Feb 2, 2017
Executives
John C. Peschier - CME Group, Inc.
Terrence A. Duffy - CME Group, Inc.
John W. Pietrowicz - CME Group, Inc.
Derek L. Sammann - CME Group, Inc.
Sean Tully - CME Group, Inc. Bryan T.
Durkin - CME Group, Inc.
Analysts
Richard Henry Repetto - Sandler O'Neill & Partners LP Michael Roger Carrier - Bank of America Merrill Lynch Brian Bedell - Deutsche Bank Securities, Inc. Kyle Voigt - Keefe, Bruyette & Woods, Inc.
Daniel Thomas Fannon - Jefferies LLC Chris M. Harris - Wells Fargo Securities LLC Alex Kramm - UBS Securities LLC Chris Allen - The Buckingham Research Group, Inc.
Vincent Hung - Autonomous Research US LP Rob Rutschow - CLSA Americas LLC
Operator
Good day, and welcome to the CME Group Fourth Quarter and Full Year 2016 Earnings Call. I would now like to turn the conference over to John Peschier.
Please go ahead, sir.
John C. Peschier - CME Group, Inc.
Good morning, and thank you for joining us. Terry and John will make some initial remarks and then we will open up the call for your questions.
Other members of our team will also participate during the Q&A. Before they begin, I'll read the Safe Harbor language.
Statements made on this call and 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 statements. For detailed information about factors that may affect our performance, may be found in our filings with the SEC, which are on our website.
Also on the last page of the earnings release, you will find a reconciliation between GAAP and non-GAAP measures. With that, I would like to turn the call over to Terry.
Terrence A. Duffy - CME Group, Inc.
Thanks, John. Welcome, everyone.
And thank you for participating today. Before going into the details of our performance, I want to start out with a few comments, then I look forward to spending time focused on your questions.
As most of you know, I have been heavily involved in leading our growth strategy since we decided to go public in 2002. I had the good fortune to lead the IPO and roadshow, and have been involved ever since.
In 2007 and 2008, I oversaw the acquisition of the Chicago Board of Trade and the New York Mercantile Exchange. These two transactions were a cornerstone of our growth strategies.
They have led to the tremendous product diversity and deep liquidity that we provide our customers around the world today. One of the things we're always focused on is meeting our clients ever-changing needs.
This requires continued innovation and the development of new capital-efficient solutions. One example of the benefits that our clients receive is having interest rate swaps and interest rate futures in a single clearinghouse.
This has allowed for billions of dollars in margin savings for our clients. In addition, we are committed to reducing our day-to-day operating cost.
This frees up dollars to spend on our growth initiatives. The bottom line, as a company, we are well positioned to help our customers navigate today's unpredictable global environment and, in turn, deliver value to you, our shareholders.
Before I turn things over to John, I want to make a couple of comments about today's results. Fourth quarter volume averaged more than 16 million contracts per day, up 24%.
That included quarterly ADB records in interest rates, energy products and metals. As you know, we closely track our volume globally.
For example, in the fourth quarter, trading volume rose more than 50% during both European and Asian trading hours. At the same time, volume during U.S.
trading hours jumped 23%. In terms of the full year, we reached record levels of volume, averaging 15.6 million contracts per day.
This was up 12% compared with 2015. Our global growth was also impressive.
Volumes from Europe and Asia were up 16% and 15%, respectively. Also, we continue to expand our options franchise.
In 2016, we had record annual average daily volume of 3.1 million contracts, or an increase of 14%. Total revenue for the year rose by $268 million.
At the same time, expenses excluding license fees remained relatively flat. This drove double-digit earnings growth.
Looking ahead, I'm more optimistic than ever about all the work we've done to position the company for continued success. We believe the need for risk management will remain strong, especially as unprecedented political changes continue to unfold throughout the world.
It was very impressive to see our open interest in December exceed 122 million contracts. This reflects the continued growth of our customer base throughout the world.
As I said earlier, we also will continue to work closely with our customers to drive valuable product innovation. Innovation is the lifeblood of every institution and I see it no differently.
I'm encouraged by the good start we have seen so far in 2017. I want to commend my team for their hard work as we continue to manage and grow our business.
I look forward to taking your questions in just a few minutes. But for now, I will turn it over to John to discuss 2016 and our plans for this year.
Thank you.
John W. Pietrowicz - CME Group, Inc.
Thank you, Terry, and good morning, everyone. We are very pleased to finish off a tremendous year with a very strong fourth quarter.
Our team continues to be intensely focused on driving global revenue growth, operating our business as efficiently as possible and returning excess capital to our shareholders. For the full year, ADB grew 12% from 2015, driving an 8% revenue increase for the year.
Adjusted operating expenses, excluding license fees, grew by less than 1% and was below my original guidance for 2016. Global revenue growth coupled with strong cost management led to excellent operating leverage, with adjusted diluted EPS growing 12% in 2016 to $4.53 per share.
In Q4, we were able to grow revenue 12% and adjusted diluted EPS 18%, to $1.14. I will touch on the main details.
Our rate per contract for the fourth quarter was $0.731, down from the prior quarter. This was primarily due to a higher proportion of overall trading in interest rates as well as an increased proportion of activity from members during the quarter.
Market data and access and communication fees were up $1 million and $2 million versus Q4 last year, respectively. In addition, other revenue increased $6.5 million, mainly due to a significant software sale.
Moving to expenses. Excluding license fees and adjustments, our fourth quarter total expense increased 3% from the prior year to $290 million, which is where we guided to last quarter.
We had the normal sequential quarter expense increase this year, driven by marketing events, advertising, as well as project-related fees. Our adjusted compensation-related expense increased by less than 1% compared to last year and the compensation ratio in Q4 was 14.6%, down from 16.3% a year ago.
In addition, the decline in our full-year comp ratio had a similar trajectory. Looking at the non-operating income and expense line for the fourth quarter, our ownership in the S&P Dow Jones Indices joint venture drove $28 million in net earnings from unconsolidated subsidiaries, up 12% from Q4 last year.
The compound annual growth rate on this contribution has been 13% since 2013. Turning to investment income.
We received $3.7 million in dividends from BM&FBOVESPA. In addition, our investment returns, generated through the reinvestment of cash performance bonds and guaranteed fund contributions, increase sequentially to $8.4 million from $7.3 million in Q3.
Taxes for the fourth quarter were an adjusted 35.6% and were 36.2% for the full year. And now to the balance sheet.
At the end of the fourth quarter, we had approximately $1.95 billion in cash and restricted cash. We returned approximately $1.1 billion of that with our annual variable dividend of $3.25 per share in January.
In 2016, we returned $1.8 billion of dividends to our shareholders. During January, we sold down the remainder of our equity stake in BM&FBOVESPA.
The total net proceeds are expected to be approximately $240 million. We will continue our strong and strategic relationship with them, and we have each decided that joint equity ownership is not required.
During the fourth quarter, capital expenditures net of leasehold improvement allowances were $33 million, bringing the full year to $92 million. Overall our annual spend is lower than previous years, partly because of our asset-light strategy of eliminating real estate and, in 2016, selling our data center.
From capital perspective, we are primarily focused on our technology and clearing services, and we have invested approximately $12 million more in those activities in 2016 than last year. In terms of guidance for next year, we expect CapEx to come in between $100 million and $110 million.
Turning to operating expenses. We will continue to be as efficient as possible as we execute on our strategy.
For 2016, we guided to and achieved only a 1% increase in adjusted expenses, excluding license fees, and we expect to do the same in 2017. We anticipate adjusted total expense growth of approximately 1% to $1.09 billion, excluding license fees, in 2017.
Included in the guidance are investments in organic market data growth and new product extensions and offerings. Now to market data.
As Bryan mentioned last quarter, we have been doing a comprehensive review of our data business and the opportunity to expand beyond our traditional screen-based real-time offering. Our plan is to increase the data sales team focused on derived data, offer new services, such as our cloud-based data platform, which enables us to easily add new data content and also build out an audit function.
We expect to see approximately 5% to 6% organic revenue growth over the next few years, with 2017 being back-end loaded. Finally, excluding any federal tax changes, we expect our tax rate next year to be approximately the same as this year, at 36.3%.
In summary, for the year, our revenue was up nearly $270 million and our incremental operating margin was 92%. Without license fees, that jumps to about 96%.
Our secular growth drivers continue to deliver results, our efficiency on expenses has been excellent and we are excited about the prospects ahead. With that, we would 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 in the queue if you have any further questions.
Thank you.
Operator
Thank you. And we will pause for a second just to assemble a queue.
We'll take our first question from Rich Repetto from Sandler O'Neill.
Richard Henry Repetto - Sandler O'Neill & Partners LP
Yeah, good morning, Terry. Good morning, John.
Terrence A. Duffy - CME Group, Inc.
Good morning.
Richard Henry Repetto - Sandler O'Neill & Partners LP
Good morning. I guess since we just have one question, a broader question then.
Terry, as you look at the potential regulatory rollbacks – and I know it's unclear what they exactly are. But I'm just trying to get your assessment on the net impact, whether it's positive or negative.
And how you look at, say, if the banks do get more active in proprietary trading, because I know you've done well in also getting the firms that have been spun out of the big banks as well.
Terrence A. Duffy - CME Group, Inc.
Right. So, Rich, let me take that in a couple of different ways.
First on the regulatory rollbacks, if there's going to be any rollbacks at all. I actually believe that the market in general has shown that there already is rollbacks by doing nothing.
And I say that for a couple reasons. When you look at the existing law that was passed in 2010, the Dodd-Frank law, roughly 80% of the rules were passed at the CFTC and something just shy of that at the SEC.
So I believe some of the rules that have yet to be proposed or written may never even happen. And then you have other laws at the Fed, banking laws and things of that nature, that are yet to still come out of some of the legislation.
So I think that's almost a little bit of deregulation by doing nothing at all. And I think that's what the market is seeing.
I also think the market is seeing that we're not going to get a bunch of new laws. You've got to look at today's compliance for regulatory matters is roughly $2 trillion.
I mean, that's up significantly over the last 20 years. So I think we're getting to a point where the market finally sees some clarity that we have a lot of rules and laws on the books.
And no one's saying it is bad to have rules and laws, but I think that, in other words, a rollback or not is yet to be seen in what it would be. As far as the banks' proprietary trading goes, I'll talk about the Volcker a little bit on that.
One of the things that I think is a great opportunity right now. As you recall, the banks were able to proprietary trade in cash treasuries.
But for some reason, they omitted the futures contracts. I think that's one of the things that they'll be able to – we're hopeful they will be able to participate in that market to create liquidity.
Liquidity is critically important for everybody. It makes markets more efficient.
The more participants, the better the marketplace is. So that would kind of be my theme of what I think is going to happen as far as the regs go.
That answer your questions?
Richard Henry Repetto - Sandler O'Neill & Partners LP
Yes. Yes.
Thank you. And then the rules – go ahead.
Terrence A. Duffy - CME Group, Inc.
And then, Rich, just on the energy also, I didn't touch on that, but I will because it's a big part of our asset classes. And if Derek wants to jump in, that's fine.
But on the regulatory side of things, one of the things that we were seeing out of the past administration was position limits coming down and we didn't know what that was going to look like. I think now, that's not off the table, but I would think that any kind of position limits that are going to come out of the new administration will be at a point we're making sure business can grow, commercials can grow and other participants will be able to grow.
So I think that's also a net positive for our energy complex. And I don't know if you want to touch on that, Derek, or you want to wait until there's other questions about the product itself.
Derek L. Sammann - CME Group, Inc.
Yeah. I'll very quickly follow up on the participation side.
Yeah, I think when you look at what happened over the last four years or so, Rich, you saw a lot of the banks step out of the physical commodities markets, mostly in fact on the energy side. Now we've filled that void.
You see that we've focused on bringing commercial customers in over the last two and a half years, and we're delivering not only record open interest, but record levels of large open interest holders. So the point that Terry made, if there is a means by which the banks can reenter the principal business in the physical commodities market, their coming back into a market that's much more diversified and broader already.
So we think that would be nothing but upside to the business.
Richard Henry Repetto - Sandler O'Neill & Partners LP
Okay. Thank you.
Very helpful. I'll get back in the queue.
Terrence A. Duffy - CME Group, Inc.
Thanks, Rich.
Derek L. Sammann - CME Group, Inc.
Thanks, Rich.
Operator
We'll take our next question from Michael Carrier with Bank of America Merrill Lynch.
Michael Roger Carrier - Bank of America Merrill Lynch
Thanks a lot, guys.
Terrence A. Duffy - CME Group, Inc.
Hi.
Michael Roger Carrier - Bank of America Merrill Lynch
John, just maybe two clarifications. Just one on the market data growth outlook, just wanted to get a sense on maybe what's driving that.
And is that an annual growth rate? I know you said 2017 is more back-half weighted, but just wanted to get some longer-term perspective.
And then just on the cash, I don't know if you can give us an updated cash level post-distribution and with the sale of BVM&F. But just wanted to get a sense of where that stood.
John W. Pietrowicz - CME Group, Inc.
Sure. Thanks, Mike.
Yeah, in terms of the market data, after we've done an in-depth review of our strategy, we believe we have a plan that through investing in derived data sales, additional services, including our cloud-based services, and a more robust audit function, that we can deliver 5% to 6% annual growth in this business. And 5% to 6% for 2017 will be obviously ramped towards the back end of the year.
So that's 5% to 6% annually over the next few years. With regard to the cash, we had about $1.1 billion in annual variable dividend.
That left us about – when you look at the end of the year balance sheet, left is about $850 million in cash on hand, which is slightly higher than the $700 million that we had targeted, but we had a very tremendous fourth quarter. In terms of BVM&F, we did complete the sale of our stake in BVM&F.
That netted us in the month of January about $240 million in cash.
Michael Roger Carrier - Bank of America Merrill Lynch
Okay. Thanks a lot.
John W. Pietrowicz - CME Group, Inc.
All right. Thanks, Mike.
Operator
We'll take our next question from Brian Bedell with Deutsche Bank.
Brian Bedell - Deutsche Bank Securities, Inc.
Great. Thanks.
Good morning, folks.
Terrence A. Duffy - CME Group, Inc.
Good morning, Brian.
Brian Bedell - Deutsche Bank Securities, Inc.
Good morning. John, if you could just touch on the expense guidance.
Obviously the cost control continues to be very good here. If you're not willing to give the volume assumptions under that, at least if I can propose something like, let's say, if we had a 15% increase in ADV in 2017, would you still be able to keep that expense growth at around 1%?
And then maybe, Terry, if you could just comment on the volatility backdrop, your view of what volatility in general may be for interest rates, in particular in 2017, given the new administration and what you've seen versus past years. Thanks.
John W. Pietrowicz - CME Group, Inc.
Sure. Brian.
I'll touch on the expense side. We have done a tremendous job across the whole organization.
The entire team is focused on really driving our business as efficiently as we possibly can. So our guidance is 1% excluding license fees.
License fees tend to be tied to equity trading volume. That's the biggest impact driving license fees.
It tends to – so when you look at the ratio of license fees to our equity volumes, that's probably a good mechanic to use going forward in terms of your assumptions around volumes in our equity complex. If we tend to have a really tremendous year this year, the area that would flex the most, excluding license fees, would be obviously the bonus.
The bonus would go higher relative to our performance. We would attempt to offset that through other mechanisms if it was necessary.
In fact, when you look at Q4, you can see that our bonus was higher as a result of the activity. And we still met our guidance for the quarter.
Terrence A. Duffy - CME Group, Inc.
Brian, I'll touch a little bit on the volatility. But as you know, it's very difficult to predict, and volatility is just one of the components that people use our markets for to manage risk.
There's a whole host of issues why the markets go up and down, obviously. But when I look at what's coming at us in 2017 which could create some volatility, I always like to look at prices of certain asset classes.
So I'm looking at the equity markets, which are obviously on historic highs, so something could give either way. So if, in fact, the administration does get the corporate tax cut it has been proposing, then maybe the market could potentially look cheap because of what that could mean for corporations to their bottom line.
And, if not, maybe it looks a little lumpy. So that could create some volatility.
When you look at our other complexes, the energy complex is also interesting because of the potential conversation around putting a tariff on imported products, what that could mean for the price of energy, and Derek can touch on it as well. But that also could create some volatility between the TI and Brent spreads that could be quite interesting for the energy complex.
I also think what's interesting for 2017 is something we saw here in our own country this year, which is some of the European elections that we're going to see in 2017. As you know, we get a tremendous amount of revenue coming out of Europe.
And that is something that, with the elections coming up I believe in Germany and France this year both, it could be another volatile situation. I'm not saying it's going to be the same as when President Trump was elected, but that's something that we could look at.
So I think geopolitical volatility could be definitely in the mix and that'll also affect our foreign exchange complex as well once you get that volatility moving. So, Derek, if you want to add to the energy component, but that's where I see the volatility.
Derek L. Sammann - CME Group, Inc.
Yeah, I think that's right. I think our early read of what that border tax might look like is it'd certainly be a boost to domestic production in the U.S., meaning that's a WTI oversupply story.
So that's what our customers have been using our products for over the last two and a half years showing outperformance. So one indicator of where we see people starting to take positions is we've got options on the Brent WTI spread.
And we've seen that product kind of languish in the sub 100 to 500 a day contract volume. We're up to 5% contracts (21:38) a day.
So to Terry's point, we're out in front of customer needs, providing solutions for them. As these evolve, we see this basically being a boost to WTI and this is where people hedge their energy risk through TI.
Terrence A. Duffy - CME Group, Inc.
Does that answer your question, Brian?
Brian Bedell - Deutsche Bank Securities, Inc.
Yeah. Maybe just a quick comment on rates given what we've seen in November and all the repositioning...
Terrence A. Duffy - CME Group, Inc.
So let me kick that over to Sean Tully and he can give his comments on the rates.
Sean Tully - CME Group, Inc.
Sure. Great.
Thanks very much, Terry. Thanks for the question.
As we know, the Fed's current range for the fed funds rate is between 50 basis points and 75 basis points. If you look at the expectations for the marketplace, there's an expectation of a tightening in June and then a second one in December.
So if you look at our fed funds futures, and actually our FedWatch Tool is really the barometer that the marketplace uses in order to look at what the Fed is going to do. We're currently expecting around end-of-year between 1% and 1.25% fed funds rate.
On the other hand, if you look at the Fed expectation, so the most recent survey by the FOMC itself, their expectations are between 0.9% and 2.1%. So the Federal Reserve has a very large range, more than 1 percentage point, of their expectations for the Fed rate at the end of the year.
So there is a lot of opportunity for volatility. We did have a tightening in December.
The other thing I guess I would mention is the Federal Reserve likewise in their survey of themselves, the FOMC, they expect PCE to be between 1.7% and 2% at the end of the year, and the unemployment rate between 4.4% and 4.7%. Those are down to their targets.
So they have a target of 2% inflation and 4.5% to 5% unemployment rate. So they are already at, or they will be at by year end, kind of their expectations for long-term equilibrium.
So there is the opportunity – it depends on what happens with the economy, but it is an environment where you should see more Fed activity.
Terrence A. Duffy - CME Group, Inc.
I think just just to add to that. And I would see Sean as the expert, but when I look at some of the growth that we're seeing in this country, if you ever got some inflation because of the policies either set by administration or other folks that got a little bit over their skis on the buying power that they have the ability to do today, you could almost see the Fed getting over-reactive at the same point.
So we haven't talked a lot about inflation over the last couple of years because it just hasn't happened with the price of energy going down to $26 a barrel. But now that we see some of those changes, the inflation number might spark the Fed a little bit.
I don't know, but that's one of the things I'm looking at.
Brian Bedell - Deutsche Bank Securities, Inc.
Great. That's great color.
Thanks so much.
Terrence A. Duffy - CME Group, Inc.
Thanks, Brian.
Operator
We will take our next question from Kyle Voigt with KBW.
Kyle Voigt - Keefe, Bruyette & Woods, Inc.
Hi. Good morning.
Thanks for taking my question. Really just around corporate tax reform.
If the U.S. does lower the corporate tax rate, just wondering if you could provide some more color as to what you're going to do with any tax savings, if that would be all passed through to shareholders or maybe if you want to reinvest some of those savings in certain areas of your business?
John W. Pietrowicz - CME Group, Inc.
Hi, Kyle. This is John.
Thanks for the question. It's still early in the process to understand the full impact, but based on the plans that have been discussed, we believe we'll be able to keep about 80% to 90% of any tax rate reductions.
When we look at the net income that will drop to the bottom line, that goes into our cash pool that we can either use for further investment in the business or for our dividend. So it becomes part of the conversation as we look at our overall capital structure and investment policy.
So it's available. We haven't specified where we would utilize that.
But our view on our capital structure won't change relative to that.
Kyle Voigt - Keefe, Bruyette & Woods, Inc.
Okay, Thanks, John.
John W. Pietrowicz - CME Group, Inc.
Thank you, Kyle.
Operator
We'll take our next question from Dan Fannon with Jefferies.
Daniel Thomas Fannon - Jefferies LLC
Hi. Good morning, guys.
Terrence A. Duffy - CME Group, Inc.
Good morning, Dan.
Daniel Thomas Fannon - Jefferies LLC
Just a quick question here on the industry and M&A. I think in the long run, there's expectations for continued industry consolidation.
But with the current environment and the rise of populism, do you see cross headwinds at this point for cross-border M&A? Or how should we be thinking about the opportunity over the near-term versus the long-term at this point?
Terrence A. Duffy - CME Group, Inc.
I'll start on that and I'll let John make a comment and if Bryan wants to comment as well what he's seeing. On the cross-border M&A, it's very difficult to predict what's going to go on.
I think when we're looking at the LSE/DB transaction, everybody's focused on that at the moment. So I don't know how the environment is going to be for M&A.
But I will say that if there's opportunities, obviously we're going to be looking at things if they make sense for our shareholders. If they're not, then we just won't be pursuing them.
So I'm not certain that the new administration or the folks in Europe are going to change the equation as far as where it's at today as far as M&A activity goes being improved or not improved. And I'm not sure if I'm answering your question correctly, Dan, if you're looking for probabilities about M&A, or if you're looking for opportunities in M&A.
So I took your question as probabilities.
Daniel Thomas Fannon - Jefferies LLC
I mean, it's a combination just in the sense that I think there are expectations for potentially continued industry consolidation or maybe some opportunities. I think you're kind of touching – it's not so much near-term it's more about the longer-term picture.
But I think we're kind of getting in that area. So...
John W. Pietrowicz - CME Group, Inc.
Yeah, I think just to be clear. I think we look at M&A, our view is always, are we going to be able to create long-term shareholder value and how does it fit with our strategy.
So we pay attention to the marketplace and are constantly looking at opportunities. And when we see something that is long-term value enhancing, we'll act on it.
I think Terry's right. I think the environment is challenging cross-border, but we are always investigating and looking at opportunities.
Daniel Thomas Fannon - Jefferies LLC
That's helpful. I'll get back into queue.
Thank you.
John W. Pietrowicz - CME Group, Inc.
All right. Thank you.
Operator
We'll take our next question from Chris Harris with Wells Fargo.
Chris M. Harris - Wells Fargo Securities LLC
Thanks. Hey, guys.
Wanted to ask another question on tax. You guys know, there was an accounting change in and around the treatment of equity grants.
And for some firms, it's serving to lower corporate tax rates. And looking at your guidance, it looks like obviously that's not the case.
So just wondering if you guys could expand on perhaps why that is.
John W. Pietrowicz - CME Group, Inc.
Yeah, sure. This is John.
I'd be happy to take that. When you look at the change in the accounting rules around equity grants, for us, it represents a two-tenths to three-tenths of a percent impact to our effective tax rate.
And that's been included in our guidance. Now, as you know, that this rule change, the impact on the taxes relative to the rule change is a function of the aggregate cost of the equity grants relative to our total income.
So our equity grant expense is a smaller proportion of our income than some of our peers. So the impact to us is less than others because of the size of our income relative to our equity grant expense.
Now, just to be clear, this is a non-cash item. So from a cash flow perspective, it has minimal impact.
So just keep that in mind as you're looking at the impacts.
Chris M. Harris - Wells Fargo Securities LLC
Okay. Thank you.
John W. Pietrowicz - CME Group, Inc.
Thank you.
Operator
We'll take our next question from Alex Kramm with UBS.
Alex Kramm - UBS Securities LLC
Hey. Good morning, everyone.
Terrence A. Duffy - CME Group, Inc.
Good morning, Alex.
Alex Kramm - UBS Securities LLC
Also a bigger picture question for Terry. Obviously, as you noted, you've been involved in the company for quite some time, but I think this is your first call as the CEO.
So just wondering in terms of strategic priorities for you, any things that you would point out that you might change or would take a different view. Obviously there's been a lot going on in the industry.
But what do you think you will really focus on here? And what you think the company might head in a little bit of a different direction than previously?
And I know somebody has asked about M&A already, been curious if you think your views on M&A are any different than from maybe the prior leadership team?
Terrence A. Duffy - CME Group, Inc.
So let me take that in a couple pieces. First of all, my focus I don't think is any different than the leadership that's been around this organization for a long time because the focus has really been around the clients.
And I said that earlier. And I think that's the most important part of what we do is service our client.
What I'm looking at is looking for more ways to create capital efficiencies for our clients in order to bring them in here so they can obviously trade more and then, in turn, if we can do that, we think the shareholders will be rewarded. We also have to continue to be innovative.
Sometimes we rely very heavily on the asset classes we have and we get derivatives of a derivative. So we're always looking at new things that the world doesn't even know it needs yet today for tomorrow.
That's one of the things that we're looking at. But what my focus is is really doing things that drop to the bottom line and being decisive about them.
I think we have to be very decisive. And one example of that is to liquidate the BM&F position.
It wasn't because the relationship was not good or anything of that nature because the relationship was great. We did it because the commercial arrangements were basically done and we did not need to invest your money in that.
If you want to buy BM&F stock, the shareholders can do that themselves. So we acted very decisively on that and we exited that position.
The other thing is discipline as far as new proposals go. If they don't work, we're going to be very disciplined on the expense side of it and also on the timing of how we're going to let some of these things hang out there.
I'm not sure if that completely answered your question. And then on the M&A stuff, I think you asked a question on M&A also, Alex?
Do I think any differently on M&A?
Alex Kramm - UBS Securities LLC
Yeah. Just curious, I guess just curious if you think your views are different than the prior leadership team.
And since you just talked about the initiatives, does that include things like the European business? Can you be any more specific around anything that might be on the chopping block that wasn't before?
And I'll leave it at that.
Terrence A. Duffy - CME Group, Inc.
Yeah, I'm not going to comment on that because we're always analyzing our investments that we have, whether in London or other places. So we'll continue to analyze that.
There's been no decisions made either way on some of these investments in Europe. But as far as M&A goes, I'm not looking at it any different than what John said earlier, I believe to Chris or to Dan, and that is we're going to look for things that make sense for us.
And if we can get to that point, I'm going to be very supportive of it. I'm not a big fan of one-off smaller-type acquisitions that are in the pipeline that people believe that anything could add value.
I think that you have to really – you can't throw everything against the wall and expect it to work. So we're going to very focused and targeted on what we think can add value to our clients.
And that's where we're going with this. And sometimes I'm a little bit more direct than my predecessors, but I'm going to be more direct because I think it's important for you and for our shareholders to hear that from me.
Alex Kramm - UBS Securities LLC
Excellent. Thank you.
Terrence A. Duffy - CME Group, Inc.
Yep.
Operator
We'll take our next question from Chris Allen with Buckingham Capital.
Chris Allen - The Buckingham Research Group, Inc.
Morning, guys. I may have missed this and I apologize if I did.
Just on the market data guidance, does this build in any price increases at all?
John W. Pietrowicz - CME Group, Inc.
Hi, Chris. This is John.
Relative to market data, no, we have not announced any pricing actions for 2017.
Chris Allen - The Buckingham Research Group, Inc.
Okay. And the forward guidance does not bake that into your thinking or is that just more driven around sales, new products?
John W. Pietrowicz - CME Group, Inc.
Yeah, what we're really focused on in addition to our real-time data offering is investing in derived data sales, offering additional services, including our cloud-based services, for our customers so they can get more types of data easily more accessible and building out a robust auto function. Bryan can comment.
It's his area.
Bryan T. Durkin - CME Group, Inc.
Just one more point, Chris, is we're being far more targeted and focused in how we go about segmenting our customers and our consumers of data. We're able to do so with greater level of granularity and we really view that that opens up opportunities for us to drive more business and revenues in that regard.
Chris Allen - The Buckingham Research Group, Inc.
Got it. And then just a real quick one.
The software sale, $6.4 million, is that just a one-time kind of event?
John W. Pietrowicz - CME Group, Inc.
Yeah, the software sale is an unusually large item. So we wanted to highlight it for you.
It was approximately $5 million.
Chris Allen - The Buckingham Research Group, Inc.
Got it. Thanks, guys.
John W. Pietrowicz - CME Group, Inc.
Thanks, Chris.
Operator
We'll take our next question from Vincent Hung with Autonomous.
Vincent Hung - Autonomous Research US LP
Hi. Good morning.
Terrence A. Duffy - CME Group, Inc.
Good morning, Vincent.
Vincent Hung - Autonomous Research US LP
Can you provide us with an update on the retail trading push you decided to make it the end of last year?
John W. Pietrowicz - CME Group, Inc.
Sure. It's retail.
Terrence A. Duffy - CME Group, Inc.
Retail.
John W. Pietrowicz - CME Group, Inc.
Retail push. Yeah.
Terrence A. Duffy - CME Group, Inc.
So the retail push is an interesting one, Vincent. Right now we are new at the game of retail, for lack of a better term, what we'd call retail.
Retail is basically participants that are already active in the marketplaces in all different types of securities, including trading derivatives. So we have a very small part of that.
But the revenue is starting to grow significantly. When you look at it, I believe we have roughly 4% of the retail trade that we deem as retail of the 14 million active accounts that are retail, so there's another 13.5 million roughly accounts out there that could potentially be using our products.
So we are getting more and more aggressive at targeting these folks who are already participating. And I think what's important here is we're not targeting people that have never traded before or participated in the marketplace.
These are professionals that are already in the marketplace. A lot of them are trading ETFs, a lot of them are trading equity options.
And, obviously, they have the ability to trade futures. If you saw what I believe our friends at TD Ameritrade made some comments during their call that they had a lot of participants picking up their activity in trading from there.
So those are the type of participants we're looking at. And it's been quite a successful campaign.
But it's one of those ones that it takes some time. And when you look at the products that they are looking to participate in, energy, FX and gold seems to be the three things that they like to participate in.
These are very household every day products that we talk about. And so that has been one of the big upticks we've seen from the retail in those three asset classes.
So, Bryan, you want to comment further?
Bryan T. Durkin - CME Group, Inc.
Thanks, Terry. We're also seeing excellent growth coming out of the international time zones.
So to put it in perspective, about 50% of our retail activity's coming out of the U.S., greater than 30% now is coming out of international. And within those product scopes that Terry outlined, we just see it as a tremendous opportunity to further penetrate those regions with the diversity of the products.
And also what's interesting is options. You're seeing a really nice uptake with options.
In the past, it would be one in every 15 trades would be done by a retail participant in options. And now they're becoming more and more sophisticated, a lot of it through our educational efforts and partnering with our channel partners.
It's about one in five now.
Vincent Hung - Autonomous Research US LP
Great. Thank you.
Terrence A. Duffy - CME Group, Inc.
Thanks, Vincent.
Operator
We'll take our next question from Rob Rutschow with CLSA.
Rob Rutschow - CLSA Americas LLC
Hi. Good morning, everybody.
Terrence A. Duffy - CME Group, Inc.
Good morning, Rob.
Rob Rutschow - CLSA Americas LLC
So you've done a very good job of holding the line on expenses, helped by a move to close floors and move people overseas and consolidate real estate, et cetera. You obviously guided expense growth to 1% in 2017, which is also good.
I guess looking ahead it would be helpful to know how much in savings you think those actions provided in 2016 and what the impact might be for 2017. And I guess what I'm trying to get at is, what do you view your organic growth rate in expenses to be?
And additionally, do you see any moves that you can take going forward that might help mitigate that organic growth rate?
John W. Pietrowicz - CME Group, Inc.
Sure. Thanks, Rob.
The entire team here has I think done a fantastic job of really looking at our infrastructure, making sure that we're spending every dollar as effectively as we possibly can. And this includes a lot of benefits for our customers, in fact.
When we reduced management layers, it made us more agile, made us more responsive. We've got staff overseas so we can also be able to handle client business better 24 hours a day and develop all the liquidity that we have on our systems 24 hours a day and service those customers 24 hours a day.
So some of the actions we've taken, although have been cost-effective, but they've also been customer-effective. Now going forward into this year, a lot of the work that we've done in 2016 is carrying over into 2017.
So things like, we'll continue to sublet excess office space. We're closing the trading floor in New York this month.
We have done that. And then we'll continue to benefit from the technology work we've done in terms of utilizing more Software-as-a-Service.
As well as we've consolidated our data center and are working with our partner at CyrusOne, which is making us more effective in terms of costs relative to our data center usage. So I think when you look past 2017, excluding license fees, I would say that a low-single digit expense growth is what I would see going past 2017.
Rob Rutschow - CLSA Americas LLC
Okay. Thanks.
That's helpful.
John W. Pietrowicz - CME Group, Inc.
All right. Thanks, Rob.
Operator
And we'll take our next question from Alex Kramm with UBS.
Alex Kramm - UBS Securities LLC
Yeah. Hey, guys.
Just a quick follow-up for John primarily here. First off, on the investment income line, how should we be thinking about that going forward now that the BM&FBOVESPA is out?
Maybe remind us what else is in there. And considering that some of that is now driving by the margin-driven income, I guess, with the Fed just doing the hike in December, is there another tick up?
How are you thinking that line is going to come in for 2017?
John W. Pietrowicz - CME Group, Inc.
Yeah. Thanks, Alex.
We've been really focused on driving as much income as we can. In fact, when you look at that other income and expense area, from 2014 it's gone from an expense of $400,000 to $31 million in 2016 for the full year.
So it is something that is very meaningful. When you look at the components that are in there, one is our S&P Dow Jones joint venture.
And for the quarter it was about $28 million. And this has had a CAGR of about 13% since 2013.
We've got our interest expense. And then we've got investment income.
And we look at the investment income, you can think of it in kind of four components. The first is the investment we do on behalf of our clients.
And that's generated about $21.1 million in income for the quarter. And then a couple lines down, you can see that we rebate a large portion of that back to our clients.
And that's on the other expense line. And that was about $12.7 million.
So that gives us a net of $8.4 million for the quarter, up from last quarter of $7.3 million. Then we invest our corporate cash and we've got other investment gains.
And that was about $2.8 million for the quarter. And the last component is the dividend income that we received from BVM&F this quarter.
And that was $3.7 million. Obviously since we sold off our stake, we're not going to have that going forward.
So with regard to the Fed, yes, the Fed was available for house accounts. It was open and operating in the fourth quarter.
We had average daily balances of about $2.3 billion for the quarter and that was about $6.5 billion at year end. We capture about 15 basis points net for house funds that are put up at the Fed.
Our house participants receive about 60 basis points. Now, the non-house customers currently don't have Fed access, although we are working with the Fed to attempt to make that happen.
So going forward, until we have some clarity around access for the non-house accounts, we've been in approximately the $7 million to $10 million range for that investment income.
Alex Kramm - UBS Securities LLC
All right. That's helpful.
And then maybe secondly real quick, just coming back to market data, you said back-end loaded. So if you think about the next couple quarters, I guess the core business before some of these initiatives take hold, maybe you mentioned this before, but should this trickle down further?
Or do you see stability right now in your core subscription base?
Bryan T. Durkin - CME Group, Inc.
We see a stable trajectory with the core business. A number of these things are going to be implemented over the course of the next couple of quarters.
So we'll be able to say more at the next one.
Alex Kramm - UBS Securities LLC
Sounds good. Thanks again.
Terrence A. Duffy - CME Group, Inc.
All right. Thanks.
Operator
We'll take our next question from Dan Fannon of Jefferies.
Daniel Thomas Fannon - Jefferies LLC
Good morning, guys. Just as a follow up, you've given some really good color around expense growth and how you're thinking about expenses, but what about perhaps the opposite side of that coin?
And so what I mean is that is there perhaps since the business is doing so well at this point, is there perhaps an opportunity to maybe have incremental investment that maybe just take a few more chances or roll the dice on a few more things that maybe you might not during if times were a little bit leaner? Wouldn't now be the time to do that?
Or how should we be thinking about these other opportunities that maybe you guys are foregoing at this point?
Terrence A. Duffy - CME Group, Inc.
John will comment and then I will, too. But I will say that dice rolling is not in our business plan.
John W. Pietrowicz - CME Group, Inc.
Thank you, Terry. Yes.
I think when we look at our spend, we are very disciplined with how we approach expenses. But our focus really has been to optimize our infrastructure so we can free up dollars to spend on growth initiatives.
So when you take a look at what we've done over the last several years, we have had an unprecedented number of new product offerings that are meaningful and additive to our bottom line. So you look at things like our Ultra 10-Year, you look at things like the weekly equity options.
Those are meaningful products that we've launched that are helping to drive our bottom line. And that all has been done through being able to optimize our infrastructure, free up the dollars so we can do this kind of launches.
Repo is another example of something that we've been investing in for the last couple of years towards new products. Now, that all said, we'll not forego spending if we believe we have an opportunity in front of us.
So there's not a point where we say we're not going to do something when we think there's going to be an opportunity ahead of us. So a couple examples, and maybe Sean could comment on it.
On the OTC side of the business, we've had several really important launches that are unique to us that we've been able to launch that have been additive.
Sean Tully - CME Group, Inc.
Yes, so thank you, John. In interest rate swap clearing, for example, we had huge traction last year in Latin American currencies.
We now offer more currencies for clearing interest rate swaps than any other platform globally. If you look at growth last year, for example, in Brazilian reai and Mexican peso interest rate swaps, we had enormous growth.
We actually, in the month of January, we had a record day where we cleared in a single day over MXN1 trillion worth of Mexican interest rate swaps, or $47 billion. We're going to leverage that in the coming months and years.
This summer we are expecting to add additional currencies. In particular, we're focused there on Asian currencies.
So we do hope to launch two additional currencies there later this year. In February, we are looking to launch hopefully by the end of February additional monthly foreign-exchange futures.
So the innovation continues. As John mentioned, the Ultra 10, which we launched in January of last year trades approximately 100,000 contracts a day today.
The Wednesday Weekly options in the S&P 500 trades approximately 50,000 contracts a day. So we will continue to innovate, continue to grow, continue to take advantage of, as Terry mentioned, the opportunities to provide much greater capital and margin efficiencies for our clients in order to grow both our core as well as into the adjacent market.
Terrence A. Duffy - CME Group, Inc.
So, Dan, just to comment of the dice throwing comment, which I couldn't help myself but to say that.
Daniel Thomas Fannon - Jefferies LLC
Just as a clarification, I guess part of the question was just how loose are the purse strings now versus maybe if the times were tighter?
Terrence A. Duffy - CME Group, Inc.
Well, here, let me say it this way and differently. So one of the things that we have done and we're continuing to do is to put a discipline in place so we can continually be in the good position that you just outlined a moment ago when times are good.
And then times can always change, you don't know what's going to happen. But opportunity that I've always seen in my career happens when times are uncertain.
So when you look at what's going on throughout the European community, and I'll use that as an example, don't think we're going that way, but this is an example. With Brexit, that could be two to three years before there's any clarity on what's going to happen over there.
So in my mind that creates uncertainty which creates opportunity. But you cannot take advantage of the opportunity if you're not being disciplined with the way you're handling your business today.
So, yes, we can look at different things going forward, new products, new opportunities and maybe take a, we'll use your phrase, roll a dice or two. But it will be very calculated and it will be in a position of strength, not a position of weakness, no matter what the market conditions are.
John W. Pietrowicz - CME Group, Inc.
Yeah, and I think just the final point on it, and Terry mentioned at the start. We're very customer-oriented, very customer-focused.
So a lot of the new product come from dealing closer with our customers, which allows us to be very responsive, allows us to make change right away as we hear new products or services that they want. And it also allows us to be in a position of strength when we offer the products.
We don't have to do a lot of incenting because it's something that they want, it's something that they value. So it drives our revenue for the bottom line right away because it's value add for them and value add for us.
Daniel Thomas Fannon - Jefferies LLC
Very helpful. And then just one really quick short question here.
A couple of years ago, there was a little bit of elevated discussion around the Omani Crude Oil Contract. Any additional color or update there?
Derek L. Sammann - CME Group, Inc.
Yeah, this is Derek. Actually that's a good growth story.
It's a market where it's really split between what that East versus West (51:46) benchmark looks like. We've got Omani Sour Crude listed on DME.
We're a majority owner of that. That is a business that's acquired about 35% market share of that market.
It's about a 20,000 contract a day business. That's a business that's breakeven for us, so we're very pleased with the growth there.
In fact, we just hit in January on DME all-time open interest record and delivery record. It's a physical contract, which is what the market asked us to deliver out there.
So we're very pleased with the growth. And we're seeing increased uptake in the product, primarily from commercial, which has been our focal point out there.
So we're seeing that in world which is both globalizing and regionalizing an opportunity to provide a physical product in market in businesses that are breakeven for us we think are opportunities to build clients and extend our product footprint.
Daniel Thomas Fannon - Jefferies LLC
Very good. That's it for me, guys, Thank you so much.
Terrence A. Duffy - CME Group, Inc.
Thank you.
Operator
We have no further questions in queue. Now I'll turn the call back over to management for any additional or closing remarks.
Terrence A. Duffy - CME Group, Inc.
I want to thank everyone for participating this morning. I know many of you I've had the opportunity to spend some time with.
For those of you I have not, I look forward to it. And again I thank you very much.
And have a wonderful day.
Operator
And this does conclude today's conference call. Thank you all for your participation.
And you may now disconnect.