Good day, welcome to the CME Group fourth quarter and full year 2017 earnings call. At this time, I would like to turn the conference over to Mr. John Peyser. Please go ahead, sir.
Good morning, everyone. Thanks for joining us. I'm going to start with the safe harbor language, I'm going to turn it over to Terry for brief remarks, followed by questions. Other members of our management team will also participate in the Q&A. Statements made on this call and in the slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website. Also, on the last page of the earnings release, you will find a reconciliation between GAAP and non-GAAP measures.
With that, I would like to turn the call over to Terry.
Thanks, John, thank you all for joining us this morning. We appreciate your interest in CME Group. 2017 was certainly an unusual year. Virtually every asset class experienced reduced volatility. Throughout the year, we focused on areas that we could control. That included adding new products, operating all of our markets in the most efficient manner, and expanding our global customer base. We were aggressive in optimizing our operations. As you know, we sold investments we had in other exchanges, we wound down our European exchange and clearinghouse, we announced the exit of our credit default swaps clearing business, and we focused on making investments in new product launches, as well as our market data, audit, and derived data functions. Focusing on increasing the efficiency of the organization has resulted in another successful year of reducing our total controllable cost while continuing to invest for the future.
We also continued to evolve our sales strategy to help generate additional business and acquire new customers. Specific global sales campaigns were developed across every product area. We measured that success by tracking additional metrics. These efforts drove non-U.S. average daily volume up 10% for the year. This was achieved despite difficult comparables from the election year of 2016. Also, we had 11% growth in our options franchise driven by increased trading on Globex. During 2017, we reached all-time highs in total open interest, along with records for the number of large open interest holders in several asset classes. This bodes well as market volatility normalizes. As we begin 2018, we saw all six product areas post solid growth in January as we continue to execute on our strategy. We also have seen open interest levels rise as our global clients are actively managing risk.
These two measurements are extremely encouraging as we begin the year. With that, we'd like to open the call for your questions. I know we have a number of analysts that will cover us, so we'd ask that you ask one question and then get back into the queue. With that, we'll open it up to the questions.
Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. Our first question comes from Brian Bedell with Deutsche Bank.
Hi, good morning, folks.
Good morning, Brian.
Good morning. Maybe just quickly on both tax reform and the expense outlook. First of all, with your expense guidance just up about 2.5%-3%, we assume that largely most of the benefits of tax reform you would expect to accrue to shareholders, I guess, with the increase in the variable dividend upon increase in cash flow. Maybe if you can comment if the volume scenario turns out to be a lot better this year, given sort of the traction that we're seeing early in the year, how should we think about expenses potentially flexing up? I guess, what do you view as your incremental operating margins?
Thank you, Brian. Several questions in there. In terms of the tax reform, we're very pleased with the tax reform. We believe it's good for our customers, intermediaries, and good for the markets. In terms of what we're planning on doing with the tax reform and additional cash flow, we're not specifically earmarking anything. We've given out our expense and CapEx guidance, which is increasing this year versus over the last several years. This provides us more financial flexibility. In terms of the expense guidance, it's up in line with what we've been communicating, which is in the low single digits. The majority of the increase is driven by compensation. It's the usual cost of living increases, the staffing related to growth initiatives.
Finally, within our expense guidance, there is a change in pension accounting, which will impact our top line by about $4 million, and there's an offset that we booked in the other income and expense section of our income statement. We haven't changed our capital return policy in light of tax reform. We think it's very positive. It's positive for our customers, and we think that it'll be helpful for all the intermediaries and the customers.
You're still seeing incremental margins over 90%?
Yeah. It's obviously going to be a function, since you have our expense guidance, it's really a function of sales. If you can see it in our first quarter so far, our volumes are up about 18%. Very positive, and we would expect our incremental margins to stay in the range it's been.
Great. Thank you. I'll get back in the queue.
Thanks, Brian.
Our next question comes from Chris Allen with Rosenblatt.
Morning, guys. I wanted to ask about market data. I saw a really nice increase there. You noted in the slides it was driven by derived data and audit. I wonder if you could parse out the two. We know audit can be a bit lumpy. Just trying to get a sense for what the run rate is going forward.
Hi, it's Brian. With respect to the derived data, we continue to see a nice pipeline of demand for that product. I think it goes to the interest and demand in our multi-asset class benchmark futures and the need to develop product for a variety of our client base that looks to expand their product offerings. That pipeline is continuing to build in a nice way. With respect to audits, you're correct to point out that it can be lumpy, and appreciate that you recognized that. However, our goal within the audits is to make sure that we have compliancy and that we're protecting our IP in that regard, and hopefully correcting some non-compliance that brings our user base into our requirements of reporting accurately their real-time usage of data.
If you look at the overall attrition rates for the past quarter, we've seen actually some improvement in that regard. Quite frankly, we've seen that from some of our user base properly recording and reporting their real-time data usage. We feel that all of this is having the intended effects.
Was there any one-time catch-up on audit that we should be aware of just to not get over our skis in terms of modeling going forward?
It's hard for me to comment on the audits. I will just say that there's a number in the pipeline that we're continuing to conclude, and our goal here is to ensure compliance with the reporting, and make sure that the consumers of the data are complying with our requirements, and that we're receiving the revenues that we should receive based on their usage.
Thank you.
We'll take our next question from Alex Kramm with UBS.
Yeah. Hey, good morning, everyone. Wanted to talk about the energy business real quick, or ask about the energy business real quick. One of the things that's been standing out so far this year is the very strong growth so far this year, in particular, relative to your primary competitor. Obviously, there's a little bit of a product mix, but would love to hear from anyone on the call if you're seeing anything else. Regulatory changes, or you know the sales performance, but anything you could add would be great.
Yeah, Alex, it's Derek. Thanks. We're very pleased with the results that we posted up in 2017. I think we're chock-full of records that we pointed to in the documentation we sent you guys. Going from a very strong record year in 2017, you pointed out we started with a record year so far in 2018. What we're seeing is broad-based growth across the entire energy complex. We spend a lot of time talking about WTI. We actually have just posted a new record ADV month in January, inclusive of not just WTI, but also our gasoline contract and heating oil that we set multiple open interest records in as well. What's really driving that is both broad-based participation, but our record non-U.S. participation. You've heard us talk about focusing on electronifying our markets to be able to access a non-U.S. customer base.
In some of the documentation we've provided you guys, we're showing a significant growth in the non-U.S. participation of our markets. That is continuing into January of this year. Q4 of last year, the energy business was up 40% in customers from outside the U.S. That's a function of the sales campaigns that Terry referred to earlier, the efforts and investment we made on the front end in technology to access customers to provide liquidity 24/7. We're seeing that flow through across into our commercial customer base, which has been the central focus point for the last two and a half years on the business side and sales side, leveraging our regional sales people.
If you couple that with the results of the U.S. Energy Department figures that were just released yesterday, showing U.S. production topping 10 million barrels a day in production and almost 2 million barrels a day in exports, we see that as the continuing strong structural story behind WTI as a global benchmark and a waterborne product.
All right. Very good. Thank you.
Our next question comes from Dan Fannon with Jefferies.
Thanks. I guess another question on market data. I think there's a price increase coming on April 1st. Can you talk about that and what you're expecting for attrition? Then Brian, just to follow up on your earlier comments about derived data, can you talk about how you're positioned better in 2018 to capitalize on that opportunity versus the start of last year, which resulted in a little bit of a delay of that?
Sure. First of all, with respect to the pricing increase, we have announced that increase, which goes into effect beginning of April, from $85-$105. We had not increased prices for several years, yet we've continued to increase the number of products across both futures and options, and we offer, I believe, the broadest base in terms of products in our market data suite. The market, in terms of response, we'll watch this closely. However, we believe that the efficacy of the magnitude and the number of products offered, and the investments that we've made in the infrastructure, justifies the increase. In terms of impact on attrition, it's hard to say. We'll watch this very closely, but we're also, in conjunction with the audits that we're conducting, seeing some changes in terms of reporting, as a result that has reduced some of that attrition pressure.
We'll monitor it closely.
Thank you.
Our next question comes from Michael Carrier with Bank of America.
Thanks. Good morning. Just a question. I know this is on the quarter, but just given the strength that we've seen in January, just wanted to get some sense, with the higher volatility, what you guys are seeing, across the different product suites in terms of if it's just your typical customers that are picking up their activity, given a shifting outlook. Are you seeing users that might've been more dormant pick up their level of activity? Any color around that, and then just on the pricing, any changes that you guys have made across the complex that we should be aware of for 2018? Thanks.
Michael Carrier, it is Terry Duffy. I think the best way for us to try to give you a little bit of color around that is to let Sean and Derek walk through, as you have seen, especially in our interest rate complexes, we have hit open interest records, we have hit new records in Globex trading. Derek talked about the amount of records in our releases. I think what would be helpful is if we let both Sean and Derek make some quick comments on what we are seeing for the first month of 2018. Sean?
Thanks very much, Terry. Thanks for the question. We have seen a great start to the year in January. Last year, we had a record number of large open interest holders and a record open interest in each and every one of the financial asset classes. We are continuing to penetrate a much larger customer base, in particular, a much larger customer base relative to alternative products. Another example we have been talking about continuously over the last few years, is our penetration of the cash treasury bond market. Currently, our treasury futures are trading about 94.6% of the volume of the cash treasury bond market. That is up from the 80% area last year and up from 55% if you go back six years ago. We have seen tremendous growth there. This year, very exciting again.
We have just seen in the last couple of weeks a new record number of large open interest holders in our interest rate complex. We have seen a new record open interest in our foreign exchange complex, and we have seen records in our Eurodollar options on Globex. Actually, we had a record day just a couple of weeks ago. Very interesting thing, another thing we have talked about, [inaudible] spoke about earlier, is the electronification of our markets, how that gives us much better access to international participants, and how when you electronify our markets, we see a much higher velocity of growth. We have had, again, we had a record Eurodollar options volume day earlier this month, one. Two, on that day, very interestingly, we had a 47% electronic market.
Not only that, in fact, we did more volume on the box, on Globex on that day, than we did on the Eurodollar options, than we did in the pit. The strategy that we have been following in terms of the electronification is absolutely working in terms of getting more participants, more global participants, and higher velocity of growth. We are very excited about our sales approaches. We are excited also about new products. On the new product side, a lot of excitement there with all of the new participants. We have had great growth in our weekly options, a lot of new weekly options. We launched Wednesday weekly Treasury options, last year. They are doing over 18,000 a day. As you, I think, know, in our S&P options over the last year and a half, we introduced Monday and Wednesday weekly options, doing over 90,000 contracts a day.
Our Ultra 10 contract that we launched just a couple of years ago, doing 145,000 contracts a day. Two years ago, we launched something called BTIC, Basis Trade at Index Close, on our equity complex. This is a functionality allowing participants to trade on the central limit order book at a spread to the cash market close. That's trading 39,000 contracts a day in January. It's a very high RPC contract. The innovation, the electronification, the sales campaigns are all increasing the number of participants. Derek, I don't know if you want to jump in.
Yeah, some similar trends. I referenced some comments earlier on the energy side, really our focal points in energy, and we've got so many records, Peyser told me to stop sending them data to put into this thing. I won't touch on those. Really the drivers behind the growth, I talked about the commercial customers. That has been our singular focal point for almost two and a half years, and if you look at the growth of not just the volumes, but the growth of the open interest and the large open interest holders, the data's in the deck, it shows you the success we're having in globally penetrating end user customers. The breadth of our product portfolio in energy, I mentioned before, not just crude oil in WTI, but our nat gas, our gasoline contract, RBOB, our heating oil contract.
We're having a total franchise open interest record and volume record overall in both energy and metals in January. The strength continues, and I think the true on the metals side as well, particular strength in our industrial metals and copper. The overlay to all of this, and Sean mentioned this as well, is you've heard us talk about focusing on growing our options complex. Options continues to accelerate and strengthen our order book in futures as options traders tend to hedge their exposures in our underlying futures. If you look at our starting point in January of 2018, we came off a total year record in ADV for 2017, and we're set an all-time options record in January of 2018 as well.
Our option ADV overall is up 30% in January, and that's particularly interesting when you look at some of the commodities markets price action with crude oil up at 65. It's really unclear whether that next $15 move is back to 50 with the glut of supply coming out of the U.S. or potentially up to 75 with some of the constrictions in the supply chain. That is a perfect environment for options. Our energy options in January is actually up 37%. This is a purpose-built market in fixed income, in energy, in equities for use of options, and we're seeing that. The investment that we've made in our options business across asset classes, both an accelerant to our underlying growth, but it makes our futures value proposition that much more sticky as well.
I would say despite the volatility profiles, you've seen us grow in low volatility environments, flat volatility environments, and now selectively sharply increasing volatility environments. Our remit around here is to continue to add customers, globalize business, and enhance that customer experience around our product set.
Okay, thanks a lot.
We'll take our next question from Rich Repetto with Sandler O'Neill.
Yeah. Excuse me. Good morning, Terry. Good morning, John and Brian and team. I guess the question is, you had record revenues in 2017. You got strong January volumes. You got a price increase coming in. You had 94% incremental margins, and controlled expenses looking forward. I guess the question is for you, Terry. How do you look at M&A? There's certainly been a lot of talk about it, in potentially diluting this, I guess, pure profitable model, versus the other advantages of building scale, and looking for additional products, et cetera. The outlook for M&A, given all the talk that's been out there.
Hello, Rich. First, thank you. There's been no change to our philosophy as it relates to M&A. As you know, I highlighted in my opening remarks about some of the things that we've decided to liquidate over this past year, which were important to continue to keep the model that we have in place that you outlined, going forward. We're very happy with where we're at. At the same time, I think that when you look at any M&A opportunities, they have to make complete sense for CME, and our discipline will be there. If anything, we put ourself in a very strong place in order for us to participate if something becomes available that we think could add value to this company. I have said this before, and I'll say it again, over the last 14 months, is we are not looking to just acquire to acquire.
We will only look at things that we think that will benefit our shareholders and our clients. The one way our shareholders will benefit, if we can do an acquisition that can add value to the experience of our clients, which will add additional revenue for our shareholders. That's the philosophy, so that philosophy has not changed.
Are there accretion targets, margin targets, or I guess because there are properties out there, but none of them have your margins, et cetera?
Rich, this is John Pietrowicz. Thanks for the question. As Terry indicated, we're very disciplined. You've seen over time the acquisitions that we've made. A lot of the advances that we've done in this business has been through CBOT, acquisition of NYMEX, our Dow Jones joint venture. We do have targets that we look at. We look at things from an accretion dilution perspective. We look at it from an NPV perspective. We've got internal hurdle rates that we look at. We basically triangulate on M&A to make sure that we are in a position to create value for our customers and for our shareholders.
Okay. Thanks for the information. Thanks.
Yeah. Thanks.
Thanks, Rich.
Our next question comes from Patrick O'Shaughnessy with Raymond James.
Good morning. Question for you about cryptocurrencies. Obviously, still in the early days for you guys. Now we're starting to hear, I think, increased conversation from the CFTC about their desire to regulate and provide oversight of cryptocurrencies. Curious if you can talk about the potential impact that that regulation might have and what your expectations are for that contract in general.
Well, I'll start, Patrick, it's Terry. Then I'll ask Sean to jump in as well or anybody else around the table. The crypto market is something obviously is brand new, as far as a listed product goes. I think when we're getting a lot of interest on a product that's been around actually for nine years now, I think the interest is obviously all coming because of the appreciation of the value of the product and introducing futures to it has actually, I think, helped mitigate some of the volatility in the product in and of itself. As far as the regulation goes, we worked closely with the CFTC before we launched this product.
We put new standards in place that we don't have on our other contracts, such as higher margins, velocity and stop functionality similar to what we have in the equity markets on the percentages. I think it's 7, 13, and 20 that we have on percentages as the market volatility increases or decreases. I think from our standpoint, the CFTC, there's been some things in the news lately about how are they going to regulate these types of markets. Really, I think it's incumbent upon both of us. We've seen new markets historically, since at least I've been in this business. You can go back to the early '80s with cash settlement. Nobody understood really what cash settlement was because every product had to be physically delivered. Then people got more comfortable with different methodologies.
You could use that in an example of cryptocurrencies as some example. This is new to the marketplace, with the exception, as I said earlier, it's nine years old. We will continue to work with the regulator. As far as the growth of the product goes, this is one of those wait-and-see. The last thing I would ever want to do was to potentially lower the margins and just think that we could effectuate a tremendous amount of trade off of this. This is a very much a walk as we go through this, not run. We will not do anything in the near term that we think that could increase the trade at the point of introducing additional risk to the system.
I don't know if that completely answers your question because this topic is so broad and there's so many different opinions on it. Only I can say to you is, from the revenue side, it's going to be, I think, a slow grower, which is fine. It's 1,500 open interest. We're trading 1,000 a day. That's obviously very small in comparison to the volumes that CME Group has today. Sean referenced some new contracts that are trading 30,000-50,000 a day. That's not this product. We also designed this product, as you know, to make sure that we did not attract the small retail participants. That's not something that we wanted to be a part of, our contract is much larger than our friends down the street's contract, and I think that is the prudent thing for us to do.
Sean, you can comment on it as you want, but I think from a regulatory standpoint, we're working close with the regulators on a daily basis, and from a revenue standpoint, this is going to be something that we'll be very methodical on.
I think, Terry, I think you captured it very well. In addition to the limits that you mentioned, we also have a position limit of 1,000 contracts. Again, it's only about 1,500 contracts open interest. We're seeing interest from the buy-side, sell-side, retail, and prop firms, and about 32% of the volume so far is coming from outside the U.S. We are getting additional participants, but it's a relatively small part of our activity.
All right. Very helpful. Thank you.
Yeah. Thanks, buddy.
Thank you.
We'll go to Ben Herbert with Citi.
Hi, good morning. Thanks for taking the question.
Thank you, Ben.
Just wanted to get some color around FX, and I know you called out very strong growth in Asia, but just anything else with the underlying customer base and mix shift there, and then new product launches in 2018 and how you think that might grow the base?
Sure. This is Sean jumping right in. Thank you for the question. We're very excited about the foreign exchange business. The foreign exchange business last year significantly outperforming the largest two cash market competitors in terms of volumes. As I said earlier, we saw several new records in terms of the large number of open interest holders last year, and we've just seen another one now in January. We're in the process of offering several new products that we're very excited about. We recently launched Wednesday weekly options. We actually had back-to-back record days a couple of weeks ago with the Bank of Canada meeting of about 10,000 contracts a day, on the Tuesday and the Wednesday of that week around the expiry.
Putting that in perspective, we're running around 6% of our entire FX options complex is already being driven by this brand-new Wednesday weekly expiry, so we're really excited about that. In addition to that, we launched last year, monthly futures on our FX complex. The monthlies are very exciting because, for the first time, we have a product, it's trading about 10,000 contracts a day, that is going to offer participants an alternative to FX forwards on the MM dates as well as the FX swaps. In addition to that, we do expect, sometime in the first half to launch something called CME FX Link. With CME FX Link, we will be offering participants with our partner, Citigroup, which has already been announced, the single largest OTC FX dealer in the world, to bring the OTC markets and the futures markets together.
You're going to be able to trade the basis between spot FX and each of our front FX futures contracts. This is going to allow participants to do FX swaps, spot FX against each of our monthly futures. We're very excited about being able to penetrate those marketplaces. If you think about the global FX market and the most recent BIS results, the spot FX market is about $1.7 trillion a day. Our quarterly FX futures historically have gone after that spot market. On the other hand, if you look at the deliverable forwards, the FX swaps, and the currency swaps, those marketplaces make up about $3.1 trillion a day of the global OTC FX market. With our new products, we're also going after those marketplaces and those participants. We're very excited about our business there.
We're very excited about offering participants the lowest total cost, most efficient product possible. In FX, the last thing I would like to say is, we're following the same playbook that we followed in interest rates. If you look over the last six years, what we've accomplished in interest rates with new products, 17% of our interest rate revenue in 2017 actually came from new products launched since 2010. We've been very focused on having a product that is a much lower cost, much better value proposition, and getting in new participants. In FX, we're following the same exact playbook. I'm excited to tell you that in December, Greenwich Associates published a study
Showing that the CME futures, FX futures are a far lower total cost, as much as 75%, than the OTC market for representing the same risk. This is the same study that Greenwich Associates published in regards to our interest rate futures back in 2015. We're very excited about using the same playbook, about offering participants a wider set of products that penetrate a much larger percentage of the marketplace, and trying to win over the OTC marketplace.
Thank you.
Our next question comes from Kyle Voigt with KBW.
Hi, good morning. Maybe one just on the net investment income. Just wondering if you could give us an update on the cash balances held at the Fed currently, your net investment income in 4Q. Lastly, how your take rate on those balances has changed after the December hike. I think you passed along 80% of the benefit, just wanted to clarify.
Sure. Thanks, Kyle. This is John. In terms of the Fed activity, the small benefit that we saw with the Fed move in mid-December was offset by lower average cash balances. The cash balances from Q3 to Q4 were down about a little over $1 billion. That decrease offset the small benefit that we got because we didn't start earning the additional basis points until mid-December. You are correct. We're keeping a net four basis points on balances at the Fed versus what we return to our customers.
Okay. Was that just because total collateral was down in your keeping, or was that a mix shift?
Oh.
just customers holding less cash?
Yeah, that's an excellent question. We saw both cash and non-cash collateral decrease between Q3 and Q4.
Okay, thank you.
Thanks.
Our next question comes from Ken Worthington with JPMorgan.
Hi, good morning. Maybe for Derek. It was mentioned a lot of times during the quarter or a number of times, record volumes in natural gas. I'm wondering how the natural gas market is evolving. We're obviously seeing more LNG capabilities coming online, things that seemed to impact gas trading in the past don't seem or didn't seem to have the same impact more recently. Kind of think hurricanes in the Gulf and how gas reacted this round versus in years past. Maybe talk about how the gas trading market is evolving in the U.S., where the differential market stands today. We've seen a surge in ClearPort volumes more recently, maybe how the gas business is sort of flowing into ClearPort and how the migration is working from ClearPort to Globex.
I think there's six questions in there, all gas related.
All right. Well, you know I talk fast, Ken, I'll try to keep up with you. There's a structural story in the gas market you've heard us talk about, it's absolutely playing out over the course of the multi-year horizon. In 2017, I think you saw a very tight range from a trading price perspective. We're starting to see that break out. Couple that with what we're seeing to the point you made earlier, is there has been a significant structural change in the global natural gas market. Historically, natural gas was priced on an index versus oil, we've seen that correlation break down as gas itself has been able to separate itself from oil. Now you're seeing a growing infrastructure for exportable Henry Hub gas in the form of LNG or liquid natural gas.
There is one liquefaction plant that's alive down in the Gulf Coast, and there are, I think, three more coming online in the next two years. What that means, driven by the fracking revolution that generally we associate with crude oil and WTI coming out of the Permian Basin, there is a significant amount of natural gas, Henry Hub-priced natural gas, coming out of the U.S. at a much lower price point, and we are now becoming a swing producer in the global natural gas market, just as the U.S. has become the swing producer in the global crude market. The implications of that, Ken, is that we're actually seeing an exportable form of Henry Hub priced versus Henry Hub gas coming out of the U.S. that we'll eventually start to see significant shipments outside the U.S. as more liquefaction plants come online.
We're seeing that reflected in our own business. Our natural gas business was up 8% to a record last year in 2017. In January, our business was up 55%. Nat gas futures alone, we did 744,000 contracts a day. As I mentioned, that's contributed to our overall energy record this year. The last piece, I think you talked about ClearPort versus electronic trading or Globex trading. We're actually seeing a shift from brokered market structure nat gas options to electronic trading of natural gas options. Not only have we grown our natural gas options business, we've converted that business. I think the first quarter of 2016, about 32% of our natural gas options traded electronically. In January of this year, so four quarters later, that's north of 62%.
That's a market structure shift that is both reflective of the underlying connectivity of the global physical gas market, but we're also seeing that reflected in terms of the venue shift from brokers to electronic, and we typically generate better revenues from the Globex-based business. Relative to the total non-U.S. growth in January, we're seeing that continue to grow apace. Growth and global participation, end user participants in our nat gas is following a very similar path to what we put in place for WTI and that structural story as well. We're very excited about that. We are also right in the thick of what's called the gas season, natural gas from November to March.
Typically we see volume boost, but this is an outsized growth in January, which given the investments we've made, we think that we can continue to globalize participation as that market connects globally with Henry Hub at its core.
Awesome. Thank you so much. That was great.
I would just add, on the international perspective, the growth on nat gas, both out of EMEA as well as Asia, has been tremendous. What we're seeing coming out of China and South Korea, I would keep watching those growth trajectories because it's played out very well the last couple of quarters.
Awesome. Thank you again.
Our next question comes from Chris Harris with Wells Fargo.
Yeah, thanks. Do you guys think that tax reform does anything to change the growth trajectory of futures volumes?
I think what's helpful is it creates a more healthy customer base. We talked a little bit about it before. Our customers, our intermediaries are healthier, which creates a healthier customer base, which should improve the markets. In terms of our futures volume directly attributable, probably not a lot.
Okay, thanks.
Thanks.
Our next question comes from Alex Blostein with Goldman Sachs.
Thanks. Hey, good morning, guys.
Good morning.
Just a quick follow-up, I guess. Good morning. Just a quick follow-up at this point. At the end of last year, you made a number of pricing increases. We talked about pricing increase on the market data side, but I don't think we talked much about on the trading side of things. I think in the past, you were able to provide, given the same kind of volume mix and customer mix, the implications and kind of blended RPC could be for you guys for 2018. Just at a broader stroke, that would be helpful. A quick follow-up, again, along the same lines, but when you think about the mix shift in the energy business, can you spend a couple of minutes on how the mix shift is evolving and any implications that could have on RPC, specifically within energy?
Thanks, Alex. This is John. No different than prior years, it's part of our normal course of business. We review incentive plans, volume tiers, and the face rates that we charge our customers. We're very targeted with how we approach pricing. Really, it's not to impact volume. We're not going to give exact numbers in terms of revenue guidance going forward. I would say it's in the same range as we've done in previous years. I'll turn it over to Derek to talk about the energy question. Yeah. There's probably four things I'd touch on relative to mix shift. First of all, you've heard us talk a lot about our investments and scaling of our non-U.S. participation. Typically, we see the rates per contract associated with non-U.S. customers higher than our base rates.
We're investing in acquiring a global customer base, that typically is positive for our mix shift. Within the customer mix itself, as we focus on our commercial customers, that also typically carries a higher RPC than our base rate. Very few of our biggest commercial customers are actually direct members of the exchange for various reasons. As we continue to focus on that end user customer base, good for the open interest, good for drawing financial participants in, but they also typically carry in a higher RPC. Finally, from a venue and a product mix perspective, you saw us post very, very strong natural gas volumes and participation in both January as well as last December, also carries a higher RPC. As we shift businesses from brokers to electronic trading, typically that's positive for the RPC as well.
Hopefully those four mix, whether it's product, venue, or client, give you a sense of what we're seeing on the energy side.
Yep, that's very helpful. Thanks.
Our next question comes from Brian Bedell with Deutsche Bank.
Great. Thanks for taking my follow-up. Just on the equities RPC, that moved up nicely. Is that all due to the Basis Trade at Index Close contracts, or was Bitcoin a contributor? I know that's a higher RPC. Maybe if you could just tell us what the average RPC so far has been on Bitcoin.
Sure. In terms of the equity RPC, we had a better non-member mix. We had the full quarter impact of the Russell 2000 and BTIC, which was particularly strong. Shelley, you want to talk a little bit about BTIC? Sure. On the BTIC, the RPC is running well north of $3 a contract. Again, in January, about 39,000 contracts a day, about triple the volume of last year. Last year was double the volume of the year before. We are very excited about that product. On the Russell 2000 as well, we are seeing a higher RPC than we are across the rest of our equity complex. Last, I would also mention that last year we saw growth in the Nasdaq futures, and Nasdaq also has a somewhat higher RPC. A number of positive tailwinds on the RPC side there.
In terms of the Bitcoin, it does have a very high RPC. It is north of $5 per contract. Nonetheless, as Terry said earlier
We're only doing about 1,500 contracts a day in terms of average daily volume. We only have about 1,500 contracts open interest. The primary drivers were the Bitcoin, the Russell 2000, and the Nasdaq.
The BTIC, you mean?
Sorry. Excuse me, the BTIC. Excuse me. I apologize. The BTIC, the Russell 2000, and Nasdaq.
Yeah. Yeah. If I could squeeze just one more in, maybe just on market data. I know there's a lot of moving parts here because the audit's uncertain and then with the price increases on the terminals, the potential attrition rate is in question. If you could just talk about how much do you think derived data will improve in 2018 and whether it's possible that you could see as much as a double-digit increase in market data fees in 2018 versus 2017?
This is John. Just in terms of guidance, we're not going to be providing revenue guidance going forward. I think what you are seeing is the results of a lot of hard work that we've done to build out the audit team and the derived data sales. As Brian indicated, we're building up a pipeline in terms of opportunities in the derived data side. Also, we're making good progress in terms of ensuring compliance with our reporting of terminals. That should help with the attrition numbers. You are correct, we do have an increase in April from $85 to $105. We're going to keep a strong eye on kind of the attrition impacts of that. Combining that with insourcing the audit function should be helpful ensuring compliance and ensuring that the reported numbers are accurate.
Okay. Fair enough. Thank you.
Thanks. Thanks a lot.
Our next question comes from Alex Kramm with UBS.
Hey. Hello again. Just wanted to come back with a couple of follow-ups. The first one on capital return, I think this was asked, but maybe not answered, but when you think about the higher cash flow from the lower tax rate, et cetera, how are you thinking about the dividend in general? I think somebody asked about the variable dividend. Now, given the higher run rate, isn't there a position to actually bring the quarterly up as well? Maybe this is for Terry, how does the board think about that? Have there been discussions around bringing the quarterly up as well with this higher run rate here?
Alex, I think that from the board's perspective, as you know, they've been somewhat aggressive since we became a public company in 2002, when we were very aggressive about having a quarterly dividend and then introducing the variable. We've moved it up historically throughout the years, and the board visits this on a quarterly basis, and I look forward to having a conversation with the board very soon. We have a meeting next week, we'll be discussing quarterlies and other capital return policies as it relates to the dividend.
All right. Fair enough. Just maybe secondly, on the expense guide, I think you laid out the drivers of expenses for this year higher, I think there's a view out there by some that given the low growth and expense over the last few years, that maybe you underinvested a little bit in some areas, there might be an upgrade cycle that has to come that's going to surprise us all. Can you maybe comment a little bit around that? You didn't talk about technology investments, et cetera, but your CapEx is coming up. Do you think you're keeping up with technology and demands from customers, or is there a level of surprise that we should be getting ready for over the years?
No, I think our technology team has done a fantastic job in terms of architecting our systems, you don't have the step functions that you used to have years ago. It's much more linear in terms of the investment. You are seeing us make, in terms of our guidance, both on CapEx and on expense, additional investment in the business relative to those areas. We are very pleased with the performance of our systems. We're able to handle these record volumes. You heard from Sean and Derek the number of records that we're setting. When you take a look at some of the massive days, such as the Brexit or the U.S. elections, we handled them without issue.
In addition to the performance that our systems have, we also are very cognizant of security, that's an area that we continue to invest in to ensure the integrity of our markets. It is an area that we are continuously investing in and continuously innovating on. Just to circle back in terms of the tax reform. One of the things I mentioned was, it's good for our customer base. In terms of our customer base, obviously, those that are corporations, you will see a significant reduction in taxes, which could help in terms of driving additional business onto our exchange with the lower tax rate and the ability to utilize our products relative to their risk management needs. Couple that with the change in accounting for hedge accounting, I think both are positive.
Excellent. Thank you.
All right. Thanks a lot.
Our next question comes from Patrick O'Shaughnessy with Raymond James.
Hey, I'm going to kind of pick on you a little bit with this question. You guys obviously have a lot of strength in a lot of different products, both in the fourth quarter and then to start 2018. One area that kind of jumped out to me was your S&P 500 futures. If we look at Cboe, their SPX options volume was up about 40% year-over-year in January.
Versus your S&P futures volume was up about 8%. What do we read into that? Is there a different use case right now in the current volatility environment that might impact the SPX a little bit more, or is there something else going on?
This is Sean jumping in. Our volumes in our options have grown as a portion of the overall marketplace over the last few years consistently. While there might be short-term fluctuations that are somewhat different, certainly over the longer term, we have been outperforming the other marketplaces. In particular, as I said earlier, the BTIC, which allows participants to trade our futures at the cash market close, their options do settle to the cash market close, and we do believe that the delta hedging is now being done by our BTIC. In addition to that, I will mention that our equity options are actually up 46% year-over-year. We're actually doing very well.
Yeah, I think that's important. I just want to jump in on that a little bit because I think Sean nailed it. When you're in these low volatility times, options become a very attractive play, and that's what we're seeing. That's why we're seeing the growth on our options on our futures. I think you're not actually comparing the right products. When you look at our options growth on our S&P versus just the futures against the SPX, it's a little bit different. Low vol increases more activity in options.
All right. That's very helpful. Thank you.
Thanks, Patrick.
Our next question comes from Jeremy Campbell with Barclays.
Hey, thanks guys. Just wanted to do a quick follow-up here. Your slide deck still says you still look to keep $700 million of minimum cash. I think per prior calls and conversations, there was some hope that that minimum cash level could get reduced a little bit because of shutting down European operations and exiting OTC. I'm just wondering, did you guys decide that $700 million firmly remains the right number, or is that still up for discussion and possibly still on the table as some dry powder, either ahead of the 2019 year-end dividend or other avenues of capital deployment?
Thanks, Jeremy. We are very pleased to have dividended out almost $1.2 billion with our annual variable dividend, which got us down to about $715 million in terms of near the minimum cash balance. This is much more aggressive than we've been in the past, but we did not change the minimum level of cash at this time. We did take into consideration the cash that was returned from the wind-down of the European exchange and clearinghouse. Our cash levels, taking into consideration the annual variable dividend, was about $145 million lower than it's been last year and significantly lower than it's been over the last couple of years. We've been much closer to the $700 million target.
Great. Thanks.
Thanks. Thank you.
Our final question comes from Jonathan Casteleyn with Hedgeye.
Good morning. Curious to your thoughts on activity levels in fixed income with quantitative tightening. The Fed's been largely loss agnostic in its $4 trillion position. Curious as it unwinds its Treasuries and MBS, exactly what you think the activity rate could be on the exchange.
Certainly since October, the Federal Reserve has been reducing the size of its balance sheet. As they've announced, as we know, since October, they've been reducing it by around $10 billion a month, and that will increase over the next couple of years, so that by 2021, I think it's a $1.3 trillion reduction in the balance sheet that they're looking for. This should have a very gradual positive impact on the need for additional hedging. As you know, the Federal Reserve, when they purchased Treasury and mortgage-backed securities, were not price sensitive. However, the additional securities that will need to be purchased will be from price-sensitive buyers. Therefore, on a gradual basis, it should help to increase our volumes.
Okay, makes sense. Quickly, a question for Terry. Obviously, you seem to have your finger on the pulse of the comings and goings in the regulatory environment in D.C. Curious, just sort of your perspective out about do you think the environment's getting more restrictive, less restrictive, and any sort of catalyst coming down the pike from a regulatory standpoint? Thank you.
I got most of your question. We had maybe a little telecommunications problem with your call, I think that your question was based around the regulatory environment. Is it better, worse, indifferent? Is that kind of the general question?
Yeah, exactly. Sorry about that. Yes.
Yeah. I would say that the regulatory environment is obviously, for the most part, the same. I think when you look at Dodd-Frank, just that applies to us, not a whole lot has changed as far as the law goes and what Congress voted on. I think what you're seeing is the regulators are now writing rules that are applied to Dodd-Frank that they don't need congressional votes on. At the fringes, they can make some changes which is positive for us. I think when you look at what the Europeans are going through right now under EMIR 2.0 and MiFID II, that's a different landscape for some of our European competitors and some of the business we do under the EMIR 2.0 regulation. That's something we're keeping a very close eye on.
As you know, we were just deemed equivalent in the European Union within the last two years. We believe that will continue to be the same equivalence rating, even though they're coming up with new regulation. There's a lot of people on the regulatory side here in the U.S. and our government and in our legislative branch that are aware that U.S. businesses have been deemed equivalent and want to make sure that we continue to have that status in the European Union. For the most part, I would call it positive to neutral. That's an ever-changing environment, and we keep a very close watch on it.
Thank you. That does conclude today's question and answer session. At this time, I would like to turn the conference back to management for any additional or closing remarks.
I want to thank all of you on behalf of myself and the rest of the management team for participating in today's call, and obviously, your interest in CME Group. We appreciate it very much, and have a wonderful day. Thank you.
That does conclude today's conference. We thank you for your participation.