Greetings and welcome to the CME Group fourth quarter and year-end 2022 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, February eighth, 2023. I would now like to turn the conference over to Adam Myers Please go ahead.
Good morning. I hope you're all doing well today. We will be discussing CME Group's fourth quarter and full year 2022 financial results. I will start with the safe harbor language. I'll turn it over to Terry and team for brief remarks, followed by your questions. Other members of our management team will also participate in the Q&A session. Statements made on this call and in the 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 statement. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website.
Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures. With that, I'll turn the call over to Terry.
Thank you, Adam. Thank you all for joining us this morning. We released our executive commentary earlier today, which provided extensive details on the fourth quarter of 2022. I'm going to start with just a few high-level comments regarding the year. John will summarize our financial results, and Lynne will speak to our expense guidance for 2023. In addition to John and Lynne, as Adam said, we have other members of our management team present to answer questions after the prepared remarks. 2022 was the best year in CME Group's history, with record average daily volume of 23.3 million contracts, up 19% from 2021. The growth was led by our financial products, which finished the year up 25% to a record average daily volume of 19.5 million contracts.
Options average daily volume across all asset classes also set a record with ADV of 4.1 million contracts, up 23% versus last year. Finally, our non-US ADV increased to a record 6.3 million contracts. Throughout 2022, we continued our efforts on the LIBOR transition. We collaborated with the industry and the market participants to shift trading behavior, order flow, and open interest to SOFR. As a result, we are beginning 2023 with the SOFR's futures and options as the leading tools for hedging short-term interest rates, with deep liquidity supporting a wide range of strategies across the forward curve. Customer demand continued to drive our industry-leading products and services innovation throughout the year. We enhanced our micro product suite with additional contracts, and in aggregate, the micros contributed nearly 3.5 million contracts of ADV to the overall record activity.
During the year, we further invested in our S&P Dow Jones Indices joint venture to expand its offerings to include leading fixed income and credit indices. Our joint ventures and investments continue to produce meaningful results for CME Group. For 2022, on an adjusted basis, these investments have contributed nearly $350 million or 9% of our pre-tax income. 2022 also was a fundamental year for our Google partnership. We built out the cloud platform and successfully migrated some early application. 2023 will be about accelerating our application migration, including launching data products in the cloud. We have an aggressive migration plan for 2023 and look forward to reporting our accomplishments throughout the year.
Risk management will continue to be critical for our customers as we move into 2023, with higher cost of doing business in general and uncertainty persisting across all of our asset classes. We continue to focus on what we can control, innovating and offering market participants meaningful capital and operational efficiencies across a diverse and global relevant product set. Far this year, volume is averaging approximately 23 million contracts per day, near the average for all of 2022. Our focus will continue to be on growing in the short term while also positioning the business for long-term sustained growth. With that, I'll turn it over to John, and we look forward to your questions.
Thanks, Terry. Financially, 2022 was a record year for CME Group, with adjusted double-digit revenue and earnings growth. Driven by CME's record annual trading volume, 2022 revenues were $5 billion, up 11% when adjusting for OSTTRA, which was launched in September of 2021. Our annual adjusted expenses, excluding license fees and before the impacts of our cloud migration, were approximately $1.425 billion, which was $25 million below our annual guidance. Our adjusted operating margins for the year expanded to 64.7%, and adjusted net income was up 20%. For the year, our incremental cash costs associated with our migration to the cloud were $30 million and in line with our expectations.
Turning to the fourth quarter, CME generated more than $1.2 billion in revenue, with average daily volume up nearly 6.5% compared to the same period last year. Market data revenue was up nearly 8% from last year to $153 million.
Expenses were very carefully managed on an adjusted basis for $464 million for the quarter and $382 million excluding license fees and approximately $9 million in cloud migration costs. CME had an adjusted effective tax rate of 22.8%, which resulted in adjusted net income attributable to CME Group of $698 million, up 15% from the fourth quarter last year, and an adjusted EPS attributable to common shareholders of $1.92. Capital expenditures for the fourth quarter were approximately $23 million. CME declared over $3 billion of dividends during 2022, including the annual variable dividend of $1.6 billion, and cash at the end of the quarter was approximately $2.8 billion. Finally, in November, we announced fee adjustments, which became effective February first.
Assuming similar trading patterns as 2022, the fee adjustments would increase futures and options transaction revenue in the range of 4%-5%. In summary, 2022 was the best year financially for CME Group. We served our customers well, successfully transitioned the majority of the volume of our LIBOR-based benchmarks to SOFR, executed on our cloud migration strategy, all while managing our costs very effectively. With that, I'll turn over the call to Lynn to discuss CME Group's 2023 guidance.
Thanks, John. We expect total adjusted operating expenses, excluding license fees, to be approximately $1.49 billion for 2023. Our guidance reflects our continued focus on cost discipline, which will moderate the impacts of inflation and a full year of normalized travel and in-person events. In addition to our core expense guidance, we expect the investment related to the Google partnership and our cloud migration to be in the range of $60 million in expense, offset by a $20 million decrease in capital expenditures, bringing our incremental net cash cost for the migration to approximately $40 million for the year. Total capital expenditures, net of leasehold improvement allowances, are expected to be approximately $100 million, and the adjusted effective tax rate should come in between 23% and 24%. We'd now like to open up the call for your questions. Thank you.
Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, to register for a question, please press the one followed by the four. Our first question is coming from the line of Rich Repetto with Piper Sandler. Please go ahead.
Yeah, good morning, Terry. Excuse me, and John and Lynn. Good morning. Like, as we start the year, Terry, I just wanted to stay broad and get your outlook on volumes for 2023, given that, you know, you were so positive last year, and it certainly came through on financial products. Just seeing what your outlook. We know no one gets it perfect right all the time, but anyway, the outlook on volumes, your.
Thanks, Rich. I think last year when I made the comments that I did, you know, I think we saw the reflection in the marketplace by CME having the biggest year in its history. I think that's because of what was setting up, whether it was geopolitically and just other fundamental factors in the market, whether it's the price of rates at a given time, price of certain products. You could see that the market was setting up for what I thought was going to be a pretty explosive year. It's really difficult to predict future volumes, as you know, so I'm not going to try.
I will make the reference, as I said in my prepared remarks, that we're starting off in January with ADV roughly around the same as we ended last year, 22 million-23 million contracts per day, which is a pretty exciting start to the beginning of the year. It's really hard for me to predict the broader the balance of the 11 months we have left in this year. You know, people talk about the age of depressions, age of recessions. You know, I think it's the age of uncertainty, Rich. Now the question is, what does that translate into? I really don't know. I think, again, you know, we are here positioned, as I said in my prepared remarks, to give the offsets, to give the efficiencies for people to manage and mitigate that risk.
It's really hard to predict what's gonna happen. The geopolitical events, you know, could be stacking up like we've never seen before. The debt ceiling issue, I mean, I've even had, you know, internal, I don't want to say arguments, debates with my own team about what does it mean, because we've always had a debt ceiling that's always been satisfied. You know, we have a Congress like I've never seen in the history. I'm not so sure it's going to be as easy as people believe that they can negotiate a debt ceiling agreement. It'll be interesting coming in to Q2 into the summer months to see what happens when that deadline arises, where, you know, the Fed and the Treasury can no longer move money around to pay the country's bills. I think that's got a big factor into it.
We still have the Ukraine-Russian conflict, which seems to be not going away anytime soon. I still think risk management is going to be at the forefront of people's minds. With the increase in the interest rates that we've seen over the last year, you know, people that are managing money, having to reissue new additional debt, they're going to need to lay off that risk. I think our product suite lends to that. I think there's a lot of interesting factors in there. What does that translate into volume is a tough one to come up with the end equation.
Understood. Thank you very much.
Sure.
Our next question is coming from the line of Dan Fannon with Jefferies. Please go ahead.
Thanks. Good morning. I wanted to follow up on the pricing, you know, the 4%-5% increase that you mentioned, John. That's, I think, above what the typical 1%-2% we've seen from you in the past. Maybe a little bit more detail behind that. Also on the non-transactional side, as you think about maybe market data, is there pricing potential power there? As you think about this year, any changes that we should be aware of?
Sure, Dan. thanks for the question. Let me back it up and take a look at all the kind of pricing changes and adjustments that are gonna impact 2023. As I indicated in my prepared remarks, the transaction fees, you know, have been adjusted, and we made adjustments across all of our asset classes in our futures business. You know, we take a very careful and targeted approach with the objective of not impacting volumes. As I said, assuming similar trading patterns as last year, the increase would be in the range of 4%-5%. The impact to financial products and commodity products each is an increase of about 4%-5%. About 4%-5% each of our financials and to our commodity product sets.
The impact took effect on February first, you'll see 2/3 of the impact in the 1st quarter and a full quarter impact in Q2. That's related to transaction fees. Let's look at market data. Beginning January first, we had an inflation adjustment to our market data subscriber licenses, which is also in the range of 4%, assuming similar conditions as 2022. In addition, we've seen the completion of our very successful SOFR First for Options initiative. That had about an $11 million in fee waivers, which lowered revenue and $8 million to increase license fees in 2022 that we will not have in 2023. A number of adjustments, you know, across our revenue set.
I think, you know, as we look at it, we create a lot of value for our customers and felt that this was appropriate to do.
Great. just to clarify on the market data, you had a $11 million drag in revenue last year that should normalize plus a 4% pricing increase?
No, I'm sorry, that was SOFR. That was our SOFR option or SOFR First for Options program that impacted our transaction fees. That was not included in the 4%-5% that I just mentioned. This was in addition to that.
Understood. Okay, thank you.
All right, great. Thanks, Dan.
Our next question is coming from the line of Gautam Sawant with Credit Suisse. Please go ahead.
Good morning, thank you for taking my question. Can you please provide us with more details on the non-operating income outlook? Can you also provide a breakout of investment income, how cash within the clearinghouse is trending, and how you think the pace of clearinghouse cash balances could move over the next 12 months, and where does the non-cash collateral stand?
Sure, Gautam. This is Lynn. I'll take that. If you look at the non-operating income in the quarter, it increased by about $8 million versus the third quarter. That was driven partially by an increase in the earnings on the cash at the clearinghouse. That was up about $9 million to $95 million for the quarter. We saw average balances relatively steady at $117 billion, largely the same as what we saw last quarter. What we did see is an increase in the returns from 29 basis points to 32 basis points. We didn't change the keep that we have on the funds held at the Fed, but what we did do is look to optimize our returns using repo markets and other short-term deposits. We also saw an increase in the returns on our corporate cash.
That was up $12 million in the quarter to $23 million. These two increases were offset slightly by decreases in the equity and non-consolidated subsidiaries. Those were down $13 million in total. That included a $4 million one-time gain that we saw in Q3 related to the S&P JV. In terms of the cash and non-cash collateral, it's difficult to predict obviously where it will go going forward, but I can provide a little more detail on what we've seen so far in this quarter to date. As I mentioned, the cash balances were relatively flat at $117 billion in the last two quarters. To date, through February 6th, our average balances are at $113.7 billion.
Does that answer your question?
yeah. just where does the non-cash collateral stand?
Sure. We saw in Q3, it was at $94.9 billion. It was at $89.7 billion for Q4. Quarter to date, we are at $90.1 billion.
Just to go back to the clearinghouse plan for a second, I think it's really important to note we strategically did not increase our keep because we knew there was alternatives that people could park their money in versus keeping it in our clearinghouse. That actually beared a tremendous amount of fruit by us making that decision because we were able to keep the numbers that Lynn referenced and continue to bring in the additional revenue that we may not have if we tried to increase our take, and people would have gone to alternative investments.
Got it. Thank you.
Our next question is coming from the line of Chris Allen with Citigroup. Please go ahead.
Yeah. Morning, everyone. I was wondering if you could provide a little bit more granularity around market data, maybe just some of the products you're rolling out with the addition of Google. This year, you saw the year-over-year increase driven by some price increases and new demand in terms SOFR and indices. Maybe you could give us a little bit of color there, just in terms of how that kind of breaks down. Just on the Google migration, I thought that was $30 million in annual costs, and now you're talking about an incremental $60 million. I'm just wondering what's this incremental costs are related to just in terms of is it more migration or is it new product developments? Any color there would be helpful. Thank you.
Yeah. Thanks, Chris. We're gonna let Lynn talk about the cost on the Google migration because let me make sure we're all saying the same numbers, and then we'll turn it over to Julie to talk about the data.
Sure. On the cost side, in 2022, we did see $30 million in expense in line with our guidance. The guidance for 2023 is $60 million in expense. We will see an offset to that as we are seeing a decline in the capital expenditures related to capital refreshes that are no longer required. We have about a $20 million offset that we are seeing in CapEx. The $60 million in expense guidance will be approximately evenly split between professional fees and technology fees for this year.
Julie?
Yeah. Market data certainly was had a very strong quarter again in the fourth quarter. We were up another 8% year-on-year. The increases is due primarily to both the value of our data, the new products that we are introducing, and also the fee adjustments that we made back in January of 2022. We also are seeing throughout the year, favorable performance both in our derived data area, Term SOFR licensing, as you mentioned, and also just organic growth across our professional subscriber devices and also non-display.
You know, I'd say the one thing as it relates back to our new products and also our work with Google is, you know, we know that we have very valuable data, and we know being able to produce more of that data and analytics and putting that in the cloud is going to be, you know, really what our clients are asking for. We're highly focused on looking at new ways to, you know, develop that with our partners at Google. We've got a number of deep dives underway with them on the innovation front, including things on data analytics, AI, ML, you know, new APIs, and also new ways to help our clients understand the data and analytics around their risk management. We have already begun to launch a number of those products.
Those began to be rolled out in Q4. And some of it is also just our new product operating model that we're using. We're seeing an increased velocity of which we can put these products out, so things like in our DataMine area, some of our new benchmarks and indices are also being created through that. You'll continue to see a rollout of that. Specifically, as it relates back to the Term SOFR revenue, you know, this is, you know, revenue that was, you know, part of the licensing effort that the team is underway. You know, at the end of Q4, we had over 2,000 firms that we had licensed for Term SOFR products, and really we're continuing to see increased demand for that.
That was up over 300 firms just since the end of Q3, just to kind of show the acceleration of that. These are, you know, the revenue there is around people being licensed for OTC derivative product usage. Also we're finding in a lot of these cases, these are new customers to CME Group. So we're also working heavily within our sales organization to convert those users and expose them into our trading business. With everything within market data, it's what can we do to provide insights to our clients that will also create support and synergies with our trading and transaction-based business. Hope that helped.
Thank you.
Thanks, Chris.
Our next question is coming from the line of Alex Blostein with Goldman Sachs. Please go ahead.
Hey, good morning. Thanks for the question. I was hoping just to follow up on the last discussion around cloud migration and expenses related to that. As you guys sort of think about the future beyond 2023 and any incremental cost associated with migration, I was hoping you could flesh that out. Also bigger picture, as you think about CME's expense flexibility on a go-forward basis, to what extent do you think this sort of limits your ability to be more flexible like we've seen in the past? Thanks.
Lynn?
Sure. If we think about the Google migration, I think what John guided to last year was that we would see about four years of incremental cash costs averaging $30 million cash costs per year. We did see that $30 million in 2022. The cash costs for this year are estimated at $40 million. We do expect over the next 2 years to have some incremental costs related to the migration. After that point, we see ourselves getting to breakeven and ultimately a cash flow positive for the investment. One of the reasons that we are pursuing this initiative is to increase our flexibility, and we will continue to see a move from infrastructure-intensive spend and moving into this environment where we have CapEx coming down, depreciation coming down.
Ultimately, we will see more of the expense in the technology line as we are renting the capacity as we need it, as opposed to building through infrastructure. That is the migration that we expect to see over the next several years on the cost base.
Just one thing to add to that. If you think about the investment that we make into technology, things like artificial intelligence, BigQuery, machine learning, we're able to get that through Google without having to make the investment ourselves. You know, there's a lot of positives associated with the migration to the cloud, including flexibility, ability to launch products faster. When you think about the business cases, you know, certainly gonna be able to have better returns on our investment because we don't have to build out the entire infrastructure. Assuming success, we can build towards success. A lot of real positives, we think, in the long run strategically with our relationship with Google.
Great. Thank you.
Thanks, Alex.
Our next question is coming from the line of Brian Bedell with Deutsche Bank. Please go ahead.
Hi, good morning, folks. To come back to the, or actually talk about the interest rate franchise, obviously record volumes and record revenue, there is a perception that as the Fed ends tightening, that would reduce volumes. We've got a number of other factors that can continue that strong volume. Just wanted to get your thoughts on that. Those being, obviously the price increases, and then also the new potential customers that Julie, you talked about from the Term SOFR, the introduction of those new customers.
Maybe just, if you can comment on that and also, the tenure complex or the long bond complex, in terms of what you've been saying historically about more Treasuries making it into private hands and being hedgeable, and then other things that you're developing on the long end of the curve. Not to mention the higher, or I think, higher RPC on the Treasury side versus the short side.
Thanks, Brian. Sean, you wanna go ahead and start?
Thanks very much for the question. Great question. In terms of the overall rates complex, obviously a very good year this year, as you said, with record volumes, strong open interest, record large open interest holders. In fact, if you look over the last decade, we've more than doubled the number of large open interest holders. Working very closely with Julie's team, expanding our client base significantly. If you look at that growth in the market environment, obviously the market environment has been a strong positive. In terms of the very long end of the curve to get specifically to your tenure question, we haven't actually yet seen a strong uptake that I had expected, you know, in our treasury futures with the reduction in the Fed's balance sheet.
Treasury futures are down slightly this year. They're down 3%. That marketplace is actually down. How is it that we are up 7% so far this year relative to last year, which was a strong year? What we've seen is something that Lynn has mentioned, I think, on past calls, which is that now with the Federal Reserve having greater uncertainty as to whether they will be increasing rates or decreasing rates, and with the much greater dispersion that you see in the economic numbers, with some seeing a very strong economy and others seeing a very weak economy, we see greater demand than ever before for our interest rate options. If you look at our short-term interest rate options this year, they're in fact up 40%.
That's obviously driven by the huge success and the investment we made in SOFR options last year. If you look in fact now at our SOFR futures plus SOFR options, we're doing 5 million contracts a day so far this year. I think the outlook relative to the Federal Reserve having the opportunity or the potential for either increasing rates or decreasing rates, makes greater need for our products than ever before.
Maybe you could talk about the organic side, I think, Julie, you talked about the new, the potential new trading customers from the 2,000 firms that you're onboarding.
Yeah, I'm really excited. Another thing that I'm very excited about is, you know, think about what we did over the last couple of years, was we migrated, you know, our single largest business, the short-term interest rate futures and options business from the LIBOR benchmark over to the SOFR benchmark. What that's meant is a significant investment in resources, you know, time and money in order to facilitate that migration with our clients. What we're gonna get back to, what we're gonna be able to get back to this year is innovation and new products. I'm very excited about the new options products that we will be launching this year. We've got several of them in the pipeline. We've got some new futures products in the pipeline.
You know, you may recall that, about half of the growth in our listed, rates, futures and options business since 2012 has come from new products. We will be launching many new products, this year that we are very excited about and getting back to that innovation. In terms of the additional clients, you know, where we now have, more than 2,100 new clients licensed with CME Term SOFR, I'll turn it over to Julie.
In terms of who those clients are, I think it might just be helpful if I just talk for a minute about some of the segments. Clearly, banks are the largest segments. You know, they're the ones that are lending against this rate for all of the work they're doing across, you know, business loan, trade finance, commercial real estate. Some of those other groups that are more to that organic point that you asked about is, you know, for the first time, a lot of private lenders. These could be specialized hedge funds, PE firms, insurance companies, those that definitely are lending and need this rate to be used. We're also seeing licensees coming from the buy side and other investors running, you know, loan syndications, CLO desks.
Again, those are use cases very specific to buy side participants. Those are, you know, really touching across the globe. We're seeing that in Europe and Asia as well, and also just other fintech and service providers. You can imagine there's a growing number of vendors that are going to need these rates for valuations, risk management, loan administration, accounting. You know, this is where our sales team is critical to be able to work those through the funnel. Also you can imagine the education around that, right? We're continuing to work with commercial clients, corporate treasurers to, you know, help them understand both how that rate works, get them licensed, and help them understand what other risk management products and data we have available for them.
You know, we are working through this, and as I mentioned, still have a good pipeline of opportunities across those segments that we're working through right now.
All right. That's great color. Thank you so much.
Thank you, Brian.
Our next question is coming from the line of Alex Kramm with UBS. Please go ahead.
Hey. Hello, everyone. Just another one on the pricing side maybe for a minute. I know you talk about your impact of the price increase a similar way every year, where you say like, "Hey, adjusting same mix as we saw last year, you know, it should be this or that," and obviously a higher level this year. What we've also seen in recent years is that mix never really seems to be driving that, that upside, that a lot of us expect. I know you don't have a crystal ball, but A, you know, now with the four to five that you're talking about, maybe the question is how much do you think or we should expect to stick?
Maybe just review what the biggest drivers of that mix are that has maybe worked against you on the pricing side recently. I know it was a loaded question, but hopefully you get the gist of it.
Yes. Thanks. Thanks, Alex. You know, it's very difficult, obviously, as you know, to predict, you know, how the mix is gonna happen year in and year out. You know, I think what we've seen, certainly over time as volumes build, you know, the only real impacts we have are mix shifts to our RPC. In other words, we generally don't reduce prices. You saw an example when we wanted to change behavior where we adjusted, you know, and gave some fee waivers for the SOFR First for Options, which obviously was hugely successful. To put it into perspective, right? If you look at what we did last year, we made a 1.5%-2% price adjustment.
At the time, I said that the biggest impact was going to be in the equity part of our business. If you look at equities, you know, If you look at the RPC for equities in the fourth quarter of 2021, we're at $0.526. If you look at the RPC in our equities complex today for the fourth quarter, we're at $0.535, this is on a 25.6% year-over-year increase in volume. When you talk about it sticking, I would say that's pretty sticking, you know, especially when you consider, you know, volume incentives and the like that we have in our equity business. You know, we do, you know, we do take our pricing adjustments extremely seriously.
We look at it on a product-by-product basis. We're very surgical. We have regular discussions around it to make sure that we're making the investments in market maker program and incentive plans appropriately. You know, I would say that, you know, overall, when you look at our volume and pricing dynamics, you know, I think we've been pretty successful in what we've done in terms of adjusting prices at the right time.
Okay, fair enough. Thanks, guys.
All right. Thanks, Alex. Really appreciate the question.
Our next question is coming from the line of Simon Clinch with Atlantic Equities. Please go ahead.
Hi, guys. Thanks for taking my question. Maybe Sean, if I can go back to you or just on the point on the previous question about I guess the Fed's balance sheet reduction and I guess the surprise that we haven't really started to see the benefit of that yet in the long-term rates franchise. This is something I've been puzzling over myself in terms of, you know, substantially higher outstanding debt that's out there, the shifting balance towards more public holders of that debt. Yet the open interest, you know, relative to those levels of outstanding debt still seems to be relatively low to what it could be.
What do you think would be the actual catalyst or what's holding back that thesis from playing out at this particular point?
Yeah. I don't see anything necessarily holding it back. I'm just looking at the facts. You know, while in 2018 when the Fed reduced its balance sheet by $500 billion, we saw a 26% increase in our Treasury futures. You know, the Fed. Let's maybe be a bit careful here, right? The Fed didn't start to substantially reduce its balance sheet until September. It's actually a very recent phenomenon, although it's been about $500 billion. As we know, the Fed is expected to reduce their balance sheet by more than $1 trillion this year. I would wait and see. You know, again, it had a very positive tailwind for our business in 2018. As I said earlier, it has not yet shown us significant positive results this year.
That's a not yet.
Okay. There's more case of it's just still early, is the point, I guess.
Yes.
Yeah. Okay. Okay, great. I was just wondering as well, in terms of, just going back to collateral balances as well as a follow-up, how should we think about the overall levels of collateral requirements at the moment and how that should trend over time? Because obviously they've really surged during the last year. I'm just wondering how we think about things normalizing over the next couple of years and the impact to the business.
Yeah. This is John. I'll jump in and then, maybe Sunil can make a couple comments. you know, I would say it's very difficult, to discern, you know, overall, collateral balance, because when you think about it, really it is a function of
The trading that's occurring on the exchange and the open interest that we have in our clearinghouse and the risk associated with those with those trades. You know, from our perspective, you know, it's really all about risk management and ensuring that, you know, the safety and soundness of the markets, and that's very paramount. As Terry indicated at the start, you know, we've been doing a lot to incent our clients to keep their cash balances or to keep their collateral in cash, you know, here at CME Group. We do it for two reasons. You know, 1, obviously, you know, we earn more on it than non-cash collateral.
Most importantly, from a risk management perspective, having cash is much more advantageous from a risk management perspective than non-cash collateral. You know, we try to strike that appropriate balance. Ultimately, though, it's a decision by our clients each and every day in terms of whether or not it's gonna be cash or non-cash based upon the returns that they can get. You know, we've been, you know, I think really, you know, prudent in terms of how we've been approaching it. You know, obviously it's, you know, something that, you know, has benefited our clients 'cause they get access to the Fed, and then also it's been beneficial for us.
I'll turn over to Sunil. Oh, I don't need to turn over to Sunil. I guess I, I hit it.
Thanks. Thanks a lot, John. Thanks.
Hey, thanks, Simon.
Our next question is coming from the line of Michael Cyprys with Morgan Stanley. Please go ahead.
Hey, good morning. Thanks for taking the question. I was hoping we could spend a moment on the energy complex with volumes down a bit year-on-year in January. I was hoping you might be able to elaborate on what you're seeing across the marketplace, how you see the opportunity taking shape for this year in energy, and maybe you could talk a little bit about how the customer participation has varied across your customer sets. To what extent have elevated margin levels still holding back volume and activity at this point, and how you see all that evolving this year? Thank you.
Yeah. Thanks, Michael. Appreciate the question. You know, following the largest demand shock we ever saw in the energy market in 2020, followed by the largest supply shock ever in 2022, we're actually starting to see the global energy market begin to normalize. One of the indicators we're seeing there is financial players are starting to return to this market. One of those clear indicators we're seeing of that this year so far, we're seeing our open interest recover in our WTI complex. We're up about 28%, up to about 1.8 million open interest, since the end of 2022. That's really a function of both margins normalizing, but we're seeing hedge funds, asset manager, and particularly index trackers come back into the market.
You know, they exited largely in the challenging circumstances of last year. You know, despite the fact that it was a challenging year last year, you look at some of the points that really carried the franchise are carrying over into this year to a degree. Last year, our options market performed extremely well on the energy side, with energy revenue on the option side up 9% versus the previous year. Globally, we also saw continued growth outside the US with our LatAm business and energy up 70% last year and our APAC volumes up 15% last year. Finally, we saw continued growth back on the client side, specifically in retail with our Micro WTI contract in the fourth quarter, WTI volumes up 28% to a little over 100,000 contracts.
Good global participation and good client segment participation. You know, more importantly, when we think about where the energy markets are going, we continue to see the energy markets revolve and evolve around WTI as the central marketplace and price setter for both physical and financial markets. A couple of proof points here. Number one, the U.S. is now exporting a record level of 4.1 million barrels in Q4. We look to believe that export capacity will continue to grow. U.S. waterborne crude exports are now equal to Iraq in the number two slot behind only Saudi Arabia. U.S. is putting more WTI product out into the global markets.
We're also expecting that, and the market expects global oil production out of the U.S. to increase about 1 million barrels between now and 2024, that just increases WTI's footprint globally. With U.S. exports already up about 40% on 2022 versus 2021, and exports roughly up double into Asia since 2018, we continue to see exports of U.S. product out into the global market. What does that mean? What we're seeing, not only is that strong and positions WTI at the central point of price making for the global oil market, but actually our Argus Gulf Coast grades contract has a combined open interest of about 375,000 contracts, and we just hit a record volume, about 11,000 contracts, this year.
When you think about what that means, you've got WTI setting the global price of oil. Brent is now gonna be putting a Midland WTI grade into that assessment. That means that continually centralize the WTI there. We've got the largest export market and now production on the upswing. We like that we've got the strongest position in the export market and in that basis contract. Those Argus grades contract, as I said, about 375,000 contracts open interest. 87% of that is commercial participation. That's where customers price discover in WTI, and then they hedge their exposure out to the basis to the Gulf, and then it exports from there. We like the position that we're in terms of the centrality of WTI.
We think we've got the right product mix, and we've got the client mix, and financial players coming back in. Like Terry said, we can't predict what volumes are, but we can talk about the very strong structural position that WTI has in the global oil market going forward.
Great. Thank you.
Our next question is coming from the line of Owen Lau with Oppenheimer. Please go ahead.
Good morning. Thank you for taking my question. Could you please give us an update about your strategy and outlook in the digital asset space? Do you see your clients pulling back? You recently launched 3 metaverse reference rates and indices. What other rates or reference rates or products would make sense for CME down the road? Thank you.
Thanks, Owen. Tim.
Yeah. Thanks for the question. When we look at the digital asset space and the cryptocurrency business at CME, we remain seeing very strong growth in our offering. Just as a reminder, our approach to the cryptocurrency products as being the regulated venue offering regulated products in a way that provides bona fide risk management and trusted access for the marketplace. We've seen that value proposition reign true in Q4 with some of the more widespread events in the cryptocurrency space, where we saw record volumes in November, record large open interest holders of 439 holders in the month of November. That momentum hasn't slowed down with respect to the adoption and continued growth at CME. What I mean by that is let's look at the number of accounts.
Typically, we add about 450 accounts per month in our cryptocurrency business. In November, we added 934, over doubling the normal account opening. In January, we've seen over 700 accounts, new accounts opened with respect to trading cryptocurrency products at CME. That's really a testament to the marketplace broadly turning to CME in times of stress in the rest of the cryptocurrency ecosystem. When we look at the product development front, you know, we have focused on additional pricing products. These are non-tradable reference rates and real-time indices. We did in last month introduce 3 new reference rates around the metaverse that complement some of the additional indices we introduced with respect to the DeFi sector in cryptocurrency, as well as the more than 12 so more traditional cryptocurrency tokens that we also have reference rates on.
Really, the strategy here is we want to make sure that CME, along with our partner, CF Benchmarks, remains one of the preeminent pricing providers for cryptocurrency, as people need a trusted source to figure out on a given day, once a day with reference rates or real-time tick by tick, what these assets are worth. That is where we'll continue to develop on the reference rate pricing, but we'll listen to customers. We don't necessarily have anything else in the hopper with respect to additional tokens, additional reference rates. We have almost 50 real-time indices and reference rates out there at present, and our product development will be, again, sort of in the Bitcoin and Ether lane as a function of the regulatory landscape that we find ourselves in.
The one thing I will add is when we look at the broader ecosystem, the product development is not just a function of what CME can list, but our products are being more increasingly used by other participants in the marketplace as the underlying for ETFs, structured products, OTC trades. We are at the center of the growing ecosystem with respect to Bitcoin and Ether regulated products, and we expect that trend to continue in 2023.
Got it. Thank you very much.
Thanks, Owen.
Our next question is coming from the line of Ken Worthington with J.P. Morgan. Please go ahead.
Hi. Good morning. Thanks for taking the question. You registered to launch an FCM last year. Where does that application stand? In the wake of the collapse of FTX, is launching an FCM a priority or even still makes sense? Thanks.
Yeah, Ken, I'll take that. Listen, the FCM application that we launched is not exactly taking anybody away from their day job of following that process on the application. We're looking, and I'm looking at a long-term market structure and what it's going to look like. I do believe, and I've said this, two congressional hearings prior to FTX's collapse, that if we are going to have a different market structure, that we all need to participate and have things in place and rules in place in order to facilitate whatever the world's gonna look like for tomorrow. None of us really know what the world's gonna look like for tomorrow as far as what the FCM business is or not going to be, it was prudent for us to go ahead and get the application process in place.
As I've said, and I've said publicly, we are unwavering, I am unwavering about our commitment for our FCM model today. Whatever we do going forward, I would hope, if in fact the model is to change, that we can work with our FCMs to bring them along so we can have a bigger piece of the pie for everybody to be successful. I wouldn't read too much into that. When you're in a situation where the government appeared to be willing to approve, technically a direct model without writing rules to the direct model and applying rules that were written back many, many years ago that are applicable only to the FCM model made no sense to us.
I had to be prepared, along with my team, in order to put certain things in place just in case that was the decision of our government. I don't believe that's the case. I think there will be new rules. You heard Commissioner Johnson, or you may have seen in her public remarks from Duke University about wanting to write rules as it relates to a direct model, even if it comes forward. That is a very long, difficult process to write rules. I've been around this business for 40 years, and I've been in Washington helping write rules or participate in the process, and it is very difficult to do. I don't see that going anywhere soon and, but for the same time, the FCM is nothing more than. It's a wait and see for what the future may or may not bring.
There's nothing more to it than that, Ken.
Great. Thank you very much.
Thank you.
Our next question is coming from the line of Craig Siegenthaler with Bank of America. Please go ahead.
Hey, good morning, everyone. I have a follow-up to an earlier question, but I wanted to hone in on energy specifically. Now that your margin requirements have been declining, and especially in energy, what has been the early feedback, and how much of a positive impact do you think this could have on volumes?
Derek?
Yeah. Thanks, Craig. As I mentioned before, we're in the process of seeing this market normalize. The first thing we saw when we saw the disruptions of the Ukraine war happen last year, margins popped up that did basically de-leverage a number of financial players in the market, and they pulled back. We did not see commercial participants step away because that risk continued to be sitting there on their books. I think as we've seen margins normalize, that's one part of the overall equation. We certainly have seen, as I mentioned, the open interest trends turn very positively. As I said, our open interest in WTI right now versus end of last year is up 28%. On the nat gas side, we're seeing similarly open interest is up about 10% from the beginning of Q4 last year.
The most important marker there is look at the open interest holders and the types of those customers coming back in. Our large open interest holders in natural gas have also grown up about 17%, up to just about 420 versus the beginning of Q4. As we suspected, increased cost to transact, increased margin tends to initially push financial customers out. We've seen index trackers, retail in the form of micros, start to come back in. That will be a process, and we see that reflected initially both in the large open interest holders as well as growth and rebuild of open interest.
More importantly, structurally, as I mentioned, we like our position in WTI and Henry Hub as the central points and being the largest export market in both of these products and setting the global price of both natural gas and oil globally. Those are the markers we're seeing right now. That will be a slow build, but we like the trajectory this is on going into this year.
Thanks. I had a follow-up on the rate side too.
Go ahead, Craig.
The 10-year is down, like, Oh, can you guys hear me?
Yeah, go ahead.
Perfect. Thank you, guys. The 10-year is down like 40 basis points year to date. The Fed could go on hold in 3 to 6 months. You know, those will probably be negative factors for your rate complex. At the same time, QT does continue and there are margin, lower margin requirements. Like, how should we think about all these kind of mix of positive and negative factors on the rate complex?
Yeah. I think similar to my answer earlier, you know, what's priced into the curve right now? Obviously, the world goes to CME's Fed Funds futures to see what the expectations are in the market for the Federal Reserve. Currently, there's about 50 basis points or two more 25 basis points tightening priced into the curve. Further out the curve, there's actually 200 basis points in easing. As I said earlier, you know, the uncertainty about the Federal Reserve is, from my perspective, and if you look at the marketplace, increasing, not decreasing, relative to the probability of either tightening or easing, and in each case, by substantial amounts.
If you look at the dispersion of economic data with the 517,000 nonfarm payrolls versus, for example, the ISM numbers, which are running in the high 40s, you have everything from the potential for continued boom to, you know, the potential for recession. In addition to that, you can look at the excess savings of households that remains post-COVID, which remains, according to recent reports, at around $2.6 trillion. You know, enormous excess savings, enormous uncertainty, huge increases in rates from the Federal Reserve. I personally think that the uncertainty is very high. The rates could go either way. What we've seen, again, is overall for our Treasury futures, they have declined slightly relative to last year, down 3% in terms of the volumes.
As I said earlier, our short-term interest rate options, which are reflective of that uncertainty of the Federal Reserve, are up 40% year-over-year. I think that the environment is highly uncertain.
Let me just add to what Sean said, and this is just a personal theory that I think is with the Fed. When you say, Craig, that they could hold on their increases, I think when you looked at most of 2022, most of the participants were looking for a pivot. The pivot never happened, and we saw, to Sean's point, you know, the Fed chair talking more hawkish, even as of recently, a couple of days ago. Even if there was a hold, I think people would anticipate that that would mean a pivot, which would mean massive activity on refis and people waiting to do a lot of business as they're waiting for that moment that you were referring to as a hold.
If in fact the market was to do a pivot, if that was to happen, I think it would be more activity, not less. Even at a hold, I think that would not be bearish for CME. That could be very bullish for CME.
Thank you, Terry.
Thank you.
Our next question is coming from the line of Andrew Bond with Rosenblatt Securities. Please go ahead.
Hey, good morning. Just following up on energy and specifically natural gas. 2022 was one of the tightest gas markets for the last decade. This year we appear to be set up for one of the more oversupplied markets in many years. We're seeing this pricing at the lowest levels, you know, in 18 months. Can you talk about how this dynamic is likely to impact market participation and perhaps some of the structural shifts we've seen in the natural gas market since the Russian invasion?
Yeah. Natural gas is an interesting one. It was directly certainly impacted by the Russian invasion when you had that piped gas coming from Russia directly into Europe, which is effectively the basis for the TTF contract. you know, light crude, natural gas market is beginning to normalize now, given the unusually warm weather we've had both in Europe, which I think has bailed a lot of Europe out, as well as here in the U.S. The market was making sure that there was enough supply going into a normal winter. It's now feeling oversupplied in a warm winter, which is not a terrible thing for the consumer, but it is creating some interesting dynamics in the market.
We actually when we looked at last year, the full year, our Henry Hub volume was down a couple of percent, 2%, 3%, something like that. I think I saw something a little bit of a larger magnitude in the downdraft. As I mentioned before, open interest is up 10% from the Q3 low. We are seeing that market begin to normalize. More importantly, we're seeing participants in the large open interest orders up 17% from the beginning of the Q4. January is starting well. Overall, our nat gas complex as a whole is up about 1%, led by options up 8%. We are seeing some normalization of activity there.
I think in the same way that we think about the structural position of our energy markets, in the same way that we've seen the market evolve around WTI as that global physical marker, we're seeing the same thing happen around Henry Hub. Henry Hub is by far the largest natural gas market in the world, growing in importance every year. That's a function both of the significant production in the U.S., but the growing export capacity and volumes out of the U.S. as well. It's not only is Henry Hub a huge domestic market, it's becoming, in light of the challenge of the TTF, the global marker as well. TTF's gonna have to position, or the European market will have to begin to reference an LNG point out of Northern Europe, though TTF itself was taking piped gas coming from Russia.
In terms of where we're seeing client participation, similar to crude, we're starting some normalization, open interest up, client participation's flowing back in, and the centrality of Henry Hub's global nat gas market puts us, we believe, in a very strong position however market dynamics evolve, whether we're gonna be low and flat for a while or trending back up. That's just a function of we're in the middle of gas season right now in an unusually warm winter. I think that's part of the overhang in the price right now. We like the dynamics. We like our position and just the magnitude of Henry Hub versus TTF is something like it. I think the Henry Hub market, when you normalize by molecule size, is about 20 times the size of TTF.
We like our position, we like our customer participation, and the open interest trends are heading in the right direction.
Got it. Thanks.
Thanks, Andrew.
Our next question is a follow-up question from the line of Alex Kramm with UBS. Please go ahead.
Yeah. Hey, hello again. Just one follow-up on the energy business. You got a bunch of questions on it, I actually wanted to step back there for a second. I mean, you said several times that you really like your strategic position. But when I look back over the last, whatever, five, 10, 15 years, that business has been basically ex-growth. In the last five years, for example, I think it's down 4% CAGR in revenue terms. You know, when I look at your primary competitor, which obviously we all know and track, I mean, I think at the same time, these guys have grown, I think 9, 5% revenue CAGR, so, you know, there's a 9% delta. I hear you with the positioning, but I'm just wondering, like, what structurally has happened there?
I know you have different product sets and so forth, but you still play in the same sandbox, so hoping you can close that gap and maybe any idea, like, Thanks. I appreciate it. I think you're right. We do have different products that's in our energy franchise. When you look at our Henry Hub franchise and uncertain
They're in product sets that we are not, and we're in product sets that they are not. I would point to our global emissions offset contracts in the voluntary carbon markets as an example of a market that we are in that they are not in right now. They are in the compliance markets, we're in the voluntary markets. When you break down the pieces on the like-for-like businesses, those results have not been markedly differently. Where the different results are, some of their asset, some of their products that they are in where we are not, have been contributors to their bottom line growth.
From our perspective, we, as I said, we look at the structural benefits and the positioning of our core complex in WTI in global crude, which looks very positive, as well as the Henry Hub complex, both of those being the biggest markets now, the biggest export markets for those respective products. We just, as in going forward, we like what we've done. We've globalized our business. We expanded our options complex. That outperformance, Alex, as I said, is really a function of, they've been lucky to be in products where they have franchises that we are not operating in, and that's, you know, you gotta be both good and lucky to be successful in this business and we like our position going forward.
Very helpful. I appreciate it.
Thanks, Alex.
Our last question in queue is coming from the line of Kyle Voigt with KBW. Please go ahead.
Hi, good morning. Maybe a question for Terry. I know you agreed to an extension on your employment contract last year. With that, I believe, set to end next year, I'm wondering if you'd be able to or be willing to share whether you're open to extending your employment contract again. Also if you could address or provide any color as to how the board views succession planning more broadly.
Yeah. Thanks, Kyle. obviously, there's some confidentiality into the conversations that I've had with my board, but I will just give you a general take on it. You know, my contract goes to the end of 2024. I've committed to my board that I will be here through 2024. At the same time, we are looking at succession. If in fact the board is not comfortable with that process, I told them I would stay on till they are. that's kinda how we're leaving it. A lot could happen between now and then, obviously, but my commitment is to the company. It has been all these years, it will not deviate from that.
The board knows that, but we all have a job ahead of us to make sure that we do the right succession planning and make sure it's a seamless one and that has the attributes that do multiple things, you know, from Washington to M&A and everything else. There's a lot goes on in these businesses, and there's not too many exchanges as we know in the world that people know how to operate. We gotta find the right person, but we got, you know, we have a lot of talent in not only in this room, but through the organization. If in fact the board isn't comfortable with where we're at, then I will extend until they are.
It's very helpful. Thank you very much.
Thank you.
That is all the questions we have. I would now like to turn the call back over to management.
Thank you all for taking time out this morning, and we hope you have a good day and be safe.
That does conclude the conference call for today. We thank you for your participation. Ask that you please disconnect your lines.