Cboe Global Markets, Inc. (CBOE) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the CBOE Holdings First Quarter 2013 Financial Results Conference Call. [Operator Instructions] And as a reminder, this call is being recorded. I would now like to turn the conference over to Debbie Koopman, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us for our first quarter earnings conference call. On the call today, Bill Brodsky, our Chairman and CEO, will discuss the quarter and provide an update on our strategic initiatives for 2013; then Alan Dean, our Executive Vice President and CFO, will detail our first quarter 2013 financial results. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be our President and COO, Ed Tilly; and our Executive Vice President and Chief Business Development Officer, Ed Provost. In addition, I'd like to point out that this presentation will include the use of several slides. We will be showing the slides and provide a commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. As a preliminary note, you should be aware that this presentation contains forward-looking statements which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statement. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise after this conference call. Now I'd like to turn the call over to Bill Brodsky.

Good morning, and thank you for joining us today. Before I begin my remarks on our first quarter performance, I'd like to take a moment to touch on last week's trading outage. First and foremost, I would like to reiterate that we very much regret the inconvenience to our customers, with whom we've been in very close communication since the trading delay on April 25. We are grateful to the many customers who've expressed their understanding of the issue, as well as their overall confidence in our system's capability and reliability. We intend to live up to that trust. Preliminary systems work related to extended trading was identified as the catalyst for last Thursday's outage. Therefore, as part of our ongoing review, we are in the process of retaining an independent systems consultant to thoroughly evaluate the rollout procedures of our extended trading hours initiative. As a result, we are delaying the timetable to begin implementation for extended hours to accommodate this input. We've also been in close contact with the SEC. Any time there's a trading disruption delay, there is a detailed protocol on sharing information and working with the SEC. We maintain real-time communication with our regulators from the time we realized we would have to delay the start of trading on the 25th and throughout the afternoon as trading resumed. Immediately after, we began a detailed review of our data to understand exactly what happened, how it happened and how to prevent it from happening again. Everything we learned in this process has been shared with the SEC. Our priority now is to make CBOE Command even stronger going forward. We are using that which we learned to reduce both the occurrence and the length of any future disruptions, including a faster alternative backup for our proprietary products, while there are alternative products to use in the place of SPX. And customers were able to trade VIX futures on CFE. The length of the delay in opening CBOE was unacceptable to us. Our disaster recovery system is available for backup, but it takes time to bring it up and performs to switch routing to connect to it. We have begun to develop a plan for a more immediate backup for our trading of our proprietary products, and we will begin taking that plan to the SEC for input review in the near future. Now onto a look at the first quarter of 2013. Despite lower trading volume industry-wide and at CBOE, we posted strong first quarter results, driven by the strength of our proprietary products, which generate our highest revenue rate per contract. Adjusted EPS increased by 35% to $0.50 a share, while operating revenue increased by 18%. Alan will take you through the results in more detail in a moment. CBOE's market share in multiply-listed options excluding dividend trades, experienced significant fluctuation in the first quarter of 2013 due to intensified C competition. After CBOE's multiply-listed market share dropped to 15.3% in January, we responded with an enhanced VIP schedule in February, followed by an enhancement to our complex order VIP schedule in March. Subsequently, CBOE's market share grew to an industry-leading 18.5% in March, but fell to second place in April when market share decreased to 17.6%. Obviously, this is a very fluid arena. We continue to keep close watch on it and to adjust our competitive incentives accordingly. Turning now to an update on our proprietary products. As you know, CBOE and S&P Dow Jones Indices sealed an agreement effective March 8 extending CBOE's exclusive rights to trade and -- to create and trade options on the S&P 500 and the S&P 100 and other derivative indexes through 2032. We were thrilled to have reached an agreement that spans 20 years, building on the previous 30 years in which we successfully collaborated on expanding the brand and the use of S&P index options in VIX futures and options. We look at the CBOE-S&P relationship as much more than a licensing agreement. S&P Dow Jones is the leading name in market indexing, and CBOE is the world's leader in index option and volatility trading. The products resulting from the unique strengths of each company and the collaborative nature of our partnership have revolutionized the investment landscape. More important, as the long-term nature of the extension would suggest, we share a very optimistic vision for future expansion of the option index and volatility spaces. In other index licensing news, we were delighted to continue our long-standing partnership with the Russell Indexes under a semi-exclusive agreement. CBOE brings important liquidity to the Russell Index option users. Options on the well-known Russell 2000 Index of small-cap U.S. stocks were previously listed on several U.S. exchanges. It is very gratifying to now have this semi-exclusive agreement. Now for an update on trading and CBOE's S&P 500 Index complex, where we have seen notable upticks thus far in 2013.First quarter average daily volume at SPX options, CBOE's most actively traded contract and the flagship product of our S&P 500 Index option complex was up 22% for the first quarter over the first quarter of last year. SPX average daily volume rose to 21% over April of 2012. It should be noted that SPX volume gains were spurred by robust trading activities in the SPX Weekly products. As discussed in our previous earnings call, SPX Weeklys represents one of CBOE's fastest growing products in 2012. We saw average daily increase of 69% over the prior year. Trading has further intensified in 2013. First quarter average daily volume in SPX Weeklys more than tripled compared to the same period one year ago, while April's average daily volume increased 235% over April of 2012. VIX futures and options volume continue to reach record levels in the first quarter of 2013. VIX futures average daily volume for the first quarter increased 131% over the same quarter a year ago. April marked the fourth consecutive month that total monthly volume in VIX futures reached a new all-time high. Year-to-date, VIX futures average daily volume is 128% ahead of 2012's pace. VIX options average daily volume during the first quarter rose 48% over the first quarter of 2012. April average daily volume increased 13% over a year ago. And year-to-date, average daily volume through the end of April was up 45% over 2012. April was the busiest month in VIX futures trading. And thus far, in 2013, there have been 3 new single-day volume records in VIX futures trading and 2 single-day volume records in VIX options. Despite historically a low market volatility, we continue to see growing interest in VIX trading thus far in 2013. New money flowed into VIX-linked ETPs, new VIX-linked products were created and new traders began using VIX futures and options to implement a variety of sophisticated strategies. The most recent surge in VIX futures trading appears to be the result of new users in the form of hedge funds and proprietary trading firms in pulling strategies designed to capture volatility risk premia and small pricing anomalies between VIX futures and options, VIX-linked ETPs and other related instruments. Increases in VIX options trading continue to be driven by increase in VIX futures trading, but the greatest source of growth that we see today comes with increased participation from retail customers. Additionally, we see greater sophistication generally including the ability to fine-tune specific risk exposures. Spread orders account for over half of all VIX options activity, ranging from simple directional strategies to very complex term structure and skew trades. We look forward to announcing, in the near future, a revised start date for the implementation of extended trading hours for VIX futures. We expect that the first phase of expanded trading hours will add an additional 45-minute trading session after the current close of VIX futures at 3:15 p.m. Central Time. The new session, from 3:30 p.m. to 4:15 p.m. Central Time, responds to customer demand for expanded time to transact end-of-day trading, as well as to react to late afternoon moves. The second phase of extended trading hours is expected to expand VIX futures trading by an additional 5 hours. Trading will begin at 2:00 p.m. -- I'm sorry, 2:00 a.m. Central Time, which matches the 8:00 a.m. open of the London markets, and continues until the current open of 7:00 a.m. Central Time. Expanded trading hours will allow European-based customers to access a longer trading session in their local time zone, and will meet overall demand from both domestic and international customers for additional time to trade VIX futures. We're also looking to boosting global awareness of, and trading in, VIX futures and options with our second annual European Risk Management Conference this September 30 through October 2 near Lisbon, Portugal. In March, nearly 300 investment professionals convened in Carlsbad, California for the 29th annual CBOE Risk Management Conference. RMC is an industry-leading educational forum, whereas sophisticated practitioners and users of equity derivatives discuss new products and related strategies. The majority of RMC sessions featured our SPX and VIX product lines, as well as CBOE's option-based strategy benchmarks, such as the CBOE's BuyWrite index or BXM. Next month, we plan to make changes to our S&P 500 Variance Future contract, which we designed as an exchange traded version of OTC variance swaps. Based on customer feedback, we plan to change how we convert volatility points to futures prices, so that the quoted price of our various futures contract will be more directly comparable to prices in the OTC swap market. Post-launch contract adjustments like this one can be the key to our new product's success. Our Variance Futures contract was designed to provide the same quoting conventions and economic performance of various swaps while providing the advantages of exchange traded contracts, transparency, price discovery and counterparty clearing guarantees. We believe that changes in pricing will bring the product even closer in line with OTC swaps without reducing the benefit of exchange trading. Going forward, we maintain a positive outlook on the future growth prospects of the options and volatility space. Despite the overall dampening of equity options trading in the first quarter, we are pleased that our company continued on its very profitable growth trajectory. Moreover, we believe 2013 holds future growth opportunities for CBOE, given the continued migration of the many forms of OTC trading to exchange markets and the unabated growth in volatility trading. Last week, we celebrated the 40th anniversary of CBOE and the listed options market. This year also marks the 30th anniversary of CBOE's creation of index options and the 20th birthday of the VIX. There's a nice symmetry to our 40, 30, 20 milestone year, and I hope you won't mind if I take a moment to touch on it. CBOE launched the options industry on April 26, 1973, by trading 911 contracts on 16 stocks in the former smoking lounge of the Chicago Board of Trade. CBOE ended that year with about $1.1 million contracts traded. Last year, CBOE alone traded 1.1 billion contracts as part of an industry that now includes 11 U.S. options exchanges and dozens more around the world. In 1983, CBOE created the CBOE 100 Index, and began trading options on the Options Exchange Index or OEX. Through our partnership with Standard & Poor's, CBOE 100 became the S&P 100. And a few months later, CBOE launched options on the S&P 500.And then in 1993, we introduced the CBOE Volatility Index or VIX, which became known as the Wall Street's fear gauge. A little over a decade later, we created VIX futures and then VIX options. Today, volatility trading has emerged as a dynamic new asset class. We commemorated our anniversary year by producing CBOE 40, a video commentary chronicling our history. If you haven't already done so, I invite you to watch the video, which can be accessed through our website. Our entire team is justifiably proud of CBOE's legacy, but we do not view innovation as something for the history book. People come to work each day at CBOE believing that they will be part of the next great new product, system or service. CBOE's spirit of innovation is alive today as it has ever been, a factor that while difficult to quantify, should never be underestimated. On a personal note, I wish to thank everyone for joining us today on what is my final earnings call as CEO of CBOE Holdings. As you know, following our Annual Meeting on May 23, Ed Tilly will assume his new role as CEO. Ed Provost will take over as President and COO, and I will move into my new position as Executive Chairman. The transition process has been very measured and successful. Ed Tilly, Ed Provost, Alan Dean and I have worked closely together to ensure that our company's leadership is well-positioned to begin the next great chapter in CBOE's history. I could not be more confident in their vision, leadership ability and dedication to CBOE, and I look forward to working with them and the CBOE community in my new role. With that, I want to thank you, the analyst community, with whom I worked for more than 3 years since before the IPO, and I now want to turn the financial reports over to Alan Dean, our CFO.

Thanks, Bill. Good morning, everyone, and thank you for joining us this morning, and I will review our financial results for the quarter and update you on our outlook for the remainder of 2013. We are off to a strong start this year, posting record first quarter financial results. Operating revenue for the first quarter was $142.7 million, up 18% compared with last year's first quarter. Adjusted operating income was $72.6 million, which equates to 50.9% of our operating revenue. This adjusted operating margin represents a 340 basis point improvement over the same quarter last year and our second best quarterly margin. Adjusted net income allocated to common stockholders was $43.9 million, up 33% compared with the first quarter of 2012, resulting in adjusted diluted earnings per share of $0.50, which matches our all-time high set in the third quarter of 2011. Before I continue, let me point out that our GAAP results reported for the first quarter of 2013 and 2012 includes certain unusual items that impact the comparison of our operating performance. These items are detailed in our non-GAAP information provided in the press release and in the appendix of our slide deck. Turning to the details of the quarter, as shown on this chart, the growth in operating revenue is driven by increases in transaction fees, regulatory fees and exchange services and other fees, offset somewhat by lower market data fees. Transaction fees increased $14.3 million or 17% from the first quarter of last year due to a 35% increase in average revenue per contract or RPC compared with last year's first quarter, offset somewhat by a 13% decline in trading volume. While total trading volume declined for the quarter, trading in our exclusive products, VIX options and futures, posted record volume, resulting in higher RPC and transaction fees for the quarter. Our blended RPC, including options and futures, increased to $0.378, primarily reflecting a shift in product mix towards our highest margin, index options and futures contracts, as well as an increase in the revenue per contract for index options. The RPC in our options business increased 28% to $0.333 compared with $0.261 in last year's first quarter. The increase was a result of index options accounting for a higher percentage of total option volume, as well as a slight increase of revenue per contract for index options to $0.671. Keep in mind, this rolling 3-month RPC does not reflect the full impact of the changes we made to VIP at the beginning of February and again, in March. VIP credits increased significantly in March as CBOE's dividend adjusted market share in multiply-listed options increased to 18.5% from 15.3% in January. Assuming CBOE's market share in multiply-listed options holds or increases, the rolling 3-month RPC for the second quarter is expected to decline compared with the first quarter as a result of higher VIP credits and other fee changes. On the plus side, the impact of multiply-listed options on our financial performance continues to diminish with the explosive growth we are realizing in our proprietary products. The contribution from CFE, our futures exchange, continues to increase exponentially as we reap the benefits of the high RPC it generates. For the first quarter, the RPC for futures contracts was nearly $1.62, down slightly compared with last year's first quarter reflecting the impact of discounts provided on certain trades. As depicted on this slide, in the first quarter of this year, index options accounted for 34.4% of total contracts traded, up from 24% in last year's first quarter, while futures contracts accounted for 3.5% of total volume, more than double its contribution of 1.4% in last year's first quarter. As I noted earlier, the shift in the mix of trading volume towards our highest margin products fueled the growth of transaction fees for the first quarter of 2013. Index options accounted for 61% of transaction fees and futures contracts accounted for 15%, up from 56% and 8%, respectively, in the first quarter of 2012. The $5 million increase in regulatory fees resulted from CBOE raising its options regulatory fee on January 1 and the changes we made last year. As we noted in our last earnings call, these fees are only available to cover higher expenses we are incurring to carry out our obligations as a regulator. Exchange services and other fees increased by $1.7 million compared with last year's first quarter, primarily reflecting positive response to a new network access option we added at the beginning of this year. The decrease in market data fees as a result of CBOE's lower market share and a low RPC multiply-listed category compared with the first quarter of 2012. Moving down the income statement to expenses, this next slide details total adjusted operating expense of $70.1 million for the quarter, up $6.3 million or 10% versus last year's first quarter. This increase primarily reflects higher expenses for outside services, employee costs and royalty fees, offset somewhat by lower Trading Volume Incentives. Adjusted operating expense for the first quarter of 2013 excludes accelerated stock-based compensation of $3.2 million. This represents the recognition of the full value of stock awards granted to certain executives due to provisions contained in their employment agreement -- arrangements. Core operating expense of $47.6 million increased $6 million or 14%, compared with the first quarter of 2012, primarily due to increases in outside services and employee costs. Outside services increased due to higher legal expense, primarily relating to litigation activity. Employee costs were up due to increases in incentive compensation, stock-based compensation and salaries compared with 2012's first quarter. The increase in incentive compensation is aligned with our higher pre-tax income, while stock-based compensation reflects grants issued in the first quarter of this year. The increase in salaries was primarily due to staff additions in our regulatory services division. Overall, core operating expense for the quarter was in line with our full-year guidance. Taking a look at the balance sheet, we finished the quarter with cash and cash equivalents of $210.5 million, up nearly $75 million from where we ended in 2012. The increase in cash was a result of strong cash flow from operations during the quarter. In the first quarter, we generated approximately $95 million in cash from operations, paid over $13 million in dividends and used over $6 million for capital expenditures. While there were no share repurchases made under our share authorization in the first quarter of this year, let me assure you that our board continues to believe that returning an excess capital to stockholders by repurchasing our shares is an attractive way to enhance stockholder value. We have $103.3 million outstanding under our existing share repurchase authorization. A few days ago, we announced that we declared a dividend of $0.15 per share for the second quarter of 2013. Our priorities for cash remain the same, invest in our business to fuel organic growth, show steady consistent growth in our annual dividend and utilize free cash flows and excess of investment and dividend needs to repurchase shares. As noted in our press release, we are reaffirming our full-year guidance that we provided in February 8, as shown on this slide. Before I close, let me point out a few items to keep in mind as you look ahead. Based on first quarter depreciation and amortization expense of $8.3 million, our annual guidance may appear to be high. This is due to the timing of our capital spending, which we expect to be more skewed towards the second half of the year. In our last earnings call, we pointed out that our continuing stock-based compensation expense will fluctuate a bit quarter-to-quarter this year due to the timing of stock grants. Again, we have a slide in the appendix that details the guidance for stock-based compensation by quarter. As I mentioned earlier, next quarter, we will see the full impact on RPC of the changes to VIP and other fee modifications implemented in February and March. Also, in the second quarter, will be the first full quarter of the S&P licensing fee increase that went into effect on March 8. However, as we stated when we announced the extension of the agreement at the beginning of the year, we raised the SPX surcharge in anticipation of this fee increase. Moreover, these changes should be neutral to our bottom-line going forward. On May 1, we introduced a new market-maker affiliate access credit and a floor broker access rebate, which allows each to reduce their trading permit fees based on meeting certain trading volume criteria. This change is expected to reduce access fee revenue by approximately $200,000 per month. There were a number of positive developments in the first quarter that bode well for our future growth initiatives including the extension of our licensing agreement with Standard & Poor's, our new semi-exclusive agreement to trade Russell index options. In addition, ISE conceded to an adverse judgment in its patent suit against CBOE, cutting short what could have been a lengthy trial. As a result, I expect legal fees to moderate, barring any unforeseen litigation. We are off to a solid start in the second quarter with the positive trading momentum in SPX Weeklys, VIX options and VIX futures all continuing. We remain diligent in our expense management as we strive to fully leverage revenue flowing to the bottom line. As Bill mentioned, the last month marked CBOE's 40th anniversary. I consider myself very fortunate to have been part of something for the last 33 years that has been a game-changer in the world of finance. It has been a stroke of luck on my part to work with people who share the same vision, and who I can also call my friends that makes CBOE such a special place to work. It gives me great pride to see how far we have come, and gives me strong confidence in our ability to continue to build long-term value for our stockholders. With that, I will turn the call over to Ed Tilly for some closing remarks.

Well, thanks, Alan. As this is Bill's final earnings call, I wanted to take the opportunity to say thank you to him on behalf of everyone at CBOE. In his remarks, Bill mentioned the transition process that has been underway here for some time. Thank you, Bill, for your vote of confidence in this entire team. While this is not retirement, I could not let the moment pass without publicly thanking you for your leadership as CEO. Going forward, as Chairman of the Board, we will continue to tap into your expertise and perspective, which we believe to be second to none in the industry. So thank you, Bill. And with that, we will now open it up for your questions.

Thanks. We'll be happy to take your questions. [Operator Instructions] Operator?

[Operator Instructions] Our first question is from Rich Repetto of Sandler O'Neill. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: First, would be most appropriate thing is to congratulate Bill for the transition to the new role. It's been great working with you, Bill, even well before the company went public, so congratulations.

Thanks, Rich. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Okay. Anyway, my question, and I hate to narrow and get into the weeds here, but I'm trying to figure out how Alan beats every quarter here. So on the regulatory fees, the fee that increased that you actually filed with the SEC was only a couple pennies or 30%. But you saw an increase both in the revenue line of 50%, as well as the per, if you divide it by the contracts, per contract charge went up by 46% or 47%. So I'm trying to see, I know it's a breakeven thing, but we already have the expenses in because of your guidance, so it is providing upside to the model. And just -- if you could sort of break -- help us understand why it up-ticked so much?

Yes. Rich, Alan. You have to remember that the options regulatory fee that we put in an increase in the middle of last year, I think, was August, and CBOE and in C2. And then we increased that fee again in January of this year. So that's why, if you're just focusing on the change we made on January 1, it might not add up to the change in the total revenue. You have to compound it. You have to look at the change we made in 2012 and the change we made on January. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: But the numbers I would talk about was sequentially quarter from 1Q '13 versus 4Q '12.

Yes, so -- and so that's what I'm trying to point out, that if you have to look at the increase per customer contract that we instituted in August of 2012, and then add to it the change that we made in January of '13, that's why the regulatory fee line item has taken a big bump up. And also remember that, that fee, that options regulatory fee, is assessed on every customer contract. It doesn't matter which exchange it's traded on. All the exchanges do this, and we all have our own fees. So you just can't tie it to our volume. It's industry volume. And there are other revenue items within regulatory fees that are also -- and there is just not that one fee.

Our next question in queue is from Jillian Miller of BMO Capital Markets.

So your February pricing changes have definitely had some impact, but you haven't recouped all of the shares you lost versus last year. And I guess I'd just be interested in your thoughts on whether you think the pricing changes have done enough? Are you comfortable with where your market share has kind of shaken out around these levels? And if not then, what levers do you think you have to pull to address that?

Jillian, Ed Provost. So we're never completely satisfied with the market share levels. It's always a battle. Clearly, pricing is a significant -- and evermore so, a significant influence in where order flow is directed. Alan has noted the changes we have made in our VIP program, a couple of times actually over the last 2 months. It's a combination of pricing, it's a combination of technology enhancements, but making sure that our market model appeals to the user community. So again, it is and will always be in the competitively traded classes, a battle, and we are striving as much as we can to maintain the #1 position in that area.

So in general, the 17.6% in April is something that, obviously, you'd like it to be higher, but it's something that you're comfortable with?

Well, let me just say this. We're 0.002% behind the market share leader. So we don't like to be second, we like to be first. So I would say we're not satisfied with it, and we continue to battle for the #1 position.

Our next question in queue is from Alex Blostein of Goldman Sachs.

Can you guys elaborate a little bit more on the milestones need to achieve whether with the SEC or just internally to kind of resume your focus on extending the trading hours of the VIX? And maybe a little bit more clarity on the timeline when you think this could happen will be helpful.

Yes, this is Bill Brodsky. Let me at least respond initially to that. The whole initiative on 24,500 was announced by us last fall, and we are very, obviously, enthusiastic about it. But the most important thing is to maintain the integrity of our systems. And so we're just going to put off the start date until we're comfortable that this major change to our systems, I mean there are not many exchanges in the world that trade more than their local trading hours. This is a major, major system enhancement. And what we're doing here is taking a deep breath. We're going to bring in someone to review it with us, so that -- because we don't have an actual deadline. This is a self-imposed, a very important initiative, but it doesn't have a deadline that we must do it by a certain date. So our concern is let's stabilize things because when you make a change like this, where you're basically running your computers almost all day long as opposed to during a very finite domestic trading period. We want to make sure that we have it right. And so we're just taking a deep breath. We'll announce the date when we're comfortable.

Okay. And then does that require you, you think, any additional investing, whether through expenses in P&L or CapEx to whether you're bringing consultants from the outside or just to have to spend more resources fixing things up internally?

Yes. Let me ask Alan to respond to that.

Sure, Bill. Alex, we have -- within our, the guidance that we gave you 3 months ago on our CapEx for the year, I don't see any changes at all to that guidance at all. We regularly roll out and roll in new equipment in this change of expanded trading hours. All that means is we're more efficiently utilizing the hardware that we already have and that we will bring in. So no, I don't see any changes to CapEx because of this expanded trading hour goal.

Our next question in queue is from Chris Allen of Evercore.

Nice quarter, and congrats on the new role. I just wanted to ask real quickly, and if the RPC change that got made during the -- the prices you seem to have made during the quarter were in at the start of the quarter, what was the impact that's been on the RPC? Just trying to get a flavor for how to think about this moving forward?

Yes, this is Alan. It's hard to say. Well, I could say, but I'm not going to say what the RPC would have been for the quarter had the changes been in for the quarter. What we did see is a decline in RPC first -- on February 1 when we rolled out the first changes to VIP, and then another slide throughout the March 1 when we rolled out another set of changes to VIP. And so based on what I saw in March and what I'm looking at in April, I would expect that to continue. But I'm not going to speculate on what that might be for the quarter going forward or for the year. As you know, there are many things that could impact the RPC for these multi-list products. What I'm sure is that's heading down from the rolling 3-month average that we gave you. It will be dependent on mix. It will be, the change will be evident in the data that we publish in the months going forward. If you're looking for potential size, you could look at what happened in our multi-list RPC in January of '12 compared to 2011 as it may be an indicator of what to expect. But keep in mind that the multi-list business is becoming an ever smaller part of our business. It's hard to believe that I'm saying that, but the multi-list business accounted for less than 25% of our transaction fees in the first quarter, while the futures side and the index side accounted for 77%. So the RPC is heading down, but it has less of an impact on us than ever before. So I hope that's helpful even though I didn't directly answer your question.

Our next question in queue is from Patrick O'Shaughnessy of Raymond James. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: So my first -- or I guess my question is, your futures franchise, I think, has obviously been one of your stars recently. And you're seeing a really nice volume growth. As you think about the VIX futures on a long term, like 2 or 3 years, how sustainable do you think your pricing is? Because as you mentioned, it is well above where your options pricing is and certainly, there's different characteristics to the contract. But do you think that as the contract continues to get more and more important, that you can maintain this pricing over the longer term?

This is Ed Tilly. Thank you, Patrick, for the question. We're very comfortable in the pricing that we have in place today. And I think as you point out, the notional size of this contract is very large compared to VIX options. So as I say just again, this is the pricing that's in place today. And then Alan said, give-or-take, in the pennies, if we have to offer some incentive going forward, I think it's minor. But we're in a very comfortable place today.

Our next question in queue is from Alex Kramm of UBS.

On the futures business here, I think Bill mentioned that you're attracting more users. So hoping to get a flavor for how much or percentage of your volume is now coming from prop high-frequency traders? How much is from hedge fund? I think when you look at CME, I think prop is like 40% and hedge funds, maybe that's 10-plus. So do you think it can get there? And again, so where are you now? Where do you think it can get there? And just on Patrick's question, the changing user base, how are the fees for the different user bases? Should we think about shift here as maybe the prop side grows faster?

Let's take that question in 3 parts. I think you've asked a couple in there. We'll have, Alex, we'll have Alan answer the fees to different users. Let me tell you kind of another trend that we see. We've always given you in the past the trend of the ETP's, the major institutional sponsored products that are trying to replicate some VIX exposure. And while that has been less and less of an impact on the overall volume that this last month marks the fourth consecutive month that growth in money in those ETPs has increased. So there's roughly $3.5 billion still in those ETP's. That's still meaningful. So on top of that, consecutive 4 months of growth is the trend of new users. And I will point out the strategies that I see, and then Ed can get into some of the new users that are coming into the futures contract. So I think what's interesting is what we see are tied trades. So if you look at our SPX, a very common trade, a volatility trade in SPX is trading calls versus futures. What we're seeing users now in VIX trading tied trades, so VIX futures versus VIX options. So at the end of day, that's really trading the volatility of VIX. So that's new and growing. Roughly 4,000 contracts, of the futures contracts today, are in this tied-up trade. That's new. We see the potential going forward as growing. So that's just one of the strategies and some of the changes that I see from how people are using the contract. I'll turn it over to Ed Provost as to who they are, and then Alan Dean on fees for specific users.

Alex, Ed Provost here. So yes, it's -- our ability to have transparency all the way down to the end-user customer is somewhat limited because, of course, we only see the firms that they come through. But in our interaction with the customer base, we're seeing growth among hedge funds, high-frequency traders, proprietary trading. And one of the interesting recent changes is we've started seeing significant interest by the fixed income market, utilizing some equity exposure to increase their yield and managing that equity exposure using VIX options and futures. So in fact, we had an organization in here yesterday that was very, very excited about both the futures and the options and affirm that historically, it's been more fixed income than equity. So it really is on all fronts that we see a thirst for knowledge and increased usage. So again, in a way, it's a little bit of a lot of different groups and we're very pleased about it.

Alex, Alan. Based on the new users that we're seeing come to VIX futures and looking at what might happen in the future, the differences in the rate per contract that we charge to the users, it isn't so significant that I would anticipate or expect a material change in our RPC for VIX futures going forward. So no, I don't see that as being an issue at all.

Our next question in queue is from Niamh Alexander of KBW. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: And congrats to you, Bill.

Thank you. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: You're welcome. And cash, the cash generation was still strong this quarter, $95 million, and that's up 50% year-on-year. And you got quite a bit of cash on your balance sheet. You don't need a lot of cash to run your company. I know that you gave us kind of in the prepared remarks your priorities, but looking at the flow and looking at the kind of increased pace of cash generation, help me think about, is there -- are you kind of getting close to maybe thinking about inorganic growth? Or is it still we should think about the buyback? Is the appetite for buyback as strong as it was at this float of level of the share price or at the share price level 2?

In my prepared remarks, I talked about the board's intentions or priorities, but it bears repeating. And our first priority is to reinvest in our business as needed to ensure future growth, to continue to pay regular dividends and grow them along with our business, and then to use excess cash for stock repurchases. So our attitude, our board's attitude, my attitude, Ed Tilly, Bill Brodsky and Ed Provost, nothing has changed in the way we prioritize, how we use our cash. We've always taken an opportunistic approach towards our stock repurchase program. And there are many things that could prevent us from being in the market, buying back our stock. And I know you're familiar with all those various circumstances. The one driver of our significant cash generation in the first quarter, that may not be obvious, is that we offer a discount to large options liquidity providers. If they prepay a certain part of their transaction fees for the year, then they receive a greater discount. So if you look at our cash generation in the past couple of years, you'll see the first quarter was always a blip, and that's typically the driver. So nothing has changed in our attitude about stock repurchases, and that's why we -- you see a jump in cash generation on the first quarter. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: I guess that's a good indicator of volume then, too, because it's up on a strong first quarter last year. It's up 50%, and that's people prepaying for activity.

Yes. Well, they prepay for the activity, it's based on the sliding scale. So what they're doing is, and you can read all this in our fee schedule. If they -- they were essentially buying their way down our sliding scale by prepaying for the entire year. And then they will pay us for incremental volume above their buy-down amount. So certainly, the great results we had for the quarter are a driver of the cash generation. But that prepayment is also a factor.

Our next question in queue is from Chris Harris of Wells Fargo.

My question is on SPX Weeklys. The growth you guys are getting there is really just phenomenal. I'm just wondering, are you seeing new adopters kind of driving the incremental growth you're getting there? Or is it existing users increasing their trading frequency? And then in addition to that, we're now up to a point where Weeklys are 25% of total SPX volume. So just wondering how sustainable you think the growth is there?

Chris, Ed Provost. And so the Weekly's phenomenon really across the industry, not just limited to SPX, has really been fabulous. In SPX, as we look at the users of the Weekly contract, it's a lot more retail than it is in the longer-term SPX, which is obviously heavily institutional. So we're very pleased with the growth. Again, hard to predict whether the 25% will be 30% or 40%. Certainly, the interest in Weeklys continues. We did discuss and announce at our conference in Las Vegas an initiative to expand the very, very successful Weeklys initiative, so that we will have a Weekly contract expiring everyday. That is to say, that whereas today, all Weeklys expire on Fridays. We will be beginning a new Weekly everyday, and we will have everyday, a Weekly expiring. So that's leveraging a very, very successful product. We think that will ultimately, just like Weeklys themselves were, become an industry standard across all classes. So Weeklys are very popular. And it is more retail-oriented than institutional.

Our next question is from Ken Worthington of JPMorgan. Kenneth B. Worthington - JP Morgan Chase & Co, Research Division: My question goes to the BOX contract. And I think the industry is objecting to that contract because I think it's confusing to those who are trading the products. My question is like are those objections likely to sway regulators that have already approved products like SPXpm and the SPX Weekly and the Apple Mini and the Amazon Mini and the Google Mini. Like how is the jumbo product really that much different than launching kind of Mini products, if that make sense?

Yes, this is Ed Tilly. Good question. I think that really, our comment letter was, let's have the industry get used to or swallow the Mini. Let them absorb that. The multiplier difference, let them know when they're looking at the 160 strike, for example, the half of money call, that there's this Spider, the very successful 2.5 million contract a day, Spider, let the retailer get used to a Mini contract. And then if that gains traction, then we should consider whether or not we fragment the liquidity and yet a third contract with another multiplier. But it's really kind of a staging and a length of time to market for the large contract. That's number one. There is the fragmented liquidity that is concerning. So if there's x amount of liquidity in the marketplace at the money 160 line, in my example, certainly if we introduce a Jumbo contract that's going to take some liquidity away from the very successful Spider contract today, that's concerning to us. We have users, both retail and institutional, that are trading Spiders that are used to a certain amount of liquidity at a given line. That's new. And then of course, selfishly, from an exchange perspective, we're interested in seeing what happens to the 2.5 million contracts, and whether or not a successful Max SPY turns that into 250,000 contracts. So we would be watching that as well. So ultimately, do we think the SEC will find this not as confusing as -- hopefully, they'll look at this in the timeline and take this up in a year or so after the Minis have been absorbed into the marketplace.

Our next question is from Gaston Ceron of Morningstar Equity Research.

Just wondering, I just want to come back to the trading situation for a second and on your plans to kind of address things from there. I'm just curious, if you could say any more about, I think you said something like backup for this trading on these proprietary products. I'm wondering if you could say it a little bit more about how that might work? And just on a larger canvas, I know that they had, in the wake of the systems they showed or whatever it was, but there was some kind of criticism of the ability of exchanges to kind of be able to deploy proprietary products. I'm just curious how you see that, if you kind of see that kind of dying down or if you think that might kind of create problems for your ability to deploy your proprietary products down the road?

This is Ed Tilly. Thank you. Let me be really clear that we take any outage very, very seriously, as Bill said in his opening remarks. So there is obviously, for CBOE, there is a plan, and Bill laid that out. We have delayed the rollout of the extended training hours. That is done. We've identified the extended trading hour potential impact and rollout procedures with a third-party expert. That begins Monday. We'll provide our customers. This our goal, to provide our customers with near-instantaneous backup to SPX and VIX as a trading solution, likely electronic, but totally embedded with the SEC. That's in progress. A run-through with the SEC will be -- happen shortly. Then clearly, define revised procedures for our customers and the SEC, so that all will know what to expect in the future. That will happen right after we come up with a near-instantaneous solution. I'm confident we'll do it. So this is all about confidence and certainty in the marketplace from our customer's perspective. At the end of this, we're going to be more reliable. We will make sure our customers maintain the confidence that they already have in CBOE. And then to your -- the ultimate question is, no, I don't think there's any change that we anticipate for CBOE to trade proprietary products. It's what we do. It's the end result of our innovation. We developed the VIX methodology here. We will continue to trade VIX at CBOE or one of our exchanges. That's what the future looks like.

Our next question in queue is from Akhil Bhatia of Rosenblatt Securities.

Could you guys talk about the derivatives tax proposal and potential impact on volumes at CBOE and likelihood that it's going through the way it is right now?

Sure. So this is Bill Brodsky. I think what you're referring to is the camp proposal. It is a -- it's not a, what I'll call legislative initiative at this point. It is really a white paper on the broad base of how derivatives might be changed in terms of taxation. We have been very, very active on this. I've been on the hill. I've met with Senators and Congressmen on this. We think that they, as it relates to the enlisted option business, the case against the proposal is very compelling, and we have gotten good response to our arguments on the hill. And then by the way, we are obviously very active in this. But all the other options exchanges, the New York Stock Exchange and NASDAQ, SIFMA, all involved because we have and have had a very strong convention based on the way the law works, of how options in the tax roll to 35 years. And as far as I'm concerned, nothing's broken. This affects literally millions of customer. And therefore, it affects an enormous amount of firms in the country. So they're all impacted on it. We've had firms like Schwab and Fidelity, E*TRADE, Ameritrade, and others all weigh in on this. So we are far from a point where I think that this is a real likelihood. I think it's more a discussion issue. And I will tell you that even in my new role, I will be extremely active on this because we have a system here that's not broken. It serves investors well. No one's getting away with anything. And it’s unique, I think, to the option business to how this works. So I think that something we have to just to stay committed and involved in. And on future calls, obviously, we can fill you in. But it's just part of the process that's going on in Washington right now. We don't even know if there's going to be a tax bill. But if there is, we will be front and center on this issue.

I want to just, Akhil, punch one point that Bill made. This effort among the industry OCC is taking a very, very active role on this and able to coordinate the exchanges effort, of course. As Bill points out, we certainly are willing to take a lead role, but the OCC being able to bring us all together, we are -- our position is shared not only by the exchanges, but as Bill points out, by our end-users and millions that are representing that community. So this really is an effort on behalf of the entire industry, really to shed light and educate those that would be looking to change some of the tax code.

And we have a follow-up from Patrick O'Shaughnessy of Raymond James. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: Your regulatory fees they kind of stay at this run rate are going to be probably up close to $20 million year-over-year. And if we look at your core expense guidance kind of midpoint of that is just that your core expenses, they're going to be up about $10 million year-over-year. So is it -- does the math work to say that aside from your increased regulatory costs, your core operating expenses are actually down on a year-over-year basis?

Well, you heard Patrick here, you're projecting volume, customer volume for the year, which was pretty tough to do. We are -- all of our regulatory revenue can only be spent on regulatory expenses. You have to keep that in mind. So -- and there are increases in non-regulatory expenses year-over-year like stock compensation. So that's an interesting way to look at it, but you can't characterize it like that exactly.

One more follow-up.

And we also have a follow-up from Jillian Miller of BMO Capital Markets.

I just wanted to touch on that innovative kind of new pricing schedule you introduced at C2. It seems like it's having a positive impact, at least on the ETF side. So I just want to get an update like what you're seeing on your end, where you think the market share can go by the end of the year? And then I know you had mentioned when you launched that it might take time for market participants to kind of come to understand the new pricing and factor then into their decision-making. So have we gotten through that education period? Or are there still firms that kind of need to figure this out in order to take advantage of it?

Jillian, Ed Provost. Yes, so we had a great month in April. We had 2.4% overall market share in C2. And that was up, this is a little bit of a play on small numbers, up about 25% from March where we have 1.9% market share. I will tell you though, most of that growth was in our ETF options, where we continue to use the maker-taker market model, specifically, Spider, which is the most actively traded multiply-listed option in the industry. We did 7.5% market share in the QQQs, another very active option class, 6.5% market share. And even the IWM, the Russell 2000 ETF option, 3.6% market share. So while we're thrilled with the growth in the market share in C2, it is primarily in the ETFs, which is still a maker-taker model. In the single names, where we've implemented our spread-based model, we are working with our DPMs. They're fine-tuning their models. We're getting traction. But to be quite frank with you, most of the growth we're seeing is in ETFs, and we're not displeased by that. We are still working with our users to get greater traction in the single names. So we're very pleased with the C2 story overall.

This is Alan Dean. I want to add another part to Patrick's question about regulatory fees. Patrick, if customer volume is a lot more than we expect industry-wide, then you should expect us to reduce that options regulatory fee going forward to make sure that we don't collect more than we're spending on regulation. And conversely, if customer volume was a lot less than we expected in our regulatory costs paid where we think that it'd be then -- we'd be thinking about increasing that regulatory fee. So we look at that fee on a regular basis, and we'll adjust it accordingly.

And there are no further questions in queue. I'd like to turn it back to Debbie Koopman for any further remarks.

Thanks a lot. That completes our call this morning. We appreciate your time and continued interest in our company. And I'll be available the rest of the day for any follow-up questions you may have. Thank you.

Thank you. And again, thank you, ladies and gentlemen, for joining today's conference. You may now disconnect. Have a great day.