Intercontinental Exchange, Inc. (ICE) Q2 2012 Earnings Report, Transcript and Summary

Kelly L. Loeffler - Vice President of Investor & Public Relations and Corporate Communications Scott A. Hill - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Jeffrey C. Sprecher - Founder, Chairman and Chief Executive Officer

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division Howard Chen - Crédit Suisse AG, Research Division Kenneth B. Worthington - JP Morgan Chase & Co, Research Division Jillian Miller - BMO Capital Markets U.S. Christopher J. Allen - Evercore Partners Inc., Research Division Alex Kramm - UBS Investment Bank, Research Division Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division Roger A. Freeman - Barclays Capital, Research Division Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division Kenneth M. Leon - S&P Equity Research Christopher Harris - Wells Fargo Securities, LLC, Research Division Gaston F. Ceron - Morningstar Inc., Research Division Brian Bedell - ISI Group Inc., Research Division

Good day, ladies and gentlemen, and welcome to the IntercontinentalExchange Second Quarter 2012 Earnings Conference Call [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the call over to your host, Kelly Loeffler, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Good morning. ICE's second quarter 2012 earnings release and presentation can be found in the Investor Section of our website at theice.com. These items will be archived, and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to the company's annual report on Form 10-K and quarterly report on Form 10-Q, which was filed with the SEC this morning. With us today are Jeff Sprecher, Chairman and CEO; Scott Hill, Chief Financial Officer; and Chuck Vice, President and Chief Operating Officer. We'll conduct a question-and-answer session after our prepared remarks. I'll now turn the call over to Scott.

Thanks, Kelly. Good morning, and thank you, all, for joining us on the call today. We're pleased to report our 12th consecutive quarter of double-digit earnings growth. This solid second quarter performance continues the momentum from the first quarter and reflects solid top line growth enabled by record futures volumes and disciplined expense management that delivered increased operating margin. I'll begin this morning on Slide 4 of the presentation with an overview of our performance in the first half of the year. Healthy volumes across our futures and OTC energy market yielded revenue of $716 million, up 9% compared to the first half of last year. Net income attributable to ICE was $291 million, up 16% year-to-year, and operating margins expanded to 62%. Diluted earnings per share rose 18%, and operating cash flow grew 14%. Our focus on identifying and solving the challenges facing our customers gives us confidence in our ability to deliver double-digit earnings growth and strong returns on invested capital over the long term. Moving to Slide 5, I'll detail our second quarter results. Consolidated revenues rose 8% over the prior second quarter, to $351 million. With expense growth of just 1% over last year's second quarter, operating income grew 13%, to $215 million, and operating margin expanded 2 points, to 61%. Diluted earnings per share increased 19%, to $1.95. Finally, capital expenditures and capitalized software totaled $18 million, and cash flow from operations rose to $180 million in the second quarter. Turning to Slide 6. You can see the revenue and expense components of our second quarter results. Futures revenues rose 14%, to a record $169 million on record volume and ICE Futures Europe. OTC energy revenue decreased 3%, to $101 million, while OTC credit revenue declined, at $36 million. Taken together, our consolidated transaction and clearing revenues increased 6% to $307 million. Market data revenue grew 21%, to a record $37 million, demonstrating continued demand for our globally relevant commodity market and related market data services. ICE's second quarter consolidated expenses are summarized on the right side of Slide 6. Operating expenses were $136 million, up just 1% from the prior year and down from the first quarter. Our disciplined expense management coupled with solid top line growth drove our operating margins to 61% compared to 59% in the last year's second quarter. During the second quarter, comp and benefits expense rose 4%, and we recorded $4 million of acquisition-related expense. We expect ongoing M&A expenses of $1 million to $2 million per quarter, as we continue to evaluate a range of strategic M&A opportunities. And we continue to forecast full-year expense growth in the range of 3% to 6%, which we believe will enable investment in key growth opportunities, operating efficiency and solid earnings growth. Next on Slide 7, I will highlight the record performance of our Futures segment during the second quarter. Record revenue was driven by record average daily volume of 1.6 million contracts, up 11% year-to-year. ICE Futures Europe and ICE Futures U.S. posted record revenue in the quarter. This strong performance was once again led by our Brent Crude contract, which despite prices declining more than 20% during the second quarter, saw volumes rise nearly 30%, as its ascendance as the global benchmark continues. This global readership is evidenced by the diverging trends in volume and open interest relative to WTI and the ongoing $15 premium of Brent. You can also see the growing preference for ICE Brent options, which resulted in our volume quadrupling year-to-year in the second quarter. Also in the second quarter, our Gasoil contract grew 7% year-to-year, and European emissions contract volume rose 11%. The EU commission on climate change recently confirmed the U.K. government's opt-out option platform for Phase 3, where ICE Futures Europe will provide that platform. We believe this will support our leading position for the third phase of the European Emissions Trading Scheme beginning in 2013. While Brent, Gasoil and Emissions are our largest revenue contributors, our energy futures complex grew strongly, with U.K. natural gas, coal, heating oil, and oil and gasoline futures all posting more than 20% revenue growth over the prior second quarter. Moving to ICE Futures U.S. Rising open interest in our agricultural contracts translated into 14% volume growth in the second quarter. Sugar volumes continued to improve, rising 7% year-on-year, while cotton volume increased 31%. Also, during the quarter, we successfully launched new contracts for corn, soybean and wheat. We're seeing encouraging levels of volume and participation, and we will continue to develop these markets based on customer feedback. Open interest across our Futures exchanges increased 30% year-to-year and reached 9 million contracts at the end of June. Tomorrow, we'll report July average daily volume for our Futures markets. Month-to-date volumes reflect continued momentum from 2Q and are up more than 17% year-to-year. Turning to Slide 8, I'll review our OTC business for the second quarter. OTC energy average daily commissions grew 3%, to $1.6 million. North American natural gas revenues were up modestly, to $62 million, despite tenure loads in natural gas prices. Volatility, driven by warm weather conditions, natural gas options and the launch of new products, supported modest growth in trading activity. Global oil revenues rose 23%, to $14 million, primarily due to the demand for our clear global oil contracts. Revenue from OTC energy products launched since the inception of ICE Clear Europe, contributed $13 million in the quarter. We currently estimate that OTC energy commissions in July will average around $1.4 million a day in a relatively low volatility environment during what is typically the seasonally slow months. Turning to our credit derivatives business, second quarter revenues were $36 million. This included $21 million from Creditex and $15 million from CDS Clearing. Through July 2012, ICE's cleared nearly $33 trillion in gross notional value. We have open interest of $1.5 trillion and today, we offer clearing for over 340 CDS instruments. We remain the leader in CDS clearing, with a growing range of products and customers. And, with the recent CFTC pronouncement regarding mandatory clearing of CDS index products and as additional rules, such as portfolio margining and swap rules, are finalized, we anticipate improved CDS market later this year and into 2013. I'll conclude my remarks on Slide 9. We generated $366 million of operating cash flows during the first half of 2012. We ended the quarter with over $1 billion in cash, no net debt, low leverage and access to a $2 billion undrawn credit facility. We generate consistently strong cash flows and have a very strong balance sheet. And as you would expect, we continuously evaluate the optimal deployment of our available capital. We consider many factors, including our operational cash needs, U.S. versus non-U.S. cash generation, tax policies, regulatory requirements and investment opportunities. Above all, though, we focused on deploying capital in a manner that we believe will generate the greatest value for our shareholders. We have invested not only in key organic growth initiatives, but also in strategically important partnerships, licenses and acquisitions that have allowed us to outgrow our competition and deliver returns on invested capital, not only better than our industry, but also well above our cost of capital and above the returns generated by our peers in the S&P 500. At the same time, we've spent nearly $600 million since 2008 repurchasing our shares, and we have over $300 million remaining in our share repurchase authorization. We know that many in our industry have chosen to pay a dividend and that some analyst have a view that we, too, could pay a dividend. However, we do not believe we should pay a dividend simply because we can. While others in our industry may have concluded that value accretive growth investments have disappeared, we disagree. Thus, we intend to continue to invest in growth opportunities and to aggressively repurchase our shares in an opportunistic manner. In other words, we do not intend to make a change in our capital deployment strategy at this time because we remain confident that we can more effectively invest that capital and continue to deliver earnings growth and solid returns on investment to our shareholders. With that, I'll be glad to take your questions during the Q&A session. Jeff, over to you.

Thank you, Scott, and thank you all for joining us this morning. ICE again delivered double-digit volume and earnings growth in the second quarter in a phase of a fourth consecutive year of economic and regulatory uncertainty. Amid this environment, we've strategically expanded our business, which has produced growth on top of growth. We're executing for our shareholders while providing a path for our customers, as financial reform moves from the legislative phase to implementation. We've positioned ICE as a central source for solutions as these new laws take effect. We understand that opportunity exists within change even if that means we must change. So we recently announced the move of our soft commodities options markets from the floor to the screen. The rapid expansion of our new OTC clearinghouse has now caused us to become deemed systemically important. Our new swaps data repository is launching, and the planned migration of our energy swaps market to regulated futures is under way. I believe this is where ICE excels, such as the way we transitioned our markets to our own newly built energy clearinghouse amid the financial crisis in 2008; or the way we implemented position limits on OTC energy markets in 2010; or even last year, how we converted ICE Clear Credit from a U.S.-regulated federal reserve bank to a CFTC- and FEC-regulated clearing house. Our ICE team is very adept at managing change, and the strong financial results that we just reported reflect our agility and our continued focus on growth. On Slide 10, you can see that ICE has performed well in both risk-on and risk-off environments. I think there are 2 fundamental reasons for this. First of all, our business is focused on the requirements of commercially oriented hedgers that manage billions of dollars of assets every day. You could see this very high concentration of commercial customers in ICE's weekly Commitment of Trader reports. These market participants have increasingly relied on ICE for everything from market data and trade confirmation, to clearing and technology, all of which are tailored to support their larger business goals. Since the formation of ICE, we've taken an end-user, front-to-back office perspective, rather than a pure focus on techniques to attract trade execution. We've completed M&A that's strategic in nature, rather than size- or scale-oriented, and this has created for us a nimble infrastructure that provides critical risk management tools that are relied upon regardless of market cycle. The second driver of our consistent results has been our diversification across geographies and markets. Our traditional benchmark futures markets play a key-price discovery role around the world. And we work with the market to develop, list and clear standardized swap contracts that provide spread base location-specific flexibility to serve the needs of hedgers around the world. As you can see on the chart here, this market depth has produced consistent growth over the last several years. And our product diversity will remain in place under our recently announced transition from swaps to regulated futures. ICE's positioning in the global energy and agricultural commodity markets remains a competitive differentiator. Secular growth is driven by the demand for hedging and risk management that is required to manage prices of raw materials. In the recent months, you've seen Chinese firms making sizable acquisition of commodity-related companies to meet the demands of growing infrastructure and population. Several of these transactions have been in the European and North American natural gas and oil markets, and 2 involved North Sea oil fields, on which ICE's Brent Crude contract is based. Additional Chinese investment is just the latest, positive development in the North Sea, which reinforces the support for Brent as the global oil benchmark. It is also further demonstrates Brent's link to Asian energy markets, as well as the anticipated longevity of future oil production from the North Sea. The reliance on Brent as a marker is due in part to the physical output of more than 2 million barrels per day, and its over 30 billion barrels in estimated reserves. As a result, Brent has used the price over 2/3 of the world's physical oil. You could see the strength of ICE's oil markets on Slide 11. ICE Brent futures and options daily trading volume is up 20% year-to-year in the first half of 2012, and our open interest is up over 100%. The complementary relationship between Brent Crude and Gasoil has been a key driver of Gasoil's growth, with Gasoil serving as a global diesel benchmark to assist in hedging refining margins and refined product prices in Europe and in Asia. The trading volume of Gasoil on ICE has more than doubled in 4 years. And finally, you could see the demand for Clear to global oil swap contracts has proven trading volume growth in 7 consecutive quarters of rising open interest at ICE. At the end of the second quarter, open interest of cleared oil swaps contracts was up 57% year-over-year, to 2 million contracts. Moving to Slide 12. I'll note that in United States last month, we marked the 2-year anniversary of the passage of Dodd-Frank. Dodd-Frank implementation has resulted in over 8,000 pages of new regulations so far. The CFTC and the FEC recently finalized the swaps definition rule, which triggered effective dates in nearly 20 other rule-makings. This include swaps dealer registration, aggregate position limits and real-time reporting, among others. The effective base for our customers generally range from the fourth quarter of this year through the first half of 2013. As implementation advances, ICE is helping our customers to meet these new legal requirements. Last month, ICE Trade Vault was provisionally approved by the CFTC as a swaps data repository. Approved for all asset classes, it is currently the only swaps data repository authorized in the United States. Another initiative we've been working on is our transition of OTC energy swaps to regulated futures contracts. We anticipate a seamless shift as the contracts will continue to be listed on the same trading platform and cleared by the same clearinghouse as they were previously. You may recall we did the same thing in 2006 when we transitioned our West Texas intermediate crude product from a swap to a regulated futures contract. We believe this move will provide the best features of OTC in futures markets for our customers, and it will simplify their efforts to comply with regulation while meeting regulatory goals of increased safety and market transparency. Another area of focus for us is the systemically important designation process. ICE Clear Credit was officially designated as a systemically important financial market utility in July. While this Dodd-Frank-mandated process has focused on U.S. institutions, similar exercises are taking place globally under the IOSCO framework. All of our clearinghouses are highly regulated, and we think the global application of uniform IOSCO rules across clearinghouses will help reduce risk. While several global rule-makings are still in process, regulators are pushing towards the G20 deadline for setting forth clearing rules by the end of 2012. Last week, for example, the CFTC issued rules for the first set of products subject to mandatory clearing, which include credit-to-fault swap indices. With over $32 trillion in gross notional value cleared to date, we remain the leading risk management model for clearing CDS by a live margin. Additional asset classes are phased into the clearing mandate and ICE will continue to lever our experience to provide additional services, including the foreign exchange product market. And we're working closely with the industry and regulators to ensure that rules and procedures around customer protection are now reinforced. There are a number of so-called -- there are a number of rules being implemented, including the so-called Corzine Law, the legally separated operationally commingled regime, and the electronic verification of funds, and we believe these policies will support customer confidence in our markets. On Slide 13, I'll update you on a few more items that we're often asked about. First of all, you can see that our customer growth has continued since the start of the year, and has coincided with the ongoing introduction of new products, services and technologies. The demand for information about our markets is evidenced in the -- in 11 consecutive quarters of market data revenue growth. This year, we integrated our YellowJacket platform more deeply into our infrastructure, and we renamed it ICE Chat. And we launched additional sophisticated mobile tools. We continue to benefit from adding new contracts based on customer demand since the launch of ICE Clear Europe, with these products generating solid revenue growth each quarter. Our emissions futures business has been a very strong performer for us, generating over $30 million in revenue in the first half of 2012 on 18% volume growth. Our new grain and oil seed futures have gained tractions since their launch, and these increase our relevance not only in North America, but throughout Europe and Asia as demands for ICE's commodity markets grow. Our joint venture in the BRIX power exchange continues to see growth in traded volume and in new customers. And in June, Cetip launched its first phase of Brazilian fixed income trading on ICE's technology. These investments exemplify our focus on finding early-stage opportunities and building on them, and we're positioning ICE in Brazil in much the same way that we introduced technology and risk management to markets in the United States over a decade ago. I'll conclude on Slide 14 with a progress report to update you on the 5 themes that we noted at the start of the year. First and foremost, our core energy and agricultural complexes continue to benefit from strong secular trends in the global commodities markets, driven by emerging economies, price volatility and the rising demand for risk management. In the first half of 2012, we introduced over 100 new products across energy, agriculture and credit. We continue to expand our footprint in emerging markets, and we broadened our options technology and options product offerings. We made progress on our operational plans for transitioning our swaps to regulated futures contracts and launching our swaps data repository. And finally, we continue to actively evaluate strategic growth based on our positioning and our long-term vision on how ICE can serve the global markets. We couple this with a focus on preserving our leading returns on capital and double-digit earnings growth. As shareholders ourselves, our entire team is closely aligned with investors, and we continue to focus on creating pathways for growth. I'd like to thank our customers for their business and their support in the second quarter. And I'd also like to acknowledge the ICE team for helping to serve their needs, and again delivering industry-leading results. I'm very proud of our culture that drives us to innovate and grow by serving our customers each day. And so with that, I'll turn the call over to our operator, who can conduct the question-and-answer session.

[Operator Instructions] Our first question comes from Rich Repetto from Sandler O'Neill. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: I guess, first question is for Scott. You spent some time to go over the potential uses of the $1.1 billion in cash. I guess, can we get more detail on the potential investments that you're looking at? And is there -- you've talked in the past about cash in the U.K. There'd be certain tax ramifications of bringing it back. But I guess my question, too, is if you bring in down the M&A or the acquisition-related cost per quarter, what are the big investment or opportunities out there?

Yes, Rich. As is typically the case, I'm not going to comment on any specific acquisition opportunities, but, as I said in my prepared remarks, we do believe there are opportunities out there and you can look at the track record we've got. They're not all necessarily $1 billion-, $2 billion-opportunity. They're technology opportunities to add to what we've got. They're asset class opportunities to add to the products that we offer to our customers. So if you look at the history of what our acquisitive activity has been, I think it gives you a good view into what we're thinking about. And a point of the remark was that we still think those opportunities exist. And so we believe that's appropriate for us to have capital available for those opportunities. And shifting to your second part of your question, just with regards to generally how we think about the cash that's available to us, I've said in the past that you could think of our kind of our cores or 0-level cash balance in the $250 million to $350 million-range. That's kind of our comfortable operational cash. You spoke a little bit about the U.K. versus U.S. We generate, now, less than 1/2 of our income and 1/2 of our cash flows come from the U.S. So we do have a lot of our cash flows outside the U.S. And as you know, the U.K. recently agreed that their tax rate would come down to 24%, and it's on a glide path to 23% versus the U.S. at 35%. So for me, to bring that cash back to the U.S. is not sufficient for our shareholders or for our company. And then as you'll likely know, you probably haven't dug through the details yet in the quarter, but as the regulatory capital requirements are being set, we increased our restricted cash in the quarter by about $30 million, reflective of increased regulatory capital requirements that we've seen. So we take into consideration all of those factors as we think about the use of our cash. And then, as I mentioned in my remarks, we focus on what we're able to do with it. And generating 19% returns on invested capital against a lack of 10%, we think we're flexed that we do a pretty good job being good stewards of our shareholders' capital. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Understood. It is a lot of cash, though, Scott. Anyway, the one follow-up I have, Jeff, the move from OTC energy to the listed -- a bold move. And I guess the question is, will you still connect? Will you still have energy SEF? And as a clearinghouse, will you still clear -- and what are the -- do you see this as a broad trend of the OTC markets, whether it be energy or other asset classes, moving into the listed environment? Yours was sort of unique, I'd think.

Yes. Those are both good questions. First of all, we do intend to register ICE itself, our trading platform, as a SEF, and we do believe that we'll be SEF trading of energy products. We, at ICE, have done a lot of work over the last decade getting into the physical markets that are not cleared and getting into certain bilateral markets that are not likely to lend themselves to clearing. And those, for sure, will trade on SEF-type platforms. We'll see how the market evolves in terms of its skew between futures and the OTC trading as time runs forward. But it's our intent, ultimately, to be a very responsive trading and clearing infrastructure for the marketplace so the business can get done. However, customers want to get their business done, and that ICE can participate in that workflow. So, I do think it's a bold move that we're doing. We're trying to show leadership. We're trying to show our customers some direction. We have been talking extensively with our customer base for the last couple of years in the United States, particularly around the implementation of Dodd-Frank. And we concluded in the last few weeks that this was the right moment because our customers are almost unanimously telling us that they like this idea and they want to push us there. I think it is foreshadowing trends in other asset classes. One of the things that I think our company and also some of our competitors deserve credit for in the energy and commodity space is that we have helped standardize the markets, in terms of their terms and the way they trade, so that those products can be cleared. And in doing so, the hedging techniques that exist in our space have relied heavily on standardized products. And I would suspect that in other asset classes, particularly as we know more about the new Basel III rules and the way dealers are going to be reorganizing and constructing themselves, we may see that there is a move toward standardizing those other asset class products that can be standardized. That would be my guess.

Our next question comes from Howard Chen from Crédit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Jeff, just a follow-up on the swaps to futures announcement. I mean, the benefits to your customers make sense to me and certainly, the additional transparency will be great for us in the investment community. But I'm just curious how you think this potentially impacts at the pace of new product delivery, the liquidity for some of these products that you may, otherwise, wanted to keep OTC for a while longer and just pricing.

I think, net-net, it will have little to no effect on any of those things. We have been -- as a contingency, we've been planning for this move since the creation of Dodd-Frank. We suspected when Dodd-Frank was passed that this would be the likely result for us. And we've been building infrastructure and adopting rules and pricing and other things for the last couple of years in anticipation of potentially making this move. And so in that regard, it would be relatively seamless for us. There will be no procedures for the way we list products, the way we announce them. It think it will be evolutionary, not revolutionary. And we've become pretty adept at operating both futures and OTC markets. Howard, so one other thing is, for you and others that follow us very closely, if you look at -- if you really looked at last quarter's results that we've just announced, you'll see a very strong growth in the trading of energy futures products and a less strong growth in the trading of energy OTC products. I believe that there has been a fundamental shift under way in this regard for some time and I believe that our movement of OTC products into a futures environment is really reflective of a trend that is already under way. And certainly, it's what our customers have been telling us. So it's a natural conclusion. I also think that for government that they can really take some credit in all these complicated rules. They've really essentially brought many opaque markets into a regulated transparent environment that people understand. And so in that regard, I think it is -- the regulatory policies have been successful. Howard Chen - Crédit Suisse AG, Research Division: That's really interesting. Yes, and my follow-up -- you mentioned Basel III briefly, but there's been a lot of discussion on central counterparty risk waiting and CVA proposals. Just, could you share your thoughts on what you're hearing? And how much are you hearing from clients, differentiating between better capitalized, more dynamically managed TCPs like yours and maybe weaker ones that are out there?

Howard, those are some, again, good questions and everything that you asked about is certainly work in progress and ongoing dialogue. But generally speaking, all the discussions we've had with senior policymakers has been that they want to make sure that capital rules encourage the use of clearinghouses. So regardless of how clearinghouses are weighted, I suspect that keeping trades bilaterally and opaque will have much higher weightings. I also think you can take some comfort if you look at the growth of clearing in the commodities markets. What's really been happening is that customers have been able -- they want to give us as many types of trades as they can so that they can net down their absolute exposure. And in doing so, they really net down their capital requirements. And I think there will be a continued role for major clearing firms in helping people with collateral conversion into clearinghouses that will make the posting of margin less onerous for ultimate end-users. But I think that the net risk that will come, be it clearing, will be, for many major customers, will be a nice surprise for them when they really see their true exposure. And they'll be able to see their true hedge, for example. I think, with respect to the various clearinghouses, the U.S. did a systemic overview of clearinghouses. That process is going on globally. I would expect that our European clearinghouse, where we clear a huge amount of energy and credit default swaps, will ultimately receive some kind of similar designations by the U.K. government under these IOSCO regimes. I think it's yet to be known how -- what a systemically important financial market utility is going to look like or how it's going to be ultimately regulated or what its ultimate capital needs are. That's part of the uncertainty that Scott mentioned in ICE, looking at our own capital needs and looking at the opportunities that the we may find in the marketplace for others that can't manage through their needs in terms of M&A.

Our next question comes from Ken Worthington from JPMorgan. Kenneth B. Worthington - JP Morgan Chase & Co, Research Division: First, I wanted to dig into options. You've had huge success in Brent options. What is the outlook for options in your non-Brent European and U.S. products? And maybe where you do see the most promise at this point?

Well, sure. There's been a long-term trend towards the use of options in the cash equity space, even though the retailization of the use of options. They're becoming better understood, better accepted as risk-management tools. And so there's an overall secular trend going on there that we've been tapping into. And I think, as you know, Ken, we have been heavily, heavily investing in various technologies that try to move options more electronic. We certainly found a sweet spot this year. Basically in 7 or 8 months, the floor-traded options that were traded at the ICE Futures U.S., the old New York Board of Trade, coffee, cocoa and sugar, have moved electronic. I believe earlier this week, we were 96% electronic and 4% floor-based. So there is a movement and a customer preference towards electronifying these. I think as they become electronic and standardized, you will see the velocity of trading increase in those markets where there's already liquidity. And I think as traders look for alpha, as people are trying to hedge more complex books and as dealers reposition themselves and try to -- and brokers -- try to create value for their shareholders, there will be a movement towards the greater use of options and options strategy. So I do think that you'll see it move. Next, probably, much more in our Gasoil contracts. We'll have to move down the oil refining curve. I suspect you'll see greater use of options just levering off of Brent, for example. Kenneth B. Worthington - JP Morgan Chase & Co, Research Division: Okay, and then maybe regulatory side. We've had 2 FCM failures. What do you feel are the best outcomes from a regulatory perspective for the market? What are the realistic outcomes that would be, I guess, maybe most impactful for ICE, both helpful and harmful? And do the rules in the U.S. kind of transcend the U.K. and Canadian markets? Like does what happened in the U.S. influence what could happen with rules here in the U.K. or Canada, or are those regions likely to remain kind of as is or status quo?

Good questions. And I do think, first of all, that the infrastructure providers like ICE will have a bigger role in helping to manage customer risk. And in that regard, we'll be able to provide more services in charge for them. So I think that it -- this trend is probably in our company's best interest. But beyond that, we need to find a balance, and the U.S. is searching for it. And certainly, there's a lot of debate about it. And some of the trends that were already in place are being accelerated. So the market is not being caught flat-footed. There was already talk of customer improvements in things like electronic certification of funds on deposit that, to a large degree, helped uncover the PXG best Paragon issues. We're already well under way. I do think that what's happening here will influence events outside the U.S. I do think people are looking to what's going on here. One thing that's important for ICE is to maintain the role of the clearer and broker in the process. They play an important role for exchanges in providing connectivity in distribution and marketing and on-the-ground risk management to our customers. So it's important that we find a balance that keeps them in the business and incented to make money and provide services for their customers. That will be in our long-term best interest. But I do think that the clearinghouses and exchanges through technology and through bankruptcy regimes will play an increasingly important part. One last thing I'll share with you, Ken, is that I hope that whatever we do will continue to keep the onus on the end-user customers to think about who they give their money to. At the end of the day, you and I as consumers have choices on who we can use to manage our money. And I think it's important that customers realize that there will be protections in the marketplace, but there will not necessarily be implicit guarantees and that there's still an onus to manage your money wisely. And that exists in every other asset class and in every other jurisdiction around the world. And I hope that customers don't put unrealistic expectations on the futures markets.

Our next question comes from Jillian Miller from BMO Capital Markets.

I just want to touch on this year. From listening to the debates going on in the Parliament, it sounds to me like some form of open access is, I think, likely in Europe, probably not fungibility, but maybe something similar to what we have in the OTC markets now. I just want to get your thoughts on how something like that might impact your business. And are there any moves that you can make might protect you from something like that, just given you operate across a number of different countries and regulatory regimes?

Well, it's hard. First of all, it's hard to predict what will ultimately become of the regulatory debate that's going on in Europe. It's still an active debate. And I do think, similar to some of the earlier questions that I responded to, that Europe is looking at what the U.S. has done, and they're looking at what Asia is intending to do. And they want to find a balance and so there is not a regulatory arbitrage. So I don't expect that we're going to see an outlier in global regulation. In other words, I think global regulation is going to be relatively similar across jurisdictions. And I think -- and the reason I think that is because it's in regulators' best interest to do that. But that being said, the discussions about access for clearing are an active conversation, there are a lots of amendments that have been being tabled and developed in Europe and are under debate and discussion. So it's hard to say what the exact language will look like. But one last point is that we clear -- we have, as you know, a really important clearing infrastructure, and we take trades from hundreds of different venues into our clearinghouse, both in the form of regulated futures that are done off exchange and OTC contracts that are done outside of ICE. And we, more than anybody, set up our clearing infrastructure as a business to attract business, and we built the infrastructure to do that. And we've built pricing to accommodate that. And so I think that the trend, which is to push more business regardless of how it's executed into clearinghouses, is in ICE's favor.

Okay. And then just on the grain product launch, volumes have been growing, but a little bit more slowly recently. And it seems to be having maybe plateaued around 4,000 contracts per day with open interest around this same mark. And I'm just wondering what your thoughts are on the product. Is it having the start that you anticipated? Did some of the changes that CME made kind of in response to the launch maybe arose from the competitive advantage that you are hoping for with the product? Or is it just a case of you still have very high hopes and it's just going to take a little while to build up the liquidity?

Again, it's a complicated question. But first of all, I'm actually pretty impressed with how well that product is doing for us. It's trading regularly with very tight markets, and there's still a lot of customer demand for that product and a lot of customers that are working with us in the background to get set up to make changes to their internal policies and processes to be able to get access to the product. So I'm actually pretty impressed because I was a bit of an internal skeptic of our own efforts this way. I do -- look, I'm an engineer by education, I bring that up a lot. But I know Sir Isaac Newton taught us all that for every action, there's an equal and opposite reaction, and I know that and expect that. And it's a law of nature, so you don't try to change that. And so I expected that there would be competitive reactions. But the desire for ICE to get into this business was driven by a host of customer demands that I think are long-term and secular in nature and will continue to support those products regardless of competitive changes.

Our next question comes from Chris Allen from EverCore.

If we could just revisit kind of the expense outlook. When we look at the full-year forecast relative to the first half, it's pointing to expenses at $137 million to $145 million range, up sequentially from where we were at this quarter. I'm just wondering what will be the drivers of the sequential expense growth from here.

Yes, I think, Chris, you may be taking the high end of the range to get to that view. I actually think we're trending more to do middle of the range for the full year. My expectation, as you look out at the next couple of quarters, is similar first quarter to second quarter, we were down. I don't expect third quarter to bounce up a lot from where we were in the second quarter. And I don't expect the fourth quarter to be materially different either. The one variable that we've got embedded in that is what happens with our bonus accrual. I think we're tracking to our typically very challenging budget through the first half of the year. So again, assuming that stays on target, my expectation is you're not going to see much of an increase and will end up somewhere in the middle to kind of 4-ish, 5% for the full year, which, by the way, is about where we are to the first half.

Got it, okay. And then just thinking about some of your growth opportunities. I mean, one that was not mentioned in the slide deck which you have talked about before, is the European natural gas opportunity. Any comment around that?

Yes. That business continued to do very well. I touched on it ever so briefly in my remarks. It was one of 3 or 4 products that I listed off that saw a growth of over 20% on a year-over-year basis. Jeff was talking earlier in response to one of the questions about where we're seeing options growth. We saw good options growth, I think, the options in the U.K. natural gas where the volumes were about 3x what they were a year ago. That business continues to do very well for us. And then, we also recently announced the deal that we're doing with Griffin, which is really targeting the European power and natural gas markets and looking at another avenue to bring bilateral voice broker business into our clearing out, into a more transparent venue. So I think we remain very excited about that opportunity. It is continuing to grow in its contribution to us, overall. So good performance in the first half of this year and our expectation is that there's a lot of runway in front of us for that product.

Our next question comes from Alex Kramm from UBS.

So Scott, first of all, I want to come back to the first question Rich asked about capital. I'm not sure how much incrementally you can add to your previous answer. But just look at the slides, I guess Slide 9, the $1.1 billion in unrestricted cash, $2 billion undrawn, and if I look in my model in terms of free cash flow generation, it's like $700 million, $800 million over the next year or so. That basically gives you $4 billion in flexibility. So when I review your comments here, through technology, M&A opportunities, $100 million-plus or so. And then maybe, $1 billion or $2 billion sizable deals. I mean, you got a lot of that opportunity. You got a lot of money for those kind of opportunities and still have a lot of cash beyond that. So where is, maybe, the drive or the motivation to do stepped-up buybacks or something like that, given that you believe in the growth of the company, you should be buying back stock to participate in the growth more? So maybe flesh it out a little bit more.

Yes, sure. So, Alex, first of all, we absolutely do believe in the growth prospects for our company. And as I mentioned in my remarks, since 2008, we've spent $600 million repurchasing our shares. We have over $300 million remaining in our authorization, and you should expect that to continue to act aggressively in share repurchase as a means of capital return. I won't debate with you or Rich or any other folks on the call, whether or not we could do a dividend. We do have a very strong balance sheet, low leverage, very strong cash flows. We can, but as I mentioned in my remarks, we don't do things simply because we can. We step back and ask ourselves, "Where do we think we can put those dollars to the highest value use?" And again, I'm not going to go into details now on the each of the individual acquisitions that we're thinking about now or ones that we may think about in the future. But what I would point you to is we have demonstrated consistently that we are good stewards of capital with strong returns, with good investments that have been value-accretive for our shareholders and we believe we can continue to do that. The other point I would make, too, and I've alluded to it is there are a lot of variables that are moving around today. Jeff touched on one earlier, which is, what's it going to mean to be systemically important? What are the capital requirements for that? We don't expect that they will be materially different, but we don't know. What's the corporate tax rate in the U.S. going to be? Are we going to be move to a territorial system? Or are we going to finally realize that being 11 points higher than the U.K. is a bad thing for the United States? That would make it more efficient to bring cash back from outside the U.S. What's going to happen with dividend policy and capital gains? Which is more efficient? Is 15% going to go to 0 or going to go to 45%? And is it going to go consistently or is it going to be mixed between dividend and capital gains? So there are lot of moving pieces right now that would suggest to me that making a decision on we're going to go one way versus the other, this isn't the right time to do it. And, again, we remain very confident in our ability to grow on return. And the last point I would make and emphasize, though, is -- Jeff and I haven't made this decision and our Board hasn't made this decision today, and then we'll get back to it and think about it again 2 years from now or a year from now. We constantly evaluate what the best use of our capital is and how to best deploy it. We'll continue to look at all the variables that are out there: the M&A opportunities, the tax policies, the regulatory capital requirements. And as we've done in the past, we'll adjust and we'll make changes in our capital deployment strategy as facts as circumstances change.

All right. Just -- and then I guess for Jeff, looking at, I guess, what happened on the M&A side with the London Metal Exchange in Hong Kong. I mean, clearly, you were involved there as well. And I think in some of the public comments you've made about that asset, you could clearly tell that you were pretty excited about it and the opportunities that was changing some of the things around there, which Hong Kong seems like it's not going to do it. They're going to keep things pretty intact. So just wondering if, from an organic perspective, you think the opportunities to go after that market, another avenue into Asia, given that you've challenged incumbents before and have done so pretty successfully. Or if you think this is a market that is so closely knit that it's pretty hard to enter.

Well, first of all, you got a round of laughter in the room here that you didn't hear because it wasn't so clearly that we were going after that asset. We've never actually commented on that, and I won't start that process today. But I will say that whenever we have participated in auction-type M&A, we both think about how to play to win and we also think about how to play to lose. And I think you've seen us do that in many ways in the past. And the reason that we play to lose is to open up opportunities for us as a result of potentially a winner's curse. And so I'll just suggest to you that our company could not have gotten a fairness opinion to buy the London Metals Exchange for GBP 1.4 billion. I do think it's a great company and I do think it could have been a company that would have been interesting to potentially do business with. And I hope there will be opportunities to do business with it in the future under its new ownership. But that being said, we are pretty strategic around here. We pride ourselves on driving strategy and creating a roadmap for both the success and failure in various things that we do. And at this moment in time, we feel pretty comfortable with where we're sitting, and you can see it in our results.

Our next question comes from Matthew Heinz from Stifel Nicolaus. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division: Just a question on CDS execution. You've clearly been investing heavily on the clearing side. And you have the presence in the dealer-dealer space with Creditex. But do you feel you have the right combination of assets and platforms to have the type of business you want there long-term, post implementation of Dodd-Frank on the execution side?

Yes, Matthew, I think we've very confident that the investments that we've made in the CDS space position us very well as the rules are finalized around Dodd-Frank. As you mentioned, we've got a very strong clearing platform. I said in my prepared remarks we now clear over 340 different products. We've cleared $33 trillion. We have well over $1.5 trillion of open interest. So without question, we are the leading clearinghouse. We had our best quarter in terms of buy-side notional cleared in the second quarter. So as I've mentioned earlier, we continue to see the march of the buy-side towards clearing. The CFTC recently announced that CDS indexes would be mandatory for clearing, which I believe started 180-day clock for the Category 1 traders, which is a vast majority of that market. So we feel very good about the clearing. In terms of the execution, again, we've been managing that business now for 3 years, really to deliver as much efficiency as we can. We continue to look at ways of getting more efficient, whether it's market -- moving markets more electronic. It's been the quarter we're up to 63% electronic execution. It's getting rid of brokers and spaces that are going largely electronic, such as in the index space. It's maintaining our share, our #1 ranking in the single main space, and in some of the structured product space, all with an expectation that -- and I'm sorry, just to round it out, and to build out ourselves. So the leverage the CDS execution platform that we've got and the expertise that we've got generally in execution technology in ICE to build the set for CDS trading. So I absolutely think we've got the right assets. I absolutely think that we've got the right customer engagement. And I am absolutely confident, as I said in my remarks, that as the rules gets finalized later this year and certainly into 2013, that as that market turns, we will be the biggest beneficiary. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just a follow-up on the emissions business. You mentioned some of the opportunities there just very briefly. I was wondering if you can expand on that. It remains your most lucrative product in terms of RPC. I'm just wondering if we could get some more detail, and maybe the EU Stage 3 timeline and kind of your market share trends there.

Sure. First of all, I thank you for asking about it. When we bought out our partner in that business, a lot of people scratched their heads and said, "Why would anybody want to be in the emissions business?" And we felt relatively confident about our positioning in Europe. And so far, our results have exceeded our expectations. We were picked to build the U.K. auction platform, and there's a process going under way in Europe to pick a -- for Continental Europe to pick a platform, which I suggested on an earlier call, I don't expect that we will be a part of. But as a result of getting deeper into the way these contracts are actually created and administered by government, I think it further ingrains us. Our market share has gone dramatically up over the last few years since the competitors are reacting to us by massively cutting prices or trying to do other things to claw back some relevance at the margin that may be a little bit of a share skirmish. But it really is a result of the fact that we are so strongly positioned and continue to be and feel good about it. You do see the European government as a whole, both the U.K. and the EU, wanting to take proactive steps to continue for that market to grow and evolve. There is a real commitment to carbon trading in Europe, and the stress of the euro and the stress of the economy has not caused them to waiver, which is pretty amazing. And so, we have a lot of confidence in their continued growth over there.

And the 11% volume growth that we saw in the quarter is despite some level of uncertainty with regards to what governments may or may not do with the emissions certificates. It's at a moment in time we are pivoting towards the Phase 3, which will run from 2013 to, I believe, 2020. But you have asked about the transition into Phase. I mean, one of the big things in Phase 3 or 2 of the big things in Phase 3 are: one, the emissions credits will start to be auctioned off, which I think will create some price volatility, and volatility tends to be good for hedging activity; and then the second big thing is you're going to see big transportation companies, airlines, and metals companies come in to trading. And so not only are you going to see the new auction activity, but you're also going to see a much more expansive set of customers, who have a need and an opportunity to hedge their emissions exposures.

Our next question comes from Roger Freeman from Barclays.

Just to come back to the swaps to futures. Can you clarify this a little bit more, are you -- is the plan to basically replicate all of the energy OTC contracts as futures? Or are you going to consolidate them down to some more standardized list? And if so, does that create any basis risk issues? And will you do a list at all and ultimately let the market decide whether they OTC cleared over futures?

That's a good question. We are going to own -- over a weekend, convert any open interest in any contract that we have listed to a regulated futures contracts, so there will be no change in the individual contract specification or the way it trades or the way it's listed on ICE. It will simply become futurized over a weekend. And any open interest that is in the clearinghouse will be deemed to be futures open interest. In terms of how we list OTC contracts, we believe that the vast majority of energy companies will want to trade standardized swaps in the form of futures, but there will be potentially some OTC business that will stay in the over-the-counter markets. And also, there are final rules that the CFTC is working on in the U.S. that will determine exactly what an OTC contract is. And so, we will make sure that we can clear all of the energy business. We're not trying to discriminate, but we're making a calculated, highly calculated bet that our customers want standardized swaps to be futures.

Okay, great. And then just following up on that, what does it take for this to occur in CDS that you have plans for that as well? Are you clearing or where are you on clearing financial CDS? And then just lastly, on the stops, the options, is it YellowJacket that really pushed the envelope to a point where you could get the electronic penetration up to where it is? I know that negotiating those complex electronic options was always a challenge in that.

Sure. Well, first of all, our focus on the futures conversion is in the pure commodity space. And the reason that that's our focus is, for 10 years, we've been working with the market to standardize those contracts and standardize them in a form that makes them: a, will be lifted on the central limited order book and cleared as futures -- in future stop clearing, in other words. In other asset classes, there's much less standardization as we sit here today. We have helped drive standards in credit to full swaps, and the market has been working on recasting that product to make it clearable. But it's -- there's still work going on by [indiscernible] and others to continue to evolve credit products, and there are unique aspects of credit products and of interest rate products and even foreign exchange products that, at this moment in time, don't necessarily lend themselves to futures because they involve off dates and cash flows and other kinds of very customizing bespoke features that don't have the same attributes that energy does. That isn't to say that they aren't going to evolve. I suspect they will, but we have a decade of working with the commodities markets to get us to this position. With respect to options, and there's actually a similar trend going on there, which is in the commodity space, generally, you can trade any strike price at any premium price. And generally speaking, our customers use some form of black shoals to calculate volatility, but nobody uses the identical black shoals tweaks, if you will. So it is highly tailored. What you're seeing happening is ICE has been evolving our technology to be able to clear and list tailored -- more tailored contracts, and at the same time, you'll see liquidity starting to concentrate around some contracts that ultimately, we think will help to drive standardization. So that process is in early days in commodity options, but the trend is certainly there. And as you know, in the cash equity space today, you have very standardized values, premiums and strikes that I would expect over time, commodities will start to trend in that direction. That will -- all of which I think will concentrate liquidity and increase volumes and give customers and brokers and dealers better tools for helping to manage risks.

Our next question comes from Niamh Alexander from KBW. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: On the credit derivatives, again, Jeff, and how much today is clearing in eligibility versus how much you think could be mandated to be cleared going forward? Because you're so kind of early ahead of the rules. I'm just wondering how much more of an opportunity is there without kind of the next phase of standardization and maybe some futures.

Scott mentioned that the way the U.S. clearing mandate is coming into effect is that Tier 1-type players will be the first to be subject to a clearing mandate. Those are basically the large banks and possibly some large funds. Though that's obviously the target group that we've been working with to help build our clearing infrastructure. So that's why Scott mentioned we are very, very well-positioned as the actual legal clearing mandate in the U.S. unfolds. The large banks that have a large presence in the United States have made commitments to the U.S. Fed to clear a large majority of their business. And those banks have been doing that. So there is those -- of new contracts that are being written, a large percentage of them by banks that are in the U.S., they have a large U.S. presence, have been going into clearing. What we would expect would follow under the clearing mandate would be banks that don't have as large a presence in the U.S. that have not been necessarily following that clearing mandate, as well as potentially a couple of large funds that have exposure to CDS that may be in that first tier. After that, we think things will unfold relatively quickly, where the entire buy side essentially will start to be drawn into clearing, and you'll see that in 2013 in the United States. I think Europe will -- because Europe in the near legislation is working towards laying out their clearing mandate under the G20 rules to have visibility into that by the end of the year. You'll see -- I know from our conversations over there that European legislatures feel pressured to get moving on this. They don't want a regulatory arbitrage to exist. And so I think you'll see similar 2013 kind of mandates and timelines coming out of Europe, would be my guess. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. That's very helpful. So just bear with me how I ask the question. But the OTC market, the futures market, you kind of have -- certainly in the futures, you have the kind of member layer guarantor in front of the customer. And then in the OTC business, you have some customers coming in, but from a clearing perspective, they still go through a member, correct? So help me understand it. I mean, are you kind of getting to a point now where you are more interested in getting more of a connection directly to end-user clients? Because with Creditex, you've got the dealer-to-dealer flow on the execution side. You bought it for the clearing and then the changing market structure. But is the next phase for ICE to kind of start looking at more the direct dealer-to-client-type execution venues?

If you really look at what we have technology-wise, our platform -- our ICE trading platform is somewhat unique and that they can be permissioned by us to be a futures-style platform, which is an all-to-all platform that does not rely on dealers or market makers per se. We have the ability to create dealer-to-client in more traditional OTC-type role where the dealer is the market maker and the client is price taker. And we have the ability to go dealer-to-dealer, where it's basically a wholesale market. And so we have never necessarily biased ourselves on how the market should evolve. We've simply tried to create technology that serves whatever the market needs are. And then what's happening specifically in the case of energy swaps -- and as I mentioned, this is not -- this is something that we suspected was going to happen. So we've been preparing for, for the last couple of years is that as the rules unfolded, the customers really looked at -- and they have enough visibility in the Dodd-Frank rules right now even though they're not finalized, but that the key ones are, and they have said, you know what, I'd rather trade these as futures. What does that mean? It means, I'm willing to put my trades on a real-time ticker, not have them delayed 15 minutes or whatever in terms of what goes into a swaps data repository. I'm willing to have my trades be highly standardized in the sense that they could be listed on a central limit order book. And I'm willing to provide both -- provide liquidity and take liquidity, and be a price maker and a price taker. I mean, there are people that have said it is incumbent on us as an industry to make sure that these markets stay liquid and transparent in order for this conversion to happen. So energy is a bit unique, but I do think the other markets are, where possible, will seek to operate with the lowest capital and the lowest friction. That's just sort of a natural phenomenon. And so we are well-positioned with this technology footprint as these other markets transition. And that's why Scott spoke somewhat confidently about our views in the credit to full swaps market. But it's they're -- all of these markets are on a different trajectory and operating under different timetables. And we want to be in the workflow as much as we can.

Our next question comes from Ken Leon from S&P Capital IQ. Kenneth M. Leon - S&P Equity Research: Jeff, question in terms of international growth. Do you mostly see the organically growing products or leveraging your technology platform to new partners despite your large capital? I mean, is this the way you're really going to grow? And does that provide enough upside for you given that there aren't a lot of London Metal Exchange companies out there for you?

It's a good question. We are not in the technology business, per se. We do not, unlike a lot of exchanges, have an active, broad goal of licensing our technology. But where -- we have license, too, and we do where we feel like we're at a disadvantage and through a strong partner, we could accelerate growth in an emerging area faster than being on our own. So our licenses and our partnerships are highly strategic. Our business has done well financially for our shareholders, while we completely drive the businesses, have solutions for the customers, we are very aware of the needs of serving our shareholders. So we tend to want to do business against our current model, which is to try to keep costs fixed and have a growing volumes that have variable pricing. And so where we do license or JV or enter new markets with others, we're highly aware that, that is the driver of growth for us. That -- and in so in that way, we're a bit different than a typical technology licensor, if you will. And I would just -- I agreed there are not many London Metal Exchanges. The London Metal exchange is, I don't know, 200 years old, 150 years old. I mean, it's an unbelievable franchise. It was a member organization that had to -- had resisted becoming part of a larger exchange group for a long period of time. And you're right, there are not many London Metal Exchanges. But we have tended to do deals that people don't expect us to do. We don't really do deals where we are part of an auction, and it is simply who can pay the most or who wants to pay the most for an asset. Our deals that have really driven a lot of value have been the deals that have -- we've created. They've moved us outside of our current comfort level, and they have not been obvious. And I know that may sound odd, but at the time we did the deals that we did, none of the things that we did particularly seemed very obvious to people. Kenneth M. Leon - S&P Equity Research: And finally, as an organization, you're very focused, very successful in executing with your management team. A wide number of opportunities and challenges, which have been on this call today, and the question is, do you feel that maybe, you need to expand the management team even before you secure other new businesses, just because this is the way that you're going to stay ahead of the curve?

That's a good question. And because I'm the founder the company and because I'm very public in terms of wanting to meet with shareholders and analysts a lot and an outward face for the company, I think oftentimes people don't recognize how deep the management team is here. The reason I can do that and be public and talk a lot as an outside voice is because it's just the opposite. It's because we have such a strong management team, and they give me the opportunity to be outward. Chuck Vice, who is -- sits next to me on all these calls and is our present Chief Operating Officer, has been driving a lot of our execution. And recently, we acknowledged a number of our younger executives and promoted them. And that was very intentional on the part of Chuck and I to both acknowledge their contribution and to continue to keep the upward momentum for this next tier of executives so that they stay attached to the company, because they are our ultimate future. And so I hope that the -- that I'm not getting in the way of the visibility into the strength of this team. It's because of the strong team that the company has done so well. And they afford me the luxury of standing in front of them and being the mouthpiece for them. So no, we don't need more executives. In fact, we have an unbelievably deep bench. And the other last point I would make to use, we drive this company as a management team. I don't think that, necessarily, people aware of it, that there's a strong contribution by all of the people on our management committee, which I think now numbers around 18 or so, in driving the business across geographies and asset classes and technology and what-have-yous. It is a very, very collaborative effort, but it takes decisions and moves quickly and that backs each other up. So we have an unbelievable chemistry that's been going on here. One last thing, if you'll let me just pontificate a little bit, we have been preparing this company for regulatory change in the form of Dodd-Frank and, ultimately, EMIR. We've been preparing this company for an increased flow of business in the clearinghouses. There has been a huge investment of energy and time and evolution of what goes on inside this company to prepare for that. And so we've been able to make that investment for relatively modest capital, but, nonetheless, you should not underestimate how well-prepared we are for what we think is a heavily-evolving financial services business.

Our next question comes from Chris Harris from Wells Fargo securities.

Just a quick follow-up question on the grains business. Jeff, you mentioned a pretty strong start to that business, exceeding your expectations. Wondering if you could maybe share with us who the earlier customers or adopters are in that business. Are these hedgers, or are they more the outgo traders that like to maybe trade off CIMI's platform? And then assuming continued success there, might we see you extend this strategy into maybe other non-obvious asset classes, like metals comes to mind, for instance?

Well, interesting. This is a customer-driven product launch. The ags are a customer-driven product launch. And the customers that we refer to are the hedgers that wanted some alternatives in the space and wanted competition, and we're willing to bifurcate liquidity to create another natural competitor. I think that we can grow these markets with algorithmic traders and other nontraditional market participants, because we've shown ourselves in other markets that if we can attract the ultimate hedge -- hedge or end-user that you've got natural flow that -- and it becomes easy to attract other users. We're going to be very -- we're very cautious in who we attract our markets and how because we want to make sure that, that volume growth is for the benefit of that end-user customer as a rule of our business. But that's why I'm surprised and feel good about -- personally surprised and feel good about that particular that product launch. And I do think that we continue to dialogue with the commodities trade, and they are really going through a lot of changes because of global regulation because of the emergence of business in Asia and Brazil and other places. There's just an unbelievable amount of change happening at the commodity end-user level. So there is a host of opportunity. Scott keeps referring to this opportunity set in relation to our capital, but we truly believe that there are fundamental changes going on in the way of business is being conducted, and that we are very well-positioned and are being opportunistic around those changes.

That's great, Jeff. Just a quick follow-up for Scott really quick, if I could. I know a lot of questions on the capital return. Just one other for you. Along the lines of seeing kind of an increase in cash balance here, we've also seen your debt go up by quite a lot over the last on the couple quarters. And I know you paid down a little bit this quarter. Any strategic rationale why you have an increasing debt balance along with the cash? I mean, I presume some of that in the fourth quarter of last year was you maybe you wanted to prepare for LME, but now that that's kind of not really an opportunity for you anymore, might we see you perhaps aggressively pay down the debt a little bit more?

Yes. I'm not sure what you're looking at. The debt level's actually been coming down a lot 3 quarters. We did take on a little bit of debt when we made the Cetip share acquisition a little over a year ago. I feel pretty good about the debt structure we've got. And our leverage is below 1. The term on our debt is, I think, around 5 or 6 years. And the absolute cost of our debt is below 4%. So I think if you lay that up against anybody in the space, nobody's got the maturity of debt that we've got at the interest rate that we have. And I'm not aware that anybody's got leverage much below where we are. So I think it's a very low leverage, very efficient structure that we've got in place. And in terms of paying it down more aggressively, in a world where we're not paying much on the debt, I don't feel completely compelled to go and do that. It's an alternative, if not, one of the more attractive ones.

Our next question comes from Gaston Ceron from MorningStar equity.

Just have 2 very quick questions. One is, just going back to the grains for a second. I know it's been a big topic conversation since the launch. And I know it's still early days, as you said. But curious if you expand your range a little bit, what do you see as kind of the long-term potential for that segment? We've got this -- as we all know, we've got this drought here in the U.S. and there are experts that think that events like this that have become more and more common going forward, which you would think would increase the opportunities or the need, rather, for hedging and other trading activity around that segment. So curious to know what your long-term sort of growth outlook is for that segment. And lastly, on the market data fees. Seems like they saw a nice increase again this quarter. Curious to know what's going on there.

I'll take both those in order. So just with regards to droughts and things that affect the agricultural contracts, I don't know to what extent that's going to continue. But we do believe that the contracts that we offer in the agricultural space give commercial customers the opportunity to hedge against those risks. Depending on what those risks are, though, it does materially impact what we see in volumes. So, for example, cotton was extremely volatile a year ago, but the drought wiped most of the crops out. So there were a lot of commercial customers hedging crops that didn't exist, and so volumes were impacted. As we've gotten into a better growing season this year, and some of the droughts have abated in the key cotton-growing areas, in a volatile environment, you saw cotton volumes grow 31% year-over-year. So I think some of the dynamics that you talked about have always played a part in what we see in volumes, and will always continue to play a part. And your reference to the grains, again, we heard from customers that they wanted us to launch those contracts to provide them with an opportunity to more efficiently hedge their risks. To the extent that there is customer demand to do that in those contracts or in other contracts, we're certainly going to listen to that demand and react to it. With regards to market data, as I said in our prepared remarks, that for me has always been a very good leading indicator of interest in our markets and where are growth opportunity is. So when I say that we're optimistic about our forward growth prospects, a lot of it is the investment opportunities that Jeff talked about and the regulatory uncertainty, which opens up opportunities. But it's also confidence in our core business. That market data revenue growth, I believe, is reflective of people being interested in seeing our data. And Jeff had a chart that he spoke to in the presentation that shows the increase of customers that we're seeing. And what we see is we'll see people that want the data first and then once they've seen the data start to trade. And then that's combined with the fact that we have had an opportunity because of the growth in demand to adjust our pricing in the market data space. And we do that in a very careful manner, but that's another reason why you've seen our data business grow significantly, over 20% in the quarter year-over-year and pretty consistently, quarter after quarter.

Our final question comes from Brian Bedell from ISI Group.

Just another follow-up on the OTC conversion to futures and the energy complex. Obviously, the trading velocity tends to increase pretty significantly on futures versus over-the-counter contracts. How should we think about how you're factoring that in your pricing of the futures contracts? I guess, in other words, do you think the trading velocity can increase a lot, and should that be upside to the current revenue stream in OTC energy?

That's a good question. And first of all, we're not making any changes to our pricing. And maybe second of all and less obvious is we are very cautious in the way we introduce algorithms to our markets, and we have not really tried to drive volume through algorithmic trading, per se. I made that comment in our prepared remarks. We've really been trying to create a holistic environment, where there's enough liquidity for people to get business done and for algorithms to make money, but up what for end-user hedgers to have a good trading experience. So we balance that. But I do -- all that being said, we're making no changes to our pricing or our philosophies as we go forward. The -- there is an overall, however, in Dodd-Frank that more trades are going to be done across electronic transparent screens, and we think that there will be more trades done on futures platform. Underneath the details of Dodd-Frank, the OTC brokers community has higher standards that -- if they are going to continue to trade OTC. And so our broker partners in the OTC space are getting certified. They're taking Series 7 tests. They're registering with the NFA in many cases. And so they are, for all intents and purposes, taking the steps to become futures brokers. And so we think that the community itself will look a lot like the way it looks today, and everybody with heightened standards and with more business being traded electronically, as it is being mandated to do so by Dodd-Frank.

Okay. That's very helpful. And then just lastly on just the volume trends, just very -- in very late July, obviously, they were very strong in the first half on the energy side. But if you can give us a sense of maybe we'll get a little bounce back on the OTC. I know, $1.4 million today, and July was trending down from last quarter. Where do you think we're going to get a little bit of a snap back as we move through the third quarter there? And do you think the London Olympics at all are impacting volumes on the ICE energy futures set?

Those are good questions. We -- July, we had a Fourth of July in the U.S. that was in the middle of the week. That sort of the lent itself so a lot people taking the week off. And now, we have basically a 2-week period where a lot our colleagues in London are not at their desks, have chosen to leave town, so July is normally, seasonally slow. And this particular July, I'm not foreshadowing anything. I'm just saying this particular July, you do have these kind of unique timetables that are going on. But more broadly, as we go into the third and fourth quarter, we expect the U.S. gas and power OTC customers are going to be thinking about Dodd-Frank in earnest and their compliance with Dodd-Frank. We hope that our transparency on the convertibility of OTC to futures will keep people active in the OTC markets during that transition period. That's partly why we've come out with a statement now, and given a lot of foreshadowing in what we're going to do. We thought it was best to actually make that transition in January so that we can get people through what will be busy November and December holiday seasons, as well as a lot of pressure on people to comply with Dodd-Frank. So we didn't want to be one more thing to have to deal with. Also, getting that election in the New Year will allow people who hedge to make proper tax selections, which companies tend to do early in the New Year under U.S. tax law. So all that being said, it's hard to predict how the OTC markets will respond into the early days of implementation of Dodd-Frank. We know there will be more clearing coming. And so how that all shakes out, yet to be seen. We feel good about the way we position the company, however, as a regulatory roadmap for people to do business, and that's certainly how we're going to be marketing ourselves to our customers so that they can have confidence and compliance at the same time.

And that concludes today's Q&A session. I will now hand the call back to management for closing remarks.

Well, again, I'd like to thank everybody for joining us today. And we're looking forward to reporting on our progress for the next quarter. We start tomorrow with our July volume release. And so, with that, I'll terminate the call and wish you all a good day. Thank you.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.