Good day, welcome to the CME Group third quarter 2020 earnings call. At this time, I would like to turn the conference over to John Peschier. Sir, please go ahead.
Good morning. Thank you all for joining us today. I'm going to start with the safe harbor language. I'll turn it over to Terry and John for brief remarks, followed by your questions. Other members of our management team will also participate in the Q&A. Statements made on this call and in other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website. On the last page of the earnings release, you will find a reconciliation between GAAP and non-GAAP measures.
With that, I would like to turn the call over to Terry.
Thank you, John, and thank you all for joining us today. I wish you all the best, you and your families, during this challenging situation for many around the world. My comments today will be brief, as John said, so we can spend the majority of our time directly addressing your questions. We released our executive commentary this morning, which provided extensive details on the third quarter. Also, as John referenced, I have John, Sean, Derek, and Julie Winkler, who are with me this morning, and we all look forward to answering your questions. We continue to see historically low levels of volatility in several of our asset classes, which began in the second quarter. During the third quarter, we averaged 15.6 million contracts per day, down from 17.6 million contracts per day in the second quarter. We're fortunate to have a broad product portfolio.
During the third quarter, we saw strength in our equity business. Our higher rate per contract metals and agricultural products delivered volume growth in Q3, and FX volume recovered an average of 100,000 contracts per day, higher in Q3 than Q2. Our market data business during the quarter had exceptional results with revenue of $139 million, the highest quarter in our history. We continue to launch innovative new products, and we have prepared for the cut-over of BrokerTec onto Globex later this quarter. We remain committed to achieving capital and operational efficiencies for our clients. Clearly, the lack of volatility is impacting two of our largest asset classes, rates and energy. That is the current reality, but not a permanent one. We have intensified our efforts on the expense side, which is something we can control.
As John will discuss in a moment, we are reducing our 2020 expense guidance by $70 million from the initial guidance we provided in February. Realizing we are in a tough environment, we also plan to deliver very strong expense management going into 2021. With that short intro, let me turn the call over to John to talk a little bit about the financial results.
Thank you, Terry. With our strong expense discipline and the remote working environment, we finished the third quarter with adjusted operating expenses, excluding license fees, of $386 million, down 6% compared to the same period last year and down 5.5% year-to-date. We are extremely focused on actively managing our costs, as Terry mentioned. This expense level reflects an entire company effort to ensure that we are spending as efficiently as possible in the face of a tough operating environment. Our adjusted diluted EPS for the quarter is $1.38 and is $5.34 through three quarters, which is up slightly from last year.
Based on our outlook for the rest of the year, our guidance for adjusted operating expenses for 2020, excluding license fees, is being reduced to $1 billion, $575 million, down from $1 billion, $645 million, which is the midpoint of our initial guidance at the start of the year and down $20 million from our full year estimate we updated last quarter. Finally, we're beginning our budgeting process for 2021, and we expect the intense expense focus to carry over into next year. We recently let our employees know that we are deferring promotions for now, freezing wages going into next year, and we are looking at other opportunities to reduce discretionary spending. With that short summary, we'd like to open up the call for your questions.
Based on the number of analysts covering us, please limit yourself to one question, and then feel free to jump back into the queue. Thank you.
Thank you, sir. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press *1 to ask a question. We'll pause for just a moment to allow everyone the opportunity to signal for questions. Thank you. Our first question will come from Rich Repetto with Piper Sandler.
Good morning, Terry. Good morning, John, good morning. Hope everybody's safe and well. You talked about the environment, the low interest rate environment, but you do have this migration cut-over in the fourth quarter. I guess, Terry, besides the savings that you expect from it, I'm just trying to get a better idea of what you think the behavior changes, like whether you've sort of got a better feel for the margin savings and could we see a change in behavior from it? Also, I know there's some new regulations from the SEC out on Treasury trading platforms, and whether that, recognizing them as ATSs, will that have any impact on BrokerTec and the cut-over?
Yeah. Thank you, Rich, and I hope you and your family are well. I'm going to ask Sean to comment. Before I do that, I'll make a few remarks as it relates to what I perceive as potential behavior changes as the platform comes onto Globex. I am, like everybody around this organization, very excited about having BrokerTec onto the Globex platform to deliver the efficiencies that we've talked about when we first made the announcement of the transaction. I don't think you can underestimate the value of cash and futures on a single platform, against a liquid platform like futures, because we've never seen it before. Even though the rates, as we've discussed, are in a very disappointing place as far as the Fed policies go, it doesn't mean that people will stop managing their rates.
We're still continuing to see a tremendous amount of issuance going, especially into the long end of the marketplace, we're going to see that. We are excited by the BrokerTec integration on that. The behavior, I've heard a lot of positive things from the client base as how they're looking to manage risks. As it relates to the other questions around the SEC and others that you asked, I'll ask Sean to make a comment. Behaviorally, I think that the participants are excited about having this single point of contact to manage that risk.
Terry, this is Sean jumping in. Can you hear me?
Yeah. Yes, go ahead.
Yeah. I'll jump right in then. In terms of the migration to Globex, I'm very excited about the Globex technology. Customers are very excited about the Globex technology and the significant increase in determinism that it offers to our client base. In addition to that, I'm very excited about the functionality that we're going to have available to us on Globex for BrokerTec cash markets that wasn't available previously on the previous technology. In particular, I'm very excited. We do plan on launching shortly after we migrate BrokerTec to Globex. We will launch something called RV or Relative Value trading. This, for the first time, will allow curve order types. It will allow you to trade the spread between different securities, so simultaneously buying and selling different securities, such as twos, fives, tens bonds.
By doing that, actually, there's a number of different values that will be added to the market first. You'll no longer have to leg those spread trades. We believe that 10%-15% of the Treasury market is probably done in curve trades, although today on BrokerTec, they are done as legged individual trades. First, you'll eliminate that legging risk. Secondly, by putting in a spread order type, we're going to have that spread order type at a much tighter minimum price increment than outright contracts. Third, we're going to use implied functionality on Globex that has been extremely successful in our Eurodollar futures, for example, where when you have an outright order, let's say, in two-year notes, and you've got a spread order in twos versus fives, that then implies an outright order in five-year notes.
We're very excited about it reducing risk in the trade, lowering the cost of the trade, and enhancing the overall liquidity of the platform. We are very excited about that. I might mention a couple of other things that we're investing in at the same time. Another platform we are investing in on the EBS side is something we call QDM 2.0 or Quote-Driven Markets 2.0. This is a brand-new technology, state-of-the-art technology that will allow us to have much faster round trip times and much better technology overall for the bilaterally traded foreign exchange market. We're equally excited about that. We do expect that to be fully rolled out sometime next year. We have begun rolling it out now.
Last, maybe I'll mention before stopping, we're also very excited about new analytics that we are able to deliver to clients, having both the cash and futures platforms that Terry mentioned earlier. Next week, we're going to be launching a new tool on our EBS Quant Analytics platform. EBS Quant Analytics is a total cost to trade or a transaction cost analysis for the foreign exchange market. It currently allows you to look at the bid-offer spreads and the depth of book in the bilaterally traded market on EBS, that we're using your current chosen liquidity providers. It allows you to look at all of the other liquidity providers that you're not currently using. It also allows you to look at the central limit order book. We're in the process of adding futures to that analytical tool. In particular, we're going to be adding something called Market Profile.
This will show the great value of having both the futures liquidity pool and the cash liquidity pool, and it will show you the advantages of, and really the need for anyone who transacts globally to trade in both liquidity pools in order to minimize their overall cost. We're very excited about all of the technology investments that we're making and the growth that should provide the platform.
Thanks, Sean. Rich, hopefully that gave some color to how we feel about the migration and the cutover and the behavioral issues. I think your other part of your question was around the SEC, and Sean, did you touch on that?
Yeah, I apologize. In terms of the SEC, the new regulations will, in terms of Regulation ATS on cash markets platforms, we already adhere to most of the regulations. There are a number of platforms that do not. While there are exemptions for U.S. Treasuries, certain exemptions under SEC rules for U.S. Treasury platforms, since historically BrokerTec traded Canadian government bonds as well as mortgages. NEX and BrokerTec did not take advantage of those exemptions. There may be some new adherence that is required. BrokerTec generally already adheres to the rules that we expect to be required.
Thanks, Sean.
Thank you. Thank you very much.
Thanks, Rich. Appreciate it.
Thank you, Rich.
Thank you. Our next question comes from Dan Fannon with Jefferies.
Thanks. Good morning. My question's on market data. Obviously, a good quarter. You highlighted subscriber growth and a few, kind of some of the demand trends. Can you talk about the type of customer that's the incremental subscriber here, and maybe the momentum or outlook for this business as we think about heading into next year, 4Q and into next year, please?
Julie?
Sure. Thanks for the question. We had a great quarter in Q3, revenue up to $139 million, the majority of that was driven by higher subscriber counts for that real-time data. What we're seeing there is that as many firms are continuing to be in a work from home environment, it is necessitating additional access to our real-time data. We're also seeing good demand, though, for our data being used in automated trading solutions, as well as more usage of CME data into the inputs into other financial products and services. I think it's largely driven by this work from home environment, but still continues to be strong. I think as we look forward, we are definitely focused on integrating the data that came over from NEX as well. We're continuing to build out our cloud-based distribution capabilities.
We talked last quarter about CME Smart Stream, and we've been pleasantly surprised there, I would say, about the interest from customers for that. It has exceeded our expectations. I think there, it's about the scalability of putting data into the cloud, it being much easier for customers to access. We continue to have a good pipeline of clients coming into that. We're also continuing to work on strengthening our market data policies and pricing and also the enforcement related to those activities. Lastly, working on our benchmark business, and that includes our participation in the ARRC SOFR term rate RFP that's due later this month.
Great. Thank you.
Thanks, Dan.
Thank you. Our next question comes from Alex Kramm with UBS.
Yeah, hey, good morning. Just quick one on the expense side. One, obviously saw the updated guidance. I think it assumes a little bit of a 4Q increase. Maybe just talk about that, the seasonality there. More importantly, maybe this is a little bit early, but as we think about 2021, can you just remind us how much savings you had this year from COVID, i.e. lower T&E, et cetera, that you expect to come back next year? Obviously, the timing is uncertain. How should we think about kind of like savings that you had that will not recur next year because of COVID?
Hey, thanks, Alex. This is John jumping in. Yeah, Q4 has a historically higher level of spending. Marketing spend, some of which is contractual, has been deferred from the start of the year and has picked up in Q3. We anticipate an increased spend in Q4, but still at a significantly lower level than the annual spend last year. We also anticipate additional expenses associated with systems being put into production associated with the migration onto Globex and with the data center consolidation efforts and the build-out of our New York-New Jersey data center. Based on the current forecast, I would expect to see depreciation and the other cost line as the biggest changes from Q3. We will still continue to look for additional synergies and cost reductions throughout the Q4.
In terms of next year, it's a bit early in the process, and we're in the budget development process now. The entire organization has done a tremendous job over the years in managing our costs, and we expect to do the same next year. As I mentioned in our prepared remarks, we've already taken action to manage our expense growth in 2021. Our objective is to be diligent managing our costs, but to be flexible should the environment change and opportunities present themselves.
Let me just add to what John said, Alex. You raised COVID and how much have we saved through 2020 through COVID, and what do we think 2021's gonna look like? I think that is still to be decided because we're only one side of that trade. We can't just be sending people all over the country or the world if other people are not receiving them. It'll all depend on jurisdictions abroad and here in the U.S. about how meetings are to be taking place. I am anticipating our travel schedule will be light again in 2021, and I'm going to encourage more people doing things from Zoom to make sure that we can realize those cost savings.
I can't give you an exact number, and we are evaluating it now, but I do think it's important to realize that we do need to be in front of some people and there's others we don't. We will make sure that we achieve those savings as it relates to the travel.
Sounds good. Thanks, guys.
Thank you.
Thanks, Alex.
Thank you. Our next question comes from Jeremy Campbell with Barclays.
Hey, guys. Thanks for taking the question. Just wondering about that new water contract with Nasdaq that you guys have said to go live in December. Just wondering, did this new product kind of bubble up from potential users or are these potential future users a little different from your current user base? Just kind of wondering if this could be the start of a user base expansion and/or product development around other natural resources or renewables going forward.
Sean, you want to talk a little bit about the agreement with Nasdaq and the water futures contract?
Sure. We were very excited, obviously, to extend the license with Nasdaq last year. The growth in Nasdaq futures have been a very big success this year. In addition to that, and as a part of that contract, we have access to other indices that they offer and we extended it out to the Veles Water Index. We are excited about growing the customer base. We do believe that this will have an interest by large industrial users, so manufacturers, as well as farmers. Obviously, farmers already are customers of our products. Nonetheless, we do believe that municipalities, farmers, industrial firms will be, in some cases, new customers for these, or potential new customers for these products. We are excited about it in terms of the product launch itself, innovative new product.
Yes, it could lead to an expansion and should lead to an expansion of our customers. I don't know if Julie Winkler would like to comment on it at all. Sorry.
Yeah, Sean, Julie will, and I will as well. Go ahead, Julie.
I think, yeah, it's a good point. I think in addition to the water contract, this fits within this broader context of ESG products. The philosophy we're working with our clients around on that is that there's a suite of products that are completely new that Sean just talked about, that are new, they're innovative, and they will help customers and their firms meet their very aggressive carbon goals over the longer term, while we have another set of initiatives to continue to modify and make enhancements to our existing contracts, which may be things like certificates or ESG wrappers. We've got a pretty robust program in place doing product development around ESG since, from the broader scope of things, ESG investment is really picking up. At the start of 2020, it was virtually the only class of funds that was seeing investment inflow.
It's a major topic of conversation with our clients, primarily driven, I would say, in Europe, but increasingly in the U.S. as well as APAC. We've got existing asset managers, banks, hedge funds, all showing a lot of strong interest, which is why you're starting to see those products roll out from CME Group. The cornerstone of that is certainly the S&P 500 ESG contract. That is going to be the foundation of what we build everything around. Again, this is client-driven and certainly investment-driven. We do believe that will help attract new customers.
Just to add to that, Jeremy, I've been around a long time. I've heard nothing about other than, "Why don't you have a water futures contract?" I think there was really not a catalyst for a water futures contract until some of the things that Julie referenced under the ESG program. To manage the risk of water going forward could be something that we've never seen before. We are excited by the partnership with Nasdaq to launch this contract. We think, like a lot of things, it's all about timing. There's a lot of great ideas out there with bad timing. We think that the timing is right on this because of some of the things that Julie referenced. When you look at the makeup of the globe today, especially the Earth, it's 80% water, most of it's undrinkable.
That is not a good equation for the environment that we're seeing today. People are going to need to manage that risk, and we feel that we're the preeminent place to do it. We're excited to work with Nasdaq and for the companies that Julie just outlined in order to bring risk management to something that's critical to each and every one of our lives.
Perfect. Thanks, guys.
Thank you.
Thanks, Jeremy.
Thank you. Our next question comes from Brian Bedell with Deutsche Bank.
Great. Thanks. Good morning, folks. Just wanted to go back to the integration on the BrokerTec to Globex platform. John, if you can remind us of the cost saves that we would expect in the 1Q21 run rate versus 4Q20 or even 3Q20 from that integration. On the revenue side, basically, a big initiative of this has been potential revenue synergies. Sean, you talked about the relative value curve. Any way to kind of size what potential increase in interest rate volumes you think you might be able to get over the next, say, year from having this relative value capability launched?
Yeah, sure. Thanks. I'll take the first part and then toss it to Sean on the revenue question. We're very pleased with the progress we're making with the integrating of the business on the Globex and our synergy capture. As a reminder, we overachieved our run rate synergy capture last year when we targeted $50 million and achieved $64 million. I'm sorry, we're on track with the achievement of our expense synergies.
We are targeting $110 million run rate synergies by the end of 2020, so a $46 million increase in our run rate synergies. Also, as we mentioned previously, we anticipate exceeding our 2020 realized synergies from an anticipated $15 million to $25 million. Ended the year last year at $64 million, end the year this year at $110 million, so a $46 million increase. In terms of what we've realized in our income statement, we targeted $15 million, we're going to achieve $25 million. Real pleased with that, and it's been an entire company effort. With that, I'll turn it over to Sean to talk about the revenue side.
Thanks very much. In terms of the revenues, I'm not going to give any specific guidance in regards to revenues, but I'm very excited about several different initiatives that we have available to us with the migration of the cash markets over to Globex, as well as combining the advantages of having both the derivatives and cash markets under one roof. We are making several adjustments to the offering. First of all, we got the new technology, greater determinism, and new trade types that will be available on that new technology, which we're very excited about. We're going to be offering new analytical tools, which will show the benefits of trading both cash markets and derivatives markets. We're adjusting some of the existing products in order to make them more attractive, all in regards to trading greater efficiency.
At the same time, we're also working closely with DTCC in order to bring to the market further down the road, increased or enhanced portfolio margining or cross margining between futures and cash products. I've already spoken about the new trade types, the new RV trade types that we'll be launching shortly after we migrate to Globex. We are very excited about that. I did mention earlier as well, we are launching next week a new analytical tool that will allow participants on the EBS analytics or quantitative analytics to have synchronized cash and futures data for the foreign exchange market, showing top of book, depth of book, and really guiding participants as to the best liquidity pool to use in regards to executing whatever they need to execute, in whatever size they need to execute, in whatever currency they need to execute. We're very excited about that.
The EBS Quant Analytics, just for background, has about 600 users globally, about 300 users log on each and every day. These are regional banks across the U.S., in particular Europe and Asia. This, for the first time, will allow them to see the value quantitatively of using both sets of products in their risk management. We're very excited about that in terms of our cross-sell. We will be next year launching similar analytics for the Treasury market. I'll also maybe mention two additional things that we will be doing. We're going to be lowering the minimum price increments on the three-year notes in the first quarter. As you know, that had a significant positive impact on two-year notes when we did it both on the cash platform as well as on the futures platform now almost two years ago.
Again, we're adjusting existing products, we're initiating new trade types, we're offering new analytics and new technology. I mentioned earlier that we are in the process of rolling out something called QDM 2.0 or Quote-Driven Markets 2.0 for the EBS platform, in particular for EBS Direct. This will make it a state-of-the-art direct trading platform. We do plan next year on rolling that out as well for U.S. Treasuries. We're very excited across each of the different initiatives that we've got up planned, I'd say, for the next three months, but also the next 12 months.
Yeah. Just to be more precise on timing, the timing of the cutover on the platform integration in the fourth quarter and then the timing of the RV curve launch in 1Q.
Yeah. The RV will be available as soon as it's on the Globex platform, but we'll probably do a significant launch in Q1.
Just the timing of the cutover, is that November or December?
We are doing Europe in November and the U.S. in December.
Got it.
That's what's currently planned. Yes.
Perfect. Thank you so much for all the great color.
Julie's going to give you a little reference on the other part of Julie?
Yeah. In Q3, just to give you guys a little bit of an update, it was another quarter where we completed more than 500 cross introductions. That has put us over that 1,000 cross introduction mark for the year. FX continues to be the franchise kind of front and center on those. Interest rates is second there. What I wanted to talk a little bit about is how, as we've been able to now convert many of those cross introductions into sales opportunities with 150 new sales opportunities in our pipeline and also realizing some sales wins from that. That's when we actually see and have proof that our clients have started to trade those new products and those services.
Some few specific examples to your question is we've been able to bring a repo trading desk, so those are legacy BrokerTec clients, onto our CME Direct platform, and there they are beginning to trade our listed interest rate futures and options franchise. Another relevant example is cross-selling across a number of customers that were legacy BrokerTec clients and introducing them to SOFR futures. These are the types of things that we can do as a combined sales organization in conjunction with the technology changes and migrations that are happening behind the scenes that we believe will be fruitful in continuing to bring new revenue into the exchange.
Okay. That is helpful. Thank you.
Thanks, Brian.
Sure.
Thanks, Brian.
Thank you. Our next question comes from Mike Carrier with Bank of America.
All right, good morning. Thanks for taking the question. Given just the muted backdrop for the interest rate and energy complex with the Fed on hold and the COVID situation, just curious if you're starting to see more interest in certain categories, given some hints of inflation, and then based on past periods, what may be some of the early signs of seeing demand picking up? Thanks.
Sean or Derek?
Yeah, I can say-
Yeah.
Here, hang on, Sean.
Go ahead, Derek.
I'm going to let Derek go first, and then I'm going to make a comment or two, and then we'll get it to you.
Yes. Just to be clear, Mike, you're looking for kind of catalyst to demand side of the equation in some of these markets?
Yeah, mostly. We've seen the pressure with the Fed on hold, but I'm just saying, you kind of see some hints of inflation and how that could potentially maybe spur more activity, whether it's on interest rates or energy, just because those are typically correlated.
I think to probably pick up on two pieces of that. Maybe I'll start on what we've seen on the metals side. The gold market has been probably one of our fastest-growing markets this year. If you actually look at the growth of that product, it's been global. It's actually been largely driven by the growth that we've seen out of Asia as well, and that's been both a function of gold and precious metal demand, i.e., being a store of value, certainly in times of uncertain inflation times, going directly back to the comments that we've heard from the Fed if that's opened the door to inflation. We've seen that push gold up through 2,000, and that's been a global demand story for us.
If you see from the materials we put forward on the summary sheet, you'll see a range of records that were hit over the course of the quarter. In fact, in a very quiet Q3, we set a series of all-time records in precious metals led by both gold and silver. We've seen a significant increase in demand on that side of the equation as prices have gone up, and that's been a strong participation across commercials, buy side, retail, and our sell side customers as well. What we're really excited about is the resulting from that, as we've seen more focus on precious metals. Just about 11 months ago, we rolled out, through the clearinghouse, a system by which we allow customers to bring forward gold collateral or gold warrants and post those as collateral to the clearinghouse.
Why that's important is because in less than 11 months, Mike, we've seen $3 billion of capital efficiencies brought forward for our clearing members, whereby they can use gold warrants, which typically sit as debt assets on balance sheets of banks to be used to actually bring forward and put collateral forward to make trading available in all of our asset classes. As we talk about one of the things we're doing in light of creating a monetizable set of assets for our customers, providing $3 billion of effective liquidity for our customers to be used across all of our asset classes, I think there's a really strong story there. Another way in which we're focused on the client benefits in an uncertain market where we're seeing growth in different parts of the franchise. With that, I'll turn over to Sean or back to Terry.
Yeah. Before we go to Sean, Mike, let me just make a couple comments about the rate business because I do think they're important. I think a lot of us forget because of the policies that have gone on over the last seven, eight months during this pandemic. If you look back just a year or so ago, we had a 10-year trading over 3% on the yield. The markets have moved dramatically during this pandemic, and I think people lose sight of how quickly things can change. I'm not saying they're going up, but I think you have to look at a few of the catalysts that are in front of us.
One of the catalysts that I see in front of us, I'm not predicting markets, but I will tell you there's a possibility of this, when we're looking at November 3rd, if we do not have a President-elect come November 3rd for a projected period of time, the government still needs to go through its processes of auctions and things of that of Treasuries. The question will be, what will people be willing to pay for those auctions, not knowing what the makeup of our government could potentially look like? You could see a lot of uncertainty around the marketplace. I'm not just reflecting on the price of equities. I'm looking at how people perceive the price of debt coming out from around the world out of the U.S. if we go into this contested election process.
The 10-year trading roughly, the yield on the 10-year is roughly three quarters of a percent today, it's down dramatically just over 14-16 months ago. I do think on the rate story, there is something here that people need to be cautious about, and I'm not predicting that it's going to change dramatically, but I do think there's factors in the market that could make it swing. Those are the things that I'm looking at and we are managing from a business perspective.
All right, great. Thanks a lot.
Terry, maybe Terry, do you want me to jump in maybe with some green shoots that I'm seeing?
Yeah, go ahead. Real quick.
Yeah. I think we already know massive increase in Treasury issuance this year by the U.S. Treasury relative to the increased funding needs and the $3 trillion deficit this year, all-time record deficit, all-time record debt, and we're approaching all-time record debt to GDP. Massive increases. In terms of the Federal Reserve and its longer-term intent to increase inflation, we are starting to see green shoots further out the curve. Specifically to your question, if you look at the month of October, if you look at the year-over-year growth month to date, the Ultra 10Y is actually up 3% in terms of its average daily volume. The bond futures are up 10% in terms of their average daily volume, and the Ultra Bond is up 20% in terms of its average daily volume.
We are starting to see, as we would expect further out the curve, increases in activity relative to this environment that should, over time, move down the curve. Thanks.
Thanks, Sean.
Thanks, Mike. Hopefully that was helpful.
Thank you. Our next question comes from Chris Allen with Compass Point.
Morning, guys. I wanted to revisit expenses, specifically the guidance for fourth quarter. It implies about a $40 million for the full year, I'm sorry, it implies about a $40 million sequential increase in the fourth quarter. Normally, you see a bump in marketing and other, but a lot of that's driven by your conference, which is not occurring. Just any granularity around that increase. On the build-out of data center and trading platforms, just kind of wondering what's one-time in nature, what's going to be into the run rate for next year and how much that is going to be offset, by some of the savings, as you shut down some of the BrokerTec and EBS over time.
Sure. Chris, this is John. I'll jump in on that. Yeah. As I mentioned previously, what we've seen is a push-out of our marketing spend from the first two quarters and part of the third quarter into the back half of the third quarter and into the fourth quarter, and some of that marketing spend is contractual in nature. You are correct that our customer-facing events that we normally have in the fourth quarter have been postponed. Some of that spend that we have in marketing is contractual and got pushed into the later half of the year. Also, as we migrate onto Globex and as we build out our data center, we are expecting that goes into work in process, and then when it gets turned on, it goes into depreciation.
Where you're going to see the increase in spend relative to those items are in depreciation and in our technology expense as we have to pay maintenance on some of the third-party software and on the equipment. That's where you're going to see the costs go up into next year. What comes out is going to be the synergies that we have targeted for 2021. We've got the majority of the synergies in terms of run rate synergies impacting next year. We expect to end the year with run rate synergies of $110 million, and we expect to end next year with $200 million in run rate synergies. Our cost base would go down by that additional $90 million. The amount that we would realize in 2021, we're still in the process of determining through our budgeting process.
We have, as Terry indicated, a very strong focus on our expenses going into next year, and we'll be looking to accelerate synergy capture where we can in 2021. That's what you should expect, Chris.
Just a quick follow-up. How much do you usually see from promotions and raises in terms of impacting the comp line?
If you take a look at our employees that we have now and the amount of employees that have been notified that they'll be leaving by the end of the year, I would expect that to be in the range of $20 million-$25 million of increased costs that we are avoiding next year.
Thanks, guys.
Okay.
Thank you. Our next question comes from Owen Lau with Oppenheimer.
Thank you. Good morning, and thank you for taking my question. Could you please comment a bit of your conversation with your clients about the VOLQ futures? Is there any demand for other derivatives products around VOLQ in the future? Quickly on the sales force, your client engagement has increased quite dramatically. What does it take to monetize that engagement and drive higher open interest and trading volume? Thank you.
It's Terry Duffy. Let me just comment real quickly on the vol futures. That contract was just listed in partnership with Nasdaq. We are excited by that potential of that contract, I think it's very early in a launch to try to predict how the success of that contract's going to be. We've all been around a long time, we've seen how long certain contracts take to nurture, again, timing's a big component of anything that you do in this business. It's really hard for us to draw any conclusions around the vol futures. Sean can give you a little bit more color if you want.
I know there's quite a bit of interest from clients on both sides, buy and sell side, around that product and how they can use it to offset or mitigate some of the efficiencies as it relates to some of our other products in the equity space. That is one of the benefits that we have here with our suite of equity products today to potentially get more savings as the open interest starts to build. Until then, it's really hard to draw a conclusion on that product just yet. The second part of your question was what?
It was about the sales force. I think your client engagement has increased by over 100%.
Yeah.
What does it take to monetize that engagement and drive higher open interest and trading volume?
Yeah, and we've answered the Vol question, Julie, so let's just talk about the sales force.
Yes, thank you for the question, Owen. We've had a busy Q3, as you mentioned. Client engagement was up about 145% versus the same period last year. What we're seeing previous to other quarters when we've still been in this work-from-home environment is that activity is being driven by increased client calls, emails, these virtual meetings, the cross-sell introductions that I talked about earlier. What we've been quite busy on in Q3 is actually supporting VOLQ and a number of other new products. We've executed a number of high-profile sales campaigns, the Micro E-mini options launch, the three-year Treasuries, Brazilian soybeans, as well as we've had hundreds of client calls to prepare for the successful SOFR basis swap auction that we had earlier this month.
I think in terms of monetizing that, clients continue to point out to us just the attentiveness, responsiveness that the team has shown throughout this environment. A lot of these ongoing initiatives are there to deliver, not just innovative new products, but also efficiencies. The other number I'd just point to is, this is an environment where people are capital constrained. When you look at what we've been able to deliver for our clients in terms of portfolio margining of swaps and futures, to date already in 2020, we've saved our clients $5.4 billion on average. That's up from $4.5 billion last year. As we continue to deliver those efficiencies and help them manage their risk, we believe that's going to be quite helpful in helping them and us navigate this uncertainty.
That's helpful. Thank you very much.
Thank you. Our next question comes from Alex Blostein with Goldman Sachs.
Hey, everybody. Good morning. Thanks for the question. I was hoping we could talk a little bit about dynamics in the WTI markets, and recently softer oil trends. What really I'm trying to get to, I guess, how much of that is related, you think, to sort of lower volatility, which is obviously outside of your control, versus maybe some of the lower production we're seeing in the U.S.? Any way to kind of help us frame volumes kind of directly related to U.S. producers and bigger picture, if we get a blue sweep election, and that results in any sort of incremental curbs on U.S. oil production, how does that impact CME's franchise? I understand the difficulty sort of putting numbers around that, but just a framework of kind of how oil production translates to oil volumes to CME would be helpful. Thanks.
Hey, Alex, it's Derek. Great question. When you look at what's going on in the oil market, effectively for the last four and a half months, what we've been looking at is the market finding a short-term equilibrium between supply and demand. In August, we saw prices drift higher, kind of the 41, 42, 43 level. There was the agreed OPEC cuts. You saw declining oil stocks in Cushing and globally actually, and a weakening dollar. Counteracting that is the fact that we still have not come out of the demand destruction mode we've been in with COVID, whether you look at the metric of miles driven, if you look at jet fuel demand, I mean, it's still down 75%. You're just not seeing a return to normal economic activity. You see it in our own activity. We're not globally traveling.
I think we're probably representative of a lot of firms out there. The small upticks you've then seen that would put pressure upwards are being offset by the demand side of the equation. You're effectively looking at a market that's trading in a $4 band. I'm talking about global crude. This is true of WTI, is true of Brent, is true of Murban in the Middle East. We're talking about roughly a $4 trading range. We've got a flat forward curve and again, a $2 spread and a stable spread between WTI and Brent right now. These are impacts. I think the point of your question is, if you look at the impact of the global demand side of the equation, it is equally impacting global oil. This is not a U.S. phenomenon. We are certainly down on U.S. production.
I think we're down from the peak of 13 million barrels a day down to about 10.5, 11. We haven't necessarily seen exports trail off that much. We were trailing at around 3, between 2.5 and 3 million barrels a day global exports. That has continued to be a demand source and a growth driver where we're seeing domestic production on the WTI side, global demand for Brent has slowed across the board. When you see that, we see this as a global impact across all markets. If you look at the market share from a volumes perspective, year to date or even this quarter, we're seeing CME, if you look at the world of market share of CME, WTI plus ICE Brent, we continue to maintain roughly 55% of that traded volume. We continue to maintain 45, 46% of the open interest.
That's where we've averaged for about the last two and a half, three years. There's an equal impact across each of these businesses. I think the core of the question is, where do we see demand return and how would that be reflected in our volumes? Well, one of the issues we've seen is when markets go slow, you start to trade sideways. The reality is we've got a superior distribution out into the financial players of the energy market, whether it's the specific hedge funds, buy-side asset managers, retail clients. Typically, volume pullback, we see a little bit of underperformance on the WTI side. Now, that we see as a temporary situation. As we result in demand returning, we likely see that we'll be a participant in an upswing in volumes globally.
I think one of the issues that we see in the energy market is natural gas. While it's been negative for the crude oil market, natural gas is a market where that's really the strength of our portfolio. If you look at this business, not only is it up, this is the high RPC business that we have. It's $1.15 RPC in futures. It's $1.52 RPC on the option side. When you actually look at the Henry Hub market share of this business, our volume year to date, our Henry Hub futures business is up 26%. Our options business is up 56%. Why this is important, it continues to highlight the global nature of Henry Hub as a global benchmark, and that's shown by the fact that over the course of this year, our non-U.S. volume participation in Henry Hub was up 82%.
116% growth in Asian hours of our Henry Hub options futures market, and our European business is up 69%. Within the energy complex as a whole, we're trading sideways in crude. We're seeing significant growth in the high RPC nat gas business, and so we're likely to see that continue. Finishing, and I'll turn over to Terry, from a reg side, while you might see some unknown pressure relative to the fossil fuels business, if you look at the role that natural gas has to play as a clean energy and an alternative, we see that continuing to grow. We think we're in a good position there given the fact that we own 82% of that market. With that, I'll turn over to Terry.
Let me talk about a couple of things, especially when it comes to a potential blue sweep, because I find this quite interesting. On the production side, let's do a little quick history. Remember who lifted the ban on the oil export business. It was President Barack Obama's administration. That was just a one-off administration ago that did that, a Democratic administration who was very supportive of making sure the United States of America be an oil exporter. The rhetoric around politics today, which is always associated around green, this is a great topic. As you can see, the Democratic nominee's having a little bit of trouble with some of his past comments versus his current comments as it relates to fracking on some of the Eastern Seaboard states. That doesn't surprise me a bit.
I think what you'll see is them looking for more low-hanging fruit. When I say that taxes are low-hanging fruit. I'm not saying it's going to be corporate or personal or both, but that would be low-hanging fruit that I think that a blue sweep administration will try to address. Trying to address production on energy after the Obama administration just supported the first time in the history of this country to lift a ban on exporting of oil seems to be a bit of a stretch, and I'm assuming some of the Republican colleagues will remind their Democratic friends about who did this and why it's important to the sanctity and safety of the United States of America. That could change, as Washington always does. I wouldn't put too much stock into that either.
I really believe a lot of this is political rhetoric right now. Things are difficult to get done. We've only seen three major pieces of legislation in the last 19 years in D.C. We had Sarbanes-Oxley, we had Dodd-Frank, and we had the ACA Act. That's it. Everything else is continuing resolutions. I think this will be difficult at best. Even the oil lifting of the ban was done through a continuing resolution bill to keep the government open. You can see how there will be plenty of ammo for people who want to support energy production in the United States to have arguments against their Democratic colleagues. That doesn't mean that some of the ESG and other things that Julie referenced aren't still going to be front and center, and people are going to be doing things.
In the short term, I think it'd be very difficult on destroying the production of oil here in the U.S. until we have a viable alternative that the rest of us can use. You can't have 2% of the automobiles be electric and the rest of us don't have the ability to get them. I think it's quite fascinating with the conversation on politics, but I wouldn't bank on that for the next 12-24 months.
Great. Thanks very much.
Thank you.
Thanks.
Thank you. Our next question comes from Ken Worthington with J.P. Morgan.
Hi. Good morning. Thank you for taking my questions. The Democrats are proposing changes to the tax code, including the doubling of the dividend tax rate for the wealthy, which according to the Federal Reserve, own about 50% of stocks and mutual funds in the U.S. Were the dividend tax to be doubled as proposed, how would that impact your thinking on the payout of nearly all your excess tax to shareholders in the form of a dividend? Does your capital management strategy make as much sense in a much higher dividend tax environment? I guess related, in 2012, you brought the payment of your annual recurring dividend to the fourth quarter when there were concerns over changes to the tax code. If the tax outlook changes after elections next week, would you again consider pulling forward that payment into the fourth quarter?
Ken, it's Terry Duffy. Obviously, your question, very speculative in nature because no one knows. On the potential of people trying to tax dividends, I really believe, as I said in my prior comments, I think they will look for other ways to get tax incentives. When you look at dividend-paying companies, these are stocks that are traditionally held by the base of people who voted these people into office. These are not the high-flying stocks of the five or six FAANG stocks or others that they might be potentially thinking they're going to get a massive revenue off of. I think it'll be very difficult to take a proposal on doubling a tax dividend going forward. I just don't see that. Again, it would be very surprising to do so.
That being said, our capital return policy will be flexible enough to make certain that we can return capital to shareholders in the most tax-efficient way that benefits the bottom line of the holders. We've talked about share repurchase programs over the years. I'm not suggesting that we're going down that path right now because we don't even have one in place. It doesn't mean we can't. It doesn't mean we can't do a lot of other things on how we return capital. We will not look at returning capital at the most highest tax on dividends possibly going out there. Again, I think that is a very difficult proposal for the Democrats in order to raise those kind of taxes on dividends. I just don't see it happen because it won't affect the companies that they're trying to affect.
Okay, great. Thank you.
Thank you.
Thanks, Tim.
Thank you. Our next question comes from Simon Clinch with Atlantic Equities.
Hi, guys. Thanks for taking my question. I was wondering if you could just flesh out with the collateral savings of $5.4 billion, I think it is, that you've saved your clients this year. Could you give us a sense of how your clients redeploy that capital, how that might have happened historically, and how you'd expect that going forward in terms of spreading that across into other areas of your business?
Okay. Thank you for that, Simon. I'll ask maybe Sean and then Julie to comment a little bit, and John also, if they'd like. John, do you want to talk about that?
Sure. I think it's difficult to quantify exactly how much gets redeployed into our marketplace. We certainly do see it as making us a much more attractive platform relative to alternatives. One of the things, actually, that we're very excited about, that we're starting this week, is we're starting to test portfolio margining of Eurodollar options against interest rate swaps. This is going to be a new portfolio margining opportunity, a new facility that we're very excited about, in addition to the current portfolio margining between interest rate futures and interest rate swaps. We have seen a huge growth, I'd say, enormous growth in both the amount saved as well as the number of participants taking advantage of it. We do see when we offer new portfolio margining opportunities that our relative growth to other platforms tends to increase.
This is not the only area where we are looking at efficiencies. We've also, for example, a little over a year ago, we introduced compression of our listed equity options business. We're very excited to say that we've run 27 compression runs since we started it a little over a year ago. We've reduced the number of contracts outstanding, which increases efficiencies for our customers by $8.3 million. We're constantly looking at creating new efficiencies for our customers, whether it's the equity business, the rates business. I'll actually maybe mention on the foreign exchange business, one of the things we've done over the last year is massively reduced across the board minimum price increments in our foreign exchange futures. We've also lowered them in the rolls for our foreign exchange futures.
This saves participants costs in terms of when they execute the rolls and when they trade our futures. We're very excited to say that recently we saw all-time open interest record in our Euro-USD futures. We saw an all-time record longs held by asset managers, according to the CFTC, in our FX futures. We're excited to see the growth in the product and the growth in the use of that product from the greater efficiency. Those are some examples of where when we provide these efficiencies, we do see growth. Hard to exactly quantify the portfolio margining and its impacts on revenues. I don't know, Julie, do you want to jump in?
On that point, I think what it's really hard to do, it's hard for us to quantify for sure. What we have seen historically on the multiple billions that Julie referenced earlier, actually, it's a little bit north of the $5.4 billion because there's other part in the swaps market that they achieve benefits as well. We have traditionally seen them deploy a lot of that capital into managing risk into a whole breadth of asset classes that we have here at CME. Again, that's a historical perspective, but it's really hard for us to quantify on a day-to-day basis of how they're deploying that capital. That's what historically we've seen.
Great. Thanks. I was wondering if I could just follow up with one question, just a more housekeeping one. In terms of looking at the revenue per contract across your different segments, I think pretty much all of them ticked lower on a sequential basis. I know there are lots of moving parts here. I was wondering if you could help me think about how to think about the revenue per contract going forward, particularly for things like the interest rates as they shift towards those longer-term contracts and in those areas where you've got the Micro E-mini futures, which are sort of skewing numbers as well.
Yeah. Thanks. Before John does it, do you want to finish the other comment? You good? Okay. John, go ahead.
Yes. Thank you, Simon. Great question. What you see in our rate per contract really is a mix issues. The face rates don't generally go down. It's really a mix of products, a mix of customers, a mix of venues. There's multiple different mixes that happen, and what's great about our business is that we've got an enormous number of products, many different customer types. As markets shift and change, different products are used and different customers utilize those products. That's what you see generally in our rate per contract. They tend to all be mix related.
In terms of your two specific questions, when you look at the long end of the curve versus the short end of the curve, generally speaking, the short end of the curve or the Eurodollars tend to be about 14% lower than the average for interest rates, and treasuries tend to be about the same, higher than average, in the interest rate quadrant or asset class. That's the mix there. Heavier, higher RPC on the longer end, less on the shorter end. In terms of the micros, the micros have been tremendously successful primarily across our equity asset class and our metals asset class. In terms of our equities, sequentially, they grew to almost 2 million contracts a day for the quarter and represented about 36% of the total equity volume in Q3, compared to about 34% in Q2.
Also, the RPC for micros increased from $0.125 in Q2 to $0.132 in Q3. In terms of equities in particular, in addition to the performance of the micros, we also saw a higher proportion of member trading activity as well as a lower proportion of ex-pit and BTIC trading activity, which has a higher RPC. I do want to hit on something that Sean touched on before, and that's the impacts that we're seeing on the Nasdaq trading. That's really helped our RPC in equities as the Nasdaq trading was up about 24% sequentially, and the Nasdaq contract has a higher blended RPC than average. A couple other points on RPC as it relates to equities. As I mentioned, the micros RPC increased to $0.132 in Q3, and that's up from $0.078 from Q3 last year.
If you take a look at the equities, excluding the micros, that increased to $0.749 in Q3 versus $0.712 the same quarter last year. Both the micros and the mini RPCs increased compared to last year. Again, it's a mixed story. In metals, you're also seeing something similar in terms of the RPC. The metals was our best-performing asset class sequentially for CME Group. It's up 59% sequentially. A key factor when taking a look at the RPC, again, which made modeling difficult for you analysts, and that was the increase in the micro activity. The micros, again, have been very successful in metals and are approaching 160,000 contracts a day, and it was up over 110% sequentially. Micros accounted for about 19% of the total volume this quarter versus 14% in Q2.
The Micro Gold RPC for the quarter is approximately $0.32, and that's up from $0.27 in Q3 last year. That's a big impact relative to mix shifts in metals. Very pleased with our micros, been very successful and, again, to your point on the RPCs, it's really mixed stories.
Thanks, Simon.
Thank you, Simon.
Thanks, Simon.
Thank you. Our final question comes from Kyle Voigt with KBW.
Hey, thanks for squeezing me in at the end here. Just a question on pricing really quick. You've made a number of pricing adjustments over the past several years in the futures business. I also think in the past you've stated that typically these pricing adjustments come during periods of volume growth. Just given the volume headwinds you're facing this year, I'm just wondering how you're thinking about pricing for futures more broadly and whether you still see the potential for pricing increases or adjustments in certain products as we head into next year.
Kyle, it's Terry. I'll let John comment as well. Obviously, you're correct. We try to make sure that we have a value-added proposition anytime we use any type of tier changes or pricing changes associated with our business. That does not prohibit us from other parts of our business that are growing to take advantage of price increases. That being said, we will be very mindful of the overall situation, and we always take pricing into effect with many factors, whether it's fundamentals in the marketplace, not only here in the U.S., but globally. We will be very steadfast as it relates to our pricing and how we feel what is appropriate going forward. It's challenging. It always is. I'm not going to lie to you saying that pricing is easy to take advantage of.
At the same time, I've been always of the mindset, and I've said this historically, that we need to bring a value-added proposal when we bring in pricing changes. I think when you look at what's going on with the BrokerTec integration and the EBS to follow, these are all things that are enhancing the experience for the client. We will cross that bridge when we get to it. We won't forego them, but at the same time, there are many factors that go into it. John, you want to comment further?
Yeah, just a couple of quick points. Terry's right. We take a lot of time and put a lot of thought into our pricing plans. We're going through the budgeting process now. That's a time when we really take, again, another hard look at our pricing. Really what's absolutely critical is we want to have as much velocity going across the platform 24 hours a day. That increased liquidity is beneficial for us, obviously, because we earn money for it. Also, that liquidity is very valuable to our customers, to Terry's point. It tightens that bid-ask spread. It makes our offering that much more attractive. We're very careful when we pull the pricing lever.
We look at things on multiple dimensions to make sure that we create a really good and robust marketplace for our clients, really with the eye of not impacting and enhancing our liquidity.
Thank you very much.
Just to add on to that, I don't want to belabor it, we're in probably seven or eight months of the strangest time in the history of our country, of our world. To try to put up a pricing strategy that makes sense during normal times is a little bit difficult. As we continue to get on the backside of this, we'll continue to evolve and hopefully we'll see a change in the way our business goes.
Thanks, panel.
Thank you. That's all the time we have for today. I will now turn the call back over for closing remarks.
We thank you all very much for taking time out today to go through your questions. We appreciate it. Please stay safe and healthy, and we look forward to talking to you soon.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.