Good day, ladies and gentlemen, and welcome to the ICE first quarter 2013 earnings conference call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance during the program, please press star and zero on your touch-tone telephone. I would now like to do a sales race conference call. Ms. Kelly Loeffler, you may begin, ma'am.
Good morning. ICE's first quarter 2013 earnings release and presentation can be found in the investors section of our website at theice.com. These items will be archived, and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions, and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to the company's Form 10-K. We plan to file our Form 10-Q next week on a filing schedule that is consistent with NYSE Euronext. Please note that the numbers discussed today refer to our adjusted operating results, which we believe are more reflective of our business performance.
You'll find a non-GAAP reconciliation in the earnings release and presentation, as well as an explanation of why we deem this information to be meaningful and how management uses these measures. The materials presented today reflect futures volume that has been restated to include previously cleared swap contracts volume. With us on the call are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Chuck Vice, President and Chief Operating Officer. I'll now turn the call over to Scott.
Thanks, Kelly. Good morning. Thank you all for joining us today. I'll start this morning by providing some detail on our first quarter results and then hand the call over to Jeff, who will review our strategic initiatives. We'll try and get through our prepared remarks quickly so that we can move on to Q&A and then wrap up prior to the market opening. Let's get started on slide five. We made significant progress on key initiatives across M&A, new products, and clearing while maintaining a disciplined approach to spending during the first quarter. Thus, despite low energy market volatility during the quarter and against a tough comparison from the prior year, we were able to deliver modest earnings growth. Importantly, our first quarter performance and continued strength in April volume has us on track to achieve our full-year objectives.
Disciplined expense management is a fundamental part of the ICE culture. However, our primary focus is on growth and innovation to serve our customers and to deliver value to our shareholders. Whether through the expansion of Brent market share, adding new customers, or the introduction of new products and services, we remain focused on capturing market opportunities. Volume and open interest records were set in several energy contracts during the quarter, despite the relative lack of market volatility. Our oil and ag complexes each performed very well in the first quarter and into April. We also completed the ICE Endex transaction, supported the launch of Cetip fixed income platform, and of course, are advancing our work on completing the NYSE Euronext acquisition. All in all, a good start to an exciting year. Let's move to slide six for a more detailed snapshot of the quarter.
Revenues declined 4% to $352 million on a 4% decline in average daily volume. Our disciplined approach to spending and investment resulted in a 6% decline in adjusted operating expenses, which exclude duplicate rent expense and acquisition expenses relating to NYSE Euronext and ICE Endex. Adjusted operating margin increased to 63%. Our tax rate was in line with our guidance at 28%, and adjusted net income attributable to ICE grew to $149 million. Adjusted diluted earnings per share also increased 1% to $2.03. Operating cash flow for the quarter was $150 million, and technology-related capital expenditures and capitalized software were $14 million for the quarter. We also invested $11 million to build out our new combined New York office, which our teams will move into later this month. Turning to slide seven, I'll walk through the components of our first quarter consolidated revenue and expenses.
Transaction and clearing revenue declined 7% to $300 million, primarily driven by low volatility and volume in our North American natural gas markets. Transaction revenue in the financial category also declined as markets for credit derivatives and equity indexes remain lackluster. However, agriculture futures revenue increased a solid 6% from the prior first quarter, and Brent Crude revenues grew 14% from the prior first quarter. Market data revenues also grew 12% to a record $41 million. The credit derivatives execution business remains pressured due to the uncertainty of financial reform, as well as the general lack of volatility in the corporate credit market. However, with the advent of mandatory clearing on March 11th, we are starting to see increased clearing activity. We continue to develop solutions for credit markets to support our customers as they comply with financial reform while ensuring that expenses and investment are prudent.
Moving to the right side of slide seven, you can see the details of our operating expenses. The 6% reduction in adjusted operating expenses reflects improvements across compensation, professional services, tech and communications, and SG&A. This expense improvement enabled adjusted operating margins to expand by one point to 63%. Importantly, consistent with prior guidance, we continue to expect 2013 adjusted operating expenses to increase in the range of 3%-5% compared to 2012's adjusted operating expenses. Combined with the volume and OI trends through April, we're confident that we can deliver double-digit adjusted earnings growth for the full year 2013. Please turn to slide eight, where I'll discuss the first quarter performance of our futures markets. Futures revenue declined 5% over the prior first quarter on a 4% decline in average daily volumes.
You can see, though, that most product categories grew at a healthy rate during the quarter, with many turning in their first or second-best quarter ever. Revenue capture trends remain positive across all of ICE's future asset classes. However, the muted trading environment in natural gas resulted in a decline in futures overall. Specifically, North American natural gas average daily volume declined 28% compared to 2012's first quarter, where strong volatility drove average daily volume to record levels. I also want to point out the mix shift within the power market from full-size to small-size power contracts, which now comprise 96% of contract volume. This means that the product mix has largely shifted to smaller, lower-priced contracts.
It's important to note, however, that the futures markets began to rebound with 17% average daily volume growth in March. That recovery continued in April, where average daily volumes grew across agriculture and energy markets, with ag markets up slightly and energy futures up around 20%. Energy growth was driven by over 30% growth in Brent Crude and around 8% in North American natural gas volumes, which are experiencing more typical levels of volatility. We'll provide more details in our volume press release tomorrow. Turning to slide nine, I'll discuss our credit derivatives operation. First quarter CDS revenues were $33 million. This includes roughly $18 million from Creditex and approximately $16 million from CDS Clearing. Through April 26th, we have cleared $40 trillion in gross notional. We continue to expand our lead in both dealer and client clearing.
We have cleared nearly 15 times more buy-side activity than our nearest competitor since mandatory clearing began on March 11th. That activity is contributing to our bottom line. Also during the quarter, we announced the approval of portfolio margining for our client customers. We are working with the SEC to provide the full economic cross-margining benefit to ensure the aims and requirements of clearing are met. We're also working with regulators to launch Western European Sovereign CDS and to deliver a client clearing solution in London. In addition, we plan to launch our credit index futures in June. This when-issued futures product will be based on the next index series and avoid the jump to default risk inherent in the existing CDS swap product.
We believe the product will provide companies, banks, and portfolio managers with an innovative, simple and efficient means of managing credit risk, just as equity index futures have enabled the management of equity market risk for decades. As we launch those initiatives and continue to expand the set of products we clear, as we work with our customers to prepare for the second wave of mandatory clearing in June, we're optimistic about the contributions from this business, despite the uncertainty and muted trading levels in the broader CDS market. I'll wrap up my remarks on slide 10. For the quarter, we generated $150 million of operating cash flow and held $1.4 billion in cash. We have access to $2 billion under our existing credit facility, including $1.7 billion available for general corporate purposes and $303 million available to our clearing houses.
We have a strong balance sheet, low leverage, and are generating industry-leading 18% returns on invested capital. Before I turn the call over to Jeff, I'd like to note that our progress with the build-out of clearing service for NYSE Liffe's U.K. derivatives business is on track. We're pleased with the progress and continue to work closely with customers and regulators to achieve an on-time transition this summer. I'll summarize all of my comments by reiterating that first quarter results were in line with our expectations and position us well to deliver on our 2013 objectives. We have an excellent position across the energy, agricultural, and financial markets we serve, we are facilitating our customers' compliance with reform, and we are investing in long-term growth initiatives that will allow us to continue our sector leadership while delivering value to our shareholders.
With that, I encourage you to review the guidance in the press release, and I'll be happy to take your questions during Q&A. Jeff, over to you.
Thank you, Scott, and good morning to everybody on the call. The ICE team is well into executing on our 2013 plans, and we remain on track to deliver on our objectives. We have had much to look forward to this year, and our team is advancing many initiatives that will strengthen our leadership in growth, innovation, and customer service. In fact, our culture thrives on solving the next challenge on behalf of our customers. Change will continue in this industry, and we remain well-positioned at the forefront of anticipating and serving the needs of our markets. This morning, I'll provide an update on our initiatives before the Q&A session. I'll begin where Scott left off on the topic of our NYSE Euronext transaction on slide 11, and a view of our combined business based on 2012 performance.
As we continue with our transaction planning, we're confident that our companies will unlock significant value by delivering on our growth and synergy expectations. Because our customers continue to face tremendous regulatory change and uncertainty, the availability of risk management tools that enable compliance with hundreds of new rules is critical. Because change will be a constant in our industry for some time to come. We believe our combination brings the experience, the assets, and the leadership required to execute on a growth agenda and support the evolution of markets. From regulated, transparent markets to clearing across all major asset classes, along with data and technology, we will continue to access new opportunities across the globe while strengthening our existing business. On slide 12, the timeline we put together shows the dual tracks of the competition approval process and the general operational and regulatory steps required to close the transaction.
We continue to believe the deal will be finalized in the third or fourth quarter of this year, subject to completion of all requirements and approvals. On the competition approval side, we've completed the U.S. process with the Department of Justice under the Hart-Scott-Rodino Act, and we're now focused on the European requirements. Last week, the merger was referred to competition review of the European Commission from authorities in the U.K., Portugal, and Spain. We're now completing our notification to the Commission on Form CO, which will serve as the basis for the competition review. Upon receipt of this notification, authorities will begin a 25-business-day review under phase 1 of the process. If an in-depth investigation of the merger is opened, it will start a minimum 90-day clock in phase 2. These timelines are subject to extension based on circumstance, we can't guarantee specific deadlines.
We will continue to work with regulators to ensure that we're responsive to all their requests and do so in a timely manner. Our Form S-4 filed with the SEC has been declared effective by the SEC as of Tuesday, and we've received approval on our European prospectus as of today. We appreciate the excellent progress by our respective teams in achieving these milestones. Both ICE and NYSE Euronext have established June 3rd as the special meeting date for approving the transaction. We have an ongoing dialogue regarding the IPO of Euronext, which we continue to expect following the closing of our deal, we have not yet established a specific timeline. The approval and integration process for this transaction is extensive, we're working to ensure a timely and transparent process. We'll continue to keep you apprised of key milestones and other developments as we have more information.
We're pleased with the progress so far and are focused on opportunities to build, grow, and lead globally as one company. Before I turn to the core business, I'll briefly update you on the regulatory environment as it relates to ICE. As we move into the fifth year of regulatory reform, the focus on operational certainty and the impact to end users is key. Our transition to energy futures for natural gas, power, and oil products have enabled risk management to continue seamlessly, and this has not changed any margin requirements relative to their former, less regulated status. More importantly, the move provided certainty to end users, and it supported greater transparency and more regulation than was applied in the swaps market. Uncertainty remains for U.S. swaps on additional requirements for swap execution facilities, for clearing, and on other final rules.
I'll note that this uncertainty has caused us to pause our work on the clearing for non-deliverable forward FX contracts. We'll continue to monitor regulatory developments to evaluate next steps as rules are finalized, hopefully later this year. Further change will inevitably be driven by Europe's work on financial reform in the coming year. We're monitoring developments globally across MiFID, EMIR, Basel III, and IOSCO, as well as how Asia is responding to the regulatory environment. We believe the focus of regulators will shift to ensure international cooperation and the reduction of regulatory arbitrage opportunities. We've successfully launched our U.S. swaps data repository for commodity swaps and credit derivatives, and we're building a European SDR for both futures and swaps markets, which is required under EMIR. Scott mentioned our progress with CDS clearing at $40 trillion now cleared, and that we have extended our leadership in buy-side clearing.
We have tremendous infrastructure from clearing to processing in the swaps market with ICE Clear Credit and ICE Link, and we believe that this expertise will support our work on additional swap clearing opportunities. Turning to an update on our markets on slide 13, you can see that energy volumes remain a bright spot in global markets. Total average daily volume in Brent increased 17% in the first quarter, and Brent open interest was up 39% year-to-year. Average daily volume and open interest in other oil products increased 20% and 58% respectively year-to-year. In both March and April, ICE Brent outtraded combined ICE and CME WTI futures volumes for the first time ever, despite a narrowing of the Brent WTI spread to its lowest level in many, many months.
Moving on to natural gas markets, I want to highlight the completion of the ICE Endex transaction in March, where we acquired an 80% stake in the exchange. This is a newly formed company which incorporates the natural gas futures and spot markets of the former APX-ENDEX business. We believe this transaction will serve as a catalyst for ICE's further expansion into continental European natural gas and power markets. The Amsterdam-based exchange is best known for its Dutch natural gas futures contract, known as the TTF gas market. It also operates key spot markets for gas in continental Europe and the U.K. We believe there's significant potential for global natural gas markets to become more liquid and transparent while operating on a more connected basis.
We have a unique infrastructure and strong experience in natural gas and power markets, and we look forward to building this business out on a larger scale. Turning to North American natural gas markets, we've seen recent strengthening in volume trends. While first quarter average daily volume declined 28%, in part due to the high watermark for volume established in last year's first quarter, average daily volume grew year-on-year in both March and April. While last year's January and February remain our toughest comparisons, this year's upward trend in natural gas prices from around $3.30 to more than $4.30 for longer-dated contracts demonstrates how price volatility makes hedging a necessary component of managing risk at all gas price levels. In the month of March, we had nine open interest records in our Henry Hub contract, followed by 11 open interest records in April.
With temperatures and inventories lower than expected in recent months, these shoulder months have been more active than in the last few years. Longer term, our position in the markets is very strong, particularly as the U.S. continues to invest in more ways to become a natural gas-driven economy. With manufacturing and transportation increasingly substituting or switching to natural gas, and as liquefied natural gas continues to develop, we believe that it will ultimately become a global market. With a leading electronic platform for trading across North America and the broadest range of energy markets across the U.K. and continental Europe, we are well-positioned as we continue to bring new users and products to market. On slide 14, I'll note a few additional areas of ongoing focus.
For the seventh consecutive quarter, our European emissions, futures, and options volume grew year-over-year, with average daily volume up 34% in the first quarter. Carbon prices remain very low, but the requirement to manage emissions allowances in Europe, either via the central market or in the auctioning process, has continued to drive solid trading activity and maintain liquidity. Our agricultural markets turned in solid performance with the first quarter average daily volume up 8%, and that growth continued into April. In Brazil, we're pleased to note that the launch of our OTC fixed income platform offered through Cetip is now seeing very solid uptake, particularly for a market that had not previously traded electronically. I'll conclude my prepared remarks on slide 15 with the areas of focus that we set out at the beginning of this year.
We've discussed each of these priorities today. These are the objectives that we believe will drive growth. We remain on track to achieve our operational and financial objectives. I want to acknowledge the work of our global team that continues to advance these efforts with a very strong focus on customer service, expense discipline, and results. With a strong core business, a healthy pipeline of growth initiatives, and good progress on our acquisition of NYSE Euronext, we remain confident that we will deliver another year of growth, leadership, and record results. On behalf of everyone here at ICE, I'd like to thank all of our customers for trusting us with their business last quarter. I'll now ask our operator, Kevin, to conduct the question and answer session.
Ladies and gentlemen, if you have a question or a comment at this time, please press the star then the 1 key on your touchtone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Howard Chen with Credit Suisse.
Jeff, there continues to be this growing disconnect between volume growth in the energy commodity and the financial markets. From where we stand now, how much do you think it's the relative maturity of the two trading markets versus the relative health of the two end user bases? Maybe just now that you're adding to your financial suite product with this deal and organically, too, what do you think we need to see to see an acceleration just generally across financial products?
It's a good question. It's one that's obviously hard to know, so you have to operate a little bit, I think, by gut and conversation with customers. The first part of your question, yes, the energy and commodity markets generally were one of the last markets to move from floor to screen, so they're slightly less mature as an electronically traded and globally distributed asset class. I think the real underlying issue, and it's the issue that I think you're probably aware that we're interested in with respect to acquiring NYSE Euronext at this moment in time, is that many financial products are highly correlated to the interest rate environment, and we have a Western zero interest rate environment.
Secondly, I do think that there's been a loss of confidence in the equity markets coming out of the 2007, 2008 downturns, and that confidence needs to be restored. I hope that as markets become, let's call it more normalized in terms of rates and confidence, that we will be in a good position to help drive growth. I think we've been very public that we want to do everything we can to help bring back confidence in markets where we can.
Where would you fit the CDS market in that conversation, Jeff?
I think it's interesting because I think it is probably the least mature of all the markets that we've talked about, in the sense that credit is a very, very large market, but people tend to trade credit by trading the underlying product, i.e., corporate and sovereign bonds. It's very hard to trade those products because there really isn't a well-established derivative market that surrounds them like you would see in most other asset classes. It is the development of that derivative market that has us so intrigued, and it's the reason that we decided to move into that space, and it's the reason we've been working with a very broad group of people in the industry to try to develop a new credit futures product that we intend to launch shortly.
My follow-up, Scott, on expenses. Operating expenses really well-controlled to begin the year, down 6%, but it appears you're holding the line on the 3%-5% core expense growth for the year. Can you just remind us what are some of those primary drivers that drive that upward swing over the balance of the year?
It's upward swing, it's a modest upward swing from where we are. We are going to continue to invest in some small amount of hiring as we go through the course of the year, particularly around our clearing initiatives and our technology initiatives. In addition to that, with all the regulatory churn that continues to go on, I was very pleased with our professional services spending in the first quarter, I suspect that will be under pressure as we continue to work very closely with a number of law firms on the many regulatory initiatives that are out there. I would expect, Howard, if you look over the course of the quarters, we were on an adjusted basis at about 131 this quarter.
I would expect this to be around 135, give or take, each quarter for the next few quarters, with some of the uptick coming from those items that I just talked about. In addition to that, we talked about closing the index transaction. I suspect that'll add $2 million-$3 million of expense a quarter over the next few quarters. Thankfully, that will be more than offset by the revenues that we'll get from that deal.
Great. Thanks. Congrats on the quarter.
Thank you.
Our next question comes from Rich Repetto with Sandler O'Neill.
Good morning, congrats on a solid beat here, Jeff and Scott.
Thank you.
This isn't a question, the math on your expenses, Scott, if I did it real quickly, still puts you at, I think, below the low end or at the very low end. Let me ask-
Around the low end.
Okay. All right. Anyway, my question is, first one is on market data. We know you put a screen, a price increase, there was also this elimination of the trade or pay. We had sort of estimated a much bigger increase. I was just trying to see whether there was attrition in this trade or pay price increase on the screens in the market data.
Rich, if you look last year, we averaged around $36 million-$37 million a quarter in market data fees, we jumped to $41 million this quarter. I think it is largely attributable to the two items you mentioned. One of the things that I've always found encouraging about our data business is, whether we're making price adjustments, which we've done on a periodic basis or taking some of the other actions, we don't tend to see attrition. Even more importantly, we continue to see upticks in the number of people who are interested in the data. Again, maybe we can walk through the math to see where you might've been off a little bit, a $4 million uptick from our average quarter last year, we were pretty pleased with, I think if you look across the balance of the year, we think it sticks.
Got it. That's helpful. My follow-up would be, you spent a lot of time and talked about the credit CDS opportunity. I guess my question is, with the mandatory clearing, at least phase 1 in March, what have we learned from what's gone on so far? Of all the things, we know there's been some regulatory uncertainty, we know phase 2 is coming, and we know your futures product. What have we learned, and what's the catalyst to get a little uptick here?
Yeah, Rich, I think we learned a couple of things. The first phase of the mandatory clearing kicked in on March 11th. From March 11th to the end of the month, we cleared over $300 billion in just that short span and earned over $1 million of revenue for doing it. As I mentioned in my prepared remarks, since that mandatory clearing, we've cleared 15 times more than the next closest competitor. I think we learned that we are the preferred CDS clearing house. I think we confirmed that as the mandatory clearing kicks in, that we are going to see the buy-side move in, and I think we confirmed that there are good economics that drop to our bottom line from doing that. I think the next catalyst is the June mandatory clearing.
As I mentioned in my prepared remarks, I think we have additional catalysts as we work with the SEC to get the full benefit of the portfolio margining, which I think will encourage the buy-side to bring in their single names in addition to the mandatory index clearing. As we refine our offerings in Europe to bring clients on board there as well. As I look into the next eight or nine months, and frankly into 2014, I think there's a lot of opportunity in CDS clearing, and I think it's going to materially impact our bottom line. I'm also excited about the CDS index future product that we've talked about. As I mentioned, there's not really a standard, easy, efficient way for people to go, and Jeff just mentioned this in one of his answers, to trade credit.
We think this index future, similar to equity index future product that has existed for a long time, are a product that will encourage people to take a position on the relative creditworthiness of companies and industries. We'll start with the investment-grade and the high-yield indexes, but I think there's a lot of opportunity down the road beyond just those products. I think in the first phase, it's about the clearing, but I think longer-term, credit will be a tradable market, and we think there are additional products that we can create with our customers that will enable that trading.
Okay. Thank you, and congrats on a good quarter.
Thank you.
Our next question comes from Niamh Alexander with KBW.
Hi, thanks for taking my questions. I guess you spent a bit of time on the credit derivatives . If I could touch on maybe the extraterritoriality. It seems to be kind of more in the swaps market right now that the issue with the U.S. regulators and the Europeans are playing out. We're starting to hear more about international banks maybe not wanting to do swaps with U.S. banks, but are you seeing that maybe impact some of the hedging on the futures side yet, or any impact there? How does that play out for your business?
Niamh, we have not actually seen it impact our business, but I will tell you it's a source of active conversation by those people that are engaged in the regulatory process. We have seen now attention turn towards eliminating arbitrage internationally and the specific differences in some of the rulemakings, particularly as it relates to Dodd-Frank versus EMIR. Where it impacts the futures market is most likely through the Futures Commission Merchants, and the way they will have to organize to allow international business at international exchanges to be organized, and that particular group right now is drinking from a fire hose on other issues. There are some FCMs that are engaged in looking globally, but right now, people are just rushing to complete with the deadlines that Rich Repetto just mentioned and other more immediate issues.
That's why I said in my prepared remarks, I do think attention is going to turn sometime later this year towards harmonization of rules because there will be a complicated infrastructure required to meet all the very specific needs globally. To date, we haven't seen an impact to volumes.
Okay, thanks for that. My follow-up, if I could, on sticking with the regulatory changes, many of them. I would consider the conversion of the swaps to the future for you, it's clearly been a success, and now you're kind of rebasing the growth even higher in your energy complex. Help me think about the potential to bring more volume onto screens a bit now that the kind of market's comfortable with it, maybe raising the block limits a little bit, kind of pushing more into CLOB.
Thank you for that question because we're a big proponent of doing exactly that. We think we're well-positioned, and we have a unique trading platform that bridged the gap from OTC to futures. We understand those markets quite well. This is all being driven by, again, attention by regulators on where they're focused right now, particularly in the U.S., to finish out Dodd-Frank. It's hard to know where on the priority list attention to block trade limits fits. It is something being discussed, but whether it rises to new rulemaking or administrative positioning sooner rather than later is hard to know. We're in a fortunate position that we have very good clearing infrastructure and the ability to handle blocks, and we have relationships with the OTC market, both principals and brokers that allow blocks.
We're very well-positioned with the central limit order book, and actually think that that would lead to higher velocities of trading and a broadening of the market if we can get it to move there.
You'd need some rule changes? You can't lift it yourself right now.
Well, we offer both right now, so the market on ICE is determining where to decide. My point to you is that regulators are looking at fine-tuning the balance between the two with the idea of driving more to central limit order book trading and screen trading, because that's frankly a higher level of regulation, easier to administer regulatory oversight, and fair and transparent. Whether they start to tweak those rules in the near term or not is hard for us to know.
Okay, thanks.
Our next question comes from Ken Worthington with JPMorgan.
Can you help us on the intermediate-term outlook for gas in both the U.S. and Europe? On your prepared remarks, you talked about the near term, and we're seeing that, and you highlighted the long term. What I was really hoping to hear is how the gas markets evolve in both the U.S. and Europe over the next two years, which for investors is kind of a nice investable universe.
Well, very hard to predict the future, as you know, but we can look at the near-term past, and what we're seeing is that January and February in the U.S. natural gas markets, which is a big part of our business, was, let's say, relatively soft, although it was being compared to a very big January and February in 2012 as comparables. We've really seen an acceleration of trading in March and April. Knock on wood, it looks like things are going well in those markets. We've seen a lot of velocity increase in the shorter end of the curve, which is, as you probably know, the area that futures exchanges tend to derive most of their trading activity. That's been helpful as well.
We do think that Europe is looking for a single set of benchmarks, which is really what we're going to try to do in our acquisition of ICE Endex with the TTF contract, which I mentioned in the prepared remarks was a Dutch contract. We hope that that will become the marker for the continent. We already trade the U.K. natural gas contract, and we're seeing the markets really think about a globalization of natural gas price. It's being done through the small amount of liquefied natural gas that is moving around the world now.
Increasingly, the U.S. is such an outlier relative to the rest of the world with low-cost natural gas, that the market will find a way to take advantage of that, either by moving natural gas through liquification or by moving industrial processes to the U.S. to take advantage of these low prices, thereby arbitraging by moving jobs and industry. One way or another, we think that traders will be trading the complex with those facts in mind. We're pretty two-year long-term bullish on the natural gas markets because of those macro trends.
As a follow-up there, is there some element of network effects? You've got U.K. gas, you've got Dutch gas, I think you've got German gas. Having those different parts, do they work together? Is the whole greater more than the sum of the parts? Because you have U.S. and Europe, is it the same thing? Because you have the U.S. and Europe, are linkages forming, and I guess the linkages form before LNG, or do we need to wait until after LNG becomes deliverable in a bigger way to get the network effects of you having the different pieces and connecting them together?
Our company follows, really, our customers. What you see in the energy markets is you have a lot of very large global energy companies and merchant infrastructure providers and financing that is done globally. Increasingly, those groups are managing a portfolio, and with regulatory reform, are being forced to look at the whole and figure out how they organize and manage global risk and then compartmentalize it for local regulation. Having a provider like ICE that is also building out solutions for that problem set, we think has been very helpful. It allows some of our larger customers to just standardize around us.
As an anecdote, I had a senior executive at a very large firm said to me that with all of the change going on right now for regulatory and international change going on, that they just don't have the internal bandwidth to be able to deal with lots of disparate systems. They're having to pick vendors and partners that can provide as many connections as possible so that they can focus on reorganizing themselves while all this change is going on. It makes it hard for entrepreneurs or people with new platforms and systems right now because they just can't get the attention of the larger firms because they just don't have the ability to deal with them. You do see companies like ICE really having, I think, an advantage in terms of being at the table to have those conversations with our customers.
Thank you. Ladies and gentlemen, in the interest of time, we ask that you limit yourself to one question and one follow-up. Our next question comes from Alex Kramm with UBS.
Hey, good morning. First off, I just would like to come back to Rich's question on the credit clearing. Scott, if I heard you correctly, the buy-side clearing obviously seems to be off to a good start, and if my math is right, you're getting like $45 million a quarter contribution from buy-side. Maybe you can just confirm that. More importantly, how do you think about this June timeline? You mentioned a little bit, but when we look at the interest rate space, a lot of people are saying 10 times the amount of firms are coming online versus March, but I think the credit market has compressed a lot. I think a lot of those guys might already be clearing. Do you have any other data on how many people are coming online in June versus March?
How we should be thinking about the ramp-up on the second phase here? Thanks.
Sure. Just to clarify, I think you asked if it was four to five
a quarter. That's probably a little bit above what I'm counting on right now. As I said, in the, call it the month of March, we saw about $1 million. As you get to wave 2 in June, that may tick up. In the second quarter, maybe it's a little lower than that range. As we get into the back half of the year, I think it starts to move towards the range you talked about. I think, Alex, specific to what we're seeing with customers signing up, I do think that there still are a number of clients who are trading the CDS markets that do have CDS positions that will need to be cleared. I expect the next phase to be measured in hundreds of clients.
We've seen a number of them already get hooked up. I suspect as is typically the case, as we get closer to that June date, I think it's June 10 is the official date, I would suspect we'll see a mad rush for the customers that haven't signed up yet to get hooked up to clear. Again, I think your range may be a little bit optimistic in the second quarter, but as we move into the back half and get past that second wave, I don't think it's unrealistic.
Okay, cool. Secondly, maybe just stay on the whole topic of clearing. I know Jeff and maybe Scott as well, there's only a limited amount of what you can do and talk about when it comes to the Liffe clearing arrangement and what you can do from there. I assume that you're already engaging a lot with the clearing members in Europe and have conversations about what kind of things you can do different. Maybe you can talk about the new opportunity set a little bit more. I think Jeff said in the past that the current providers of interest rate clearing in Europe do not have the same opportunity set as might be out there. What kind of things are clients asking you for to do differently, and how quickly you think you can execute on that? Thank you.
Well, it's a good question. You're correct in that we're having a lot of one-on-one conversations with individual clearing firms and other major market participants in connection with the transition of the Liffe business. That is going very well. We're in the phase of having people work on novation agreements with us to actually contractually novate the positions over. That process is going well. There is, I think you may have heard us say it before, but almost a sense of relief by the clearing community that they will be going into a known clearing house with a known rule book and a known risk system. To a certain degree, that transition is relatively easy for them.
In that regard, people are talking to us about what it means now to have another large clearing, multi-asset class clearing infrastructure in London, how we might deploy that both through the U.K. and into continental Europe, and then how we will further deploy that clearing house around the world. I don't have anything to announce, but you're correct in that the opportunity to engage that community right now is very, very helpful to us in figuring out long-term clearing plans.
All right. Thank you very much.
Our next question comes from Michael Carrier with Bank of America Merrill Lynch.
Hey, Jeff, maybe on the energy and commodity side, it just seems a little bit unusual. If we look at your business over the past two quarters, things have held up okay. We had some moderation, but they've held up okay, and recently they've picked back up. If you look at the financial players or the dealers, it looks like the commodity business has been under a little bit more pressure over the past few quarters. I'm just trying to gauge, is it some of this, the transition that we're seeing in the markets? Is it just different products? You could say on the swap side, there's still a lot of uncertainty in terms of the rules, the regulations, so you could see some of that.
just trying to get a sense, just coincidentally, ended up being the same time that the energy markets, at least, the areas that you guys are in, shifted into the new product structure. Just wanted to get your thoughts on if you're seeing anything significant in terms of users or habits or changes.
Sure. Well, it's a very interesting time, because there's a lot of change going on, and on the one hand, there is some rotation of business away from the typical Wall Street banks as they have been resizing their businesses and re-looking at their proprietary trading. There are traders and managers that have rotated out of that infrastructure, but Successful people are rotating into other players or reestablishing themselves somehow. We've seen that trend a number of times in the history of our company, most similarly after the Enron collapse, when there was a wholesale change in the way the market did business. You have that rotation going on, which tends to complicate the ability to predict volume.
At the same time, by organizing ourselves as regulated futures contracts widely distributed on an electronic platform globally, we've increased the reach of many of our products, and we've been able to address a client base that either by their own charter did not trade in the OTC markets or were not able to trade in our OTC markets because we had a requirement when we were OTC that we deal with principals only and no brokers, and that you had to have $100 million in assets to access our platform. You have this kind of odd thing going on, where on the one hand, there's some downsizing on Wall Street, but there's a broader distribution and an increased addressable market due to the fact that we're trading regulated futures.
Okay, that makes sense. Just as a follow-up, we've hit on the clearing side. When you're talking to customers, just one follow-up on that, when you think about what customers are dealing with, whether it's on the technology side, the margin side, the international, different potential roles, if we do face some hurdles as we approach the June deadline, is it most likely on the tech side, meaning everyone trying to get things in place by that date? Or is there something else that could hold it up or create some hiccups for some of the clients that are trying to hit that deadline?
It seems to us, the biggest neck of the funnel is just people trying to understand their rules and obligations and the extreme pressure that many of the clearing firms are being put under to both onboard these new customers and at the same time comply with rules on customer segregation, on how much capital is going to be held. Those same firms are forward-looking at where do they have to position themselves globally and what are the different rules there and how are they treating these new customers. There's just a lot of conversation going on and a lot of sort of deer-in-the-headlights activity on behalf of many of the end users. Those end users that are slightly more sophisticated that have been paying attention or that we've been able to outreach or the other exchanges or the clearers are getting up to speed.
There's a big group of people that really don't fully understand what these deadlines mean.
Okay. Thanks a lot.
Our next question comes from Roger Freeman with Barclays.
Hi, good morning. Maybe just picking up on that, how concerned are you about the June date? Because it seems there's a lot more of those kinds of market participants in that bucket. I know a number of dealers are concerned about readiness. It might be related to the CDS business, but the non-consolidated income or expense rather was lower this quarter. Was there anything in the CDS business or the Cetip that reduced the income that's going out?
Let me take the first part of the question. I honestly think that at the end of the day, most people respond to deadlines, and the phenomenon of getting ready for a deadline is nothing unique. Every time we've ever launched a new product or a new service or a transition or made a major change and put a deadline out there, we know that the industry largely waits until the end and moves to comply broadly. I don't think there's anything particularly negative about that. I think if the deadline were moved, that people would just wait for the new deadline. At some point you've got to draw a line in the sand, and we're just at that crunch time right now. I'm not concerned about it because I think it is the way human nature works.
Yeah, I think there was a pretty good article yesterday that talked a little bit about some of the challenges of, I'm a U.S. firm, but the product that I need to clear is not cleared by a U.S. company, it's cleared by a European company, or it's a product that I'm told will be launched, but maybe it's not launched yet, or it's a clearing house that's going to launch in June, maybe. In the interest rate space, there does seem to be a lot of confusion. The nice thing about the CDS space is we've got the clearing firms hooked up. We've got the full slate of products. It is a U.S. solution. If you're a U.S. customer, you got a U.S. FCM, you're in. If it's European, ultimately you'll be able to clear in Europe.
I do think there are a lot of challenges, but if you step back and look at the CDS clearing versus other OTC products, I think the path to getting in the clearing house is much cleaner. Roger, just to follow up, I think your second question was with regards to the drop in the minority interest-
Yeah
in the quarter?
Yeah.
Yeah. That's just simply the revenues in that business. We've relatively fixed costs. Costs haven't increased in that business in three years. Revenues were a little softer in the first quarter than they have been the last couple of quarters, and that caused the profit overall to be down in the quarter.
Right.
Therefore, the share of that profit that goes out the door is down as well. Nothing more than that.
Yeah. Okay. Just, Jeff, quickly, your comment on expanding the sort of user base on the energy products that migrated futures last year, can you put any kind of quantification around that sort of number of customers that have come in since then? At least broad range in terms of how much the volume growth is fueled, or is it too early?
It's too early, and we don't have the metrics to actually look at it that way. We know from past experience that when people rotate out of jobs, oftentimes they start their own funds, or they day trade from home, or what have you. We can now, in the future space, allow individual investors to have access that we couldn't before. As people are leaving one job and looking for another, they can actually come in and trade in the interim. It helps facilitate this rotation that's going on. We know that there's more demand for screens and user IDs and passwords, so that the overall trend around the business continues to increase.
I think the other thing, we know specifically open interest, you take power out because that's a bit of noise right now, but from the end of the year, our energy open interest is up 12%, excluding power. On a year-over-year basis, our oil open interest is up 47%. If you look at gas, it's down a little bit year-over-year in the first quarter, but if you look over the last two years, go back to first quarter of 2011 compared to where we are today, it's up almost 70%. It's pretty clear that there are a lot of people that are participating in this market, and there's a lot of open interest. That's why, as we see volatility, as we did in April, volumes go up. We're looking right now, it's early.
The accountants haven't even started to close the books yet, but it looks like April's going to be the best revenue month we've ever had.
Great, thanks.
Our last question comes from Brian Bedell with ISI Group.
Just following on that, maybe a question for Jeff on the near- to intermediate-term outlook for Brent. Given the comments that you made about volatility, obviously we've seen the price of crude come down a bit. There's been some speculation that that would dampen volumes, but obviously it's continued to be strong, as you alluded to, with open interest building. Can you give us a comment on just trends, say, into the summer in terms of what you're seeing from hedging needs from your customers, and also in context of the Seaway Pipeline, the upcoming Keystone Pipeline into Cushing for the WTI contract?
Sure. Well, Brent continues to strength against strength. We have a couple of trends that are quite favorable towards Brent. One is that we continue to build out a Brent options market, where there was none a few years ago. Now there's an active Brent options market, and options as an asset class broadly continues to grow. People that trade Brent options tend to hedge, so it drives underlying volume, and obviously the option expires into the underlying, so some people take expiration, all of which helps the Brent complex. We continue to see people indexing towards Brent, as you know.
Lastly, as the Brent and WTI spread come back into, let's call it more normal conditions, as these pipelines and others relieve the issues around Cushing, Oklahoma, people can now go back to trade the Brent WTI spread again, which was a trade that was broken by the dislocation between the two. Now as they come back in, that is a way that people manage geographic risk, and so as that spread becomes more predictable, I would expect we're going to see more trade there, which obviously we have the Brent leg and the WTI leg in those.
Right. Continued strength. Okay. Just my follow-up would be just on the timing of the submission of the Form CO, and I guess if we stay in phase one, it looks like the deal could potentially close by the end of the third quarter. If we flip into phase two, is it still your sense that it would close by the end of the fourth quarter?
We have had informal dialogue with the European Commission, the DG Competition antitrust regulators there, going on for some time, so that we have a very good view on the areas that they have interest in, and can target those when we do turn in the official form. We have not been sitting on our hands with the European regulator. We're very pleased and thankful that the individual countries agreed to turn the matter over to the Brussels regulators, who have, obviously, deep knowledge of NYSE Euronext from their past work on the prior deal. You're right in thinking about how we're looking at it. The reason we say it'll close in the back half of the year is we have not started the official process with the antitrust regulator in Europe.
As soon as we turn in that application, it starts this clock, and it's conceivable, I guess, that we could get a 25-day review, and it's conceivable that they may want to take a look at certain areas and go into the 90-day or longer review. Helping to narrow the differences right now is something that we're doing in the background in the hope that we can provide an opportunity for the regulators to have a relatively clean and easy approval process.
Great. Great, thanks. That's helpful. Congrats again on a very solid quarter.
Thank you very much.
I would now like to turn the conference back over to our host for closing remarks.
Well, thanks, all, for joining us today. We look forward to hearing from you throughout the quarter, as you know, and we'll continue to update you on our progress. I want to wish everybody a happy May Day, and thank you for joining us today.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.