Good day, ladies and gentlemen, welcome to the CME Group second quarter 2019 earnings call. At this time, I would like to turn the conference over to John Peschier. Please go ahead, sir.
Thank you. Good morning to everyone, and thank you for joining us. I'm going to start with the safe harbor language. I'll turn it over to Terry and John for brief remarks, followed by questions. Other members of our management team will also participate. Statements made on this call and in other referenced documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website. Lastly, on the final page of our earnings release, you will find a reconciliation between GAAP and non-GAAP measures.
With that, I will turn the call over to Terry.
Thank you, John, and thank you all for joining us today. My comments today will be brief so we can get right into your questions. We released our executive commentary this morning, which provided extensive details on the second quarter. In Q2, average daily volume grew to 21 million contracts per day, up 14% compared to last year. We had record quarterly average daily volume in agricultural products, as well as interest rate, agriculture, and metals options. Open interest reached an all-time high above 150 million contracts on June 13th. We continued to drive significant growth globally. During the second quarter, volume from outside the U.S. totaled a record 5.4 million contracts. That included 28% growth from Asia and 22% growth in Europe. We continue to see success on the innovation front with the launch of our new Micro E-mini contracts, which began on May 6th.
During June, we averaged more than 400,000 contracts per day, making this the most successful new product launch in the history of CME. We're also pleased with how the NEX integration process is going so far. We have made great progress combining our sales forces as they begin to jointly engage with clients. We remain laser-focused on this very strategic transaction and look forward to keeping you updated with our progress. With that, I'm going to turn the call over to John to provide some additional comments, and then we'll take your questions.
Thanks, Terry. We've reached a number of milestones this quarter as we continue the integration process. We've completed the first phase of staffing the combined business. We moved the majority of the legacy NEX businesses to our administrative systems, which will enable the streamlining of internal support functions. We moved the legacy NEX employees to our new facility in London. We consolidated our Hong Kong offices and are on track to consolidate our offices in London and New York by year-end. We are actively working on data center consolidations, systems consolidations, and the customer migration of BrokerTec, which was announced will be in Q4 2020 and EBS in 2021 to Globex. Based on our progress with the integration and our overall strong expense discipline, we are reducing our full-year operating expense guidance by $10 million to a range of $1.64 billion-$1.65 billion.
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. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. That's star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Richard Repetto from Sandler O'Neill. Please go ahead. Your line is open.
Good morning, Terry. Good morning, John and team. I guess the first question will be more general, but I'm sure we've all heard about the potential LSE and Refinitiv transaction. I guess, Terry, I was just trying to get your thoughts. It seems like these players are going after. They don't have the dominant position that the CME has in derivative products, and it looks like they're expanding with data. I'm just trying to see what your thoughts are. Does it have an impact on the CME, and how does it affect the exchange industry overall if there was a combination of LSE and Refinitiv?
I'll make a few comments and maybe John, Bryan, or anybody else, Sean, may want to join in as well. I think that, listen, these are not new ideas, new products. They've been out there for a while. They've been out there competing with different participants. We don't compete a lot with them. We're a little bit on the fringes, we're not overly concerned about the announced transaction. I think that when we talk about M&A activity, we always said cross-border transactions are very difficult to accommodate and to get done. I think there's a long way to go on this process, we'll have to wait and see. As I said in my opening comments, we're laser-focused on integrating the NEX business, that's where our focus is going to remain.
As far as other things that compete with CME, again, Rich, I just don't see it any different than it was prior to the announcement, but my colleagues may see it a little differently. John?
No, I agree. This really doesn't change the competitive landscape for us, and there's a long time between when this potential transaction gets announced, it gets done. Obviously, we'll be watching, but I think from our perspective, it doesn't change the competitive landscape. Does that help at all, Rich?
Yes, it does. Got it. Thank you very much.
Thank you, Rich.
Thank you. We will now move to our next question from Dan Fannon from Jefferies. Please go ahead.
Thanks. Good morning. John, I guess my question's on kind of expenses and/or also the integration. You talked about all the things you've got done. You reduced expense guidance, but it looks like the revenue, I'm sorry, the expense synergy number for this year is unchanged. Maybe if you could talk about that more broadly, or what's driving the reduction in actual expenses versus the synergies. Also kind of update us on the kind of potential revenue synergy opportunity with NEX, and you talked about the sales force integration, but maybe how that's going or any tangible kind of comments around some successes.
Yeah, thanks, Dan. We are very pleased with how the integration is going. We have done a lot combining the businesses in the short time we've owned it. Very pleased with that. In terms of the synergy number, we've achieved about 60% of the $50 million in synergies. Most of that occurred right at the end of Q2. We're continuing to work through it. To give you an idea, when we acquired NEX, it was not a very integrated business. The integration process is complex and we continue to work through it. We'll update you as we go. We're very confident in terms of hitting the $50 million, and the entire management team is focused on running the business, our core business, as efficiently as we can and running the integration processes as efficiently as we can.
To the extent we can accelerate the synergies, we certainly will, and I think we've got a high degree of confidence going into the $50 million, and we continue to look at ways to accelerate that. Bryan, do you want to comment?
I would just note that we're reaching out to the client base in the context of sticking to the timelines that we initially announced with the overall migration, particularly with BrokerTec. We've held client sessions now across the regions. We've received some great feedback in terms of the overall integration plan. We did a major BrokerTec code drop internally that allows our systems to interface with each other. That's a good indication of our ability to deliver on the timeline that we've committed to our client base and to all of you. The initial feedback, the initial read in terms of the migration onto Globex has been very positively received.
John, anything else to add to that?
I think just along what Bryan said, right? We're doing an enormous amount of education of the two sales forces to ensure that the cross-selling is happening. The EBS and BrokerTec sales forces have great contacts that are new in many cases for CME Group. We're educating them on our core products, and we're getting that cross-selling process. Likewise, in the other direction. In addition to that, as Bryan mentioned, we have had customer forums in regards to the migration of BrokerTec to Globex. We had one in New York, Chicago, London, Singapore, and Hong Kong, and each of them were extremely well-received. Clients are in general very happy with our outreach, very happy with the progress, very happy with the plan.
Just to circle back, pardon me, Dan. You'd asked about the expense reduction and how much of that was relative to synergies versus the rest of the business. It's actually both that's allowed us to drive our expense guidance downward. If you recall, when we made the initial expense guidance at the beginning of this year, it already had a very low embedded expense growth rate and was in a very tight range. It really shows excellent expense management across the entire business that allows us to lower the expense guidance. That help, Dan?
Yes. Thank you.
Thanks, Dan.
We will now move to our next question from Ben Herbert from Citi. Please go ahead.
Hey, good morning. Thanks for taking the question.
Morning.
Morning. The NEX Group revenue declined sequentially, and it looked like it was maybe optimization and mostly trade portfolio management driven. Just wondering if you could give some underlying details there around the drivers in that sequential decline? Thank you.
Sure. Yeah, be happy to do that. If you take a look at the transaction fee line, the NEX was down about $2 million. It was primarily due to the Reset business, so it's the transaction revenue associated with the optimization business, and part of that is Reset. Reset has seasonality in its business, and the first quarter is traditionally the highest quarter of the year in terms of revenue for Reset. That's what drove the sequential decline in the transaction revenue line. The other line, you see an additional couple million dollar decline there. That's primarily driven by the subleasing of space at the NEX headquarters building. We've since moved the NEX employees to our new facility in London. We're no longer subleasing that space. That's what drove the decline in the revenue, and there was a corresponding decline in expenses associated with that.
That's about $2 million as well. That accounts for the reduction sequentially in the NEX revenue. If you look at the other revenue line, there's an additional $2 million sequential decline, and that was what we discussed last quarter, which was related to our inflation adjustment. It's done annually with B3 or formerly BM&FBOVESPA. If you look at that, the entire sequential decline in the other revenue was down $4 million, $2 was related to the subleasing revenue, and $2 was related to the annual inflation adjustment that we talked about last quarter.
Great. Thank you.
Thank you.
Thank you. Our next question is from Jeremy Campbell from Barclays. Please go ahead.
Given the wild success here of Micro E-minis in the equity complex, have you given any thought to micro-sizing other asset classes? If so, any color you can provide around what types of asset classes might fit that bill and the typical length of a product development and go-to-market timeline would be helpful.
Yeah, I'll let Sean comment and Derek as well. Obviously, the two of you guys run the two business lines. Sean, you start.
We're very excited, obviously, about the Micro E-mini launch, the greatest launch in CME Group history. As you're probably aware, May 6th was the launch day, 461,000 contracts ADV, over 40,000 Tag 50s, so over 40,000 individual registered traders. More than 130 countries, we've had trades from. More than 27 million contracts. We're very excited about it. In addition to that, more than 90% of the Tag 50s trade less than 10 lots a day, which really means this is incremental revenue and incremental volume, incremental risk management on our platform. We're very excited about it. There's no question it was a great success, and we're very excited about it. There's also no question, therefore, that we're looking at it very closely in regards to our other asset classes.
I think that equities is a unique asset class and that the opportunity there are probably unique, one that we worked on for a long time. We are looking very closely at our other asset classes and what the other opportunities might be, and I would stay tuned, but I don't have any current announcements.
Derek, anything on the ag side you want to comment on, or energy?
Yeah, I would say, picking up on Sean's point, I think that when we were talking to clients about the desire and the need for a product that was more appropriately sized, given the increase in the overall equity market, that's a unique attribute of that equities contract that gets bigger as the market goes up. None of our other asset classes have a contract that scales that way. We actually have a Micro Gold contract already. We did see a small lift in volumes up to, I think, 23,000 or 25,000 contracts there. The unique drivers behind the need for customers to resize a contract for retail participants uniquely exists in equities.
We have continued to engage with our retail partners and intermediary customers, and at this point, we're continuing to make sure that we're focused on our core product and solving client need where there's any inhibitors to accessing our market. At this point, no, but we'll continue to talk to them.
Let me just add one more thing, Jeremy. I think that these guys summed it up quite well, but we're very careful about how we ascribe the valuations to all of our contracts and their sizes and what the needs are for risk management purposes. We just don't want to start to create new contracts that we think are micro small, so we think there are a subset of people that would be attracted to them. We're driven by commercials. We do have retail participants, but they are professional in nature. We're not trying to attract somebody who's never traded futures before and has a day job. I think it's a little bit different when we talk about retail and these micro products versus what others might consider retail. I think both Sean and Derek summed it up well.
The equity markets makes complete sense because of the valuation. We don't see that in the other asset classes that would make that demand pending imminent right now.
Great. Thank you.
Thank you.
Thanks, Jeremy.
Thank you. Our next question now comes from Chris Allen from Compass Point. Please go ahead. Your line is open.
Morning, guys. I wanted to ask on market data. We've kind of seen the slide from 4Q, and it was about $136 to $130 last quarter, $128 this quarter. You noted a decline in subscribers sequentially. I just wonder if you give us any color on the magnitude there, and also whether there was any audit fees included in this quarter.
First of all, when you referenced the first higher quarter, there was higher audit fees associated with that quarter, and I believe that we spoke to that during that call. Audits is going to continue to be a very sporadic and chunky indicator for us, as we've said from the get-go. We had lower audits this quarter, I have to say, but we have a number in the pipeline, and I can't speak further to that until those matters are resolved. With regards to the subscriber count, as you know, there's a strong focus on expense management across Wall Street, and we've seen a reduction in a number of our larger banks and some of our hedge funds. We're monitoring that area very closely.
I also, though, think you have to keep in mind the great growth that we've seen from a transactional perspective on the international side, where we utilize our market data very heavily, particularly for our growth throughout Asia as well as our retail base. In summary, we're very pleased with the performance of some of the other portions of the market data business, particularly in our derived space, which we're continuing to see growth.
As I stated, we'll monitor the subscriber base very closely.
Thanks, Chris.
Thanks, Chris.
Our next question is from Christian Bolu from Autonomous Research. Please go ahead. The line is now open.
Good morning, all. Maybe this one is for Sean. Sean, despite, I guess, the Fed looking to cut rates, open interest growth in your kind of rates business has been pretty strong. Maybe some color on what you think is driving growth there. Also, we have seen pretty high levels or record amounts of Treasury inventory being held by the dealers. I'm curious if that has been an incremental driver of demand for your products as well.
Sure. Thank you for the questions. The interest rates business has done very well this year. Our innovation has continued to help to drive that growth. Our Ultra 10-Year, for example, now doing well over 200,000 contracts a day, recently had a record all-time volume day and a record all-time open interest day with significantly faster growth than the overall complex. In terms of the environment, the Federal Reserve, as I'm sure you're aware, or the market expectations, I should say, of the Federal Reserve have gone from expecting tightening to expecting easing. As you know, there's a Federal Reserve meeting happening today. According to our FedWatch tool, which you can find on our website, there's a 78% chance of a 25-basis point easing today.
In addition to that, later in December or by the end of the year, it's expected that you could have a total of 75 basis points worth of easing by the Federal Reserve. That change in market expectations from expected tightening to expected easing creates a lot of volatility, it creates a lot of risk, and it creates a lot of need for risk management. CME Group is where people go to manage the U.S. interest rate risk. Our Fed Funds futures have seen enormous growth on the back of the changes in expectations about Fed policy, and so have our Treasury futures. The Treasury futures continue to grow. One of the things that we talk about is continuously making our futures complex the far most attractive place to manage risk.
A change we made very early this year, for example, was in our two-year note futures. In our two-year note futures, we changed the minimum price increment, so we reduced by half the minimum price increment in those two-year futures. We reduced therefore the cost to trade or the cost to cross that bid-offer spread by 50%. That was an extremely compelling move by market participants, decreasing their costs as they had this increasing need to manage risk relative to the changing rate environment I just talked about. In terms of that, our two-year notes went from about 12.7% of our entire Treasury futures complex to now almost 16% of our entire Treasury futures complex. A huge increase in the two-year note relative to the rest of the complex, relative to improving our products on a continuous basis and making them more attractive.
On that front, we've been very excited over the last several years. We've spoken to you many times over the last several years about our increasing penetration of Treasury futures. If you go back several years ago, our Treasury futures were running about 55% of the average daily volume of the Treasury bond market, according to SIFMA's data. We're currently at an all-time record of 117%. It continues to increase as we continue to launch new products like the Ultra 10-Year future, which have been extremely successful, as well as adjust the existing products like our 2-year notes. The last thing I'll mention on that front, we're very excited about our SOFR futures launch. We're currently doing this month about 38,000 contracts a day, 220,000 contracts open interest, over $770 billion from a notional standpoint, 184 participants in that marketplace. We're very excited about our innovation.
We're very excited about the market uptake and continuously improving our products. Yes, the environment has been positive with the expected rate changes by the Federal Reserve.
Okay. Thank you so much.
Thanks, Christian.
Thank you.
Thank you. We will move to our next question from Kyle Voigt from KBW. Please go ahead.
Hi. Good morning. Just going to try one follow-up on the Refinitiv transaction. Could you comment whether this was a transaction that you looked at, and if so, any reasoning regarding why you passed on the deal?
Go ahead, John.
Yeah. Hi, Kyle. We don't comment on M&A transactions. I think, as you probably are aware, we as a company, we obviously are a leader in the space and we monitor the space, but we're not going to comment on any specific transaction. I think Terry hit it on the head when he, in his prepared remarks. We are very focused like a laser on the next integration, and we're very excited about the transaction that we consummated and closed in November.
Thank you.
All right. Thanks, Kyle.
Our next question comes from Alex Kramm from UBS. Please go ahead.
Hey. Good morning, everyone. Just wanted to quickly come back to the Micro success, in particular around pricing. I don't know if you commented on this call, obviously a month ago, you disclosed kind of the RPC that business is running at, it's obviously pretty low as we expected, I think on a risk-adjusted basis, it's still lower than your core products. I think the expectations was it's retail, it's small, it's going to be a premium product on the risk-adjusted basis. Maybe talk about the customer mix, how you're supporting that business with market maker incentives, how quickly maybe that RPC can ramp as that product gains more traction. Thanks.
Thank you for that. Yeah. It might be helpful just to give you the rack sheet or the pricing sheet that's also available on our website. Our E-mini futures for members, we charge $0.35. Our micros, we charge $0.04. The micro contract is 10 times the size. On a risk-adjusted basis, the micro is $0.40 relative to the $0.35 that we charge on the E-minis. Likewise, for non-members, if you, again, look at our website, you can see that our Micro E-minis, we charge $0.20 a contract, or the equivalent of $2 in terms of an E-mini, whereas the E-minis themselves are charged at $1.18. You see that they are certainly charged at a significant premium.
Nonetheless, with the launch that we had and wanting to make sure that our clients have the best possible customer experience on day one, we do spend money on incentives for the first several months of a new contract. As you can imagine, we did incent market makers for the first several months, and we felt that that was a positive and necessary investment, and I think it's shown that it's been a very good investment. Clearly, once the marketplace is up and running and it has its own momentum and critical mass, those market-making incentive programs will no longer be necessary. You should see an improvement in the RPC in that product as we move forward.
Does that help, Alex?
I guess if there's any expectations on timing, you never know when a marketplace is self-sustainable, but is this a few more quarters, or do you think it can ramp pretty quickly? Is I guess what I was really getting at.
Yeah, I think I said months, right? Several months. It's not an extended marketing program likely.
Yeah, I think we always reserve the rights to decide how the fundamentals of any markets are going and how we're going to consider programs, which we do on a daily basis around here, whether continuing, adding to them, subtracting to them. That's just part of what we do on an everyday basis around here, Alex.
Very good. Thank you.
Thanks, Alex.
Thank you. We move to our next question from Chris Harris from Wells Fargo. Please go ahead.
Hey, guys. If the Fed cuts interest rates two to three times before the end of the year, how should we be thinking about the impact on your non-operating income?
Thanks, Chris. We haven't announced how we are going to handle the change in pricing relative to a Fed rate cut in terms of the capture that we have on the average balances. As you've seen recently, we've passed through any of the changes to the customers. We haven't been increasing our share of the Fed, of the rates. A couple of points. Number one, we have seen the cash balances that we have here at the exchange come down. In the first quarter, we had about $28 billion in terms of average cash balances held at the clearing houses, down to about $25.6 billion. We did see a reduction in terms of the average cash balances.
One of the things that when we look at it, we think about how do we incent the average cash balances to increase here. Also, I wanted to point out that beginning in the month of July, we did have a price change in terms of the non-cash collateral. We increased the charge from one basis points to five basis points, and that began at the start of July. Just to give you an update in terms of the non-cash collateral that's held at the clearinghouse that's attributable to that, right now it's about $90 billion in terms of non-cash collateral that'll be impacted by the four basis point increase.
Okay, thanks for the update.
Yeah, great. Thank you, Chris.
We'll now take our next question from Ken Hill from Rosenblatt Securities. Please go ahead.
Great. Thanks. Good morning. I wanted to go back to market data for a second. I think during last quarter, you announced a new global head of market data services. I was just hoping you could elaborate a little bit more on that role, what kind of products might be coming, and any potential timing on that improvement for that business.
Thanks, Ken. Bryan?
We installed Trey Berre, who oversees our market data and Data Services, and he hit the ground running in the context of the engagement that he's been having with the broader client base. The focus has been really on continuing to build and grow on our subscriber business, but in addition to that, very much cultivating and developing our other services, particularly DataMine and Derived Data services. Trey actually built up the Derived Data business, which has performed quite well for us over the last couple of years.
We're very enthusiastic about his engagement and his reach globally as we work to continue to grow this business. He has very well integrated with our global head of sales as well as our chief commercial officer in taking a holistic view at the various data services, the development of new products, and the integration of the NEX market data business into our overall data offerings. Does that help, Ken?
Hey, yeah, that helps. Thanks for the detail there.
Thank you.
Thank you. The next question now comes from Deutsche Bank, and it's Brian Bedell. Please go ahead. Your line is open, sir.
Great. Thanks very much. I wonder if you guys can talk about the FX futures and options business a little bit broadly, both from the perspective of any revised expectations on the uncleared margin rule. The volumes have been kind of light recently, but so maybe just if you can talk about whether there's simply hasn't been any traction yet, even though there is a good demonstration from, say, for example, the Greenwich Associates report about the much improved efficiency of using FX versus other, the futures rather, versus other methods. Should we be expecting more of a step function in improvement in volumes after the uncleared margin rule comes through, or do you think that will take a lot more time?
Sean?
Thank you, Brian. A very good question. No question that the foreign exchange environment has been a very challenging one. If you look at volatility, for example, realized volatility in the Euro versus U.S. dollar, in the second quarter, that's at the second percentile going back to 2007. It is near record low volatility, going back more than a decade. Likewise, if you look at dollar/yen, you're at the sixth percentile in the second quarter, going back to 2007. In fact, there's a G7 realized volatility index that goes back to 1992, and you're near the lowest volatility for G7 foreign exchange according to that index, going back to 1992. With that extremely low volatility relative to the history of that marketplace, that obviously makes it much more challenging and lesser needs for risk management.
Nonetheless, we've continued to improve our products on the foreign exchange side continuously as we do with all of our products. Some of the things I might mention, we changed the strikes for our FX options on April 1st, making them much more appropriate, and so adjusting them across the entire expiry spectrum, so making them much more attractive. In addition to that, back earlier this year, we changed the minimum price increment in our quarterly roll in our dollar/Sterling. I mentioned earlier the great success that we had in reducing the minimum price increment in our two-year notes. We've also had very good success in reducing our minimum price increment in our dollar/Sterling contract in terms of the quarterly roll. That was a significant success where we saw a very large increase during the roll period in volume.
We also saw a very large increase in non-member activity. We've just recently announced that we're changing the minimum price increments in the quarterly rolls in our dollar/yen, as well as our dollar/euro contracts. That's happening in early August, and that should make those products much more attractive, lowering the total cost. We're constantly focused on making that look the most attractive possible from a total cost perspective. As you mentioned, on June 15th, Greenwich published a study showing that CME's FX options are as much as 70% lower cost than OTC FX options, and will be especially attractive under the uncleared margin rules. Again, very attractive products, continuously improving them, and getting external studies done that show that they're much more attractive.
In fact, while the volumes have been hampered due, as I said, to the historically low volatility, our FX futures complex reached an all-time large open interest holder record on May 28th of this year in that environment. We're very excited about that, and the continuous improvement. In terms of the uncleared margin rules, essentially, the regulators have made a small adjustment to them. There was originally expected to be four tranches of requirements, where the last tranche in September of 2021 or September of 2020, excuse me, was expected to be the last set of participants. The threshold there was moved to $50 billion outstanding, as opposed to, I think it was seven billion outstanding. Now they're giving essentially more time for that last set of participants to get ready for the uncleared margin rules. There's just one additional year.
We expect the same impact that we would have had. It is giving participants a greater amount of time to adopt the uncleared margin rules. In terms of the uncleared margin rules themselves, CME Group has the most holistic solution available. For every aspect of the uncleared margin rules, I think I may have mentioned we did a very successful webinar on our uncleared margin rules just a couple of months ago, that showed our value proposition across all of our optimization businesses that we acquired through the NEX transaction, as well as our OTC clearing and our listed products. We are very excited about the holistic solution that we can present to our clients for the uncleared margin rules.
We do expect that to be a positive tailwind for our business, but we expect that tailwind to be gradual, and we expect it to happen over a longer period of time.
Okay.
Thanks, John.
Over the next year or so, I guess, given the extension, is that fair, rather than more of a step function, say, in the fourth quarter?
Yeah. Again, the uncleared margin rules, as I said, the last set of participants are in September of 2021. You have got, from now until then, in order for participants to adhere. Let me say one other thing. What we saw with the Dodd-Frank rules, okay, was a 2-stage process. When we saw Dodd-Frank, and you saw the huge increase we had in interest rate futures usage during the Dodd-Frank rules. What we did was we offered to participants OTC clearing. We built now, actually, sorry, as long as I brought it up, we had an all-time record in June of $178 billion a day in our OTC clearing business, so we are very excited about that. What we saw with Dodd-Frank was we first offered participants the opportunity to do OTC clearing so that they could adhere to the rules.
We expect participants, their first port of call will be to adhere to the rules. Their second port of call will be to optimize once they adhere to the rules. You will see some optimization, right, and some move into our cleared products and our futures products between now and when it's implemented, but we also expect that tailwind to continue afterwards.
Okay. Yeah, that's very helpful. Thank you.
Thank you.
Thank you. We'll now take our next question from Michael Carrier from Bank of America. Please go ahead. The line is open.
Hey, Good morning. This is actually Sameer Murukutla on for Michael. Thanks for taking the question. Terry, John, just a quick one on capital management. Sorry. Given the lower rate outlook, how does it have any effect on your capital management philosophy? Are you willing to take on higher levels of debt and what this could mean incrementally, I guess, in terms of your aggressiveness with the variable dividend this year?
Sameer, thanks. In terms of our capital management, I think we've been very clear in terms of how we're approaching it. Why don't I give you a highlight in terms of what our capital structure looks like right now. CME has $1 billion in cash on hand, so that's $300 million above our $700 million minimum. We have about $4 billion in debt, with about $635 million in commercial paper, and our debt to EBITDA's around 1.28 times. We've paid down about $300 million in debt since the first of the year, and we are on track to achieve our 1 times debt to EBITDA by the end of 2020. We are very focused on meeting our commitments that we have made to our investors and to the rating agencies to be at the 1 times debt to EBITDA by 2020, and we're on that path.
In terms of the impacts to the variable dividend, we don't give out guidance in terms of what our annual variable dividend is, but I think you could take a look at how we approached it last year, and we were very balanced in terms of how we approached the annual variable dividend, the pay-down of the debt, and the investment in the business.
Perfect. Thank you.
Thanks.
Thank you.
Thanks, Sameer.
We'll now take actually a question from Alex Blostein from Goldman Sachs. Please go ahead. Your line is open.
Thanks. Hi. This is Sharik filling in for Alex. Energy open interest have been tracking down versus the end of 2018. Can you help us understand why it is that, and any color on the client participation within and outside the U.S.? Specifically, how sticky are these volumes from the client base outside of U.S.?
Yeah.
Derek?
Yeah, this is Derek. Thanks for the question. A couple of things. We talked last quarter about us stepping away from our power business. Our power contracts are extremely small sized contracts, and they are a large portion or a large absolute number of our open interest contracts. What we try to do in our investment materials is separate those products out and show you the open interest in our core products. When you just look at the headline overall energy complex, we try to provide you the numbers for OI specifically just on the power side. We're talking about contracts of tiny value and size. This is a business that we've run at probably flat for the last couple of years. We're down probably 10 million contracts, but these are tiny little contracts, not core to our business.
As it relates to the globalization of the business right now, we're actually seeing energy, if you look at what the energy trading range has been, let's talk crude specifically. Crude oil has effectively been in a $5 trading range for the last month. It's been in a $10 trading range for the last six months. What we're excited about is seeing that even in sideways and kind of flat markets, low vol environments, we're actually seeing that we are continuing to outperform the broader crude market. We are doing 1.25 million contracts a day in WTI. You're seeing about 900,000 contracts that are taking place in the Brent contract. We're seeing both the global narrative of expanding participation globally of WTI as the global marker expand.
You can see that 27% of our energy business now takes place with customers outside the U.S. That's up from just 15% back in 2014. That's up from just, I think, 24% even just a year ago. We're continuing to see outsized performance of primarily commercial participants, per the comment Terry made earlier in the call, which is our focus point for non-U.S. customers for commercial participation. I think the globalization of the crude oil market and now the nat gas market are indicative of the client base we are building, focusing on our sales force, and we're seeing that continued growth and participation from outside the U.S. as being the primary drivers for growth in the overall complex.
We're happy with where we are, continuing to, in a challenged macro environment, invest in the business, onboard global customers, and we're seeing that flow through in the metrics and the participation from outside the U.S.
Thanks, Durk.
Thank you.
Thank you.
Thanks.
We have a follow-on question from Richard Repetto from Sandler O'Neill next. Thank you.
Hi, Terry and John and team. I guess my question is, on the international, or the volume that's coming from outside the U.S., to me, it's pretty amazing that it's as resilient as it is, and it's across product lines as well, the percentage. It seems like they're trading in line with the U.S., but more all the time. I guess one question is, could you just give us a little bit more color behind what's driving that? Is there anything from a regulatory standpoint, I know open access is starting to come back into the conversation in Europe in 2020. Anything that you have on your foresight or vision going forward, outside the U.S.?
Brent?
Thank you, Rich, for that question. You've heard me comment in past calls what's been going on with our international focus over the last five years. In the last four and a half years, we've seen tremendous growth, 81% growth in average daily volume internationally. Breaking that down, EMEA's representing about 72% growth, APAC 110%, and LATAM, which you've seen in the last couple of years, about 150%. Now, what's driven that? We've strategically placed our people in these various regions as we've noted. We've invested in the sales force. You've heard me speak about country planning, which has been very important for us. Covering over 70% of our top 10 countries throughout the world has allowed us to drive and better focus our resources and attention across these asset classes.
Deeply appreciate your recognition about the diversity of the asset classes and how those are performing very well across our various regions. We've been seeing that double-digit growth continuing to occur across the various asset classes that we represent. When we talk about EMEA, for example, we've seen 22% growth there, largely driven by the financials, equities, and agricultural, but also what we haven't mentioned is the tremendous growth in options that are occurring international. Double-digit growth across those asset classes. As we look at Asia in particular, traditionally we would focus on China and Hong Kong and more recently, South Korea. Through these plans that we've instituted, we've gotten much broader coverage. We've made the investments, as we alluded to, throughout Hong Kong and Australia, and again, we're seeing wonderful double-digit growth in those quadrants. We're focusing more on Southeast Asia in terms of the development of those plans.
We have, although it's a lower base, seen some very nice double-digit growth across the Southeast Asia quadrant. When we look at Latin America, again, we're seeing some nice growth coming out of the Brazilian hedge fund community in particular. I think them having a very stable and modest interest rates in Brazil has helped us quite a bit in terms of our ability to further penetrate and grow those markets. With respect to EMEA, we're really pleased with the country planning impact that has allowed us to see, again, growth across Israel, the Netherlands, Germany, and Scandinavia. It's that targeted focus, it's the diversity of the asset classes. It's our belief that we haven't as deeply penetrated the opportunities that exist across the globe, and we're going to continue that focus.
Rich, let me just touch a little bit, John can jump in as well. I have not heard much about the open access language coming out of Europe, but I wouldn't be surprised if it's being bantered around. What I'm hearing more of is less about that and more about efficiencies for the client. That's really what we're hearing, not only coming out of Europe, but we're hearing that globally because that is the theme, is more efficiencies. When you look at just what we've been able to accomplish on that front, taking the margin efficiencies with our interest rate portfolio going from, John, you can give me the numbers, about $2 billion to $5 billion roughly.
Yeah
over the last year or so. I think those are the efficiencies that clients are really looking for. When you look at some of the other regulatory rhetoric that you may or may not be hearing, I think you had an unprecedented comment coming out of the U.S. Congress when you had the chairman of the oversight committee for our industry hold a hearing and then subsequently publicly say to the Europeans that you will not regulate U.S. Financial Services, and it was very, very powerful statement coming out of that hearing. I was fortunate enough to testify at that hearing, and I don't think in all the years I've been doing this, I've seen something like that. I do believe you're hearing rhetoric coming out of Europe, and I think most of it's related towards Brexit and what's going to happen there.
In the meantime, they're trying to make it a global rhetoric. I think our government has made it perfectly clear that we are deemed an equivalent society with our rule base the way we operate today, and this is a global industry, and it will not be disrupted. I'm very confident in that aspect of it. Again, on the open access provision, I'm not hearing much of that. I'm hearing more on the efficiencies. John, do you hear anything different?
No, I'm exactly that, Terry. As Terry said, we were delivering to participants approximately two and a half billion worth of portfolio margining efficiencies last year. In the second quarter, we peaked at a bit over five billion worth of efficiencies or portfolio margining efficiencies as we see a large number of participants continue to uptake that service. As I mentioned earlier, in regards to the uncleared margin rules and in regards to Dodd-Frank, it sometimes takes participants time to adopt to the efficiencies that we offer the marketplace, and we see continued increased adoption of portfolio margining. On that front, I think that is related to our all-time record U.S. dollar swaps OTC clearing volume in June of $129 billion. Our all-time record overall OTC swaps clearing of $178 billion in June. Second quarter was up 46% at over $150 billion. Finally, our invoice spreads.
Invoice spreads specifically take advantage of that portfolio margining. This is a U.S. Treasury future traded as a spread to an interest rate swap. When they're both cleared at CME, you can get up to 85% margin savings. In terms of that, we're doing about 120,000 contracts a day this year relative to 89,000 contracts a day last year. A very big increase in uptake of these efficiencies that we're delivering to the marketplace.
Does that help, Rich?
Very much. Thank you.
Thank you.
Thanks, Rich.
Bye for now. We have a follow-on question from Kyle Voigt from KBW next. Please go ahead.
Hi. Thanks for taking my follow-up question.
Yeah.
If we look at your total open interest, I think a large majority of the increase year-on-year is due to the extremely strong growth we're seeing in the Eurodollar options franchise. If we look on the Eurodollar futures side, we're seeing OI down year-on-year. Just wondering if you can comment on what's driving such strong uptake in that Eurodollar options business, and then I guess any explanation for why we aren't seeing that growth in the Eurodollar futures side of the complex as of yet?
John?
Yeah. We're very excited about the huge growth that we've had in the Eurodollar options. As we said earlier, the interest rate environment changed dramatically from last year to this year, where you went from an expectations of Federal Reserve tightening to the expectations of Federal Reserve easing with the Federal Reserve meeting happening today. As you can see, the expectation's live on our FedWatch tool. In that environment, yeah, we've seen people reduce their open interest in the futures contracts relative to the reduced expectations of tightening, but a huge increase in options usage relative to the increase in risk in the environment. We're very excited about it. I would expect the interest rate complex to continue to grow, right? It continues to be the place where the marketplace goes to manage risk. We're very excited.
We had an all-time record open interest in interest rates, as you're mentioning in June, of over 110 million contracts. I think it's based on the continuous improvement that we make in those products relative to alternatives in order to manage risk.
Just from my past, I will tell you that from a trading perspective, people will look when the fundamentals of any marketplace, especially something that has an impact on so many different products, such as interest rates, when you have a policy of tightening that has been broadcast for several years and then all of a sudden gets flipped to an easing process, people will migrate to the options on the futures to manage that risk only because they want to mitigate some of the exposures associated with it. It's just a way, I think it's more a little bit of a fundamental confusion in the overall marketplace because the policy has appeared to be changing. Is that fair, John?
Yeah.
It's helpful. Thank you.
That's not a bad thing from our perspective either. I just want to make sure we're clear on that. We're very bullish on our options franchises throughout all of our asset classes, and I think that's one of the reasons why you're seeing our business grow the way it is. A lot more people are managing their risk and our options across the asset classes. That's a healthy sign for this industry, not a negative one.
Thank you.
Thanks.
We'll take our last follow-on question from Alex Kramm from UBS. Please go ahead. Your line is open.
Hey. Hello again. Just since we were talking about regulation earlier, I know you were more focused on Europe, but maybe Terry, this is your domain, maybe talk a little bit more about the U.S., obviously new CFTC Chairman. I'm sure you met plenty of times. We haven't heard publicly a lot from him other than that op-ed the other day. There wasn't much detail, but one of the things that I thought was interesting was the whole risk created in CCP since the financial crisis. Any thoughts in terms of agenda, any change in direction? I know it's early days, but what are you focused on, I guess, with the change of the leadership there?
I have met with the Chairman since he's assumed the role of Chairman just recently, and I had the opportunity to work with him when he was over at Treasury as well. I think he's a terrific young man, and I think he's going to be very good for the industry. As I told him, this is one of the most dynamic industries in the United States, in financial services, and he's the guy that is sitting in the right place at the right time. I think his focus right now is going to be, to make certain what I said earlier, to make sure that the United States is not disenfranchised by anybody around the world from a regulatory arbitrage or an overreach of regulatory on U.S. participants or what the CFTC should be doing.
Secondly, on his op-ed that he penned, I do believe they put out a comment afterwards, as it relates to CCP risk. I don't think the Chairman was trying to draw attention to CCP risk. He was just making some points in his op-ed, and then he had a clarification statement sent out by the Commission right thereafter. All in all, I'm very pleased with the new Chairman. I think that he'll be good for the industry globally, and I think that's a healthy thing. As I said earlier, this is a global business, and there's a lot of people counting on that ecosystem to continue to mitigate and manage their risk, and disruptions are not good, and no clarity is even worse.
I think the chairman understands that, and he's working with his counterparts to make sure that we can have a well-functioning futures and options world globally. I'm very excited by Chairman Tarbert and his leadership.
All right. Very good. Thank you again.
Thank you.
Thanks, Alex.
Ladies and gentlemen, that now concludes our question and answer session. At this time, I'd like to turn the conference back to Mr. Peschier for any additional or closing remarks.
I'd just like to thank all of you for participating, and have a great day.