Welcome to the BGC Partners, Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the speaker today, Jason Chryssicas, Head of Investor Relations. Thank you, and please go ahead.

Good morning, everyone. We issued BGC's second quarter 2022 financial results press release and presentation summarizing these results this morning. You can find these at ir.bgcpartners.com. Please note you can find additional details on our quarterly results in today's press release and investor presentation. Unless otherwise stated, the results provided on today's call compare only the second quarter of 2022 with the prior year period and compare revenue excluding insurance due to its sale on November 1, 2021. We will be referring to our results on this call only on an adjusted earnings basis unless otherwise stated. We may also refer to adjusted EBITDA. We may refer to our liquidity, which we define as cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements and securities owned, less securities loaned and repurchase agreements. We define total capital as redeemable partnership interest, total stocks equity and noncontrolling interest in subsidiaries. This quarter, BGC is providing revenue year-over-year comparisons on a constant currency basis. BGC generates a significant amount of its revenue in non-U.S. dollar-denominated currencies, particularly in the euro and pound sterling in order to present a better comparison of the company's revenues during the period, which exhibited volatile foreign exchange movements. BGC's constant currency movements assume foreign exchange rates used to determine the company's prior period revenues applied to the current period revenues. Please also see today's press release for results under generally accepted accounting principles, or GAAP. Please also see the relevant sections in the back of today's press release with the complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses such terms. Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available…

Thank you, Jason. Good morning, and thank you for joining us for our second quarter 2022 conference call. With me today are BGC's Chief Operating Officer, Sean Windeatt; and our new Chief Financial Officer, Jason Hauf. I would like to start by welcoming Jason to BGC, and welcoming him to his first BGC conference call as our new CFO. I am pleased to announce that the Joint Committee of our independent directors of the Board, which was constituted to consider the conversion to a corporate structure has agreed to pursue and move forward with the corporate conversion subject to documentation. This conversion is intended to be effective January 1, 2023, subject to the regulatory process. We believe this change will improve operational efficiencies and benefit our shareholders and stakeholders by implementing a more simple, transparent corporate structure. BGC's adjusted earnings margin continued to improve, representing the seventh consecutive quarter of year-over-year margin expansion. Our sustained margin improvement reflects higher levels of automation and digitization across our overall business. Fenics registered another quarter of double-digit revenue growth, outpacing the industry and our overall business. Fenics now represents over 25% of our overall revenues, its highest mark ever. We continue to make progress developing our comprehensive cryptocurrency offering, which includes the expansion of Lucera's infrastructure across the cryptocurrency ecosystem as well as the recently announced plans for a cryptocurrency exchange, which we anticipate will be launched late in the fourth quarter or early in the first. Additionally, BGC arranged the first intermediated block trade of CME Bitcoin options in Asia in July. With that, I'll turn the call over to Jason.

Thank you, Howard, and hello, everyone. It is a pleasure to speak here today and join BGC at such an interesting time in the company's journey of digitizing the wholesale capital markets. BGC generated total revenue of $435.8 million, a decline of 4.9% as compared to last year. But on a constant currency basis, we were virtually flat, excluding insurance. Total revenue would have been $19.9 million higher and in line with the year ago period, but for the strengthening of the U.S. dollar. By asset class, FX and rates increased by 2.1% and 0.5%, respectively. Equities, energy and commodities and credit decreased by 4.2%, 10.8% and 15.6%, respectively. On a constant currency basis, rates, FX and equities increased by 7.3%, 3.4% and 1.4%, respectively. By geography and excluding insurance, Americas revenue increased by 4.5% while Europe, Middle East and Africa and Asia Pacific revenues both decreased by 8.9% and 9.8% respectively compared to last year. The company continues to make progress in automating its overall business. Fenics, BGC's higher-margin technology-driven business, now represents for the first time over 25% of BGC's total revenue and grew at a strong pace of 13% or 18.1% on a constant currency basis. The company remains focused on converting its large Voice/Hybrid revenue base to Fenics revenue, driving margins higher. Adjusted earnings margins and average front office productivity both improved year-over-year for the seventh consecutive quarter. Fenics generated record second quarter revenue of $109.6 million, an improvement of 13% or 18.1% on a constant currency basis. Fenics growth platforms recorded revenue of $12.4 million, an improvement of 16.9% or 18.6% on a constant currency basis. Fenics Markets generated revenue of $97.2 million, an increase of 12.5% or 18% on a constant currency basis and had a pretax adjusted earnings margin of 32.2%, an improvement…

Thanks, Jason, and good day, everyone. Fenics, our technology-driven higher-margin business, continued to grow strongly. Our Fenics strategy remains focused on converting the company's $1.4 billion Voice/Hybrid revenue base into higher-margin technology-driven Fenics markets revenues, while concurrently scaling its state-of-the-art fully electronic Fenics growth platforms, including FMX and electronic cryptocurrency offerings. Looking at Fenics in more detail. Our Fenics Growth platform's revenue improved 16.9% or 18.6% on a constant currency basis from a year ago, driven by growth across Fenics U.S. Treasuries, Lucera, Fenics FX, Fenics GO and Portfolio Match. Fenics UST revenues increased over 30%, driven by ADV growth of 22%, new product offerings and more traders using the platform. Fenics U.S. Treasury CLOB market share increased 162 basis points year-over-year to 19% in the second quarter. Fenics UST's newer T-bill offerings gained traction during the quarter with ADV exceeding $1 billion for the month of June and reaching $3 billion on certain days. Lucera, our infrastructure and software business, once again generated strong double-digit revenue growth with its revenue improving 25% year-over-year. This growth was driven by new clients, the expansion of existing relationships and adding new cryptocurrency clients. Lucera is providing connectivity to 30 of the world's deepest crypto liquidity pools via its world-class infrastructure with a growing pipeline. Fenics FX, our ultra-low latency electronic FX trading platform, had another record quarter, generating strong volume growth of 47%, outpacing other FX platforms and the overall market. Fenics FX has developed leading transaction costs, liquidity and market impact tools, providing clients with critical information unique to the platform. These trading tools --

Ladies and gentlemen, we apologize for delay. We will be here in just one moment. [Technical Difficulty]

Apologies. I'll just go to -- go from Fenics FX. Our ultra-low latency electronic FX trading platform had another record quarter, generating strong volume growth of 47%, outpacing other FX platforms and the overall market. Fenics FX has developed leading transaction costs, liquidity and market impact tools providing clients with critical information unique to the platform. These trading tools, along with its leading Lucera supported technology, has accelerated Fenics FX's market share gains and led to consistent strong double-digit volume growth throughout the course of the year. Fenics GO, our global options electronic trading platform, grew its market share primarily driven by strong growth across its Asian index business. For the first 6 months of 2022, Fenics GO's revenue and volumes have already well exceeded its full year 2021 performance. Portfolio Match, our session-based credit matching platform, continued to gain traction during the quarter with revenue more than doubling from a year ago. Portfolio Match currently supports U.S. and European investment-grade credit and European high yield. The platform continues to scale its client base as it rolls out new technology to fully automate the entire credit trading process. Looking at Fenics markets, revenues improved by 12.5% or 18% on a constant currency basis, driven by strong growth across FX, credit and market data. Fenics market data signed 60 new contracts during the second quarter with total contracted value increasing 27% versus the year ago. Fenics market data continues to see strong demand for its regulatory interest rate, inflation and FX data packages with additional products to be added throughout the year. Fenics market data, which has a highly recurring and compounding subscription revenue model, grew over 17% year-over-year. Fenics Direct, our web-delivered multi-dealer FX options platform, grew ADV by 95% in the second quarter versus the prior year period. Fenics…

Thank you, Sean. We are in deep discussions with our bank and trading partners for our FMX business. We look forward to announcing their investments before we open in the fourth quarter of 2022. We are proud that Fenics now represents over 25% of our overall revenue, enabling us to expand our margins and productivity for 7 consecutive quarters, a trend we expect to continue. With that, operator, we're happy to open the call for questions.

[Operator Instructions] Our first question today comes from the line of Gautam Sawant from Credit Suisse.

Congratulations on the C-corp conversion announcement. I wanted to know if you could potentially expand on the FMX platform launch with the 2 new additions to the Board there and how you think about which partners are going to come on board to help build treasury volumes and interest derivative volumes?

Sure. So we added 2 extremely experienced professionals to the Board as we prepare the process of opening our Futures initiative at the end of this year. We are talking to a number of banks, and there are more than 5 banks and a few high-frequency trading firms. And our objective would be in the range of more than 5 and less than 10 partners as we go into this opening. So our expectation is we will have more than 5 and a maximum of 10 partners, but we are talking to basically those who trade the most and those who are most committed to our platform. And this is very exciting since the fourth quarter is not that far away, since we're already in the third quarter, we're heading to its conclusion. We're working on the details with the CFTC. We're working through the details with LCH. This is connecting and making sure we're connecting all of the trading firms. But the fact is our treasury system is connected to virtually everybody. It's not everybody. And we're on the path. So we are very excited about the prospects and really dotting Is and crossing Ts towards its opening.

And can you just provide an update on your economic outlook and how you see, I guess, inflation trending and potentially what kind of volumes or trading the treasury market should, I guess, be pursuing over the next 6 to 12 months with quantitative tightening starting? Is that going to be happening more on coupon bonds or treasury bills?

Zero interest rates created an odd market environment. And with that, finally, being in our rearview mirror, we expect volumes across the rates and credit and foreign exchange product categories to start to grow materially and consistently going forward. The process to get from here to there over the next 2 or 3 quarters, as we said in our prepared remarks, might be uneven for certain product categories. For example, the fact that inflation-related bonds volumes were lower this quarter. You would say, "Oh, come on. Man, how could inflation be lower." The fact is it's idiosyncratic through the violent swings that have happened in inflationary expectations and some market participants have not done as well as others, and therefore, that creates sort of unusual short-term volume swings. But our expectation, of course, is that inflation-based products will have a dramatic and exciting growth prospects going forward, as I think what everybody would agree. So I think we think coupons will be dramatically continuing to grow. So we like benchmarks, which will continue to grow and issuance will continue to grow, and we like trading of those products. Treasury bills going from 5 basis points to 285 basis points. I mean, now you have a reason to trade treasury bills. When they were 5 basis points, really, what was the volume reason to trade treasury bills. There was no reason. Just as a simple example for you. In 2007, the volume of corporate bond traded was 2.5x larger in 2007 than it was in 2021. That is a factor of low interest rates, just reducing volumes because just the reason to trade is lower. As those reasons dissipate because rates come back into our world, I think you're going to see an improved outlook for our business in general, rates in particular, credit, in particular, and foreign exchange, in particular, you're going to see those businesses improve, starting in '23 in a more smooth way and thereafter.

[Operator Instructions] The next question today comes from the line of Rich Repetto from Piper Sandler.

Howard and team, I apologize. I got on late, but I guess the first question I have is on the corporate conversion. Again, I apologize if you covered this. But other offsets, I know you expect synergies, but will the synergy -- could you go through the balance of the synergies versus what could be a more normalized tax rate?

Yes. So we will do that in -- with more precision on the next quarter call with more detail. But effectively, we have corporations from the acquisitions we've made that reside within partnerships, which create really inefficient capital structures and significant amounts of work, audit work and other sort of accounting and finance inefficiencies across the platform. So our expectation is the simplification will create synergies and capital efficiencies that we should be able to take advantage of, and that will mitigate somewhat -- I don't think it will mitigate entirely, but it will mitigate somewhat the increase in our tax rate. So we think there will be offsetting synergies from simplification and from capital efficiency substantially offsetting the tax rate but not completely.

I guess the other question is you go through the profitability of Fenics markets, and I believe it's in the 30% pretax margin, a bit higher. And I'm just trying to see -- I know the growth platforms, you're still making investments there. But could you talk about, I guess, the trajectory of the margins there? I know you had to invest more with crypto into the growth platform, but any idea when the growth platforms will -- are they breakeven or when there'll be breakeven?

Well, so as an example, we have both our Futures initiative, which is not yet open. So we are spending money, obviously, on our Futures initiatives, which is not yet open and our crypto exchange initiative, which is not yet open. So those 2 would create -- just simply, we're spending money on our growth platform category. Our expectation is that profit margins and growth will be in excess of 50%. So we -- our expectation is these are fully electronic markets, the technology and sales is the primary in clearing of the costs. And we would expect -- as you would have seen in other comparative fully electronic platforms, we would expect profit margins in excess of 50% for that product category.

And one last one. On FMX or the Futures Exchange, could you talk about more of the -- you're adding people or there is a Board being put together, but still the ownership. I know you want to announce that in one, I guess, maybe one announcement when it all comes together. But any more insight will you have just sort of the makeup of the investors that could be in FMX since you are out there now with announcing Board members?

We are in deep discussions with the most important trading banks in the rates complex. We are also in conversation with a number of the highest volume, high-frequency trading firms. And those conversations are deep and ongoing, and our expectation is they will be completed and announced prior to our opening of the business. It does not -- in terms of the highest volume trading banks, it does not exclude any of them from top to bottom for those that are the most active in that space. They are, as a group, engaged and interested. And while I cannot promise what the outcome will be, it sure feels good and that's why we're talking about it in this way.

Thank you. That concludes today's question-and-answer session. I would now like to pass the conference back over to Mr. Lutnick for closing remarks.

So we appreciate you joining us. We look forward to updating you further on our corporate conversion next quarter with more details. We look forward to the announcement of our partners in FMX between now and the end of the year. And we look forward to an ever-improving underlying set of economic conditions for this company. As rates have come back in, imagine 15 years of 0 interest rates finally being behind us, and now we will have an ordinary set of markets starting in 2023 and which to perform our services. If you want to look back at who we were before interest rates went to 0 in the whole Lehman Brothers world, you will see a much, much larger company because volumes were just much bigger back then. It will raise all boats, but BGC has great, great businesses in rates, credit and foreign exchange, and we expect to be a wonderful beneficiary of those sets of changes. We look forward to speaking to you next quarter and updating you along the way. Thank you, everybody.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.