CME Group Inc.

Ladies and gentlemen, good day and welcome to the CME Group first quarter 2020 earnings call. At this time, I would like to turn the conference over to our first presenter, Mr. John Pescher. Please go ahead, sir.

Good morning, and thank you all for joining us today. I'm going to start with the safe harbor language. Then I will turn it over to Terry, Derek, and John for brief remarks, followed by your questions. Other members of our management team will also participate in the Q&A. Statements made on this call and in Other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website. Lastly, the final page of our earnings release, you will find a reconciliation between GAAP and non-GAAP measures. With that, I would like to turn the call over to Terry.

Thank you, John, and thank you all for joining us this morning. We hope you and your families are healthy and staying safe. Today, we have Julie Winkler joining us along with Ken Broman. Julie heads up our global sales and research areas, and she has taken over our data business. Ken is now running our optimization area, and our international business. Julie and Ken are taking on several of Brian Durkin's responsibilities as he transitions to his role as an advisor. Also, I'm going to have Derek Salmon make a few comments regarding the energy market at the end of my remarks. These are obviously extraordinarily difficult and challenging times for all of us. The COVID-19 pandemic has taken a devastating toll on human life and created unprecedented uncertainty around the world. It has also changed our daily lives in ways that seemed unimaginable only a few weeks ago. The heroes in this crisis are clear. Our sincere thanks go out to the entire medical community fighting this disease on the front lines and aggressively working towards a vaccine. We also want to thank the many first responders who continue to risk their lives to keep us safe. At CME Group, we remain focused on the health and safety of our entire community. We took early action and we're the first in the industry to close our trading floor to protect our employees and market participants who access that facility on a daily basis. We also implemented work from home mandates and travel restrictions to protect employees across our global offices. We are proud of the resilience of our team and how they have risen to this new challenge. Our employees continue to work incredibly hard to help our customers and partners navigate through this challenge and its increased uncertainty and volatility. With that in mind, I'd like to highlight a number of metrics that we think reflect our performance this quarter and are important to consider as we look forward. Our systems and processes performed extremely well with peak order traffic during the quarter, and we saw very consistent response times. Our highest volume day on record took place in the first quarter, when we traded 58 million contracts on February 28th. Aside from the peaks, Q1 volume set records across many different product areas as our global clients managed risk. Average daily volume for the quarter was 27 million, up 45% from 2019. In addition, our volume in the first quarter from clients outside the United States was particularly strong, averaging 7.3 million contracts per day, or up 56%. As a result, clients continued to be able to manage their risk across all products in all time zones. We also maintained our industry-leading clearing function to provide safeguards for every trade. In response to increased volatility, we raised margins on many products across most asset classes. These prudent risk management policies were reviewed with both our clearinghouse risk committees and our regulators. We are in daily contact with our regulators to ensure the health of our markets during these unprecedented peaks of volatility. Let me turn to the trading floor for a moment. Our options volumes in key products, especially interest rates and equities, that have traditionally relied on the floor have held up well since we closed it. We've successfully assisted many clients who trade on the floor to the screens. leveraging our own front-end platform in order to quickly register and onboard a significant number of new users over a short period. And in the five weeks since then, interest rate options as a percentage of interest rate futures have remained at roughly the same levels. So far, these volumes are actually ahead of where they were on the last few days that the pits were opened. As many of you know, we have made a significant effort to increase our global sales presence. We began to make an investment several years ago and to deepen our client coverage around the globe, and that has served us extremely well with our regionally focused sales model. Today, more than half our sales staff is based outside the United States. We have sales professionals in 19 cities located in 15 countries around the world. Our sales, product management, clearing and operation teams have worked closely together to handle client engagement during this pandemic. With client interactions at record high, client feedback consistently mentions that our proactive outreach stands out compared to others in our industry. We believe these efforts will continue to pay off. We saw broad-braced strength across all customer groups, including asset managers, hedge funds, banks, prop trading firms, commercials, and retail. Our retail business was up more than 70% growth with considerable strength in the U.S., Europe, and Asia. Last, but certainly not least, we made considerable progress during Q1 to integrate the next business. We divested NextExchange, and we integrated our London offices where more than 600 of our employees work. We completed over 290 cross-selling meetings to clients from both our traditional futures business and those of the cash and optimization business we acquired. For reference, that compares to 400 of these cross-selling meetings during the full year of 2019. The largest percentage of these meetings continue to be focused on new clients in our interest rate and FX and options businesses. And we also are seeing success with optimization EBS, broker tech, and data services. To summarize the first quarter, the market environment was challenging for all of us on a professional and personal level. I am proud of the dedication of our employee base as they stepped up to the challenge. We also appreciate the trust that our market participants have in our ability to deliver results. Looking ahead, we do not know yet what the long-term impact of COVID-19 will be, But we do know that financial markets are an important part of maintaining our economy and ultimately recovering from this tragedy. As we move forward through 2020, our strategy remains the same. To build strong global benchmark offerings with deep liquidity around the clock. To continue to our commitment to offer all of these asset classes on common platforms. To deliver world-class risk management and capital efficiencies. to promote broad participation, offer robust distribution, and continue developing our strong channel partnerships. We look forward to answering your questions you have. But before that, I'm going to turn the call over to Derek Salmon. Derek?

Thank you, Terry. As Terry mentioned, the COVID-19 pandemic has caused increased uncertainty and elevated volatility across all of our asset classes, including our global crude oil market. I'd like to take a moment to provide our perspective on what happened in the crude oil market last week to further context most of these events. Overall, the WTI futures market performed as they were designed in a challenging market environment. And I'll share a few comments on what we saw in the market to illustrate that further. Continued downward price pressure and a significantly steepening contango have created unique challenges for the global oil market over the last few months. Along with a significant oversupply of oil, there has also been a drastic reduction in global demand. with global daily oil consumption decreasing from 100 million barrels a day to 70 million barrels a day. Heightened concerns about storage capacity in the U.S. and abroad have intensified the downward pressure on oil prices as well. In early April, anticipating that these market dynamics may create the potential for negative pricing, CME Group proactively informed our regulator, our cloning firms, and the marketplace that our trading and risk management systems were capable of handling negative prices in the WTI contract should market dynamics require it. Prepared for such an eventuality, we saw WTI trade negative on April 20th, driven by the same fundamentals I mentioned a moment ago, oversupply, reduced demand, and increasingly full U.S. storage. Our WTI contract reflected these challenging underlying dynamics on Monday as the cash and futures markets were converging going into Tuesday's final settlement of our WTI physically delivered contract. I should also note that while negative prices are rare, they're not entirely new in energy and power markets. We've seen multiple examples of negative price in energy and power in the U.S., Germany, and the U.K. I'd also like to briefly comment on the strength of WTI as a global benchmark. Today, WTI represents 56% of the global trade in crude oil futures, including more than 60% in April. WTI is the market's choice for managing crude oil exposure, and we believe that is because optimal commodity benchmarks are based on physically delivered products. Physical delivery is the gold standard of these contracts because it ensures convergence with the underlying cash market. Commercial and end-user customers who participate in physical oil markets need the certainty that convergence provides so that they can optimally manage their underlying risks. WTI futures settle with actual transactions that result in physical delivery as opposed to other products which are disconnected from the physical and settle via assessments. We're pleased that WTI markets continue to reflect broad participation from all client segments around the world and in every time zone. Year-to-date, our overall crude and refined products volume during Asian trading hours is up 148% and Europe has increased by 48%. Importantly, we also continue to provide our clients with the leading crude oil options tools which have grown 49% in the first quarter of this year and are particularly important to our clients in times of heightened volatility. In summary, against this backdrop of extremely challenging market dynamics, our benchmark physically delivered WTI crude oil futures contract continues to perform to help our clients hedge and transfer their risk in global oil markets. With that, I'll turn the call over to John.

Thanks, Terry. Thanks, Derek. As Terry mentioned, the investment in our technology and the dedication of our employees served our clients well during this unprecedented time. During the first quarter, CME generated more than $1.5 billion in revenue, up approximately 29% from last year. Expenses were very carefully managed, and on an adjusted basis were $459 million for the quarter, and CME had an adjusted effective tax rate of 23.6%, which resulted in an adjusted diluted EPS of $2.33. Capital expenditures for the quarter were approximately $38 million. During the quarter, CME paid out $1.2 billion to our shareholders in the form of our annual variable dividend of $2.50 per share and our regular dividend of $0.85 per share. which is up 13% from a year ago. CME's cash at the end of the quarter was approximately $1 billion. We continue to pay down our debt. We have approximately $100 million of outstanding commercial paper, which we'll pay down by the end of the year. This quarter, we achieved our one-times debt-to-EBITDOT target. We continue to progress on the integration of our legacy broker tech and EBS trading systems. Our technology and operations teams continue to work towards a migration of the broker tech platform to Globex in the fourth quarter with EVS following in 2021. Our testing environment is up and broker tech clients are testing the system. We will be working closely with our customers during the next several months while we navigate the added complexity of remote working environments. But at this time, we continue to target the fourth quarter. At this point, we continue to expect our operating expense for the year, excluding license fees, to be in the $1.64 to $1.65 billion range. In addition, our tax and CapEx guidance remains unchanged. Please refer to the last page of our executive commentary for additional financial highlights and details. In summary, we are very pleased with the performance of the company. Our employees adapted to the challenges of this environment and worked relentlessly on behalf of market participants. Our global employees, along with the investments we've made in our technology systems and processes, ensured the markets operated well and risk was effectively managed. In closing, I hope you and your families are healthy and safe during this difficult time. We would like to now open up the call for your questions. Please limit yourself to one question. John Pescher and I will be available today for any follow-ups you might have after the call. Thank you.

Thank you. Ladies and gentlemen, at this time, the floor is open for your questions. If you would like to ask a question, you may do so by pressing star 1 now. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 now. Our first question comes from Dan Fanion with Jefferies.

Thanks. Good morning. I guess, Derek, you know, just to follow up on your comments and WTI and the relevance of that, I guess, could you talk about, obviously, the health of your customers and then really the utility of the product, you know, for both commercial and, you know, noncommercial users as we think about what's happened here in the last couple weeks with regards to negative pricing? I mean, obviously, the headlines haven't been good. You've seen ETFs change, you know, kind of rolling forward. some of the contracts. I guess just behaviorally, can you talk about how your customers are acting and ultimately, you know, the utility of the product going forward, if you could kind of walk through that again as to why you still view WTI as the most relevant benchmark within that asset class.

Dan, it's Terry Duffy. Before Derek goes into answering that question, I want to touch on one thing that you referenced because I think it's a little bit incorrect. The headlines haven't been good, as I think is what you said. The headlines were not good on day one. I think that was a lot because a lot of people didn't understand exactly what happened. That narrative has changed dramatically, I'm sure you've seen. So I think that the narrative and the headline associated with what went on in negative pricing is completely different than it was a week ago Monday. So I just want to make sure that we're clear on that.

Thanks for the question. It's certainly topical, Dan. So let me start by talking about the utility of WTI. I mean, let's talk about what WTI is. We firmly believe that the kind of the optimal benchmarks are based on physically delivered contracts. As I mentioned in my comments, physical deliveries that widely believed to be and we firmly believe the gold standard for exchange commodity contracts is insurers convergence with the cash market. So, when you think about W-10 and what it represents, it actually represents at expiration. So, on April 21st, the physically settled WTI contract settled at $10 in one set. That is the price at which over 2.4 million barrels were delivered at that price. So, when customers are looking for a product that represents the actual underlying physical value of that asset, physically delivered contracts that converge to cash is that standard. So I think it's worth talking about what is the difference between WTI, the fiscally settled product that delivers you the actual price of the asset itself, versus, say, Brent, for example. And it's worth noting that the Financial Times just ran an article this morning, came out about an hour ago, that references the disconnect that Brent Futures is seeing right now from the underlying convergence with the underlying futures that are traded, or actually the underlying physical cargoes that are being assessed in the North Sea right now. So that difference between the ice Brent futures is a financially settled contract. It does not settle the physical delivery. What physical barrels are priced on is dated Brent, which is trading between $5 and $7 below ice Brent right now. So when we focus on the utility of the contract, to come back to your question, Dan, contracts that connect the underlying physical market and deliver that actual asset at that price is what our physical end user customers are looking to use our contract for. If you look at our business year-to-date on the client side, our fastest-growing participants on the revenue side were our corporates and our buy side and bank participants. So you see broad-based participation from the end-user customers, whether it's the buy and hold guys or whether it's the commercial customers, those have been our fastest-growing participants year-to-date in this contract. And I would say that the last piece of your question relative to kind of what does this look like on a going-forward basis, listen, the market is seeing some unprecedented impacts of the global oil market right now. This is not just the U.S. story. This is a global story. If you actually look at the floating storage that is being utilized, it's estimated that about 10% of all freight in the U.S. and global right now is being used for floating storage for oil coming out of the North Sea. So the oversupply story is not just the U.S. story. The steepness of the curve in the front end of WTI is simply reflective of the underlying fundamentals of supply-demand storage globally, not just in the U.S., And that's what customers use our products for. They need to know that their underlying physical risk is linked to the contract and they can deliver at that price. So that's how we think about it. That's how our customers are using our products. And that's, I just want to put some context there relative to how WTI represents the actual underlying physical barrel and how WTI, the Brent contract, the Brent Futures contract, doesn't converge to spot. That's actually priced at about a $6 or $7 premium, I believe, right now. to date about which of the physical cargos.

Thanks, Derek.

Thanks for the call. Thank you. Our next question comes from Ben Herbert with Citi.

Hi, good morning. Thanks for taking the question. Just wanted to hope you could give us some color on the APAC volume strength in the quarter, just the progression given, you know, some of the rolling economic shutdowns and then reopenings. And then also, you know, any detail you can provide somewhere on April to date. Thank you.

Thanks, Ben. I'll ask Ken Roman and Julie Winkler to make comments. So either Ken or Julie can go ahead and start.

Sure. Thanks, Terry. Yeah, to your point, we have seen, you know, very, very strong volumes in Asia through Q1. We saw that in up, you know, 73% year over year, which was really good. And as we noted, you know, in China and other places, this is despite, you know, economic shutdowns across various countries in Asia. We do see, you know, that they're probably, you know, leading the world in terms of coming back now. So while we've been able to, you know, as they come back online, we think that growth will continue. China is an example. We saw that up just 7% year over year. Last year was a tough year given some of the trade wars that were going on that dampened volume. But we do see ADV growth there for the first time since Q4 of 2018. And when you take the China story in combination with greater China, including Hong Kong and Taiwan, it becomes an even stronger growth story. So We think, you know, temporarily these dislocations based on the pandemic have been worked through, and we think that's a testament, you know, to the investments we've made in terms of education in the area, marketing, you know, technology and infrastructure, and importantly our sales team and the work they've done there and seamlessly transitioned into a more digital outreach. And so we think while we've seen volumes, to answer the second part of your question, you know, move back into, you know, a more normal range or a more consistent range with the run rate of 2019 in April, we feel good about, you know, the platform that that positions us for growth.

Thanks, Ken. Thank you, Ben.

Thank you.

Thank you. Our next question comes from Alex Cram with UBS.

Yeah. Hey, good morning, everyone. I'm hoping to switch gears to interest rates for a second. Obviously, a lot of debate about a zero interest rate environment and what that means for you guys. So just curious if you could provide any color on what you've been seeing from a client perspective already as a result of that. And I guess the things I would highlight, obviously, volumes in April have been very soft. you know, open interest is down in particular in euro dollar futures. And I think the open, the large open interest holders that you often cite as a, as a, I guess, uh, indicator of growth, I think is also down 13% from the peak. So just any, any more in-depth color for things that we may not be seeing, um, happening underneath the surface.

Great question, Alex. And I'm going to ask Sean to comment, but as you know, the volumes in April have been down pretty much across the global marketplaces, um, including our interest rate complex with euro dollars. But, uh, There's a lot of things that we've been discussing and talking about and watching fundamentally that I think Sean can give you a little bit of color on that we find very interesting. Sean? Sean, Tully, you there? Can we listen?

Sean?

Hi. Let me check.

Did Sean tell you to drop off?

No, sir. His line is still connected.

All right. So why don't we come back to that, Alex, your question in a second and go to the next one. I don't know why Sean can't get through.

All good. Thank you.

We'll be right back to you, Alex, on that question. I have it. John, you heard Alex's question, correct?

Yeah, we heard it. Well, Sean is working to get back on the line.

Okay, so... You know, I can give you, I mean, John, if you want to talk a little bit about this. We've all been discussing this. Sean, is that you?

It is. Apparently, Sean is on the line, but we can't hear him. So, you know, I think, Alex, we can come back when Sean gets on, and so we'll go to the next question, and then... and then we'll circle back to this one once Sean is able to speak.

Yeah, but just on that point, Alex, you know, we've been talking a little bit about what is going on with the issuance of debt. You know, Sean referenced on a call with us just the other day, you know, we're looking at $3.7 trillion of additional debt, of which we think we'll see a lot of coupon issuance associated with that against our treasury complex. So we do believe that that is very optimistic for that business. So, Even though we're in a zero rate environment, to your point, on the short term of Eurodollars, we are still seeing a lot of activity in the back end of the Eurodollars along with the options on Euros and across the Treasury complex. And again, the more debt we're assuming or issuing with coupons, we do feel that people will be needing to manage that debt. So there's a lot of positives in that. I'm not sure if Sean's going to get back on, but he'll elaborate more in a second. So why don't we go to the next question and We'll come back to Alex.

Thank you. Our next question comes from Brian Bedell with the Deutsche Bank.

Hi, Brian.

Well, Sean might actually be part of this question, too, but it's okay to defer as well. And he can answer it when he gets back on. Or if you guys maybe want to take a shot at it, it's just really – It's along the rates line, but it's from a different perspective. It is – the question is, to what extent has the user base changed substantially in April versus March? Obviously, a lot of participation by proprietary trading firms and hedge funds and risk parity strategies with basis trades. And so the question is, that seems – I would surmise that it's dropped off a lot in April versus So maybe if you can confirm that as part of the decline in April versus March in the rates franchise and what you think it will take for those firms to reengage and begin trading again.

Thank you, Brian. I'm not sure if Sean joined back yet. So if he didn't, Sean, are you there?

Yes, Terry. Can you hear me this time? Yes, we can hear you, Sean. Did you hear the question? Yes. I apologize. I don't know what happened there. No, can you repeat the question? I apologize.

Yep, sure.

I'm sorry. Go ahead, Brian.

Oh, yeah, sure. Go ahead. So, yeah, no, it's Sean. Yeah, thanks for joining back. So it's about the user base in the interest rate franchise in April versus March. Obviously, after we get through a volatility period, we typically do see a lot of the proprietary trading firms and hedge funds, you know, pare down their risk books. maybe if you can comment on to what extent that has been the major driver of the volume decline in March to April, and what do you think it will take for those firms to reengage in those strategies? Again, how long do you think that might be?

Hi. Thank you for the question, and apologies that I was cut off somehow earlier. You know, in terms of our volumes, the short end of the yield curve, in particular the very front contracts, let's say the front Fed funds contracts, for example, do become less interesting during a time of zero interest rate policy and when we do not expect the Federal Reserve to change rates at the upcoming meeting. However, our deferred euro dollar futures become extremely interesting relative to the shape of the curve and the timing of when the Fed might begin to become active again. Most importantly, you would have seen at the end of last week the Congressional Budget Office did announce their estimated $3.7 trillion deficit for the federal government this year. This is obviously completely unprecedented in terms of its size. And if you think about $3.7 trillion deficit, that's $3.7 trillion worth of additional Treasury bills, notes, and bonds that will need to be issued this year that will need to be risk managed. If you look at 2019, for example, the net issuance was $984 billion. So this is obviously multiples of that. So we do expect to see increased activity, you know, in hedging across the Treasury curve with respect to the increased issuance. You also saw our business grow dramatically between 2012 and 2018. Much of that time during zero interest rate policy with the additional products that we added that allowed people to much more accurately manage their risk across the entire curve. We've also seen huge innovation. We've obviously invested in innovation. We've invested in electronic markets. We've invested in client acquisition. Our SOFR future is doing 50,000 a day. Our ultra bond future is doing 233,000 contracts a day. Our ultra 10 is doing 293,000 contracts a day. Invoice spread is doing 148,000 contracts a day. So I do expect, as you go further out the curve, there will be increased uncertainty. I do expect, with the increased treasury issuance, that that will also create a much greater demand for risk management, and I think our innovative products serve our clients well in this environment.

And just on the user base, the mix change between March and April, obviously there's a lot of proprietary strategies engaged in March. How are you seeing those players in April? It looks like they've probably dropped off to a substantial extent. Do you think those players come back soon? Or I guess confirm that, or if you can confirm that, is that a large part of the drop-off from March to April?

There's no question that you tend to see – You know, some reduction by leverage funds in particular and CPAs, you know, when you have a very large increase in margin requirements. We have invested as well, in addition to the things I mentioned earlier, in great margin and capital efficiencies over the years that help clients out. The thing I would mention is in March, we reached a new all-time portfolio margining efficiency delivered to clients when margins increased. So, $7 billion in margin savings in the month of March with portfolio margining. We do expect the customers to come back in and to have to manage the increasing issuance by the U.S. Treasury as the year progresses. In May, as you know, the Treasury will be issuing for the first time in many years a 20-year bond issue that will be traded on the BrokerTech platform, and it will be deliverable into our bond futures. So we do expect, you know, to see the same activity we have always seen with the increased treasury issuance.

Hey, Brian, let me just add a story to that. You know, I think we've heard for years now with the rates going down to where they're at, you know, where are the participants going to come from? We saw them all show back up in March to your earlier point. and then they dissipate a little bit in April. We, like any other business, cannot measure the full year by a couple weeks of trading. So the good news is everybody is actively watching our markets. It doesn't mean they're going to actually participate every single day, but I would not get too hung up on a few weeks of trading. I think we have to measure this over the longer period, just like we've seen over the last several years. And then we saw the record business that we saw that we pointed out in the first quarter.

Okay. Great. Thanks for all the comments. Terry, to that point, I mean, I think when you take a look at the last, you know, 10 years, you know, April tends to be in the bottom couple of months in our, you know, in terms of monthly volume. In fact, you know, when you look at last year, you know, we did about 15.7 million contracts a day, and rates accounted for more than 50% of that activity. You know, in April, rates are accounting for about 38% of the activity. So... You know, the fact that we've seen some decline is not unusual. You know, in April, you know, there's no role. You know, Easter tends to be in the month of April, so there's, you know, Good Friday and Easter Monday, and also this tends to be a period of, you know, a period of time when there's spring breaks and the like. So, you know, a bit different environment this year, but, you know, a slower April is not uncommon.

Yeah, but again, I don't want to belabor this, Brian, but at the same time, and we're all not in the same room, so I don't want to start contradicting everybody, and I won't, because everything we said is true. But we do have to measure this over the long period, and there is different fundamentals in today's market than there was a year ago, as we all know. There's different fundamentals in today's market than there was six weeks ago. And I think Sean clearly pointed out what is happening from a fundamental side, and now we're going to have to see how that transitions into how people want to manage that risk. And the value of it needs to be managed, and we've definitely saw that happen in March.

Thanks for all the great color.

I appreciate it.

No, appreciate it, Brian. Thank you very kindly. Appreciate it.

Thank you. Our next question comes from Chris Allen with Compass Point.

Morning, guys. Morning. Just want to circle back on crude. I understand the differences between WTI and Brent and the physical sediment dynamics. So maybe if you give us some color on the WTI customer base, maybe roughly size, how it breaks down between commercial speculators, market makers. What I'm trying to think through is if we do hit full capacity from a storage perspective, we'll all start getting a shut-in. How does that impact the commercial base moving forward? And how does that filter through down to the speculator base as well? Any color there would be helpful.

Okay. Thank you very much, Chris. And to what we can deliver, Derek, why don't you go ahead and respond to Chris's question?

Yeah. So thanks, Chris. Good question.

Being mindful of not using your names.

Yeah. No, it's a good question. I think that, Chris, you've asked us before kind of what that spread of that is. I can't give you a percent. I can't give you names. But what I can tell you is When you look at the growth in the participation of our energy market overall, and certainly Creed is a strong reflection of that, it's a big part of our overall franchise. As I mentioned before, the fastest growing participants in our energy franchise this year is buy side, corporates, and banks. Those are the three fastest growing participants. So if you asked about who's participating more broadly, who's expanding the utilization, it's exactly those customers that we focus on for that end user connection to our core product. We haven't seen that change. in the last couple of weeks, and we don't anticipate that changing. As I mentioned, the reason and utility of a WTI contract being physically delivered is that it converges directly to those underlying barrels. I think the question that you're posing is, you know, if this contango continues to stay steep the way it is, what's the impact on the global oil market? Well, as I mentioned before, this is not an issue that's only impacting WTI right now. You're seeing the dated Brent traded a significant discount to ICE Brent Futures right now for exactly the same reasons. So I think it's about a five, between a five and seven dollar disconnect right now. So global oversupply and a lack of demand and the storage issues globally is impacting the overall oil market. So it's not a function of customers saying, hey, WTI is no longer my physical risk because the reason people use WTI is once the export ban was lifted in 2015, it became the underlying physical asset that they were exposed to. if they were in Europe or in Asia actually importing those products. The reason I mentioned at the top of the call my comments on the broadening and accelerated use of participation in our markets and energy crude and refined from Europe and Asia is explicitly because it's reflective of the globalization that Terry alluded to and Ken spoke to at the top of the call and the significant growth we've seen in end-user participants in our energy markets. So, you know, triple-digit growth out of Asia, 50, 48 percent, I think, percent growth in Europe is indicative of the way in which WTI has become a global benchmark because that is the physical risk that people are facing. To your point about storage, I can't control for that. The market can't control for that. Nobody loves the fact that oil is priced as low as it is right now. David Brent is trading this morning at, I think, I said about a $5 to $7 discount to ICE Brent. And it's reflecting exactly what our physical market is reflecting. So, dated Brent and WTI reflect the physical. ICE Brent futures don't have the physical component to it. So, it's actually pricing. It doesn't reflect the underlying price of the barrel of oil in the North Sea right now. So, you want to be a little bit careful when you look at the ICE Brent right now because it does not reflect where you can sell a barrel. Thanks, Derek.

Thank you. Our next question comes from Mike Carrier with Bank of America. All right. Good morning.

Thanks for taking the question. Sure. Just given the high level of volatility during the quarter in energy and elsewhere, how has the clearinghouse operated? How have FCMs held up and any significant changes made during the quarter, given some of the big moves that we've seen?

Thanks, Mike. It's Terry Duffy. The clearinghouse has done you know, as usual, an exceptional job managing this risk. I spend most of my time, especially over the last six to eight weeks, you know, tethered to Sunil Coutinho, the president of our clearinghouse, and his team as we continue to go through these unprecedented times. And it's not just me. It's many members of our management team that are working with Sunil and others to make sure that we're doing everything to be able to manage this risk. I think in my opening remarks, you heard me reference about margins. This is a very big component of how we operate CME to make sure that we have products margined properly so we're not putting the system at risk. You know, today we're holding record amounts of margin on deposit because of the way we're concerned with the volatility and with the unprecedented times that we live in. So I have nothing but kudos for the entire Clearinghouse its staff. They've done a remarkable job. The systems and the operations that my COO, Julie Holzrichter, has put into place, along with Sunil and Kevin Kometer, is second to none. So we're very proud of this. We're still working towards our Span 2 margin methodology, which we're still excited about, which will be more advanced on margining going forward, but we'll keep our original system as well. So all in all, I will tell you, and I don't know if Sunil's on his call or not, but the the clearinghouse is operated at the highest level in the 40 years that I've been in the business and the 18 and a half years that I've been CEO and now chairman, chairman and now CEO.

Okay, thanks a lot. Thank you. Thank you. Our next question comes from Rich Rapetto with Piper Sandler.

Hi, Rich. Hey, good morning, and thank First, I hope all the CME team and their families are all healthy and safe. And, excuse me, congrats on a phenomenal quarter. I've got to turn back to the WTI question and to Derek again. It sounds like, you know, you've made the case for physical delivery, so it sounds like there's no option to go, you know, an option to cash and physical deliver to move the contract like that. So then it comes back to, you know, the storage issue. And I know you said the spread, you know, was around seven, it's been seven or eight dollars. But if you look back over the last year, the spread's really been around five to six. And that day that it did price negatively, you know, the spread was negative, you know, 50 to 60 dollars. So I guess the question is, and if you talk to industry participants, you know, they're also well aware of the storage issues. in Cushing, and you improved the storage, you know, in the past five years. But, you know, what can you do to improve the storage going forward? Is there capacity to improve the storage so it doesn't get that wide again?

Hey, Rich, it's Eric.

Yeah, thanks. Go ahead, Derek.

Okay. Listen, it's a good question. There's three overall drivers of change. I think you guys have written about this. I think people understand this. You've got this massive oversupply with, you know, Saudi and Russia pilot in. You've got this massive destruction on the demand side. And I referenced 100 million barrels a day consumption reduced down to 70. You know, the stat that was on the news last night widely reported air traffic is down 95%. You know, miles driven in states that are shut in either in Europe or U.S. is down 75%. So there's just there's no demand, there's oversupply, and then you've got storage issues. So I want to be careful how far I opine on the physical infrastructure on storage, but what I can tell you is this, that there has been a significant expansion of use of floating storage both in Europe and in U.S. and in Asia. I think I mentioned earlier in our conversation that, you know, alternative forms of storage is floating storage, you know, VLCCs or ULCCs, which are the carriers that that carry oil are being increasingly filled up and just served as floating storage and docked out in various places in Europe and U.S. right now. The other piece that's going on right now is that as refiners have reduced their runs, you know, the crude can't stop as quickly as refiners can run their runs. So we have been speaking to multiple folks in our world asking us those questions. How can I get involved in the physical delivery process? and they're seeking to find alternative forms of opportunity. With the steepness of the curve right now, Rich, and I said this is true in dated Brent as well as WTI, this is a global phenomenon. So this isn't the function of switching from one product to another product. This is underlying fundamental supply and demand overlaid with the storage issues. So I think we're starting to see floating stores take up some of that excess. We are seeing folks, you know, determining where and how they can convert some of their utilities to address the storage. But again, that's not what we can control for. What we can control for is how effectively our products converge on the day of expiration and how our markets reflect the underlying fundamentals and the use of our markets by those end-user customers who, you know, in our engagement, particularly the commercial customers, recognize the contract did what it needed to do, which was converge on the day of expiration. And as I said, a little over 2.4 million barrels of crude got delivered in on the basis of that delivery settlement price on April 21st at $10.01. And the last thing I'd say is, you know, with the unprecedented impact of COVID-19 across a range of physical markets, we are seeing historically high levels of basis differential between cash and futures. We've seen it in the gold market with EFP prices moving out as there are concerns about moving gold globally. We're seeing it in some of the cattle market products about where and how delivery can get done and how those markets are converging. I will tell you, every one of our physical delivered products have converged because they operate effectively to serve the end user needs of those participants.

Thanks, Eric. Do you expect Brent that Seaborn delivered, do you expect that to trade negatively as well?

You know, I can't tell. It depends on how steep that curve goes right now. As I said, there's an FT piece that came out literally just before we all jumped on this call explicitly calling out the very steepness of the front end of the data breadth curve right now and that disconnect. I think it was as high as $8 last week. So if we continue to see demand as low as it is not return, But here's the beauty of the market, Rich. If you look at the forward curve, and we look at the forward curve right now, I'll talk about the steepness of the contango. The very front month contract is trading significantly below the second month. That's trading a little bit below third month. The market is telling us with the pricing of the forward curve that by probably six, nine months out, that forward curve roughly flattens out. We're just seeing the steepness in the front end. So I think the FT has made some really good points this morning and points that we've been looking at. Where's the physical Brent? Where's the dated Brent? Not where Ice Future is. You can't sell a molecule based on the Ice Futures price. The molecules get sold on dated Brent. That's the physically delivered product. And that's what FT is pointing out is that is a growing disconnect. and it's following the same fundamental drivers that WTI is right now. It's a storage issue, it's a stand issue, and it's a demand issue and a supply issue. So the good news is that there's lots of different opinions how quickly demand is going to return, and that's where the volatility in our market. That's why we're still doing 3.5 million contracts even in April in this environment to help customers manage their risk.

Thanks, Derek. And just to reconfirm, Rich, we don't need the FT to – validate the fundamentals that we've been seeing in the marketplace for numerous years and everything that Derek and his team are working on on a daily basis. So, Derek, thank you for your answer. Rich, thanks for your question.

Thanks. Thank you.

Thank you. Our next question comes from Jeremy Campbell from Barclays.

Hey, thanks. And thanks for all the great color on the market so far. Some of that's been pretty well-traveled. I just wanted to ask a little bit about your cross-selling efforts that might help with some of the natural volume headwinds you might see in some products. I think you mentioned doing 290 cross-sell meetings in the first quarter versus 400 for the full year last year. Can you just help us think about, one, what the length of this cross-selling cycle might look like, and then, two, what the client engagement and feedback looks like, either from optimization clients may be looking to use futures to lower capital charges or typical futures cash OTC traders looking to dip their toes in the waters of other product structures.

Thanks, Jeremy. I'm going to turn to Julie Winkler and let her respond to that question. And if Ken wants to add a little something on optimization, but I really think this is more towards Julie's area. Julie?

Sure. Thank you for the question. You know, this has definitely been a challenging environment, but the client engagement that we've been able to drive and the cross-sell statistics that you mentioned, you know, are definitely accurate. So year-to-date through the end of April, we've seen our sales activity up about 150% versus the same period in 2019. So the outreach has continued, even though we've been in this virtual environment. So contacting, you know, clients via calls, emails, video conferences, you would expect And what we saw with the 290 cross-introductions, the biggest month we had was in February where we had 135. More specifically, that was driven by an uptick within the buy side in our commercial client segment in the US. And this number compared to in all of 2019, we did 400 cross-introduction meetings. The largest percentage as we previously reported as well of those cross-introductions continue to be focused on really new clients in our futures and options, both interest rate and FX franchises. But we are seeing successes as you mentioned across new introductions into our optimization services. So if you can think about the environment that we're in where clients do have, you know, increased need to manage their risk. They are looking at new things like TriResolve to manage their margin exposure to one another, as well as data. You know, we haven't talked about data yet today, but in a period of, you know, unprecedented volatility, clients need data to be able to put this data within their trading models to forecast that for, you know, future trading events. And so those cross-introductions I would say have upticked more within the last quarter than even what we saw last year. But it's something that, you know, we're continuing to monitor and client engagement has been, you know, and feedback's been really strong. You know, we invested a lot in our global sales team over the last few years and having those that regionally based with sales leader and personnel on the ground, means that, you know, we have that trust with our customers and, you know, the need for face-to-face meetings is less important when we built those relationships. So that part has been great. And we're also taking advantage of this work-from-home environment to continue to do a lot of education with our sales team and make sure that they're really prepared for those cross-introductions. So with that, I will turn it over to Ken to add anything from an optimization perspective.

Ken, real briefly, a little optimization.

Yeah, very briefly. I think, you know, Julie's team's efforts are really, you know, kind of the lifeblood that's driving, you know, the optimization business. The one observation I would say is that we learned a lot in the first quarter about the importance of these businesses, and they performed well, the team. Because CME was so quickly able to move to a work-from-home environment, we were very well prepared to help our customers during this time, and our services performed very well. And, you know, having acquired Next 18 months ago and, you know, working through the integration, I think we can sit here and say coming out of the Q1 that these services are in high demand from our customers, and they're even better positioned based on their performance during this difficult time. coming out of the first quarter.

Thanks, Ken. Jeremy, thank you very much.

Thank you.

Thank you. Our next question comes from Alex Cram with UBS. Oh, hey.

Hello again. Yeah, thank you. I think Sean actually answered my original question, so I don't think there's much more to add. But since I'm back here Just a quick follow-up on, I guess, Terry's comments and your comments on the Eurodollar franchise or the floor trading, rather. You made it almost seem like closing the floor hasn't had an impact because the percentage between futures and options has remained stable. And I guess I would challenge that to some degree and say, well, just because the percentage is unchanged doesn't mean the pie hasn't shrunk, right? So maybe Sean or somebody else can flush out a little bit what you've seen actually in terms of trading strategies, how people have behaved, etc., And then related to that, considering that I think the trading on the floor is much lower economics than trading electronically, wondering to what degree you're already exploring, like, hey, has this market shifted enough where maybe we don't really need the floor as much anymore as we needed, and there could be a substantial cost savings maybe in the future if we never reopen again. So maybe any sort of color on the cost of the floor would be helpful as well. Thank you.

Okay, so thanks, Alex. And I'm going to let Sean take the first part as it relates to potential different strategies associated with floor versus screen, if there are any differences that he's seen. I gave you percentages of, you know, apples to apples. Your point about the pie could be valid. I'm not saying it's not. And then I will comment more about where we're at as far as our as it relates to the trading floor. So let me go first to Sean to talk about that.

Terry, thank you very much. Terry mentioned in his prepared remarks, if you look at, and as Alex, you referred to, so thank you, Alex, for the question, our options as a percentage of our interest rate futures since the closure of the floor are running at 39%. If you look at 2019 as the base case, our industry options traded an average daily volume of 36% of the relevant futures. So from that perspective, it looks like it's been a very healthy transition to the floor. In addition to that, you'll know well, for many years now, we have made very significant investments in electronification of our markets. And in particular, we have instruments called user-defined spreads. So there are many predefined spreads that users can ask on a request for quote for prices for. And then in addition to that, there are almost an unlimited number of user-defined spreads that users can request quotes on from our market makers up to 30 legs. So we have seen very robust activity on the box since the closure of the floor. And we've seen, I'd say, all of the different types of strategies that we ever saw on the floor continue to trade on the box. We've seen, as I said, actually a growth in the percentage of options versus futures. I'd also mention some of the innovations that we had launched and we're continuing to work on have gotten greater traction. I'll give you an example. We have a function called a committed cross. where a broker is able to put in both sides of the trade. And if they better the market, you know, they get a portion of the trade guaranteed to them. Why is that important? We were trying to electronically replicate the experience on the floor for both the end customers, the market makers, as well as the brokers. And I'm very pleased to say that while Committed Cross was trading just 10,000 or so a day in January, We're trading 74,000 a day since the closure of the floor. So our innovations are working. Our investments in electronic markets are working. Participants can trade any strategy today as easily as they could prior to the closure of the floor. And, in fact, our options volumes relative to futures have increased relative to last year since the closure of the floor. I hope that helps.

And let me just add a few things. Alex and Sean, thank you for that response. The trading floor, the costs associated with it are roughly around $20 million annually, I believe is what the number is. But John Pesher can correct me. As it relates to the floor products, as you know, back in 2000, we had thresholds. associated with them about the viability of their existence. And you know the Futures did not meet those thresholds. Subsequently, we closed them several years after they did not meet the thresholds. We didn't do it right away. It was actually many years. The options on Futures, none of the products meet the thresholds today except for one, to my knowledge, and that is Eurodollar options. We are going to continue making sure we maintain our thresholds and our guidelines that we have agreed to many, many years ago. But most importantly, Alex, as it relates to the trading floor, we will not do anything irrational either way until we know exactly where the health officials and government officials are going to come down as it relates to multiple people getting together in a single location. As you know, trading floors and trading environments are very close environments and very difficult with this virus to continue to keep everybody safe. You know, I have 54 employees that have to be down there to staff those, and then we have hundreds of traders and clerks that are down there, and we have an obligation to do the right thing and not overreact either way. So we'll make those decisions with government officials and health officials as time goes on. But I just want to point out that the cost is not extraordinary, and the threshold levels have not been met in futures, subsequently closed. The threshold amount in futures has not been met but still open except for warm product euro dollars. Does that help you?

Awesome. Thank you very much.

Thanks, buddy. Appreciate it.

Thank you. Our next question comes from Christian Bolu with Autonomous.

Thank you, guys. Good morning. Maybe a follow-up for Sean. I'm sorry if I already missed this, but why exactly do you think Treasury issuance will have any impact on volumes in a zero-rate QE world? I guess Treasury debt tripled from 2007 to 2014, but CME volumes did not grow over that period. So if you're curious what's different this time, And then just a second part to the question, or just a second question, basically, for me for John, really more of a cleanup question. On the balance sheet, I see performance bonds tripled to $100 billion. Just remind us the dynamics here on that line item. Kind of what drove the spike? Is that sustainable? And then more importantly, how do we think about any P&L impacts? Thanks.

Okay.

John? Yes. Yeah, go ahead.

So I'd say that, you know, our marketplace today is completely different than it was prior to 2010. As I said earlier, we've spent an enormous amount of money, effort on product innovation that has, for example, made our treasury complex much more attractive. We added our ultra-bombed fuses. in 2010 that this year have done 233,000 contracts a day. We added our ultra 10-year futures just a couple of years ago, which are doing 293,000 contracts a day. These allow participants to much more accurately hedge their cash treasuries with the underlying futures products. In addition to that, we also have made significant adjustments to our products. So as you know, a little over a year ago, We adjusted our two-year note futures minimum pricing increments, reducing them by half. I'm very glad to say that we believe that around 200,000 contracts a day of our two-year note futures today are attributable to the decline in that minimum price increment. When you reduce that minimum price increment, you reduce the cost to trade by reducing the bid-offer spread. In addition to significantly reducing the execution costs to trade by things like changing minimum price increments, we've massively improved the capital margin and total cost efficiencies through things like portfolio margining against interest rate swaps. Again, didn't exist during that time period that you were talking about. In terms of interest rate swaps, I mentioned earlier, we actually had an all-time revenue record in Q1 in interest rate swaps, and in March in particular, As I did mention earlier, we saw an all-time record portfolio margin and benefit to our customers of $7 billion. So we see very significant differences in terms of our products, in terms of our offerings. In addition to that, we could talk for a long time about our investment in Salesforce. So if you look, going back to that period of time you're referring to, the bulk of our Salesforce sat in the United States, and the bulk of that Salesforce sat in Chicago today. most of our sales force sits outside of the United States, and so we've much more deeply penetrated the global market last. If you go back to 2012, another key difference, and something you've heard me talk about on Ernie's calls before, is because of these efficiencies, because of our improvements in sales, because we have invested so much in electronic markets, our penetration of the cash treasury bond market has grown dramatically. So if you look back in 2012, our treasury futures traded 55% of the average daily volume of the cash treasury bond market. Today, we are trading more than 121% of that underlying cash treasury bond market, so the treasury futures. So I think for all of those reasons, we're in a completely different place today than we were then. I hope that helps. Thanks, Sean.

I'm sorry. Go ahead. Christian, go ahead.

I was going to say, yeah, John, please, on the balance sheet. And thank you, Sean.

Sure. Thanks, Christian. So in terms of the balance sheet, what you see in terms of the performance bonds, that's the positions that the customers put up in support of their trading activity And we did see an increase on our balance sheet in terms of performance bonds, which primarily represents cash put up at the clearinghouse increase, you know, from about $37 billion in the fourth quarter of 2019 to $100 billion in the first quarter of this year. So a pretty marked increase, and that's really due to the activity at the clearinghouse and the volatility, so higher the volatility, the more activity you'll see an increase in the amount of performance bonds put up. Now, how that flows through into the income statement is we earn money on cash put up at the clearinghouse by our customers, and generally speaking, we have a spread between what the IOER is, or the interest on excess reserves, And we share that with our customers. Generally, it's about 80% gets rebated back to the customers, about 20% we keep in support of managing the collateral. We also earn based upon the non-cash collateral as well, and that flows through our revenue line. But to give you an idea, in last quarter, average balances in terms of cash that we earn on increased from about $28.1 billion to $40 billion, so a $12 billion increase on the average balance. And we earned 29 basis points in the fourth quarter and 19 basis points in the first quarter. Now, just to point out, the average cash balances through the month of April is about $89 billion in the month of April, so about more than double what we had on average for the first quarter. Now, the IOER did come down to 10 basis points. And, again, we keep a spread of approximately 80, 20, 80% to our customers, about 20% to us. And so the customers are earning eight basis points, and we're earning two basis points.

Great. Thank you very much. Thanks, John. Thanks, Christian. Okay. We'll keep moving.

Our next question comes from Owen Lau with Oppenheimer.

Yeah, good morning. Thank you for taking my question. Continuing on the balance sheet and capital management, so you had $1 billion in cash and you reached your one-time leverage target at the end of the first quarter. But given the COVID uncertainty, would you raise more debt in order to have more cash, or are you confident about your cash position and can pay down some debt? And I think more importantly, how should investors think about your variable dividend policy this year? Thank you.

Thanks, Owen. John, you can go ahead and address that, and I might chime in as well.

Yeah, sure. Thanks, Owen. In terms of our capital structure, You know, we're very comfortable with our capital structure. You know, we, like I mentioned in the prepared remarks, we've achieved our one-times debt to EBITDA target. We have about $100 million in commercial paper that we will be paying down in relatively short order. So with that, you know, that's the remaining amount of debt that's prepayable So, you know, we feel very comfortable with our capital structure. You know, we had, you know, as you saw this quarter, we've got very strong leverage in our business model. And, you know, we have, you know, a very high investment grade rating, which we think is important for, you know, for the firm. So very comfortable in terms of our capital structure. In terms of our – you know, ability to pay down debt. Like I mentioned, we got $100 million in prepayable debt, which we'll pay down in short order. And I think in terms of our annual variable dividend, you know, the dividend is obviously a function of our board, and that's a board decision. We have been very, you know, focused on ensuring that we've got an appropriate capital return policy, and we've been utilizing our annual variable dividend and our regular dividend as a means to return cash back to our shareholders. Our regular dividend, we increased 13% to 85 cents a share. And, you know, we have a, you know, what we think is a really good and prudent dividend policy.

Thanks, John.

Thank you. Thank you. The next question comes from Alex Blostein with Goldman Sachs. Hey, Alex.

Hey, guys. Good morning. Thanks for taking the question. So another one for Derek around the energy market dynamics. And the question is really not so much about the merits of physical delivery versus cash settlement or a brand versus WTI. I'm more curious about the outlook of U.S. oil production and given the fact that that's likely to decline over the coming year to bring the markets back into balance. Obviously, the demand side of the equation is kind of difficult to predict right now. How do you see this decline in oil production impacting utilization of WTI? And in terms of exposure, Derek, I think you talked about in terms of growth by different customer categories, but any way you can give us a sense of just kind of run rate exposures in terms of total revenues or total volumes of WTI by, you know, kind of the buckets that you've described in one of the prior questions.

Thanks. Alex, thank you. And Derek, obviously we can't predict future volumes, but Derek, why don't you go ahead and address Alex's question?

Yeah, so it's tough because the predicate is where the oil market is going to go. What I can do, Alex, is point you, as we all look at, as I mentioned earlier, look at the forward curve. And if you look at the forward curve and look at where the market is expecting some amount of demand to return, I think that the real risk here, frankly, is, and this is why the refiners have been quicker to reduce their runs and take less crude into refining because they can respond more quickly to shifts in demand. The concern is it takes longer to shut an oil well down. The concern now is not that there won't be terminal demand for the next year. The question now is as states are beginning to open and as you start to see air miles start to fly and miles driven start to increase as they go back to work, the issue now is Wells are reluctant to close because it takes them a while to restart. There is a very real chance that if, and this is the math we find that producers are doing right now, should we shut down and how long does that take me out to reduce my excess stocks? And then by the time you see demand starting to slowly ramp and then accelerate as markets open up again and demand returns, they don't want to be behind. There's a real risk right now that actually if too many folks shut down their production Now you've got the uncertainty of, well, when demand returns, am I going to be behind the curve and are we going to see some rubber banding back? The fact of oversupply now, people are overly shut down, then demand returns but then the producers can't return that quickly enough. So the interesting dynamic is it's the, you know, people express different opinions as to how quickly demand is going to return. I can't control for that. What we are watching is the forward curve and we are watching there's a reluctance for producers to shut down because it takes them offline for too long. So if you do see a rapid return of demand, they're going to be behind. And so when you just look at the COVID uncertainty on top of the election uncertainty, that's keeping people in the market. We are not seeing people shutter positions, close down, and sit and wait for demand to return because everybody knows by the time you see it, it's too late. So I can't give you a precise answer, but look at the forward curve. Look at the continued participation in our market. Our WTI futures open interest has been between 2.2 and 2.4 million contracts in the last six months. That has continued to be more or less in play. We have seen, as I mentioned before, the outsized participation from the commercials. We're not seeing them step away. So I think everyone's looking at the return of demand. I can't control for that, but the market's telling you it's probably three months out, four months out, and in the meantime, the storage issue is kind of a red herring because the I don't want to leave people with the impression that the structural constraint is there's only so much tank space in Cushing and oil can't go anywhere. There's over 3 million barrels a day that transitions through Cushing as a distribution hub. It goes on the rail cars. It goes to the trucks and moves elsewhere. So quite frankly, the contango in the market right now is an opportunity for folks, and we think the market's going to be responding to that and finding smart ways to take that oil, transport it, and that's one of the differences that you're seeing. It's not just physical storage at Cushing. It's a transit hub, and so folks are figuring out where can I take that and move that, and there's a cost of doing that to alternative locations. So it's a healthy RPC business. We're still at about $1.12, $1.13, on or thereabouts, and we are continuing to see the commercials participate. We don't see them pulling back because of the uncertainty of the near-term demand return.

Thanks, Derek. Thank you. Our next question comes from Chris Harris with Wells Fargo.

Hey, Chris. Hey, guys. How should we be thinking about the potential risks to market data and connectivity revenues as a result of the recession? You know, it really doesn't seem like there's been any impact so far, but not sure how to be really thinking about the outlook for the duration of 2020 and beyond.

So I'm going to let Julia Winkler comment about the market data business a little bit, and John Petros, if you want to comment on the revenue side as well. I will give you this observation from where I'm sitting right now. Everything you've heard and everything you've heard over the last six weeks from multiple companies is we're in uncharted waters, difficult times, different times. No one's seen it before. And I believe and I think the team believes that the opportunity for market data is going to be critically important in order for risk management, whether it's derived or historical. We can't predict what it's going to be, but I think more and more people, after seeing what's going on here the last several weeks, are going to be looking for more and more data in order to help run their businesses. So if that gives you any indication, and what Julie Winkler and her team are doing right now is pretty exceptional. So, Julie, I'll let you comment, and then if anybody else wants to make a remark, John, go ahead. Julie?

Sure. Thanks, Terry. Thanks for the question. Yeah, the data business certainly performed well. you know, well in Q1 with our consolidated revenue of $132 million. So we were up slightly over the first quarter of 2019. We really have not seen much decline in our professional subscriber display device count so far. So, you know, certainly from the impact of COVID-19 going forward, what the team's been doing is certainly close consultation with our key data vendors and also our clients to gather inputs. I'd say many of our customers were very well prepared for this work from home and DR scenario that we're in. They transitioned their traders and their support teams with minimal disruption, and they wanted to recreate as much as possible the experience those people have in accessing our data in that work from home and DR environment. For some customers, the transition was more disruptive. You know, the good news there, as Terry pointed out earlier, there really was no disruption, right, in terms of the market data technology or distribution. And so we've seen some of our vendors tell us, you know, there might be some decreased demand for data screens in this going forward, while others are actually seeing an increased need from their customers for our data. So we are going to, you know, definitely remain close to them. I think the two things that we're looking at in particular are the historical data that I talked about earlier where the last two months we saw a 50% increase in sales as customers are shopping for data. As Terry pointed out, the web traffic on those pages is up over 300%. Clients need to have access to this data to be able to continue to refine their trading strategies and manage risk going forward. And additionally, you know, in our non-display data, device business, you know, customers are increasingly seeking flexibility of how to use the CME data and algorithms and machine learning capabilities and other automated solutions. So that's a trend seen across the industry that we think will, you know, certainly continue through this. And, you know, we're continuing to, you know, get as close to our customers as possible and also I believe bringing that team within our client development and research organization that we've talked about today is definitely going to be more client-focused and continue to understand what their needs are so we can deliver new products, acquire new clients, and continue to work very closely with our channel distribution partners. So, John, anything you want to add?

John, on the revenue side of the data, do you want to add anything? No, I mean, I think, you know, we saw, you know, a solid, you know, first quarter, you know, compared to the fourth quarter, and Julie hit all the points. So thanks.

Thanks, guys. So I believe we have about three or four more questions, and I'd like to get through all of them, so I don't want to cut anybody off. So, Dave, why don't we continue?

Thank you. Our next question comes from Kyle Voigt with KBW. Hey, Kyle.

Hi, good morning. Good morning.

Hi.

Oh, John, just unexpected.

Kyle, I didn't hear your question, but... John, did you hear the question?

No, I did not. I do apologize. Our next question comes from Ken Hill with Rosenblatt. Hey, Ken.

Hey, good morning. Good morning. Thanks for the extended questions here. I just wanted to ask on expenses. You had some nice control here in the first quarter. I just wanted to wonder how to think about that for 2Q, maybe any potential COVID-19 impacts that might flow through into 2Q, whether that be kind of travel lockdowns or how you're thinking about the expense base here over the near term and then as the year progresses would be helpful. Thanks.

Thanks, Ken. Sure, Ken. I'll turn it over to John, and he can address that. John?

Yeah, thanks, Terry. Yeah, I think the entire organization really has done a fantastic job in terms of managing our expenses in this really unprecedented time and unprecedented amount of activity at the exchange. In terms of expense impacts related to the pandemic, certainly we're seeing less employee attrition and less hiring going on during this period of time. And when you look at the level of travel, you know, it's down substantially as you would expect. In fact, in the first quarter it was half of what we spent in the fourth quarter of 2019. And I would imagine, you know, in this quarter it will be near zero. Also, our marketing and advertising spend is, you know, pushed out into later on into the year. really moved to, as Julie and Ken had pointed out previously, we've really moved to more video conferencing and webinars versus events. So we have seen some impacts related to the crisis. I am very proud of the entire organization and how they've been able to manage through it and also manage expenses. In terms of our guidance, we certainly are very comfortable you know, that we're not going to exceed our guidance range. And it's a little too early, really, to, you know, predict how we're going to come out. It really relates to a lot of, you know, how the stay-at-home orders get, you know, taken away, how businesses respond to, you know, respond to, and as Terry's mentioned, you know, previously, these are really unprecedented times. We felt that it's a little too early to make any adjustments to our guidance, but as the entire organization has over the last several years, we've been managing our expenses well.

And just to add to what John said, Ken, I think it's a pretty safe bet that we will be very conservative with our people as they get back into their normal routines whenever that may or may not be. to limit that to some degree. I'm not just going to turn the valve and say, everybody go back to what you were doing before, because as we've clearly highlighted on this call and have been over the last several weeks, we've been able to function at a very high level, and I'm very proud of my team for doing this all throughout the world from home. So we will be very cautious to continue on with business as usual from a travel perspective and any other things that would incur cost.

Great. Thanks very much for the detail.

Thanks, Ken. Appreciate it.

Thank you. Our next question comes from Ken Worthington with JP Morgan.

Hi, Ken. Hi. Thank you for squeezing me in. In terms of your response to Christian's question earlier on the record or near record margin levels, where are those levels now that we're sort of closing in on the end of April and volatility is diminished? And given the decline in interest rates, what are the net yields that you're earning on the customer cash side versus the yield you might have earned earlier in the year?

I think John Petrowitz answered your latter question a moment ago, but maybe I'm mistaken. But, John, I think you already answered that one, but you can say it again. As far as the amounts that we have on deposit, I'll yield to John Petrowitz on that exact number if he wants to give it or not, because it does fluctuate depending on what the margin is. models are calling for up or down. As I said earlier, we have raised margins across the board on most asset classes to be prudent on risk management. So that is obviously a big part of it. And let me turn it to John for any other comments on that.

Sure. Thanks, Terry. As I mentioned previously, you know, we are averaging in terms of cash that's put up at the clearinghouse in terms of what's available for investment on behalf of our clients was $88.7 billion through the month of April. In terms of non-cash collateral, on average, and this is the amount that's subject to, you know, that we can... you know, that's managed on behalf of non-cash collateral that's managed on behalf of or that's put up at the clearinghouse is about $136 billion. Both are up substantially from the first quarter. First quarter average cash was about $40 billion and about $114.5 billion that is related to, you know, that's put up that, you know, we earn some collateral management fees for. At the end of Q, at the end of March, our total collateral was 255.4 billion. We're seeing it being, you know, relatively stable through the end of April in approximately the 240 to $250 billion range. So, you know, both, you know, so they, you know, as Terry indicated, this is really related to prudent risk management. In terms, I've already mentioned, in terms of the amount of sharing that we do with our customers, because we invest on their behalf, you know, they get about 80%. Our customers get about 80% of what we earn, and we keep about 20% of what we earn. And right now, the IOER is at 10 basis points.

Great. Thank you. Thanks, John. Thanks, Ken. Mm-hmm. Thank you. Our next question comes from Kyle Voigt with KBW. Welcome back, Kyle.

Hey, I'm sorry about that, and I'm sorry the question was just asked in the last couple, but it was just on expenses. I know there's a – I think there's a $1.54 billion annual expense run rate if you just look at the first quarter and kind of analyze that. Guidance is at $164 to $165. Just wondering if, John, if you could help us bridge the gap there in terms of what's going to drive the incremental spend over the remainder of the year. And is their expense flex below that guidance range if the option floor doesn't open and your travel expenses and other expenses remain low due to COVID-19?

Thanks, Kyle. John?

Yes. Thanks, Kyle. Yeah, we certainly, like I mentioned, you know, very proud of the entire organization in terms of how they've been managing expenses, especially in light of the you know, the crisis and, you know, the incredible amount of activity that has to be managed. And, you know, it's across the entire organization that's really stepped up to, you know, to manage, you know, the incredible amount of volume and the customer outreach has been, you know, really tremendous. You know, it really, I think, differentiates us from our peers in terms of our engagement with our customers. So, a tremendous result across the board from the employees. We've definitely been managing our expenses very carefully. We intend to continue to manage our expenses very carefully. This is something that you've seen us do over the last several years. Every employee really looks at and makes sure that we are spending our money as efficiently as we can. You know, going forward, it's, you know, too early to tell in terms of, you know, how the crisis plays out, and so we felt that it wasn't appropriate yet to change our guidance. We're very comfortable that we're not going to be above our guidance, and in fact, you know, I think there's opportunity based on different scenarios for us to come in under our guidance, but it's a little too early to tell. And, you know, in terms of the back half of the year, you know, as, you know, depending on how the, you know, how the crisis, you know, plays out, you know, there could be some timing related to some of our spending. And as you are aware, you know, our, you know, fourth quarter tends to be heavier spend for us in terms of seasonality and our expenses.

Thanks, Kyle. Thanks, John. Okay. Thank you.

Thanks. Thank you. At this time, we have no further questions in the queue, so I'll turn it back to Mr. Duffy for closing comments.

Dave, thank you. Thank you all very, very much. We appreciate the opportunity to address your questions during this quarter, and I will say it once again, most importantly, we wish you and all your families and friends nothing but the best of safety and health. God bless. Be safe, and we'll look forward to talking to you all soon. Bye-bye.

Ladies and gentlemen, that concludes the CME Group First Quarter 2020 Earnings Call. You may disconnect your phone lines, and thank you for joining us today.