Intercontinental Exchange Inc.

Good morning and welcome to the Intercontinental Exchange First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Warren Gartner, Vice President of Investor Relations. Please go ahead, sir.

Good morning. ICE's second quarter 2020 earnings release and presentation can be found in the investor section of theice.com. These items will be archived and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions, and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2019 Form 10-K, second quarter Form 10-Q, and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures, including adjusted income, ETS, operating income, operating margin, expenses, effective tax rate, and debt to adjusted EBITDA. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. Define a reconciliation to the equivalent GAAP term in the earnings materials and an explanation of why we deem this information to be meaningful. as well as how management uses these measures in our Form 10-Q. When used on this call, net revenue refers to revenue net of transaction-based expenses, and adjusted earnings refers to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth is on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain terms. With us on the call today are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Ben Jackson, our President. I'll now turn the call over to Scott. Thanks, Warren.

Good morning, everyone, and thank you for joining us today. I'll begin on slide four with some of the key highlights from our strong second quarter results. Net revenues totaled $1.4 billion of 8%, driven by 13% growth in trading and clearing revenues and record data services revenues of $574 million. up 4% versus last year. This solid revenue performance, combined with expenses at the low end of our guidance range, helped deliver second quarter adjusted earnings per share of $1.07, up 14% over the prior year. We returned $564 million to shareholders during the quarter, including $400 million through share repurchases and a nearly 10% increase in our dividend per share. Through the first half, We have returned over $1.4 billion to shareholders through both buybacks and dividends, an increase of 31% versus last year. As I mentioned, second quarter adjusted operating expenses of $575 million were at the low end of our guidance. COVID-related impacts delayed IPOs, which reduced marketing spend at the NYSE. In addition, the high productivity of our technology team and reduced vacation due to COVID-related travel restrictions reduced drove higher capitalized labor expense during the second quarter. With a strong IPO pipeline and the reopening of many communities this summer, we expect these factors to begin to reverse in the third quarter, yielding an incremental $5 to $7 million in expense. We also anticipate a modest ramp in strategic investments during the quarter, all of which is expected to result in third quarter adjusted operating expense in the range of $580 to $590 million. Now let's move to slide five, where I'll provide an overview of the performance of our trading and clearing segment. Trading and clearing revenue totaled $710 million in the second quarter, up 13%. In our energy markets, revenues increased 9%, driven by a 26% increase in global natural gas revenues. Importantly, open interest across our energy markets is up 17% year-over-year through July. Global natural gas open interest is up 30%. And despite a double-digit percentage decline in WTI open interest, total oil open interest is 3% higher than a year ago. In our ag complex, revenues decreased, largely reflecting continued economic uncertainty associated with COVID. Within financials, equity index ADV rose 8%, including MSCI volumes, up 15%. These higher RPC products represent only around 20% of our financials volumes, but contribute nearly half the revenue. Thus, the strong performance largely mitigated the softer interest rate activity, reflective of global interest rates at or near all-time lows. At the NYSE, trading revenues increased 37%, supported by a 61% increase in cash equity ADV and a 44% increase in equity option ADV. And finally... In our fixed income and credit businesses, revenues totaled $111 million in the second quarter. Results were led by our mortgage services business, which continues to benefit from strong refinancing trends as well as continued adoption of digital mortgage solutions. Revenues from ICE Mortgage Services totaled over $90 million through the first six months of this year, up 40% on a pro forma basis versus the prior year. Turning now to slide six, I'll discuss the data and listing segment. Second quarter, data services revenues was up 4%, totaling a record $574 million. This marks the 42nd consecutive quarter of year-over-year data services revenue growth. We expect that trend to continue based upon acceleration in ASB, which enters the third quarter up 4.5% year-over-year on a constant currency basis. Growth in pricing and analytics accelerated to 5% in the second quarter from 4% in the first, driven by resilient customer demand for our pricing and reference data products, as well as continued strong contributions from our fixed income index business. Desktops and connectivity revenue grew 6%, supported by a 13% increase in capacity on our ICE global network. And finally, exchange data and fees grew 2% as growth in futures exchange data in our consolidated fees business was moderated by flat revenue at the NYSE. Looking to the second half, we expect data services revenues to accelerate sequentially to between $575 and $580 million in the third quarter, and then to increase sequentially again by an additional $7 to $10 million in the fourth quarter. Moving to our listings business, revenues totaled $111 million in the second quarter. While revenues are largely recurring in nature, results were somewhat impacted by a slower IPO calendar towards the end of the first quarter and into May. However, with the floor of the NYSE now partially reopened, issuers are returning to market, and we see a very healthy backlog heading into the remainder of the year. This should help us build on our solid performance during the first six months of 2020 and when the NYSE was the leader in U.S. IPO capital raise, including 10 of the 15 largest IPOs. The NYSE was also far and away the leader in capital raise from special purpose acquisition vehicles, or SPACs, which are increasingly being chosen as an alternative path to the public markets. The second quarter was one of the strongest in our company's history. We once again grew the top line. Our data revenues and futures open interest continue to increase. We deliver double-digit earnings per share growth. Our ROIC continues to improve, and our cost of capital continues to decline. And we have returned a record $1.4 billion to shareholders while continuing to strategically invest in our future. We're focused on a strong finish to a record year this year, and more importantly, on setting ourselves up for more success in 2021. I'll be happy to take your questions during Q&A, but for now, I'll hand it to Jeff.

Thank you, Scott, and good morning to everyone on the call. Before I begin, I'd like to thank our customers who continue to turn to our global markets, data services, and leading technology to navigate these unprecedented times. And I'd like to recognize my colleagues at ICE for their outstanding contribution to our first half results. Now turning to slide seven, our record first half performance, which was highlighted by revenue growth of 15%, adjusted operating income growth of 19%, and adjusted earnings per share growth of 25%, is a testament to our asset class diversity, balanced mix of recurring and transaction-based revenues, and ultimately the growth potential of our platform. In our first full quarter of operating in a work-from-home environment, I'm very pleased to say that our teams responded. Driven by our multi-year investment in both information and technology, our data services business delivered a remarkably strong performance. We generated key wins with our pricing and reference data, where the quality of our end-of-day and real-time fixed income prices attracted both new customers and increased consumption from existing customers. We saw major financial institutions adopt our new ESG and regulatory products. While in our index business, ETF assets benchmarked to our indices reached a record $263 billion as of the end of June. And lastly, in our consolidated feeds business, a number of large institutions are transitioning away from competitors to ICE data services for their real-time data needs. While our consolidated feeds business and our index business are each less than $100 million of revenue today, they're both well-positioned to grow and capture market share, while also serving an important role in our broader enterprise sales strategy. The second quarter was also marked by continued progress for our ETF hub. which continues to gather a robust network of key industry participants. With the addition of Credit Suisse and Wells Fargo during the second quarter, we now have seven authorized participants active on the platform. These authorized participants in aggregate account for over two-thirds of the industry's Create, Redeem activity. And their commitment to our ETF hub represents an important milestone towards adding other issuers and institutional customers in the coming quarters. Turning to slide 8, open interest across global energy futures remains near all-time highs as we continue to benefit from long-tail secular growth trends unfolding across the global oil, natural gas, and environmental markets. In our oil markets, commercial customers continue to demand additional, more precise hedging tools that we're in a unique position to provide given their correlation to our benchmark contracts, such as Brent crude oil. This trend is best illustrated by the growth in our other crude and refined products line item, which has seen average daily volume grow double digits on average over the last five years, and are up 37% in the first half of 2020. The liberalization of the global natural gas markets and the rise of LNG use is driving accelerated adoption, of our European TTF and Asian JKM benchmarks. Combined with average daily volumes across these contracts, they have grown an average annual rate of 55% over the last five years and increased by 80% year-over-year in the first half of 2020. And demand for environmental products such as our European carbon credits and U.S. renewable energy credits is also growing rapidly. with open interest across our U.S. environmental portfolio now four times the size of what it was just five years ago, and recently crossing one million lots of open interest for the first time. Collectively, as you can see on slide eight, this group of energy products has grown double digits on average over the last five years and now accounts for nearly a third of our total energy revenues. Along with the strength of our global crude and refined oil benchmarks, Our global energy platform is uniquely positioned to continue to evolve and grow in the years to come. Turning to slide nine, I'll now provide some additional color on mortgage services, which has recently become the fastest growing business within the ICE platform. While strong refinancing volumes have provided a tailwind of first half results, the secular shift toward the adoption of an electronic workflow is accelerating. Today, ICE Mortgage Services is focused on helping to automate various parts of the U.S. loan closing process. Upon a loan closing, two key events occur. First, all relevant mortgage information is transmitted to MERS and registered with the MERS database. And second, in order to consummate the transaction, a settlement agent is required to record certain information with the relevant local county recorder. Together, these two events help ensure that the loan can be seamlessly sold into the secondary market. And so, with the combination of MERS and Simplifile, we have a business that is part of nearly every U.S. mortgage closing process, collecting, marshalling, and storing critical data. After acquiring MERS, we quickly engaged with Fannie Mae and Freddie Mac to digitize some of their required paper documentation, starting with the mortgage promissory notes. known as the E-Note. E-Notes have seen rapid adoption over the last few quarters, and the adoption rate has only accelerated in the wake of COVID-19. At only around 3% of the U.S. market, there's a tremendous market share upside for this product to continue to grow. And our 2019 acquisition of Simplify allowed us to facilitate the recording of key documents over an electronic highway that is plugged into over 2,000 jurisdictions across the United States. Importantly, this connectivity includes a database of reference data that is cataloged the various terms and conditions required by each of those 2,000 jurisdictions, as well as the fee schedules for tens of thousands of settlement agents across the country. As you can imagine, each county has its own recording nuances, and each settlement agency has its own unique fee schedule, which if navigated manually, as is often the case today, can be costly, time-consuming, and very prone to human error. In other words, the U.S. mortgage back office workflow is ripe for automation and greater efficiency. We see the opportunity to build new products and services to add more content to what is already a robust and expansive network. We believe the addressable market for further automation is in the billions of dollars, and it's one that our platform is well positioned to capture. We're executing a business plan that we already apply to our futures markets and are currently applying in our fixed income businesses as markets embrace digital networks to replace past workflow practices. And we're excited about the mortgage market opportunities that lie ahead in what could prove to be another important chapter in in ICE's 20-year evolution. Turning to slide 10, the first half was another example of strong execution across our platform. We delivered record revenues, record operating income, and record earnings per share. We have a vision for ICE as a public company to deliver growth in all economic environments, and I think that this vision distinguishes us from our peers. We've deliberately positioned the company to have a mix of transaction and compounding subscription revenues to give investors revenue upside exposure while hedging our downside risk. We target markets where there's a tailwind of macroeconomic analog to digital conversions taking place to smooth over microeconomic issues. We mix our footprint between financial markets, which react to central bank acts of man and and physical markets, which react to disruptive supply chain acts of God. We diversify across a global footprint because at all times, somewhere in the world, there are risks that our customers and potential customers need to manage. So as we look forward to the second half and beyond, we're excited about the growth opportunities that lie ahead, and we'll continue to work closely with our customers and our key industry participants to help them navigate these times. while creating value for all of our stakeholders. With that, I'd like to again thank our customers for their business and their trust in this quarter. And I'd like to thank my colleagues at ICE for their remarkable efforts and their contributions to our first half results. I'll now turn the call back to our moderator, Chuck, to conduct the question and answer session, which will run until 9.30 Eastern time.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we'll pause momentarily to assemble our roster. And our first question will come from Rich Rapetto with Piper Sandler. Please go ahead.

Yeah, good morning, Jeff, and good morning, Scott. I guess my – thank you for going through all the details on the open interest, the energy open interest. And I guess my question was, you know, I'm just trying to differentiate, you know, why yours – and, you know, I know you went through natural gas being very strong, but why your open interest, say, has separated from your peers? And is it – do you think I'm right when I'm saying – As of yet, it hasn't played out in volumes. And, you know, is that sort of the view that you have, but it will later? Or could you sort of explain that? And maybe I just don't have the right picture.

Sure. Good morning. What we've been doing over the last decade or so is really expanding the footprint of our energy futures markets. And And obviously, when we acquired the International Petroleum Exchange of London, it had four energy contracts, and today we have over 900, approaching 1,000. And so the growth that you're seeing is in the global markets, and it's in customers trading in these smaller niche contracts that give them more precision in for hedging something locally or some product-oriented energy that is specific to their geography and business. And it's why I mentioned in my prepared remark, Rich, that a third of our revenues now in energy come from these other energy products, and they're the ones that are growing the fastest. they are correlated to the benchmarks, which is why it's important that we continue to market and push the main benchmarks. But the growth is in these other areas. And when energy markets are in contango, which, you know, for non-traders means the normal market conditions where there is storage available in the world, we have always seen that open interest in these energy products is a – good precursor to future volume trends. And actually, when the markets reverse and do what they call backward eight, these open interests become support metrics. So one has to use open interest cautiously. But we see the opportunity for this business to continue to grow as customers come back to these open positions and manage them through the duration of their life. So it's a very bullish sentiment that we're using inside the company for our own forecasting.

Yeah, and Rich, the only thing I'd add to that is don't get locked in the overall totals with some of the dynamics going on underneath because a lot of what Jeff just talked about is growing right now. So our other oil products are up 15% year-over-year in July. Our natural gas products are up 5% year-over-year in July. Our emissions products are up 21% year-over-year in July. And you know, looking at our website, those are our higher RPC contracts. And so not only do we have the mitigation of commercials on the platform, not only do we have the mitigation of the diversity across the products, but the growth right now is a mitigation to some extent against the revenue impact that we'll see. And as you know, you can't spend volume, you can spend revenue. And that's where the cash capital returns and things like that are important. afforded. I'd encourage you, the things that Jeff went through and is prepared to march, take a look at how those businesses are performing because they're growing right through this.

Got it. Great insight, especially on the volume translating into revenue. Anyway, my follow-up question, Jeff, was going to be on the ETF hub, but I think your excitement as you communicated and talked about mortgage services just sort of diverting me, let's say. So I guess the question on mortgage services is that, you know, it appears, you know, ripe for digitization and automation. But there is a slight difference, I think, from some of the markets, or maybe it isn't. Maybe you can sort of draw the connection. You know, with the other markets that you automated, there was – certainly a matching engine, you know, the exchange of, you know, trade and, you know, a matching platform. Here it is maybe goes to the database management side of it, but it seems like you've just got some great tools that leverage this, you know, potential for automation in this big market. But could you, I guess, you know, give us a little bit more insight on the connection between and maybe what the difference is between that and, say, the trading platforms that you've automated again and again.

Sure. It's a good question coming from you, Rich, because I know you and I have talked in a number of public forums about the fact that you've seen ICE really focus on the settlement process in the markets that we serve. In 2007, we moved into clearing our own futures products, and I think that was a pivotal moment in the history of the company, and a light went on for me and the management team and the board that we really can do something to this back office workflow that is incredibly sticky. So you've now seen with the ETF hub and the way we're approaching the fixed income markets we entered through the back office with the reference data initially and now moving into the ETF hub, which is a settlement, essentially, infrastructure. And we're using the same playbook in mortgage, which is let's get into the settlement workflow. And as I mentioned in my prepared remarks with MERS, right now we touch almost all of the mortgages in the United States. through what we've already built. And once you have that settlement scheme, it's easy to expand upstream and into the data business and into adjunct markets that create value for customers that are very, very plugged into your network. And so think of what we're doing as building the clearinghouse, if you will, for the mortgage industry.

And the next question will come from Ken Worthington of JP Morgan. Please go ahead.

Hi, good morning. Thank you for taking my questions. ASV growth improved sequentially this quarter to 4.5%. It is still at the low end of the range you set forth when you guys announced the IDC deal. Are we on the path forward to the midpoint of your range or maybe even at the higher end of the range? The backdrop on the transition to fixed income indexation seems to be coming together quite well. You have indicated, you know, more new account wins. So it seems like things are getting better. You indicated towards the improving as you move through the year. So is the outlook here or what is the outlook here over the next couple of years for ASV growth? Should we expect it to continue to improve? from these levels?

Hey, Kenneth, Scott, thanks for the question. Yeah, look, I do think we certainly expect that our ASV growth will continue to accelerate as we move through the rest of this year. And by the way, I think, you know, in addition to the total ASV accelerating from the first quarter, importantly, pricing and analytics, which is half the business moved from three in the first quarter to four in the second quarter, and again, I expect that trend to continue as we move into the back half of the year. You know, I said back in February I thought pricing analytics would grow 5% to 6%. I still think that's true for the year, which indicates I also think the revenue growth for pricing analytics will accelerate in the back half versus the first half. And I think there are a number of trends that are really driving it. And, by the way, I have to give a shout-out to Lynn and the team because they're – leveraging those trends from home without traveling, without being able to go and meet customers face-to-face. And yet we just had the best quarter of signings we've ever had. Lynn has told me she feels better about the pipeline entering the third quarter than she did entering the second quarter. And it goes to a lot of what Jeff was talking about. It's a flight back to quality on prices. You know, we see customers consuming more of our prices. We see customers adding the names, adding our reference data. Because what we saw through the crisis is our prices were the de facto price discovery. And in a world where you don't want tracking error, you come to, I say, the services to buy those prices. That's what we're seeing. Our existing customers are buying more. We're seeing new customers join. Jeff talked about the index business. We now have $263 billion indexed against our indices today. our fixed income indices, we went from single digits to nearly 20% share in that space in a very short period of time. And as Jeff said, that's still not a $100 million business for us, and it will be one. You look at the feeds business, where that business didn't exist when we bought IDC. Five years later, it's approaching $100 million in revenue. And there, we can compete not just on quality but on price because we're not protecting anything. We're going after new business And we're seeing competitive wins, competitive wins against stable competitors and competitive wins against competitors where customers aren't quite sure who owns them and who's controlling them at this point. So I think you're seeing all of those trends, a lot of that built up in the quarter and allowed us to do a little better than the high end of our guide. It allowed me to mention in my prepared remarks that we're going to accelerate sequentially in the third quarter and then again in the fourth quarter. And, again, in a world where our sales team is sitting at home, they're doing a fantastic job and have allowed us to hold our guidance and to see acceleration and growth. So you're going to see it in revenue. You're going to see it in ASV. And, by the way, I feel very good about how it sets us up for 2021 as well.

Great. Thank you. And then we have some distance between the challenging April WTI delivery and negative prices for TI that resulted in Has there been any noticeable fallout? And at this point, do you think ICE might see a benefit in Brent trading for more participants switching to Brent? Or has that transition already happened over the last decade?

I can. It's Ben Jackson. I'll take this one. So the short answer to that question is yes, there is opportunity for Brent here. And we're seeing it in a number of different areas. Jeff touched on one in some of his prepared remarks and in the first answer to Rich's question, where I think that market participants have seen now firsthand a lot of the issues that can be created by that landlocked infrastructure around WTI versus the truly global demand pool that Brent has and can service. And what that's led to is not only growth in our Brent contract itself, but also in all of the refined products that come off of a barrel of oil, all the different locations where you can make and take delivery, which is very unique on our platform where we have those hundreds and hundreds of different locations and refined products that customers can trade that are very deep and very liquid and are high growth opportunities for us. The other areas that we're seeing new opportunities for growth in Brent are, for example, in the ETF space. So we are having an unprecedented number of conversations now with ETF providers about adding Brent for the first time. Another area that we're exploring is retail demand. So retail, and in particular in Asia, we're assessing what that opportunity is, but given some of the dislocations that happened in WTI, there are markets across Asia that we're looking to expand and offer a retail offering for Brent. And then the third are the discussions around the Gulf Coast. So as I mentioned in Q&A in our last quarter, when oil hits the water coming out of the Gulf, its price reference is most often Brent. So commercial customers are now engaging us more than ever around opportunities in the Gulf Coast, around Houston-related benchmarks and Gulf Coast-related benchmarks, because Brent, they see as the most logical benchmark to differentiate those contracts off of and create a differential market against. So we're engaged more than ever with commercial customers around what is that right U.S. benchmark going forward and what changes may need to be made to that. So the short answer is yes, there's a lot of opportunity ahead of us in Brent.

Our next question will come from Alex Cram with UBS. Please go ahead.

Hey, good morning, everyone. Just wanted to follow up on the mortgage discussion. Thanks for the detail here. I saw an industry poll of the mortgage industry the other day that basically echoed what you're saying in terms of the digitization and the spending that's going there. That said, I think only 20% of that spend is going towards the closing portion. I think the majority is going to servicing and processing, and I think underwriting is the smaller part. So, you know, First of all, do you agree with that? It was an informal poll. But then if those other areas are getting more spending, you know, how quickly can you expand from your base here? And does it have to be potentially inorganic because, you know, in terms of time to market?

Thanks, Alex. It's Ben. I'll jump in on this one. So, you know, I think Jeff went through and has prepared marks, you know, that focus on the closing and post-closing process. And you answered some of the question in the way that you framed your question, in that the post-closing and closing process is the one that's the most ripe for innovation right now. It's been the most manual, laden part of the entire process. And with the two assets that we have being very unique, with MERS that we've talked about a lot, and then with SimpleFile, as Jeff mentioned in his prepared remarks, having a very unique network of and have paved the road to all these different settlement agents and jurisdictions that no one else has. And then that unique reference data set that we have puts us in a position for new growth opportunities that have a significant TAM, a billion-dollar TAM across them. And to unpack how we're executing and how to think about that growth opportunity in front of us and how huge it is and how right in front of us it is, I'll give you a couple of examples. So first is with SimpleFile. a key business being the e-record business. We've mentioned on calls that right now we're in jurisdictions and plugged into jurisdictions that represent 85% of the U.S. population. But in those jurisdictions, if you go back to 2019, we were only capturing on our e-record business about 25% of the eligible documents that we would take a toll on and we would get a fee on. You go to the first – accelerate to the first six months of this year, and that has accelerated to 35%. So we've gone from 25% to 35% capture of what was manual and paper-based documentation to now automated. A second example that we've talked about is e-notes. And Jeff mentioned this in his prepared marks, that we're doing about 3% of the MERS volume is now – about 3% of those loans also include the registration of an e-note. If you go back to last year, that was 1%. So we're seeing a nice pickup and acceleration there. And in addition to that, we're adding customers and have added customers like Ginnie Mae, Chase, Rocket, U.S. Bank onto this platform, which gives us good visibility into a tailwind that will continue to grow that percentage. A third area of growth that we haven't talked about is a business that Simplifile really built organically by itself as a startup business. And that's the automation of the closing and post-close process. Think of this as very complimentary to what I just discussed that MERS has on eNotes. And this is the automation of all the other elements of the closing and post-close process. That business has gone from a startup to now if you use MERS volumes as a proxy in the first six months of this year, is capture about 3% of that market, and we see, similar to the eNote trend, we're seeing adoption pick up, significant customers onboarding under that, and we have a very big TAM ahead of us there. The last thing I'd highlight is that while we have a bunch of other opportunities for growth in this market, the other thing to look at is there's a very strong refi trend in the market, where each one of the services that we provide In every refinance that's done, we're collecting a transaction fee associated to each of those transactions. And if you look at where mortgage rates are now, there's an estimation from industry estimates that about 18.5 million outstanding mortgages are in the money at current rates. And in the money means they're 75 basis points lower than where rates are currently set. So we see ahead of us a significant refinancing boom that's going to last for quite some time, and with the central bank action that has happened, it's likely to continue in the years ahead.

Our next question will come from Brian Bedell with Dolce Bank. Please go ahead.

Great. Thanks. Good morning. Thanks for taking my questions. That's a good segue then into my question on fixed income and credit broadly. Obviously, the mortgage side of that has fantastic tailwinds. Can you talk about the revenues efforts within fixed income trading and tell me if this is accurate. It sounds like you've got faster near-term growth trends on the mortgage. and we have a little bit of a longer-term build on the fixed income trading side, but maybe if you can flesh how you see the revenue in that area growing in the second half and then into next year. I think ETF Hub obviously has got great momentum, but I believe, correct me if I'm wrong, but I believe you're not charging much for that right now, and there's more of a cross-sell game plan on that. So maybe if you just flesh that part out of that.

Sure. Thanks, Brian. So I think the way you characterized it is correct in terms of revenue. So with mortgage, we obviously have had and have in front of us near, medium, and long-term a significant TAM to go after. We're very well positioned to capture it, and we're capturing it actively now. In fixed income, as I've said on the last few quarterly calls, what our play here has been on execution is, is to really establish a network for the first time, an institutional network, leveraging the strength that we have in our ICE data services business that has that institutional network, plugging into very inefficient workflows that are in the fixed income marketplace, and then combining our execution venues, our capabilities on the ICE data services side, and plugging into these workflow inefficiencies to solve real-world problems. And the first example of that, as we've talked about on calls, is ETF Hub. And, you know, it gave a lot of great updates last quarter. A couple of things to look at in terms of network expansion and also volume expansion on that that we've achieved this past quarter is that we've added our first three market makers onto the platform. So significant market makers like Jane Street, Old Mission, and Chicago Trading are now on the platform. Jeff mentioned in his remarks we had two more APs, significant ones, in Credit Suisse. and Wells Fargo that have joined the other five that are on the platform. We've added a new issuer as a development partner on the advisory committee in JP Morgan Asset Management. We continue to enhance our workflow automation capabilities in the custom basket facilitation or the ability to customize what are the securities that I can provide to somebody to swap for an ETF in that primary trading vehicle. And last but not least, volume's growing. So quarter over quarter, our volume continues to grow in our primary trading venue, and we've done now over $330 billion in transactions since inception. What's ahead of us, and getting to your question around execution, one of the key things ahead of us is I had mentioned on our last call that we just launched ICE Select. And ICE Select is our aggregation venue of all of our protocols, all of our venues, as well as our RITCH, ice data services, data sets and analytics like best execution and real-time pricing. We've integrated all that into an aggregation venue that in the coming weeks is going to be integrated into the ETF hub. So for the first time, our venues will compete in the secondary market for flow to fulfill orders and procurement of bonds versus voice and other venues And with the $330 billion that we've executed to date in the primary market, that's a meaningful portion of the market that's out there for us to get started in. Also ahead of us is really introducing for the first time our chat and instant messaging platform that's very well established in the energy and commodities markets and introducing that for the first time into the fixed income markets. And late this year, we'll have international ETFs added on top of that. We will be, in the latter part of the second half of this year, we will also start to share and publish on a regular basis volumes as our institutional network is starting to be established.

And, Brian, the only thing I'd tag onto that, because it gets overlooked a little bit, is we've got a CDS business that did $100 million of revenue in the first half of the year, which is 20% higher than it was a year ago, on track to be a $200 million business. Right. You know, that's another fact similar to my answer to Rich that I hope people don't miss, because in a world where people are looking to hedge their credit exposures, they can do it, you know, with the bonds themselves, but they're also turning more and more to CDS. And, you know, we built, to Jeff's point earlier about building clearing solutions and back-end solutions that facilitate risk management. We did that in that CDS clearing business, and its performance through the first six months has been outstanding. Thank you.

Our next question will come from Alex Blustein with Goldman Sachs. Please go ahead.

Hi, this is Sherik Villanin for Alex. You issued some long-term debt in this quarter. Can you talk about the rationale for building up the little extra dry powder? And is there an opportunity to accelerate the share repurchase on the back of higher cash balances now?

Yeah, so look, we have some bonds that we're coming to later this year. And we also had, through some of the M&A activity that we've done, a rather accelerated or higher balance in CP. Looking at the debt markets and looking at the interest rates that were available, we thought it was a good time to move into the market and to turn some of the CP out and to go ahead and take out the bonds. If you look, We actually, those bonds that were due in December of 20 were actually going to cost us more from a coupon standpoint than the blended money we got that averages out at 20 years maturity. So our blended cost on what we raised is a weighted average maturity of 20 years and a cost of about 2.5%. to 2.6%. That was lower than what we were paying on bonds that were due at the end of the year. So we felt it was an opportune moment to move. Reducing the CP creates a little bit of flexibility for us in terms of the revolver capacity that we have. And, you know, in the uncertain period that we're in, having some additional flexibility is good, and it was a relatively inexpensive ask to go out and get it. In terms of the repurchases, you know, what you saw in the quarter is we were steady. You know, we said originally 2.4 billion authorization from the board, roughly cover six quarters. That's about 400 a quarter. That's what we did this quarter. Did a little bit more in the first quarter when the share price was a little bit beaten down. And given where we sit today, that was a good move. So I would, again, as is typically my answer over the last few years, as steady as she goes on capital returns. We continue to grow our profitability. We continue to grow our capital returns. We continue to grow our dividends, and we'll continue to look to do that, and we will continue to look to the debt markets opportunistically to continue, as I mentioned again in my prepared remarks. Another thing I want people to make sure that you don't notice, our return on invested capital is now back at 10%, and our weighted average cost of debt is now about 5.5%. You know, the overall balance sheet management has reduced that cost, even as the business has generated increasing returns.

And our next question will come from Mike Carrier with Bank of America. Please go ahead.

All right. Good morning. Thanks for taking the question. So you guys have been making good traction, and you've talked a lot about, you know, some of the newer areas at ICE, including the ETF hub and mortgages. Ben, I think you mentioned a large PAM ahead. How are you thinking about that longer-term revenue opportunity? What maybe slight is ICE focused on? And given the potential pace of traction that you're seeing, it seems like maybe a little bit faster than you would have expected. How do you see that maybe playing out relative to expectations? Thanks.

Thanks, Mike. Similar to the answer I gave in the question a couple ago that Alex had, I think the way to think about it is that the real near-term revenue growth opportunities that are right in front of us that we're already capturing is really in that mortgage services business and how well positioned we are for the automation of that close and post-close process. That, you know, especially with COVID-19, All the assets that we have went from nice-to-have assets to absolute must-have assets, and we are onboarding customers at an unprecedented rate into our platforms for the registration of e-notes, for getting onto SimpleFile to plug into those, you know, more jurisdictions coming on board, more agents coming on board, and looking to rapidly, rapidly onboard onto these products and increasing adoption. And as I mentioned, there's right in front of us, three to four significant growth opportunities that we're capitalizing on in terms of new business opportunities that we're capturing in that mortgage services business. For fixed income, we're establishing that network. It takes a while to get established into that institutional space for execution, and all of the data points that I've been talking about on each of these calls, how fast we're getting this platform up, the volume that's coming through the platform, how much of our network is already established. And as a network gets established, it really feeds on itself. So we think we're very well positioned there for a medium to long-term growth opportunity in execution. Remember, in fixed income, we don't look at it as just an execution business. To solve the real problems in fixed income, it's going to require – You know, that billion-dollar business a year that we have in fixed income that's really the cornerstone is our pricing, our analytics business, and marrying those rich analytics and pricing services with execution and partnering with buy-side and sell-side clients to plug in the real inefficient workflows because we're well-positioned in that we're the only one that has really that comprehensive, all of the assets there to help solve them.

Our next question will come from Kyle Vaught with KBW. Please go ahead.

Hi, good morning. Maybe a question on M&A. You know, you highlight in your prepared remarks the diversity of your business. Just wondering where you still see holes or where you're seeing more opportunities to add to your broader portfolio still? whether that's in mortgage or consumer through BACT or elsewhere. And then maybe also an update on what you're seeing in the current M&A environment in terms of more or less opportunities, say, versus a year ago. Thank you.

Sure. Well, I think it's a complicated environment. I had a very interesting conversation with one of the senior investment bankers in our space about the The difficulty in two CEOs meeting and getting to know each other and determining if their businesses would be good together in a world where we're working from home and can't travel and can't have face-to-face conversation. And so the M&A market as a result of that is much more about, that we're seeing is much more about companies, particularly private equity-owned companies, that are going to run a process for their sale or merger. And in those kinds of situations, we tend to be the most disciplined investor. You know, Scott mentioned we track our return on invested capital. We track our cost of capital. And so while it's easy to make M&A, relatively easy to make M&A accretive, due to the low interest rate environment that we're in, you know, it's harder to make rational deals that have real long-term value creation for investors as opposed to giving our investors their money back and letting them make their own choices in the market. So it's complicated. That said, there are a lot of private equity-owned businesses, so we've participated in, boy, a number of different, took a look at a number of different processes in the last quarter and obviously not done anything or we would have announced it. But I'm also seeing that, you know, COVID-19 environment has really created winners and losers in many spaces, including financial services. We have a lot of inquiries from fintech type companies that are worried about their future funding capabilities. These generally are companies that are loss-making companies and built themselves to try to get scale in a world where there was a lot of capital freely floating around and now investors seem to be more disciplined and these companies are looking for larger sponsors, if you will, to bolt their businesses to. Again, because we're disciplined investors and target things like accretion, dilution, return on invested capital, those deals are hard for us on a just purely financial basis. So we are only looking at things where we think those acquisitions would accelerate an initiative that we already are working on, and it's essentially a buy versus build strategy or a speed to market strategy. And those things are floating around, but again, and we've looked at a lot, but not seen anything that really would move with a needle for us. So, long story short, we're in a very good position, you know. We've got access to capital. We've got a lot of initiatives going on. Our productivity is high because a lot of what we talked about on this call is about building technology and systems to help our customers. And interestingly, a tech-focused firm can do well in this environment because our people are actually being pretty productive working from home. So we're in a great position if the right thing were to come along, but it's a complicated environment for M&A. just due to the social distancing that's going on.

And our next question will come from Owen Lau with Oppenheimer. Please go ahead.

Good morning, and thank you for taking my questions. Could you please give us more color on the progress of your partnership with MSCI? For example, the integration of ICE pricing and reference data into MSCI platform and also the progress of launching more futures contracts based on MSCI index. Thanks.

Thank you for the question. This is Ben Owen. Our partnership with MSCI is very strong. It's been a longstanding relationship that we continue to look for opportunities to grow, and we're going to continue to engage with them actively on a number of different indices and a number of different futures that we can launch around the world. It's obviously been a very strong growth business for us for a long time with the futures in that business. We've seen a little bit in recent times with the volatility and the risk that there is in the market. We've seen a bit of a pullback on things like emerging markets where in a high-risk environment, people tend to pull back from the markets when you have that kind of volatility in it. But we've seen a 15% increase in Q2 in this business, and a lot of that is on the back of the IFA business, which is another significant contract that we have. So we're looking with them actively, partnering with them on all kinds of new growth opportunities, and the state of the relationship is very strong.

This concludes our question and answer session. I would like to turn the conference back over to Jeff Sprecher for any closing remarks. Please go ahead.

Well, thank you, Chuck, for moderating the call, and I want to thank everybody for joining us. We look forward to speaking with you again soon, and until that happens, I hope that you and your loved ones stay safe and healthy and that you guys try to have a good day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.