Earnings Call: Q2 2010

Aug 4, 2010

Everyone, and welcome to the InterContinental Exchange Second Quarter 20 10 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kelly Lefler. Please go ahead, ma'am. Good morning. Welcome to ICE's 2nd quarter earnings call. For a copy of the earnings release and presentation, please visit 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 that represent our current judgment and are subject to various risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in the forward looking statements, please refer to the company's filings with the SEC, including our Form 10 Q. We provided a reconciliation of non GAAP financial measures and an explanation of why we deem this information to be meaningful in our earnings release and presentation. These adjusted financial measures exclude certain charges that we believe are not reflective of normal operating performance. With us today are Jeff Frecher, Chairman and CEO Scott Hill, Chief Financial Officer and Chuck Veist, our President and COO. I'll now turn the call over to Scott. Thanks, Kelly. Good morning and thank you all for joining us today. During the Q2, we delivered our 7th consecutive quarter of record revenue and our best quarter ever for operating income and adjusted earnings per share. We are executing on a number of strategic initiatives and we see ample opportunity for continued growth. I'll start on slide 4 this morning with some highlights from the first half of this year. We'll focus on our non GAAP or adjusted operating results as these are more indicative of our business performance. As you can see, ICE continues to deliver consistent top and bottom line growth. In the first half of twenty ten, we grew revenues 20% and adjusted expenses only 6% resulting in adjusted net income attributable to ICE growing 32% and operating cash flows up 42%. This performance is the result of our focus on meeting the needs and demand of our customers and our disciplined approach to investment. Our business model's global reach, product diversity and extensive clearing infrastructure differentiate our opportunity set and distinguish ICE from our competitors. We provide solutions today and offer key building blocks for the solutions required tomorrow to help our customers navigate the evolution of regulations and markets. Moving now to slide 5, I'll review our 2nd quarter results. ICE's consolidated revenues grew 18% to a record $296,000,000 over last year's Q2. Adjusted net income attributable to ICE grew 35% to a record $113,000,000 Adjusted diluted earnings per share rose 34% to a record few of the drivers of our performance on the right side of this slide. Our global energy business remains strong and growth in our financial futures markets continues to improve. And importantly, the extensive work we've done on integrating acquisitions over the past 3 years is enabling operating margin expansion even as we continue to grow. If you'll turn to slide 6, I'll cover our revenue and expense detail. 2nd quarter transaction and clearing revenues rose 19 percent to $265,000,000 This includes $130,000,000 from our future segment and 100 and $5,000,000 from our OTC segment. I also want to point out that our data business remains a solid contributor with record revenues of $27,000,000 in the 2nd quarter. This is driven by the entry of new participants in our market and the resulting demand for our data. Shifting to the right side of the slide, 2nd quarter adjusted operating expenses increased just 1% versus 2,209. Adjusted operating margin improved to 61% compared to 54% in the Q2 of 2,009. Our non brokerage operating margins improved to 67%. It's worth noting that we continue to drive increases in our operating efficiency at Creditex despite the soft credit market. For example, Creditex compensation as a percent of revenue actually improved in 2Q versus 1Q despite the sequential decline in revenue. Our strategy of retaining the top brokers with mutually beneficial agreement, while weeding out underperformers continues to pay off. In terms of customer surveys and market share, our Creditex team continues to rank highly and is recognized for their expertise, electronic capabilities and service. In terms of compensation expense, we believe our pay for performance culture is one of the keys to our success. 1st, it is an investment in our ability to execute and innovate. 2nd, it ties each employee's compensation to the long term success of our company. These incentives largely come in a form of multiyear equity compensation rather than a one time cash payout. This provides continuity, stability and highly specialized staff and importantly an employee population whose interests are fully aligned with our shareholders. While our average compensation per employee is higher than our competitors, our employees also deliver more revenue, more profit and more cash per person. Or said more simply, our team delivers industry leading returns on the investments we make in them. Now let's review each of our business segments, starting with the performance of our Global Futures business on slide 7. Consolidated futures revenues were up 23 percent to $130,000,000 over last year's Q2. Average daily volume was 1,400,000 contracts, which was up 36% year to year. We believe the current global economic uncertainty has increased the level of hedging and risk management by a wide range of industries globally. During the 2nd quarter and despite relatively lower volatility, sustained demand from Asia coupled with economic uncertainty drove continued volume growth in crude and refined oil products. We also saw continued improvement from our financial futures market with record volumes in our Russell and U. S. Dollar index futures. Ag futures were relatively flat following sugar's sharp price decline in the Q1 of this year. And yesterday, we reported a 13% increase in July 2010 average daily volume for ICE's futures market. Year to date through July average daily futures volumes is up 29%. I'll walk through the 2nd quarter performance in our OTC business, our 8th consecutive quarter of record revenue on slide 8. Consolidated OTC transaction revenues rose 15% in the 2nd quarter to $135,000,000 Average daily commissions in our energy business rose 26 percent to $1,400,000 Despite relatively low price volatility, each product class in our OTC Energy market, gas, power and oil grew year to year. With the successful introduction of new cleared oil products over the past 18 months, we have continued to diversify our OTC business. Oil revenues once again came in at record levels with meaningful growth in all of our new cleared products. And finally, in our OTC Energy business, July average daily commissions were $1,400,000 up significantly from last year and roughly consistent with our strong year to date performance. In our CDS business, 2nd quarter revenues totaled $43,000,000 down from $45,000,000 last year. This includes $27,000,000 from Creditex and $16,000,000 from ICE's global CDS clearing business. Creditex's electronic transaction services accounted for 45% of our 2nd quarter Creditex revenue. Activity in the CDS index and single name business remained soft given the uncertain regulatory environment and despite the relatively stronger performance in niche and more volatile sovereign and emerging market products. We believe Creditex and our talented brokerage teams are well positioned for an eventual return of liquidity to the Creditex market. And as I noted earlier, we remain vigilant on expenses and efficiencies in this business even as we work to maintain our leadership position and invest to deliver further innovation and automation to our customers. Turning to the CDS Clearing business. We had a solid sequential increase in clearing revenues in the Q2. As we indicated previously, our 20 10 guidance anticipated a gradual ramp in revenues throughout the year as we expand our clearing capabilities, add new members and customers and await the recovery of the credit market. We remain confident in the guidance we provided at the start of this year and we continue to be pleased with our progress in a very challenging competitive environment. ICE's work has led to a sound global solution even in the face of great regulatory and economic uncertainty. We charted the course without a road map and we did so by being nimble and responsive. We are uniquely positioned to continue to lead by building on our broad platform of services for the credit market. Today, we're clearing over 230 CDS products and offer the most widely adopted service in the U. S. And Europe. We expect to launch our European buy side offering as well as clearing of Sovereign CDS in the coming months and we'll be adding a number of operational enhancements that we've worked with the industry to achieve. While we remain in the early stages of the longer term OTC clearing opportunity, ICE has delivered as promised. We have the leading over the counter clearing solution in the U. S. Today and our CDS clearing business is contributing to profit and cash. Just 2 years ago, each major exchange in clearinghouse globally was in a race to enter this business. The strides we've made in tremendously complex asset classes speak to the strength of ICE's clearing team, the confidence of our customers and our robust technology infrastructure. We constantly evaluate additional clearing opportunities that may exist and remain excited by the excellent opportunity in CDS today. Let's move to slide 9. This chart demonstrates the diversity of our business. The balance between our OTC and futures revenues reflects our ability to serve the needs of both market structures, particularly amid a dynamic regulatory environment. Our balanced geographic and product profile has helped us to avoid the ups and downs of any single economy or market. And importantly, we continue to see strong participation by commercial customers in our markets. This solid commercial base attracts other market participants and enables volume growth regardless of economic conditions, which was particularly well demonstrated by our consistent growth throughout the recent global downturn. On slide 10, I'll provide some color around our recent climate exchange transaction, which closed on July 8. We believe this combination is attractive both financially and operationally. The European emissions business has been and remains robust with 26% growth year to date through July. And we see several future growth drivers for the European emissions business including Phase 3 of the European emissions trading scheme, the addition of new industry group and the introduction of auctioning beginning in 2011. I also want to highlight a couple of the key guidance points on our Climate Exchange acquisition here and then encourage you to refer to our earnings release for additional information. We've also provided pro form a financial information on our website. We expect an immaterial impact to earnings related to CLE in the balance of 2010 and in 2011. We anticipate annualized expense synergies in the range of $13,000,000 to $14,000,000 which is approximately 60% reduction of CLE's first half twenty ten run rate. These synergies result of our long standing partnership with Climate Exchange. As as a result of our long standing partnership with Climate Exchange. As has been true with all of our prior acquisitions, we will deliver the committed synergies even as we focus on growing our emissions business. I'll close on slide 11 by discussing the strength of our financial model. We have consistently generated returns well in excess of our cost of capital and our competition. We have produced 55% annual operating cash flow growth over the past 5 years and this trend continued during the first half of twenty ten. We have $300,000,000 in available cash, low leverage and significant available debt capacity. We believe the current environment is ripe with opportunity for continued investment and growth for those companies with the strategic vision and ability to execute. We are confident that we have the financial means and the demonstrated investment discipline to continue to put our capital to work to generate value and strong returns for our investors. We filed our 10 Q this morning and I encourage you to refer to this morning's press release for further details on our performance and additional 20 10 guidance. Seth, over to you. Thank you, Scott and good morning to those of you on the call. Scott provided a comprehensive overview of our financial performance, so I'll take a few minutes to provide a brief overview of regulatory reform beginning on slide 12. The Dodd Frank Wall Street Reform and Consumer Protection Act was signed into law last month and it's clearly a sweeping piece of legislation. Its impacts will likely be felt by U. S. Consumers and businesses alike in the years to come. While portion of the bill's broad mandates include increased clearing and transparent trade execution in large portions of the U. S. OTC derivatives markets, Its impacts both positive and negative won't be known until its implementation is completed. So subject to that caveat, I want to take this opportunity to talk to our shareholders about how we see certain aspects of the bill at this stage. We'll continue to update you throughout its implementation process. The passage of the bill marked the start of the U. S. Regulatory rulemaking process that is largely expected to occur over the next 12 months. The CFTC, the SEC and other regulatory agencies have been charged with writing over 240 rule makings and conducting dozens of studies. Nothing we can say here can anticipate any of the finer points of those rule makings at this stage, but it appears that most of the rules will be implemented between 20112012. My colleagues are already working with our customers to anticipate and deliver on the provisions and opportunities ahead of the implementation dates. Within the derivatives title, which covers the swaps market, the clearing requirement will be a central part of the law requiring financial companies to clear standardized swaps. ICE's global clearing infrastructure is a central component of our strategy for addressing new opportunities. We have a solid head start in enabling many anticipated transitions and we have a demonstrated ability to solve for the complexities of the over the counter markets. In the last decade, we took our over the counter energy swaps market from 2% cleared to 97% cleared. Today, we are rapidly moving ahead in the credit default swaps market. In both these cases, we've managed through the complexities and uncertainties of the times to deliver customer solutions that have been widely adopted and have spawned new opportunities for us and for our customers. With regard to the exchange trading requirements for standardized contracts, we've seen this transition occurring for several years even in advance of regulation, 1st in our energy markets and more recently in the credit default swap markets. Trade automation tends to be a natural consequence of standardization. And together, we believe these fundamentals create a much larger addressable market. Our energy markets are the clearest example of this expansion taking place. On a related note, you'll hear the phrase swaps execution facility or as many of us are calling it SEF, which is a designation that refers to a venue that allows multiple participants to interact with multiple participants in a given swaps market. We anticipate that ICE, CreditX and other execution venues will register for that designation. Along with the SEP registration, these venues must comply with core principles. These important principles are high standards to ensure market integrity. ICE is today well positioned to meet these, having been an early leader in trade automation and market transparency. Our technology was designed to serve the needs of the over the counter market via an electronic platform with extensive risk management tools. Since the passage of the 2,008 Farm Bill, the CFTC has had regulatory authority over ICE's OTC Energy Markets and we've already implemented many aspects of what we believe will be similar to the SEP requirements. Finally, the swaps push out may require some banking firms to move parts of their swaps operations to non bank affiliates. Today, however, many of these operations already exist outside of the federally insured banking entities. And to the extent that additional trading opportunities will eventually be created, we've seen funds and other proprietary firms raising capital to take advantage of market opportunities. As Scott mentioned, participation in our markets continues to rise. Turning now to CDS clearing, one of the major provisions of the bill becomes effective 360 days from the July enactment, where ICE Trust will be deemed a derivatives clearing organization with that status under the CFTC and a clearing agency status under the SEC. The CFTC and the SEC will become the frontline regulators of our CDS clearing operations. We will be actively working with our members on this transition and we do not anticipate any issues with compliance. We've designed our model with flexibility to complete the transition and we will retain access to the Federal Reserve or secure overnight handling of our clearing deposits. As Scott mentioned, there was no road map when we built and delivered the leading CDS clearing solution, So the bill now provides us with regulatory certainty that we need to continue to bring in more buy side business. Importantly, ICE's model has both operational and regulatory advantages in terms of certainty and functionality. We're already actively clearing single name CDS pursuant to an arrangement that we have in place with the SEC under the existing rules and we will continue to expand these services over the next year without having to sit idle while the new rules are being developed. Moreover, ICE's CDS clearing solution is global. We offer clearing for over 2.30 contracts and have $1,000,000,000,000 in notional open interest with nearly $11,000,000,000,000 in gross notional having been cleared. Judging by the continued growth in these numbers each week, we started with the best and most legally certain model and next year we'll make the transition to our ultimate new regulators. One last note here is the inclusion of a post trade reporting provision for swaps. This reporting requirement applies to cleared and non cleared OTC transactions. In the commodity markets today, we operate a service that's known as ICE Econfirm that we created with global commodity market participants years ago. We see this technology playing a role in helping the industry to comply with post trade reporting using efficient and secure technology. This is illustrative of the opportunities large and small that may emerge in the coming years. While we don't discount the risks associated with change, we believe the overriding demand for commodities and risk management will continue to play out over the coming decade. And as you would expect, we'll be very proactive on the opportunities that come with change. Importantly, the strength in emerging market economies together with eventual economic recovery in the West all remain attractive secular growth opportunities for ICE over the long term. So you can see my comments are consistent with what we've said in the past. We believe the legislation acknowledges the central role of risk management that ICE has developed over the past decade. It focuses on strengthening the system through increased transparency, capital requirements and clearing. And on balance, as a leading provider of solutions for over the counter markets, we're very well positioned to continue to lead and grow given the opportunities that we see today. While many in the market feared regulatory change, for example, the addition of position limits, our performance has been exceptionally strong. After establishing position limits in our key natural gas swap markets in January of this year, we've set consecutive quarterly record revenues. I think this demonstrates that the overriding factors in our performance are indeed the commercial demand for our global markets. I'll close my prepared remarks on slide 13 with a discussion of our consistency in delivering on our strategy. We continue to and expand on our expertise and infrastructure to serve new markets. In the Q2, we marked the 10th anniversary of the company. Obviously, much has changed since our founding in year 2000. We've grown our business organically and through M and A. We've become more global and more diverse. We've enabled the transformation from trading floors into electronic markets and we were early in identifying the important role of clearing. In that process, we acquired century old businesses, including 4 futures exchanges and 3 clearing houses, while building 2 new clearing houses. Today, we remain unique as an exchange with extensive infrastructure to serve both futures and OTC markets from both the buy side and the sell side, the front office and the back office across execution, clearing and processing. We also anticipated and adapted to regulatory change, bringing transparency and new reporting tools where none previously existed. Finally, our lean fixed cost operating model continues to produce strong operating leverage. In the 5 years since our IPO, we've increased our adjusted operating margins to 61%, up from 48%. And 10 years after our founding, our strategic principles haven't changed. We remain a growth company, driving growth globally. These accomplishments are attributed to the strong employee team we've assembled at ICE to drive results. Managing a high growth company while navigating through economic, competitive and regulatory climate of recent years has not come easy. However, our senior leadership team together with our dedicated and customer focused colleagues have consistently delivered on our objectives. And we continue to look forward towards innovation to drive consistent best in class results over the long run. So on behalf of my colleagues, I again would like to thank our customers for treating us with their business. And I'd like to thank my ICE team for their work in delivering ICE's best quarter in our history. We'll now turn it back to the operator, who will moderate our Q and A session. Thank you, sir. We'll Take our first question from Richard Petros Sandler O'Neill. Good afternoon, Scott. Good morning. Good morning. I guess, the first question, Scott, is on slide 9. And I guess you chose to on the breakout of the energy OTC Energy between the commercial banks and liquidity providers. So I guess the Q1 showed 25, 25, 50 and now we're at 25%, 23% 52%. So actually, I think if you would have showed the Q2, it would have showed if you average it out, I guess banks might be down to about 21% and then the liquidity provided is up to 54%. Yes. That's about right, Rich. We did see very strong participation in the Q2 from commercial participants. And if you look at these numbers over the past couple of years, anywhere from 48% to 53%, 54% for commercials and the liquidity providers and in the 23% to 27%. We've moved within that range. So it's not particularly unusual to see a quarter that moves like that. I don't think it's particularly indicative of anything. I think the main point on the upper right hand portion of that slide is simply that we do continue to see very strong commercial participation in our market. And that participation helps us deliver the volume growth we've done regardless of the overall economic environment. Okay. So that makes changes in normal movements. Okay. I guess my follow-up would be sort of on, Jeff, on your OTC comments. And I guess there's a couple of parts to this, but the non controlling interest was much lower, the negative impact, which I think implies that ICE Trust wasn't as profitable this quarter. I'm just wondering because revenues are up. But I guess the real question here is when you talk about OTC opportunities you focus and you just did, you more usually focus on energy and the credit. And I've asked this before, but are there opportunities you see beyond those asset classes for ICE? Let me deal with the second part of your question. I'll have Scott deal with the accounting issue. Yes, I think, Rich, we really step back and look at our business now in what I tried to say in the prepared text, which is we have execution facilities, we have trade reporting facilities, we have clearing facilities and we have various data and risk management tools. And we don't necessarily feel like we have to do everything where we participate in every one of those markets for each asset class. We can have bits and bobs that we think we can move into various asset classes and continue what we really view as the leadership position for this kind of business in the over the counter market. I think one thing that I was trying to highlight in my comments is that I think when people look at exchanges and ICE Inclusive and think about the changes that are going on in the U. S. And European OTC markets, we really are the company that has a big footprint in those markets and has tools for those markets and drive half of our revenues from those markets historically. So we do see a lot of opportunity across asset classes. And Rich on the first question, not to take up too much time on it, but what I'd encourage you to do is look at the first half results in total. As we exited the Q1, there were still a number of agreements. You will recall that we're operating a global clearinghouse, but in 2 distinct geographic locations. And so some of the agreements that needed to be completed around that were not done as we exited the Q1. So again, I wouldn't look at the Q1 or the Q2 alone is indicative. Think you can clearly look at the first half to get an indication of how the business is performing. Okay. Thank you. Moving on, we'll take our next question from Howard Chen, Credit Suisse. Hi, good morning, everyone. Good morning. Jeff, on the legislation, I know it's really impossible to ask you to project the ultimate impact, but you're really the closest to the commercial end users. The team's actively helping to prepare them. I was just hoping you could give us some more texture around what you're hearing from the commercial end user base. What are they focused on? What are they asking you for here as we go into the rulemaking process? Sure. I mean, this is just anecdotal and it's obviously just one person's view with so with that caveat. I think a lot of the let me deal with the bank customers first because they're the ones that are that have the most impact I think under the bill. Many of them are not waiting for all these rule makings and are very quietly and quickly looking at how to organize their businesses. A lot of the our major Wall Street participants have put teams together to really go through the legislation in detail and to figure out what changes they may need to make to their businesses and they're doing that very quickly. And that's a holistic view too. It's not just the trading of derivatives, but it's also the clearing of derivatives, the reporting and how these businesses are going to be capitalized going forward. So I think that shift will happen very quickly and well ahead of rulemaking in my mind. The other thing you saw you probably saw last week Goldman Sachs came out and announced their new OTC clearing FCM initiative. I think what you'll be seeing is people that have prime brokerage and commodity lending and derivatives lending operations that really existed in a bilateral world, figuring out how to marry that or how to modify those to couple them with FCMs and what looks like a more futures type model to ultimately create some hybrid that will sit in between. And again, the FCM model I think will likely change. Many FCMs were low capitalized businesses that had parent company guarantees. People are looking at whether or not the regulated bank entity can continue to guarantee the FCM, whether FCM should be separately capitalized, what the rules may be in that regard. But I think you're going to see some interesting changes happening, all of which I'm quite excited about and take as a positive because we're developing tools and working with people and modifying our footprint as that's happening. I think one of the great side benefits of CDS clearing and I think one of the reasons we talk a lot about it is that it's evolving. The footprint of how we do this is changing and it has been changing and as our customers' needs have been changing and the market needs have been changing. So we're really evolving with them and it I think positions us well for not just the return in the growth of credit as the market comes out of a credit crisis, but across all the over the counter markets. Great. Very interesting. Thanks for the color, Jeff. And just a follow-up on credit and the CDS market. I know you view the asset classes of longer term opportunity, but just given what you see from execution all the way to clearing and post trade, just where are we in your mind in the evolution of the CDS market, whether it be volumes or velocity? It's interesting that the what I would what I think the large growth opportunity for credit is in the index and single name business, single names being corporate credit entities and the hedging that will go on around corporate lending. And that business has been impacted by just the downturn in the credit markets. What you've seen is the business that's going on right now a lot of it has been around sovereign BDS as Europe has tried to work through its debt problems. And some niche markets that are basically people restructuring legacy positions that exist on their books, exiting them or putting risk management around them so that they can basically roll off at the end of their term. That business is not that interesting or strategic to us. We are working on clearing it. We think it will be a good business to clear. But the bread and butter I really believe will ultimately be corporate credit risk management and that's going to probably be levered to the recovery of lending. We have a lot of debt coming due. I think there's an overhang of people that are going to have to be refinancing going forward. I think that's going to drive the beginning recovery of those markets. So I don't think we have to wait necessarily for the West to recover out of the current economic downturn. We really need lending to come back and I think some of that may be forced to come back due to the loan overhang that we have. We'll take our next question from Roger Freeman from Barclays Capital. Hi, good morning. I guess, first, just wanted to come back to the CDS clearing. So if I look at the revenues, looks like they were up about a third sequentially. And I think the notional cleared was about doubled. I guess, A, I just want to make sure I have that right. Is that just a function of the fee caps of dealers? Why there's somewhat of a disconnect there? And then if so, would it be fair to assume that the actual revenue growth is from mostly from the buy side component? And I guess just more generally, do you think the buy side is going to pick up faster now in adopting ahead of the rules going into effect or closer to it occurring? I think Roger, a larger factor in it was really the single name clearing and the relatively higher fees on the single name versus the index. And more single name activity in the Q2 than first is what helped drive the revenue up on a sequential basis. It's also clearly helping that we've continued to add new members and revenues from those new members as they bring their positions in certainly help on a sequential basis as well, which again was consistent with what we said earlier this year that we would expect a gradual increase quarter to quarter. And I think that that's what we're seeing. In terms of the buy side uptake, we are now at nearly $2,000,000,000 of cleared business from the buy side. We've continued to see small progress each week from the buy side community. I'd tell you the feedback that we're getting is mixed. Some of the buy side see I think everyone sees that clearing is inevitable and helpful to the market generally. But I think there's a mixed view in terms of the rate and pace. Some expected they're going to move well in advance of final rules. Some want to wait and see how those final rules play out. So I feel good about our positioning with the buy side of the business we've gotten so far, the fact that we have a very active buy side community on our advisory committee. And I would expect you will start to see some of that business accelerate through the second half of the year, but then certainly as we get into 2011 as the rules become more clear. Okay. That's helpful. And then I guess my follow-up would be around the trading component. So, Jeff, it sounds like you're saying, I think consistent with last quarter that the opportunity on trading is really more of a credit ex, maybe interdealer sort of model and maybe some broker platforms. But as opposed to the ICE Exchange and CME is basically saying the same thing. My question, I guess, would be what would it take structurally for these products to be suited to exchange trading? Is it just is it more volume? Is it cutting the contract sizes over time to bring more participants in so you can get a real matching dynamic going on an exchange? I think there's a number of complicating factors. And just to give you the summary, we feel pretty good in the technology footprint and the customer base that we have attached to us And we continue to drive attachment, as Scott mentioned, with more and more buy side coming into clearing and then wanting straight through processing and other things. So we feel good about holistically about our footprint. Where trading ultimately resides and how it moves is going to be highly determined by what the CFTC concludes that a SEP is. And if you read the exact language in the bill, it is not clear exactly how the model will work and there's definitely going to have to be some interpretation by the CFTC. And so the CFTC on the one extreme could really try to drive trading into a futures type model where you would expect to see a two way bid offer real time pre trade price transparency. Or they could have slightly different standards that allowed multiple platforms including interdealer platforms, even existing dealer to client platforms could theoretically be there. So it's very hard to prejudge where that rulemaking will come out. I would tell you this. I expect that when the rulemaking comes out, the responses are going to be like being hit by a fire hose. There are so many people that are looking at this as an opportunity. Existing service providers, exchanges, entrepreneurs who view this as a great new opportunity and so on and so forth. And so many different business models across the various over the counter asset classes and pockets of trading that I think there's going to be a vigorous debate and discussion around this. And so it's very, very hard to prejudge because I have the bias that I think there's a lot in the OTC market today and the CFTC is going to have to kind of wade through that. All right. That's helpful. Thanks. We'll now take our next question from Dan Fannon from Jefferies and Company. Good morning. Scott, question on the compensation. Wondering what drove the difference between the guidance given early July to what you reported today? And then thinking about the margins, the operating margins as a whole, the sustainability of kind of what you put up today as you look out going forward? Yes. So basically the guidance that we gave, we gave the 2nd day of July. And what I don't have great visibility to at that point is the overall results from our Creditex business. And as you can imagine, the compensation in that line is a bit sensitive to the revenue, the nature of the agreements we have, guarantees we hit etcetera. As I mentioned in my remarks, because of some of the actions that Grant Biggar and his team have taken to help make that business more efficient, we actually saw an improvement in our comp ratio in 2nd quarter despite the fact that revenues were down 1Q to 2Q. And I frankly didn't see that coming. I do though now expect those efficiencies will remain. Our prior guidance was $60,000,000 to $62,000,000 a comp. I actually think we probably would have trended to the lower end or below that. Even with the addition of the climate exchange business, I wouldn't expect us to be much beyond the $62,000,000 to $63,000,000 a quarter range. So with the increase in the bonus for our terrific performance this year and the addition of Climate Exchange, we've been able to manage efficiencies and keep our comp expense I think in a very reasonable range. Great. That's helpful. And then Jeff, just talking on the regulatory front with the bill finalized here in the U. S. And could you give us a little bit of color about what's being discussed in Europe and if you expect any material differences as the framework there gets more set? Yes. It's interesting to be a participant in both sort of regulatory promulgation. In Europe, in the U. S, while we have a very public debate in front of Congress and sort of real time reporting by the press on what's going on. In Europe, it's much more of a quiet process. A lot of we have had dozens and dozens of meetings with various staff people working on legislation. And I think that what is coming out and it's in some of the drafts, so I'm not necessarily foreshadowing what you may not already know. But we are going to see that the central banks and directly in our case, the Bank of England will have a much stronger hand in overseeing clearing operations and the capital that goes along with clearing and protecting the economic system of the central counterparties. And you're going to have a new sort of pan European regulator that is going to really be looking at the execution piece. And so our right now, for example, in Europe, we're regulated by the FSA, who oversees both clearing and trading. And so we expect to see sort of a slightly different footprint. With that said, sort of the broad goals I think that are coming out of Europe are similar to what are happening in the U. S, but they're a little less prescriptive at least as they exist today. They want to bias obviously towards more clearing and they want to bias towards more transparency in trading. I think one good thing that came out of the discussion is that the regulators are seeing the problem or potential problem of allowing clearinghouses to be linked up. The interconnection of clearinghouses could be no different than interconnection of major banks. So that issue now has come off the table, which is I think a good thing for us and frankly a position that we strongly agree with. And so what's left probably to be determined really is what their OTC trading requirements really look like and what asset classes are going to be pushed more towards exchanges. There's definitely a movement towards building trade repositories there where all trades will eventually go so that all governments can have access to those. And I see somewhat of a mellowing of the internal stripes that existed in Europe where there were debates about whether things should be located on the continent or can they remain in London and so on and so forth. And really the creation of this pan European regulator should cover all of the members of the EU and allow information to be shared between governments regardless of where clearinghouses or warehouses or trade execution facilities are located. So I see that as a positive thing for us as well. Moving on, we'll take our next question from Mike Carrier from Deutsche Bank. Thanks guys. Just on the future side, the core business, if you look at the volumes each quarter, you kind of surprise the upside. Can you give us some granularity on the different products? And geographically, Asia continues to be strong. I guess just any granularity you can give from what you're seeing from clients in the emerging markets or in Asia? And just how much more exposure or part of that business it is? And if you can just give any granularity like quarter over quarter year over year what you're seeing from that segment of the market? Yes. I think maybe as a foundation, I think people are continually surprised by our growth. And part of it is just looking at how we've positioned ourselves relative to our peers. Most exchanges in the world are equity options and equity derivatives exchanges and interest rate exchanges and or combinations of those. That's really what most exchanges are in the world. And those tend to be the local interest rates and the local equity markets. And so most exchanges are relatively levered to the true economic recovery or velocity of their domicile. And while all of the exchanges around the world today are global and that they have screen distribution, the reality is that their products are regional. And I think you know and probably give guidance to your customers about when to try to get in and out of those stocks as looking at the underlying economic recovery of the local environment. ICE is really different in that we are truly global. And although our energy business is centered in largely in London, it's really there because of the East West time zone change. And what we're seeing is a dramatic movement of business that is coming out of the BRIC countries. And our customer base moving into those BRIC countries in order to build new businesses to provide hedging tools and what have you. So the and the velocity in our business and the volatility that's coming in our business is largely being driven by a tension between a Western economy that is slow to recover and a BRIC economy that's fast to recover and people trying to figure out what that means for supply and demand. And so you have this natural volatility. So the color I would give you is that it's really we're really levered to this global recovery and we're also levered to the vagaries of the timing differences between various economies as they recover and that's creating volatility that just keeps our volumes high. I would point out to you that we said in our statement that we have literally record open interest in July. So not only and in our energy footprint. So not only have we had a great first half of the year, we're entering the second half on top of really strong open interest, which we think will continue those trends. Okay. Thanks. And then just as a follow-up, you guys hit on OTC opportunity a lot. And the regulation is still up there due to all the rules. If you look at what the current regulation is and then what your customers are saying, Like what is it with ICE like that differentiates it in terms of how you're positioned that you think you can take advantage of the opportunity whether it's the IceLink, e confirm, you have in the clearinghouse in the U. S. And in Europe? And then is there any other competitors out there that has something that you're working on or that's possibly a hurdle in terms of the competitive landscape? I think what's interesting about us today is that years ago people came to us and would say, can you list this product as if we were just a venue for almost like a vertical where you would just list the product and it would go through all of our platforms. Today, people are looking at the various pieces that we have and saying, gee, this we could really use this here or we could really use this there. Even in our Scott's being modest about what he's been able to do because he oversees Creditex. In Creditex alone, we one of our customers just benchmarked us and found that we are their number 1 or 2 broker in every thing that they do. And our error rate is incredibly low, which is really because we've tried to push that team into much more automation and use these tools like IceLink and other things to take errors out of the system. That takes costs out of the system for our customers. Ultimately, they then give us more business. And so all of these bits and pieces even the ones that seem like they're not as technically adapted tend to be helping us. So we're not looking at it as a vertical now. We're looking at all of our businesses as standalone operations trying to figure out where we can expand them in various needs in the over the counter market. Okay. Thanks guys. Moving on, we'll take our next question from Mike Sinchera from BMO Capital Markets. Good morning. Scott, a couple of follow ups on your, I guess, the guidance on Climate Exchange. Using the $13,000,000 to $14,000,000 in synergies numbers, it looks like the go forward operating costs or the costs right now about $5,500,000 a quarter. So do we need should we be factoring in about $5,500,000 for Climate Exchange in the Q3 and letting that kind of bleed down heading into 2011 when those synergies kick in? Or how quickly will you get to that $13,000,000 to $14,000,000 run rate? We'll be the $13,000,000 to $14,000,000 so let me turn the $13,000,000 to $14,000,000 around. That would say we're going to be at about a 9 to $10,000,000 a year operating cost base as we get into 2011. We will be there by the time we exit this year. We're not waiting until the end of Q3 to start to take action. So I wouldn't factor in a 5.5%. I think 4% to 5% in the 3rd quarter, a 3% to 4% in the 4th quarter on its way to kind of the 2% to 3% a quarter next year is the path we're following. Because again, as I talked about in my remarks, we have a very long standing relationship with CLE. They're already on our clearing and execution platform. This is a business that we have and will quickly integrate. And so you'll see those synergies turn up quickly as we spend the vast majority of our time figuring out how to get the growth continuing to be at the levels that it is today. That's very helpful. And then just a follow-up there. You mentioned also in the release the $9,000,000 to 12,000,000 dollars in amortization related to Climate Exchange. When you talk about kind of minimal impact on earnings next year, are you talking on a GAAP basis? Or should we also look at this and say add back $20,000,000 in D and A after tax? And it looks like on a cash basis, you'll actually be not hugely accretive, but nicely accretive on the deal overall? No, cash will be nicely accretive. And with the synergies I just told you we were going to get out of the business, we're going to be GAAP neutral next year. Very good. Thanks a lot. Moving on, we'll take our next question from Christopher Allen from Ticonderoga. Good morning, guys. Good morning, Chris. Good morning. Jeff, I just wanted to talk a little bit about the you mentioned the being prepared with ICE Trust for changes with the SEC and the CFTC. If you could just discuss any of the mechanics that you would see changing, whether it's moving more towards an FCM clearing model mechanism for that market? And also if you could just touch on whether you think having the regulators in place could be a positive for CDS trading activity overall moving forward? Sure. So we automatically ICE Trust automatically becomes a DCO once the bill is enacted. So that's 360 days after passage under the CFTC. And then it automatically becomes a clearing agency under the SEC. So there's nothing that we have to do, we automatically become regulated. Those 2 regulators, we have a close relationship with them and so and they've been actively involved with us as we've been building out this model, which is why I mentioned that we don't anticipate any problems in transitioning. But what I think the unique new piece is, is that the SEC is going to have to do rule making and figure out what is an FCM under SEC regulation? And is it the same as the CFTC? Are they going to work together and settle on something that might be slightly new? We just don't know. What we do see is our customers that have large OTC footprints in the prime brokerage area moving to bring their futures clearing operation and their OTC prime brokerage operation together. You saw JPMorgan reorganize those recently and put them under one person. You saw Goldman last week announce that they were basically creating this hybrid. So I think our customers are anticipating how to try to handle their customer business and position themselves. And I'm sure then as we go through this rulemaking, they'll be talking to the FCC and the CFTC about how they think they can manage customer business. It's in the best interest of the CFTC and the SEC are really trying to get more business into clearing. And while there are buy side exemptions, I think Chairman Gensler has been very powerful on the fact that he really wants to try to build a footprint that attracts the buy side into clearing. And so I think they'll be paying attention to how the lending and collateral management capabilities can be reorganized in some of these businesses. Great. Thanks a lot guys. Moving on, we'll take our next question from Ken Worthington from JPMorgan. Hi, good morning. There's been some changes in the momentum of cap and trade in the U. S. Can you talk about what's changed? What this means for U. S. Cap and trade? And how you're reacting to it? Sure. I think, Ken, if you look at the chart we put out, we showed how really the European business is the business that has been widely adopted and is growing quickly and it's the business that we wanted to own and it's the real value that we saw in that acquisition. The current U. S. Business in the Climate Exchange is a loss making business as it exists today. And we are going to study it and talk to the market about how they view that business now and what they think we should do with it. Those companies pay dues right now And obviously, a delay in cap and trade is going to mean the dues and the amounts may go up. Let me just describe briefly. In the U. S. There is a voluntary cap and trade business that was organized by Doc Sandor. It's been widely used and it is voluntary. And while we obviously focus on the trade piece, these companies have voluntarily agreed to cap and to walk down their carbon footprint. And it remains to be seen now in an uncertain U. S. Regulatory environment whether companies are going to want to continue to walk down their carbon footprint, whether or not they're going to get credit for it by Congress now that the EPA oversees carbon, whether or not the EPA is going to give them credit for the work that they're voluntarily doing. So that's one question we have to ask the marketplace. The second piece is that we trade NOx and SOx emissions NOx and SOx emissions. And that has been challenged by some legal challenges that have affected the way that the EPA is looking at NOx and SOx trading. It's a bit destabilized right now. Again, we have to survey the market and ask them how do they feel about the footprint that we acquired there and do they want that to survive. So the last piece that we're also focusing on is that the Climate Exchange is a 25% owner of a carbon exchange that's being built in China. And it's one of the few if not the only non Chinese owner of an exchange in China. And that is a joint venture that exists with the Chinese oil company. So we are very, very excited about that particular footprint, because it gives us a way to dialogue directly with the oil company there. It gives us a footprint that we can work on in China. I've been very loathed to have our employees flying around China trying to scare up business because of the expense and really the improbable hit rate that we were likely to have in that expense. But this gives us something that we can lever off of an anchor. I don't know how successful that will ultimately be, but I do know that that is an important relationship that I think can pay dividends in other many other businesses that we have over the long term. So that is an exciting area that is a non European business. Great. Thank you very much. Moving on, we'll take our next question from Alex Kramm from UBS. Hey, good morning. Good morning. Just a follow-up on the on Ken's question from just now on the Climate Exchange. I mean, historically, I think you've never been a big fan of just making acquisitions to get costs out and you gave the synergies here very, very quickly. What about the top line? I mean, what is it that you're bringing to the table that could be transformational to this company? Like where do you think you can actually make a difference and take this to the next level? And how long will it take? Thanks. Yes. The biggest opportunity that we have we have a couple of opportunities. One is that Europe was phasing in their carbon approach. And so there are some additional phases that are yet to come in that we think will continue to drive growth. But I think the biggest synergy that we have is really it's really a revenue synergy. And so as you know, it's hard for shareholders to really get comfortable with revenue synergies. So we haven't really advertised it too much. But the reality is in our mind, the people that are really most impacted by the carbon caps are the utility and energy businesses. And those are our traditional customers. And we have been working to give more and more offsets and other risk management tools to the utility footprint so that they can both trade power and natural gas on ice and then also buy their carbon. And so that is a very, very powerful coupling. And while we had it before in our partnership with CLE, by bringing in the marketing people and the product development people into our ownership now and control, we'll be able to work much closer. One of the first things we did after making this acquisition is move those people into our offices and immediately get them working with our existing people because we really do think that we can drive higher revenue growth. Okay. Good. And then just very quickly to follow-up on Roger's question from earlier on exchange trading. I think you talked about the SCS and how that might still be very fragmented. But what do you think about actually new listed contracts on your exchange? I mean, in particular, in the credit area where you seem to have somewhat of a frontrunner position. And we've talked to some dealers here and historically, there's been a lot of pushback with Eurex, for example, but it seems like dealers are gradually warming up to the idea of, hey, a list of product might actually make sense given that the economics of the OTC markets have been coming down there. So any ideas or anything you're working on that you can share with us already? Nothing I can share, but I'll just make some editorial comments and that is that one is that the bill in the U. S. And largely anticipated what comes out of Europe is going to push things that are standardized to become more listed in the over the counter market. And then the second piece is that this bill that I spent a lot of time talking about in my prepared remarks is really regulation of the over the counter markets. It doesn't really change much for futures. And there is certainly a lot of knowledge and legal certainty in the trading of futures. And so in my mind, it provides an additional bias for people to say, heck, maybe instead of trying to do all of this stuff and comply and reorganize businesses and move capital around and so on and so forth, maybe if we had some of the benchmarks listed as futures, it would make our life easy. So I think you're I think what you're picking up on is people that are really getting into the nuances of this legislation and trying to say maybe there are certain aspects that should not remain in the over the counter markets. And there'll be a tension there. So I don't know that it necessarily will move things into futures, but there's definitely much more openness to look at how futures and the over the counter markets play together. We long ago saw that OTC and futures play together. I mean, one of the very first things I did when after starting ICE was acquire a futures exchange and list OTC and futures that were related on one screen and that helped drive our early growth. And you've seen other asset classes where never the 2 shall meet, but you've now seen those people in those asset classes saying, well, wait a minute here, maybe we should get these markets closely linked together because in reality they are and regulators are pushing them that way anyway. All right. Very good. Thank you. We'll take our next question from Matthew Hynes, Stifel, Nickelodeon. Hi, good morning. Good morning. Good morning. Going back to the CDS business, you spoke a bit about how the regulatory landscape is evolving in the U. K. And given your touch points in both the U. S. And Europe, do you feel that we will need to see some type of regulatory, I guess harmonization on both sides of the pond before CDS volumes really begin to accelerate on a global scale? First of all, U. S. And European regulators have long worked towards and talked about more harmonized regulation. But I really see it accelerating. I think there's a lot of goodwill trying to do that. And it does seem now like Europe is looking at the Dodd Frankville and is trying to figure out what it likes about that, what it doesn't like. It's going to do things that will not be identical, but the goal will be similar. So I really do see that coupled with the fact that the U. S. Is starting to participate more in the Basel discussions. U. S. Has been an observer in those discussions. But I recently saw where Chairman Frank is going is taking those seriously. And so you can see some moves towards harmonizing the capital requirements again driving things into clearing. I do believe that as we put more regulation around particularly credit markets that it's going to actually increase the amount of trading because it's going to bring confidence to the buy side. You have a lot of people that manage and run institutional money that are very, very fussy about where they will place customer money. They want them to be in transparent liquid markets that they can easily mark to market. And so I think that the institutional buy side will participate much more in the true sort of long only type money that will bring more market makers and non traditional players into the market. And so you can just see how it could lever up. But the underpinning is going to be a global regulatory footprint. We do clear in Europe and in the U. S. And the models that we have there are similar. There are some slight vagaries and as we move into this new world of what OTC Futures Commission Merchants look like, there are some vagaries right now between the two models. But I think we're anticipating that a lot of those gaps will narrow as both regulators on both sides sort of look to each other to see see what each other is doing. Yes. I think that's an important point. I mean, we've got a clearinghouse that's actually up and running. It's cleared $11,000,000,000,000 It's a clearing model that's been reviewed and or regulated by the FSA, various European commissions, the CFTC, the SEC, the Fed and the New York Banking Department. So we can enable that type of conversation by demonstrating a model that's already working. Okay. Thanks. That's very helpful. And then carrying that over to the capital discussion. You did hit a bit on your expectation for the changing capital structure for prop desks and FCMs and so on and so forth. But how do you expect this dynamic to impact the buy side and the commercial end user in these markets? I think another big piece of the rulemaking in the U. S. That's yet unknown is that we have to get a definition of what a major swaps participant is, because in addition to dealers, there's this thing called the major swaps participant that will be different than the end user who will be qualified for an end user exemption. So are we going to find that many of the large traditional money managers are considered major swaps participant? Or are they going to be considered the buy side? And we have there's a lot of chatter in the industry going on around that, a lot of uncertainty about who will get roped into what requirements. And I think until we really see that rulemaking come out and get some sense of where we're going, it's hard to know. I think a good example though to look at is what's going on in our energy clearing business where there's no regulation and everybody who clears there has been doing it voluntarily. And what you find is that while it costs money to clear in the sense that you have to post margin and you get mark to market, and those are the kinds of things that you hear the buy side concerned about in other asset classes. The reality is it nets down your position. And as we've shown in CDS, we've taken $11,000,000,000,000 in notional down to $1,000,000,000,000 So it's collapsing at more than $10,000,000,000 to $1,000,000,000 And so yes, you have post margin on the net amount, but the net amount is can be for many people dramatically reduced from their notional. And it's that phenomenon that brings the buy side in and they are willing to post capital because it's capital against a much smaller number than if they have to have a prime brokerage relationship and post margin money against the gross notional. So I still think regardless of how the swaps exemptions work out and how the major swaps participants are regulated that the trend there is very, very powerful. That's very helpful. Thank you. Moving on, we'll take our next question from Miyan Alexander from KBW. Hi. Thanks for taking my questions. Jeff, back to credit for a change. But if I could just understand, like you've been in the perfect place in the market. Looking out, do you think in 12 months' time, you're going to be seeing like fully electronic trading of credit derivatives, index derivatives and think of them in the U. S? And then if that is the case or maybe the 12 to 18 months, how can you make sure that your venue is a venue of choice? Like what can you bring to the table with Creditex to encourage those that would probably dominate the flow right now to be on your venue? Sure. I mean, first of all, it's the U. S. Transition to electronic is already happening. I think we mentioned again that our Creditex revenues are 45 percent electronic. That more and more you're seeing people that have resisted electronic trading starting to embrace elements of it because it's helping them to flatten out their books and manage risk better and the things that you would expect. We continue to invest heavily in the technology around Creditex and really are thought of and want to continue to be thought of as the technology leader in that space. And so as a result of that, we are a force to be dealt with and a threat to people that don't necessarily necessarily on board with us. And so we're always taken quite seriously there because people know they can see the investment that we're making. They can see the moves we're making. They can see how we've realigned our broker incentives and all of which is trending towards a world where there's going to be more transparency. And so I feel pretty good about our footprint. There are other people that have the same aspirations. And I think as I mentioned earlier that I think people will come out of the woodwork with SEFS. But it's going to be very, very hard to challenge a lot of what we've done. We've now moved the Creditex system into our really world class data centers, put them on low latency networks, got them on high value servers. We are making an investment in not a point and click system that a small group of market participants would use. But we're really building our systems out the anticipation that volumes are going to grow on them and that our brokers who are becoming increasingly more hybrid voice electronic brokers are going to continue to provide value around that platform. And Neve, if you look at the 2 you mentioned, I mean, we're a number 1 or 2 market share in the U. S. In index and single name, which is where you'd want to be positioned. We've got the Creditex Electronics platform. We've got Icelink connectivity and over 400 buy side firms and 20 plus dealers. So we've got all the technology and the connectivity. And we work well with the people in the industry to understand how the market is evolving, so that we're ready to serve it as it evolves. So I think we've got all the right pieces and we're in constant dialogue with all the right people to understand where the market's heading and how we can serve it. Okay. That's helpful. Thanks. And it's helpful color on the data center. I appreciate it. If I could go back to the energy markets just real quick, I mean, what I'm trying to understand better is the we're seeing a drop off in July versus a phenomenally strong Q2. But the Q1 was also really, really strong versus last year. So I'm just wondering if maybe not all of it's kind of just seasonal, if maybe some of the strength in the first half was associated with kind of Europe and the sovereign crisis and whatnot. So just trying to get a sense if you do still see that structural growth, new people coming on? Or maybe there is something more than the kind of seasonality happening now that we're basing to kind of a lower volume level in the energy markets? Yes. It's not to challenge a question to any great extent, but when you say a drop off, I assume you're referring to the fact that the growth on a year over year basis has slowed a little bit. As Jeff mentioned, we actually are sitting at record open interest in our energy business in July, well, record, so versus where we've been before. So I think that business continues to perform well. And again, if you break it down, the Brent contract continues to perform very well. It is the global commercial benchmark. The gas oil contract continues to perform very well. It is a global benchmark for the middle distillates, the diesel fuel that's popular in Europe. If you look at the overall growth on a year over year basis, WTI is the contract, which tends to be the more financially oriented speculative contract, where you actually see a decline year over year and you've seen a fairly precipitous slowdown in the past few months. So I think we feel pretty good about our energy business. Again, Jeff mentioned earlier, I think people have gotten used to very strong growth. Double digit growth again in July felt like a pretty good result. Okay. Thanks, guys. I'll follow-up later after. Moving on, we'll take our next question from Don Fandetti from Citigroup. Hi, Jeff. Back to the core business. As you talk to the guys that run energy trading at the banks, it seems like a lot of the new hires are going on in Singapore and in Asia. I guess my question to you is, do you see that shift continuing? And is that all upside to ice? Or does it ultimately create some type of competitive threat down the road? No. In fact, I've been spending a fair amount of time having exactly that conversation with senior people in these firms. And we're fortunate in that that business while they originated in the BRIC countries continues to be driven into the Western P and L. So we're seeing that business come through London. And the sort of the new hedging customers that many of these people are going after are quite comfortable with U. K. Bankruptcy law and U. K. Price discovery. So there hasn't been a skew towards doing that in the locale. I mean that being said, we all know there are massive exchanges growing up in China that one day the wall will come down and they will become very powerful global competitors. But short of that, the bulk of the global hedging businesses coming out of Asia and the other brick countries and into predominantly London in the energy complex. And we just don't see that changing and our customers don't see that changing. I would just just as an aside, one of the biggest changes that's going on in Europe is the compensation practices in the banks. And one of the reasons that I've been having these conversations is I've been concerned that people may try to relocate their desks. And so far that hasn't happened. There's certainly a lot of tension and stress around the taxation and compensation practices in Europe. But so far there's a dialogue going on around that and it hasn't really skewed behavior that I've seen. Moving on, we'll take our next question from Jonathan Casselin from Susquehanna. Thanks. Good morning. Scott, I just wanted to clarify your, I guess, adjusted guidance on a quarterly run rate going forward, the 61% to 62% on the comp side. Are you saying sort of permanently we're below the 61% or below that level with the I guess the comp relief from Creditex? Is that To be precise, what I believe I said was we had previously said 60% to 62%. I think we were trending below at or below the low end of that range. So call it 59% to 60%. And then I subsequently said if you put CLE on top of it, we're probably looking at about $62,000,000 to $63,000,000 per quarter. Got it. Okay. So kind of net net, yes, with the CreditX efficiencies, we're trending a little lower than our previous guidance. Adding in climate exchange, we don't move that far outside the high end. Great. And then Jeff, just bigger picture, what's the best way to frame sort of long term secular growth in OTC Energy? I mean, at record levels here, is there any way to quantify the remaining growth opportunity? Well, first of all, there is a lot of the oil business was really done bilaterally and is just starting to come into clearing. And the oil business is a big business. It's all the various delivery points for all the various products that come out of a barrel of oil. So there's a massive derivatives industry out there that has basic trades and related product trades that is becoming standardized and more standardized so that we can clear it and it's coming into clearing. So seems like the early days in the oil business. Second thing that's happening that is benefiting us is that the market is starting to clear coal. The market is starting to clear some of the other basis points delivery points for European natural gas. And so we see the kind of thing that we take for granted here in the U. S. For clearing and trading really migrating to Europe in a bigger way and driving a lot of growth for us. And we have obviously a great footprint in Europe. So we've been a big net winner of that. I think when you couple our European climate on top of that, again, I think it just gives us again a reason that we will have desktop space with our trading platform and a reason for our salespeople to be in talking to traders and risk managers and all of that will continue I think to a newer to our benefit. Okay. Thanks. And John maybe one last thing. I think capital requirements for holding things bilaterally are clearly going to increase both in the U. S. And in Europe. So again that will push that business more towards clearing where we think the net will give you a lower capital charge. And we'll take our final question from Rob Ruchow from CSCO BPOFA. Hey, good morning. Thanks for taking my question. I had a first question about the results this quarter actually. Your working capital and your restricted cash went up quite a bit this quarter. I'm wondering what the explanation is for that? And more generally, how are you viewing the returns on the business and the incremental business that you're getting on a go forward basis? So from a restricted cash standpoint, that basically reflects all the cash we had to set aside for the CLE deal at the end of the quarter. We had to put it in escrow so that we would have it ready to close the deal. Relative to U. K. Law, you have to have the money completely set aside, not available for any other purpose in advance of the closing. And so that was the increase in the balance overall. From a return standpoint, I actually talked about in my prepared remarks, our returns on invested capital on a trailing 12 month basis are around 17% versus the cost of capital that's a little below 11%. So we feel very good about the returns we're generating. If you look from where we were a year ago to today that return is starting to increase. So we believe we're generating very good returns on the investments that we've made and expect that that trend will continue. And I guess my follow-up is on the futures business. It appears that the RPCs are trending down a little bit with higher volumes. And one thing that I've noticed is that your rebate percentage the rebates as a percentage of total revenues has gone up. Is that sort of a step function with volume? Should we expect higher rebates as volumes go up? And what's sort of the strategy there for the futures rebates? Well, I think the first fundamental strategy is we manage to revenue not to RPC. And so you will see, particularly as we continue to grow our financial products and we build those markets out, those we have been increasing and improving our market making programs, which has resulted in additional rebates. In particularly volatile times, you tend to see more market making activity, which increases the rebates as well. So I do think you ought to expect as volumes grow, you will see market maker rebates grow. But again, as opposed to the question, now rates have been fairly stable. If you look at the U. S. Ag business, if you look at the energy business, the financial products again you have seen a bit of a downtick, but on significant volume growth. And so the overall volume growth has certainly outpaced the rate decline such that revenues have grown double digits on a year over year basis. And I think the other piece of good news around that is that we tend to do these market maker programs in the new products. And really you're seeing the success of a lot of the new product launches that we've had as we've been able to grow them. I think our company and we have some people here that are just tremendously good at market structure and have been able to put out a lot of products and grow them successfully well beyond what a lot of our peers are able to do. But the consequence of that is working out relationships to bring market making in to create two way markets. And so you see that impact. But it's a positive thing in terms of the way we run the business. Okay. Thank you. Very helpful. Thank you. That will conclude today's conference. We thank you everyone for your participation. Great. Well, thank you all. Let me just say again, I really appreciate the record revenues, the record earnings, the record open interest we have in July in our energy business all of which is a vote of confidence by our customers. And I again just want to thank you so much for your business and the confidence you've had in