AGM 2020

May 12, 2020

Slides

Thanks, Ed. Appreciate that, Gene. I will now introduce other Cboe senior executives who are in attendance. Chris Isaacson, Executive Vice President and Chief Operating Officer Brian Schell, Executive Vice President and Chief Financial Officer and Pat Sexton, Executive Vice President, General Counsel and Corporate Secretary. I would also like to introduce our independent auditor, KPMG, represented today by John Rohde and Anupam Luhar. Our former independent auditor, Deloitte, is represented today by Rich Caffarelli and Liz Gilman. I would also like to thank Deloitte for nearly 47 years of service to Cboe. In addition, Peter Sablage, our representative from Broadridge is serving as our independent Inspector of Elections. I thank everyone for participating today. And now let us proceed with the formal business of our meeting. Pat Sexton and I have been appointed as proxies for this meeting. Will the corporate secretary now present the required formal documents and affirm that the meeting is duly convened for the transaction of business? Thank you, Ed. I'll start over. I have copies of the notice of meeting, the proxy statement, company's 2019 annual report on Form 10 ks, which includes the audited financial statements for the year ended December 31, 2019, and the forms of proxy together with affidavits of mailing. In addition, the Board of Directors adopted resolutions providing for the meeting to be held at this time and via live audio webcast and directing that notice be given. The Board fixed March 19, 2020 as the record date for determining persons entitled to notice of and to vote at this meeting. The alphabetical list of the stockholders of record as of the record date is available on the web portal for inspection by stockholders. The Inspector of Elections reported that immediately prior to the commencement of this meeting, more than 87% of the outstanding shares of the company's common stock as of the close of business on the record date were presented in person or represented by proxy. Therefore, a quorum is present and the meeting is duly convened for purposes of transacting French business that may properly Thank you, Pat. We have 3 proposals on which stockholders are voting at this meeting. There will be time for discussion of the proposals after they have been introduced. Each of the matters being brought before this meeting is described in the proxy statement that was mailed to stockholders entitled to vote at this meeting. On each matter, stockholders have 1 vote per share of common stock held as of the close of business March 19, 2020. The first item of business for consideration by stockholders is the election of directors as described in the proxy statement. There are 12 nominees to be voted on at this annual meeting. The directors elected today will hold office until 2021 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Our bylaws require advanced notice to the company of stockholders' intent to nominate persons as directors. No such notice was received. Accordingly, I declare the nominations for directors closed. The second item of business is resolution to approve the compensation paid to our executive officers. The final item of business before this meeting is the ratification of the appointment of KPMG as our independent registered public accounting firm for our 2020 fiscal year. This concludes the introduction of the proposals to be presented at this meeting. At this time, we'll be opening the floor for comments on the proposals. If you have an if you you will have an opportunity to vote after any discussion. Comments on matters other than the proposals should be held for later in the meeting. For now, we will only respond to questions germane to the proposals being put to a vote. If you have a question about one of the proposals to be voted on, such question must be submitted in the field provided on the web portal. We will not address questions from the press or analysts. You may also refer to the rules or procedure for this meeting regarding questions. Let me now open up for questions on the proposals. There being no further discussion, it is 9:14 a. M. And the polls are now open for voting. The voting is by proxy and online via the web portal used to access this meeting. If you have already voted by mailing and proxies or via telephone or Internet, you should not vote at this meeting unless you wish to revoke your prior proxy. The polls will be closing shortly. Since all stockholders have had adequate time to vote, it is now 9:15 and the polls are now closed. While the preliminary proxies and online votes are being tabulated by the Inspector I will report on Cboe's accomplishments in 2019 and provide an overview of the company's progress to date in 2020, as well as strategic initiatives going forward. Following my presentation, we will take questions and then there will be a preliminary report on the results of the elections. Before I begin, let me remind you that this presentation does contain forward looking statements, which involve risks and uncertainties. Actual results may vary. Please refer to our filings with the SEC for more detailed information about the risks and uncertainties. I will now report on financial results for 2019 at Cboe Global Markets. Lower volatility throughout the year was reflected in year over year declines in trading industry wide in 2019 versus 2018. The comparison was especially challenging in our proprietary products due to exceptionally strong trading in 2018. Despite the challenging trading conditions, I'm pleased to note that throughout 2019, we significantly strengthened our foundation for growth in 2020 beyond. We completed our technology migration while delivering on our synergy targets, expanded our offering of unique trading and educational resources and launched new initiatives such as our plan to acquire Euro CCP and build out pan European derivatives trading and clearing. And in February of this year, we acquired Hanwick, a real time risk analytics company and the business of Feet Options, a portfolio management platform provider. As a result, we believe we are better positioned to grow our business and to define markets globally to deliver value to our customers and shareholders. The Q1 was a stunning period in history, encompassing the nascent spread of the COVID-nineteen virus to a global pandemic, threatening lives, markets and economies. The growing spread of the virus fueled tremendous market potential exposure to our team potential exposure to our team members and trading for community, while working closely with our regulators and customers to maintain continuous and orderly markets. In the face of unprecedented challenges, our technology infrastructure handled messaging volumes that were double prior peaks without incident. We worked collaboratively with our regulators and trading floor community to quickly migrate to an all electronic exchange and our workforce converted to a work from home environment and achieved record quarterly financial results across almost every financial metric in the Q1. We began transitioning employees to work from home ahead of government mandates. And on March 16, we made the very but necessary decision to temporarily close our trading floor for the first time in our 47 year history and transition Cboe Options Exchange to an all electronic trading. Cboe's hybrid trading system has always provided best in class liquidity and access through open outcry and electronic trading mechanisms. While the historic action of closing the floor proved to be a short term distraction, thanks to the collaboration and input from our floor training community and the responsiveness of our regulators, we were able to complete the transition in a 2 day period. We are in discussions with our trading core community and working through various scenarios to determine when and how to reopen the trading core. We are working on a 2 pronged approach. It will be safety first, but we plan to be ready operationally June 1 to return to open outcry trading. In the meantime, we are actively working on electronic solutions to replicate the benefits of floor trading in order to better response to demand for high risk and complex trade that are temporarily more difficult to satisfy. I'll take a moment to highlight the extraordinary trading environment that resulted with the emergence of a growing pandemic. The S and P 500 index touched record highs in mid February with a variety of known unknowns on the horizon combined with initial concerns around the impact and severity of the coronavirus, hedging was top of mind for most investors. As we have seen before, in the midst of extreme market uncertainty, the world turns to Cboe to leverage the utility of SPX and VIX options and VIX futures to navigate market turbulence. This played out vividly in the Q1 2020 with year over year increases of 43% in index options and 44% in Bix Futures as investors reposition and monetize hedges during the subsequent market sell off. Higher trading volumes in the Q1 gave way to lower volumes across our proprietary products in April. As we look across our diverse product line, we continue to see strong volume in multi listed options and U. S. Equities as users of our index products derisked and re grouped. Volumes will ebb and flow as uncertainty plays out. Currently, as we have seen before during times of extreme market stress, investors derisk until the event is more clearly defined. When they are better able to assess risk, they reengage. Tragically, this is an ongoing crisis and we expect to see new permutations of volatility as it continues to evolve. No one can say with certainty how the situation will play out, but the path to recovery is unlikely to be linear. We expect investors to continue to deploy and redeploy our unique product set to trade their changing market views and hedge their positions as the crisis evolves. Regardless of market conditions, we continue to strive to create value for our shareholders. Our 2019 financial results combined with our disciplined expense management and synergy execution resulted in strong cash flows from operations allowing Cboe to invest in future growth, while returning over $307,000,000 to stockholders in 2019 through share repurchases and dividends. Additionally, in keeping with our goal of consistent and sustainable dividend growth, we raised our quarterly dividend in 2019 as we have each year since our IPO in 2010, bringing our annualized dividend growth rate to 15% over the last 9 years. Turning now to an update on our strategic initiatives. Our goal is to define markets by being the global leader in innovative tradable products and services. We are focused on the following initiatives aimed at reaching that goal. Strengthen our proprietary products and services, pursue leverageable derivatives methodology, engage customers via information solutions, relentlessly focus on technology leadership, expand our global access and distribution, create capital efficiencies for customers. These initiatives reflect the considerable opportunity we see for organic growth, particularly in our proprietary products. Our recent acquisitions help enable organic growth and reflect our M and A philosophy, which includes targeting acquisitions that have the potential to accelerate geographic and asset class presence, while deepening buy side connectivity and channel distribution. We believe our planned acquisition of EuroCCP, a leading pan European equities clearinghouse, significantly advances our strategic approach in Europe. We expect EuroCCP to enable us to grow our current European business to further diversify our revenue stream and to launch a European derivatives business that leverages our expertise to better serve our global customer base. Additionally, as an EU located clearinghouse, we believe EuroCCP provides us with strategic flexibility in light of the political and regulatory uncertainty surrounding Brexit and the future framework of European Capital Markets. We see considerable headroom to grow the European derivatives market, which currently lacks many efficiencies seen in the U. S. Market. On the product front, we expect to offer European index futures volatility derivatives. We expect the deal to close in the next few months pending regulatory approval and other closing conditions and look forward to officially welcoming the EuroCCP team to Cboe Global Markets. We remain focused on listening to our customers by delivering products and solutions tailored to help them reposition to better navigate this new and extraordinary environment. We are actively redefining how we approach investor education. New initiatives include virtual forums for industry experts to share the latest and risk management strategies and webinars designed to create awareness around the benefits of allocating Tocsebo products. We also support customers through product innovation that delivers value in a variety of market environments. For example, in our U. S. Equities business, we are encouraged by the positive response we have seen to our new retail priority offering. Also on March 6, we launched Cboe Market Close, which enables us to tap into part of the closing auction market volume while benefiting the strategic initiatives will drive free cash flow and create long term sustainable value to our shareholders as we continue to focus on our strategic initiatives. We are also mindful of our role as a global corporate citizen with offices and customers around the world. The giving spirit of our team is inspiring. Our company wide corporate giving and the generosity of our associates is focused on providing relief to those suffering from the crisis and to containing its spread. Next month will mark the 10th anniversary of Cboe's IPO. I'm proud of what we have accomplished since that time and energized by our opportunity ahead. However, we could not be where we are without the guidance of our Board of Directors, our associates unwavering commitment to our vision and our customers' dedication and support, and most of all, the continued trust of you, our valued shareholders, I am grateful for your ongoing confidence in Cboe. We believe the experience of our team, our diversified product line, which includes but extends well beyond our unique proprietary products and the expansion and growing utility of our customized trading resources leave us well positioned to continue to deliver positive results for our customers and investors as we move forward. Thanks, Ed. This concludes our presentation. Welcome to the Q and A portion of the meeting. I'm Debbie Kootman, Head of Investor Relations at Cboe Global Markets. Any stockholder who would like to ask a question should submit the question in the field provided on the web portal. We have one question, Ed. You talked about ebbs and flows in volume in the past. What are your expectations this time in the current situation? Well, I'd like to say the customer reaction is similar to what we've seen in the past in that an event occurs, there's profit taking, other position adjustments which drive huge volumes. Customers then move to the sidelines to reevaluate risks and assess their exposure to the event and the overall market. If the event passes, think government shutdown, trade tension, trade deadline, customers re hedge and volume and hedging return to a predictable pattern. This time the event that's driving risk has not passed. So risk is not defined as it has been in the past and many customers still sidelined. I expect to return to predictable hedging and engagement as the uncertainty passes or becomes clear. The opportunity is to engage for us right now with customers, while there is uncertain times in the marketplace and describe strategies that work in the product set allows for engagement and positioning in any market environment. I appreciate the question. Thank you. There are no further questions. Now that we have completed the Q and A section of the meeting, will the corporate secretary please report on the preliminary results of the election? Thank you, Debbie. The preliminary results from the Inspector of Elections indicate that more than approximately 93% of the shares of the company's common stock cast on this matter have been voted for the election of each of the nominees named in the proxy statement that are standing for election at this annual meeting. Accordingly, each of the nominees has been elected to serve as a Director. Congratulations. More than approximately 93% of the shares of the company's common stock cast on this matter have been voted in favor of the non binding resolution to approve the compensation paid to our executive officers. Therefore, stockholders have approved this resolution. And finally, more than approximately 97 percent of the shares of the company's common stock represented at this meeting have been voted in favor of the ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm for the 2020 fiscal year. Accordingly, the appointment of KPMG is so gratified. Thank you, Pat. This concludes our meeting and the annual meeting is adjourned. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for