diminished activity in short-term rates was significantly offset by strong growth in our Treasury products, as I will describe in a moment.
Average daily Eurodollar volume was down 7%, however, longer dated Eurodollar contracts with expirations beyond September 2012 saw record average daily volume of 320,000 contracts, up 32% from the prior year as there continues to be more volatility at the long end of the curve. Eurodollar mix curve options, which are short-dated expirations on longer-dated futures contracts, have also experienced impressive volume growth this quarter from approximately 6,000 average daily volume last year to 87,000 this quarter and with open interest growing from 330,000 contracts to 1.2 million contracts today at quarter end.
Importantly, Eurodollar opened interest across the whole yield curve continues to grow including in the first two years. While short-term interest rates continued to be affected by monetary policy, it is important to recognize that Eurodollar products represent only 12% of total transaction fees at CME Group.
As I mentioned, Treasury products had a very strong third quarter with average daily volumes up 38% in futures and with options volumes up 62%. As we've seen expectations for interest rate increases move out on the curve, products at the longer end of the curve are seeing greater activity.
An additional positive to the strong Treasury volume is that the Treasury's weight for contract is generally higher than that Eurodollar RPC. We continue also to successfully innovate new products and product extensions that meet customers needs and enhance our performance in this segment of our business.
We've had tremendous success with our Ultra Long Bond Treasury features, which posted average daily volumes of 33,000 contracts in Q3 and open interest of 222,000 contracts. Just this week, we also launched our on-the-run Treasury futures contracts, which our customers are very excited about.
The robust liquidity and diversed customer base in our core Treasury products enabled us to effectively develop these product extensions, which in turn allows us to provide our customers with more trading opportunities at CME Group. In other product areas, average daily volume in our equity products was up 6% for the quarter, outperforming cash equity market volumes and reflecting asset allocation preferences and the outflow of funds from equities to fixed income market throughout 2010.
Average daily volume in our FX products was up 31% over third quarter last year and open interest trends remained positive with current levels at a near record of $1.6 million. Growth in CME FX is coming from diversed sources.
We saw 40% volume growth in the Australian and Canadian dollar markets, which historically had been less actively traded currency pairs at CME. Additionally, FX activity was up 54% during non-U.S.
trading hours and this asset class continues to be our fastest growing segment during non-U.S. hours.
FX options also continued to perform extremely well with average daily volume up 182% over third quarter 2009 and open interest growth of 101% versus the same period a year ago. Finally, another positive indicator for our FX business came out of the recently released BIS tri-annual survey, which shows that the global FX market grew 20% from April 2007 to April 2010, while CME FX volume grew 94% in that same period, clearly demonstrating the increasing importance of our products to the global FX marketplace.
The BIS survey also indicated that global FX options declined 2%, while CME FX option volumes grew 250%. We believe there are three factors driving this out performance.
First, CME central counter-party clearing, which enables wider participation by a diversed set of buy-side customers. Second, our significantly expanding liquidity across a broad range of CME currency pairs as our FX markets have indeed become a major source of liquidity in global FX market.
And third, electronic access to both futures and options on our CME Globex electronic trading platform. Together, these factors should continue to drive growth in our FX business.
To round out our other asset classes, our agricultural commodity, energy and metals products have all shown outstanding growth year-to-date and also are on track for a strong fourth quarter. These products tend to earn our highest rates per contract but growth here is very accretive.
Agricultural commodities had a strong quarter with volumes up 33% versus last year, led by outstanding growth in corn and wheat volumes of 56% and 72% respectively. Energy was up 12% to 1.7 million contracts per day, our second highest quarterly volume and energy open interest remains at near record levels.
Finally, metals average daily volume was up 28%. I'd also like to touch on continued growth in international volumes in our core product lines.
During the third quarter, we saw strong growth of 37% in Globex volumes during non-U.S. hours.
Volume from our various international hubs also grew 15% compared to the same quarter a year ago and now represents 15% of overall Globex volume. We continued to focus on globalization of our core business as we expect growth in emerging markets to outpace growth in more developed markets.
One example of our commitment to achieving growth from globalization is our recently announced enhancements to our global client development and sales organization. Our new structure will better enable us to cross sell all CME Group products and services to our global customers, while also allowing us to better understand and meet the needs of our largest customer segments including banks, intermediaries, asset managers, hedge funds, proprietary trading firms and of course commercial participant.
The new structure has been designed to better target cross asset sales across client segments to drive international growth, specifically in Asia and Europe, and to generate new client participation across all regions. The ultimate goal is to more effectively serve our clients and enhance our global sales and marketing efforts for the entire suite of CME Group products.
During the quarter, we hired a new head of Global Client Development and Sales, Alice Hacket, former Managing Director and Co-Head of Global Prime Finance at Citigroup. Alice joins us and will oversee our worldwide clients development and sales efforts.
Moving on to our strategic initiatives, we were very pleased to extend our OTC clearing services into interest rate on October 18. This offering provides the extensive counter party, risk reduction and transparency of CME clearing while preserving the prevailing execution processes, technology platform and economic structures used in the bilateral IRS market today.
As the Clearing Only provider in this space, we are execution-agnostic and offer operational flexibility to our customers by accepting trades from a variety of venues. Finally, as we continue to build our OTC offerings and other asset classes, CME Group has a significant lead in providing a comprehensive multi-asset class clearing solutions to the market for the maximum operational ease and capital efficiency that comes with connecting to a single clearing house.
To date, we've cleared $660 million in interest rates swaps and have $648 million in open interest, with participation across a wide variety of firms. We see this effort as being in the very early stages and recognize that many clients are waiting for greater clarity on final rules before moving forward with cleared interest rate swaps.
Currently, we're focused on delivering key additions to the offering in order to make it possible for more users to access our services. Some of the details we are working towards include receiving approval for a structure to allow cross margining with exchange-traded futures and options and finalizing regulatory approvals allowing certain types of neutral funds post collateral.
We are also working on expanding the product scope to offer more product flexibility and swaps denominated in additional currencies. I'd also like to share an update on the development of our co-location services offering for all CME Group customers.
Our offering will allow customers to co-locate their servers in CME Group's new state-of-the-art data center. Co-location will create the lowest possible latency hosting environment for our customers.
The offering is available to all customers and all customers will be treated equally with transparent and market-based pricing. Equidistant access points will also ensure fair and equal access.
The uptake during our initial application period has been positive, and we are in the process of allocating space to our customers. Once customers' base for this space is allocated, we will begin to built out the facilities and are planning for an early 2012 go-live date.
Based on current indications of interest from our customers, we expect this service to add approximately $30 million to $40 million in revenue in 2012 and to further scale from there. Finally, I'd like to offer a brief regulatory update.
We are participating actively in the Dod-Frank will-making processes being undertaken by the CFTC and other financial and markets regulators. Our team is working with them and our customers to ensure that new regulations create a fair and level playing field for all market participants and that U.S.
markets are not disadvantaged compared to other global markets centers. The CFTC and other regulators will be issuing a real proposal in many areas over the next few months.
Like many of you, we are already engaging in the public comment process and anticipate a robust and healthy dialogue about the many issues that regulators are addressing. We will continue to keep you posted on these critical topics as they develop.
In conclusion, CME Group continues to be successful in managing our core business and executing on our strategies to further global our entire business and expand our capabilities into OTC market. While the macroeconomic climate has been challenging for everyone, our performance over the past two years has proven that we can leverage our diverse product set to deliver results in a variety of cyclical and economic environment.
With that, I'd like to turn the call over to Jamie.
James Parisi
Thank you, Craig. CME Group posted solid third quarter financial results with average daily volume of 11.6 million contracts per day, up 14% versus Q3 of last year, driving a 13% increase in revenue to $733 million.
We delivered $443 million of operating income, a 60% operating margin, diluted earnings per share of $3.66. The overall rate per contract decreased 3% to $0.81 compared with $0.0834 in the third quarter of 2009, due to higher growth for members versus non-members in higher-tiered discounts.
Sequentially, the rate per contract increased 3% due to favorable mix factors including a stronger participation from our highest paying non-members. Market data revenue of $101 million for the quarter was down less than 1%, compared to Q2, due to a decrease in the Dow Jones Indexes revenue attributable primarily to lower equity assets under management.
Drivers to CME, CBOT and NYMEX data increased our activity somewhat in Q3 with the total terminal count of slightly to 385,000. This was the first increase in sequential screen count since Q2 of 2008 signaling some stabilization relative to the trend we have seen since the credit crisis began.
Lastly, with respect to the other revenue line in Q3, we recognized $5.1 million from BM&FBOVESPA related to a build out of our multi-asset class trading platform. I'll now take a few minutes to review expenses.
Drilling into Q3 expenses, compensation and benefits was $110 million, up $7 million from the prior quarter. $5.1 million of this increase was based on a sequential change in deferred compensation expense.
Remember there is a one-for-one offset in the investment income line for this item so there's no bottom line impact. In addition, our combined headcount at the end of Q3 stood at 2,520, an increase of 60 people during the third quarter, reflecting our continued investment in growth opportunities.
Q3 marketing and other expense included approximately $4.7 million related to resolving customer losses associated with the CME Globex and trade issue which occurred in September, while there were a $2.1 million tax and operating accrual adjustment which decreased occupancy and building expenses for the quarter. We now expect our second half of 2010 expenses to come in near the top end of our prior guidance of $573 million to $583 million, with the one-time cost of the end trade and higher deferred compensation pushing us to that level.
In the non-operating income and expense category, investment income was up $8 million, sequentially, due to a $3 million increase in the BM&FBOVESPA dividend plus the $5 million in deferred comp earnings mentioned earlier. Equity and losses of unconsolidated subsidiaries reflect a $2 million increase, due to writing down to zero our investment OneChicago, our single-stock futures JV.
In the third quarter, we paid down $300 million of debt, bringing our total debt to $2.5 billion, which reduced interest expense by $2 million. Our debt to EBITDA ratio is now under 1.3x.
A detailed illustration of our debt structure is included in our earnings slide. At the end of the third quarter, we had approximately $630 million of cash in marketable securities on our balance sheet.
For the quarter, our effective tax rate was 41.2%, and we expect our tax rate to fall between 41% and 42% in total for the year. Capital expenditures net of lease hold improvement allowances totaled $44 million in the third quarter, driven primarily by hardware and software purchases tied to the migration of our Globex trading system to our new data center, additional investment in the data center related to our co-location offering, as well as continued build out of our office facility.
We expect our capital expenditures to come in near the low end of our full year guidance of $180 million to $200 million. Turning to recent volumes.
So far in October, ADV is tracking a similar level to Q3 at 11.4 million contracts up 9% compared to the same time frame last year. In summary, we added to our solid 2010 financial performance in the third quarter.
So far this year, we have generated over $800 million of cash earnings while investing significantly in growth initiatives and paying down $400 million of debt. We are well on our way to returning excess capital to shareholders as early as next year.
So I'll now open up the call for your questions. In order to get to everyone, we are limiting all of you to one question and one follow-up, and please feel free to get back in the queue if time permits.
Operator
[Operator Instructions] We'll take our first question from Niamh Alexander with Keith, Bruyette and Woods.
Niamh Alexander - Keefe, Bruyette, & Woods, Inc.
If I could touch on the interest rate swaps, help me understand the guarantee fund it's separate right now and there's no netting benefit with the futures. So what milestones should we be looking towards or what can help us closer to understanding when customers maybe kind of -- would that be a good driver of additional volume into growth in the trend house?
Craig Donohue
What we're doing right now is working with the CFTC to discuss that. I just want to sort of caution everyone that the ultimate approval of that capability is really tied into much larger and broader questions that the CFTC is working on right now, as they're contemplating central counter party clearing swaps alongside traditional exchange-traded futures and options contracts.
So we're working on the specific methodology, as are they, for facilitating capital and cross margin efficiencies between swaps and between futures and options. So that's a process that's going to take, I'm sure, a number of months as they formulate their more detailed proposals.
But we're working with them on that.
Niamh Alexander - Keefe, Bruyette, & Woods, Inc.
And would that be a catalyst to bring in -- do you think that will be a catalyst to start to bring in a lot more volume once that gets approved or people are going to wait?
Craig Donohue
I think generally speaking, the consensus in the industry seems to be, I think that's been reflected even in recent analyst report, that most people are expecting to increase their activity over a roughly 12 to 24 months timeframe with many people waiting until there's greater clarity on the rules they're implementing the swap trading and clearing requirements. So I think that is probably the biggest gaiting factor.
And then of course, obviously, as we see the final rules and account structures for swaps and exchange rates for futures and options that will be incrementally helpful as well.
Operator
We'll move on to our next question from Rich Repetto with Sandler O'Neil.
Richard Repetto - Sandler O`Neill
In your announcement on the OTC interest rate swap clearing, you had a number of notable names buy sides and sell sides, I'm just trying to get more of the commitment level of these people. You have them rated with 10 as fully-committed exclusively and one being sort of a rubber stamp and just want to participate.
Where is the general commitment level? And I'm trying to get to the of question of will there be multiple clearing platforms in interest rate swaps?
Terrence Duffy
Rich, it's Terry, I am here. I think that there will be multiple platforms for this clearing of interest rate swaps.
But the commitment levels, I think Craig outlined that the $628 million that we did last week, there was some comments made months back by the government-sponsored enterprises that they told the regulator they would be prepared to clear by October 18. We told everybody we would be prepared to clear by October 18, that's exactly what we did.
So you saw some of the transactions going. But I think really the answer is, the commitment we'll see more as the rules are finalized, as Craig pointed out, and it's really hard to determine what the overall commitment is going to be at this early stage in the game right now.
So I wish I can give you more information. But I really can't and Craig can add to that.
Richard Repetto - Sandler O`Neill
For Jamie, on the Dow Jones, I know you mentioned something about AUM being down. But it looks like in the equity, the below the line item, it doesn't look like there was anything there.
Was Dow Jones break even and did expenses go up for Dow Jones in the quarter?
James Parisi
It's not quite that. I think you're talking about the other interest in Dow Jones in that line.
The way it's constructed all the -- when you consider all the amortization and interest expense for Dow Jones, it does comes close to a break even. But it was slightly positive for the quarter.
But when you through all the accounting, the allocation out for the partners is close to zero.
Operator
We'll go next to Alex Kramm with UBS.
Alex Kramm - UBS Investment Bank
Just following up on the interest rate swap opportunity here, can you actually start talking a little bit about the economics? From what we understand, the pricing trends may not be 100% handed out, yet, but can you actually help us a little bit in terms of how you're thinking about pricing in terms of may be present volume on different centers any sort of economic sharing with participants?
Anything to get us a little a bit more to work with.
Craig Donohue
It's Craig. I'm going to be very limited and just say that, obviously, our pricing methodology is based on the notional amounts cleared.
But we're going to sort of keep that in reserve until we get farther along in this process. Obviously, as Terry mentioned, we were successful in meeting our commitment to be prepared to clear by October 18, which we've done.
But we have a lot of work to do with our partners and participants to finalize the terms of the structure in their participation. So we'll have more that we can share with you as that process gets farther along the way.
Alex Kramm - UBS Investment Bank
You obviously mentioned the 12 to 24 months, but when we talked to the buy side, there are certainly also people out there that want to be early adopters. Who want to really start clearing as soon as possible.
So you just said that you have a lot of things to work through still but when do you think you could actually be ready that the people that want to have it as part of their general workflow, the execution process, that they actually do this and move pretty quickly?
Craig Donohue
I think again, obviously, with us having already commenced clearing and having now $660 million of notional value outstanding. We're able to do this, we're intending to keep doing this.
We are prepared to support our customers and participants who are ready and willing to do that now. I was only meaning to reflect but I think more broadly, many participants have indicated that it's likely to be 24 months before they have the vast majority of their interest rate swaps transactions being centrally cleared.
So I was just reflecting the broader sentiment that we're ready, and we're working with customers who want to do it.
Operator
We'll take our next question from Mike Vinciquerra with BMO Capital Markets.
Michael Vinciquerra - BMO Capital Markets U.S.
Kind of staying in OTC space, I wanted to ask regarding ClearPort, if there's any update on what the regulators are thinking or there's some questions about how you in sense of futurize the swaps? Is there any concern there?
And do you think the question marks about that are hurting your volume or your growth prospects are on that business in the near term?
Craig Donohue
It's Craig. I don't think, and I can ask Bryan Durkin if he would like to comment as well, but I don't think that sort of issues that we're grappling with as it relates to new provisions of Dodd-Frank and rules on ClearPort are really impacting ClearPort.
ClearPort has continued to perform very well. And so we're working through a process right now in the emerging kind of world that we're getting to where there's a fairly clear distinction between swaps that are required to be centrally cleared, but also as they are cleared traded on either a swap execution facility or an exchange versus futures, trying to sort of work with market participants, customers and the regulators to try to determine what the past forward is for ClearPort.
We're confident that we have a range of alternatives that will continue to make ClearPort very valuable to customers. There are some products that are more actively traded on ClearPort, and for which, there maybe effective ways to, I think you said futurize them, and then there's a range of products that are less actively traded.
So we've got some solutions. We're discussing those with people.
But I think in the end, ClearPort will continue to be a very successful and valuable service for market participants.
Michael Vinciquerra - BMO Capital Markets U.S.
Staying on the same topic, I believe you guys have announced that you're going to apply as a SEF, correct me if I'm wrong on that. But if that's correct, in what areas do you think you'd be most interested in providing execution services in the OTC market?
Craig Donohue
We haven't really settle off on that, not because we're being KJ. But I think we recognize that it's still not yet fully defined what a swap execution facility is going to be.
What we have said before is that our primary focus is really on providing post-trade clearing services to the over-the-counter swaps market. And separately, we said that where there's a need or where there is some particular value that we think uniquely we can provide, we're certainly not ruling out the possibility to become a swap execution facility.
But I think it's really premature to do that for the moment. And obviously, we're going to continue to look at that as things evolve.
Operator
Next we'll go to Ken Worthington with JP Morgan.
Kenneth Worthington - JP Morgan Chase & Co
You made a point that on your slides that volumes in the U.S. hours are growing at 37%, but through the international hubs growing at 15% year-over-year.
It seems like this implies that U.S. traders are trading after hours.
Am I reading that correctly? And then, the follow-up is the volumes in the international hubs grew up 15% year-over-year in line with overall seemingly volume growth.
Giving your emphasis on the foreign business, can you give us more color on the revamped sales force and your expectation for foreign business due to that build out?
James Parisi
The first thing to recall is on the international hubs, that all of our international volume does not come through the hubs, it's only a subset of the volume as there's plenty of folks internationally who hook up directly to CME and don't go through that. So we provide these different views because they don't have a perfect way of measuring that international volume to get a flavor of those volumes.
So be very careful on how you interpret these hub volume.
Bryan Durkin
This is Bryan Durkin. In line with the restructuring and realignment of our products and services team, we're putting an extensive focus on the build up of our efforts, particularly within our global offices within EMEA, so with the European region as well as Asia.
As Jamie had indicated, the hub activity is just one indicator of the fruits of our efforts in terms of our intensive sales efforts across those regions. And we're very pleased with the progress that we're making and we're continuing to invest in that regard because we really and truly believe that the opportunities are there across all of our client segments to further build that growth.
Kenneth Worthington - JP Morgan Chase & Co
And your expectations for that growth?
James Parisi
We don't normally give out growth guidance, as you know. But we certainly expected to grow rather significantly, of course going forward, obviously that's why we're focusing on it as most intensely.
Operator
We'll take our next question from Howard Chen with Credit Suisse.
Howard Chen - Crédit Suisse AG
Maybe another follow-up on the interest rate swap opportunity. Just stepping back, you've given us a feel for how much you've spent here to date.
But as we look forward, how are you going to define long-term success and what financial parameters do you think we should be holding you to?
Craig Donohue
I think in the long run, clearly it's going to be the level of cleared volume as revenues coming through, and we'll be able to -- in the longer run, we'll be putting an information out there. Just remember that as far as the clearing out goes, it is a scalable operation with lower marginal costs as we add business to it.
So we do believe this to be very profitable for us in the future.
Howard Chen - Crédit Suisse AG
Craig or Terry, there's been some heightened focus on high-frequency trading over recent months. I was hoping you could just comment of what, if anything, you anticipate we see in terms of proposals for the exchange traded futures markets and just your broad kind of level of concern here given it's a big driver of the business.
Terrence Duffy
Howard this is Terry. I have always said for a long time now, especially when I testify in D.C.
as it relates to high-frequency trading, these people are truly liquidity providers. They are not looking for long term direction of anyone particular market at all.
They're mostly competing for the build-out or to lay out in other marketplaces, which deepens the pools of liquidity for people who are trying to manage risks. So when I go to Congress and remind them that most participants in the U.S.
equity market or anything else, they are not competing for the build-out. They're competing for their portfolio risk management for six weeks, six months or six years, they need to have that deep liquidity and that's exactly what HFT traders provide.
And when you walk them through how they provide this liquidity, the regulators and legislators start to get it. So it's a new phenomenon in high-frequency trading and I think people are trying to understand that more than anything else, so the natural thing is when you don't understand something is to blame something.
So I think that's what we're seeing right now but I think people will realize that this is very valuable liquidity as time continues.
Operator
We'll move on to our next question from Dan Fannon with Jefferies.
Daniel Fannon - Jefferies & Company, Inc.
Could you please update us on, see if there's any change in your customer mix within your kind of core business. You used to break it out in the slide on the chart but I haven't seen it here in the past few quarters?
James Parisi
Dan, we don't provide that in detail anymore for competitive reasons. But I think you can take from my comments, that certainly we saw a small pickup in the non-member category.
They're generally across the other categories. There wasn't any significant changes other than that.
Daniel Fannon - Jefferies & Company, Inc.
You gave control on that co-location revenue opportunity in 2012. Can you talk, I guess, a bit from profitability perspective as you think about that business and then even more broadly kind of the OTC initiatives that you're working on and contemplating going forward?
How we should think about that in the context of your overall margin on an operating basis compared to where we sit today?
James Parisi
On the OTC business, we said before, I think the operating margin on that business will be somewhat lower than our existing core business due to the fact that various constituencies involved and the desire to share some of the economics around that. And then on the co-lo, I think, we don't put numbers out on that, yet, but I think that will be a fairly solid margin on that.
I'm not going to give you too much more color. I do believe that while both these are a little bit longer-term, we believe co-lo will start to contribute in a decent way in 2012 and on the OTC side, we said it's a multi-year effort.
Operator
Our next question comes from Rob Rutschow with CLSA.
Rob Rutschow - Credit Agricole Securities (USA) Inc.
I've realized we're fairly early days here. But can you talk about what the duration is of the interest rate swaps you've cleared and how that compares to your rate futures and then the point of that question is to really try to flush out what the case for and against netting and what the stumbling blocks are with the CFTC at this point?
Craig Donohue
Rob, we've had a mix of transactions that have been cleared. I think it's just way too soon to start kind of breaking down the transactions that have been cleared so far.
So over time, there'll be more transactions in that but for the moment, a small amount of actual activities that's been done, as I mentioned. On the second part, I think, certainly one of the issues that's just wanting to make sure that from a customer-protection perspective, the manner in which swap and futures and options positions are held, and sort of risk it, futures customers might have, or swap customers might have is a key area of focus as we think about how to strike the right balance between sort of protecting the customers, having effective risk management systems for both swap clearing and futures and options clearing.
But at the same time, also facilitating capital and margin efficiencies that are valuable to market participants. So I mean those are at a high-level, I think the issues that the industry and the regulators are really focused on.
But I think that the goal is to provide that now and to make sure that we have an effective customer protection regime and at the same time to provide capital margin efficiencies that actually make these markets efficient competitive.
Alex Kramm - UBS Investment Bank
Looking ahead, I think your clearing dollar-denominated swaps at this point and you've talked about euros for next year. What are the currencies would we expect you to add during the next 12 to 18 months?
Craig Donohue
We're working on multi-currency offerings. We'll have more to say on that as we further our plans and work more with market participants in clearing a number of firms.
But I think you've heard us say before that we're already a global provider of clearing services and exchange-traded markets. And our goal and intention is to be a global provider of clearing services in the over-the-counter swaps markets as well.
I think you're probably aware that we have an application pending in the U.K. to be organized as a clearing hubs in Europe as well.
So our goal and intention is to be multi-currency.
Operator
We'll move on to our next question from Jonathan Casteleyn with Susquehanna Research.
Jonathan Casteleyn - Susquehanna Financial Group, LLLP
Are there any remaining efficiencies for the NYMEX products to benefit from electronic trading being the base of the Globex system last and anyway to quantify that?
Craig Donohue
Obviously, the vast majority of the NYMEX futures and options products are already being traded electronically. So I assume you're referring to ClearPort contract?
Jonathan Casteleyn - Susquehanna Financial Group, LLLP
Exactly. Any general efficiency uptick for more electronic trading in NYMEX including ClearPort being they basically were inserted on to a bigger platform last in the Globex system?
Craig Donohue
I think in general, there's continued kind of upside potential in exchange-traded options product, not just NYMEX. But also various of the options products that are offered on CME as well as the other boarder trade.
So that would be one area. And then again just going back to my earlier comments from where we are, looking at ClearPort contracts and trying to make some preliminary determinations about whether there are some products that might be effectively traded, in essential mid-order book environment or as futures versus swaps.
Jonathan Casteleyn - Susquehanna Financial Group, LLLP
Just on BM&F, can you talk about the volume that run through the JV in the quarter and are there any major upcoming developments last to kind of spur volume or increase the level of participation?
Craig Donohue
I'll just say just, generally. One of the things that we are working together on, and which has been very successful, is that as customers begin to become active in the BM&FBOVESPA market through our order-routing linkage, they also then do gravitate toward actual co-location where they are participating kind of directly on a co-location basis in the Brazilian market.
So that's beneficial for both of us as well and we collaborate in that sort of transitioning from just pure order routing to direct access through co-location. We're continuing to see interest in that building.
We have a pipeline of participants who are becoming increasingly aware of the efficiencies and the value of accessing in the BM&FBOVESPA market. So I do think there's a lot of continued sort of benefits there.
You've seen us working with other exchanges as well on cross listing of products in different currencies and that's certainly another area of opportunity for us in terms of BM&FBOVESPA. And then just lastly, I would say that we're making great progress on the development of our new multi-asset class trading platforms, which ultimately will be deployed by BM&FBOVESPA and I think the increase for the scalability and capacity and speed advances of that new platform should be further attractive to our customer base.
James Parisi
So from south to north order running, it's the volume's about quadrupled over the last four years, up a very small base of course. But as Craig pointed out, I think the more important thing is that we continue to drive volumes directly to CME and CME products from that region.
Operator
And we'll take our next question from Patrick O'Shaughnessy from Raymond James.
Patrick O'Shaughnessy - Raymond James & Associates
My first question is about your energy product. Certainly I think you've seen healthy growth there and your West Texas contract has done pretty well.
But I think to some extent, we've seen West Texas curve outpaced by Brent Crude and it seems like Brent is growing as more of a global benchmark these days? Is that a fair assessment?
And what do you think that implies for the growth prospects of West Texas volume going forward?
Craig Donohue
I would take strong issue with that. I think there are cyclical factors at times they come into play.
If you just kind of look back over the last several years, you'll see times when WTI has clearly outperformed Brent and conversely times when Brent has been to outperform WTI. But I think the most important thing to sort of look at is the WTI market is more than 2.5x the size of the Brent market and that suggests to me that is ultimately what people look to as the global benchmark for hedging and risk management in crude oil.
And that's been true for quite some time. So I would disagree with that.
Patrick O'Shaughnessy - Raymond James & Associates
You've obviously spoken in some detail about interest rate swap clearing. But on your side, you also did mentioned FX clearing and CDS clearing.
Can you kind of give an update about where you feel like you want to make a progress in those initiatives, how many resources are you really dedicating towards those and I guess with FX clearance, specifically , certainly hasn't been mandated by Dodd-Frank, yet and I know some industry participants are trying to make sure it doesn't happen. So your thoughts on like with that of that moving to a clear environment at some point.
Craig Donohue
In general, I mean obviously, OTC clearing is a very important component of our overall growth strategy. And so we do have significant number of people deployed on that, that's been true for a couple years now, both as it relates to interest rate swaps clearing as well as credit default swaps clearing, which still I think in a very early stage particularly in the dealer to client sort of segment, so that's an area where we do have substantial resource that's devoted.
Although I would point out that these are existing resources that also support the operation and growth of our core business activities as well. On the FX side, obviously we're also waiting to see ultimately kind of what develops in terms of whether the exemptive authority by the Treasury Secretary will be exercised in order to treat foreign exchange swaps or options or forward differently than other financial swap instrument.
I don't have any particular insights into that. I've seen the arguments on both sides.
But that will be something that will be awaiting just as the rest of the market is as well. I would say were not actively involved in taking a position on that because as you might remember, our position throughout the legislative process was not to support mandatory clearing requirements generally.
Terrence Duffy
I completely agree. But I think one of the interesting things, when you look at FX not being included in the Dodd-Frank, I think that's almost irrelevant because with the interest rate swaps being in Dodd-Frank, and we're going to start to see, I believe, the efficiencies as such clearing can provide for inter-trade swap participants, I think that FX will just be a natural follower.
It doesn't need a law to mandate it. As Craig said, we did not pursue mandating any of these things to begin with.
We always thought that the amendments should be different for cleared versus non-cleared. So I think once people start to realize the benefits of interest rate swaps clearing, the FX will follow without any legislation needed.
Operator
We'll move on to our next question from Mike Carrier from Deutsche Bank.
Michael Carrier - Deutsche Bank AG
Just another question I guess on the core business, when you look at the growth in the FX volumes, it just seems like obviously you're gaining a lot of traction. From the OTC side, could you think about one of the most OTC standard products out there, FX you can probably throw into that category.
So when you look at the increase in that volume, any way to gauge how much of that is from increased customers moving over just to the features products from the OTC versus -- just taking share from some other players in the market?
Craig Donohue
We have some insight into that and we definitely have seen our customer base broaden. And we see more participants coming into the market.
I think reflecting the fact that we're now, obviously, a major source of liquidity on a daily basis in most major currencies. So we are seeing broader participation both in terms of types of customer segment as well as we're seeing really good growth in the sort of non-U.S.
hours. That's a key focus for us.
We are going to be really kind of increasing our sales and marketing and leadership capabilities primarily in the European market time zone to better take advantage of what we think is a great growth opportunity for us in the FX.
Michael Carrier - Deutsche Bank AG
One for Jamie, the market updater news with the Dow Jones, Jamie. What portion of the revenues are related to AUM just as average markets are up about 8% in the fourth quarter versus the third quarter?
So just trying to gauge what the benefit can be going forward. And just on BM&F other revenue item in the $5 million, I think you mentioned, is that like a one-time and then we should expect that other revenues to pullback or is there going to be some ongoing revenues in there?
James Parisi
On the market data, Dow Jones is probably, for the quarter is about $17 million and the majority of that is AUM based. And then on the other revenue of line item where we saw a tick up because of the fees that we received from BM&FBOVESPA for the co-development of the platform, we expect to see a similar number in the coming quarter essentially also in the first quarter and then there'll be some more later on but it's hard to tell how that's going to flow and it will depend on how this development progresses.
Operator
We'll move on to our next question from Roger Freeman with Barclays Capital.
Roger Freeman - Barclays Capital
I wanted to just ask a question I guess on the financial guarantee rule of the CFTC proposal. I'm not sure if Kim's there.
But I'm wondering how that compares with how you allocate your financial resources available today because their basically severely eliminating the ability to assess dealers in there. And I'm not sure if that's consistent with how you do it today?
Any thoughts on that?
Craig Donohue
It's Craig. Obviously, we're looking closely at that.
I think I assume you're referring to what people call the cyclical proposal and the amount of available liquid capital resources that are...
Roger Freeman - Barclays Capital
Yes.
Craig Donohue
We're looking at that. For the moment I would say and obviously that can change depending on who's the largest participants are and what their particular exposures and margin requirements are.
But for the most part, at least we're currently looking at understanding this in relationship to who our largest participants are today. We're not expecting that to have a material effect on sort of our capital requirements to support productivity in the clearing house.
But that's something that we're going to be discussing further with the CFTC as the process evolves.
Roger Freeman - Barclays Capital
Kind of coming back to the efficiencies and interest rate swaps offering right now, I guess it sounds like a fairly manual process like some of the early trades are taking an hour so it gets great. And I guess LCH sounds like running order in 10 seconds or so.
I guess how long does it take to get you think you can tell point where this is something that's incentive move past being a pilot project.
Bryan Durkin
This is Bryan Durkin. In terms of that commentary, we're working very, very closely with all of the participants that have connected into our clearing organization.
We pride ourselves in the ability to get the transactions in to our system in a realtime basis. We are working closely with the service providers of the firms to ensure that any issues on their end and if there's anything you can do to see to streamline on that kind of equation, that is the reason that we're working very closely with them.
And I think we need to recognize that this is not about speed our high velocity. If not a high velocity business.
But that being said, we really do pride ourselves in our ability to get the transactions in very quickly.
Operator
We'll take our next question from Chris Allen from Ticonderoga.
Christopher Allen - Ticonderoga Securities LLC
One thing on the capital return plan, what's your level of flexibility if you foresee a dividends tax increase coming next year? In terms of accelerating the plant running away to the first quarter of '11?
James Parisi
It's certainly something that we will consider. But there's no definitive plans in place yet.
Operator
We'll take our next question from Donald Fandetti with Citi.
Donald Fandetti - Citigroup Inc
Craig, investors seemed to be focusing on the potential negative impact on the business. I was just curious how you think about the pluses and minuses of quantitative you think?
Do you think there's real risk on your open interest or volume?
Craig Donohue
I think it's very difficult, Don, to kind of speculate on that. Obviously, the overall kind of environment in terms of to prosecute policy and set of involvement in quantitative easing has been somewhat challenging for that segment of our business.
But I think if you look at it, I would say that other there circumstances, the business and interest rates have actually performed, I think, very well. You clearly see people moving farther off the yield curve and so we are benefited by the diversity of the range of interest-rate products that we've provided and certainly the increased activity in treasuries, which has been substantial, has helped to ameliorate or offset some of the difficulties in the kind of short-term interest rate market in Eurodollar futures but I'll go back to the point that I made before which is we're seeing open interest building significantly in all of our interest-rate products including, even in the very near-term, short-term contract, so we'll wait and see sort of what the sort of the next round of quantitative using really involves, but I guess it's very difficult for me to speculate on what that means for volume and what other factors might come into play that could be either incrementally positive or negative for interest rates.
Operator
We'll hear next from Edward Ditmire from Macquarie.
Edward Ditmire - Macquarie Research
With exchange consolidation restarting in 2010 after a year to -- can you give me your latest thoughts on your opportunity as a consolidator? Are we more likely to see CME go outside of its current futures focus, go outside of your supporters or outside of the exchange business as in the Dow Jones acquisition?
Craig Donohue
I would say that our posture on that is remaining the same. We've clearly indicated that we do not expect any kind of large-scale mergers and acquisitions activity in the near future.
I think when you look back at the totality of mergers and acquisitions in the exchange space over the last decade, we clearly have had the most focused strategy, at least in terms of how we view our expertise and capabilities. And obviously, that's been in the derivative market and the exchange-traded derivative market, with obviously the exception of -- we have a very positive view about the opportunities in the index services area.
But generally speaking, we're continuing to have the same view, we have great growth opportunities in our core business, we are focused on globalizing our core business, and obviously, we're focused on leveraging our current capabilities in clearing and risk management and to the over-the-counter swaps market. So those are the avenues of growth for us and I don't think you will see us taking on sort of large transactions to further expand our business when we've got those kinds of organic growth opportunities in front of us.
Operator
That's all the time we have for questions today. I'd now like to turn the conference back over to Craig Donohue for any additional or closing remarks.
Craig Donohue
I just want to thank everybody on behalf of my colleagues for joining us today. We will look forward to talking with you again next quarter.
Operator
And that does conclude today's conference. We do thank you for your participation.