Cboe Global Markets, Inc. (CBOE) Q2 2013 Earnings Report, Transcript and Summary

Deborah Koopman - Vice President of Investor Relations Edward T. Tilly - Chief Executive Officer, Director, Member of Executive Committee, Chief Executive Officer of Chicago Board Options Exchange (Cboe) and Chief Executive Officer of C2 Options Exchange (C2) Alan J. Dean - Chief Financial Officer, Executive Vice President of Finance & Administration and Treasurer Edward L. Provost - President and Chief Operating Officer

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division Howard Chen - Crédit Suisse AG, Research Division Kenneth B. Worthington - JP Morgan Chase & Co, Research Division Michael Carrier - BofA Merrill Lynch, Research Division Christopher Harris - Wells Fargo Securities, LLC, Research Division Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division Gaston F. Ceron - Morningstar Inc., Research Division Kenneth M. Leon - S&P Capital IQ Equity Research Sameer Murukutla - Macquarie Research Kenneth Hill - Barclays Capital, Research Division

Good day, ladies and gentlemen, and welcome to the CBOE Holdings 2Q 2013 Financial Results. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Debbie Koopman, Vice President of Investor Relations. Ms. Koopman, please begin.

Thank you. Good morning, and thank you for joining us for our second quarter 2013 earnings conference call. On the call today, Ed Tilly, our CEO, will provide an update on our strategic initiative for 2013; then Alan Dean, our Executive Vice President and Chief Financial Officer will review our second 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 Chief Operating 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 providing 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 why 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 statements. 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 Ed Tilly.

Thank you, Debbie, and good morning. I'm pleased to report another strong quarter at CBOE Holdings. New records for operating revenue and earnings per share were driven by increased trading volume overall and continued growth in our higher-margin proprietary products. We continue to invest in growth initiatives while returning value to stockholders, as evidenced by our board's recently announced decision to increase the company's quarterly cash dividend by 20%. Alan will take you through the financial results in more detail after I run through the highlights for the quarter. First, we'll look at options volume and market share for the quarter. Total options average daily volume at CBOE Holdings grew 1% from the second quarter last year and 13% over the first quarter 2013. The year-over-year volume growth was driven by increases of 23% in index options and 13% in ETNs and ETFs, offset by a 20% decline in equity options. As we reported last quarter, CBOE responded to intensified fee competition with the implementation of an enhanced VIP schedule in February and a complex order VIP enhancement in March. Subsequently, CBOE's market share in June for multi-listed options increased by 19.7%, excluding dividend trades, from 15.3% for January. The upward trend continued in July when CBOE's multi-listed market share increased to 21.1%. C2's market share in multi-listed classes increased slightly to 2.1% in June, up from 1.6% in January, driven by growth in ETF options trading and adjustments to C2's maker-taker pricing schedule. C2's market share in ETF options rose to 3.8% in June, up from 2.6% in January, driven by increased trading in the most active pending classes, particularly in SPY options. While ETF trading continues to lead the volume gains on C2, we also expect the new spread-based pricing model implemented in February to attract additional equity business to C2. We are in the midst of ongoing educational efforts to help customers implement and adapt to the new model, which is unlike any other in the options marketplace. In addition, we also plan to provide access to additional real-time fee incentive information on C2 in September. We expect this added functionality will enable users to more readily maximize the benefits of C2 spread-based pricing model. We continue to closely monitor the very fluid multi-list arena at each of our options exchanges. Now for an update on trading in CBOE's S&P 500 Index options complex, where we have seen notable upticks throughout 2013. Trading in SPX this past quarter spiked to a new daily record high, and average daily volume rose 21% over trading in the second quarter of last year. The volume ascent continued in July, bringing the growth in SPX ADV to 21% year-to-date. Volume gains in SPX trading continue to be driven primarily by robust trading activity in our SPX Weeklys product, which increased by 126% in the second quarter and is up by 147% year-to-date through July. VIX futures and options continued to climb to new records throughout the second quarter, including new single day volume records for both products set on April 15. VIX futures average daily volume reached a new quarterly record and increased 92% over the second quarter 1 year ago. Year-to-date through July, VIX futures ADV stands 99% ahead of last year's pace. VIX options ADV during the second quarter rose 28% year-over-year. Year-to-date, ADV in VIX options through the end of July is up 36% over the same period in 2012. Despite angling low market volatility, we continue to see broadening interest in VIX futures and options trading. On our last call, we reported on new users, among them hedge funds and proprietary firms. To that list, we now add calendar spread traders who generally prefer to participate in markets with steep term structures, such as those typically associated with VIX futures. These traders are increasingly embracing VIX futures as an alternative to the flat-term structure currently seen in the fixed income market. On a much broader level, we continue to see mainstream adoption of VIX trading. While we're generally agnostic in the volatility as an asset class debate, a recent article published by BlackRock, the world's largest asset management firm, bears mention. In VIX Euro portfolio, BlackRock recommends a short volatility strategy as an equity substitute, calling it "a particularly compelling strategy that would have improved portfolio performance even during the financial crisis." The firm specifically highlights VIX futures as an equity substitute because they are "exchange-traded, liquid, transparently priced, operationally simple and provide clean volatility exposure." Each wave of new users brings additional liquidity and activity to our growing volatility marketplace and speaks to the inherent versatility of VIX futures and options. We're thrilled to see the growing diversification of a customer base that now includes [indiscernible] professionals and long-term investors alike. We look forward to reporting on new participants, on new users for VIX futures and options as we continue to extend our marketing and educational reach. We mentioned in our last call that we would be revising the schedule to implement extended trading hours for VIX futures. As announced earlier this week, we plan to begin the first phase of the rollout in late September with the second phase to begin in the weeks thereafter. In order to meet demand from U.S. customers for post settlement trading period, the first phase of our extended trading initiative will add 45-minute trading session after the current close of VIX futures at 3:15 p.m. The second phase will allow European-based customers to trade VIX futures during their local trading hours by beginning trading 5 hours earlier than its current opening time. Trading will then begin at 2:00 a.m. Central Time, which aligns with the 8 a.m. open of the London markets. We also look forward to boosting global awareness and trading in VIX futures and options with our second annual European Risk Management Conference, which will be held near Lisbon this September 30 through October 2. Conference sessions will feature our SPX and VIX product lines, as well as CBOE strategy benchmarks, such as the BuyWrite Index BXM. In other second quarter product developments, we began in May to disseminate values for a new volatility benchmark based on futures options data on CME group's 10-year U.S. Treasury note contract. Interest rate derivatives represent the largest asset class in the over-the-counter market. We are pleased to offer the first index of its kind to gauge volatility in this very dynamic arena. I'll wrap up here by saying that we remain very bullish on our company's prospects for continued growth. We are pleased that trading on our proprietary products continues to flourish, and we are cautiously optimistic about the recent upticks so far this year in options trading overall. This is an exciting time for our company. As we begin the second half of the year, we remain focused on product development, extending our global customer reach and providing the highest standards in market regulation and compliance. We are committed to maintaining prudent fiscal management and investing in our strategic growth initiatives to continue to deliver value to our stockholders. With that, I thank you for your attention, and I will now turn it over to Alan Dean.

Thanks, Ed. Good morning, everyone, and thank you for joining us. As Ed just highlighted, the second quarter produced our best quarterly results ever. This morning, I will review the key drivers of these financial results and update you on our outlook for the remainder of 2013. As you saw in the press release we issued this morning, operating revenue for the quarter was a record high of $150.8 million, up 14% compared with 2012 second quarter. Adjusted operating net income was $77.2 million, representing an adjusted operating margin of 51.2%, a 140 basis point improvement over the same quarter last year and our second best quarterly margin. Adjusted net income allocated to common stockholders was $47 million, up 24% compared with the second quarter of 2012, resulting in adjusted diluted earnings per share of $0.54, an all-time high. Before I continue, let me point out that our GAAP results reported for the second quarter of 2013 include 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 access fees. Transaction fees increased $11.2 million or 12% from the second quarter of last year due to a 5% increase in trading volume and a 6% increase in the average revenue per contract for RPC versus last year's second quarter. The rise in trading volume was primarily driven by the continued robust growth in our proprietary products, with total trading volume and index options up 25% and futures contracts up 96%. Exchange traded products also contributed to the lift in volume with a 15% increase, while equities declined 19%. Our blended RPC, including options and futures, increased to $0.334, primarily due to a shift in product mix towards our highest margin index options and futures contracts. The RPC in our options business was relatively flat at $0.289 compared with $0.288 in last year's second quarter, but declined 13% compared with the first quarter. On our last earnings call, we told you that we expected the rolling 3-month RPC for the second quarter to decline as a result of fee changes we implemented in February and March. RPC for the second quarter reflects the full impact of these pricing changes, which resulted in market share gains along with higher VIP credits. I know some of you have questioned whether the benefits of our fee changes on multiply-listed options and the resulting market share gains outweighs the costs. Doing the analysis, it is critical to keep in mind that our leading market share position provides support to several revenue items that would come under tremendous pressure if our market share dropped to the level we believe it was destined if we did not match a competitor's pricing. In January of this year, we saw our market share of multiply-listed options drop to 15.3%, adjusted for dividend trades after a competitor made an aggressive pricing change. That represented a 750 basis point decline to market share compared to January of 2012. And based on customer feedback, we knew that it would continue to decline if we did nothing. Taking all these factors into account, we believe it is in our best interest to continue to be among the leaders of market share. Our market share in multiply-listed options for the month of July was 21.1%, up 580 basis points compared with January. Multiply-listed options continued to represent a declining percentage of our trading volume and transaction fee revenue due in part to the tremendous growth we are witnessing in our proprietary products. The contribution from CFE, our futures exchange, continues to grow and has become much more meaningful to our financial performance. In the second quarter, CFE's revenue per contract was $1.54, a slight decrease compared with last year's second quarter due to the impact of discounts provided on certain trades. As depicted on this slide, in the second quarter of this year, index options accounted for 31.1% of total contracts traded, up from 26.1% in last year's second quarter. Futures contracts accounted for 3.6% of total volume, nearly double its contribution of 1.9% in last year's second quarter. The shift in the mix of trading volume towards our highest margin products fueled much of the growth in transaction fees for the second quarter of 2013. Index options and futures contracts accounted for 80% of our transaction fees for the quarter, up from 66% in the second quarter of 2012. Proprietary products are where we see the greatest growth potential. The $6.4 million increase of regulatory fees resulted from higher volume and increases in our options regulatory fees. Since the revenue derived from these fees is only available to cover expenses we incur to carry out our obligations as a regulator, we make adjustments as needed to maintain that balance. With industry-wide customer trading volume running ahead of our expectations, we plan to reduce the options regulatory fee on September 1. This change is expected to reduce revenue from regulatory fees by approximately $500,000 to $600,000 per month, assuming trading volume in the second half of the year is consistent with the volume through June. Exchange services and other fees increased by $1.4 million, compared with last year's first quarter, primarily reflecting a positive response to a new network access option we added in December of 2012. The decrease in access fees primarily resulted from the decline in trading permits and the introduction of new access fee programs that allowed specific trading permit holders to reduce their access fees based on meeting certain trading volume criteria. Moving down the income statement to expenses. This next slide details total adjusted operating expense of $73.6 million for the quarter, up $7.1 million or 11% versus last year's second quarter. This increase primarily reflects higher employee costs and royalty fees, offset somewhat by lower travel and promotional expense. Adjusted operating expense for the second quarter of 2013 excludes accelerated stock-based compensation of $800,000 and $1 million of additional expense for the final resolution of an SEC investigation. The acceleration of stock-based compensation represents the remaining full value of stock awards granted to employees in our regulatory services division who will no longer receive stock-based compensation. Core operating expense of $49.6 million increased $4.6 million or 10%, compared with the second quarter of 2012, primarily due to higher employee costs. Employee costs were up due to increases in stock-based compensation, incentive compensation and salaries compared with 2012's second quarter. The increase in stock-based compensation reflects grants issued in the first quarter of this year, as well as grants issued in the second quarter, related to the May 23 management transition. The increase in incentive compensation is aligned with our growth in pretax income. Salaries are up primarily due to staff additions, mainly in our regulatory services division. Excluding stock-based compensation expense, the increase in core operating expense was $2.2 million or 5%. Overall, through June, core operating expense annualized is tracking at the high end of our guidance range, which is in line with where we expect to be for the year. Taking a look at the balance sheet. We finished the quarter with cash and cash equivalents of $207.8 million, down slightly compared to the $210.5 million at the end of March, primarily due to estimated tax payments made during the quarter. Year-to-date, we have generated approximately $117 million in cash from operations, paid over $27 million in dividends, used over $13 million for capital expenditures and about $6 million to purchase restricted stock from employees. There were no share repurchases made under our share authorization in the second quarter of this year. We have $103.3 million available under our share repurchase authorization. As I've stated previously, we use buybacks opportunistically. However, timing will depend on a number of considerations, including share price, the environment, financial performance and other factors. 3 days ago, we announced that our board increased our quarterly dividend by 20% to $0.18 per share, effective with our third quarter dividend payment. This action reflects the confidence our board and management have in the long-term growth of our business and our ability to continue to generate strong cash flow. Growing the dividend remains an important component of returning value to our stockholders, and is aligned with our disciplined approach to capital allocation. As noted in our press release, we are reaffirming our full year guidance that we first provided on February 8, as shown on this slide. In closing, we continue to position the company for long-term growth by remaining focused on executing our growth strategies and delivering strong margins and strong returns. We feel good about the momentum we have in our proprietary products and believe we are well-positioned to take advantage of growth opportunities and to continue returning substantial value to stockholders. With that, I will turn the call back over to Debbie. Thank you very much.

Thanks. At this point, we would be happy to take questions. [Operator Instructions]

[Operator Instructions] And our first question is from Rich Repetto of Sandler O'Neill. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: My question is when are you going to change your name from the CBOE to the Chicago Board Volatility Exchange? Well, I guess, the question, if we're not going to go with the CBVE -- but anyway, my question would be -- the multi-listed options, Alan, you sort of addressed the company's viewpoint on that you think it's valuable, and it's just -- it's not as clear -- like in equities, you can see the equity exchanges, they maintain market share because you could see the listings following them or connected to the trading. But here, could you elaborate more on the value of maintaining the multi-listed option franchise or market share as you have? Just a little bit more specifics on where you see the other impacts, to other parts of your business?

I'd be glad to, Rich. But before I get to that, what I said in my prepared remarks, we believe, which is that, if -- we believe -- if we didn't match our competitor on that VIP pricing schedule, we saw market share eroding further. And we were already -- forget what I said, 15% or 16% in January, and that was heading down. That was just not acceptable. Options is in the name of our exchange, and so it's very important to us to remain the leader in all categories. Now the revenue items that are important to us are market data fees, you know that. That's driven by market share. And although the money is significant, it can't offset the loss in RPC. But that is an important factor. There's also exchange services and other fees that's how participants get to CBOE and the other services that they receive from us. So if we didn't have the market share to justify those fees, I would expect price pressure or even a decline in the utilization of those services. But most important is the access fees -- the number this year -- is going to be $60 million to $65 million, something like that. A big of chunk of that is SPX and VIX. But still a big significant part of that annual number is from the multi-list category. And as soon as we saw market share starting to erode, we saw pressure on those fees. And no other exchange has the kind of access fees that we have. We are over market in that category. There's no doubt about it. So that's the logic behind it, and that's why we did what we did. Now we always look for ways to increase RPC, even on a multi-list category, and we'll continue to do that as the year wears on. Maybe there's opportunities. The fee schedule is extremely complex. And all the exchanges look for advantages, and we'll look for ours in the short term and long term. I hope that does it for you, Rich. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Yes, no. That's helpful.

The next question is from Howard Chen of Crédit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Alan, I wanted to follow up on your comments about the share buyback. You all have done a lot of capital return over the years, but just given the growing cash position, the dividend that you just materially increased, the liquidity of stock, I was hoping you can elaborate on appetite to buy the stock here at current levels.

I'd be glad to, Howard. I did address it in my prepared remarks, and the point I wanted to get across is that it continues to be the intention of our board to, first, reinvest in our business to ensure our future growth, to pay regular dividends and to see that regular dividend grow as our business grows, and then to use excess cash for stock repurchases. And underlying those 3 things is -- and don't hold on to cash and earn an extremely low rate of return on that cash because that doesn't benefit our shareholders. So the board reviews this policy each quarter. And they did so again earlier this week, reaffirmed our strategy, our stock repurchase, funding the unused amount. And so what I can say right now is that we absolutely remain committed to our current capital allocation policy, and that includes our stock repurchase program. That's it.

The next question is from Ken Worthington of JPMorgan. Kenneth B. Worthington - JP Morgan Chase & Co, Research Division: The VIX franchise continues to do great, volumes are soaring, but we're seeing a slowdown in open interest growth recently, and I was wondering what your thoughts were here? Like basically, volumes are doing so well, I wonder what the dynamics were to lead to the slowdown in the OI growth?

Ken, it's a great question. I think we have seen historically different levels of open interest. We have different users coming in using the product differently. We've attracted, as we've said over the last couple of quarters, different users. The day user, if you will, the higher-frequency trader has a different approach and a different strategy. We certainly don't make any longer-term predictions on a short change or short-term change in open interest, just as we wouldn't make a long-term prediction on a blip in volatility causing some new open interest. So while we are very mindful of it and continue to watch it, I think we, like the Street, are just -- see this trajectory continuing with no sign of slowing at this point.

This is Alan, Ken. We often get the question when will VIX volume flatten out. And for us, an indicator would be a plateau in volume, and that hasn't happened. The growth rate is still there. Year-to-date volume is significantly over where it was 1 year ago. We think we have a lot of potential to grow VIX, not only in the U.S., but in Europe. And so we think there's more runway in front of us in both the options and the futures for VIX.

Our next question is from Michael Carrier of Bank of America Merrill Lynch.

Maybe just a follow-up on the VIX. It seems like each quarter, the growth rate continues to be there, and its upside and its surprise in terms of where our expectations are. And you guys have highlighted some of the different users over time. So I guess, when we start thinking about over the next 1, 2, 3 years, when you think about the growth that you can generate from tapping a larger user base, maybe it's Europe, maybe it's more the traditional asset managers versus some of the newer product opportunities that you see, whether it's on treasuries or other asset classes. Just wanted to try to get a sense, where you see the most potential, whether it's shorter term or longer term, because obviously, it's one of these things we're trying to figure out what the growth rate is going to be is a challenge, but obviously, it's been fairly healthy for quite a while.

I think it's great. Let me start and I'll turn over to Ed Provost, who is really -- his team, concentrating on telling the story outside of the -- the domestic market. But just to give you some terms of what we see and the growth, I think to your point and the upside, I just point out that as of yesterday, the year-to-date volume in VIX futures surpassed all of 2012. So that is without a huge globalization effort and we have just kicked off the hub. We have not extended the trading hours that some time will begin in September, as I said in my prepared comments. So we really think that there's terrific upside still in bringing new domestic users to the product. And then as Ed I think will spend some time on, also VIX is the global benchmark for volatility. That said, we will aggressively market and launch interest rate vol among other volatility products, but let me ask Ed to give you a little bit more background in what we see rolling out VIX outside of the domestic market.

Thanks, Ed. Michael, so as Ed had indicated, we are full -- in the full attack mode with respect to promoting the VIX futures and options product, both domestically, which of course is where the initial interest came, but with a heavy focus on the international market as well. In fact, we have a group heading to South America in 2 weeks, and that will be our first venture to that area of the world. And really, there's very few spots that we have not at least made some preliminary stops in. We continuously hear from professionals who use the product that they are utilizing it, again as a proxy for global equity market volatility, given the fact that there is no liquid volatility product overseas that comes close to matching what we have here at CBOE in both the options and the futures. So in the equity-related VIX, we see there -- we see a tremendous upside potential, both domestically and internationally. It is the primary focus of our international in this year Lisbon-based RMC conference. As Ed mentioned, and as we have announced, we are trying to make a move into the interest rate-related volatility space. We think there are great opportunities there, the OTC market for products related to that is tremendous. So we see great opportunity away from the equity space, but we're looking to capitalize as much as we can here in the short run on the equity-related VIX. So we are very optimistic, and again, notwithstanding some small drop in open interest, we see every reason to believe that the growth in this product will continue.

Thanks, Ed. I have one more item, Mike, that I'd like to touch on. With our recent relaunch of our Variance contract, it gives Ed's team in business development the opportunity to circle back on those new -- the original VIX users, the more recent VIX users, and offer them realized volatility. So it gets us back in front of our anchored tenants, if you will, allow us to tell a different story and really complete a volatility story by offering realized vol on the S&P 500. So it's really all coming together on timing for us.

The next question is from Chris Harris of Wells Fargo Securities.

So my question is on the growth in SPX Weeklys. Obviously, VIX growth is great, but SPX at least from our perspective just continues to surprise to the upside. Can you guys kind of expand on that a little bit about really what's driving the growth of that Weekly product set? Is it an increase in velocity in weekly trading? Is it new user expansion? Or is something else going on? And then as you guys kind of look at the opportunity set for that product, how under-penetrated do you think it is at this point?

Chris, Ed Provost here again. So yes, we're very excited about what we have seen in the SPX Weeklys. Often, we are asked how come we haven't seen so much growth in the SPXpm product. The fact is that the SPX Weeklys are a PM-settled option, and that is where the focus -- the primary focus of interest has been. We see interest by both traditional SPX users, but also retail users, and we believe although -- we don't get granularity down to the customer level, but we believe that there is significant transition of users from the Spider option to the SPX Weekly contract. You may recall that when we brought up the Weekly contract, we put it on our hybrid trading system, giving retail clients a more point-and-click experience, which is designed to accommodate the more retail type users as opposed to the institutional users who benefit tremendously by our open outcry mechanism, which we use in our traditional SPX product. So tremendous interest by both retail and, to a slightly lesser extent, institutional. Most of the institutional business remains in the main SPX product, but we see the SPX Weeklys continuing to grow. And quite frankly, the Weeklys product has been a phenomena, not only within the SPX product but across all of our option classes. And there's tremendous interest in playing that last week of expiration. So again, very, very happy about what we have seen and believe that a significant component of that is coming out of the Spider option.

The next question is from Niamh Alexander of KBW. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: If I could move on to kind of more the future growth opportunity in kind of one of the smaller products now. But it's with regards to Dodd-Frank and the FLEX options and kind of clearing, are you starting to see more conversations pick up or any activity there or maybe total return swaps or what's your role there? What's changing really because we know how you're set up, but are you seeing any activity?

So the first thing we see really is the exchange look-alike contract picking up interest. It's difficult to measure quite frankly what we don't know. So the increase in SPX volume would not be a stretch to think the most exchange look-alike OTC moving to list it. That makes perfect sense. But when you start talking about a swap market, our first attempt in moving what has been traded OTC swap is the Variance contract. So very, very recent launch. Some -- I think from our perspective, interesting trades being printed. But from our perspective, that's the first time that we've gone in and actively marketed to what is traditionally been an OTC swap trade, standardizing that for our CFE and seeing some futures prints based on that new methodology. So that's really going to be our focus. It is in the realized volatility space. And of course, as I started -- mindful of attracting exchange look-alike business to our listed markets, whether they're traditionally negotiated SPX or, as Ed points out, a point-and-click weekly, a point-and-click SPXpm or, of course, we have ultimately the ability to customize trades by using our all-electronic FLEX mechanism. So we're out there, but our first real push is in realized volatility and our variance relaunch.

The next question is from Gaston Ceron of Morningstar Equity.

I just want to shift gears just very quickly, and I missed some of the opening remarks, so I don't know if this was covered, but can you talk a little bit about the market data line? And kind of how you see that evolving in the future?

Sure, Gaston. The main component of market data fees is the revenue that we receive from OPRA, the Options Price Reporting Authority. That's driven by transactional market share, and that's the main driver. But there's other components in there. We're always looking for information that we own, that we can sell ourselves, whether it has to do with VIX and our futures exchange or other data that we can create and sell. So -- and we've been seeing a lot of growth in the other category. OPRA does a great job in maintaining fees, remaining competitive and selling that product, that information around the world, and we'll always continue to rely on that. But I think the other component has had, I know the other components have had a better growth rate in the past 2 years than the market data revenue from OPRA. So I hope that helps, Gaston.

Next is Ken Leon of S&P Capital IQ. Kenneth M. Leon - S&P Capital IQ Equity Research: I like Richard's proposal for a name, but I'll give another one, the Chicago Board of Index Exchange. I wanted to go back -- either refresh my memory to kind of look at the interplay of -- with the changes in the incentive program criteria and trading volume incentive costs, they're down 50% for the first 6 months of the year, so as I think of equities or even ETF. Help me out.

So we did -- we had a change that we put in place on January 1. It was a small change in our VIP credit. And simultaneously, a competitor was aggressive in their VIP pricing with the credits that they pay for customers in multi-list products. So we responded on February 1 by matching them on the multi-list side on VIP credits. Then on March 1, in the complex trade area, we adjusted our pricing to be more competitive there. And those credits are the -- it's the driver of our decline in revenue per contract. And within -- you could take a look at the fee schedule on our website. But basically, what happened is these credits were changed in a way so that when a market participant reached a certain threshold, they would not only receive the credit for customer contracts going forward above that level, that threshold level, but all the way to contract 1. And that was an aggressive change, and so that was the main driver. And Debbie Koopman is pointing out to me, Ken, that you wanted -- maybe I'm hitting the wrong one. You wanted to know about trading volume incentives rather than fees? Kenneth M. Leon - S&P Capital IQ Equity Research: Yes. The cost item is trading volume incentives. And I just wanted to see if that's having any bearing on equities and whether it was just onetime episode or something about trend.

Okay, so trading. I'm sorry. My answer was really good just for the record. So trading volume incentives. That's the fees that we pay primarily to other exchanges and for routing when an option order and a multi-list option comes to CBOE. And we have to route it away because either we aren't the best market or we don't have the depth to satisfy the order. So we have to route it away, and we have to pay fees, not only route -- broker-dealer fees, but exchange fees to do that. And that item over time, that line item, has been going down as we have been billing more of that expense back to market participants over time; we felt that we could and still maintain our market share. So the trading volumes incentive used to be a lot larger a couple of years ago; it's down this year. We'll work to bring it down, but right now, I'm not anticipating any significant change going forward.

Next is Sameer Murukutla quick of Macquarie.

Just a quick note -- a quick follow-up on the VIX futures regarding the extension of the trading hours. Can you quantify how much demand you're expecting to see with the 45-minute extension in the first phase and the early 2:00 a.m. start during the second phase? I guess what percentage of customers have been asking for the additional trading times?

So the first phase, the runoff in the afternoon, there's been demand and it's primarily domestic demand. There are a lot of ETN users, there's a lot -- there's some imbalance at the end of the day. That's going to satisfy that first tranche. But that demand has been around for quite some time. When we look at the early -- extending to 2:00 a.m., I think what we're using to project is, as you may or may not know, we currently open 1.5 hours before the U.S. markets. So the extension going beyond to 2:00 a.m. is really to attract more of those users, and to give you a reference, that pre-open session currently runs between 5% and 7% of our average daily volume. It's been 5% to 7% of the entire runup in the terrific trajectory we've had, so we've maintained that interest. So it's that group that we're going after. We think also watching the success of the Globex pre-open sessions, it's that European user looking for exposure in the U.S. markets -- not just linear exposure, but really the global ability to hedge volatility. And it's that user we're going after. So that's the 2:00 a.m. answer.

Next, we have a follow-up from Niamh Alexander of KBW. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: Sorry if I've missed this earlier. But on your tax rate, Alan, it came in a little lower this quarter and then you kind of stuck to your guidance for the rest of the year. So should we assume it's going to be -- it's going to have to be above the 40% or so levels in the second half? And what were the discrete items that kind of lowered it this quarter?

Yes, good question, Niamh. Yes, so we -- I said in my prepared remarks that we expect the tax rate to be at the lower end of our guidance for the year. So that would imply a higher tax rate later on. We had some special credits and deductions in the first half of the year that allowed us to realize a lower effective tax rate on the federal side. It wasn't state-driven. R&D credit is an example of what we saw earlier this year. So yes, we -- taxes are inherently difficult to predict with certainty, but that's the way we see it, lower end of our guidance. Those tax credits, the deductions that we realized in the first half of the year were discrete. So...

Next is a follow-up from Rich Repetto of Sandler O'Neill. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Just a quick question. When you do launch the interest rate volatility products, where will they clear? Will it be OCC or someplace else?

They'll clear OCC, Rich. We'll trade them here, the futures on CFE. And if we're able to launch options, they'll be on CBOE, we hope, and they'll clear at OCC. And there's still -- we're always working with CFTC, SEC on the various futures versus securities designation for some of these options, but clearing OCC.

We do have a follow-up from Ken Hill of Barclays.

[indiscernible] on that last question there, so with the 10-year product, I was kind of wondering if you see much overlap for that with your current customer base? And maybe how you might go about some of the education efforts around it as you launch those products?

The education is key, as you know. We'll be actually trying to attract some new users, and if we get some volatility returning into that interest rate market, I think we'll be able to hit the street in a whole new way. Now that said, there are volatility traders who will be looking across asset class, as there are today. And we have emerging market volatility. We have S&P 500 volatility. We have metals volatility. So we are trying to build a base of pure volatility traders, but the first users will certainly be in the interest rate complex.

I am showing no more questions in the queue and would like to turn the conference back to Ms. Debbie Koopman.

Thank you. Thank you for joining us this morning. We'll be available the rest of the day if you have any follow-ups. Please feel free to contact us. Thanks for your interest.

Ladies and gentlemen, thank you for participating in today's presentation. This does conclude the conference, and you may all disconnect. Everyone, have a good day.