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Operator
Conference Operator
Good morning, and welcome to the CBO Global Markets 2019 Second Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To try your question, please press stars and two. Please note, today's event is being recorded. I'd now like to turn the call over to Debbie Koopman. Ms. Koopman, please go ahead.
Debbie Koopman
Director of Investor Relations
Thank you, Keith. Good morning, and thank you for joining us for our second 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 initiatives. Then Brian Schell, our Executive Vice President and CFO, will provide an overview of our second quarter 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 uncertainty. 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 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 reference is made to the planned migration of the CBOE Options Exchange as subject to regulatory review. During the course of this call this morning, we will be referencing 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 & CEO
Thank you, Debbie. Good morning, and thank you for joining us today. I'm pleased to report on financial results for the second quarter of 2019 at SIBO Global Markets, which were primarily driven by higher trading volume in proprietary products compared to the second quarter of 2018, offset by flat to lower trading volumes industry-wide in U.S. equities, European equities, and global FX. We remain focused throughout the quarter on executing our strategic initiatives to drive long-term growth and value to our customers and shareholders. I will highlight those efforts after touching on the trading and market volatility landscape. Despite an almost 6% sell-off in May, the S&P 500 paired losses in June to end the quarter up a modest 4%. The June rally continued into July, touching new highs on July 26th, representing a 20% gain year to date. The VIX futures near record volume May, the fifth highest month in its 15-year history, was offset by a slow April and June as traders lacked conviction during the market's grind higher. In July, short-term consumer confidence remained cautiously optimistic, but we believe concerns over global slowdown in growth and escalating U.S.-China trade tension had investors re-evaluating risk. Rising long-term uncertainty led to a steepening in the VIX term structure in July and a renewed focus on hedging. Downside protection became a notable theme, and while the VIX index hovered around year-to-date lows and VVIX neared five-year lows, many investors were looking to VIX calls and SPX puts as cheap portfolio protection. Further demand from retail investors to hedge downside risk was seen in volatility-linked ETPs. Average AUM in volatility-linked ETPs increased 42% in the second quarter, averaging $3.7 billion versus $2.6 billion in the first quarter. A significant portion of this increase came from the continued growth of ETPs based in the APEC region. This contributed to a quarter-over-quarter increase in VIX futures open interest and VIX futures volume during global trading hours. Expanding our global footprint continues to be a main focus, and I'm happy to report that in June we received jurisdictional approval in Switzerland, allowing Swiss trading privilege holders direct market access to CFE. Direct market access is an important step in increasing accessibility to our products in regions outside the U.S. Turning to XSP, our mini SBX options contract, which is one-tenth the size of SBX and the same size as SPY, continues to demonstrate the value of our SBX product suite. Q2 2019 ADV is up 119% from Q1 2019 and up 314% from Q2 2018. Demand continues to build from investors looking for the increased risk management granularity provided by a smaller notional contract. Both risk management granularity provided by a smaller notional contract. Both jurisdictional approval and the growth in XSP are a direct result of customer feedback as we continue to focus on the needs of our customers with the goal of providing solutions for all of their risk management needs. Turning now to the U.S. equities market. I'm pleased to note that Adam Inzerillo, a long-time veteran of U.S. equities trading, is joining SIBO to head our U.S. equities business, which at present is a very dynamic segment of our company. At our last earnings call, we described our plans to increase trading on SIBO EdgeX exchange with fee changes aimed at attracting additional order flow and with the introduction of execution priority to retail limit orders. I'm pleased to note that after the implementation of some recent fee changes, Our U.S. equities market share rose above 17% in July from 15.7% in the second quarter. We are prepared to launch retail priority on Ejex pending regulatory approval and customer readiness. Both changes are designed to benefit individual investors and make Ejex the go-to place for retail trading. Now turning to European equities, where overall market volumes were lighter during the second quarter compared to the previous year's quarter, We believe the lower volatility globally, compounded with the shifting political and regulatory landscape in light of Brexit, left many market participants on the sidelines. Brexit preparations remain a top priority. In light of the ongoing political developments, we have shifted our strategy to ensure we are well prepared for any potential political and regulatory outcome. In May, we announced plans to launch our Dutch venue on October 1st with all European economic area stocks available for trading. Additionally, our UK venue will continue to trade UK as well as EEA stocks. This week, we announced plans to launch CBO Closing Cross, a new post-closed trading service that will bring valuable competition to the post-closed trading session in Europe. The new service is scheduled to launch on October 16th and will serve as a cost-effective one-stop shop for customers to execute their post-training activities across 18 European markets. Much as our SIBO market close proposal was developed in response to customer demand for an alternative closing auction in the U.S. equities market, European market participants have also long expressed a need for a trading alternative giving their increasing closing costs, auction costs and volume. We are pleased that CBO closing costs will bring much needed choice and competition to this growing segment of the European market. And we are prepared to bring similar benefits to the U.S. equities market through CBO market close pending regulatory approval. Turning now to technology. We are now nearing the planned completion of our migration of all CBO exchanges to Batch Technology on October 7th, which will allow us to maximize our value proposition by providing a superior, unified trading experience across all our equities, options, and futures markets. The completion of the migration is expected to also provide our customers with a more efficient and user-friendly trading experience that includes greater bandwidth, significant latency reduction, enhanced risk controls, and improved complex order handling. Just as we have with every successful phase of the migration to date, we continue to work very closely with our customers on the integration of our C1 Exchange and remain laser focused on the execution of a seamless technical and operational integration of this final platform migration. Completion of this major undertaking not only enhances our efficiency and value proposition, but will also enable us to focus the considerable talent of our technology team on new growth initiatives. One such initiative is the development of a state of the art research and data platform that we believe will help fuel the long-term growth of our company. We intend for the new platform to combine data derived from existing SIBO assets with new functionality created in-house to glean actionable trading insights for our customers across all of our business lines. This is a very exciting project for our team and one that leverages unique SIBO strengths, technology, research and development, to provide tailored trading strategies for our customers and to inform the creation of new SIBO proprietary products. We view the platform as a natural area of innovation for us, and we look forward to moving from concept to design and build phase upon the completion of the SIEM1 migration. In closing, I would like to thank our team for the progress made throughout the second quarter in laying the foundation for future growth. We continue to tackle market-defining initiatives as we rolled out unique equity trading services, made headway on the final migration of all of our markets onto a unifying state-of-the-art platform, expanded our global footprint, and began design of a unique research and data platform, all of which we believe will create growth opportunities going forward. With that, I will now turn it over to Brian.
Brian Schell
Chief Financial Officer
Thank you, Ed, and good morning, everyone. Before I begin, I want to remind everyone that unless specifically noted, my comments relate to the second quarter of 2019 as compared to the second quarter of 2018 and are based on our non-GAAP adjusted results. Overall, our net revenue was relatively unchanged with net transaction fees down 1% and non-transaction revenue up 1%. Adjusted EBITDA grew 3%. with margin increasing 230 basis points to 68.4%. And finally, our adjusted diluted earnings per share increased 8% to $1.13. The press release we issued this morning and our slide deck provide the key operating metrics on volume and revenue capture of 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 business segment. Our recurring revenue stream of proprietary market data and access and capacity fees combined increased 6% in the quarter and 8% year-to-date compared to the same periods last year, in line with our expectations for mid to high single-digit growth in 2019. We continue to see opportunity across all of our asset classes and believe that our migration to BATS technology will provide additional revenue opportunities over the long term. As it relates to proprietary market data, About two-thirds of the growth this quarter was a result of incremental subscriptions, and nearly 100% of the growth of our access and capacity fees was also attributable to incremental units. Now I'd like to turn to our segments. In our options segment, the 3% or $4 million increase in net revenue was primarily driven by higher revenue in market data and access and capacity fees, with non-transaction fees up 10%. Net transaction fees and options were flat, with index options up 2%, offset by a 9% decrease in multi-listed options. Index options average daily volume, or ADV, was up 6% for the quarter, offset somewhat by a 2% decline in revenue per contract, or RPC. The RPC decrease was primarily due to a mix shift, with many SPX options accounting for a higher percentage of volume. In our multi-listed options, ADV was up slightly, but RPC was down 8%, reflecting higher volume-based rebates. Turn to futures. The 4% or $1 million increase in net revenue resulted from a 7% increase in RPC on relatively flat ADV. The higher RPC year-over-year primarily reflects the impact of new pricing implemented in the latter part of 2018, as well as lower volume-based rebates. Turning to U.S. equities, net revenue was down 5% and earned nearly $4 million, primarily due to lower SIP market data revenue offset somewhat by an increase in access and capacity fees. The lack of growth in net transaction fees reflects flat industry ADV and lower market share offset by higher net capture. SIP market data revenue fell 14% in the quarter, while our proprietary market data revenue was up 1%. SIP revenue fell due to lower market share as well as a decline in audit recoveries versus last year's second quarter. Net revenue for European equities decreased 4% on a U.S. dollar basis, primarily reflecting the unfavorable impact of foreign currency translation. On a local currency basis, net revenue was up 1%, reflecting a 6% decrease in transaction fees, offset by a 14% increase in non-transaction revenue. The growth in non-transaction revenue reflects increases in access to capacity fees and other revenue, which includes licensing and trade reporting revenue. The decline in net transaction fees was due to lower market volumes and market share, offset somewhat by favorable net capture. The higher capture resulted from continued strong periodic auction and LIS volume. Net revenue for global FX decreased 10% this quarter, reflecting a 15% decline in volumes, offset somewhat by a higher net capture, which was up 4%, primarily reflecting the impact of fee changes made in 2018. In addition, we grew market share to 15.2%, up 30 basis points year-over-year. Before I move to adjusted operating expenses, I'd like to point out two acquisition-related expenses incurred in the second quarter, which are included in non-GAAP adjustments. First, we classified our Chicago headquarters location as property held for sale, and based on our evaluation analysis, recorded an impairment charge of $6.1 million. The marketing of our headquarters building and planned relocation is a result of a reduction of CBOE's employee workspace requirements in Chicago post the BATS acquisition and is projected to be completed in the second or third quarter of 2020. Based on an anticipated restructuring of SIBO VEST, we recorded an impairment charge of $10.5 million. We are in the process of negotiating a sale of the majority of our shares in VEST, which would result in SIBO's ownership changing from 60% to approximately 25%. Please note that there are no assurances that potential transactions will ultimately occur. Turning to expenses. Total adjusted operating expenses were just over $103 million for the quarter, down 3% versus last year's second quarter. The key expense variance was in compensation and benefits, primarily resulting from a decrease of over $6 million in incentive and equity-based compensation and about a $2 million decrease in wages and payroll taxes, offset somewhat by an increase of about $4 million in deferred compensation plan expense. Decline in incentive-based compensation is aligned with our year-to-date financial performance. The deferred compensation expense is directly offset by deferred compensation income reported in other income, so there is no impact to net earnings. This expense or income is based on the change in valuation of our deferred compensation plans. As a result of the year-to-date decrease, primarily in compensation and benefits relative to our original expectations, we are adjusting our full-year 2019 expense guidance to be in the range of $405 to $413 million, down $10 million from our previous guidance range. With 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 plan to continue to invest in enhancing our customer-facing business development team to drive greater engagement in our proprietary products, as well as development of an enhanced research and data platform, which Ed referenced previously. We are maintaining our run rate expense 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 27.7%, below our prior guidance of being at the higher end of the annual guidance range of 27 to 29%, and lower than last year's second quarter rate of over 29%. The tax rate decrease was primarily due to excess tax benefits related to equity awards. We are reaffirming our full year tax rate on adjusted earnings guidance to be at a range of 27 to 29%, but we now expect the rate to be at the lower end of the 2019 guidance range. We are also reaffirming our guidance for depreciation, amortization, and capital spending. For capital spending, we now expect to be at the lower end of our guidance range of $50 to $55 million, reflecting a shift in the timing of expenditures associated with our pending headquarters relocation. Turning to capital allocation, we remain committed to a disciplined and balanced capital allocation strategy that includes reinvesting in our business, complementing our organic growth with potential acquisitions, and providing steady distributions to our shareholders through dividends and opportunistic share repurchases in order to maximize shareholder value. During the second quarter, we returned nearly $35 million to shareholders through dividends, and earlier this week, our board increased our third quarter dividend by 16% to $0.36 per share from $0.31 per share. In addition, we utilized cash on hand to repay the $300 million senior notes, which matured on June 28, 2019. Our debt now stands at $925 million, and we have $250 million available and availability under our revolver if the need arises. At quarter end, our leverage ratio stands at 1.2 times, down from 1.5 times at the end of the first quarter. We ended this quarter with adjusted cash of nearly $136 million. Our remaining share repurchase authorization in the third quarter dividend increase reinforced our continued commitment to returning capital to shareholders, and to increasing shareholder value. We remain committed to maintaining an investment-grade balance sheet and strong financial position that enables us to continue to make prudent investments in our business to drive long-term profitable growth. In summary, SIBO is executing on strategic initiatives and setting the stage for both short-term and long-term performance with our continued focus on defining markets globally, growing our proprietary index products, growing our recurring revenue streams, discipline 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 an increased quarterly dividends and potential share repurchases. With that, I will return it over to Debbie for instructions on the Q&A portion of the call. Thanks, Brian.
Debbie Koopman
Director of Investor Relations
At this point, we'd be happy to take your 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, we're ready for Q&A.
Operator
Conference Operator
Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your hands up before pressing the keys. If any time your question has been addressed and you would like to withdraw it, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Rich Perpetua with Sandler O'Neill.
Rich Perpetua
Analyst at Sandler O'Neill
Yeah, good morning, Ed and Brian, and I believe Chris is there as well. First, I want to congratulate you on adding Fred Tomczak to the board. He's got a lot of experience in the retail industry and, you know, a good leader. Thanks, Rich. Anyway, so my question, I guess, since I have one, will be broad. On the new research and data platform, it seems like you're going to dedicate some resources there. And, of course, you've heard the LSE Refinitiv deal. I guess the question is, are you able to compete from a market data standpoint with a larger platform that sort of aggregates market data across a number of content providers? And how important is – sort of the market data initiative, I guess, is this going to be, will we see more focus on it from exchanges going forward? This is just the beginning of a trend. A trend that's already been going on for several years.
Chris Isaacson
Chief Operating Officer
Yeah, Rich, this is Chris. Good morning. The new data analytics platform that we're going to be focused on post the C1 migration is just a recognition that we have been very focused on the trading platform for the last two and a half years. And now we will have the time and resources to invest in a research and data platform that will primarily be focused on helping us launch new products and better understand our current markets and our current customers in a much more data-driven way than we do today. As you know, we've made investments both in raw data, the real-time market data, and new products we've brought out across our exchanges, as well as derived data with offerings like Livefall. But this is us going to really invest more into a data platform to make that data available first internally to all the business units to make better data-driven decisions and then ultimately enhance our derived data offerings for those across the street, for those of our customers, both existing as well as new customers, that we may not touch directly today. So this is still in the early phases. As Ed mentioned in his comments, this is really in the concept phase, and now we'll get into design and build post-C1, but we're quite excited about it.
Ed Tilley
Chairman, President & CEO
Rich, think of, you've asked us and you've asked Debbie to help you understand the size and the potential of the market out there. Knowing our customer and any more transparency we can have into their strategies, use case, penetration globally. That's really what we're after, so it's a little different effort for us. We have such a unique product set, and we've always told you and tried to describe to all of you how these contracts are used interchangeably, when one contract is used over the other. All of that transparency helps us pinpoint the direction of our sales effort going forward. So it's all the things and the metrics that you've been looking for over the years. We're going to get better at that, and that is what we're out to accomplish with our new effort.
John Dieters
Chief Strategy Officer
Rich, this is John. I'll follow up on Chris and Ed's comments just with a strategic perspective. You mentioned the LSE deal, great deal, bold deal, a lot of diverse data there. That all makes sense given the footprint, LSE's existing footprint in data services. We're a different kind of company. We're interested in data, but we're interested in data that relates directly to our markets, either as inputs or outputs, so that it has relevance to our existing customer base. And that will continue to be our focus. We're market operators, and the data that we provide to the marketplace relates to those markets.
Rich Perpetua
Analyst at Sandler O'Neill
Thank you. Very helpful.
John Dieters
Chief Strategy Officer
Thank you.
Operator
Conference Operator
Thank you. And the next question comes from Alex Graham with UBS.
Alex Graham
Analyst at UBS
Hey, good morning, everyone. Would love for you guys to flush out your closing cross announcement in Europe a little bit more. Closing cross announcement in Europe a little bit more. I have to admit, I'm not as familiar with the lay of the land over there. So, you know, obviously, what are the incumbents doing in terms of, you know, pricing and economics they're getting? You know, what exactly are you planning here? And then what's the lay of the land in terms of, you know, brokers already offering something like this over there, which in the U.S. exists. I don't think it's as big in Europe. I think there's another exchange that has an offering already out there. So I know it's a long question, but I think you know where I'm getting at. Just give us what are you thinking about here and how are you going to undercut pricing, et cetera?
Chris Isaacson
Chief Operating Officer
Good morning, Alex. This is Chris. I'll take this one as well. So we're quite excited about this. I mean, this is a really a parallel effort we've been going on in the U.S. with our SIBO market close. But SIBO closing cross in Europe is, we think, a very good opportunity for us given the, as we shared in the slides, the percentage of volumes going off at the close in Europe in the high teens. They're actually 20% now. So there likely are offerings already off exchange, and we're not sure exactly all of the offerings. And there are some from competitors, but We think we're quite excited about this one, what we're doing, because it's very simple. It involves an at-limit order type. Firms enter the prices at which they want to execute. And in all the details of how that will operate, we announced yesterday. And this really just is a recognition of our customers coming to us in the typical fashion in which we operate. They view this as a problem as prices around executions at the close are going up. The domestic or home exchanges are charging more for that monopoly event. And so we think we can compete in this area with a very elegant and simple solution that we launch on August 16th. There will likely be other competitive solutions. That's okay. We embrace competition here. But we think the elegance of our solution, as well as our incredible network of trading 18 markets in Europe, as well as You know, the massive amount of customer connections will make the uptake of this pretty strong from the start.
Ed Tilley
Chairman, President & CEO
But, Alex, the motivation, really simply, as we've said in the prepared remarks, the stable market close in the U.S., this is really where CCC was born. It was cost or demand to have an alternative, plain and simple. So won the SEC, hopefully won the SEC. ultimately approves our U.S. version, we'll be often all of our venues offering an alternative to the existing. So looking forward to it.
John Dieters
Chief Strategy Officer
So one more point on Europe as well. I think it's important to understand brokers are restricted by MIFID II from crossing on their own books. And so this is an offering that is being requested by our customers, and we think it will have pretty immediate relevance.
Alex Graham
Analyst at UBS
And sorry, no color yet on kind of like fees or how much relative to the home markets the fees are going to be or how much your revenue captures. Maybe you're going to be different in the auctions versus during the market time.
Chris Isaacson
Chief Operating Officer
Yeah, Alex, this is Chris. So we said in the announcement we plan for it to be free of charge until the end of the year, and then we'll reevaluate from there. We think we expect some uptake, but we want to make sure we facilitate that with the right pricing to start. All right, thanks again. Thanks, Ellis.
Operator
Conference Operator
Thank you. And the next question comes from Ken Worthington with JPMorgan.
Ken Worthington
Analyst at JPMorgan
Hi, good morning. You've been highlighting your pursuit of a big deal for at least the last six months, and you've given us updates on whether it's live or not. So I guess part one is, do you still have a live deal? And more broadly, maybe given LSE Refinitiv, how are you thinking about the need of size and scale? So exchange consolidation continues. They're getting bigger. They're getting more efficient. They're broadening their footprints. How important is size and scale today versus a couple years ago? And where does M&A stand as a CBOE priority today versus where M&A maybe stood a few years ago?
Ed Tilley
Chairman, President & CEO
So let me kind of – I don't want to correct you, but I don't think we've got it on large deals. I think what we've been referring to is we are always looking at things and ways to touch our customers earlier in their trade process or later in their trade process and tuck-in or bolt-on deals are always important to us. That's a build versus buy. Broadly speaking, when we talked about M&A over the last quarters, it was responding to questions as, you know, has SIBO's view on M&A changed? We said, well, in light of the completion of a change, we said, well, in light of the completion of a systems migration and full integration of BATS, Our board, our balance sheet are in a different position to be still same outlook, very choosy in looking at any global deal, not needing to engage like perhaps some of our other competitors. Our growth still best potential is our organic growth story, our penetration in the U.S. market and existing products, and the globalization of these incredible benchmarks and breadth for any exposure to the U.S. So that remains our number one focus. We do look at larger-scale M&A, but it was with a much more – I don't want to presume anybody else is not a disciplined approach, but we just don't need to engage in large-scale M&A. So we're really, really choosy. But, John, specific to Refinitiv, you gave a couple opening comments on that, and then we'll come back to scale and answer that question.
John Dieters
Chief Strategy Officer
Yeah, Ken, thanks for the question. So this is John. I think – In terms of scale with respect to our business, you've seen the quarter, the expense discipline, the performance with a very clearly defined business plan and a very tightly controlled organization expense-wise. I don't think a scale really is necessary in that context. I hear it referred to often as an enabler of the next big deal, and that just becomes a uh really a a kind of self-perpetuating cycle where you get scale so you can do the next big deal and you know potentially lose focus on really what it is you do well at your core um you know the um the the compensation and benefits line that brian talked about and how that may vary with our performance you can't have that kind of performance based culture and alignment unless you have a very very clear vision of what your business is about and so that's incredibly important to us and it will continue to be important to us. Again, the LSE deal, from our perspective, makes a lot of sense for them. We're happy to see them continue to strengthen their business because we're partners with them on many levels, you know, Curve Global, Footsie Russell. Even in Europe, we utilize their clearing facilities. But we've got a different approach.
Ken Worthington
Analyst at JPMorgan
Okay, thank you. Thank you.
Operator
Conference Operator
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 the VEST impairment and multiple, like, past and current investments and growth initiatives that you guys have in place, can you maybe just provide, like... Okay.
Operator
Conference Operator
Thank you. And the next question comes from Alex Wollstein with Goldman Sachs.
Sherik
Representative (filling for Alex Wollstein)
Hi, this is Sherik filling in for Alex. Thanks for taking the question. On the Chicago headquarters, can you help us understand the expense impact of this move to the new location in 2020 and what are your plans for using the proceeds from the sale?
Brian Schell
Chief Financial Officer
So on the OpEx side of it, right now the immediate impact is, it's not gonna be material. Obviously there'll be a little bit of a, you'll see a little bit of a shrinkage in the depreciation as we highlighted. That'll be a slightly smaller number, but kind of factor that into overall guidance as to something we thought would happen during the year. So you won't see anything material in 2019. So think about 2020. As we transition into a potentially new location, The operating expenses should be slightly better to neutral in 2020. Over time, as we actually expect this to be even more positive because there's a significant amount of deferred maintenance that we know will ultimately need to occur in the existing building that we're in just given the age, given where we are. So it's somewhat of a cost avoidance next year down the line of call it two, three, four, five years. But the efficiency of the new space that we're going into you know, with the lease rates and everything that we're kind of, you know, kind of trying to finalize, we expect to be somewhat neutral. So, we do not expect to see an increase. And actually, over time, we actually expect to see a decrease. Again, not material in facilities. If nothing else, probably more flat. And really, through the minimization of a lot of deferred maintenance that we know this building will need and such, we've taken this approach. Again, That's just from a pure P&L standpoint. I will tell you, though, that some of the spaces that we're looking at from a culturally efficiency and everything we're looking for, I think it's actually going to be quite exciting for our overall associate base as far as a new space here in the downtown Chicago area. So for that point, we're very excited for our employees, for our clients. and for our shareholders overall for that transition to happen. And ultimately, we'll be very excited when we can make that announcement more public about specifically what we're doing.
Sherik
Representative (filling for Alex Wollstein)
And any plans for the proceeds from this year?
Brian Schell
Chief Financial Officer
Oh, thank you. So it's going to be relatively immaterial for the proceeds, but we'll roll them in. It's not going to be something that you'll necessarily notice that's like, oh, my gosh, what are you going to do with a big chunk of cash? There will be cash, obviously. But we would just roll it into our – I would give you the same – and I know you don't want me to launch into a 70s rock song ballot about our capital allocation of how we look at that. But we would basically just, again, roll that into our normal use of funds, and it's all fungible as far as where we would apply that capital allocation broadly.
Operator
Conference Operator
Got you. Thank you. Thank you. And the next question comes from Brian Bedell with Deutsche Bank.
Brian Bedell
Analyst at Deutsche Bank
Great. Thanks. Good morning, folks. Maybe we dive into the retail strategy in U.S. equities a little more. Obviously, you brought Fred Tomczyk on the board and made a new hire in U.S. equities. And then maybe tie that into your expectations for the market on closed proposal, whether you think the SEC may be closer to approving that given that you're launching it in Europe. And kind of any sense of to what extent you think you can increase market share in U.S. equities as a result of these efforts?
Ed Tilley
Chairman, President & CEO
So let me start with market close. Each quarter we're in front of you, we're hopeful that this is the quarter that we're going to share with you, that the SEC is reaffirming the approval we received, gosh, about a year ago. Um, so, uh, we're still hopeful and from Chris Isaacson and operational team is ready to go. Uh, and our customers, uh, as I spend time with them, that is one of the first questions is when do I get, uh, to use SIBO's market close? So the demand is still there. The readiness is there. Uh, it is amazing when we look at the approval process on, uh, our 3C approach in Europe, uh, versus the extended approval process here in the U.S. But nonetheless, we're still optimistic and ready. So as far as the share, Chris will get into some detail. But remember, on our last call, we said there is a balance always between our capture and our share. And we set out to affect that balance in a positive way on share. We executed on that plan late. But, Chris, I invite you to give us some more color.
Chris Isaacson
Chief Operating Officer
Yeah, just as we said on the last call, our capture was higher than we expected, while our market share was lower than we had expected on the last call. And so we said we're going to reinvest some of that capture to raise market share, and Brian Harkin's team have done exactly that. Market share, as you saw on the slides, for July was a little over 17%, and we're eagerly awaiting the approval of retail priority on Ejec's as well, getting regulatory approval and the customer readiness, hope to launch that very soon, which we hope will grow market share even further as we don't just add economic incentives but actually execution priority incentives for retail customers to put their order flow there. Another other thing we're doing overall to hopefully improve market share or equities markets is a new lead market maker program that we rolled out actually just yesterday. to try to attract more ETP listings, especially large transfers. We're very excited about that. And so it's a full-court press. It's a very competitive business in U.S. equities, which we're fully committed to. And we're going to try a lot of things, as we are always balancing net capture as well as market share. But we like the trajectory we're on.
Ed Tilley
Chairman, President & CEO
And thanks for recognizing the addition of Adam and Fred. So the way we approach this talent does go all the way up to the board, so we have an incredibly engaged board. And you're right, adding Fred Tomczyk and having the board have the perspective of a dynamic leader who's very familiar with the retail space will be helpful as we lay out our plans going forward.
Brian Bedell
Analyst at Deutsche Bank
Thank you. It sounds like with your initiative, you're able to potentially grow that share with less of a revenue capture decline in the future. I know there's always a balance, but is it fair to think that you might be able to achieve that?
Chris Isaacson
Chief Operating Officer
It's always a balance, Brian, but we, you know, our goal is to obviously grow revenues over the long term, net revenues over the long term. Some of that has to do with, you know, providing better functionality that will increase execution quality for our customers.
Operator
Conference Operator
Okay, great.
Brian Bedell
Analyst at Deutsche Bank
Thank you.
Operator
Conference Operator
Thank you. And next, we have a follow-up from Alex Cram with UBS.
Alex Graham
Analyst at UBS
Yeah, hey, guys. Just want to rattle off a couple of follow-ups if that's okay. One, regular fees have been running a lot higher this year, and so I don't know if you've talked about this, but is this a good run rate, I think 9.4 million or something, and why is this higher? And then since you just talked about the equities market share gain, I'll try as well on that one, on the revenue capture. I mean, any sort of help you can provide from what you're seeing so far on July, you obviously left that bar chart very empty on that slide. And I have another follow-up, but go ahead on those two first.
Brian Schell
Chief Financial Officer
You're breaking the rules, Alex. Give us them all, Alex, because we're out of bounds anyway. So what's the third? The third.
Alex Graham
Analyst at UBS
No, the first one is not a quick one. I just wanted to, since you obviously launched a new sales effort on the core options business or proprietary product business with some key hires a few months ago, just wondering if you have any update in terms of something that you're seeing already moving in another direction or even how you would be measuring success of some of those key hires, you know, making an impact, I guess, with new client gains, et cetera.
Ed Tilley
Chairman, President & CEO
Cool. I will take the last. Why don't we start with regulatory fees and equity rev capture as much as we can. Sure.
Brian Schell
Chief Financial Officer
So, again, assuming you're looking at it on kind of a net basis versus obviously taking out the Section 31, which obviously is influenced by the rate the SEC sets. So on the rate story fees, I think if you look at it year over year, yes, it's an increase. But sometimes it's influenced by fines. Sometimes it's influenced by a number of things that obviously is not anything you can run rate project. But if you look at it sequentially versus the first quarter, it's actually down. So I don't look at that anything more than noise, which is one of the reasons why we didn't highlight it. And again, on the option side, it may have been a little bit higher as we continue to some of the expenses that we are working through somewhat related to the migration as well on our reg side with the ORF fees, there are slightly higher expenses as we ramp up some of the expenses that deliver some of that, which, correspondingly, we'd expect it to be declined going forward, which you'd see a declining expense also on our own income statement that the clients would get the benefit of as well. So I wouldn't read income statement. that the clients would get the benefit of as well. So I wouldn't read too much into that as far as the run rate goes, given the variability to it. On the revenue capture and equities, we intentionally didn't include that for July, only because the data was incomplete, and we just hadn't finalized that, and we hadn't gone through our QA just to make sure it was there. So we just didn't want to put out a number two prematurely. We weren't really trying to hide it. We have a cycle and a cadence of releasing that, so we just didn't issue that. So we will be issuing – that guides on our normal process.
Ed Tilley
Chairman, President & CEO
So then if you think about the global client services team and the way what we've outlined for you on the last call, it really is taking someone looking at the market. Imagine yesterday, right? You have a 60-point move in the S&P 500. You've got a confused or a scrunchy-faced user or investor looking at that move in the market saying, how do I de-risk the situation that I find myself in. We need a sales team who is completely armed and looking at our user team across the globe and different segments in customer use case. That's what we're gearing up for. We're about, I would say, 40% of the way on the new hire and appreciating those of our client services team that have brought us to where we are today, who've done an incredible job getting us to today. But tomorrow, the sophistication, the use cases, the change in the market is so fast, so violent, and we are the go-to exchange when those market events happen. Yesterday is a perfect example. We had 30 days leading up to an announcement that everyone knew. We had low, almost five-year lows in VVICs. The increase in large block calls in VICs, those were all on the uptake. We need a team out there that can articulate the whys and the history of what happens when we see large moves. So that's the goal. So about 40% there on the hires, and we can't wait to keep you up to date. And then, of course, the new data and analytics platform, really getting to know those customers better is the goal for everything we're building for the organic growth story, and can't wait to tell you more.
Alex Graham
Analyst at UBS
All right.
Ed Tilley
Chairman, President & CEO
Thanks again, guys. Thanks, Alex.
Operator
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
Director of Investor Relations
Thank you. This completes our call this morning. We appreciate your time and continue to interest in CBOE Global Markets. Thank you.
Operator
Conference Operator
Thank you. The conference has now concluded. Thank you for attending today's presentation.
Debbie Koopman
Director of Investor Relations
You may now disconnect your lines.
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