CME Group Inc. (CME) Q4 2012 Earnings Report, Transcript and Summary

John C. Peschier - Managing Director of Investor Relations Phupinder S. Gill - Chief Executive Officer, Director, Member of Executive Committee and Member of Strategic Steering Committee James E. Parisi - Chief Financial Officer and Senior Managing Director of Finance & Corporate Development Terrence A. Duffy - Executive Chairman, President, Chairman of Executive Committee and Member of Strategic Steering Committee Bryan T. Durkin - Chief Operating Officer Derek Sammann - Senior Managing Director of Financial Products & Services

Jillian Miller - BMO Capital Markets U.S. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division Roger A. Freeman - Barclays Capital, Research Division Alex Kramm - UBS Investment Bank, Research Division Howard Chen - Crédit Suisse AG, Research Division Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division Christopher Harris - Wells Fargo Securities, LLC, Research Division Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division Kenneth B. Worthington - JP Morgan Chase & Co, Research Division Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division Alexander Blostein - Goldman Sachs Group Inc., Research Division Christopher J. Allen - Evercore Partners Inc., Research Division Edward Ditmire - Macquarie Research Brian Bedell - ISI Group Inc., Research Division

Welcome to the CME Group Fourth Quarter and Full Year 2012 Earnings Call. [Operator Instructions] At this time, I'll turn the call over to Mr. John Peschier. Sir, you may begin.

Thank you. And thank you, all, for joining us this afternoon. Gill and Jamie will spend a few minutes outlining the highlights for the fourth quarter, and then we'll open up the call for your questions. Terry, Bryan and Derek are on the call as well and will participate in the Q&A session. Before they begin, I'll read the Safe Harbor language. Statements made on this call and in the slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, note the final page of our earnings release contains a reconciliation to our GAAP results for the quarter. Now I'd like to turn the call over to Gill.

Thank you, John, and thank you, everybody, for joining us this afternoon. I'm going to highlight CME Group's 2012 major efforts, and then share some thoughts about this year. Afterwards, Jamie will review our Q4 financial results. Despite facing a low volatility and difficult environment in 2012, we made significant progress across several key areas as we are embracing the changing regulatory and global landscape. Looking forward to 2013, we remain cautiously optimistic about the trading environment relative to last year. Based on what we have been working on, we feel we are very well positioned to benefit most when we come out of this challenging cycle. We experienced improved activity in December 2012 and January of this year in comparison to what we saw during much of 2012. Average daily volume in December was up 1% year-over-year, with an increase in many asset classes. January average daily volume was 11.4 million, a nice jump from the 10.5 million contracts for daily average during the second half of last year. In addition, open interest is up 13% since the end of the year and is currently above 79 million contracts. Turning to interest rates. The last 2 months were each up versus the prior year. January average daily volume was more than 5.3 million contracts per day, the highest volume levels since June of last year, and up 24% from the 4.3 million average during the second half of last year. The short end of the interest rate curve is still hindered by the 0 interest rate policy, which has negatively impacted Eurodollar activity. On a positive note, our Fed Funds Futures product is currently indicating a rate increase during Q4 of 2014, which has moved up from mid-2015. At the long end of the curve, our treasury products are performing well, with January 2013 average daily volume up 30% versus the same period last year. On February 1, we traded a record number of treasury options approaching 1.2 million contracts, with more than half of that volume on CME Globex. Clearly, market participants are watching economic data very closely with the yield on the 10-year rising above 2% recently. Longer-term catalysts for our interest rate products include the OTC mandate beginning in March, driving more revenue in swap clearing, as well as increased activity in our futures products, the continued resolution of regulatory uncertainty and improved confidence about the economy. In light of these catalysts, we are building our interest rate product suite and our focus remains on driving activity out the curve, examining new interest rate products and building our OTC swap business, which could potentially drive greater use of our core futures and options product. Moving on to OTC. We have seen a ramp-up in activity leading to the CFTC clearing mandate, with Phase 1 step to begin in March. So far, over 60 institutions have cleared trades at CME, comprising a wide array of market participants, including asset managers, hedge funds, insurance companies, GSEs and proprietary trading firms. Since the launch, we have cleared $1.6 trillion, and open interest is above $850 billion. 2013 is off to a good start, with many new customers on-boarding and clearing their first trades and many existing customers increasing their activity. January 2013 average daily notional was over $12 billion, and this compares to $6 billion in the fourth quarter and $4 billion in the third quarter of last year. We also added 8 additional clearing members in 2012, bringing our total to 23. Overall, there are 3 ways for us to help customers navigate the regulatory changes: cleared swaps; existing rate futures contracts; and the new innovative products that we are currently developing and have developed. And we're executing on all these fronts. We now clear the 7 major interest rate swap currencies that account for 95% of the market, 51 CDS indices and the 12 most active emerging markets' NDS. In addition, we received regulatory approval to implement portfolio margining for all market participants. Initial results are promising as these participants have seen significant risk offsets that account for margin savings of over $1 billion. Looking forward, we expect to grow the list of cleared OTC products, as well as launch interest rate swap clearing out of our European clearing house in Q1, well ahead of the mandate there. We also had a successful deliverable swap futures product launch in December with very strong buy and sell side support. There is significant interest in this innovative product and it's off to a great start with approximately 65,000 contracts traded to date, representing $6.5 billion in notional value, and the current open interest lies above 12,000 contracts, which represents about $1.1 billion in notional value. Although we have had nice volume following the launch, many potential clients are focused on the first roll in March and the upcoming clearing mandates in March and June, which will focus more attention on the benefits of this product compared to the alternatives. In addition, we received CFTC approval for our swaps. They are a repository for credit default swaps, interest rate swaps, commodities and FX asset classes. Our SDR will offer customers the ability to optimize their existing connections to CME Clearing for automated SDR reporting, which will facilitate straight-through processing, providing further value to our clients. We are excited about this as a natural extension of the clearing and processing services we offer to both sell and buy side clients, providing a compliant, efficient and low cost way for market participants to access an SDR. Turning to FX. January 2013 average daily volume was up 21% versus the prior year. We are seeing particular strength in the yen and British pound contracts, up 160% and 41%, respectively. FX options continue to be particularly strong, with quarter 4 ADV up 17% versus the prior year and up 56% in January compared to last year. We also hit multiple open interest records for the Japanese yen last week. In terms of open interest, we experienced record levels of FX open interest ending 2012, up 15% compared to the end of 2011. In addition, FX products hit a new all-time high of large open interest holders in December of 890, which is up from 860 in September, indicating that more customers are holding increasing amounts of FX risk at CME Group. Average daily volume in our FX business in December 2012 surpassed the volumes of all the OTC FX platforms for the second time in 6 months. This speaks to both success in building and diversifying our participant base, as well as the FX markets, increasing adoption of exchange-traded and cleared products in the form of CME FX futures and options. We also continue to see improvements and new opportunities within our energy complex. On January 11, the Seaway pipeline increased capacity to 400,000 barrels per day from 150,000 barrels per day, and we saw a tightening of the WTI-Brent spread and look forward to further tightening in the future as more WTI reaches market. In addition, since the 11th, we have seen more volume traded in CME's WTI futures than our competitors' Brent contract. Looking forward, the significant increases projected in U.S. production could lead to more hedging based on TI and lower imports, which are typically linked to Brent. We believe there will be 3 global crude benchmarks going forward: our WTI, Brent, and the DME Oman contracts. We intend to be successful in all 3. Although it is still early in development, we have recently hit record volume levels in our Brent and DME contracts, and open interest in Brent continues to grow. Also, DME Oman is going to be included in a new U.S.-based commodities fund, the United States Asian Commodities Basket Fund, which will give investors exposure to Asia's rapidly growing demand for raw materials. This inclusion recognizes the critical benchmarking role DME is playing in the expansion of the East of Suez markets, providing transparent price discovery and reflecting the economics of the Asian region like no other crude oil futures contract. We are making a very concerted effort to meet the hedging needs of our global client base and expand our market share in 2013 and beyond. Shifting to our globalization efforts. We accomplished a lot in 2012 and look to build on that momentum this year. In 2012, we continued to ramp up our sales and marketing efforts on a global basis, and we have launched a number of regionally specific products, including Black Sea Wheat and Chinese steel rebar swap futures, which are directed towards meeting unique risk management needs in particular geographies. We also continued to expand our global footprint and applied to the Financial Services Authority, or FSA, to register a London-based derivative exchange, CME Europe, which we anticipate launching in mid-2013. In addition, during 2012, we strengthened our international partnerships, including implementing our cross-listing and cross-licensing arrangement with BM&FBOVESPA and increasing our stake in the Dubai Mercantile Exchange to help build the new benchmark for crude oil in the East of Suez that I referenced a short while ago. Lastly, we advanced our efforts in India and China, including helping to facilitate operational readiness of several Chinese FCMs to trade our products and recently launching Indian rupee futures. In addition to our globalization efforts, we continue to enhance and further diversify our core. We completed the acquisition of the Kansas City Board of Trade, and our integration is progressing well since closing the transaction at the end of November. The hard red winter wheat ADV was up 25% in December versus a year ago and the implied inter-exchange wheat futures spread become available on CME Globex on December 10. Our customers will realize further efficiencies as we complete the largest 2 milestones of the integration in the coming year. In mid-April, we will consolidate clearing services under CME Clearing, and we plan to transition all floor trading to Chicago beginning on July 1, subject to the review of the CFTC. Additionally, in 2012, we launched the next generation of CME Globex, reducing order entry and market data latency variability, along with increasing capacity and cost efficiency. We also launched CME Direct technology for online trading at both exchange-traded and the OTC markets. In addition, we closed our joint venture with McGraw-Hill, securing the long-term exclusive license on S&P futures and OTC swaps. And finally, we launched our co-location business to create a valuable new revenue stream and had a successful first year. In summary, we remain extremely focused on future opportunities while investing in the right places and maintaining financial discipline to reward our shareholders. We have a lot to be proud of as a company but a lot of important work still needs to be done. 2013 is going to be a busy year for us, given all that we have planned as we position the firm for future growth. We have prepared for what lies ahead of us, and we look forward to continuing to build upon our world-class businesses. Now I will turn the call over to Jamie to discuss the financials.

Thank you, Gill, and good afternoon, everyone. Today, I'm going to review the results of the quarter and provide you with details around how we are positioning ourselves for 2013 and beyond. So jumping right in, excluding the tax entries mentioned in the release, our earnings per share would have been $0.63. Turning to revenue. The rate per contract for the fourth quarter was $0.831, up 2% from the fourth quarter of 2011 and up 1% sequentially. Compared to last quarter, a larger percentage of the business was from nonmembers, and we saw lower volume discounts and incentives, which are correlated with volume. Within the market data line, we saw a sequential drop of $3.5 million related to a reduction in screen counts due to an intensified focus on headcount and cost reduction in the financial services industry as we closed the year. Total fourth quarter operating expense was $285 million. It's important to note that in the fourth quarter, we reclassified 2012 clearing house bank facility fees of $8.6 million from other operating expense to interest expense in the nonoperating section of the income statement. Otherwise, expenses would have been $294 million. Breaking down operating expenses in more detail, starting with compensation and benefits, this line item was $113 million, down from $118 million last quarter. This was due to a $1.4 million sequential benefit from lower deferred compensation expense and favorable vacation accruals and severance costs. Our bonus was $12 million for the quarter, similar to the prior quarter. Our annual bonus in 2012 was down approximately 25% versus 2011. Our headcount ended the year at 2,566, basically flat for the year, with small net hiring at our technology center in North Ireland -- Northern Ireland, which results in lower overall expense due to less reliance on outside consultants. Turning to non-compensation expense. The main items that increased sequentially were marketing as we projected last quarter and technology support services, driven by greater annual maintenance costs. Many of the other items came in favorably relative to our expectation from last quarter's call. Turning to nonoperating income. We received $6 million in dividends from our various investments, down from $10 million last quarter. Interest expense jumped to $44 million, driven by the re-class of the credit facilities cost I already mentioned and by a full quarter of interest expense related to the $750 million note issued in September 2012. Capital expenditures, net of leasehold improvement allowances, totaled $42 million in the fourth quarter and $140 million for the full year, down over 10% from the prior year. The pro forma tax rate was 40.1% in the quarter. Turning to the balance sheet. We had $1.7 billion of cash and marketable securities at the end of December. Despite the headwinds throughout the year, we continued to generate significant cash, returning more than $1.2 billion to our shareholders in 2012. Our dividend yields for 2012 approached 7%, or 4.5%, if you exclude the accelerated variable fifth dividend paid in December. We have received positive feedback on our novel dividend policy and will continue to consider and payout a fifth dividend for each year. Let me now turn to guidance for 2013. First, on revenue, starting with the access and communication fees line, at the end of 2012, our co-location customers had an opportunity to modify their infrastructure footprint upon renewal of their contracts. As this was their first opportunity to do so since the initial commitments they made in late 2010, many customers took the opportunity to adjust, reflecting current business needs. While the number of customers has remained fairly consistent, we expect a reduction of about $3 million per quarter in 2013 within this expense line, driven by both co-location and other access fees. Turning to expense. For 2013, we expect approximately $1.25 billion of expenses for the year based on our assumption of top line growth. In addition to normal inflation, there are 3 primary areas to point to, including bonus expense, investment in growth initiatives leading to higher staffing and a new marketing campaign. In 2013, as we do every year, we are resetting our bonus estimate to the target level of approximately $68 million. Remember, bonus expense had seen a significant pullback in 2012 based on lower-than-expected cash earnings. Each year, we reset the cash earnings target to reflect current and projected market conditions and business goals. After remaining relatively flat over the last 12 to 18 months in terms of headcount, we expect to resume hiring in 2013, including additional technology employees in Northern Ireland, additional staffing of our European exchange and clearing house and some new positions related to regulatory compliance efforts in clearing and market regulation. The other driver of the expense increase is a branding in advertising campaign to rebuild confidence in the derivatives market. The incremental marketing cost for this campaign is approximately $10 million in 2013. Our expense projection assumes cash earnings growth in 2013. Should 2013 cash earnings come in flat versus 2012, we would project expenses to be approximately $1.23 billion. For interest expense, we are projecting $39 million per quarter, which includes the costs associated with the increase and the size of both our corporate and clearing house credit facilities. Interest expense will decrease once our debt maturing in August is retired but may go back up temporarily if we decide to prefund the debt maturing in February of 2014. In terms of tax rate, we expect between 38% and 39% in 2013, down from the prior year due to the full year impact of the Illinois State apportionment change and other tax efficiencies. Lastly, in terms of capital expenditures, in 2013, we expect CapEx to be approximately $140 million to $150 million, the same guidance we had going into this year. In summary, we continue to focus on investing for the future. In particular, we want to position ourselves to fully take advantage of the changing regulatory and competitive landscape. As always, we remain intensely focused on generating and returning excess capital to our shareholders while also investing in our future. With that, we'd like to open up the call for your questions. [Operator Instructions]

[Operator Instructions] And our first question comes from Rich Repetto with Sandler O'Neill. [Technical Difficulty] We'll go ahead with the next question, and that's from Jillian Miller with BMO Capital Markets.

So there's this contentious issue, I guess, being debated currently on how the SDRs are going to handle swaps data. And you've applied to the CFTC to allow you basically to automatically report all the CME cleared swaps automatically to your SDR, but I guess competitors are kind of fighting hard against that. So maybe you can just run through exactly what you're hoping to achieve with respect to the swap data, how you might potentially monetize that data and kind how you think the CFTC is looking at the issue?

Ms. Miller, this is Gill. I'll take a shot at it. I'm sure there will be a lot of folks who want to talk. But I think, ultimately, the idea behind us applying for approval of this rule was to make it as efficient as possible for our clients if they're going to clear a swap at CME, to not do any more work than they have to, and we report it directly to our own SDR. And like I said a short while ago, it's straight-through processing at its best. And in terms of monetizing the venture, that was not a priority for us. When we launched, operational efficiency was the main goal behind what we were doing.

Okay. So is that data something that you would charge for? Or is it something that you would just be collecting, reporting to a central facility and you wouldn't be directly keeping the market data from it?

No, we are going to keep the official record of the swap that we clear and we have announced that we will not charge, at least for a while.

Okay, got it. And then I guess moving on to another topic that's also kind of regulatory. It sounds like some of the commissioners are considering whether the block levels that you guys have set for energy futures might be too low. And I know that like virtually 100% of the ClearPort business is transacted off exchange in block transactions? So I just wanted to get an idea for what type of impact a larger block size would have on that business. Like if you could tell us what portion of your trades are coming from the smaller end of the block spectrum, anything that could help us kind of quantify the potential revenue that would be at risk if block thresholds were moved higher?

It's Terry Duffy. I'll start for a second. As you know, we transitioned our ESF business on ClearPort to the smaller blocks in a very short period of time at the end of last year because of the CFTC mandate. While we did that, we had a few issues with CFTC because they were supposed to address the swaps -- the SEF rules before they were even supposed to get to these ESF rules, which they didn't. They went out in reverse order and kind of caught us a little off the curve, and our customers. So at the same time, now that we've transitioned to these smaller blocks, we have been working with the commission on a day-to-day basis to say that we need -- the market needs time to adjust and adapt to these new smaller block thresholds versus an ESF system. And for them to go and adjust block thresholds in the very near future could cause just as much harm as if they were not to give us the extents at the end of last year. So I do believe that the commission understands that and they don't want to be disruptive to the overall marketplace, and they will give us more time for -- to evaluate what the appropriate thresholds are for these block -- for these products. Again, I think we're talking about a handful of these products that are the majority of the revenue, so I don't think we're going to have any impact as it relates to that even if the blocks were changed.

The next question comes from Rich Repetto with Sandler O'Neill. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Yes, I'll try again. Anyway, my question is, Gill, you mentioned that the OTC clearing is doubled literally quarter-over-quarter. But really, it jumped December from -- to January, double. So can you give us color, is there any certain clients or what's -- I'm sure in anticipation of March, but the reason that it just doubled from December to January -- in December, it was pretty much even that whole quarter.

Rich, I'll start, and I'll ask Bryan and Derek to join in here. This is one of the major focus areas for us. And what we have been seeing in the last quarter that has continued on through this last month has been an on-boarding of both clearing members, as well as accounts, as more and more accounts are testing and more and more accounts are putting positions on live for us. And so I think the mandate, the March 11 mandate, has been taken very seriously by everyone. And they are preparing for not just the March mandate, but the bigger push of clients coming into us will occur in June, and we are seeing a healthy mix of both of those sets of clients that are coming into us now.

Yes, I was just going to add -- it's Bryan. I was going to add to that point that as the March time line comes up, it affects more so hedge funds. But we are seeing a nice mix across asset managers, hedge funds, insurance companies, GSEs, proprietary trading firms, that have either come in clear trades or are well into the testing module. And so that adds to, I think, the significant pickup that we've seen this past month. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Okay, that's very helpful. And just one follow-up on OTC as well. I guess, initially, I think at least, Terry, you were more conservative about the clearing opportunity. But as we get closer to the mandate, the March mandate, and the phase-in period. I guess, are we -- can you give us any view on what you think the revenue opportunity is, especially with futurization and especially without the SEF rules and the clearing mandate still looking like it's going to go through?

I'll start, and I'll let Jamie take over more on the revenue side. But I think from -- when we first put together our clearing offering for OTC, we did it for a whole host of different reasons. So obviously, to offer services that needed to be offered because of the new law, but also to help bolster and continually build on our existing core model, which is our futures trading, Rich. So I do think when we put this into place, it wasn't just for the revenue that we could derive from it, it was more to enhance our core business and offer the services that our clients would need. So I could let Jamie address the revenue, but I think we've addressed that in prior calls, what the cost of it is going to be to clear per million.

If I can just add before Jamie talks about the financial. I think we are the only exchange that has the value proposition for the capital efficiencies across all these asset classes that we have. I mentioned a short while ago that the cross margin savings that we have seen this very early stage has exceeded $1 billion up to this point in time. And so I think some of our client base is taking advantage of those capital efficiencies. It is the most capital-efficient solution anywhere out there among any of the exchanges or clearing houses that are providing this service.

Rich, it's Jamie. Just from the financial perspective, remember that a good chunk of the expenses associated with us being able to perform this OTC clearing are already embedded in our expense base. So going forward, the revenue coming in is on the margin -- high margin revenue. And then the other thing to remember is it's very early in the game. Obviously, it's hard to pick out any trends as yet. If you look this past quarter, we generated about $2 million of OTC revenue from the straight swaps and CDS. And that came in at a lower rate than the past quarters because of that incentive program that we've got in place to attract some of those high turnover customers that we weren't necessarily targeting previously, so that's new business as well. So it's too early to give you any other information.

Your next question comes from Roger Freeman with Barclays.

Just on the client side portfolio margining, so is this fully rolled out from your end? Or is it just larger customers? And is that kind of what we're seeing driving that, the volume increase in January?

The service itself across margining has been rolled out. The issue at hand that we have is the preparation on the part of the firms that are offering it. So customers want it, customers want to receive it, and they've got several firms in the pipeline that will be in a position to offer full cross margining for their client base in less than a month.

Yes, and I think -- this is Derek. Adding to that, I mean, the bulk of the focus right now for the FCMs is just getting the firms connected, getting these guys in place, making sure the flows work across the board. We've had some impact and some uptake so far on the house margin side that Gill mentioned before. We expect that will be coming over the coming months, so we're prepping for it. The FCMs had a lot of work just to onboard the core clients, and then the next focus from thereon will be the cross margining.

Okay, great. And Jamie, when you're talking through the put and takes on the interest expense, I mean, one of the pieces in there is entire credit facility costs tied to the clearing houses. Can you just expand on that and like how much is that and what's being required, just higher credit lines to back...

It's actually -- yes, Roger, it's no problem. It's actually -- what we did is we renewed our corporate facility this year and extended that out, and we also renewed the clearing house facility, which is a 364-day facility. In terms of the clearing house facility, we increased the amount of it from a $3 billion facility to a $5 billion facility. That was really to enable us to accommodate the potential for more and more collateral coming in, in the OTC -- in our OTC offering so we can provide liquidity in those cases where there's an issue in the clearing house, although we've never had to tap into these lines. And on the corporate side, we increased our line from roughly $1 billion to roughly $1.750 billion. Again, that was driven a lot by regulatory requirements and making sure that we had the requisite liquidity available to meet those requirements. So it was the increases in the amounts of the line that's really driving the increase year-over-year.

I mean, did the CFTC push for the higher limit on the clearing house?

No. It's just a -- it's just, it's a risk management decision made by our clearing house.

Driven by needs, yes.

Our next question comes from Alex Kramm with UBS.

Just I guess coming back to the guidance. Jamie, maybe you can flesh out the comment on the co-location a little bit more. And I think you said the users are basically unchanged in terms of the magnitude of the users, but they're revisiting their footprints. So is this more guys looking at this and saying, "Okay, we thought this business will be bigger and maybe we don't as much capacity because there's just not enough volume?" Or is that people exiting the business altogether, new players coming in? Maybe just a little bit more color.

Yes, it's really driven by the existing footprint of participant's shrinking, in some cases, their individual footprints. Because remember, co-location was new for them, new for us a year ago. So I think people were being probably a little bit conservative in terms of the amount of space they wanted to take to make sure that they were covered for the coming year. And then obviously, last year wasn't the best of all years in terms of volumes and whatnot so I'm as people have pulled back a little bit. But in general, I would say that it's the same customer base. And going forward, we're going to look to drive more new customers there obviously. And as the markets recover, we would expect existing customers to grow their footprints back.

Okay, good. And then just maybe ...

I just want to clarify that we're not seeing a drop-off in the client base in co-lo.

There's a net increase slightly, some small increase in clients.

Okay, great. And then maybe just going to the OTC side, too, for a second here. I mean, obviously, pretty early when it comes to the deliverable swap future. But I'm just curious if -- when you talk to clients, like how is the marketing effort actually organized, like given that you -- I think, Gill, you said it yourself, you have 3 different offerings, you got the clearing, you got the existing product and you got the deliverable swap futures. So are you actively educating your clients? Are you working together with the FCMs? Are you saying, "Hey, this is really the best thing to do?" Or maybe you should use existing products? Maybe you could just differentiate just a little bit like what fits for whom and what is actually the best thing for you to push, I guess, if you could put it this way?

What we do a good job at is to articulate the features of the products that we have, and it's up to the clients themselves to pick the products that they want. And there was an interesting survey conducted by your bank, not too long ago, that actually articulated some of the needs that some of these folks had. So the very large guys who are being serviced by the banks and would probably be able to clear on day 1, they would be focusing on on-boarding their swaps. For some of the client base that may be left out of the first wave of clearing and still have risk management needs, they would probably be the ones that will be attracted to the deliverable swap futures in the first instance. Or there may be clients on both sides that would find an interesting need to cover some of their sub-risk and the deliverable swap futures might actually help, too. So for a variety of reasons, the product appeals to almost the entire client base.

And Alex, I'll jumped in there. It's Derek again. To the extent that you asked how we're engaging our clients, we're engaging them from multiple levels. As we walk into clients talking about solutions and customer choice, to Gill's point, we can provide clearing solutions for them. We can offer them our existing deep pools of liquidity, our treasuries and Eurodollar complex. We can offer them now these hybrid solutions with deliverable swap future, and as we find often times that we rarely have a conversation about any one of those things in isolation. As soon as you talk about clearing, we say, "Well, if that doesn't suit you because that's a complex set of events that need to happen in relatively short order, let us tell you about the operational or capital efficiencies of our futures pool and let us tell you about this new product out there that maybe you've heard something about." So we're engaging them directly from our clearing house sales level, our clearing solutions level. We're engaging the clearing firms and their sales forces to educate their clients on the impact of their business, and we're also engaging some of the research folks at some of the banks to provide trading opportunities and just a level of education that get people comfortable with this pretty significant market structure shift that kicks off in March.

Our next question comes from Howard Chen with Credit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Jamie, on the expense guidance, I was hoping to better understand your comment that if 2013 cash earnings come in closer to last year, your expenses would be, I think, $1.23 billion. As, I guess, I view your expenses as a component of cash earnings. So could you expand on that or perhaps frame that guidance in a different way in maybe volumes or revenue growth?

It's really -- it's very much tied to cash earnings. I'm not going -- I can't put any volume growth on it or revenue. I won't provide that sort of guidance. But the main driver that would push it down from the $1.25 billion to $1.23 billion would be bonus, and license fees, likely, with -- that are very much tied to our volumes. Howard Chen - Crédit Suisse AG, Research Division: Okay. And then you mentioned a few times that the guidance is predicated upon some recovery in revenue. So I was just hoping you all could maybe walk us through some high-level thoughts on where you're relatively more or less constructive across all the major product complexes you trade and the major customer types who trade all with you.

Sure, it's Derek. I'll give you a quick highlight from the financial side. I mean, from the rates perspective, I think you probably saw all the action in our rates markets over the last week, with the pretty significant volumes that we saw going into last week and through nonfarm payrolls on Friday. We saw a couple of records hit, particularly in the treasury options. We saw an overall record in treasury options, which is a record that stood since 2007, just a shade under 1.2 million contracts. And interesting to note there, that about 70% of those -- of that option record was actually in puts, indicating that are starting to be building positions for what might likely be a change in the rates environment there. So very healthy growth over the course of last week. On the Eurodollar side, we've talked about the challenge in the front end of the curve. In the store complex, we've seen a nice build in our open interest since the December expiration in Eurodollar. That's up about 43% through yesterday at about 12.5 million, 13 million contracts, so we're seeing that build nicely. And that really was coming through last week, and that's built relatively quickly. On the FX side, you've heard Gill talk about some pretty significant moves in the FX market. The one area I'd point to there is probably in the yen. I think as folks are probably aware that dollar-yen has been pegged around that JPY 78 to JPY 80 level for about 2 years now with the Central Bank intervening. We've seen that reverse dramatically with some moves by the Japanese government, and the dollar-yen level has gone up to about JPY 90 to the dollar. That is directly linked to our 160% increase in yen volumes and the record level in yen options. So on the financial side, we're seeing sort of global recovery story and some rates expectations moves built into some of the volumes we've seen. Good healthy growth across our client segments, and we've seen open interest in large open interest holders impacted positively as well. So from the financial side, those are some of some the things we're seeing in these last couple of weeks, first few weeks of 2013.

And then on the energy side, we're seeing good trends as well in the context of both our crude -- particularly our crude oil complex, and a lot of that is driven by the increasing production that we're seeing in North America. As you're well aware, we talked quite a bit over the past year or so about the infrastructure changes and the investments that are being made in North America. And with the activities of the reversal of the Seaway pipeline and other infrastructure investments that are underway and extending pipelines to the Gulf in addition to the expansion of rail transport to the East Coast, this is increasing the production capabilities, opening up the flows of business and making it waterborne for our crude complex. We are seeing positive trends in the context of the narrowing of the spread and uptake in volume. And if you look at that, over the last course of the last several days, it's weighing in positive for that marketplace. In the context of equities, we feel that the volume and participation trends will get better when the VIX picks up off of its 5-year lows. And we're seeing indicators to that direction, as well as unemployment improving will be good for our rates complex and products overall.

Our next question comes from Dan Fannon with Jefferies. Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division: I guess on the M&A front, just thinking about what's going on in the industry and the pending ICE NYX transaction, does that change your outlook for M&A? And if -- even if you think about the competitive dynamic, how you might think that might impact you on a longer-term basis?

Dan, this is Gill. It doesn't change anything that we have shared with you in the prior months. Our strategy remains the same. The only caveat which I will repeat is that we will, as always, remain opportunistic. But for now, we do not see any large M&A opportunities. Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division: Okay. And then I guess just expanding upon some of the OTC commentary. I guess, how prepared do you think the end customers are for this transition coming? I mean, it seems like you've seen a pickup in volume. Conversations are picking up. I mean, do you expect that ramp to continue into the March date? Or are people, you think, are kind of behind the 8-ball a bit here? Just any color there would be helpful.

I'll ask Derek to comment. But because these dates have been widely known and the FCMs have been scrambling, I think they have resorted to choice where they are selecting their clients by waves. And for those clients that do believe that they may not get there in the first wave, there are alternatives that they look for, and that's one of the main drivers behind the development of the deliverable swap future contracts that we put out there. So I think, by and large, the awareness factor among the client base is extremely high. We have never seen a client base as prepared as they are now. Having said both of those things, there's going to be some lag, and how that lag is going to be treated by the clients themselves remains to be seen. They may shift firms. They may shift the product that they trade or they might just get on board.

Yes, and this is Derek. I'd echo that. I mean, to the extent that these dates really were kicked off in August last year when we knew that, that started the clock for this March deadline, remembering that the clients are coming into the mandate in category 1, 2, 3 and 4, each of through Q1, Q4 of 2013, what we see is, depending on what numbers you would believe, 15%, 20% of clients right now are already actively clearing, but a significant chunk outside of that are in active preparations based on where they believe they fall into which category. What we have heard definitively is that many of the customers are really following the lead from their dealers, knowing the dealers are the category 1 clearing entities caught on the mandate. So therefore, they're looking for a lot of guidance from not only their dealers and their clearing firms, but from us as well. So we've put a lot of effort into not only supporting the end-user client directly connecting, but also working with our clearing firms to provide the extra resource to them. So we're seeing a significant increase in engagement. We've talked about the pipeline of client clearing firms that have been connected to us, so we're seeing a lot of focus and, I think, a lot of core focus by the clearing firms to cater to all of these firms.

Can I just put a little exclamation point -- and it's Terry Duffy. Over the last couple of years, as Dodd-Frank has evolved and working with the -- especially the big banks, they talked about how their operational readiness would take them years to get in -- to be in compliance. As they start to get put out, as Derek put forth, and we have a future meeting with these guys, they say how they can be operationally ready by tomorrow. So the point being is I think that no matter what you're hearing on the street, I think the readiness is a lot higher than what's being advertised.

Our next question comes from Chris Harris with Wells Fargo Securities.

So first question on your interest rate complex. So we know you guys should get some volume benefit assuming we get higher volatility on the interest rate side. But I guess what we don't know at this point is how much the decline in volumes you've had in this complex are simply due to users really not hedging their risks anymore. I'm wondering if you guys have a sense of that magnitude because really I want to ask you because it might help us visualize maybe what kind of upside there is in the complex, assuming we really start getting interest rates going higher here.

Yes, it's a little difficult to answer that one. I wish I had a crystal ball in front of me. I mean, what you've heard us tell you before and the actions you've seen us take have been to invest in products across our curve to build into the parts of the curve where there is volatility and where there is uncertainty. That was our big push into the Ultra Bond to give a very far end of the curve solutions when you found that the long bond was not tracking to its true 30-year risk. And you saw through that, the weekly treasury options, short-term volatility and then the mid-curves and the Eurodollar curve. What we don't know -- and I can't answer the question: How many folks are no longer hedging? What we do know is that issuance and the plans for what we think growth in underlying cash markets are going to be driving a very significant increase in demand for the products we have now. The breadth of our product scope now versus what we had 3 years ago, significantly larger and more diverse. And you add to that the fact that 300,000 of our rates ADV last year came from products we've launched in the last 2 years. More importantly, 12% of our interest rate open interest emanates from those products. It tells you kind of how we're positioned for return of volatility, I think.

Hey, Chris, if I could add to what Derek just said. If you look at the products that we offer, right from the short end of the yield curve to the long end, it's safe to assume that many of our clients actually trade along that entire spectrum. And so to the extent that the volatility is very low in the short end, the product development effort that Mr. Sammann talks about that yielded us 300,000 contracts a day last year, and the actual client base itself hasn't shrunk, the things that they trade have shifted around. So they are trading along different parts of the yield curve and as the fundamentals that the fed has pegged -- like the unemployment rate that Bryan talked about a short while ago, should it drop below 7%, you'll start seeing activity across the entire spectrum of the yield curve. So the customers haven't gone away. They have moved on along the curve itself.

Okay, that makes a lot of sense. And then I guess my follow-up question would be on the swaps opportunity. Correct my figures here if they're inaccurate guys, but it seems like LCH is doing a bit more buy side volume than CME at this point. And I know -- look, I know, it's really early days, but I would think your margin offsets might give you an edge here. So can you maybe help to explain this dynamic a little bit?

I think I'll ask Derek to talk about it. I don't 100% visibility into what LCH is doing, but I can tell you a couple of things here. We are not sure how LCH would count what is a pure dealer-to-client volume versus what we might traditionally call D to D, when 2 banks deal with each other. On the other hand, I think more than 1/2 of the volume that they have put in there has been in the so-called OIS swaps, and we'll have that capability in a few short weeks here. And so that would put us back to par. The final point I will make there is the volume that's going through LCH is not translating into a substantial amount of open interest, which tells you there's a lot of high-frequency shops that are doing trading there or trying to offset their longs and shorts there. I think that would be at least a partial explanation as to why you might see some deferring numbers.

Yes, I think you are kind of comparing apples to oranges to the extent that you've got different definitions of what constitutes a client, and then the D to C equation there. But I think to the extent that the parity of portfolio clearing service capabilities between LCH and CME is, as Gill mentioned, one thing that we're working on, on those short-dated OIS swaps is a big chunk of that turnover, by definition, very short term. So when we think about what the opportunities, what the value proposition is, the first point of order for most of these guys is getting a curve solution in place and then looking at the capital margin efficiencies. And that's, as you've heard us say and the point of your question, a significant driver of choice over time. So as we look at and are able to grow and expand our open interest and our pools of offsetting liquidity and where customers can clear all 3 of those choices of products, we think we've got a compelling long-term solution for our global client base. Also worth noting that we will be bringing out our interest rate swaps clearing capabilities in Europe this year, and we're very close to doing that as well. So we're talking about globalizing our footprint in the clearing solutions side as well.

Our next question comes from Patrick O'Shaughnessy with Raymond James. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: One more on the OTC clearing business, if I can beat that one to death. So as you're talking to customers and they're deciding where they want to send their volume to be cleared, who is making that decision at the customers? I think I might have asked this last quarter as well, but is it the buy-side guys saying, "You know what, I get the capital efficiencies that seem eager, but I want to send it there." How much of a role is the clearing firm playing and where do you see that going?

Mr. Duffy can confirm this, but I think the law requires that the buy side picks where the trade clears.

Yes, right. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: Are you seeing the sell side exert much influence over that or are they pretty much just kind of leaving it completely up to the buy side?

As you might imagine, the sell side, like any other good business, would share their opinions with their clients and it's up to the clients to decide what's in his or her best interest. And at the end of the day, ultimately, the client has, at least now, 23 FCMs to choose from and that number is growing. So it used to be a small number, like 10 or so, and that number has gone up a lot. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: Okay, that's helpful. And then for my follow-up, so the CEO of the Japan Exchange Group was talking today about M&A and kind of threw out a few potential partners that he'd be interested in teaming up with or talking with in the future. I guess kind of big picture, how far away do you think we are from consolidation with Asia? I know that, historically, there's been regulatory roadblocks and maybe some other issues have got in the way. Do you think we're getting close to a point where North America and Europe are going to start to team up with Asian exchanges?

That's not clear. I think up at the end of the day, Asia, as you know, is made up of a bunch of nationalistic societies, so different countries have different policies that are in place. And so it really depends and kind of really speak to what Saito-san was saying in the -- that you read about in the press. But I think that the -- CME's approach to doing business in Asia since 1984 has been an approach that has worked for us with the link that we put in with the Singapore Exchange. Having extended the relationships that the Korean Exchange, the Bursa Malaysia and, in time to come, others, many of the exchanges in China and the FCM in China entities that CME has a close relationship with. And I think for now, as many of these exchanges are trying to find their feet, it's the best approach for us at this time. And it allows us access to a client base and it allows these exchanges access to our technology, as well as some of the expertise that we may have, that they may need.

Our next question comes from Ken Worthington with JPMorgan. Kenneth B. Worthington - JP Morgan Chase & Co, Research Division: First question, really on the equity business. And you mentioned volatility being down, but cash volumes are up and interest in domestic equity products is up. So how does the positives kind of work its way through either E-mini volumes or standard volumes? And can either of those products work if volatility remains at kind of low current levels?

Ken, this is Gill. I think the positive news on the cash side when you saw the net inflow of $3 billion or so that came into the equity market early this year is actually slightly an offset against the amount of money that left last year or, in fact, the last 1.5 years or 2. We are very enthusiastic about the prospects of the products that we have. But the extremely key indicator for volume pickup there is going to be volatility, both on the derivative side, as well as on the cash side. I would call a lot of the activity that has occurred in the last month more positioning than anything else at this time.

Yes, the VIX is still close to 5-year lows right now. And if you actually track a little the correlation between volumes and volatility, it's pretty closely knit. It is interesting, we have heard over the last couple of weeks some more calls for potential sector rotation at a fixed income into equities. Certainly, that would be something that we would welcome. We think that would indicate a shift in positive trends for each of us. But we have been following the flows back into equity funds, but we'll see if that has any impact on the volatility. That will be an additional driver to look at. Kenneth B. Worthington - JP Morgan Chase & Co, Research Division: And then I wanted to just probe into the enthusiasm for cross margining. To what extent can you cross margin nondollar swaps with your dollar-based futures products. Like is that something that resonates with investors? Or is it really the dollar-based swaps that you cross margin with the dollar-based futures?

No. Actually, it's exposure to exposure. So to the extent that you have nondollar exposure, as you're trying to offset against dollar exposure, you find the common currency give a haircut to that currency for risk management purposes and understanding the characteristic of the instrument that you're trying to cross margin, cross margining dollar versus nondollar exposure's equivalent to cross margining dollar versus dollar exposure. It's simply exposure on your books, you have to take different things into account.

Yes. And if there's going to be -- to that point, as from our energy's complex, even between our, say, metals and foreign exchange, we actually do have some margin reductions for people who want to trade that as a spread, say, Aussie dollar against gold. There's a correlation on the clearing [ph] the clearing house allows for some margin reduction there. It's all risk-based. So to the extent that they run correlations and back test and make sure they've got an ability to risk manage that appropriately, that's the basis upon which cross margining happens.

There's a minimum correlation threshold, that anything that is proposed to be cross margined has to cross, and that threshold is very high. Once you cross that threshold, the currency of denomination is actually irrelevant.

[Operator Instructions] Our next question comes from Niamh Alexander with KBW. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: The futurization of swaps, it's just a growing den of industry participants outside of the exchanges kind of appealing to regulators to maybe better harmonize correlation or margin requirements for swaps versus future. It just seems like there's a lot of people seem to be quite concerned that even just the margining requirements are going to be enough to maybe encourage people to trade some futures instead of swaps. So help me understand your perspective on this. I mean, clearly, you'd benefit if you did see more futurized swaps or even in your swap deliverable futures did well. But is there an opportunity for them to kind of replace a lot of the swap sell volume? And if not, why not?

The reason our perspective is very straightforward and very clear that the 5-day requirement on swaps or the 1-day requirement or the 2-day requirement on the futures is a function of what I'll call visibility. If you can -- if you have a default on your hand and you're trying to get rid of a portfolio, if you have visibility, which the futures markets have, it is that much simpler to exit a portfolio from your books. During the Lehman crisis, we sold a multibillion dollar book within half an hour. And within 3 hours of announcing the sale, it was taken off the books in an auction. In the same crisis, it took several days for the Lehman swap book to get transferred out from LCH. So the margin requirement is a reflection of that one phenomena. No visibility is going to be more difficult. You'll need 4 or 5 banks, maybe more, to basically bid. With visibility your options for getting rid of a portfolio are immensely improved. So ultimately, take for example LCH, when they margined their swap book and have been doing this for the last 20-some years, they have margined it on either 5-day, or even more, basis. By the same token, LCH was margining Euribor, which they still do, and that's always done on a 1-day basis. The comfort level there is no different than the comfort level they should have when you're talking about a futures contract against a swap. It's a question of the function of visibility. And so take the swap futures for example, to the extent they're brand-new contract and there are some parts of the contract that are still not clear to folks and there's some concern that our risk guys have, they may, at their option, look to margin it on a 2-day basis, which I believe for the historic -- for the deliverable swap futures, we have done. What the deliverable swap futures have and the clear swaps don't have yet is the trading platform where buyers and sellers can come on by and actually you can get a price. And even if there was a block trade done, within minutes of that block trade occurring, the price is known to everybody. That level of transparency and visibility is the only thing that drives the margin requirements difference between a swap and a future. Does that make sense? Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: It does, Gill. But I guess if this doesn't change, then I guess it makes the argument stronger that maybe people should trade these futurized swaps or the deliverable swap futures. It's a stronger argument for these things to almost replace the swaps. And I was just trying to understand what's the counterargument to that, that you don't actually see. Rather than cleared swaps growing as we've been talking about, maybe just more of these deliverable swap futures or futurized swaps growing instead because the collateral requirements are going to be lower.

They will be, I think, at least, initially I think I can't talk about -- or no one knows how the market might evolve with respect to execution facilities down the road. But the one thing that swaps have that deliverable swap futures by their design don't have is an extremely high level of customization and... Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: And the hedge accounting benefit then, I guess.

And that's what you'll find the very sophisticated swap uses are going to continue to use. Right?

Yes, I was just going to emphasize, about your point, Gill. I think that's really what it's at, Niamh. But to say that we can just transition the entire OTC market into a listed futures market, I don't see that to be a possibility because of some of the customization that are with some of these products, the opaque nature that they trade. They're just going to have to trade as a swap and they're going to have to fall under the requirements of the 5-day, or if they're unclear, the 10-day requirements. And that's just the way it's going to have to be. So you will get some people that can get enough correlation between a swap and the future transitioning into futures because of the economic efficiencies associated with it. And I think that's what we're seeing today, and we'll continue to see more of that. But I don't see the overall market going away completely.

Our next question comes from Alex Blostein with Goldman Sachs.

I wanted to just, I guess, follow up on the last question one more time. When you think about the 3 options that you're offering clients right now, whether it's clearing swaps, swap futures or your interest rate futures product, can you give us a sense on how the economics are different or the net economics are different to you and whether or not you sort of care in which way clients will start to shift their business?

Yes, this is Jamie. I'd say, if you look at our -- obviously, the futures contracts, we have the stated rate card out there. On the deliverable swap futures, the rate is very similar to our treasury contracts. And then on the interest rate swaps, for most customers, the average is going to be in the $5 to $6 per million range. Now you can normalize all of that, when you think about having to do strips of our base futures contracts, for example, to equal a swaps contract or a swap OTC contract, so we try to take all that into consideration, as well as rolls and that sort of thing.

Yes, and I was going to jump on that. I mean, what you see a large percentage of our contracts get rolled. So not only is there the execution at the outset, but then there's a roll process. And then some of the cleared swaps price, we had accounted for that with different upfront fees. So you need to think about how long these are going to stay on their books. The standard rate swap is a 5 to 7 year, so just that is the difference in the terms of having an economics hit.

Got you. And then just my follow-up, I guess, and I know it's still early in the year. But when you guys think about a return of capital for this year, I know last year, you obviously provided a little bit of color on how much cash you see yourself having by the end of the year and how much you need to have. But I guess capital requirements at the clearing house, you obviously increased the size of your credit facility recently. How do you guys think about, I guess, the minimum for -- that you feel comfortable with in terms of cash for this year?

Sure. Our minimum cash target for the balance sheet hasn't changed. It's $700 million is what we're looking to hold. Now over time, as capital requirements evolve, that may be impacted somewhat but I don't see it being impacted in a very significant way.

Our next question comes from Chris Allen with Evercore.

Just one quick question. On the market data revenue line, I just wonder if you could maybe give us some color in terms of how much the screens have declined year-over-year. And thinking about next year and further out, one of the themes that people have been talking about as the over-the-counter markets transition more towards an electronically traded market is reducing the human capital element with the technological trading in these markets, so that would -- might argue for fewer screen counts moving forward. I just wonder if you could provide any color on that.

I can start, and then maybe some of my colleagues can jump in. But if you look over the longer term, I'd say over -- if you look at our peak terminals in -- back in 2008, we're down over 20% versus that peak. So in that, I do really feel that the key driver there is you just keep seeing the headlines every quarter about more and more layoffs on the street and certainly they are very large users of that service. You do hit on another area that we're thinking hard about is that we do today provide fee waiver on our Globex terminals for market data.

I think the fee waiver portion of this has been in place for at least the past 12 years, Chris, so that is not going to be a driver of whether market data revenue goes up and down. I think Jamie hit the nail on the head with respect to what's going on there. It's just a normal and ordinary business cycle for us.

Our next question comes from Ed Ditmire with Macquarie.

You guys make a significant amount of money, maybe about 1/10 of your transaction revenue from clearing over-the-counter energy swaps, which Slide 8 shows as a extremely small portion of your over-the-counter swap market and it's a market where you split the opportunity with other firms. What kind of hurdles are out there over the next couple of years in the medium-term to take your progress and all the business you're doing in interest rate swaps and turn that into a new significant profit driver like that ClearPort energy swap facility?

This is Gill, Ed. I think it's too early to say how the market might evolve. I think if you look at the asset classes on the futures side that we had and you look at the potential opportunity that exists for us not just in the rate side and the energy side, but potentially across all the asset classes and the significant need for capital efficiencies among our client base, I think I'm fairly optimistic about how the OTC swap marketplace might grow in either 1 of the 3 forums. But it's too early to tell when and it's too early to tell how.

Got you. And one follow-up question. With the incentive programs you have around this over-the-counter clearing product, how long term are these incentives and can you envision a time where critical mass has reached that? Do you think the network effects takeover as a real compelling reason and incentives become less important?

Ed, this is Jamie. It's just -- for us, it's just too early to tell. It's way too early in the game to judge when -- to judge how that will play out. And it may be that we need those incentives for a particular type of customer for a very long period of time because that's -- it's reflective of the type of business that they do. They're not -- the incentives that are in place today in the interest swaps arena are for high turnover customers, so they're not putting on positions and holding in the clearing house for a very long period of time. So it's not real taxing to the clearing house for each particular trade.

Ed, if I can add, these incentives are not extraordinary in any way, shape or form. They're just part and parcel of incentives that we would put out there for any kind of new product or service that we would put out there.

Our next question comes from Brian Bedell with ISI Group.

Just one more on the OTC and interest rate, maybe for Derek. What's your sense of your ability to convert customers over from the swap to futures in a sense of the timing? Obviously, you don't need to convert a large part of this market to contribute significantly to the revenue stream. But what's your sense of -- to what extent a lot of the education that you've done and conversations with the clients will have an inflection point around the March 11 time frame or at one of the other points doing this year? Or do you think it's a really -- a much multiyear effort before we see traction in the traditional interest rate futures complex as a result of that effort?

Well, I think it's a couple of things and remembering that March 11 is not a big thing. We're going to phase-in clients every quarter from March all the way through to December of this year. And the Phase Is, for the most part of it, are the biggest, largest entities out there, some of the dealers and maybe some of the biggest hedge funds. And then you'd be phasing clients behind that. So there have been a lot of folks that, once the news came down in August, said all right I've got a date to work towards but they're looking to their clearing firm to give them guidance as to where and how they should expedite their process for readiness. And as Gill has mentioned before, a lot of work is being done right now by us, by our clearing house folks, by our sales folks, engaging both the clients, as well as the clearing firms for readiness on both sides. There are reports out there indicating different levels of readiness across the client base. A year ago, you would have seen a very, very low level of preparation. But now that we're really looking at the kick-off date in March, we're seeing probably close to 75% of the folks that are at least working towards readiness over the course of this year. In terms of what products they end up in, all I can tell you is the time we spend with customers talking about futures, these hybrid deliverable swap futures and clearing services is about equal, and that tells us there's an appetite understand what suits their book and what products would be the best product of choice for them.

So there's an appetite out there. We'll just have to really watch for progress over the course of the year.

Yes, and I think you'll see that process happen, and the more that we see firms take up our offer of cross margin, and I think that will be a compelling value proposition. And as Gill mentioned, we've got clearing services across every major asset class.

Okay, great. Just a very quick follow-up for Jamie. The build-out or the second wave of the build-out of the co-location, I know you didn't really give a time frame initially when you'd do that. But given your guidance on that, is it safe to say that, that's not going to be an effort this year?

Yes, that's -- we did some preparing last year in terms of infrastructure. And as the demand pulls, we'll revisit it.

And this concludes the question-and-answer session for today's call. I'll turn the call back over to the speakers.

Thank you, all, very much, and we look forward to speaking with you in the next quarter. Thank you.

Thank you. And this does conclude today's conference. We thank you for your participation. At this time, you may disconnect your line.