Jul 30, 2015
Executives
John Peschier - IR Phupinder Gill - CEO John Pietrowicz - CFO Sean Tully - Senior Managing Director, Financial & OTC Products Derek Sammann - Senior Managing Director, Commodities & Options Products Bryan Durkin - Chief Commercial Officer Terry Duffy - Executive Chairman & President
Analysts
Ken Worthington - JPMorgan Chris Allen - Evercore ISI Rich Repetto - Sandler O'Neill Alex Kramm - UBS Dan Fannon - Jefferies Michael Carrier - Bank of America Merrill Lynch Alex Blostein - Goldman Sachs Brian Bedell - Deutsche Bank Chris Harris - Wells Fargo Securities Kyle Voigt - KBW Ken Hill - Barclays
Operator
Welcome to the CME Group Second Quarter 2015 Earnings Call. [Operator Instructions].
I will now turn the call over to Mr. John Peschier.
John Peschier
Thank you for joining us this morning. Gill and John will spend a few minutes outlining the highlights of the second quarter and then we will open the call for your questions.
Terry, Bryan, Derek and Sean are also on the call and will participate in the Q&A session. Before they begin I will read the Safe Harbor language.
Statements made on this call and in the slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statement. More detailed information about factors that may affect our performance may be found in our filings with the SEC which are available on our website.
With that I would like to turn the call over to Gill.
Phupinder Gill
Thank you, Mr. Peschier and thank you for joining us today.
We had an impressive second quarter and the diversity of our product offerings was evident in the results achieved. We delivered significant top-line growth in transaction fees and market data revenue which, coupled with lower expenses, resulted in a 23% increase in earnings per share.
After an industry slowdown in April, our volume finished the quarter with June up 15% compared to the prior June. ADV across all six product areas were up in June and four of them were up in double digits.
Our commodities portfolio was up 26%, while financial products increased by 12%. In terms of Q2 activity, in our commodities portfolio we saw strong results with ADV up 22% across energy, ags and metals.
In ags we delivered record quarterly volume in corn, soybeans and wheat. The surge in activity was driven by concerns of an El Nino in the equatorial Pacific Ocean, resulting in anticipated increased rain in the U.S.
and Brazil and the potential drought conditions in Australia and Southeast Asia. The resulting price movement volatility and declining prices has sparked renewed hedging activity in both futures and options.
Energy volumes also performed extremely well in Q2 with ADV up 20%, driven by 32% growth in our crude complex with 68% of our WTI options now trading electronically on Globex. In June, net gas results trended well as volume rose 30% and net gas options were up 37% as our market share also rose.
Total energy volume and revenue were each of 20%; double that of our primary competitor. Within the financial product area foreign exchange trading growth was significant during the second quarter, rising 42%.
FX futures were up 38%, while FX options grew 83%. Interest rates volumes accelerated during the quarter from $5.1 million per day in April to $7.4 million during the rest of the quarter.
Interest rate activity at CME has performed well relative to substitute products that were out there and were up 7%. Our penetration of the cash treasury market increased from 77% at the end of Q1 to 78% this quarter.
In addition, the total number of large institutional open interest holders in our rates futures business grew to 1,705 at the end of the quarter which is up 7% from the beginning of the year. We're particularly pleased with the activity in euro-dollar options ahead of a potential Fed move.
Euro-dollar options on Globex were up 60% to 148,000 contracts per day during the quarter and up 84% in June. Importantly, we have seen the percentage of euro-dollar options traded electronically move from 12% in Q2 last year to 18% this year and up to 22% in July.
The biggest driver has been a surge in activity coming from European traders. In addition, we had a record number of weekly treasury options traded in June at 140,000 ADV.
July remains extremely strong as well. Lastly, Fed funds futures have become popular again for the first time since the credit crisis.
Volume has tripled from last year's [indiscernible] in 2015. ADV is above 60,000 contracts compared to 20,000 last year.
During the quarter our revenue and interest rate swap clearing grew by 36%, while credit swap clearing was up 11% to total approximately $18 million. We have seen a slowdown of activity in swaps in July due to the basis spread between CME and LCH.
The basis has stabilized and tightened recently. The OTC swaps revenue trajectory for July looks similar to April based on the client mix, as the decreases we have seen are mainly in lower-priced OIS trades coming from large hedge fund clients.
On the flipside, we have seen a record number of dealer-to-dealer trades which is encouraging. We continue to look at opportunities to address challenges our customers are facing.
There has been a decline in cash market liquidity in the government securities market due in part to more stringent capital, leverage and liquidity standards for banks and heightened regulatory scrutiny. And this may have contributed to the increased client use of the Treasury futures product.
We also had a webinar this Tuesday with a large number of market participants to discuss the concept of filling the 15-year gap between the 6 1/2 year point tracked by our 10-year Treasury contract and the 21 1/2 year point backed by our 30-year long bond. Turning to our global business, work by our staff and volume from outside of the U.S.
continues to be impressive. Our Q2 electronic trading volume out of Asia jumped 22% from the second quarter last year with the highest volume growth in our FX and equity product areas.
Europe was up 10% with ag products up 50% and FX was also strong. North America and Latin America were each up 6%.
Electronic volume from outside the U.S. was up 12% and revenue was up 19%.
Turning to growth in our robust options market, we continue to invest in system enhancements, new products and investor education which is driving significant usage of our diverse fleet of option products. Q2 ADV rose 13% to 2.6 million contracts with electronic volumes up 29% compared to the prior year.
In July, option volume remains extremely strong. Overall, 52% of our options traded electronically in June, up from 50% in 2014.
As I mentioned on the financial side, we're seeing strong growth in euro-dollar options, weekly Treasury options and also FX options. On the commodities portfolio we're seeing strength in the WTI options and agricultural products with July running at peak levels in these commodities.
I think that suggests that market participants are anticipating more volatility ahead. After some enhanced volatility in early July with the situation in Greece and large movements in the Chinese equity market, activity has returned to the normal summer vacation mode.
However, the options positionings suggests that market participants are looking ahead. So, overall, we continue execute on our strategy to deliver growth in a highly efficient way throughout the organization.
With that I'm going to turn the call over to John to discuss the financials. Thank you.
John Pietrowicz
Thank you, Gill and good morning, everyone. I am pleased with our results this quarter.
We drove double-digit organic revenue growth, while our expenses decreased, driving significant operating leverage and EPS growth. Q2 revenue was up 12% which follows the 8% revenue growth we delivered in Q1.
Volume in the second quarter started slow, but finished exceptionally strong. Our adjusted expenses for the quarter were down 1% from the same quarter last year, driven primarily by decreases in marketing and other costs and professional fees.
Our variable costs, license fees and bonus increased due to our improved performance compared to last year. Our operating margins are again above 60% with an adjusted operating margin of 60.5% which improved from 55% a year ago.
Finally, our adjusted EPS grew 23% during the quarter, up from 18% growth in Q1. I will start with some revenue details.
The rate for contract for Q1 was $0.777, up from $0.753 last quarter. The largest impact was driven by a favorable shift in product mix with record agricultural commodities propelling the RPC higher.
The other positives include a larger proportion from higher-paying non-members in several product areas, lower volume tier impact and lastly, our pricing change that went into effect in February. OTC swaps revenue totaled $18 million for the quarter, up 35% versus $13 million last year.
During the second quarter we captured $139 per IRS-cleared trade, an increase from the $130 range which we have been averaging. We cleared approximately 1,950 trades per day in Q2, up 38% from a year ago.
Market data revenue of $103 million was up 15% versus Q2 last year, driven primarily by the elimination of our fee waiver program which we have discussed the last few quarters. Fortunately, we saw better-than-expected screen counts for both grandfathered and full-paying customers in the second quarter.
We will continue to monitor the impacts of the fee changes and we currently anticipate about $100 million per quarter of market data revenue for the remainder of 2015 based on potential attrition from here. Adjusted operating expenses in Q2 were $324 million, down $3.4 million from Q2 last year.
We remain extremely focused on driving efficiency throughout the organization and eliminating redundancy to improve agility in customer and market responsiveness. At the end of Q2 had 2650 employees, down 20 from the end of Q1 and down 30 from the beginning of the year.
In July, we eliminated an additional 60 lower-level positions related to the closure of most of our futures pits in Chicago and New York. Within the compensation line our base and benefits were down 2% from last year and down 1% from last quarter.
The stock-based compensation increased approximately $5 million sequentially. This was driven almost entirely by the performance share component of our equity program which is based on total shareholder return relative to the S&P 500 and cash earnings generation during the three-year period from 2013 through 2015.
Based on the fact we're tracking well above the 75th percentile of this S&P 500 in total shareholder return, as well as being ahead of our cash earnings target, we expect to reach the maximum payout and we accounted for it this quarter. Our compensation ratio for the first half of the year is running at an industry-leading 16.5%, down from 17.1% in 2014 and 17.4% in 2013.
Turning to taxes, the effective rate for the quarter was 36.6%. I expect the second half of the year to come in around 37%.
And now to the balance sheet, at the end of the quarter and after refinancing our debt which we covered last quarter, we had $1.33 billion in cash, restricted cash and marketable securities. That is approximately $630 million above our $700 million minimum cash target.
During the second quarter capital expenditures net of leasehold improvement allowances totaled $28 million and we're at $55 million for the year-to-date. We expect full-year 2015 CapEx to come in at $140 million, similar to last year and below our original guidance of $150 million.
For the full year, we expect adjusted expenses to be $10 million lower than we had previously guided to at $1.3 billion, down about 1% from last year despite our current double-digit revenue growth. In summary, the second quarter of 2015 once again demonstrated the power of the CME Group business model.
Broad-based volume growth and our disciplined expense management drove adjusted EPS up more than 20%. The entire management team continues to focus on driving earnings growth as we come out of the cycle and returning the maximum amount of capital to our shoulders.
In the last few months we have closed the majority of our futures pits, reduced overall headcount, consolidated data centers and reduced branding-related costs. With that we'd like to open up the call for your questions.
Given the number of analysts who cover us, we ask that you limit yourself to one question so we can get to everyone. Please feel free to get back into the queue if you have further questions.
Thank you.
Operator
[Operator Instructions]. Our first question comes from the line of Mr.
Ken Worthington of JPMorgan. Sir, your line is open.
Ken Worthington
I want to follow up on Gill's comment on the spread between LCH and CME. It obviously widened out this past quarter and seemed to drive business to LCH, so maybe could you give us further details on what really is happening here?
I do believe Gill mentioned that the spread has narrowed. I think our calculations were that the spread narrowed from about 2 basis points to somewhere in the 1.4 basis point range for a 30-year product, so it has narrowed, but it's still reasonably wide.
I guess the last part is what is the outlook there and does business start to come back to CME? Thanks.
Sean Tully
This is Sean Tully, I'm responsible for financials. Jumping in, in terms of the basis itself, in early May the basis did jump.
So in the 10-year sector it went from around a 0.25 basis point out to a peak of 2.35 basis points. Once the basis jumped, once it widened, CME Group did make the decision to issue its own specific CME curve for interest rate swaps.
Obviously that is very prudent from a risk management perspective, but also adds massive transparency to the marketplace. We announced that on May 13.
June 8 we implemented the CME-specific curve and since then the basis has stabilized dramatically. So since June 8 the average standard deviation on a daily basis is less than 5/100 of a basis point, so really completely de minimus.
If you look at the last week or so, the entire range of that spread has been 1/10 of a basis point in the 10-year, trading between 0.9 of a basis point and 1.0 basis points. What that means is that, while the volatility was high during early May, since we have added transparency, since we've added a CME-specific curve, the market has completely stabilized.
And in terms of interest rate swaps, if you're an active trader the level at which you get in relative to, let's say, a competitor is not nearly as important as the level you get in versus the level you get out. So what matters is the stability of the spread and we've seen that.
In addition to that, with the stability of the spread, but also with the increased interest in this, we've seen record volumes in dealer-to-dealer trading at CME Group. So we now have 25 dealers trading -- actively trading on that basis and again it's at a very tight level.
The bid-offer spread in the interdealer market is again around 5/100 of a basis point. If you think about that relative to outright level of rates, that is 1/100, literally 1/100, the volatility of the level of outright rates since June 8.
In addition to seeing the increased dealer-to-dealer activity, since May 1 we've seen 18 new clients. So we've had 18 new clients that had never cleared with CME Group previously jump into the marketplace and begin to clear swaps here.
Many folks wanting to take advantage of the higher rate that they could get at our platform. In addition to that, with the higher rate for certain folks, in particular large issuers of U.S.
dollar debt, this may be seen as an advantage. Hence, we've also seen an increase in interest on folks becoming new clearing members at CME Group in particular and particular issuers of debt.
Phupinder Gill
Ken, just to add to what Sean said, a lot of the change in the volume that you saw is associated with the high turnover clients that tend to pay the lowest rate.
Operator
Our next question comes from the line of Chris Allen of Evercore. Your line is open.
Chris Allen
Just wanted to ask if you guys can provide any color on the open interest trends we're seeing? We've seen -- I mean year-over-year growth has been slowing since April; in July it's trending down on a year-over-year perspective.
Particularly kind of looking at like the rate open interest levels are raising some eyebrows just given we're pretty close to a potential Fed move in September or December. So any color there would be greatly appreciated.
Phupinder Gill
Sure. I'm going to start and I'm going to ask both Derek and Sean to comment on their individual portfolios.
I think on the whole, if you look at the growth of open interest, particularly in relation to where we ended the year last year, it's pretty positive. I think there is a small dip in the energy portfolio and I stress small.
But if you are looking across the rest of the portfolio that we have, where open interest is concerned, where rates and equity and commodities and alternatives, they are seeing double-digit growth in open interest, foreign exchange open interest which as we articulated last year which was very high at the end of last year, is still even up 7%. And for the metals portfolio it is up 2%.
With that I'm going to pass it over to both Sean and Derek to comment about their individual portfolios.
Derek Sammann
It's Derek. On the energy side, where I will probably focus a little bit more, the drop off in the open interest has really been on the power side.
And that's not just a CME Group story, that's an industry story, so there's no real surprise there. That's a market segment that's going under some significant change right now.
We're doing extremely well on nat gas and WTI. You've seen the volume growth in particular on the options side as well, with the options volume up and TI close to 57%.
When you look at our competitor on the Brent side, they are up about 10%. So the outperformance on the volume side being matched by the open interest growth side there.
Sean Tully
In terms of the financials, interest rates since year-end up 10% in terms of open interest. Equities up 20% and foreign exchange up 7% after, as Gill said, very strong growth last year.
We've seen increasing uncertainty with the interest rate market [Technical Difficulty] expectations of potential Fed rate hikes later this year or early next year. So continue to see strong growth.
Operator
Our next question comes from the line of Mr. Rich Repetto of Sandler O'Neill.
Your line is open.
Rich Repetto
So I guess my question is your revenues are up it looks like around 10% in your first half versus last year and the volume is good. And obviously you had market data outperform relative to your guidance.
But I guess, Gill, the question is, if you can rank the top two or three growth initiatives which would you place as the highest priority and how they are doing?
Phupinder Gill
I think, Rich, if you have the asset classes, such as the ones that we have, are your benchmarks across the board. And I think a very specific emphasis for us was to grow our client base; not just here, but around the world.
And in particular the globalization effort that we embarked upon has been really successful. We have seen a growth in our client accounts.
We're also seeing -- on the OTC side I think Sean gave us a very thorough analysis of the growth on the OTC side. Of particular interest to us and what we're encouraged by is the growth of the large open interest holders in some of the key asset classes that we have.
I'm going to ask Bryan if he has anything to add here in terms of the globalization efforts for us.
Bryan Durkin
Really the diversity of the product and asset classes that we represent has played extremely well in our international growth model and as a result, we've seen some double-digit growth occurring across the asset classes, both throughout Asia as well as within the EMEA sector. I think it's a demonstration of a very methodical and focused program where we're able to strategically locate our employees throughout the globe and be able to identify opportunities for further penetration and go after those customers.
So part of the thing that we measure is also new client acquisition that we bring into the marketplace. And we're pretty pleased with the growth trajectory in that end, too, particularly for this past quarter.
Phupinder Gill
And, Rich just to add one last thing and I will ask Mr. Sammann to talk a little bit about that, is the growth in the electronification of options for us.
And options in general actually, because we're on the cusp of change but it is uncertain with respect to both the timing and the scope and the scale of that change. They've seen remarkable activity here.
Derek Sammann
I think to the extent that the overall franchise has grown significantly over the course of the year we actually look at July; even on a going-forward basis our July options volumes, on average, are up 30% across the board. Every single asset class is up between 24% and 30%.
Specific on the electronification side, we're continuing to see trends that you've heard us talk about quarter on quarter. Our investment in education, in analytics and technology is allowing us to not only continue to grow our business but all the -- all the growth is coming electronically right now.
So when you look at the aggregate portfolio, now 53% of our business in options trades electronically and all that increase in ADV growth quarter on quarter is all coming on Globex. Gill briefly mentioned the consistent growth in euro-dollar electronification from 12% last year to 18%.
July is 23%. Other notable events, gold options, for example, tripled -- doubled in volume last week with the new low in gold and the options volume went from basically 60% electronic to 80% electronic.
So what we're seeing is on high-volume days, in spiking volume days, that growth is outpacing itself on the electronic side. So big area of investment in growth and I think the numbers are bearing that out.
Operator
Our next question comes from the line of Mr. Alex Kramm of UBS.
Sir, your line is open.
Alex Kramm
Not much here, so maybe you can -- one of the items you might give us an update on is the whole equivalency debate between U.S. and Europe, the one-day growth, two-day net.
It sounds like that is still ongoing. And maybe specifically anything you've heard in terms of how this can be resolved.
One thing that somebody mentioned that I talked to the other day was that they might just go to the least common denominator which would be two-day gross. I don't know if you've heard that, but interested in what that would mean to your business because that sounds obviously pretty onerous solution.
Phupinder Gill
Alex, this is Gill. Terry just stepped out; he should be back soon.
But it is a key focus of Chairman [indiscernible] is what we actually know. I would not go about trying to guess what he is thinking about.
In various conversations with him it's clear to us that his orientation is to be fair and also to get the best outcome for global investors here. And Terry just walked in a second ago.
Terry Duffy
So we testified yesterday on the G-20 commitments equivalents. Obviously it was something that I raised in there and you can imagine people saying they want to have parity.
I did reference to the Congress and others that we were prepared to give parity by saying that we would take the higher of, whether it was -- whatever the regime was and others still balked at that. So it's clearly a competitive issue.
Chairman Massad recognizes it's a competitive issue and I don't see him balking away from what we have here in the United States as a stronger regime being one-day gross for client and one-day net for house. So I think we're in one of those situations where we're going to have to wait and see how the chairman reacts.
I met with him again yesterday while in DC and --. So I do believe equivalents will get done.
It will be done probably, I would hope, sometime in September/October time period, but we'll have to wait and see. But I do believe that everybody in this country feels fairly strongly that our regime is the best regime.
And we were going to have a standard global regime in years to come, hopefully and we won't have to go through this exercise that we're going through right now.
Alex Kramm
And, Terry, sorry you probably missed that part of my question but I suggested that some people have said two-day gross could be one solution. Do you think that's on the table and it could impact your business or do you think that's a nonstarter?
Terry Duffy
I think it's a nonstarter. I don't think it's on the table.
I've heard nobody even reference it. I've heard nobody in our governments reference it.
They already realize that one-day gross is collecting a higher margin on the client side to roughly over $38 billion to $40 billion higher than two-day net, so I think that they feel that that's plenty of coverage going forward. I have not heard anybody in this country introduce or discuss two-day gross.
Operator
Our next question comes from the line of Mr. Dan Fannon of Jefferies.
Sir, your line is open.
Dan Fannon
I guess my question for you, John, is on market data. You obviously gave your guidance.
Wondering if you could just give some stats around what's happened thus far and how conservative your outlook is and what some of those assumptions are going forward for how you are thinking about attrition?
John Pietrowicz
Sure, Dan. We're very happy with our excellent market data results.
In the first quarter we only had two billing periods in screen counts, so we accrued at anticipated level of higher attrition than we're currently experiencing. So we made an adjustment this quarter to reflect better-than-expected levels of screens.
We're going to continue to monitor the impacts of the pricing changes closely, so we currently expect the second half of the year to be approximately the same as the first half. We're not giving out any specific statistics around the number of screens, but what I can tell you is that they've been holding relatively flat.
So we're pretty comfortable at the 100 million per quarter level. I'll just ask Bryan to chime in in terms of what he's hearing from the customers as it relates to market data.
Bryan Durkin
I would just say we got out there well in advance of the changes that were taking effect over the course of the past 12 months. The client base was well informed about our elimination of the waiver.
We've worked very closely with the community in terms of making some adjustments in the reporting of screens and whatnot. Categorization of the type of trader; we made some modifications there.
So I think the marketplace, one, recognizes the value associated with market data; understands that we're going to continue to charge for it and as we continue to enhance the product itself, there is value associated with it. And the market is responding effectively in terms of the changes that we've put in incrementally, until we get to the ultimate full paying and end that waiver period of next year.
Operator
Our next question comes from the line of Mike Carrier of Bank of America Merrill Lynch. Sir, your line is open.
Mike Carrier
Just a quick question, it looked like on the non-op side you guys may be sold some shares on the BM&F side, so just wanted to get an update on the strategic relationship. And then maybe just broader, given the global landscape, just how you guys are thinking about the longer term in terms of either consolidation or relationships and how you guys are positioned for that.
John Pietrowicz
Sure. This is John, Mike.
We sold approximately 14.3 million BM&F shares, so we did about $58 million in proceeds from those sales. We still hold 98 million shares or approximately 5.4% of BM&F.
We did this for tax planning purposes, so we're likely to do some more. It's really strictly for tax planning.
I think the relationship with BM&F is extremely strong. It's one of our key relationships around the globe.
We work with them across multiple projects, whether it's on the technology side, whether it's on the product side or on the strategic side. So the relationship is really good.
Globalization is a very key part of our overall strategy. One of the components of that globalization, along with putting customer-facing people around the world is our relationships with key country champions in each of the locales.
We recently signed an MOU with India and I'll ask Derek to comment on that.
Derek Sammann
As you probably saw, we put a press release out last week where we executed an MOU with MCX, the Multi-Commodity Exchange which is the largest Indian commodities exchange. They have an 85% market share in the commodity space.
What we've committed to work with them is we've got a 10-year commercial relationship with them by which they license our Henry Hub and WTI settlement prices and they trade features on the back of that that settle to our prices. We wanted to expand that and give them the pace of change from a regulatory perspective in India with the regulators rolling up under one single umbrella under SEBI.
We wanted very much to both influence where we can, but also get closer to a strategic partner. So we've launched a commitment to a number of work streams, one of which is to launch a joint study looking at the feasibility of setting up exchange and operations in the IFSC, International Financial Service Centre, in India in the state of Gujarat.
So it looks like an interesting opportunity. India is very much opening under a Modi government.
And to the point that John made before about country champions, MCX is certainly the leading commodities exchange which makes sense to match up and work closely with us as the global leader on the commodity side here.
Operator
Our next question comes from the line of Alex Blostein of Goldman Sachs. Your line is open.
Alex Blostein
Given the success you guys have been having in electrifying euro-dollar options and just the options component as a whole, any updates on other potential shutdowns of trading pits and I guess how that could potentially play into your expense initiatives towards the end of the year and beyond?
John Pietrowicz
Sure, Alex. This is John.
As indicated previously, when we closed down the futures pits we were able to unlock about $10 million in annual cost savings. We anticipate running the entire floors, both in Chicago and in New York; cost us approximately $50 million a year, so $40 million remaining for the open pits.
What's key for us is that we don't force the markets to move. The markets will move when and if, they are -- find liquidity and better execution on the box, so we want to manage that carefully.
When you take a look, several of our pits are now approaching the 80%, 90% electronic phase. So it is something that we -- but we want the market to determine it.
And I will turn it over to Derek, who manages our options business.
Derek Sammann
Yes, I think that's right. And as you've heard us talk about, our continued investment in the technology side is to enable the sort of complex spread trading that used to only be available on the floor.
We're making that increasingly available with our solutions like CME Direct and adding analytics and capabilities to our electronic trading capabilities. So as John said, the market will find its place of liquidity.
Increasingly in times of high volume and high volatility that growth is coming electronically, so we'll let that run its course.
Phupinder Gill
The central theme here, Alex, has not changed from the time that we demutualized. We said that when our clients said it's time to shut the pit, we would shut our pit.
But the fact that we have done really well electronically is fantastic for us; it's a client choice. It shows -- the fact that some volume still remains in the pits is an indicator to us that although the trend is very positive that the pits remain viable for the options.
Terry Duffy
Gill, if I might just add, I don't want to undermine the fact that how important liquidity is on strategy-type transactions. Options are strategy-type transactions.
Futures lend themselves more to trading electronically. Some of our products do lend themselves to trading electronically on the options side; others do not at this point in time, some of our biggest products with that fact.
And the last thing we want to do is to try to move a lever to move a business and hurt that business. So I think it's critically important that we continue to manage it the way we've been doing it all along.
Again, I think you cannot dismiss the value of liquidity, market-making capabilities and abilities the way we have on options. They are different from features.
John Pietrowicz
And just to add to what Terry said, we generate well in excess of $100 million per year out of the options pits themselves.
Operator
Our next question comes from the line of Brian Bedell of Deutsche Bank. Your line is open.
Brian Bedell
Maybe you can dive a little bit deeper into the energy complex, maybe just to give us an update on how some of the initiatives in Brent are going in terms of getting more commercial volume across your energy complex. And then any thoughts on NASDAQ's NFX platform coming into play here.
Could it potentially be even a positive from the usage of market-makers arbitraging volumes against your complex?
Derek Sammann
Brent continues to move along. We have about a 12% market share in that market and it's important, not only as you [Technical Difficulty] for Brent trading in and of itself, but the spreads back into TI.
So we're happy with that pace. We have no plans to change anything at this point.
We're making steady progress and we've actually had some wins with some smaller commercials jump on board as well. So we're continuing to drive that and expand the ecosystem of participants there.
Relative to the NFX move-in, they opened on Friday. We've seen this entrance in other asset classes over time, whether it was ELX or NYPC or other efforts to come in and launch a me-too slate of products.
As we talked about in the last call, in the absence of product differentiation, a capital efficiency story, depth of liquidity, diversity of products or client diversification, outside of that, just launching a me too in the existing products I think is a challenging value prop. I think if you look at the depth of our market and the expanse of our WTI franchise right now, we're comfortable with the position.
We absolutely welcome competition and we will let you guys decide how successful you think they are going to be.
Brian Bedell
And do you think it could actually improve your TI volumes if there is increasing arbitrage activity from the market makers?
Derek Sammann
It's interesting, we actually saw that happen in both NYPC and ELX when there was sort of a risk, [indiscernible] people would just put the risk on here and there. Frankly, unless it's real customer volume and real open interest that grows there, yes, we will benefit.
But it won't necessarily be to the benefit if it's just market maker to market maker activity on that side. So if it's true to form for every previous attack, yes, we will see a small bump in our side.
You'll likely see a one-for-one. There is no shift going on, but you're likely to see increase there, match one-for-one increase here.
Operator
Our next question comes from the line of Chris Harris of Wells Fargo. Your line is open.
Chris Harris
So a question on your volume growth outside the U.S. We look at these numbers and they are clearly very impressive.
One of the things that we struggle with is how large your addressable market really is outside the U.S.. So just wondering if you guys have done any work on that and maybe wanting to get your comment on how penetrated you think you are at this point relative to the global opportunity.
Phupinder Gill
Chris, I will start and I'll ask Bryan to add if he would choose to. If you look at growth outside of the U.S., I think from your perspective when you are trying to see what the addressable market is, look at the top 10 exchanges as they exist now and then dial the clock back 10 years and look at the top 10 exchanges then.
What you won't see is a lot of growth, a lot of activity coming from, in particular, the Chinese exchanges in the various parts of the globe. The Hong Kong Exchange whose derivatives volumes have traditionally been very small is not a focus for us, but a client buys that emanates from Hong Kong because they also have touch points into China.
So that would be a very simple, broad-based look at what the so-called addressable market is outside of the U.S. And another way to think about it is the portion of the global trade volume that the CME Group companies had several years ago was just a portion of the global trade volume that they have now.
And then the third dimension that I would use is the fixed asset classes and the portfolio that we have and the benchmark that we have within each of those. All of those asset classes have a global appeal and so they, in that sense, make the job of selling these products around the world very easy for us relative to other exchanges.
These factors, in total, actually are driving the growth that you are seeing where the quality of the market around the clock, the quality of the products, global benchmarks and the reach of these products are past 200 countries around the world. Does that make sense?
Operator
Your next question comes from the line of Kyle Voigt of KBW. Your line is open.
Kyle Voigt
I guess if you could just touch on another regulatory issue, on position limits in particular. There was a CFTC advisory committee meeting yesterday on the topic and it seems like within the commission this is an openness to having exchanges involved in implementation and oversight of position limits.
So I guess my question would really be twofold. First, what are the risks to the commodities market today that you see under the current proposed position limits and the enumerated bona fide hedging exemptions?
And then, secondly, what is the feedback that you've gotten from the commission on potentially being part of the oversight and implementation of the position limits and hedging exemptions? Thanks.
Bryan Durkin
This is Bryan and I actually serve on the Energy Markets Advisory Committee and so participated in that discussion yesterday. And our message to the commission has been twofold.
One, we've had a very strong program in place for many, many years that has been very effective looking at our markets, the efficiency of those markets, focusing on spot-month limits which is where the criticality of market convergence takes effect. We've continued spreading that message and working with the community and working very closely with the commission on looking at what's been proposed today, how it would be very restrictive in the context and impactful, we believe, to the liquidity and performance of these markets if the current proposed language for hedge exemptions were to become finalized.
We believe that the efforts that have been undertaken by the community in conjunction with market participants has helped the commission understand and appreciate the impacts of the proposed rulemaking that is out there today. We're very hopeful for a more balanced and pragmatic outcome with position limits and hedge exemptions.
Terry?
Terry Duffy
Yes, let me just add to what Bryan said, because I did put this in my testimony also yesterday to make certain that we cannot have a position limits regime that's different than the rest of the world to make the U.S. anti-competitive, because one of the greats benefits we have is discovering price in this country.
Yesterday at Bryan's meeting question came up and I heard this through one of the staff, that as a public company are we the right person to be setting position limits. Well, the I answer to that question is we're absolutely the right company to be setting the position limits because we have the most at risk on the credibility of our marketplace more than anybody else.
So we have the expertise to do it, as Bryan has outlined and of course the credibility issue is what we're all about. If we don't have a credible market, we don't have a credible institution.
So we have the most incentive to make sure that these position limits are set properly and these markets are policed correctly.
Operator
Our last question comes from the line of Rich Repetto of Sandler O'Neill. Your line is open.
Rich Repetto
Just one quick follow-up, Gill and Bryan, I know -- or Sean -- you went through the whole basis point spread changes, but I guess my question, we're getting $18 million from OTC clearing per quarter; 2% of your revenue. And I know there's a lot of futurization benefits in there that are hard to specify, but it's certainly bolstering our improving revenue and volumes.
But this OTC business, what's the next catalyst to get -- will we expect to see more SEF trading or some other catalyst to get the contribution up from this $18 million that right now we're realizing per quarter?
Phupinder Gill
Rich, I will start and then I will ask Sean and Bryan to join if they have anything to add. I think if you are looking at the OTC effort and if you remember when we first walked down this path we said that the OTC market was extremely complementary to the core business of CME.
We continue to focus on that core and in particular how to make the markets in which we offer our clients as efficient as we possibly can. So the $18 million, as you point out, belies the fact that there are cross-margin efficiencies.
It belies the fact that there are futurization opportunities and it also belies the fact that there are what I'll call innovation opportunities that exist. One such innovation has been the deliverable swap futures which is the highest of volume-traded futures up to this point in time.
That innovation will continue. The cross-margining will continue and the education of our clients is also an ongoing process.
I think, taken together, all of these factors will contribute to the growth of not just the core product, but in addition to the core you would see a corresponding growth on the swap side. The SEF -- the advent of more liquidity on SEFs may help.
There may be some DCMs that roll off of swap trading that might help, but as we have said in the past, many of these swap products are complicated. And the way that they trade now I think seemingly, at least to us, seems to be a rational way to actually trade.
The more important thing is once you've done these trades how can you hold them in the most efficient way possible.
Sean Tully
This is Sean jumping in. In terms of innovation within the product itself, most recent innovation was Mexican peso interest rate swaps.
Mexican peso interest rate swaps now the third most important currency from a revenue perspective for CME Group. That is the 18th currency that we have.
We will be shortly adding the Brazilian reais currency as well which will be our 19th currency. And we have the broadest set of currencies relative to any of our competition.
If you look at so far this year, we've had $46 billion a day in non-U.S. de-currencies.
I think it's, without question, the deepest penetration CME Group has ever had in the non-U.S. dollar interest-rate derivatives market.
So it's allowing us, from an ecosystem perspective -- while the revenues are low, from an ecosystem perspective to massively penetrate the global market in new currencies in a way that we've never done it before. And getting back to Gill's point, it's the portfolio margining and the growth of the core.
So, 500 clients that we're clearing interest rate straight swaps for we're on a continuous basis cross-selling them into the futures. Earlier this year Greenwich Capital -- not Greenwich Capital, excuse me, Greenwich Associates, issued a paper, Total Cost Analysis, looking at interest-rate swaps versus futures.
And very clearly the interest-rate futures came out as the lower-cost alternative across the board relative to interest-rate swaps. What that's allowed us to do, as we talked about earlier, is if you look at a couple of years ago our Treasury market futures had a 65% penetration of the cash Treasury market.
That's now running at around 78%. So from a relative perspective, we've been able to grow our Treasury futures, again, on a relative basis from 65% to now 77%, 78%, so 13 percentage points.
When you think about the size of our interest-rate futures market that is actually quite a large increase in revenues that we've seen on the back of the cross-sell to those 500 swap participants.
John Pietrowicz
Rich, this is John. Just to put a fine point on it; as we mentioned, the volume that has left has been more the high-velocity hedge fund, low charge per ticket kind of volume, so the revenue drop will be lower than the volume drop.
And what you will see is the rate per OTC trade will likely increase due to that customer mix shift.
Rich Repetto
I guess my point is, even if it was up 50%, we're still talking 3% of revenue. Again and I acknowledge the portfolio margining and the futurization benefits, but the pure OTC revenue is still small compared to the whole complex.
Anyway, that was helpful. Thank you.
Operator
And once more question, it comes from Ken Hill of Barclays. Your line is open.
Ken Hill
I just wanted to sneak one here at just kind high level. We've seen some really good organic revenue growth this year.
You guys are bringing down the expense guidance here. At what point do you think about maybe perhaps spending a little bit more?
Do you think the natural constraint there might be around an operating margin well above in the mid-60s? Or how should we think about that longer term if we continue to see this good organic revenue growth against spending levels right now?
Phupinder Gill
I think, Ken, I will start and I will ask John to add. Our willingness and ability to spend is almost entirely dictated by the opportunities that we see.
And so there is no stop in spending. If there are opportunities that are worth the investment, we have never hesitated to invest and we, on a going-forward basis, will not change that approach.
John Pietrowicz
Sure, Ken. I think when we think about our opportunity set and what we're doing to manage the business, the areas that we're focused on in terms of efficiencies -- things like whether it's de-layering, whether it's closing the futures pits, whether it's optimizing our data center infrastructure, looking at how we provision and consume professional services -- all those expense management techniques are not in any way, shape or form impacting our ability to grow the business.
So those are not growth inhibitors. We do look at redirecting some of those savings towards investments in our growth opportunities.
So you'll see, like for example, whether it's growing our business internationally or whether or not it's investing in our OTC business or whether it's investing in electronifying our options, those opportunities are being able to be funded somewhat through managing our core infrastructure. So we feel good about that.
In terms of our operating margin, there is no artificial constraint around how high our operating margin can go, other than 100%, for a longer period of time. I think the way we look at it is, we're managing -- we're pulling the levers that we can pull which is making sure we're running the most efficient engine as we can.
And we're also using pricing levers and growing our business through interfacing with our customers. So those are the -- that's what we're focused on.
We're not focused necessarily on how high our margins can expand. Now, historically, we've been as high as 65% and that was several years ago, so that's the way we've been approaching things.
Phupinder Gill
Thank you all for joining us this morning. We're extremely excited about the progress that we've made this year and we look forward to seeing you all soon.
Thank you, guys.
Operator
And that concludes today's conference. Thank you all for participating.
You may now disconnect.