CME Group Inc. (CME) Q3 2022 Earnings Report, Transcript and Summary

Hello, and welcome to CME Group Third Quarter 2022 Earnings Call. My name is Sarah, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]. I will now hand you over to your host, John Peschier, to begin today's conference. Thank you.

Good morning, and I hope you all are doing well today. I'm going to start with the safe harbor language, then I'll turn it over to Terry and team for brief remarks followed by your questions. Other members of our management team will also participate in the Q&A session. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They 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 statement. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures. On a personal note, today will be my last earnings call as I am retiring after more than 20 years with CME. My first day on the job was December 24, 2001, with a plan that CME would go public soon after I joined. CME ultimately went public in December of 2002, and it has been an amazing journey. We have created a lot of value for our investors. I want to thank all of our shareholders and sell-side analysts who I have met on this journey, and I want to thank all my CME colleagues I've worked with closely with during the last 2 decades. In particular, the CFOs Dave, Jamie and John. Most importantly, Jennifer George and Susan Jacks with whom I have worked closely with for many years, have been instrumental to our success. Lastly, I'd like to thank Terry for his leadership of this successful journey. He and I are the only ones left who were on the first CME earnings call in 2003 and has been a great run. With that, I will turn it over to Terry.

Well, thank you all for joining us this morning, and let me take a quick moment first to thank you, John, on behalf of all of us for an incredible run. More than 2 decades, as you said, with CME and giving service to the organization and a shareholder relations organization. You have been an instrumental force in our Investor Relations and analyst outreach, helping us grow from our early days, as you said, as a public company to the leading derivatives marketplace we have become today. As a friend and respected colleague to so many, you've made a significant impact on our business. There is no doubt you'll be missed. We wish you nothing but the best for you and your family going forward. And again, on behalf of everybody at CME and throughout the investor community, John, we thank you very much for your leadership. Thank you.

Thank you.

We are leaving the investment community in good hands with the remaining members of the Investor Relations. As John referenced, Jennifer George and Susan Jacks, who have worked side by side with John through his entire career as well as Adam Minick, who you'll all get to know soon, who recently joined the Investor Relations department coming over from our strategy department. So we look forward to all of you meeting up with Adam. We released our executive commentary earlier today, which provided extensive details on the third quarter of 2022. I have John, Lynne, Sean, Derek, Sunil and Julie Winkler on the call this morning as well as Tim McCourt, our Global Head of Equity and FX products. I felt it was important to take some time to not only run through a snapshot of our current business and financial results, but more importantly, to expand on why we feel our business is in such a strong position to finish out the year and head into 2023 on a high note. I will start, and then Sean, Tim and Derek will provide some thoughts before John finishes up our commentary with details related to our financial results and our JV. Then he will then open the -- we will open the call for your questions. Let me start by taking -- talking about the tremendous amount of uncertainty in the markets today. Whether that be uncertainty around the U.S. Federal Reserve policy, varying views about the recession risk with inflation at levels not seen since the 1980s or uncertainty around the size and speed of the unwind of the Fed's balance sheet, when there is uncertainty driving activity in our interest rate business. The impacts cascade to other asset classes, most prominently in equities as rate changes impact corporate valuations and in foreign exchange with varied policies and approaches from central banks around the world. We are also seeing high level of volatility in the commodities markets, which appear likely to persist given the impact of the Russian invasion in Ukraine and the resulting disruption affecting both agriculture and energy markets in the region and around the world. Risk management is our business, and we have been and always will be committed to helping our customers manage uncertainty. We do this across our unique breadth of asset classes and our broad range of deeply liquid globally relevant products. With that being said, let me transition into our Q3 performance. Our performance for Q3 and year-to-date in 2022 highlights the effectiveness of our risk management solution. Our volume is up 23% year-to-date versus the same period last year, and up 19% from the same period in 2019 prior to the pandemic. The highest average daily volume quarter in CME's -- Group's history was Q1 of 2020 when risk management was critical at the onset of the pandemic. The first 3 quarters of this year have been the second, third and fourth highest ADV quarters in our history. So far, in 2022, our interest rates, equities and FX products have hit peak levels of large open interest holders with our interest rate products at an all-time high again, just last week, suggesting that this represents a risk-on environment. Additionally, Q3 represented our fifth sequential quarter of double-digit year-over-year growth in total ADV. With the pandemic becoming part of our lives, global economics and market participants are left to manage not only uncertain market risk but also potential new risk associated with the pandemic. We're pleased the next integration is complete and market participants are able to access cash treasuries and cash foreign exchange through one platform, complementing our existing futures on treasuries and on foreign exchange. The breadth of the assets we've built over time, combined with the work we are currently doing a partnership, with Google to transform markets, will provide us further opportunity to continue our industry-leading innovation going forward. And we are 100% focused on growing in the short term while also positioning the business for long-term sustained growth. I'll now turn it over to Sean, and then Tim and Derek, to dig into more detail around these themes.

Thanks, Terry. With the return of interest rate volatility and central bank activity, we've seen strong year-over-year growth in our fixed income businesses. Interest Rate Futures and options ADV were up 28% in Q3, and we've now delivered 6 consecutive double-digit year-over-year ADV growth quarters for the asset class. The tailwinds Terry described should continue moving through 2023. Every FOMC meeting is in play and with high and uncertain inflation, every jobs report and every Consumer Price Index reading is important. You could see this very clearly with the 34 million contracts trading on a single day on October 13, following the latest CPI release and the uncertainty here could remain for years as inflation ratings for rent and shelter tend to lag the real economy by up to 18 months. These factors have led to significant trading volumes in our short-term interest rate complex with volumes up 45% through the first 3 quarters. During this time, we have progressed the Eurodollar to SOFR migration with SOFR futures and options both now trading more contracts per day than their Eurodollar counterparts, reaching a record 5.9 million SOFR contracts traded on October 13. Lastly, our AARC endorsed Term SOFR benchmark has already been licensed to over 1,700 firms in 83 different countries and has been referenced in over $2.8 trillion of loans and OTC derivatives. On the long end of the curve, we saw double-digit ADV growth in both Q2 and Q3, in Treasury futures and Treasury options have had particular strength with 21% growth in Q3. We the tailwinds from Fed balance sheet reduction and inflation are becoming larger and have the potential to be long-lasting due to the huge increase in government debt. And as Terry mentioned, uncertainty and monetary policy then drives uncertainty in other asset classes. I'll turn it over to Tim to speak to this very point.

Thanks, John, and it's a pleasure to be on the call today. Allow me to start with the strength of our Equity Index business where our deep and liquid markets offer access to the most important global benchmark indices on one platform around the clock. This strong foundation positioned us well in 2022 as interest rate expectations have led to equity valuation adjustments and increased need for risk management. The first 3 quarters of this year were the first second and third highest ADV quarters on record, respectively, for overall Equity Index ADV as well as Equity Index options ADV. Year-to-date through Q3, total ADV has increased 44% and options ADV has increased 74% compared with the same time frame of last year. It is important to note that our growth is driven not only by volatility, but also by product innovation. One of our most successful innovations was the launch of our Micro E-mini products in 2019. We view the Micros as a useful tool to continue to attract new international and U.S.-based customers given the smaller contract size and the lower upfront financial commitment. Due to the premium price point on a risk equivalent basis, the 3.2 million micro equity contracts that trade per day at the revenue equivalent of approximately 1 million E-mini contracts, despite being 1/10 the notional size. We've also introduced a suite of products that bring traditional OTC functionality to CME such as Basis Trade Index Close, Adjusted Interest Rate Total Return Futures, Sector Futures, Dividend Futures, Equity Option block and most recently, Derived Block functionality. These OTC alternative products meet customers' need under the uncleared margin rules while benefiting from the capital efficiency afforded by our equities franchise. These premium products command fees of 3 to 4x that of standard equity rate and added approximately 160,000 contracts per day in the third quarter. Now I will turn to FX, which has certainly come alive following an extended period of historic low volatility and with a third quarter FX ADV up 41% year-over-year. Similar to equities, we have introduced innovations in our FX business during the low volatility period, and we are now harvesting those investments. We've changed minimum price increments, built out emerging market currencies, introduced OTC alternatives like FX Link, added EBS cash markets and created tools and analytics that show the efficiencies of trading FX at CME. These innovations position us well to continue to benefit from the volatility in the currency markets as the disparate interest rate approaches of the global central banks continue to flow through to the foreign exchange market. Derek will now address the trends in our commodities, options and international businesses.

Thanks, Tim. While our Energy business, which has been impacted by temporary market dislocations was the only asset cost that was down in Q3, we like our long-term structural positives for our U.S. energy benchmarks, including WTI crude oil, refined products and Henry Hub Natural Gas. U.S. is producing nearly 12 million barrels of oil a day and exporting record levels of crude and refined products. The U.S. is the marginal supplier of crude oil to Europe and Asia, which positions WTI and a refined product benchmarks well for the long term beyond the current supply and price dislocation. Similarly, the U.S. of the world's largest producer and exporter of natural gas, boosted by increasing liquified natural gas exports priced off Henry Hub futures markets. Additional LNG facilities are coming online in the U.S. in the medium term, which further bolsters Henry Hub as the benchmark for the global natural gas market for decades to come. As the market transitions through the short-term disruptions caused by the war in Ukraine, we believe that we have the strongest portfolio of risk management tools in the global energy and environmental products markets, which positions us well to grow this asset class over the long term. In agricultural products, CME's markets serve as the benchmarks for global price discovery in grains, oilseeds, livestock, dairy and lumber. We saw increased customer activity in the third quarter with average daily volume of 1.2 million contracts, up 6% year-over-year with particular strength in options. Buy side and bank customers are our strongest performing client segments this year, and our strongest global growth is coming from Latin America. Turning to Metals. Third quarter average daily volume increased 4% to 498,000 contracts, led by a 20% growth in September. CME Group's aluminum futures continue to see strong adoption by both commercial and financial market participants. Given the customer growth we are seeing, the adoption of COMEX Aluminum by top metals broker, Marex, and the success we've had in getting our reference prices to be included in physical procurement contracts from commercial customers, we feel that we are at an inflection point for growth in this important market. Turning to options. We continue to see Options ADV and Open Interest outpacing futures. Terry spoke earlier about the high levels of uncertainty in the world today, and options are a powerful tool for helping our global customers to manage risk in that environment and can be a more cost-effective means for getting exposure since only the option premium is included. With year-to-date options, ADV up 27% to 4.1 million contracts a day, we are on track to surpass our record year from 2019 of 4 million contracts. Finally, our international business continues to generate record volumes. In the third quarter, we delivered 6.1 million ADV, up 21% versus last year. Based on our strong year-to-date results, we are on track to deliver another record year with our non-U.S. ADV through September of 6.5 million contracts compared to our record 5.5 million ADV from last year. With that, I'll turn it over to John.

Thanks, Derek. CME's revenue for the third quarter was approximately $1, 230,000,000 billion driven by a 26.1% growth in trading activity. This was up 10.6% compared to the third quarter of last year and up nearly 15% when adjusting for the impacts of the formation of OSTTRA, our post-trade joint venture with S&P Global that we formed in September of last year. This is our fourth consecutive quarter when making that adjustment of double-digit revenue growth, demonstrating the importance of our markets in these uncertain times. Market Data revenue was again a record during the quarter, up 6% compared to a year ago to $154 million, reflecting the strong need for the information our markets produce. Expenses continue to be very carefully managed, and on an adjusted basis were $441 million for the quarter, and $359 million, excluding license fees. Our efforts towards moving to the cloud progressed as expected, and we are nearing the completion of the initial foundational work necessary to migrate our applications. Year-to-date, we spent approximately $21 million in incremental cash cost towards that effort and expect to end the year at approximately $30 million and within our first year guidance for that project. On a year-to-date adjusted basis, excluding our Google spend, license fees and the impacts of the formation of OSTTRA, our revenues were up 13% and our expenses were only up 3%. We continue to manage our capital expenditures effectively and with an eye towards our move to the cloud. As a result, we are lowering our CapEx guidance to $100 million. For the quarter, our capital expenditures were approximately $20 million. Our joint ventures and investments continue to produce meaningful results for CME Group. Year-to-date, on an adjusted basis, these investments have contributed $272.5 million or close to 10% of our pretax income this year. In addition to the earnings they contribute, their strategic importance continues to play out. The OSTTRA joint venture is capturing synergies through the combination of our post-trade businesses with that of S&P Global. This creates the leader in the space and has the scope and scale for long-term growth. Our S&P Dow Jones Indices joint venture has delivered 14% average annual earnings growth since the first full year of inception in 2013. Strategically, the exclusive rights to the indices that we have secured through our ownership of the joint venture underpins over 20% of the overall futures contracts traded at CME Group and creates significant capital efficiencies across our equity complex, making us the global destination for equity futures. We also benefit from the trading of products licensed by the joint venture to other exchanges and from the continued move from active to passive investing. These joint ventures and other investments that we've made continue to position CME well strategically and financially. For the quarter, CME had an adjusted effective tax rate of 23.4%, which resulted in an adjusted net income of $719 million, up 25% from the third quarter last year and an adjusted EPS attributable to common shareholders of $1.98. CME paid out $2.3 billion of dividends so far this year and cash at the end of the quarter was approximately $2.2 billion. In summary, our global benchmarks, data, innovation, investments and strong focus on execution, continue to address the needs of our clients and deliver results for our shareholders. Please refer to the last page of our executive commentary for additional financial highlights and details. We'd like to now open up the call for your questions. Based Thank you.

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

Terry, John and I guess first thing is for John Peschier. You've been a very thoughtful and unwaveringly committed and loyal employee and has been a pleasure working for, however, many years and he's done a great job training Jennifer and Susan. We're excited to work with the team going forward as well. So congrats, John.

Thanks, Rich.

Terry, I guess my one question would be, the media reported, I think, within the last month or so that you apply for an FCM license or try to obtain an FCM license through the CFTC. I was just trying to understand what was the purpose of the rationale behind doing that.

Thanks, Rich. Appreciate it. Your first day was at the NFA, we filed the application and then we'll eventually go to the CFTC just for -- all right, cadence perspective. But I think what's important is I never defined how we would ever use an FCM. And I think there's been a tremendous amount of speculation about how CME would or would not use an FCM. I also I think it's important to note that I don't know, and I don't know anybody that does know what an FCM is going to look like 3, 5, 10, 15 years from now. And I just don't know what that's going to look like. Is it going to look the same as it does today or will look completely different? I don't know. I don't think it's in anyone's best interest to wait to find out. I think you should be going along with that process to see. But I want to make sure something is very clear. My commitment, our commitment at CME to our FCM community, as I've said, is unwavering. And we are going to continue to work to make them better, our existing FCMs and our future FCMs, how we can partner with them and make them better. So I think that's really important. And also, I know there's on speculation about CME is looking to get their own FCM because of retail products. Let me be very clear about this. Our existing FCM base and our future FCM base, wherever that may or may not be, has plenty of wherewithal to address the retail market for CME Group. So that is not, not the purpose of doing an FCM. So I think it's really important that we just clarify a few of these things. But again, my position is -- and the company's position is we want to work with our existing FCMs, we will continue to do so. That is the model that we enjoy, but we're also not of the mind that we don't think things could potentially change down the road, and we will be prepared. So when I say that, our costs associated with this FCM so far is about 0. So we have not put any money into this. We just filed an application. But we will be watching the space very, very carefully. And again, we will not ever put CME in a position where it's coming from behind. We will always be leading going forward. So hopefully, I answered the questions and more, but I really want to make it clear. There's been no defined FCM that CME has applied for that is competing with the existing FCM model today. I know all the pitfalls or people have talked about with the DSR status, things of that nature. Those things can all be worked around if, in fact, they need to be worked around. But that's not the purpose of our application.

The next question comes from the line of Dan Fannon from Jefferies.

Congrats, John Peschier, on your retirement. My question is for the other, John, just on expenses. Just obviously, the guidance implies a pretty material step up into the fourth quarter. So could you talk about what that entails in terms of where -- what you're spending on and how that ramps? And then I know it's early, but just thinking about 2023 and kind of the roll forward of the Google spend and other investment priorities. Can you talk about how to think about growth in expenses versus what you guys have done historically?

Yes. Thanks, Dan. Thanks for the question. Yes, the fourth quarter of this year -- fourth quarter of all years, generally speaking, in the fourth quarter of this year, is traditionally the heaviest quarter in terms of expenses, and we expected that to occur this year. There are a number of planned customer events and marketing spend in the fourth quarter, and we expect increased in-person sales activity reflecting the improved business environment. So if you look at last year and adjust for OSTTRA, you saw about a 10% increase in expenses from Q3 to Q4. This year, it's a little bit heavier between Q3 and Q4. This would imply about a 15% increase. And if you look at the expense spend between Q3 and Q4 last year, we did not have the improving business environment that we see this year. So we are expecting definitely more increased in-person sales activity, marketing spend and travel. So that accounts for some of the increase that we're seeing this year. The remainder -- so when you take a look at -- sorry, when you take a look at Q3 to Q4, we expect approximately 70% of the increase to be in the marketing, travel and in-person events. The remainder of the sequential increase would be related to salary and wages, reflecting variable compensation related to our company's performance and staffing of key roles and customer-facing resources. So last year, again, the variable compensation is higher this year than last year and also the number of employees are higher this year than last year. We're expecting to hire more going into the fourth quarter. We also expect to see increased professional services as we are investing in growth projects. So that kind of accounts for Q4 growth compared to Q3 and a bit about the difference between last year and this year. You are right, as we are early in the process of looking at our budget for next year, and as you know, and as the entire team knows the entire group here at CME has done a very effective job over the years of managing our costs, and we tend to do the same towards this incoming year. It's a bit too early to give guidance. And as I said, we are still in the budget building process, and that has to be approved by the Board. So we are definitely keeping our eyes on inflationary impacts, and we're looking to mitigate those impacts through process efficiencies, leveraging lower cost locations, partnering with vendors and being judicious in hiring. So I think the way to think about 2023 is to think about how we've been managing costs over the last several years. We've done a very effective job ensuring that we're spending very efficiently. And we'll continue to leverage that approach going into next year. So that's some of the kind of the core business. In terms of the Google spend and in terms of our migration. We're working through the plan for next year now. We are, as I mentioned, the last, I guess, a couple of earnings calls ago, we're expecting on average to be approximately $30 million in incremental spend over the next 4 years as we approach the point where costs will be lower, assuming similar volume levels. And I think we're planning on kind of a similar type spend as this year, but that will be a function of how fast we're going to be migrating the applications on to the Google platform. So we're pretty -- we're pleased with where we're at in terms of our Google progress. It's about where we expected it would be. And as I said in my prepared remarks, the initial foundation that we needed to create in order to start rolling those apps is nearing completion. So we'll be looking to see the apps migrate at a quicker rate going into 2023. So that's the kind of the expense view this so far this year.

The next question comes from the line of Alex Kramm from UBS.

I want to talk about the LIBOR, SOFR or Eurodollar SOFR transition. Now that you have, I guess, a date in next April to basically shut down the Eurodollar. If I understand this correctly, I want to really understand what that means, both from a potential volume and also revenue impact. So can you remind us what you're charging for when it comes to SOFR and Eurodollar today independently where there's still certain discounts or non-charging? And then more importantly, as one contract goes away, I assume today, there's a lot of, I guess, trading or arbing between those 2 products happening. So just wondering if you have an estimate, how much that could be today? And how much of that could potentially go away? So we're clear about, again, like a revenue or volume impact coming from next year?

Thanks, Terry, and thanks, Alex, for the question. We are very pleased with the progress we have made in the SOFR transition. SOFR Futures traded 2.6 million contracts a day in September, while SOFR Options traded more than 850,000 contracts per day. SOFR Futures are now trading more than double the volumes of Eurodollar futures and SOFR Options are now trading 130% of what Eurodollar options trade every day. So for Futures, now have more than 8 million contracts in open interest or 98.5% of Eurodollar futures. And SOFR Options have reached 15 million contracts open interest, or 70% of Eurodollar options. In terms of RPC. As you know, in June, July and August, we executed our Silver First for Options initiative, which had very strong support from U.S. and U.K. regulators as well as from our customers. On the back of that, we've achieved the incredibly strong growth that you've seen. That program, in terms of SOFR First for Options was completed at the end of August. That program had, first of all, fee waivers for all participants for June, July and August; and secondly, significantly enhanced incentives to create liquidity, in order to build the same ecosystem and to have as much liquidity and efficiency in that marketplace as the marketplace has enjoyed in Eurodollar Futures and Options. We have now achieved very much of what we needed to there. And with that, as I said, we did remove those fee waivers at the end of August, and we did decrease the overall incentives to market participants. As you know, incentives are important to ensure that we have liquidity for all participants and our Eurodollar Futures have had incentives historically and continue to have incentives. So we do expect that the incentives that are required for Eurodollar futures and options will be required in the longer run for SOFR Future and Options. We do expect, however, that we will be able to continue to decrease the incentives, the extra incentives above what we've had for Eurodollar Futures and Options in the coming months. So we think we're in a very good place. We think we're on a very good path, and we are following our plan. And overall, I think we're in a good place.

Alex, let me just -- it's Terry Duffy. Let me add to what Sean said because one of the parts of your question that we didn't answer is on the arb between Eurodollars and SOFR. You have to remember what Sean said, and I said and others did. 1.5 years, 2 years ago and subsequently every quarter going forward, is that we are at an extreme benefit to have both these contracts listed at CME, and we did see a lot of trading going back and forth between the two. But the objective and the goal was to have that or end up in the SOFR products, knowing full well that the LIBOR was going to be discontinued. So I think when you look at the arb, you will have to look at it in a success rate of arbing from Eurodollars into the SOFR, which Sean gave you the statistics, which are now larger than the Eurodollar. So Sean?

Yes, I apologize, not answering that part of the question. Thank you, Terry. So the intercommodity spreads between the 2 products are running between 250,000 and 350,000 contracts a day to make it perfectly quantitative.

Yes. So hopefully, that gives you a little bit more insight. All along that was our strategy as the incumbent of the Eurodollars is to move it into the SOFR, and we successfully did that.

Yes. No, that's great. Great numbers there.

For our next question, we have Michael Cyprys from Morgan Stanley on the line.

Just wanted to ask about customer collateral, just given the movement in interest rates. I was hoping you can update us on your latest expectations around the take rates on cash collateral as well as noncash collateral? And how you expect those take rates and balances to evolve from here, particularly if we get another 75 basis point hike in November? And what you expect to see from customers in terms of shifting back and forth between cash and noncash collateral?

Thanks, Michael. I'll let John go ahead and answer that, and I might jump in as well.

Yes. Thanks, Michael. Yes, let's take a look at our collateral earnings in its totality. So first, in the nonoperating section of our income statement, we've got earnings on cash held by clients at the clearing house, and that was up $14 million sequentially. Average cash balances were lower by $27.5 billion to $117.5 billion and that was more than offset by higher returns, which were 29 basis points for the quarter, an increase of 9 basis points. The last 2 rate hikes were passed on to our clients, which helped lessen the reduction in those balances. So looking in our other revenue section of our income statement. Custody revenue was up $9 million, driven primarily by an increase in average noncash collateral balances held by our clients in the clearing house and a fee increase on those balances from 7 -- 5 basis points to 7 basis points. Balances eligibly charged to a fee increased from an average of $81 billion in Q2 to $95 billion in Q3. So we had a sequential increase in noncash collateral earnings of $9 million, which is in the revenue line, an increase of $14 million sequentially on cash, and that's in the nonoperating section of our income statement for a total of a $23 million sequential increase in earnings on collateral. So let's take a look at what is going on in the fourth quarter so far. So average cash balances through October 24, were $117.8 billion, so roughly flat with the average for Q3, and we had an ending balance of cash of $110 billion on October 24. Noncash collateral, which is subject to fees, again, there's another noncash collateral, which we don't earn fees on, but the noncash collateral, subject to fees, average for October so far through the 24th was $90.3 billion, with an ending balance of $95.6 billion. So that gives you an idea of what happened for the quarter and how those balances are trending for the fourth quarter so far. So in terms of what happens going forward, there's a number of factors that play into that. First is the total amount of collateral that needs to be put up at the clearing house, which is subject to the types of trading and the risk management required for that trading. So that determines the total size of the amount of collateral that's put up and then clients will have a certain amount of cash and noncash collateral that they need just to run their business. So they'll put that up depending on what they have on hand. And to the extent they can optimize their portfolio, they will put up that instrument that yields the highest return. So we look at the amount of cash that they -- the amount of return they can get on cash they put up at the clearinghouse versus other instruments that they could put up at the clearing house. Now what we've done over the last several rate hikes is that we've maintained a minus 25 basis point spread versus what the Fed has moved. And I think that's proven to be effective to maintain the balances that we've been able to maintain so far. But it's really going to be a function of what their businesses require and how they optimize their portfolio.

Our next question comes from the line of Brian Bedell from Deutsche Bank.

Great. Maybe just one other clarification on the collateral balances. Were there other drivers in that nonoperating income line in the investment income? And other nonoperating costs aside from the collateral balances is one question. And the other question, if I can sneak one in, is on the RPC trends coming into the fourth quarter. I guess, first of all, is sort of some of that noise on the RPC on rates from that SOFR LIBOR transition and do you expect that to sort of go away in the fourth quarter or over the next coming months? And then on -- it looks like you have pricing power on the micro products as well across that franchise. Maybe just some sort of outlook as how that you think that may develop coming into 2023.

Wild grind, there's a lot of questions in there. So let's start out and take a look at the entire nonoperating section of our income statement. And that can -- I think that will be helpful for that -- for you to understand all the moving parts are there. So if you take a look between Q2 and Q3, in the nonoperating section of our income statement, you see that it's a sequential increase of $13 million. I talked a little bit about the earnings on cash held by our clients at the clearing house, and that was up $14 million. We also saw earnings on CME cash, and that was up about $8.6 million. So that was an increase in earnings. We did see a slight increase in interest expense. That was up about $0.5 million, and that was related to a credit that we received last quarter. And then finally is the earnings in unconsolidated subsidiaries. And I think here, again, I kind of highlighted it in the prepared remarks. We're very pleased with the way our joint ventures and investments have been performing. This quarter, however, we did see some impacts of onetime items in the joint venture. So OSTTRA, which is our post-trade joint venture with S&P Global was down about $3 million. And the S&P Dow Jones sequentially was down about $6 million. And that's because both in Q2 and in Q3, there were onetime adjustments. If you normalize those out, the earnings on those joint ventures were relatively flat with earnings on the OSTTRA joint venture in the $19.5 million to $20 million range. And then if you look at the S&P Dow Jones joint venture, its results are roughly in the $61 million to $62 million range. So another kind of key point to make there is that when you look at the nonoperating -- when you look at the S&P Dow Jones joint venture in the equity and unconsolidated subsidiaries line, year-to-date, the joint venture -- when you make the adjustments for the onetime items, is up about 13% year-over-year, and it's had a CAGR of 16% since 2020. So very pleased with how those are performing. So that gives you kind of the breakdown on that part of your question. You had a question about the RPC, which I think, Sean, you kind of hit that the last question. Do you want to just kind of reemphasize that?

Yes. In terms of the RPC, as I said, we had market-wide fee waivers in June, July and August. All of those were removed at the end of August. In addition to that, we had very significant liquidity incentives in June, July and August and all of those are gone. We do have some incentives that are greater than the incentives that we've had historically for Eurodollar Futures and Options still in place. However, we will look to reduce those as we have been. I do expect, right, a significantly higher RPC for SOFR Options for obvious reasons in Q4. Again, the fee waivers are gone, and the additional -- the significant additional liquidity incentives that we had during June, July and August are gone. So those will be positive impacts in Q4.

And then there was a question on -- I think, Brian, you had a question on the pricing power for micros?

For the micros, yes, they've been increasing across all the categories. So just wondering if that's sustainable.

Why don't you break down the asset class that you're talking about, you want to talk something about the equities, John?

Yes, sure. So this is Tim. And thanks, Brian. When we look at the Micro E-mini contracts, as I said in my opening remarks, they are a premium price to the older sibling E-mini contract. They're about 1/10 of size. But they're -- depending on the index you're looking at between 1/4 to 1/3 the cost. So that is something that is of importance. It's been a good driver of growth both in terms of volume and revenue for us. I think one thing that's important to note with respect to the pricing power of Micro E-mini is not commenting on where that might go in the future is that when we look at its relative value to other product choices in the market. Despite being at a premium, it's still growing faster than, say, the SPY ETF. When you look at the micro S&P E-mini contract growth in 2021, that's up about 57% versus last year. When you look at the spot ETF, that's up only a little over 30% despite the premium to the E-mini contract and the premium to the ETF, it is still of tremendous value to the marketplace as evidenced by the premium price of command as well as the sustained growth at CME and versus comparable products.

Yes. And just in terms of pricing in general, as I mentioned, from the question that Dan Fannon had, we're going through the budget building process right now, and this is the time that we take a look at our pricing. There's a number of factors that go into the pricing decisions, including the health of the market, how much other -- how our clients can get exposure in other markets, innovation that we've created, the liquidity that we've created. We've done, I think, a tremendous job of developing a lot of value for our clients. But that is in the process that we normally do every year about this time. We review our incentive plans as Sean has mentioned, and we do that regularly. So we'll reallocate resources in terms of programs to ensure that we're developing the liquidity and creating value for our clients. So that process is underway now as we develop the plan for 2023.

The next question comes from the line of Kyle Voigt from KBW.

Maybe a question on the growth in Asia. It was extremely strong in the quarter at 41%. It looks like the growth there has accelerated over the -- each of the past 3 quarters. It looks like a lot of that growth is being driven by Equity Index and FX. Maybe you could just help us drill in a bit further and provide any more color or help us understand which customer segments you think are driving that growth? Or is it asset managers, hedge funds, retail or other users? And is there a way to help investors kind of frame the ultimate size of that opportunity from Asia? And how much more runway there is to grow at these levels?

Derek?

Yes. I appreciate the question, Kyle. Yes, International continues to go from strength to strength. As I mentioned at the top of the call, we're on track for a pretty significant beat on last year's total non-U.S. volume record, which is $5.5 million last year. We're averaging $6.5 million a year this year. And as you rightly point out, our growth in Asia continues to go from strength to strength. In the Q3 of this year, we put our sixth consecutive quarter up and 14th consecutive quarter of growth. On the APAC business, we're up 41% this year, our fastest-growing part of our business. EMEA grew up 14% and LatAm grew at about 31%. When you dig into the region, as you rightly point out, we've seen particular strength and growth with our financial products, equities, fixed income. Actually, Asia, interestingly, is the strongest area of growth for our energy business. Our Asian Energy business up 30% year-to-date this year as well. So it's broad growth. Equities is a strong driver for us. When you look at the individual countries, it is spread stronger across multiple countries. It's no one particular country that's delivering strongest growth, where we've seen particular bright sparks is in Korea. Our Korean business this year is up 45%. That has now stepped into our second largest revenue generator for us across all of our non-U.S. jurisdictions that have been a pretty significant climb over the last couple of years. Other significant growth drivers coming out of Asia is Taiwan, is up 53% volumes this year; India, up 65%; and the Middle East, primarily United Arab Emirates and Dubai, specifically, is showing volume growth of almost 70% growth. So Asia continues to be a strong support area for us. Julie Winkler and her global sales team are pursuing the global sales campaigns for our regional products and bring it in new clients working through our channel partners. Retail is a big part of that story and the Micro story. And I said that's a strong part of the energy growth there as well. So hopefully that gave you some color on what we're seeing, and we think that we're probably early innings of the client's penetration in Asia as well going forward.

Kyle and I know the other analyst as well. Derek has now taken over the international business over the last several months. He has restructured the division and he has actually been globetrotting around and being a customer-facing participant as a managing -- team members. So I think that's added a lot to the success of the international businesses putting a face with the name and the name of the face, whatever you like to say. That's been really important for us to get back out there. We've been stressing this. John reflected some of the costs in our numbers, but we are back in front of clients all over the world, and Derek's done a really good job of that and heading up to new international, okay. And I think the numbers are reflecting it. So thank you for your question.

Our next question comes from the line of Alex Blostein from Goldman Sachs.

Great. I was hoping we could zone in on sort of what are some of the dynamics in cash, fixed income markets. We've seen volumes relatively slow there, especially in light of the volatility we've seen in the market place broadly in CME's revenue, I guess, on the kind of former -- next business have also been trending a little bit slower. So any color you could provide in terms of the look through to clients, who is doing better, who is doing worse? And what do you think ultimately needs to happen to get this market going a little bit more? Is QT the catalyst or as long as well, as high as it is, there's just muted activity?

Sean, do you want to go ahead and address that?

Sure. Thanks very much for the question, Alex. If you look at our BrokerTec U.S. Treasury volumes, they're up 11% year-over-year year-to-date. It is very similar to our Treasury Futures complex. So BrokerTec U.S. Treasuries and CME's Treasury Futures, the most liquid Treasury instruments available on the planet are growing at similar levels. If you look at the BrokerTec business in a bit more detail, U.S. repo was up 21% year-over-year and European repo is up 17% year-over-year. So our U.S. repo business and our European repo business are on track for all-time record years. Some of the initiatives that we have been engaged in, relative to the post migration of BrokerTec to Globex, have also seen some good success. Our RV trading order type achieved a new all-time record in the third quarter with $2.1 billion a day and our cross-selling of BrokerTec into our futures clients working with our CD&S team under Julie Winkler. We've added 9 new clients to the BrokerTec platform that have never traded on it before, and they are currently trading $6.1 billion a day. If you look at the survey, likewise, you can see our results there. But year-over-year, in September, we saw a significant increase in market share relative to the alternative marketplaces. In terms of go forward for the Treasury market, as we said in our opening remarks, inflation, obviously, is at the highest level in 4 years and is very volatile. You've also only just begun to see the Federal Reserve reduces its balance sheet. The Federal Reserve to date has only reduced its balance sheet by about $200 billion. If you look at their expectations for reduction in balance sheet for next year at $95 billion a month. That would mean more than $1 trillion in reduction in that Fed balance sheet next year relative to the $200 billion that we've seen so far. So in terms of the BrokerTec business doing well post migration, our new initiatives, getting good traction. We're also investing in further analytics. We're also investing in a direct streaming platform, leveraging the technology that we built for EBS. So reusing that technology a second time for a new business. So overall, I think that the increased deficits of the U.S. government, the decreased size of the Fed balance sheet and the high level of inflation should be a tailwind for that business for years to come.

The next question comes from the line of Gautam Sawant from Credit Suisse.

I just had two follow-ups here. One was just on the commentary around the interest rates complex. Given the types of trading and risk management strategies you're seeing right now with the rising short-term rates, can you speak to the types of trading strategies or changes in client behavior that could translate into activity migrating from the short end of the curve to maybe the medium- and longer-term products?

Yes, sure. We've seen far stronger growth in the short end, as we mentioned with every single Fed meeting in play. We've also seen very strong growth in our SOFR Futures and Options. At the long end, we have seen double-digit growth, although at a slower pace. We do expect, as I said already, with the reduction in the size of the Fed balance sheet and the expected $1 trillion deficits, as far as the eye can see from the congressional budget office that, that long end will have a tailwind for market participants as we move forward.

Okay. And as a follow-up, can you just provide an update on the metal complex? And if there's an increased willingness to participate from maybe some of the international physical warehouse operators?

Derek?

Yes. This is Derek. Good question. We've certainly seen a pretty significant change in what's happening in the industrial metals market post March of this year. We -- as we've been talking about, have been putting significant efforts into providing a robust alternative market in markets like aluminum. We've established a great deal of success in the copper markets over the last 5 years. We have seen a significant increase in activity in our aluminum business specifically since March. We've seen an influx of new client interest and demand from customers looking to take advantage of what they know, just how COMEX markets operate within CME Group on the precious metal side and on the copper side. As I mentioned at the top of my call, there was an exciting development and announcement yesterday out of London were Marex, which is the largest broker on the LME, has announced they will be providing direct market access into COMEX aluminum products and providing market commentary on a daily basis to expand their customer market reach and access into COMEX aluminum markets. We're also seen more commercial customers right in COMEX references for aluminum for their physical procurement, which when we're moving physical benchmarks, that's a heavy lift. So we're excited to see both on the commercial participant side as well as on the financial participant side, increasing record levels of volume, open interest and commercial participation as well as the broker intermediary adoption of COMEX based on client demand. So we are here to serve client needs. We're seeing that and our global efforts to procure access into that market, I think, has been something we've done a good job over the last few months. We're a point of inflection in this market, but we like where things are positioned and where we're going from here.

The next question comes from the line of Owen Lau from Oppenheimer.

First of all, I congrats John for the retirement. So in terms of capital return, in terms of capital return, given the amount of cash you have on your balance sheet and also the leverage, how do you think about variable dividend this year? Also for valuation, given where your share is trading at compared to historical level, how would you think about share buybacks as well?

On our variable, I'm going to let John and Lynne comment a little bit here. But on our variable, obviously, we meet with our Board and our Finance Committee. We walked through a process and make a determination. And we look at, obviously, certain factors in the market, what we see coming. So we don't -- we will be getting that information coming out end of the year, beginning in next -- sometime beginning of next.

Generally early December.

Early December. Okay. So we got a little time on that one yet, so we're not going to commit to where we're at on that yet. We are still finalizing that process.

Yes. so I guess I would just add that the structure we have has been in place since 2012. We've returned over $18.8 billion to shareholders through dividends since that time. We do like the transparency of the approach, and we think it has served us well. But as Terry said, this policy is something we review regularly with our Finance Committee of the Board, and we'll continue to do that going forward.

The next question comes from the line of Chris Allen from Citi.

Congrats, Mr. Peschier. Hope you put a lot of golf in the future.

I get to play with you, Chris. Thank you.

Hopefully, no caddies letting any fires this time. I just wanted to ask about basically getting back to the rates market and revisiting some of the questions already asked. I mean we're seeing consistent headlines on liquidity issues in U.S. treasuries seem to be exacerbated by high volatility levels. And there's a cautious outlook when you talk to players in the Treasury complex and also the swaptions markets, for example, moving forward. So I'm just trying to reconcile that with -- you're seeing record large open interest holders in rates right now. We see a very good trajectory in rates. So maybe help us understand like how you're thinking about potential liquidity issues and volatility issues in the cash markets and other OTC markets, and how that's impacting you or it's not impacting particularly the Treasury complex on the future side moving forward?

Yes. Thanks for the question, Chris. A really good one. If you look at the 10-year notes as of a week ago, we had the fastest increase in U.S. 10-year note yields over the previous 12 weeks since 1987. So the level of volatility and the speed with which rates are trading we have not seen in more than 35 years. Given that, whenever you have much greater volatility, it makes sense for market participants to reduce the -- what they are trading, right, in terms of the size. So in terms of prudent risk management for our customers, there is a tendency to lower the amount of liquidity that they are willing to give at any individual price level. We are seeing through this very high volatility that every price level is typically trading in our markets, even when the markets move quickly. So overall, I think the markets are operating very well. And something to keep in mind is that as prices move much more quickly, top of book tends to be much smaller, and that is just a natural reaction to how the market works. And again, I would say it's prudent risk management by our customers.

Yes. I would also say this has had to be the most telecast liquidity potential drop that we've ever seen. When you have the Fed raising 0.75% at a clip, and also them talking about bringing down their balance sheet at the exact same time, what people expected liquidity to maybe be a little bit disruptive, but I think they priced, to Sean's point, priced that into their activity. So I think this is different than when we saw in 2018 when they had to step in and to add some liquidity. So I think this has been fairly well-telecasted about what's happening with the liquidity situation and participants have priced it in. So the volatility is going to be there. We know that, and we think we benefit from it.

Do you guys think about this as kind of a temporary situation that volatility that you settled down be positive catalysts going forward?

I won't speak for Sean, but when he referenced some of the numbers that could go out for years to come, you're at $31 trillion on the debt and rising. You have a whole host of other issues fundamentally associated with not only with the U.S. but globally. I don't think this is a one and done deal. So this could be around for a while.

The next question comes from the line of Ken Worthington from JPMorgan.

If we dig into open interest after jumping in February from about 100 million contracts to 110 million, open interest has been stable at about $50 million of Futures OI and about $60 million of Options OI. What is the outlook? Or what is your outlook for open interest over the next 12 months or so? Maybe what asset classes do you think might see the best percentage growth from current levels? And is it ultimately lower volatility that drives a better OI outlook from here? Or might it be something else?

Ken, I think that's no crystal ball here by anybody in the room to make that determination of what it could or could not be. It's just like we cannot predict future volumes. We just don't know. There's so many geopolitical factors, pandemic factors, a whole host of issues that could have a reflection on open interest or not. The trade could go up with open interest going down, the trade could go down with open interest going up. Who knows what the ultimate is going to look like? We do believe that the open interest is a function that we keep a very close watch on. Julie and her team -- Julie Winkler and her team have an internal tool that helps us give guidance to what we think internally the open is going to look like. But again, it's very, very difficult to make that prediction. And especially on the asset classes. When you look at some of the asset classes, I guess, you would think in fundamentally that the ag should be higher and maybe something else should be lower, or the energy should be higher than something else should be lower. And maybe it's the opposite for that particular time. People do different things at different times, which has a massive reflection on the open interest each and every day. That's, obviously, why we publish it. So people will see the transparency of it. Derek?

Yes. I think there's probably a bit of a story there relative to the options, Ken, when you actually look at across every single asset class now on the financial side, it's been a very strong year up across the board. Commodities has struggled on the volume side. When you look at the options versus future side, it's a story you hear us continue to tell. Options continue to perform more strongly than our futures. Our futures year-to-date across the entire franchise are up 21%, options are up 27%. When you dig into the open interest there, it's even a stronger story, even in asset classes, in commodities where futures volumes are down and open interest is down, you actually see open interest and volumes in options. For example, when we're seeing Energy Futures open interest down 24%, energy options open interest is up 6%. So every single asset class, almost regardless of the volume trajectory this year, you see an open interest gains. I think that's reflective of more people using options more broadly as a bigger part of their portfolio management tools, and that's why it's important that we provide the deepest most look at electronic markets in every asset class, and we're seeing growth in futures and options.

But just to be careful, don't price in that if the options all lie is higher than the future. That has an effect on the business because the futures and options, open interest can go back and forth for a whole host of reasons, and there's no one particular reason why there'll be more options growth and futures growth or more futures open interest and options open interest. So please be careful not to hold to that number of growth and options open interest because it goes back and forth.

The next question comes from the line of Craig Siegenthaler from Bank of America.

This is Eli from Craig's team. Could you discuss the opportunity in front of CME with the mortgage TBA futures? It's definitely a large addressable market, but could you maybe elaborate on the deficiencies that the existing system for hedging? And then maybe discuss how this new product could potentially address those?

Thanks, Eli. Yes, I'll let Sean go ahead and address that market.

Yes. We're -- as you know, we continuously innovate and continuously launch new products that we see client demand for. In terms of our TBA futures, we are launching them on November 7. And the unique value proposition that we offer here is a distribution to our client set. So many of CME Group's clients do not have access to the TBA market today, and they want to be able to trade the TBA market. So this will allow us to use our distribution channel to have a much wider audience, have access to the marketplace than has liquid access to it today. In addition to that, as with any new rates product that we add to our platform, this will offer a unique portfolio margin or margin offset opportunity. So you'll be able to trade the TBA futures at a spread to our Treasury Futures. If you look in the cash market, TBAs versus cash Treasuries is a very common trade. So the ability to trade the TBA futures versus CME's very liquid Treasury Futures, number one. And then secondly, the ability -- so a wider audience, ability to trade those spreads last the portfolio margining that they can get between the treasury futures and the TBAs are all unique value propositions. I don't know. I'm not going to predict. I think new product launches are very difficult to predict. So I will not predict the impact. In addition to that, though, a couple of other things I would mention as long as you brought it up. We are also launching on October 31 ESTR futures. So ESTR is the European short-term rate. It is the European equivalent of SOFR. There is no significantly successful ESTR future on the market. If you look at the foreign exchange cross-currency swap market today, it is being quoted as a spread between SOFR and ESTR. So we are very excited, and we're seeing a lot of demand for ESTR futures. We're very excited about how participants then can use our ESTR features that are spread to our SOFR futures in order to manage their short-term interest rate risk, both in the U.S. and Europe as well as their cross-currency business. In addition to that, we're seeing very strong demand, as I said earlier, out of our repo business. So ESTR rates are used heavily in European repo. We're seeing an all-time record year in European repo. We're also seeing demand for our -- from our European repo participants. Last thing I will mention is in terms of portfolio margining. We will be launching in December of this year, portfolio margining between SOFR options and interest rate swaps and also Treasury options and interest rate swaps for the first time. We're very excited that in the month of September, we offered market participants a new all-time record in terms of efficiencies of $8.4 billion a day on average. And as you can see, we're continuously enhancing that offering, as we -- as I just said in December. So I hope that helps to answer the question.

Thanks, Eli, for your question. John, thank you. Julie, do we have another question?

The next question comes from the line of Simon Clinch from Atlantic Equities.

And I'll just say congrats to you, John, cheers as well for retiring. Way too young so I'm great jealous. So my question actually is just on the Treasury market, the cash treasuries market. I've been reading about the prospects of the market moving to all-to-all trading. And I was just wondering how CME's BrokerTec is positioned for any kind of transition like that? And sort of what the implications are generally speaking for you?

Sean, it's your day.

Thank you very much for the question. Clearly, Mr. has set out several new proposals in terms of the U.S. Treasury market, including requirements for certain hedge funds and proprietary trading firms to become broker-dealers, for treasury platforms to become full reg ETS-compliant. And most recently, or significant increases in the requirements to clear U.S. Treasuries. Many are talking about this as being very similar to the requirements to clear U.S. swaps now almost a decade ago. So we navigated that at CME Group, I think, very successfully with -- and when we used it in order to build our OTC swap clearing business, and we use it to build unique efficiencies that could not be offered by anyone else, as I mentioned earlier, in the portfolio margin between swaps and futures. And so we will navigate this similarly. We are all over it. We are in close contact with our customers. We are closely watching the developments in the proposed regulations. And we will adjust our products and services in order to ensure that we provide everything that our clients need in that type of environment.

The next question comes from the line of Andrew Bond from Rosenblatt Securities.

Just wanted to follow up on the open interest question, particularly in energy. I just want to see if you could discuss some of the dynamics driving the natural gas market currently. Over the past few years, we've seen the emergence of TTF as kind of more of a global benchmark as natural gas move from originally to a globally priced commodity. And we've seen some of the shift back to the U.S. in the dislocation in Europe and Russia, but CME open interest has remained relatively low. So can you kind of discuss the Henry Hub benchmark? Do you think it's become somewhat dislocated relative to the international gas market? Or are there other dynamics that are driving this market?

Yes. Great question. I appreciate that. You've heard us talk about the prominence that physical benchmarks play in global energy markets, WTI and Henry Hub specifically. When you look at the global trends in the energy markets right now, the U.S. is now the largest producer and exporter of natural gas and that LNG shipment is now becoming more important than ever before, rather than pipeline gas coming into Europe, from what used to be Russia. TTF is under pressure to be redefined into something different than pipeline gas because that simply has been cut off. There's both opportunity and threat in that situation. Certainly, the TTF market is trying to figure out what that input is going to be. Right now, we have actually just about 3 weeks ago, launched a new contract to specifically address what is a gap in the European natural gas market to specifically go into a European LNG contract, which is an import contract based in Northern Europe. So as TTF no longer can rely on pipeline gas coming in from Russia, we worked with Platts as a price assessment agent to launch a futures contract that is European LNG, that we think is probably the best opportunity for the market to adopt as LNG is going to be that import source of gas for Europe. Taking a step back and look at the long-term picture. Given the lowest-priced gas in the world is coming from the U.S. or a record export levels. And if you look -- as I mentioned at the top of the call, the pipeline for LNG liquefaction facilities coming out of the U.S. over the next 10 years. Natural gas is a transition fuel, but it's also the energy fuel of the future itself, not just the transition, Henry Hub is the price marker for LNG cargoes coming out of the U.S. Increasingly, that is becoming the source of fuel for Asia and Europe. So Henry Hub is at the pivotal center of the natural gas market, we think, is a physical marker where LNG cargo shipments are priced off Henry Hub, that further positions and strengthens Henry Hub as the central price marker globally for both Europe and Asia. So we like the position. We like the structural growth of physical benchmarks with the U.S. being the leader of the export of these markets. And we think that the long-term prospects for Henry Hub and our market particularly are very well-placed for long-term strength there.

And as for our last question, we have Rich Repetto from Piper Sandler on the line.

Since it was already brought up early, I do want to point out a floor and John Peschier's service, and that's his golf game was very suspect over the 20 years. But anyway, leave it at that. Well, you have more time to work on it, like Chris said. I do have a serious question though. So it's been mentioned a number of times about cross-margining and margining efficiencies. And I know, Terry, you've been working on it, and there's been -- I think there's a leadership change going on at DTCC. So I guess, what is the potential to get increased cross margining efficiencies in the Treasury complex with DTCC? And is that something that could come on board and it just immediately releases capital and is a benefit to clients?

Yes. Rich, let me make a couple of comments about that on the timing, and then I'll let Sunil who, obviously, has been living and breathing this for several years when in his former life in the clearing entity, working with DTCC and the regulators. We are at a point now where I believe, sometime early next month, we'll be doing the final filings along with -- to the government agencies to submit into the SEC for approval on the cross margining. And then hopefully, sometime thereafter when the clock is up or in between that, we will get it. I think we -- it's been a long process in achieving -- to try to achieve these efficiencies. So we feel confident that we're going to get them. And hopefully, we're at the -- in the ninth inning of getting approval on this. But again, I don't want to overpromise and under deliver on that. But I do -- that is the time line right now. I've been head to head of DTCC here in Chicago, the new President of it, 2 weeks ago. We had a good meeting. I've talked to the SEC. I've talked to others. I think we're in a very strong position to get this done. But let me ask Sunil to give comments as it relates to the offsets for the clients.

Rich, the -- I'll spend a brief moment on offsets. We've done cross margining with several paring houses. We do that with DTCC today as well. The effort we're going through right now is to improve the margin and portfolio benefits. In terms of actual offset, it's a function of one's portfolio. So if it is duration-matched and it's a basis right, then the offsets tend to be very high. But if it is of a different nature, then the offsets are a function of that risk profile. So it's very hard to actually come and give an exact offset number, and it's a very portfolio dependent. Having said that, the idea here is to give clients who trade both futures and cash products, the most capital-efficient solutions so they can carry their portfolios through time. So that's our objective, and I think we are on our way to actually deliver that.

As there are no further questions, I'll hand the floor back to management for closing remarks.

Well, again, well, thanks, John Peschier again. But thank you all for participating in today's call. We appreciate you taking time to listen to us, and we look forward to talking to you soon. Be well.

Thank you for joining today's call. You may now disconnect.