Earnings Call: Q1 2019

May 3, 2019

Good morning, and welcome to Cboe Global Markets 2019 First Quarter Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Now, I would like to turn the conference over to your host today, Debbie Koopman. Please go ahead. Thank you, Keith. Good morning, and thank you for joining us for the Q3 earnings conference call. On the call today, Ed Tilly, our Chairman, President and CEO, will discuss the quarter and provide an update on our strategic initiatives. Then Brian Schell, our Executive Vice President and CFO will provide an overview of our Q1 2019 financial results and updated guidance for certain financial metrics. Following their comments, we will open the call to Q and A. Also joining us for Q and A will be our Chief Operating Officer, Chris Isaacson and our Chief Strategy Officer, John Deters. In addition, I'd like to point out that this presentation will include the use of several slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we will make some forward looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward looking statements not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward looking statements. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information, future events or otherwise, after this conference call. Also note that references made to the planned migration of Cboe Options Exchange is subject to regulatory review. During the course of the call this morning, we will be referring to non GAAP measures as defined and reconciled in our earnings material. Now, I'd like to turn the call over to Ed Tilly. Thank you, Debbie. Good morning and thank you for joining us today. I'm pleased to report on financial results for the Q1 2019 at Cboe Global Markets. As you know, market conditions were challenging throughout quarter, negatively impacting volume across our business lines. As we have in previous low volume cycles, we have used this less volatile period to see potential future growth in our proprietary index products through increased customer outreach and education efforts. As a result, we are confident we are even better positioned to grow our business and to define markets globally to deliver value to our customers and shareholders. I will highlight those initiatives today after touching on market volatility. In a reversal from the sharp downturn in Q4 2018, the S and P 500 rallied more than 12% in the Q1 and is now up more than 16% year to date. We believe the rally was led by the Federal Reserve's shift away from monetary tightening, generally positive corporate earnings and growing stability in U. S.-China trade talks. As the markets are once again hitting all time highs, implied volatility levels have fallen across all asset classes and the VIX term structure has steepened. We see that investors are looking for ways to reestablish upside positions and with realized volatility levels back near 8 month lows, industry strategists are pointing to trades in SPX and VIX as ways to take a position in the market. Others are turning to VIX futures and volatility linked ETPs to express a view on implied volatility. Volatility linked ETP AUM, which bottomed out at the start of 2019, has been steadily building and is now back over $3,500,000,000 quickly approaching pre February 5, 2018 levels. In the last 3 months, the ETP complex has gained approximately $130,000,000 of long Vega exposure. This has translated to hedging in and according to the most recent CFTC data has resulted in the largest net short position in VIX futures on record. Yet another example of the utility of the VIX complex has to offer. Whether record market highs or market selloffs, spikes in volatility or extended periods of market calm, The Street continues to reference our proprietary product set as the preferred tools for managing risk. We remain keenly focused on the significant opportunity we see to further grow the customer base for our proprietary products. In the interest of better serving our customers, we have aligned our sales and coverage teams across regions and products to promote greater collaboration and cross selling. Additionally, we developed a buy side sales team focused on growing usage of our proprietary products in the insurance, asset manager and pension fund communities. While we believe our greatest opportunity for growth remains in the domestic market, we also recognize that investors around the globe have U. S. Exposure. We continue to make inroads into new markets and to enhance the customer experience in regions where we already have a greater foothold. We are exploring new markets such as the Middle East, Scandinavia and Asia, while also pursuing jurisdictional approval in more established markets, including Switzerland and Israel. Turning now to the U. S. Equities market, where this week we made fee changes aimed at attracting additional order flow to the Cboe Edgex exchange. We believe these changes in addition to our plans to introduce execution priority to retail limit orders on EDGX pending regulatory approval, will benefit individual investors while further enhancing EDGX as a destination of choice for retail trading. We continue to advocate for adoption of our Cboe market close proposal, which was initially approved by the SEC in January 2018, but has been stalled by appeals. We are optimistic that the original approval order will be reaffirmed by the commissioners and are positioned to launch upon approval. You'll recall that Cboe worked closely with customers to develop CMC to provide them with significant cost benefits. Our commitment to being a leading advocate in the equities marketplace has never been stronger. We are crafting numerous other proposals and rule filings based on feedback from our customers. You'll hear more about these initiatives as they develop. Now turning to European Equities, where our market share remains strong 1 year MiFID II. We continue to retain our number one position in the European Equities market as we increased our market share year over year to 22.1% for the quarter, up from 21.2%. Our periodic auctions book continues to receive positive feedback from both buy side and sell side firms and remains the leading periodic auction solution. Cboe LIS, our block trading platform powered by Vids Technology logged another strong quarter. Our primary focus during the Q1 was finalizing our plans to operate in a post Brexit environment. In March, we received authorization from the Dutch Ministry of Finance to operate a new venue in the Netherlands. Given the recent political developments and the extension of the Brexit deadline until the end of October 2019, we now plan to launch the new venue later this year. We continue to work with our regulators and customers on launch timing. In closing, I would like to thank our team for the progress made throughout the Q1 laying the foundation for future growth. In addition to the initiatives outlined here, our team continues to hit key milestones on our migration of Cboe exchanges to BATS technology, keeping us on track for our planned completion date of October 7. We've seen ebbs in trading before. They come with the territory, but our experienced and disciplined team continues to execute on strategic growth initiatives so that our company is well positioned to weather difficult trading conditions and to benefit when they change. With that, I'll now turn it over to Brian. Thanks, Ed, and good morning, everyone. Before I begin, I want to remind everyone that unless specifically noted, my comments relate to 1Q 'nineteen as compared to 1Q 'eighteen and are based on our non GAAP adjusted results. As Ed mentioned, we had difficult comparisons given the strength of the Q1 last year and weaker trading volumes this year. Overall, our net revenue was down 15% with net transaction fees down 24%, non transaction revenue 2%, adjusted operating expenses decreased 14%, adjusted operating margin of 66.5% was unchanged, And finally, our adjusted diluted earnings per share declined 20% to $1.11 Our Q1 results reflect lower trading volume industry wide and across each of our business segments. In addition, our results included an $8,800,000 charge, the equivalent of a $0.06 EPS impact to reverse the OCC dividend we recognized in 4Q 'eighteen due to the SEC's rejection of the OCC capital plan. Despite the tough environment and comparisons, our focus on disciplined expense management allowed us to achieve solid margins matching 1Q 'eighteen's adjusted operating margin. The press release we issued this morning and our slide deck provide the key operating metrics on volume and revenue capture for each of our segments, as well as an overview of key revenue variances. I'd like to briefly highlight some of the key revenue drivers influencing our performance in each segment. Before I get started, let me point out a change we made in our income statement reporting. We combined access fees and exchange services and other fees into one line item, access and capacity fees. We believe this enhances comparability and better captures the overall revenue associated with accessing and obtaining desired level of capacity to trade in our markets. Despite the lower trading volume in the Q1, our recurring revenue stream of proprietary market data and access capacity fees combined increased 10% year over year, which is slightly higher than we originally projected and believe we can grow this at mid to high single digits in 2019. We continue to see opportunity across all of our asset classes and believe our migration to Batch technology will provide additional revenue opportunity over the long term. As it relates to proprietary market data, about 70% of that growth was the result of incremental subscriptions. Now I'd like to turn to our segments. In our Options segment, the 17% or nearly $29,000,000 decrease in net revenue was primarily driven by a $40,000,000 decline in net transaction fees, reflecting lower trading volume and lower revenue per contract or RPC. Net transaction fees and index options fell $39,000,000 and multi listed options were down just $1,000,000 Index options average daily volume or ADV declined 34% for the quarter, offset slightly by a 3% increase in RPC. The RPC increase was primarily due to a mix shift, with SPX options accounting for a higher percentage of volume as well as fee changes implemented in the Q1 of 2019. The 17% ADV decrease in our multi listed options was primarily driven by lower industry volumes and lower market share. Our multi list market share was down from last year's Q1 as we continue to focus on optimizing our overall net transaction fees as reflected in a 13% increase in RPC for multi listed options for the quarter. The RPC increase was driven by fee changes implemented in 2018 as well as lower volume based discounts. Turning to futures. The 30% or nearly $13,000,000 decrease in net revenue primarily resulted from a 37% decline in ADV and a 1% increase in RPC. The higher RPC year over year primarily reflects the impact of new pricing implemented in the latter part of 2018 and lower volume based rebates. CFE posted growth in non transaction revenue of 16%, driven by higher market data revenue and regulatory fines. If you exclude the increase in regulatory fines, which may not recur, the increase is 6%. Turning to U. S. Equities, net revenue was down 5% or nearly $4,000,000 primarily due to lower SIP market data revenue, offset somewhat by increases in net transaction fees and access capacity fees. The growth in net transaction fees was driven by higher net capture, offset somewhat by lower industry ADV and lower market share. SIP market data revenue fell 20% in the quarter, while our proprietary market data revenue increased 2%. SIP revenue fell due to lower market share as well as a decline in audit recoveries versus last year's Q1. We still expect the SIP revenue pool to remain relatively unchanged in 2019 versus 2018 and expect our SIP revenue to be primarily influenced by changes in market share and any audit recoveries. Net revenue for European equities decreased 7% on a U. S. Dollar basis, primarily reflecting the unfavorable impact of foreign currency translation. On a local currency basis, net revenue was only down 1%. While net transaction fees were down, the decline was mostly offset by growth in non transaction revenue. Decline in net transaction fees was due to lower market volumes, offset somewhat by favorable net capture and higher market share. The higher net capture resulted from combined strong periodic auction and LIS volume, which have higher relative net captures. Net revenue for Global FX decreased 5% this quarter, reflecting a 12% decline in market volumes offset significantly by higher net capture, which was up 7%, primarily reflecting the impact of fee changes made in 2018. In addition, we grew market share to a new high of 15.8%, up nearly 50 basis points year over year. Turning to expenses. Total adjusted operating expenses were just over $94,000,000 for the quarter, down 14% compared with last year's Q1. While expenses were down in nearly every category, the key expense variance was in compensation and benefits, primarily resulting from decreases of nearly $7,000,000 in incentive based compensation and $3,000,000 in equity compensation. The decrease in equity compensation reflects the forfeiture of unvested equity awards in the quarter and is not expected to be a recurring benefit in the future quarters. The decline in incentive based compensation is aligned with our overall decline in financial performance. As we've discussed previously, this is our largest variable expense and is self adjusting based on financial results. Given our Q1 expense decline, we are lowering our full year 2019 expense guidance to be in the range of $415,000,000 to $423,000,000 down $5,000,000 versus our previous guidance. In the Q1, we had about $6,000,000 in favorable net expense adjustments that we don't expect to recur in subsequent quarters. Additionally, as Ed discussed, we plan to continue to invest in enhancing our customer facing business development team to drive greater engagement in our proprietary products. With respect to our 2020 expense guidance, we still expect a range of $420,000,000 to $428,000,000 which takes into account the benefit of the synergies expected to be realized in 2020 from the C1 migration later this year and a continuation of investing to support the growth of our business. We are maintaining our run rate synergy targets as we expect to exit 2019 with $80,000,000 of run rate synergies and exit 2020 with $85,000,000 Turning to income taxes, our effective tax rate on adjusted earnings for the quarter was 25.4 percent, below our annual guidance range and last year's Q1 rate of nearly 26%. The tax rate decrease was primarily due to excess tax benefits related to equity awards exercised in the Q1 of 2019. We are reaffirming our full year tax rate guidance to be in the range of 27% to 29% as we expect the rate to be at the higher end of the guidance range in each subsequent quarter for the remainder of the year. We're also reaffirming our guidance for depreciation and amortization and capital spending with the amounts as noted on the slide. Turning to capital allocation. We remain focused on allocating capital in the most efficient manner to create long term shareholder value. During the quarter, our cash flow generation and financial position enabled us to continue to invest in the growth of our business, while also returning nearly $70,000,000 to shareholders through dividends and share repurchases. We currently have $171,000,000 of availability under our share repurchase program, we plan to continue to evaluate share repurchases as part of our overall capital allocation. We ended the quarter with adjusted cash of nearly $348,000,000 Our cash balance is elevated versus historical levels for a couple of reasons. First, working capital needs are typically higher at the end of the Q1 due to tax related liabilities that are due in the Q2. The second and most significant reason is potential strategic acquisition we referenced in our last earnings call remains under consideration. While we are still unable to provide any specifics relating to this potential deal, there is no assurance it will ultimately occur. I want to point out again that if we are successful in completing the transaction, we do not anticipate a significant change to our current leverage ratio or issuing any stock with respect to its funding. At quarter end, our leverage ratio was unchanged from year end 2018 at 1.5 times. Our cash and capital positions remain strong and remain confident that the actions we are taking to implement our strategic initiatives will drive free cash flow and create long term sustainable value to our shareholders. In summary, Cboe delivered solid results amid a challenging operating environment and continued to focus on defining markets globally, growing our proprietary index products, growing our recurring revenue streams, disciplined expense management to leverage the scale of our business, completing our integration plan and delivering on our synergy targets, maintaining balance sheet flexibility and a capital allocation plan that allows us to invest in the growth of our business, while returning capital to shareholders through quarterly dividends and share repurchases. With that, I will return it over to Debbie for instructions on the Q and A portion of the call. Thanks, Brian. At this point, we would be happy to take questions. Feel free to get back in the queue and if time permits, we'll take a second question. Keith? Thank you. We will now begin the question and answer session. And this morning's first question comes from Richard Repetto with Sandler O'Neill. Yes. Good morning, Ed. Good morning, Brian. And I saw the comp decrease quarter to quarter, the $13,000,000 I didn't know we paid Christian Cannon that much this quarter. Who? His ears are burning right now. Anyway, my question is, again, you mentioned M and A right at the end of the prepared remarks, Brian, and it sort of brings out fodder and more questions on it. And I guess what we're saying, can you give us any more color since it has been mentioned again publicly in prepared remarks? Are we looking to expand it in new from what we got from prior, it's not a small transaction, it's sizable. Is it some additive? Can you talk about what the strategic is it like does expand asset classes or added onto asset classes? Can you give us any more detail since it was brought up earlier? So I think there are multiple questions there. So let me talk about and this will probably address and I apologize for anyone else in the queue who will have a related question that might be a slightly different take. But I'll answer that more broadly around capital allocation and this. I don't really want to we don't really have any additional comments or color around any specific transaction that may or may not occur that was stated other than in the prepared remarks. But in the context of a capital allocation, let me address that and I think John will maybe cover some of the other kind of our thoughts around strategic investments and considerations and our overall approach broadly. But at the end of the day, our overall goal is always the efficient deployment of capital and just and to not just sit on that cash. We do have a philosophy and a long term track record of returning that cash to our shareholders. And we want to balance that with achieving appropriate balance sheet flexibility. As we do every quarter and we're planning to do later this month, we discuss this topic with our Board on a very regular basis. And beyond the working capital needs, making those investments to grow the core business and achieving that flexibility, as we stated many times, our goal is to grow that annual dividend, as we've done since 2010 and using that capital opportunistically to repurchase the shares. As such, it was unusual for us to hold that much cash at the end of the quarter as we did this quarter, and we don't necessarily expect to hold that level of cash going forward. And again, as we noted, it was anticipation of that higher seasonal working capital needs in that potential transaction, but we also were in the market purchasing shares, demonstrating that ability to balance that relatively small strategic investment with a direct return to shareholders. So we'll continue to evaluate capital allocation decisions with that type of discipline. Hi, Rich, this is John. So just on the strategic points, we've said this before, I think we think about things in 3 ways strategically, greater access to end users, extending our geographic reach and adding to our asset class coverage and expect any good deal to hit at least 1 and we like them to hit multiple of those points and then expect any good deal to be a solid contributor financially. Thank you. Thank you. And the next question comes from Ken Worthington with JPMorgan. Hi, good morning. Thank you for taking my question. On the VIX side, we can see the ETP VEG exposure increasing. Thank you for that information. And it's definitely helping the future side as we can see. The VIX option side has fared maybe less well more recently. Can you flesh out maybe why the more or maybe the less robust results on the option side relative to the future side? And we look at the and we look at the psychology going on now in hedging and traders as we know and investors as we know are most influenced by the most recent past. And coming out of Q4 of last year with very, very high volatility, a huge market sell off. You entered the Q1 of this year either in the market or in a long position that has been hedged and you're faced with a couple of options. And we kind of set that stage at the last time we spoke, where we saw where we saw hedging opportunity and remaining in a long position in the market, you're forced with basically 2 choices to hedge that position. Out of the money puts in the S and P 500, out of the money calls in VIX. And we referenced the really, really low VVIX, making out of the money calls in VIX relatively inexpensive compared to out of money puts and the S and P 500. Now while that scenario continues and VBIX is at a relatively historic lows, all of the influences in the Q1, that very volatile Q4 is in the rearview mirror. What we've had now is 3 or 4 months of relative calm, uncertainties like uncertainty around Brexit, trade wars, government shutdown, corporate earnings. Remember, we were even talking about raising Fed rates back in the early Q1. All of those uncertainties are kicked now out into the Q3, maybe the Q4. So you're faced with that same decision. Do I spend that money to hedge my portfolio by using out of the money calls, even though they're cheap? Or do I look 30 or 60 days in the future and say maybe I need half as much hedge or maybe I'm going to let April just rest on its own. That's what's going on now in the marketplace. And we see that and we're informed by our investors' perception of risk by the volume in each of these from the last few days. And these are all from banks and this is all commentary in the market. S and P implied vola vola as measured by VVIX index was roughly unchanged last week at 84%. We continue to see interest in cheap upside call convex detrades, which has driven VIX call wing to record highs. To protect against the squeeze in higher VIX, if SBX cracks from record highs, consider buying VIX call spreads. So the commentary is reinforcing, when you're looking to hedge, these are the products. Cboe's products are the ones you're looking to hedge in any market environment. We've seen ebbs and flows. And we think the psychology of that trade now is establishing and looking forward through now the recent really calm environment to when this uncertainty comes back, how do I position myself to continue to enjoy the upside run, but to have a hedge position. So I think that shows up first in those out of the money VIX calls and taking more vertical position in the S and P 500 to maintain loss. Okay. Thank you very much. Thank you. And the next question comes from Alex Kramm with UBS. Hey, good morning everyone. I don't usually like to ask about expenses, but I guess it would be great if you can just run through some of this and the expectations for the rest of the year a little bit more, Brian. If I heard you correctly, the equity side of the comp line was $3,000,000 better than I think $6,000,000 from something else. I don't know if you said what it exactly was. But so I guess it's $9,000,000 so the real core expenses if I'm looking at this correctly are more like $103,000,000 so at a $4.12 run rate. So the question I guess is, do you expect expenses where do you expect expenses to ramp in an environment where you're still taking out cost because of the integration? And then secondly, can you give us a little bit more color around the kind of like incentive fees or incentive compensation, how that's working in terms of what are you accruing right now? What is the environment you're kind of budgeting for? How could this look going forward if we're staying in this kind of volume environment going forward? Hopefully that makes sense. Thank you. Sure. So let me take the first part of that as far as the ramp and why do we expect the slightly higher run rate in Q2, Q3 and Q4. As we look out, I mentioned we mentioned a couple of times about our continuing investment that we need to do and that will primarily show up in people and different things that we're doing as far as how do we continue to invest in that client facing approach. So that's one of the areas of investment. We'll continue to see that it could show up in the comp line end, for example. We also see with respect to various initiatives that are going on. We see some increases coming on potentially in professional fees. We know that we have some of our software check that's rolling on. So we're starting to see a slightly higher increase in some of the depreciation and amortization. Again, offsetting some of that offset is the synergies that are coming in. But again, there's not going to be a material change from synergies showing up until the very end of the year. So there's not really that offset as we tried to kind of profile a little bit in the last call of, like, hey, we're still on track and we still think this is a big number on a run rate basis, but unfortunately the realization of that, those kind of direct offsetting expenses during the year are just not going to happen in these early quarters. So we expect to see a slight ramp up in comp and I'll come back to incentive in a second. Slight increase in professional fees, slight increase in a little bit of the D and A depreciation and amortization that I mentioned. And along with that sometimes as we ramp up some of our tech support expenses are also going to slightly tick up a little bit. Again, it's kind of across the board, so I wish I could point to something specifically to that. So your analysis, I think, is the right way to think about that. And that number is still less than that kind of that number of what we had on a quarterly basis last year as far as that adjusted operating expense number. So it does reflect a continued benefit from the synergy savings with the investments that we mentioned. As far as the incentives go, I'm obviously not getting it into, hey, we're setting the accrual rate at this and that. We do factor in multiple financial metrics and operational metrics, but primarily financial as a way to make sure that we're appropriately funding incentive comp with our shareholders, so that we are completely aligned. And we have a perspective on the environment of what that looks like. Our accruals reflect that, not necessarily going to sit out and say, here's what we think that volume looks like. But if you think about the incentives and the variable piece of comp, it's roughly 25% of that comp line item. If it's going great, it's going to be higher than that because it's not just the incentive comp, it's obviously the associated payroll taxes and benefits and all of the stuff that nobody likes to talk about, but it costs money. And then if it's lower than that, it's because the financial performance shows it wasn't there. So as a benchmark, 25% of the overall comp is going to be driven by that variable incentive comp number. Excellent. Thanks for the color. Yes. Thank you. And the next question comes from Michael Carrier with Bank of America Merrill Lynch. Hi, thanks and good morning. Maybe just given some of the investments that you mentioned, given some of the expense guidance, What has been your traction with the new clients and international users? And maybe any stats that you can provide over the past few years and what you see as the opportunity ahead given some of these investments? Yes, I don't as far as statistics, that's very, very difficult, but I will tell you coming out of our risk management conference in March and the hunger for updated and the continued exposure to white papers and neutral papers. So for example, we updated the Wilshire report on option based benchmarks performance and risks and updated that through December of 2018. Those types of engagements because they're demand driven is why we're focusing and continue to focus in the pension and insurance space where that exposure is nonstop. Those customers need the information, they need 3rd party validation before they can go and convert funds that don't use our basic strategies to employ those strategies. So it's really now we're in the knowledge and gathering phase after a year like last year. And the sophistication level in the engagement, I would say at this risk management conference was at an all time high. I saw all of our client facing folks engaged in conversations that years ago I could only have imagined from a sophistication level. We need to invest and keep up not only on the client facing customer interaction from our team, but going out and commissioning papers and having things written by 3rd parties. That's what we're doing now. And again, it's fueled by a year like last year and run ups like this where, gosh, I haven't seen an all time high before. Well, I did. I've seen them over the cycles in the past. What do I do this time and why is it different? And these basic strategies, these basic these white papers that are educating our users, that's how we start. Michael, this is John. I'd add one more thing. So Ed spoke to the sophisticated end of the user base spectrum and we see because it's a little more visible, we see some pretty interesting momentum in the more entry level of the user base spectrum. And you see that around things like some of the packaged products that incorporate our strategy. So for example, Global X just recently announced they'll be launching a Russell 2,000 covered call ETF that joins a family of ETFs from a variety of issuers, including Invesco and WisdomTree and others. So those are visible launches. The asset accumulation there has been really robust. We talk about VIX ETPs, but I think the story around ETPs that incorporate all of our product strategies is a really compelling story for us. Okay, that's helpful. Thanks a lot. Thank you. And the next question comes from Alex Blostein with Goldman Sachs. Hey, good morning guys. I wanted to ask you about dynamic and equity market share trends. So obviously, it looks like you've been losing pretty meaningful share and I know you highlighted ejection, that's the one we tend to focus on more. But it looks like there have been some losses on the bat side as well. So maybe expand a little bit on why you're seeing incremental share losses now? What sort of pricing changes you've made? I think you alluded to something on that JAK side, but curious any plans for the rest of the cash equity franchise? And ultimately, how is that going to shake out in the blended capture rate we should be thinking about on U. S. Cash equity side from here? Yes, Alex. Good morning. This is Chris Isaacson. I'll take that one. Yes, as you can see, we've had higher than expected capture in U. S. Equities. And we made a decision in May we're going to reinvest some of that higher capture into the EDGX book, where we've seen most of the market share attrition. So we made quite a change there and we've seen some early results that are positive, but it's just a couple of days in. We intend to be very, very competitive in this space and we're going to reinvest that capture. We think this change on EDGX will work very nicely with the retail priority that we have before the commission and hope to get approval this summer on that will, we think, put retail orders earlier in the intermarket queue position for them and hopefully improve fulfillment rates. For the rest of the exchanges, it's month by month, we're looking at market share and capture. And so I think as we reinvest some of that capture, you can expect the capture to come down as the market share goes up. We've made a choice here that we think it's better for us for our shareholders and customers if our market share is higher than where it's at now. So we're going to reinvest the capture. So just net net between the SIP and the trading revenues there, should we be thinking about kind of that whole bucket being flattish, you lose in trading, you on market data and that's kind of the framework? Yes. The framework is, I think, at least net revenue neutral for the entire complex for U. S. Equities, but we want higher market share. Thank you. And the next question comes from Brian Bedell with Deutsche Bank. Thanks very much. So just a follow-up on 2 prior questions. Just on that last one, the market share we're tracking, it looks like the improvement starting on May 1, I know it's just a couple of days in May, but it looks like it's coming in the Bats area mostly rather than EDGX. So maybe just talk about that. And then a follow-up to the question on the expenses earlier. I guess if volumes in general broadly for the whole firm remain at sort of 1Q level, it's not that we think they would, but if they were to do that, would you have more flexibility on that incentive comp side to come in closer to that $100,000,000 quarterly run rate on expenses this year? I'll take the this is Chris again. I'll take the question on the market share. For BZX equities market share, there were no material changes made in May for BZX equities. So that's probably just movement natural movement that comes and goes each and every month. The major changes were made on EDGX and that's what we're watching very closely, but no more color there. And then Brian, if you want to cover the expenses. Yes. Brian, on the expenses, and there'd be nobody in this room nor probably anybody on the phone rooting for the scenario you just mentioned. But that would show up in incentive comp. I mean, as far as there would be a lower number, it would reflect a lower volume environment if the Q1 volumes were to repeat itself. Great. Thank you. I'd maybe follow-up on the last question about BGX Equities. I haven't looked at the statistics yet, But I will note that we are listing VXXB and now actually VXXB migrated to VXX as of, I believe it was 2 days ago seamlessly. So we're watching that closely. That's the listing venue for VXX. And remind you all, we talked about VXXB last time. There was a transition from VXX to VXXB, and now there was a name change back to VXX where the full transition is finally complete. Okay. Yes, maybe that's the driver. Okay. Thank you. Thank you. And the next question comes from Chris Harris with Wells Fargo. Thanks. With respect to VIX, it seems like the shape of the VIX curve has more anomalies in recent quarters, in recent years than it used to, which I think is perhaps led to some of the uneven volume outcomes we're seeing. Would you guys agree with that? And if so, why do you think that's the case? Availi, I think that's right. If you look at statistically, the current shape, whether the steepness of the front month versus second while that bounces a bit, the amount of flat days that we've seen in January, February is very unusual. And why would I think that is? I think that it's just a reflection as my original comments is just the perception of risk over that very short period of time and that curve is most influenced as I said by the most recent events. I think when you have the volatility and the spikes involved like you saw last year, that front month is way more volatile than it has been historically, which obviously changes the shape of that curve. The roll down trade, it's difficult when that front month is as volatile as it is. If we are going from 'sixteen to 'fifteen, 'thirteen back to 'fifteen, you're not as likely to engage in what has been a pretty consistent shape of the curve as you had like in 2017. So my reasons for the shape of that curve are not my own. It is basically just watching the customer's perception of that 30 day versus 60 day and all of those drivers of uncertainty, where is the timing and the spectrum. And as I said, we've seen this steepness today because all of those 4 big drivers on the end of the Q4 are kicked out into the June through October timeframe. But that's there will be something new. There will be more uncertainty. I guarantee it. We've seen it every cycle, but we just don't know what it is yet. Okay. Thank you. Thank you. And the next question comes from Kyle Voigt with KBW. Hi. Good morning. Just on the slide regarding the proprietary non transaction revenues in the mid to high single digit growth guidance. You note that 70% of the prop data growth is being driven by additional subscriptions. I guess focusing on the access and capacity fees, can you give more color as to what's driving the growth there? I'm just trying to get a sense of how much of that is being driven by pricing changes. And then moving forward, are there any meaningful pricing adjustments that are planned for the remainder of the year, maybe as that tech migration occurs in October? Yes. So that one is a little bit harder to break out because, for example, as you think about pricing versus kind of new ports, you'll see movement a lot as far as people as they test different strategies, increasing say, and now focus maybe on ports because maybe it's easy example of increasing capacity, then they'll have to increase or decrease and depending on things they do. But one of the reasons it's hard to segregate price versus, I'll call it, subscription is, for example, the CFE tech that was just rolled out with that platform migration, there was significantly more amount of capacity that was rolled out as part of that platform. And so it's kind of the entire environment changed. And so the pricing changed. And so there was a hard way to say, well, this number changes because the throughput was different. And so that's an example of why it's hard to necessarily measure that. And we expected some changes sometimes when you do have a price change of what happens to capacity, do we see the numbers fall? With any of the price changes we have seen, we really haven't seen any material reduction in it. So it's really across the board. As I look across the segments, the proprietary market data, it's pretty solid across the board up. The biggest one is, I guess, we mentioned some of the futures, we mentioned some of the options. So it's kind of across the board of what we're seeing. So it's not any one thing. So again, long winded way of saying that it's hard to tease out. But again, we continue to monitor and take a look at it. And Chris, I think you directly involved in a lot of that as well. Yes, Kyle. So we assume some attrition of capacity or port fees with any tech migration. But in fact, we've seen lower attrition than we expected as people need, in fact, more capacity as the platform is faster, and they want to move their interest around. On the market data front, with each platform migration, we have new data products, order by order feeds, things that weren't available on the old platform. And with new data feeds, people have demand for that. And Chris makes a really good point that I just wanted to follow-up on, which I didn't make earlier about the proprietary market data. That is and we've talked about the growth that we've seen in the U. S. Equity side with respect to Cboe 1 and what we're doing and growing that and basically all the shoe leather that we're doing to continue to drive that subscriber. It's generally it can be a long lead time, but we're starting to see the efforts to pay off. Actually, the biggest growth that we've seen is actually on the option side and as far as some of that growth. So we're seeing actually on the enhanced market data side coming through with the LiveVault transaction we did several years ago, we're starting to see the fruits of that coming through. So we're starting to see more and more traction around other parts of this market data story that are now starting to, like I said, show up in the results incrementally year over year. So again, it's the biggest growth actually came from that options group. But again, we saw positive numbers across each of the asset classes. Kyle, this is John. Just on the point of the philosophy behind how we run that business on the options market data side. We think about that in terms of the revenue opportunity in and of itself, but almost as importantly, the way those tools, those data tools can support trading in our markets. So we focus on this reinforcing feedback loop. They're not separate businesses, philosophically. And so we like to see the market data line increase, but ultimately that's a seed. We've talked a lot about seeds in this call. That's seed that's being planted for future volume. Got it. Thank you. Thank you. And the next question comes from Chris Allen with Compass Point. Morning, guys. Most of the questions have been asked and answered. I guess just a quick one on the regulatory fees jumped up a bit this quarter. I wonder if there's any one timers there? Is this good run rate going forward? The only thing I think that we have is would be the if there was in the futures where there was a I think the fine that we reported. But otherwise, noise sometimes you get rate adjustments from Section Thermo. So there's just going to be some noise. There's nothing there that I say that we see a continuing trend or anything to model. Thanks, guys. Thank you. And the next question is a follow-up from Alex Kramm with UBS. Hey, hello again. Just on the VIX EDP side, you had that slide in the growth and I think there was a question about this earlier. And I think you gave a lot of color around like VIX trading strategies and what people are doing. But I think that discussion was a little bit more about sophisticated people using your options and your futures directly. So just trying to see what is driving the VIX ETC interest again. I know it's difficult to see, but what are you hearing in the marketplace? Is this retail coming back? Are there people asking I think people are asking for leverage products again, like what's going on in the DTS space, because historically it's been a big driver of growth, I think? It has. And with the CFTC, the largest position in short futures as a result of the long positions in ETPs and you got to sit back and scratch your head with how does that happen. So retail, yes, engaging and taking long positions and whether it's VXX or levered TVIX, the result is when you're taking the long positions in the ETP, someone's selling those long positions and looking to our VIX futures to hedge and they're buying VIX futures. There is a liquidity provider that has to sell those VIX futures and that record short interest in VIX futures is as a result of the retail and the small investor taking long positions in ETPs. Okay. I guess the question is like are those all is this all retail? Are they semi professionals? I guess when you go to your risk management conference, are there a lot of people running around using the ETPs? Or is this more marketplace that you don't directly touch, I guess, is the question? Like, because it seems like in the store in previous periods, when retail got hurt by something like this or similar, it goes away for quite some time. So just wondering if you're hearing seeing more retail coming back is the question really. Yes. If we look at that by contract size, because we don't obviously, as you know, Alex, you know us well enough, we don't have transparency into clearing and where the ETPs and the interest clears. If we look at contract size, it's pretty balanced. The more sophisticated trader tends to use the roll down effect of an ETP to their advantage and offset the ETP exposure with pure play into VIX futures and options. Retail, because it's so easy, it's easy to track parity with an ETP and options on those ETPs that tends to be more retail friendly. But by size, it's pretty balanced on size. In the complex, I think it's important to look at the entire complex. Our users look at the complex in its entirety. ETPs are just one extension to volatility exposure, but tends to be way more retail friendly in general. Okay. That's helpful. Thank you. Thank you. And the next question also is a follow-up with Richard Petta with Sandler O'Neill. Yes. Hi, guys. Just a brief follow-up just on, I think, an interesting area that you're looking at the retail. This is on Slide 8. When you Chris, you talked about you're trying to give some execution priority to retail limit orders. And I guess the question is, can you describe that or how you're doing that because at least I thought that you had to treat all classes of customers at the exchange level the same. I know there's been some it's a fine line with the NYC has done things in the past to give, but could you explain how you've given retail a priority on EDGX? Yes, sure, Rich. So this has some precedent in the options market where you have what's called customer priority and customers or Retail are given priorities. So we're using that as precedent. And as you mentioned, there's been retail programs in the U. S. Equities market kind of on the aggressive or marketable side to give priority to them. But yes, this is just us giving retail priority for retail orders or orders that are clearly from retail. If they're at the same price level as other interests from market makers or non retail customers, they would go to the front of the line and time priority for retail orders. So it's very similar to what we see in multi listed options. And that's just what we're planning to do. Of course, the SEC has to approve this and we assume there may be a comment period. But we've canvassed our customers and by and large people are quite supportive of this retail and non retail. Is this the first of its kind priority in equities, those straight equities? This would be the first one on the non marketable side for Limit orders. This is an idea that we frankly, Brian Harkins, who runs that business and us internally we've talked about for many years and feel like this is the right time to bring it to market. Thank you. And as there are no more questions, I would like to return the floor to management for any closing comments. Thank you. That completes our call this morning. We appreciate your time and continued interest in our company. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.