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Keith
Conference Operator
Good morning and welcome to the SIBO Global Markets 2019 First Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you can press star then one on your telephone keypad. To try your question, please press star then two. Please note this event is being recorded. Now I'd like to turn the comments over to your host today, Debbie Koopman. Please go ahead.
Debbie Koopman
Host
Thank you, Keith. Good morning, and thank you for joining us for the first quarter earnings conference call. On the call today, Ed Tilley, our chairman, president, and CEO, will discuss the quarter and provide an update on our strategic initiative. Then Brian Schell, our executive vice president and CFO, will provide an overview of our first quarter 2019 financial results. and updated guidance for certain financial metrics. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be our Chief Operating Officer, Chris Isaacson, and our Chief Strategy Officer, John Dieters. In addition, I'd like to point out that this presentation will include the use of several slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise after this conference call. Also note that references made to the planned migration of CBOE Options Exchange is subject to regulatory review. During the course of the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings material. Now I'd like to turn the call over to Ed Tilley.
Ed Tilley
Chairman, President and CEO
Thank you, Debbie. Good morning, and thank you for joining us today. I'm pleased to report on financial results for the first quarter 2019 at SIBO Global Markets. As you know, market conditions were challenging throughout the quarter, negatively impacting volume across our business lines. As we have in previous low volume cycles, we have used this less volatile period to see potential future growth in our proprietary index products through increased customer outreach and education efforts. As a result, we are confident we are even better positioned to grow our business and to define markets globally to deliver value to our customers and shareholders. I will highlight those initiatives today after touching on market volatility. In a reversal from the sharp downturn in fourth quarter 2018, the S&P 500 rallied more than 12% in the first quarter and is now up more than 16% year to date. We believe the rally was led by the Federal Reserve's shift away from monetary tightening, generally positive corporate earnings, and growing stability in U.S.-China trade talks. As the markets are once again hitting all-time highs, implied volatility levels have fallen across all asset classes, and the VIX term structure has steepened. We see that investors are looking for ways to reestablish upside positions and and with realized volatility levels back near eight-month lows, industry strategists are pointing to trades in SBX and VIX as ways to take a position in the market. Others are turning to VIX futures and volatility-linked ETPs to express a view on implied volatility. Volatility-linked ETP AUM, which bottomed out at the start of 2019, has been steadily building and is now back over $3.5 billion, quickly approaching pre-February 5th, 2018 levels. In the last three months, the ETP complex has gained approximately 130 million of long vega exposure. This has translated to hedging in VIX futures, and according to the most recent CFTC data, has resulted in the largest net short position in VIX futures on record. Yet another example of the utility of the VIX complex has to offer. Whether record market highs or market sell-offs, spikes in volatility or extended periods of market calm, the street continues to reference our proprietary product set as the preferred tools for managing risk. we remain keenly focused on the significant opportunity we see to further grow the customer base for our proprietary products. In the interest of better serving our customers, we have aligned our sales and coverage teams across regions and products to promote greater collaboration and cross-selling. Additionally, we developed a buy-side sales team focused on growing usage of our proprietary products in the insurance, asset manager, and pension fund communities. While we believe our greatest opportunity for growth remains in the domestic market, we also recognize that investors around the globe have U.S. exposure. We continue to make inroads into new markets and to enhance the customer experience in regions where we already have a greater foothold. We are exploring new markets, such as the Middle East, Scandinavia and Asia, while also pursuing jurisdictional approval in more established markets, including Switzerland and Israel. Turning now to the U.S. equities market, where this week we made fee changes aimed at attracting additional order flow to the SIBO EGX exchange. We believe these changes, in addition to our plans to introduce execution priority to retail limit orders on EGX, pending regulatory approval, will benefit individual investors while further enhancing EGX as the destination of choice for retail trading. We continue to advocate for adoption of our SIBO market close proposal, which was initially approved by the SEC in January 2018, but has been stalled by appeals. We are optimistic that the original approval order will be reaffirmed by the commissioners and are positioned to launch upon approval. You'll recall that SIBO worked closely with customers to develop CMC to provide them with significant cost benefits. Our commitment to being a leading advocate in the equities marketplace has never been stronger. We are crafting numerous other proposals and rule filings based on feedback from our customers. You'll hear more about these initiatives as they develop. Now turning to European equities, where our market share remained strong one year into MIFID II. we continued to retain our number one position in the European equities market as we increased our market share year over year to 22.1% for the quarter, up from 21.2%. Our periodic auctions book continues to receive positive feedback from both buy-side and sell-side firms and remains the leading periodic auctions solution. SIBO LIS, our block trading platform powered by bids technology, logged another strong quarter. Our primary focus during the first quarter was finalizing our plans to operate in a post-Brexit environment. In March, we received authorization from the Dutch Ministry of Finance to operate a new venue in the Netherlands. Given the recent political developments and the extension of the Brexit deadline until the end of October 2019, we now plan to launch the new venue later this year. We continue to work with our regulators and customers on launch timing. In closing, I would like to thank our team for the progress made throughout the first quarter and laying the foundation for future growth. In addition to the initiatives outlined here, our team continues to hit key milestones on our migration of SIBO exchanges to BATS technology, keeping us on track for our planned completion date of October 7th. We've seen ebbs in trading before. They come with the territory. but our experienced and disciplined team continues to execute on strategic growth initiatives so that our company is well positioned to weather difficult trading conditions and to benefit when they change. With that, I'll now turn it over to Brian.
Brian Schell
Executive Vice President and CFO
Thanks, Ed, and good morning, everyone. Before I begin, I want to remind everyone that unless specifically noted, my comments relate to 1Q19 as compared to 1Q18 and are based on our non-GAAP adjusted results. As Ed mentioned, We had difficult comparisons given the strength of the first quarter last year and weaker trading volumes this year. Overall, our net revenue was down 15%, with net transaction fees down 24%, non-transaction revenue up 2%, adjusted operating expenses decreased 14%, adjusted operating margin of 66.5% was unchanged, and finally, our adjusted diluted earnings per share declined 20% to $1.11. Our first quarter results reflect lower trading volume industry-wide and across each of our business segments. In addition, our results included an $8.8 million charge, the equivalent of a six-cent EPS impact, to reverse the OCC dividend we recognized in 4Q18 due to the SEC's rejection of the OCC capital plan. Despite the tough environment and comparisons, our focus on discipline expense management allowed us to achieve solid margins matching 1Q18's adjusted operating margin. The press release we issued this morning and our slide deck provide the key operating metrics on volume and revenue capture for each of our segments, as well as an overview of key revenue variances. I'd like to briefly highlight some of the key drivers influencing our performance in each segment. Before I get started, let me point out a change we made in our income statement reporting. We combined access fees and exchange services and other fees into one line item, access and capacity fees. We believe this enhances comparability and better captures the overall revenue associated with accessing and obtaining the desired level of capacity to trade in our markets. Despite the lower trading volume in the first quarter, our recurring revenue stream of proprietary market data and access to capacity fees combined increased 10% year-over-year, which is slightly higher than we originally projected and believe we can grow this at mid to high single digits in 2019, We continue to see opportunity across all of our asset classes and believe our migration to batch technology will provide additional revenue opportunity over the long term. As it relates to proprietary market data, about 70% of that growth was the result of incremental subscriptions. Now, I'd like to turn to our segments. In our options segment, the 17% or nearly $29 million decrease in net revenue was primarily driven by a $40 million decline in net transaction fees, reflecting lower trading volume and lower revenue per contract, or RPC. Net transaction fees and index options fell $39 million, and multi-listed options were down just $1 million. Index options, average daily volume, or ADV, declined 34% for the quarter, offset slightly by a 3% increase in RPC. The RPC increase was primarily due to a mixed shift, with SPX options accounting for a higher percentage of volume, as well as fee changes implemented in the first quarter of 2019. The 17% ADV decrease in our multi-listed options was primarily driven by lower industry volumes and lower market share. Our multi-list market share was down from last year's first quarter as we continue to focus on optimizing our overall net transaction fees as reflected in a 13% increase in RPC for multi-listed options for the quarter. The RPC increase was driven by fee changes implemented in 2018 as well as lower volume-based discounts. Turning to futures, the 30% or nearly $13 million decrease in net revenue primarily resulted from a 37% decline in ADV and a 1% increase in RPC. The higher RPC year-over-year primarily reflects the impact of new pricing implemented in the latter part of 2018 and lower volume-based rebates. CFE posted growth in non-transaction revenue of 16%, driven by higher market data revenue and regulatory fines. If we exclude the increase in regulatory fines, which may not recur, the increase is 6%. Turning to U.S. equities, net revenue was down 5% or nearly $4 million, primarily due to lower SIP market data revenue, offset somewhat by increases in net transaction fees and access to capacity fees. The growth in net transaction fees was driven by higher net capture, offset somewhat by lower industry ADV and lower market share. SIP market data revenue fell 20% in the quarter, while proprietary market data revenue increased 2%. SIP revenue fell due to lower market share as well as a decline in audit recoveries versus last year's first quarter. We still expect the SIP revenue pool to remain relatively unchanged in 2019 versus 2018 and expect our SIP revenue to be primarily influenced by changes in market share and any audit recoveries. Net revenue for European equities decreased 7% on a U.S. dollar basis, primarily reflecting the unfavorable impact of foreign currency translation. On a local currency basis, net revenue was only down 1%. While net transaction fees were down, the decline was mostly offset by growth in non-transaction revenue. Decline in net transaction fees was due to lower market volumes, offset somewhat by fair bone net capture, and higher market share. A higher net capture resulted from combined strong periodic auction and LIS volume, which have higher relative net captures. Net revenue for global FX decreased 5% this quarter, reflecting a 12% decline in market volumes, offset significantly of a higher net capture, which was up 7%, primarily reflecting the impact of fee changes made in 2018. In addition, we grew market share to a new high of 15.8%, up nearly 50 basis points year over year. Turning to expenses. Total adjusted operating expenses were just over $94 million for the quarter, down 14% compared with last year's first quarter. While expenses were down in nearly every category, the key expense variance was in compensation and benefits, primarily resulting from decreases of nearly $7 million in incentive-based compensation and $3 million in equity compensation. The decrease in equity compensation reflects the forfeiture of unvested equity awards in the quarter and is not expected to be a recurring benefit in the future quarters. The decline in incentive-based compensation is aligned with our overall decline in financial performance. As we've discussed previously, this is our largest variable expense and is self-adjusting based on financial results. Given our first quarter expense decline, we are lowering our full-year 2019 expense guidance to be in the range of $415 to $423 million, down $5 million versus our previous guidance. In the first quarter, we had about $6 million in favorable net expense adjustments that we don't expect to recur in subsequent quarters. Additionally, as Ed discussed, we plan to continue to invest in enhancing our customer-facing business development team to drive greater engagement in our proprietary products. Respect to our 2020 expense guidance, we still expect a range of $420 to $428 million, which takes into account the benefit of the synergies expected to be realized in 2020 from the C1 migration later this year, and a continuation of investing to support the growth of our business. We are maintaining our run rate synergy targets as we expect to exit 2019 with $80 million of run rate synergies and exit 2020 with $85 million. Turning to income taxes, our effective tax rate on adjusted earnings for the quarter was 25.4%, below our annual guidance range in last year's first quarter rate of nearly 26%. The tax rate decrease was primarily due to excess tax benefits related to equity awards exercised in the first quarter of 2019. We are reaffirming our full year tax rate guidance to be in the range of 27 to 29% as we expect the rate to be at the higher end of the guidance range in each subsequent quarter for the remainder of the year. We're also reaffirming our guidance for depreciation and amortization and capital spending with the amounts as noted on the slide. Turning to capital allocation. We remain focused on allocating capital in the most efficient manner to create long-term shareholder value. During the quarter, our cash flow generation and financial position enabled us to continue to invest in the growth of our business while also returning nearly $70 million to shareholders through dividends and share repurchases. We currently have $171 million of availability under our share repurchase program, and we plan to continue to evaluate share repurchases as part of our overall capital allocation. We ended the quarter with adjusted cash of nearly $348 million. Our cash balance is elevated versus historical levels for a couple of reasons. First, working capital needs are typically higher at the end of the first quarter due to tax-related liabilities that are due in the second quarter. The second and most significant reason is potential strategic acquisition we referenced in our last earnings call remains under consideration. While we are still unable to provide any specifics relating to this potential deal, there is no assurance it will ultimately occur I want to point out again that if we are successful in completing the transaction, we do not anticipate a significant change to our current leverage ratio or issuing any stock with respect to its funding. At quarter end, our leverage ratio was unchanged from year end 2018 at 1.5 times. Our cash and capital positions remain strong and remain confident that the actions we are taking to implement our strategic initiatives will drive free cash flow and create long-term sustainable value to our shareholders. In summary, CBO delivered solid results amid a challenging operating environment and continued to focus on defining markets globally, growing our proprietary index products, growing our recurring revenue streams, disciplined expense management to leverage the scale of our business, completing our integration plan and delivering on our synergy targets, maintaining balance sheet flexibility, and a capital allocation plan that allows us to invest in the growth of our business while returning capital to shareholders through quarterly dividends and share repurchases. With that, I will return it over to Debbie for instructions on the Q&A portion of the call.
Debbie Koopman
Host
Thanks, Brian. At this point, we would be happy to take questions. We ask that you please limit your questions to one per person to allow time to get to everyone. Feel free to get back in the queue, and if time permits, we'll take a second question. Keith?
Keith
Conference Operator
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, Please pick up the handset before pressing the keys. To try your question, please press stars and two. At this time, we will pause momentarily to assemble the roster. And this morning's first question comes from Rich Rupert Petto with Sandler O'Neill.
Rich Rupert Petto
Analyst at Sandler O'Neill
Yeah, good morning, Ed. Good morning, Brian. And I saw the comp decrease quarter to quarter, the $13 million. I didn't know we paid Christian Cannon that much. Who? His ears are burning right now. Anyway, my question is, again, you mentioned M&A right at the end of the prepared remarks, Brian. It sort of brings out, you know, fodder and more questions on it. And I guess what we're saying, can you give us any more color since it has been mentioned again publicly in prepared remarks? Are we looking to expand it from what we got from prior? It's not a small transaction. It's sizable. Is it something additive? Can you talk about what the strategic is? Does it expand asset classes or add onto asset classes? Can you give us any more details since it was brought up earlier?
Brian Schell
Executive Vice President and CFO
So I think there are multiple questions there. So let me talk about, and this will probably address, and I apologize for anyone else in the queue who will have a related question that might be a slightly different take, but I'll answer that more broadly around capital allocation and this. We don't really have any additional comments or color around any specific transaction that may or may not occur that was stated other than in the prepared remarks. But in the context of a capital allocation, Let me address that and I think John will maybe cover some of the other kind of our thoughts around strategic investments, considerations and our overall approach broadly. At the end of the day, our overall goal is always the efficient deployment of capital and to not just sit on that cash. We do have a philosophy and a long-term track record of returning that cash to our shareholders and we want to balance that with achieving appropriate balance sheet flexibility. As we do every quarter, and we're planning to do later this month, we discuss this topic with our board on a very regular basis. And beyond the working capital needs, making those investments to grow the core business and achieving that flexibility, as we stated many times, our goal is to grow that annual dividend, as we've done since 2010, and using that capital opportunistically to repurchase the shares. As such, it was unusual for us to hold that much cash at the end of the quarter, as we did this quarter, and we don't necessarily expect to hold that level of cash going forward. And, again, as we noted, it was anticipation of that higher season of working capital needs and that potential transaction, but we also were in the market purchasing shares, demonstrating that ability to balance that relatively small strategic investment with a direct return to shareholders. So we'll continue to evaluate capital allocation decisions with that type of discipline.
John Dieters
Chief Strategy Officer
Hi, Rich. This is John. So just on the strategic points, we've said this before. I think we think about things in three ways strategically. Greater access to end users, extending our geographic reach, and adding to our asset class coverage. And expect any good deal to hit at least one, and we like them to hit multiple of those points. And then expect any good deal to be a solid contributor financially.
Keith
Conference Operator
Thank you.
John Dieters
Chief Strategy Officer
Thank you.
Keith
Conference Operator
And the next question comes from Ken Worthington with J.P. Morgan.
Ken Worthington
Analyst at J.P. Morgan
Hi. Good morning. Thanks for taking my question. On the VIX side, we can see the ETP vague exposure increasing. Thank you for that information. And it's definitely helping the future side, as we can see. The VIX option side has fared maybe less well more recently. Can you flesh out maybe why the more or maybe the less robust results on the options side relative to the future side? Thanks.
Ed Tilley
Chairman, President and CEO
Sure. I think it goes – thank you, Ken. I think it really – if we take a half a step back and we look at the psychology going on now in hedging, and traders as we know and investors as we know are most influenced by the most recent past. And coming out of a fourth quarter of last year with very, very high volatility, a huge market sell-off, you entered the first quarter of this year either in the market or in a long position that has been hedged. And you're faced with a couple of options. And we kind of set that stage at the last time we spoke. where we saw hedging opportunity and remaining in a long position in the market, you're forced with basically two choices to hedge that position. Out of the money puts in the S&P 500, out of the money calls in VIX. And we referenced the really, really low VIX, making out of the money calls in VIX relatively inexpensive compared to out of money puts in the S&P 500. Now, while that scenario continues and VIX is at a relatively historic lows, All of the influences in the first quarter, that very volatile fourth quarter, is in the rearview mirror. What we've had now is three or four months of relative calm, uncertainties like uncertainty around Brexit, trade wars, government shutdown, corporate earnings. Remember, we were even talking about raising Fed rates back in early first quarter. All of those uncertainties are kicked now out into the third quarter, maybe the fourth quarter. So you're faced with that same decision. Do I spend that money to hedge my portfolio by using out-of-the-money calls, even though they're cheap? Or do I look 30 or 60 days in the future and say, maybe I need half as much hedge, or maybe I'm going to let April just rest on its own? That's what's going on now in the marketplace. And we see that. We're informed by our investors' perception of risk by the volume in each of these proprietary classes. But here's what's different. If you read the commentary that's issued by the sell side each and every day, I'll give you just a couple from the last few days. And these are all from banks, and this is all commentary in the market. S&P implied vol of all, as measured by BVIX index, was roughly unchanged last week at 84%. We continue to see interest in cheap upside call convexity trades, which has driven VIX call wing to record highs. To protect against a squeeze and higher VIX, if SBX corrects from record highs, consider buying VIX call spreads. So the commentary is reinforcing when you're looking to hedge, these are the products. CBOS products are the ones you're looking to hedge in any market environment. We've seen ebbs and flows, and we think the psychology of that trade now is establishing and looking forward through now the recent – really calm environment to when this uncertainty comes back, how do I position myself to continue to enjoy the upside run but to have a hedge position? So I think that shows up first in those out-of-the-money VIX calls and taking more vertical position in the S&P 500 to maintain launch. Okay. Thank you very much.
Keith
Conference Operator
Thank you. And the next question comes from Alice Cram with UBS.
Alice Cram
Analyst at UBS
Hey, good morning, everyone. I don't usually like to ask about expenses, but I guess it would be great if you can just run through some of this and the expectations for the rest of the year with more brine. If I heard you correctly, the equity side of the comp line was $3 million better than I think $6 million from something else. I don't know if you said what it exactly was, but So I guess that's nine million, so the real core expenses, if I'm looking at this correctly, are more like 103, so at a 412 run rate. So the question I guess is, where do you expect expenses to ramp in an environment where you're still taking out cost because of the integration? And then secondly, can you give us a little bit more color around the incentive fees, or incentive compensation, how that's working in terms of what are you accruing right now What is the environment you're kind of budgeting for? How could this look going forward if we're staying in this kind of volume environment going forward? Hopefully that makes sense. Thank you.
Brian Schell
Executive Vice President and CFO
Sure. So let me take the first part of that as far as the ramp and why do we expect the slightly higher run rate in Q2, Q3, and Q4. As we look out, we mentioned a couple times about our continuing investment that we need to do, and that will primarily show up in people and different things that we're doing as far as how do we continue to continue to invest in that client-facing approach. So that's one of the areas of investment. We'll continue to see that it could show up in the comp line end, for example. We also see, with respect to the various initiatives that are going on, we see some increases coming on potentially in professional fees. We know that we have some of our software tech that's rolling on, so we're starting to see a slightly higher increase in some of the depreciation and amortization. Again, offsetting, some of that offset is the synergies that are coming in. But again, there's not going to be a material change from synergies showing up until the very end of the year. So there's not really that offset as we tried to kind of profile a little bit in the last call of, like hey, we're still on track and we still think this is a big number on a run rate basis, but unfortunately the realization of that, those kind of direct offsetting expenses during the year are just not gonna happen in these early quarters. So we expect to see a slight ramp up in comp, and I'll come back to incentive in a second, slight increase in professional fees, slight increase in a little bit of a DNA depreciation that I mentioned, And along with that sometimes is as we ramp up some of our tech support expenses are also gonna slightly kick up a little bit. Again, it's kind of across the board, so I wish I could point to something specifically to that. So your analysis, I think, is the right way to think about that. And that number is still less than that number of what we had on a quarterly basis last year as far as that adjusted operating expense number. So it does reflect a continued benefit from the synergy savings with the investments that we mentioned. As far as the incentives go, I'm obviously not getting it into, hey, we're setting the accrual rate at this and that. We do factor in multiple financial metrics and operational metrics, but primarily financial, as a way to make sure that we're appropriately funding incentive comp with our shareholders so that we're completely aligned financially. And we have a perspective on the environment of what that looks like. Our accruals reflect that. Not necessarily going to sit down and say, here's what we think that volume looks like. But if you think about the incentives and the variable piece of comp, it's roughly 25% of that comp line item if it's If it's going great, it's going to be higher than that because it's not just the incentive comp. It's obviously the associated payroll taxes and benefits and all the other stuff that nobody likes to talk about, but it costs money. And then if it's lower than that, it's because the financial performance shows it wasn't there. So as a benchmark, 25% of the overall comp is going to be driven by that variable incentive comp number.
Alice Cram
Analyst at UBS
Excellent. Thanks for the color.
Brian Schell
Executive Vice President and CFO
Yep.
Keith
Conference Operator
Thank you. And the next question comes from Michael Carrier of Bank of America, Maryland.
Michael Carrier
Analyst at Bank of America
All right, thanks, and good morning. Maybe just given some of the investments that you mentioned, given some of the expense guidance, what has been your traction with the new clients and international users, and maybe any stats that you can provide over the past few years and what you see as the opportunity ahead given some of these investments?
Ed Tilley
Chairman, President and CEO
Yeah, as far as statistics, that's very, very difficult. But I will tell you, coming out of our risk management conference in March, and the hunger for updated and the continued exposure to white papers and neutral papers. So, for example, we updated the Wilshire report on option-based benchmarks, performance and risks, and updated that through December of 2018. Those types of engagements, because they're demand-driven, is why we're focusing and continue to focus in the pension and insurance space where that exposure is nonstop. Those customers need the information. They need third-party validation before they can go and convert funds that don't use our basic strategies to employ those strategies. So it's really now we're in the knowledge and gathering phase. After a year like last year, And the sophistication level and the engagement, I would say at this risk management conference was at an all-time high. I saw all of our client-facing folks engaged in conversations that years ago I could only have imagined from a sophistication level. We need to invest and keep up not only on the client-facing level, customer interaction from our team, but going out and commissioning papers and having things written by third parties. That's what we're doing now. And again, it's fueled by a year like last year and run-ups like this where, gosh, I haven't seen an all-time high before. Well, I did. I've seen them over the cycles in the past. What do I do this time and why is it different? And these basic strategies, these white papers that are educating our users, that's how we start.
John Dieters
Chief Strategy Officer
Michael, this is John. I'd add one more thing. So Ed spoke to the sophisticated end of the user-based spectrum. And we see, because it's a little more visible, we see some pretty interesting momentum in the more entry level of the user-based spectrum. And you see that around things like some of the packaged products that incorporate our strategies. So, for example, GlobalX just recently announced they'll be launching a Russell 2000 covered call. ETF that joins a family of ETFs from a variety of issuers, including Invesco and WisdomTree and others. So those are visible launches. The asset accumulation there has been really robust. We talk about VIX ETPs, but I think the story around ETPs that incorporate all of our product strategies is a really compelling story for us. Okay, that's helpful.
Michael Carrier
Analyst at Bank of America
Thanks a lot.
Keith
Conference Operator
Thank you. And the next question comes from Alex Wadstein with Goldman Sachs.
Chris Allen
Analyst at CompassPoint
Hey, good morning, guys. I wanted to ask you about dynamic and equity market share trends. So, you know, obviously it looks like you've been losing pretty meaningful share, and I know you highlighted Ed Jackson. That's the one we tend to focus on more. But it looks like there have been some losses on the bad side as well. So maybe... Expand a little bit on why you're seeing incremental share losses now. What sort of pricing changes you've made? I think you alluded to something on that Jack side, but curious, you know, any plans for the rest of the cash equity franchise? And ultimately, how is that going to shake out in the blended capture rate we should be thinking about on the U.S. cash equity side from here?
Chris Isaacson
Chief Operating Officer
Yeah, Alex, good morning. This is Chris Isaacson. I'll take that one. As you can see, we've had higher than expected capture in U.S. equities recently. And we made a decision in May, we're going to reinvest some of that higher capture into the EdgeX book, where we've seen most of the market share attrition. So we made quite a change there, and we've seen some early results that are positive, but it's just a couple days in. We intend to be very, very competitive in this space, and we're going to reinvest that capture. We think this change on EdgeX will work very nicely with the retail priority that we have before the commission and hope to get approval this summer on that will, we think, put retail orders earlier in the intermarket queue position for them and hopefully improve fulfillment rates. For the rest of the exchanges, it's month by month. We're looking at market share and capture. And so I think as we reinvest some of that capture, you can expect the capture to come down as the market share goes up. We've made a choice here that we think You know, it's better for us and for our shareholders and customers if our market share is higher than where it's at now. So we're going to reinvest the capture.
Chris Allen
Analyst at CompassPoint
So just net-net between the SIP and the trading revenues there, should we be thinking about kind of that whole bucket being flattish? You lose in trading, you gain on market data, and that's kind of the framework?
Chris Isaacson
Chief Operating Officer
Yeah, the framework is, I think, you know, at least net revenue neutral for the entire complex for U.S. equities. But, you know, we want higher market share.
Chris Allen
Analyst at CompassPoint
Great.
Chris Isaacson
Chief Operating Officer
Thanks very much.
Keith
Conference Operator
Thank you. And the next question comes from Brian Bedell with Deutsche Bank.
Chris Isaacson
Chief Operating Officer
Thanks very much. Just a follow-up on two prior questions. Just on that last one, the market share we're tracking, it looks like the improvement starting on May 1st, and it's just a couple days in May, but it looks like it's coming in the BATS area mostly rather than EJEC, so maybe just talk about that. And then a follow-up to the question on the expenses earlier is, I guess if volumes in general broadly for the whole firm remain at sort of 1Q levels, not that we think they would, but if they were to do that, would you have more flexibility on that incentive comp side to come in closer to that $100 million quarterly run rate on expenses this year?
Chris Isaacson
Chief Operating Officer
This is Chris again. I'll take the question on the market share. For BZX equities market share, there were no material changes made in May for BZX equities, so That's probably just natural movement that comes and goes each and every month. The major changes were made on Ejex, and that's what we're watching very closely. No more color there. And then, Brian, if you want to cover the expenses.
Brian Schell
Executive Vice President and CFO
Yeah, Brian, on the expenses, and, you know, there would be nobody in this room, nor probably anybody on the phone, rooting for the scenario you just mentioned. But that would show up in incentive comp. I mean, as far as there would be a lower number, it would reflect a lower volume environment if the first quarter volumes were to repeat itself.
Chris Isaacson
Chief Operating Officer
Great. Thank you.
Chris Isaacson
Chief Operating Officer
I may follow up on the last question about BZX. equities. I haven't looked at the statistics yet. I will note that we are listing VXXB and now actually VXXB migrated to VXX as of I believe it was two days ago seamlessly. We're watching that closely. That's the listing venue for VXX. Remind you all, we talked about VXXB last time. There was a transition from VXX to VXXB, and now there was a name change back to VXX where the full transition is finally complete.
Chris Isaacson
Chief Operating Officer
Okay, yeah, maybe that's the driver. Okay, thank you.
Keith
Conference Operator
Thank you. And the next question comes from Chris Harris with Wells Fargo.
Chris Harris
Analyst at Wells Fargo
Thanks. With respect to VIX, it seems like the shape of the VIX curve has more anomalies than in recent quarters and recent years than it used to, which I think has perhaps led to some of the uneven volume outcomes we're seeing. Would you guys agree with that? And if so, why do you think that's the case?
Ed Tilley
Chairman, President and CEO
I think that's right. If you look at statistically the current shape, the steepness of the front month versus second, while that bounces a bit, the amount of flat days that we've seen in January and February is very unusual. And why would I think that is? I think that it's just a reflection, as my original comments, is just the perception of risk over that very short period of time. And that curve is most influenced, as I said, by the most recent events. I think when you have the volatility and the spikes involved, like you saw last year, that front month is way more volatile than it has been historically, which obviously changes the shape of that curve. The roll down trade, it's difficult when that front month is as volatile as it is. If we're going from 16 to 15, 13 back to 15, you're not as likely to engage in what has been a pretty consistent shape of the curve as you had like in 2017. So, you know, my reasons for the shape of that curve are not my own. It is basically just watching the customer's perception of that 30-day versus 60-day and all of those drivers of uncertainty. Where is the timing and the spectrum? And as I said, we've seen this steepness today because all of those four big drivers on the end of the fourth quarter are kicked out, you know, into the June through October time frame. but there'll be something new. There'll be more uncertainty. I guarantee it. We've seen it every cycle, but we just don't know what it is yet.
Keith
Conference Operator
Okay, thank you. Thank you. And the next question comes from Kyle Voigt with KBW.
Kyle Voigt
Analyst at KBW
Hi, good morning. Just on the slide regarding the proprietary non-transaction revenues and the mid-to-high single-digit growth guidance, You note that 70% of the prop data growth is being driven by additional subscriptions. I guess focusing on the access to the past VPs, can you give more color as to what's driving the growth there? I'm just trying to get a sense of how much of that is being driven by pricing changes. And then moving forward, are there any meaningful pricing adjustments that are planned for the remainder of the year, maybe as that tech migration occurs in October?
Brian Schell
Executive Vice President and CFO
Yeah, so that one is a little bit harder to – to break out because, for example, as you think about pricing versus kind of new ports, you'll see movement a lot as far as people, you know, as they test different strategies, increasing, say, and I'll focus maybe on ports because maybe it's an easy example of increasing capacity, then they'll have to increase or decrease depending on things they do. But one of the reasons it's hard to segregate price versus, I'll call it subscription, is, for example, the CFE tech that was just rolled out with that platform migration, there was significantly more amount of capacity that was rolled out as part of that platform, and so it was kind of the entire environment changed, and so the pricing changed, and so there was a hard way to say, well, this number changes because the throughput was different, and so that's an example of why it's hard to necessarily measure that, and You know, we expected some changes. Sometimes when you do have a price change of what happens to capacity, do we see the numbers fall? With any of the price changes we have seen, we really haven't seen any material reduction in it. So it's really across the board. As I look across the segments of the proprietary market data, it's pretty solid across the board up. The biggest one is, like I said, we mentioned some of the futures, we mentioned some of the options. So it's kind of across the board of what we're seeing. So it's not any one thing. So, again, long-winded way of saying that it's hard to tease out. But, again, we continue to monitor and take a look at it. And, Chris, I think you are directly involved in a lot of that as well.
Chris Isaacson
Chief Operating Officer
Yeah, Kyle, so we assume some attrition of capacity or port fees when any tech migration. But, in fact, we've seen lower attrition than we expected as people need, in fact, more capacity as the platform is faster and they want to move their interest around. On the market data front, with each platform migration – We have new data products, order-by-order feeds, things that weren't available on the old platform. And with new data feeds, people have demand for that.
Brian Schell
Executive Vice President and CFO
And Chris makes a really good point that I just wanted to follow up on, which I didn't make earlier, about the proprietary market data. That is – and we've talked about the growth that we've seen in the U.S. equity side with respect to SIBO 1 and what we're doing and growing that and basically all the shoe leather – that we're doing to continue to drive that subscriber. It generally can be a long lead time, but we're starting to see the efforts to pay that pay off. Actually, the biggest growth that we've seen is actually on the options side, and as far as some of that growth, so we're seeing actually on the enhanced market data side, coming through when the live ball transaction we did multiple years ago, we're starting to see the fruits of that coming through. So we're starting to see more and more traction around other parts of this market data story that are now starting to, like I said, show up in the results incrementally year over year. So again, it's the biggest growth actually came from that options group. But again, we saw positive numbers across each of the asset classes.
John Dieters
Chief Strategy Officer
John, just on the point of the philosophy behind how we run a business on the options market data side, we think about that in terms of the revenue opportunity in and of itself, but almost as importantly, the way those tools, those data tools can support trading in our markets. So we focus on this reinforcing feedback loop. They're not separate businesses philosophically. And so we like to see the market data line increase, but ultimately that's a seed. We've talked a lot about seeds in this call. That's a seed that's being planted for future volume.
Keith
Conference Operator
Got it. Thank you. Thank you. And the next question comes from Chris Allen with CompassPoint.
Chris Allen
Analyst at CompassPoint
Morning, guys. Most of the questions have been asked and answered. I guess just a quick one on the regulatory fees jumped up a bit this quarter. I wonder if there's any one-timers there. Is this a good one going forward?
Brian Schell
Executive Vice President and CFO
The only thing I think that we have is it would be in the futures where there was, I think, the fine that we reported. But otherwise – noise, sometimes, you know, you get rate adjustments from texture theorems. So there's just going to be some noise. There's nothing there that I would say that we see a continuing trend or anything in the model.
Keith
Conference Operator
Thanks, Chris. Thank you. And the next question is a follow-up. Myles Cram with UBS.
Alice Cram
Analyst at UBS
Oh, hey. Hello again. Just on the VIX ETP side, you had that slide in the growth, and I think there was a question about this earlier. I think you gave a lot of color around VIX trading strategies and what people are doing, but I think that discussion was a little bit more about sophisticated people using your options and your futures directly. Just trying to see what is driving the VIX ETP interest again. I know it's difficult to see, but what are you hearing in the marketplace? Is retail coming back? I think people are asking for leveraged products again. What's going on in ETF space? Because historically it's been a big driver of growth, I think.
Ed Tilley
Chairman, President and CEO
It has. And, you know, with the CFTC, you know, the largest position in short VIX futures is a result of the long positions in ETPs. And you've got to sit back and scratch your head with how does that happen? So retail, yes, engaging in taking long positions, and whether it's VXX or levered TVIX, The result is when you're taking the long positions in the ETP, someone's selling those long positions and looking to our VIX futures to hedge, and they're buying VIX futures. There is a liquidity provider that has to sell those VIX futures, and that record short interest in VIX futures is as a result of the retail and the small investor taking long positions in ETPs.
Alice Cram
Analyst at UBS
Okay. I guess the question is, like, Is this all retail? Are they semi-professionals? I guess when you go to your risk management conference, are there a lot of people running around using the ETPs, or is this more a marketplace that you don't directly touch, I guess is the question? Because it seems like in previous periods, when retail got hurt by something like this or similar, it goes away for quite some time. So just wondering if you're hearing, seeing more retail coming back is the question, really.
Ed Tilley
Chairman, President and CEO
Yeah, if we look at that by contract size, because we don't, obviously, as you know, Alex, you know this well enough, we don't have transparency into clearing and where the ETPs and the interest clears. If we look at contract size, it's pretty balanced. The more sophisticated trader tends to use the roll-down effect of an ETP to their advantage. and offset the ETP exposure with pure play into VIX futures and options. Retail, because it's so easy, it's easy to track parity with an ETP and options on those ETPs. That tends to be more retail friendly. But by size, it's pretty balanced on size. And the complex, I think it's important to look at the entire complex. Our users look at the complex in its entirety. ETPs are just one extension to volatility exposure, but tends to be way more retail-friendly in general.
Alice Cram
Analyst at UBS
Okay.
Keith
Conference Operator
That's helpful. Thank you. Thank you. The next question also is a follow-up with Richard Petter with Sandler O'Neill.
Rich Rupert Petto
Analyst at Sandler O'Neill
Yeah. Hi, guys. Just a brief follow-up just on, I think, an interesting area that you're looking at. The retail, this is on slide eight, when you, Chris, you talked about You're trying to give some execution priority to retail limit orders. And I guess the question is, can you describe that or how you're doing that? Because at least I thought that you had to treat all classes of customers at the exchange level the same. I know there's been some, it's a fine line with the NYC has done things in the past. But could you explain how you're giving retail a priority on EJECT? Yeah.
Chris Isaacson
Chief Operating Officer
Yeah, sure, Rich. So this has some precedent in the options market where you have what's called customer priority and customers or quote unquote retail are given priority. So we're using that as precedent. And as you mentioned, there's been retail programs in the U.S. equities market kind of on the aggressive or marketable side to give priority to them. But yeah, this is just us giving retail priority for retail orders or orders that are clearly from retail If they're at the same price level as other interests from market makers or non-retail customers, they would go to the front of the line in time priority for retail orders. It's very similar to what we see in multi-listed options. This is what we're planning to do. Of course, the SEC has to approve this. We assume there may be a comment period. We've canvassed our customers. By and large, people are quite supportive of this. retail and non-retail.
Rich Rupert Petto
Analyst at Sandler O'Neill
Is this the first of its kind of priority in equities, those straight equities?
Chris Isaacson
Chief Operating Officer
This would be the first on the non-marketable side for resting limit orders. This is an idea that we, frankly, Brian Harkins, who runs that business and us internally, we've talked about for many years and feel like this is the right time to bring it to market.
Rich Rupert Petto
Analyst at Sandler O'Neill
Thank you.
Keith
Conference Operator
Thank you. And as there are no more questions, I would like to return the floor to management for any closing comments.
Debbie Koopman
Host
Thank you. That completes our call this morning. We appreciate your time and continued interest in our company.
Keith
Conference Operator
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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