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Good day, ladies and gentlemen, and welcome to the CME Group Second Quarter 2019 Earnings Call.
At this time, I would like to turn the conference over to John Peschier. Please go ahead, sir.
Thank you. Good morning and thank you for joining us. I'm going to start with the Safe Harbor language. Then I'll turn it over to Terry and John for brief remarks followed by questions. Other members of our management too will also participate.
Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. For detailed information about factors that may affect our performance can be found in our filings with the SEC, which are on our website.
Lastly, on the final page of our earnings release, you will find a reconciliation between GAAP and non-GAAP measures.
With that, I would like to turn the call over to Terry.
Thank you, John and thank you all for joining us today. My comments today will be brief, so we can get right into your questions.
We released our executive commentary this week morning which provided extensive details on the second quarter. In Q2, average daily volume grew to 21 million contracts per day, up 14% compared to last year. We had record quarterly average daily volume and agricultural products as well as interest rate, agriculture and metals options. Open interest reached an all-time high above 150 million contracts on June 13th.
We continue to drive significant growth globally. During the second quarter, volume from outside the U.S. totalled a record 5.4 million contracts that included 28% growth from Asia and 22% growth in Europe.
We continue to see success on the innovation front with the launch of our new micro e-mini contracts which began on May 6th.
During June, we averaged more than 400,000 contracts per day, making this the most successful new product launch in the history of CME. We're also pleased with how the next integration process is going so far. We have made great progress combining our sales forces as they begin to jointly engage with clients. We remain laser-focused on this very strategic transaction and look forward to keeping you updated with our progress.
With that, I'm going to turn the call over to John to provide some additional comments and then we'll take your questions.
Thanks, Terry. We've reached number of milestones this quarter as we continue the integration process. We've completed the first phase of staffing to combined business, we move the majority of the legacy NEX businesses to our administrative systems, which will enable the streamlining of internal support functions.
We moved the legacy NEX employees to our new facility in London. We consolidated our Hong Kong offices, and are on track to consolidate our offices in London and New York by year end.
We are actively working at data center consolidations, systems consolidations, and the customer migration of BrokerTec, which was announced -- will be in Q4 2020 and EBS in 2021 to Globex.
Based on our progress with the integration and our overall strong expense discipline, we are reducing our full-year operating expense guidance by $10 million to a range of $1.64 to $1.65 billion.
With that short summary, we'd like to open up the call for your questions. Based on the number of analysts covering us, please limit yourself to one question and then feel free to jump back into the queue. Thank you.
Thank you, sir. [Operator instructions] We will now take our first question from Rich Repetto from Sandler O'Neill. Please
Good morning Terry, good morning, John and team. I guess the first question will be more general, but I'm sure we've all heard about the LSE, potential LSE and Refinitiv transaction. And I guess Terry I’m just trying to get your thoughts. It seems like these players are going after, they don’t have the dominant position that the CME has in derivative products and it looks like they are expanding with data.
But I’m just trying to see what your thoughts are. Does it have an impact on the CME and how does it affect the exchanges -- industry overall if there was a combination of LSE and Refinitiv.
Thanks Rich, I'll make a few comments and maybe John, Bryan or anybody else Sean may want to join in as well. I think these are not new ideas, new products, I mean they've been out there for a while, they've been out there competing with different participants, we don’t compete a lot with them. We're little under fringes.
So, we're not overly concerned about the announced transaction. I think that when we talk about M&A activity, we always said cross-border transactions are very difficult to accommodate and to get done, I think there is a long way to go on this process, so we'll have to wait and see.
As I said in my opening comments, we're laser focused on integrating the next business and that's what our focus is going to remain. As far as other things that compete with CME. Again, Rich, I just don't see it any different than it was prior to the announcement, but my colleagues may see it a little different, John.
No, I agree. This really doesn't change the competitive landscape for us and there is long time between when this potential transaction gets announced and gets done. Obviously, we will be watching but I think from our perspective doesn't change the competitive landscape.
Does that help, Rich.
Yes, it does. Thank you very much.
Thank you. We will now move to our next question from Dan Fannon from Jefferies. Please go ahead.
Thanks. Good morning. John and I guess my questions is on kind of expenses and or also the integration, you talked about all the things you've got done, you reduced the expense guidance, but it looks like the revenue, the expense synergy number for this year is unchanged and maybe if you could talk about that more broadly or what's driving the reduction in actual expenses versus the synergies.
Then also it's kind of update us on the - kind of potential revenue synergy opportunity with NEX and you talked about the sales force integration, but maybe how that's going or any tangible kind of comments around some successes.
Thanks, Dan. We are very pleased with how the integration is going. We have done a lot, combining the businesses in the short time, we've owned it. So, very pleased with that.
In terms of the synergy number, we've achieved about 60% of the $50 million in synergies, you know most of that occurred right at the end of Q2. So, we're continuing to work through it.
To give you an idea when we acquired NEX, there was not a very integrated business. So, the integration process is complex and we continue to work through it, but we will update you as we go but we're very confident in terms of hitting the 50 million and the entire management team is focused on running the business, our core business as efficiently as we can and running the integration process as efficiently as we can. We can accelerate the synergies and we certainly will.
And I think we've got a high degree of confidence going into the 50 million and we continue to look at ways to accelerate that. Bryan, do you want to comment.
I would just note that we're reaching out to the client base in the context of sticking to the timelines that we initially announced with the overall migration, particularly with BrokerTec we've held client sessions now across the regions.
We've received some great feedback in terms of the overall integration plan. We did a major BrokerTec code draft internally that allows our systems to interface with each other that’s a good indication of our ability to deliver on the timeline that we've committed to our client base and to all of you. So, the initial feedback, initial read in terms of migration on the Globex has been very positively received.
John, anything else add to that.
I think I read just under what Bryan said, right. We're doing an enormous amount of education of the two sales forces to ensure that there's -- the cross-selling is happening. The EVS and BrokerTec sales forces have great contacts. That are new in many cases for CME Group, we're educating them on our core products. And we're getting that cross-selling process, and likewise, in the other direction.
In addition to that, as Bryan mentioned, we have had customer forms in regard to the migration of BrokerTec to Globex. We had one in New York, Chicago, London, Singapore, and Hong Kong, and each of them were extremely well received. Clients are in general, very happy with our outreach, very happy with the progress, very happy with the plan.
So just circle back, pardon me Dan. You'd asked about the expense reduction and how much of that was relative to synergies versus the rest of the business. It's actually both that's allowed us to drive our expense guidance downward. If you recall, when we made the initial expense guidance at the beginning of this year it already had a very low embedded expense growth rate and was in a very tight range. So, it really shows excellent expense management across the entire business that allows us to lower the expense guidance.
Does that help, Dan.
Yes. Thank you.
Thanks, Dan.
We will now move on to our next question from Ben Herbert from Cit. Please go ahead.
Hi, good morning. Thanks for taking the question. My question just on…
Good morning.
Good morning. The next group revenue decline sequentially, and it looks like it was maybe optimization and mostly create portfolio management driven. Just wondering if you could give some underlying details there around the drivers in that sequential decline? Thank you.
Sure, yes. Happy to do that. So, if you take a look at the transaction fee line. The next was down about $2 million. It was primarily due to the reset business. So, it's the transaction revenue associated with the optimization business. And part of that is reset. Reset has seasonality in its business and the first quarter is traditionally the highest quarter of the year in terms of revenue for reset.
So that's what drove the sequential decline in the transaction revenue line. The other line, you see additional couple of million dollar decline there, that's primarily driven by the subleasing of space at the next headquarters building. We've since moved that the next employees to our new facility in London.
So, we're no longer subleasing that space. So that's what drove the decline in revenue and there was a corresponding decline and expenses associated with that. So that's about $2 million as well.
So that accounts for the reduction sequentially in the next revenue. If you look at the other revenue line, there's an additional $2 million sequential decline. And that was what we discussed last quarter, which was related to our inflation adjustment. It's done annually with B3 or formerly BM&FBOVESPA. So, if you look at that the entire sequential decline and the other revenue was down 4 million, 2 was related to the subleasing revenue. And 2 was related to the annual inflation adjustment that we talked about last quarter.
Thank you.
Thanks, Ben.
Thank you.
Thank you. Our next question is from Jeremy Campbell from Barclays. Please go ahead.
Given the wild success here of micro e-mini in the equity complex. I mean, have you given any thought to micro sizing other asset classes? And if so, any color you can provide around what types of asset classes that might fit that and the typical length of a product development and go-to-market time? That will be helpful.
Yes. I'll let Sean comment and maybe within Derek as well, obviously the two guys -- two business lines. So, Sean, you start.
We're very excited obviously about the micro e-mini launch, the great launch in CME Group history. So, as you're probably aware of May 6th was the launch day, 461,000 contracts ADV over 40,000 Tag 50. So over 40,000 individual registered traders, more than 130 countries, we've had trades from more than 27 million contracts.
So, we're very excited about it. In addition to that, more than a 90% of the Tag 50 has trade less than 10 loss a day, which really means this is incremental revenue and incremental volume, incremental risk management on our platform. So, we're very excited about it.
Now, there is no question. It was a great success and we're very excited about it. There's also no question, therefore, that we're looking at it very closely in regard to our other asset classes. However, you know, I think that equities are a unique asset class. And that the opportunity, they're probably unique, one that we worked on for a long time, but you know, we are looking very closely at our other asset classes and what the other opportunities might be. And I would stay tuned. But I don't have any current announcements.
Derek, you want to comment on the energy.
Yes, I would say, picking up on Sean's point, I think when we were talking to clients about the desire and the need for a product that was more appropriately sized, given the increase in the overall equity market, that's a unique attribute of that equities contracts, that gets bigger as the market goes up. None of our other asset classes have a contract that scales that way.
We actually have a micro gold contracts already, we did see a small lift and volumes up to I think 23,000 or 25,000 contracts that are but unique, drivers behind the need for customers to resize a contract for retail participants uniquely exist in equities. We have continued to engage with our retail partners and intermediary customers.
And at this point, we're continuing to make sure that we're focused on our core product and solving client need where there are any inhibitors to access in our market. So, at this point, no, but we'll continue to talk to them.
And let me just add one more thing, Jeremy, I think that these guys summed it up quite well. But all of -- we're very careful about how we ascribe the valuations to all of our contracts and their sizes and what the needs are for risk management purposes. And we just don't want to start to create new contracts that we think are micro small. So, we think there are a subset of people that would be attracted to them.
We're driven by commercials. We do have retail participants, but they are professional in nature, we're not trying to attract somebody who has never traded futures before, and it has a day job. So, I think it's a little bit different when we talk about retail and these micro products versus what others might consider retail.
So, I think both Sean and Derek summed it up well, the equity markets make complete sense, because of the valuation. We don't see that in the other asset classes that would make that demand pending right now.
Great, thank you,
Thank you. Our next question now comes from Chris Allen from Compass Point From. Please go ahead. Your line is open.
Morning, guys, I wanted to ask on market data, we've kind of seen the slide from 4Q and it was about 136 to 130 last quarter, 128 this quarter. We be noted that the clients -- subscriber sequentially, just wondering if you can give us any color on the magnitude there, and also whether there were any audit fees included in this quarter.
So, first of all, when you reference the first higher quarter, there was a higher audit piece associated with that quarter. And I believe that we spoke to that, during that call. Audits is going to continue to be a very sporadic and chunky indicator for us, as we've said, from the get-go, we had lower audits this year. This quarter, I have to say, but we have a number in the pipeline, and I can't speak further to that until those matters are resolved.
With regards to the subscriber count, as you know, there is a strong focus on expense management across Wall Street. And we've seen a reduction in a number of our larger banks and some of our hedge funds. So, we're monitoring that area very closely.
I also think you have to keep in mind the great growth that we've seen from a transactional perspective on the international side, where we utilize our market data very heavily, particularly for our growth throughout Asia, as well as our retail base.
So, in summary, we're very pleased with the performance of some of the other portions of the market data business, particularly in our derived space, which we're continuing to see growth. And as I stated will monitor the subscriber base very closely.
Thank you.
Thanks, Chris. Thanks.
Our next question is from Christian Bolus [ph] from Autonomous Research. Please go ahead the line is now open.
Good morning all. Maybe this one is for Sean. So, Sean, despite I guess the Fed looking to cut rates, open interest growth in your career rates business has been pretty strong. So maybe some color on what you think is driving growth there.
Also, we have seen, you know, pretty high levels of record amounts of treasury inventory being held by the dealers. I'm curious if that is if that has been an incremental driver of demand for your products as well.
Sure, thank you for the questions. The interest rate business has done very well this year. And our innovation has continued to help to drive that growth. Our Ultra 10-Year, for example, now doing well over 200,000 contracts a day recently had a record all time volume day and a record old time open interest day with significantly faster growth in the overall complex.
In terms of the environment, the Federal Reserve, as I'm sure you're aware has gone from -- or the market expectations, I should say, of the Federal Reserve have gone from expecting tightening to expecting easing.
So, as you know, there is a Federal Reserve meeting happening today. And according to our Fed watch tool, which you can find on our website, there is a 78% chance of a 25 basis points tightening, sorry, easing today.
And then in addition to that later in December, or by the end of the year, is expected that you can have a total of 75 basis points, where of easing by the Federal Reserve. The change in market expectations from expected tightening to expected easing, creates a lot of volatility, it creates a lot of risk. And it creates a lot of need for risk management and CME Group is where people go to manage the U.S. interest rate risk.
So, our Fed Funds features have seen enormous growth on the back of the changes in expectations about Fed policy. And so, have our Treasury Futures. Treasury Futures continue to grow. One thing that we talked about is continuously making our futures complex.
The foremost place -- this foremost, excuse me attractive place to manage risk. A change we made very early this year, for example, was in our 2-Year Notes futures. In our 2-Year Notes futures, we changed the minimum price increments. So, we reduced by half the minimum pricing from a two-year future.
We reduced therefore, the cost to trade or the cost to cross that better offer spread by 50%. That was an extremely compelling move by market participants, decreasing their costs as they had this increasing need to managed risk relative to the changing rate environment I just talked about.
In terms of that, our 2-Year Notes went from about 12.7% for our entire Treasury Futures complex to now almost 16% of our entire Treasury Futures complex. So, a huge increase in the 2-Year Notes relative to the rest of the complex, relative to improving our products on a continuous basis, and making them more attractive.
On that front, we've been very excited over the last several years. We've spoken to many times over the last several years about our increasing penetration, our Treasury Futures. So, if you go back several years ago, our Treasury Futures are running about 55% of the average daily volume of the Treasury bond market according to segments [ph] data. We're currently at an all-time record of 117%.
So, continues to increase as we continue to launch new products like the Ultra 10-Year future, which have been extremely successful, as well as adjust the existing product. Like our 2-Year Notes.
Last thing, I'll mention on that front, we're excited about our Sulfur Futures launch. We're currently doing this month about 38,000 contracts a day, 220,000 contracts, open interest, over $770 billion from a national standpoint, 184 participants in that marketplace. So very excited about our innovation, we're very excited about the market uptake and continuously improving our products. And yes, the environment has been positive with the expected rate changes by the Federal Reserve.
Okay. Thank you, Sean.
Thanks, Chris.
Thank you. We will move to our next question from Kyle Voigt from KBW. Please go ahead.
Hi. Good morning. Should I try one follow-up on the transaction? Could you comment whether this was a transaction that you look at? And if so, any reasoning regarding why you pass on the deal?
Go ahead, John.
Yes. Hi, Kyle. We don't comment on M&A transactions. I think as you probably are aware, we as a company, we obviously are a leader in the space, and we monitor the space. But we are not going to comment on any specific transaction. I think Terry hit it on the head when he in his prepared remarks. We are very focused like a laser on the next integration. And we're very excited about the transaction that we consummated enclosed in November.
Thank you.
All right. Thanks Kyle.
Our next question comes from Alex Kramm from UBS. Please go ahead.
Hi. Good morning, everyone. Just wanted to quickly come back to the micro success, and particularly around pricing. I don't know, if you commented on this call, but obviously months ago you disclose kind of the RPC that business is running at and obviously pretty low as we expected, but I think on a risk-adjusted basis, it's still lower than your core products.
So, I think the expectations was, it's retail, it's small, it's going to be a premium product on a risk-adjusted basis. So maybe talk about the customer mix kind of like how you're supporting that business with market maker incentives and how quickly may be that RPC can ramp as that product gain more traction. Thanks.
Thank you for that. So, it might be helpful just to give you the rack sheet or the pricing sheet that's also available on our website. So, our e-mini futures for members, we charge $0.35, our micros we charge $0.04, the micro contract is 10 times the size.
So, on a risk-adjusted basis, the micro is $0.40 relative to the $0.35 that we charge on the e-minis. Likewise, for non-members, if you again look at our website, you can see that our micro e-minis, we charge $0.20 contract for the equivalent of $2 in terms of an e-mini, whereas the e-minis themselves are charged at $1.18. So, you see that they are certainly charged at a significant premium.
Nonetheless with the launch that we have and wanting to make sure that our clients have the best possible customer experience on day one, we do spend money on incentives for the first several months of a new contract.
As you can imagine, we did incent market makers for the first several months and we felt that that was a positive and necessary investment and I think it's shown there has been a very good investment.
However, clearly once the marketplace is up and running and it has its own momentum in critical mass, those market-making incentive programs will no longer be necessary. So, you should see an improvement in the RPC and that product as we move forward.
Does that help, Alex?
Yes, I mean I guess, if there is any expectation on timing, you never know when a marketplace is self-sustainable. But you know is this a few more quarters or do you think it can ramp pretty quickly as I guess what I was really getting at?
I think I said month, right so several months. So, I would it's not an extended marketing program likely.
And I think we always reserve the right to decide how the fundamentals of any markets are going and how are going to consider programs which we do on a daily basis, revenue order continuing adding in terms of, that just part of our what we do on everyday basis.
Thank you.
Thank you. We will move to our next question from Chris Harris from Wells Fargo. Please go ahead.
If the cuts interest rates two to three times before the end of the year how should be thinking about the impact on your non-operating income.
Thanks, Chris. We haven't announced how we are going to handle the change in the pricing relative to Fed rate cut in terms of you know the capture that we have on the average balances. But as you've seen recently, we've passed through any of the changes to the customer.
So, we haven't been increasing our share of the Fed -- of the rate. Couple of points, number one we have seen the Fed average balances that we have here at the cash balances that we have here at the exchange come down. So, in the first quarter we had about $28 billion in terms of average, cash balances held at the clearinghouses down about 25.6 billion.
So, we did see a reduction in terms of the average cash balances. So, one of the things that when we look at it, we think about how do we incent the average cash balances to increase here.
Also, I wanted to point out that beginning in the month of July, we did have a price change in terms of the non-cash collateral or increase the charge from 1 basis points to 5 basis points and that began at the start of July just to give you an update in terms of non-cash collateral health clearinghouses attributable to that right now about $90 billion in terms of non-cash collateral that will be impacted by the four basis point increase.
Thanks for the update. Great, thank you.
We now take our next question from Ken Hail [ph] from Rosenblatt Security. Please go ahead.
Great. Thanks. Good morning. And I wanted to go back to market data for a second. I think during last quarter; you announced the new Global Head of market data services. I was just hoping you could kind of elaborate a little bit more on that role, what kind of products might be coming and kind of any potential timing on that kind of improvement for that business?
Thanks, Ken. Bryan.
Yes, we installed Trey Berre who oversees our market data and tech services. And he hits the ground running in the context of the engagement that he's been having with a broader client base. The focus has been really on continuing to build and grow on our subscriber business.
But in addition to that, very much cultivating and developing our other services, particularly data mine and derived data services, Trey actually built up the derived data business, which has performed quite well for us over the last couple of years. We're very enthusiastic about his engagement in his reach globally. As we, as we work to continue to grow this business.
He has very well integrated with our Global Head of Sales, as well as our Chief Commercial Officer and taking a holistic view at the various data services, the development of new products and the integration of the next market data business into our overall data offerings.
Does that help, Ken?
That helps.
Thank you. The next question now comes from Deutsche Bank and it's Brian Bedell, please go ahead, your line is open.
Great, thanks very much. Hope you guys can talk about the FX futures and options business a little bit broadly, both from their perspective of any revise expectations on the uncleared margin rule. And the volumes have been kind of late recently.
So maybe just if you can talk about whether there's simply hasn't been any traction yet, even though you're there is a good demonstration from say that, you know, for example, the Greenwich Associates report about the much improved efficiency of using FX versus other futures rather than versus other methods. But it should be the except expecting more of a step function and improvement and volumes up to the uncleared margin rule comes through or do you think that will take one more time?
John?
Yes, thank you, Brian, a very good question. So, no question that the foreign exchange environment has been a very challenging one. If you look at volatility, for example, realized volatility in the Euro versus U.S. dollar.
In the second quarter, that's at the second percentile, going back to 2007. So, it is near record, low volatility, going back more than a decade. Likewise, if you look at dollar yen, you're at the sixth percentile in the second quarter, going back to 2007 is the G7 realized volatility index that goes back to 1992. And you're near the lowest volatility for G7 foreign Exchange, according Fed index, going back to 1992.
So, with that, extremely low volatility relative to the history of the marketplace, that obviously makes it much more challenging and less our needs for risk management.
Nonetheless, we've continued to improve our products on the foreign exchange side continuously as we do with all of our products. So, you know, some of the things I mentioned, we changed the strikes for our FX options on April 1st, making them much more appropriate and so adjusting them across the entire spectrum. So, making them much more attractive.
In addition to that, back earlier this year, we change their pricing according our quarterly role in our dollar Sterling. I mentioned earlier, the great success that we had in reducing the middle price increment, there are two-year notes.
We've also had very good success in reducing our minimum price increment in our dollar strength contract in terms of the quarterly role. And so that was significant success, or we saw a very large increase during the roll period in volume, we also saw a very large increase in non-member activity.
In addition to that, then we've just recently announced that we're changing the minimum pricing from it's in the quarterly roles in our dollar yen, as well as our dollar euro contracts. That's happening in early August. And that should make those products much more attractive, lowering the total cost.
We're constantly focused on making that look them the most attractive possible from a total cost perspective and as you mentioned on June 15th, Greenwich published a study showing that CME's FX options were as much a 70% lower cost than OTC FX options and will be especially attractive under the uncleared margin rules.
So again, very attractive products continuously improving them and getting external studies done that shows they're much more attracted. In fact, while the volumes have been hampered, do as I said to the historically low volatility. For FX futures complex reached an all-time large open interest holder record on May 28th of this year in that environment.
So, we're very excited about that and the continuous improvement. In the terms of the uncleared margin rules, the uncleared margin rules essentially the regulators have made a small adjustment to them, there is originally expected to be four tranches of requirements where the less tranche in September of 2020 was expected to be the last set of participants.
The threshold there was moved to 50 billion outstanding as opposed to I think it was 7 billion outstanding. So now they're getting essentially more time for that last set of participants to get ready for the uncleared margin rules, so there is just one additional year.
So, we expect the same impact that we would have had, it is giving participants a greater amount of time to adopt the uncleared margin rules. In terms of the uncleared margin rules themselves, CME Group has the most holistic solution available for every aspect of the uncleared margin rules.
I think I may have mentioned. We did a very successful webinar on our uncleared margin rules just a couple of months ago that showed our value proposition across all of our optimization businesses that we acquired to the next transaction as well as our OTC clearing and our listed product.
So, we are very excited about the holistic solution that we can present to our clients for the unclear margin rules we do expect that to be positive tailwind for our business. We expect that tailwind to be gradual and we expect it happen over the longer period of time.
Over the next year or so I guess you given the extension rather than more of a step function in the fourth quarter.
Again, the uncleared margin roles as I said the lesser participants are in September of 2021, you got from now until then in order for participants to adhere, let me say one other thing. So what we saw with the Dodd-Frank rules okay was a two-stage process when we saw Dodd-Frank and you saw the huge increase we had in interest rate futures usage during the Dodd-Frank rules and what we did was we offer the participants OTC clearing and we build now actually.
We had an all-time record in June of 178 billion a day in our OTC clearing business. So, we are very excited about that. But we saw with Dodd-Frank, we first offer participants the opportunity to do OTC clearing, so they could adhere to the rules.
We expect that participants, their first order of call will be to adhere to the rules, there second board of call will be to optimize once they adhere to the rules, so you will see some optimization right and some move into our cleared products and our future products between now and when its implemented, but we also expect that tailwind to continue afterwards.
That's very helpful. Thank you.
We will now take our next question from Michael Carrier from Bank of America. Please go ahead. The line is open.
Good morning. This is actually Sameer [ph] on for Michael. Thanks for taking the question. Terry, John just a quick one on capital management. Given the lower rate outlook, how does it affect -- have any effect on your capital management philosophy. Are you willing to take the take on higher levels of debt and what this could mean incrementally I guess in terms your aggressiveness with the various dividend this year?
Sameer, thanks. In terms of our capital management I think we've been very clear in terms of how we're approaching it. So, why don't I give you kind of highlight in terms of what our capital structure looks like right now. So, CME has billion dollars and cash on hand, so that's $300 million above $700 million minimum.
We have about $4 billion in debt was about $635 million in commercial paper and are debt to EBITDA around 1.28 times. We've paid down about $300 million in debt since the first of the year. And we are on track to achieve our one times debt-to-EBITDA by the end of 2020.
So, we are very focused on meeting our commitments that we have made to the -- to our investors and to the rating agencies to be at the one-time debt-to-EBITDA by 2020. And we're on that path. In terms of the impacts of variable dividend. We don't give out guidance in terms of what our annual variable dividend is, but I think you can take a look at how we approached it last year. We were very balanced in terms of how we approach the annual variable dividend, the pay down of the debt and the investments in the business.
Okay. Thank you.
Thanks, Sameer.
We now take a follow-up question from Alex Blostein from Goldman Sachs. Please go ahead. Your line is open.
Hi. This is Sherry [ph] filling in for Alex. Energy open interest have been tracking down was at the end of 2018. Can you help us understand why does that and any color on the client participation outside the U.S.? And specifically, how sticky are these volumes from the client base outside of U.S.?
Derek?
Yes, this is Derek. Thanks for the question. A couple of things we talked last quarter about the stepping away from our power business, our power contracts are extremely small sized contracts. And they are a large portion or a large absolute number of openings as contracts.
So, we try to do in our best mature as a separate those products out and show you the open interest in our core products. So, when you just look at the headline, overall energy complex, we try to provide you that the numbers for OI specifically, just on the power side.
So, we're talking about contracts of tiny, tiny value in size. This is a business that was run at probably flat for the last couple of years were down probably 10-ish million contracts. But these are tiny, tiny little contracts not core to our business. As it relates to the globalization of the business right now. We're actually seeing energy. If you look at what the energy trading range has been was taught crude specifically.
Crude oil was effectively on a $5 trading range for the last month is spent in a $10 trading range for the last six months. What we're excited about is seeing that in even in sideways and kind of flat markets, low-vol environments, we're actually seeing that we are continuing to outperform the broader crude market, we are doing $1.25 million contracts a day in WTI, you're seeing about 900,000 contracts that are taking place in the BRIC [ph] contract.
So, we're seeing both the global narrative of expanding participation globally of WTI as a global marker expand. The marker of that in the materials we gave you, which you can see that 27% of our energy business now takes place with customers outside the U.S. That's up from just 15% back in 2014.
That's up from just make 24%, even just a year ago. So, we're continuing to see outsize performance of primarily commercial participants. So, the comments Terry made earlier to earlier in the call, which is our focus point for non-U.S. customers for commercial participation.
So, I think the globalization of the crude oil market and now the nat gas market are indicative of the client base. We are building focusing on our sales force. And we're seeing that continued growth and participation from outside the U.S. has been the primary drivers for growth in the overall complex.
So, we're happy with where we are continuing to be in a challenge macro environment, invest in the business, on-board global customers and we're seeing that flow through in the metrics and the participation from outside of U.S.
Thanks, Derek.
Thank you.
Thank you.
We have a follow-on question from Mr. Rich Repetto from Sandler O'Neill. Thank you.
Yes. Hi, Terry and John and team. I guess my question is, on the international, all the volume that's coming from outside the U.S., it's just, to me, it's pretty amazing that it's as resilient as it is. And it's across product lines as well, the percentage, it doesn't like, it doesn't see -- it seems like the trading with the U.S. but more all the time.
So, I guess one question is, could you just give us a little bit more color behind what's driving that? And is there anything on a -- from a regulatory standpoint, I know open access is starting to come back into the conversation in Europe in 2020. Anything that you have on your foresight vision going forward, outside the U.S.?
Bryan.
Thank you, Rich for that question. You've heard me comment in past calls, what's been going on with our international focus over the last five years, in the last 4.5 half years, we've seen tremendous growth at 81% growth and average daily volume internationally breaking that down, EMEA is representing about 72% growth APAC 110%. LatAm, which you've seen in the last couple of years about 150%.
Now, what's driven that, we've strategically placed our people in these various regions, as we've noted, we've invested in the sales force, you've heard me speak about country planning, which has been very, very important for us, covering over 70% of our top 10 countries throughout the world has allowed us to drive and better focus my resources and attention across these asset classes.
Deeply appreciate your recognition about the diversity of the asset classes and how those are performing very well. Across our various regions, we've been seeing that that double-digit growth continuing to occur across the various asset classes that we represent. When we talk about an EMEA, for example, we've seen 22% growth, they're largely driven by the financials, equities and agricultural. But also, what we haven't mentioned is the tremendous growth and options that are occurring, international double-digit growth across those asset classes.
As we look at Asia, in particular, you know, you traditionally we would focus on China and Hong-Kong and more recently, South Korea. Through these plans that we've instituted, we've gotten much broader coverage, we've made the investments, as we alluded to, throughout Hong Kong and Australia.
And again, we're seeing wonderful double-digit growth in those quadrants we are focusing more on Southeast Asia in terms of the development of those plans. And we have, although it's a lower base, seeing some very nice double-digit growth across the Southeast Asia quadrant.
When we look at Latin America, again, we're seeing some nice growth coming out of the Brazilian hedge fund community in particular, I think them having a very stable and modest interest rates in Brazil has helped us quite a bit in terms of our ability to further penetrate and grow those markets.
With respect to an EMEA, we're really pleased with the country planning impact that has allowed us to see again, growth across Israel, the Netherlands, Germany, and Scandinavia. And so, it's that targeted focus. It's the diversity of the asset classes. It's our belief that we haven't as deeply penetrated the opportunities that exist across the globe. And we're going to continue that focus.
And Rich, let me just touch a little bit. And John can jump in as well. I think what, you know, I have not heard much about the open access language, coming out of Europe, but I wouldn't be surprised if it's being bantered around.
What I'm hearing more of is less about that and more about efficiencies for the client. And that's really what we're hearing not only coming out of Europe border net globally, because that is the theme is more efficiencies. And when you look at just what we've been able to accomplish on that front, taking the margin efficiencies with our interest rate portfolio going from Sean, you can give me the numbers about 2 billion to 5 billion roughly over the last year or so.
So, I think those are the efficiencies that clients are really looking for. And then when you look at some of the other regulatory rhetoric that you may or may not be hearing, you know, I think you had an unprecedented comment coming out of the United States. Congress when you had the chairman of the Oversight Committee for our industry, hold a hearing, and then subsequently publicly say to the Europeans, that you will not regulate us financial services. And it was very, very powerful statement coming out of that hearing.
I was fortunate enough to testify that hearing. And I don't think in all the years I've been doing this; I've seen something like that. So, I do believe you're hearing rhetoric coming out of Europe, and I think most of its related towards Brexit and what's going to happen there.
But in the meantime, you know, they're trying to make it a global rhetoric, but I think our government has made it perfectly clear that we are deemed an equivalent society and with our rule base the way we are operate today, and this is a global industry and it will not be disrupted. So, I'm very confident in every aspect of it.
And again, on the open access provision, I'm not hearing much of that. I'm hearing more on the efficiencies. John on the [indiscernible] difference.
Exactly, that's very rightly said, you know, we were delivering to participants surprised, actually, 2 to 2.5 billion worth of portfolio margin efficiencies last year. In the second quarter, we peaked at a bit over 5 billion, where the efficiencies or portfolio margin efficiencies as we see, a large number of participants continue to uptake that service.
As I mentioned earlier in regard to the unclear margin rules and in regard to Dodd-Frank and sometimes takes participants time to adopt to the efficiencies that we offer the marketplace.
And we see continue to increase adoption of portfolio margin on that front, I think that is related to our all-time record, U.S. dollar swaps OTC clearing volume in June of $129 billion, our all-time record overall, OTC swaps clearing $178 billion in June, second quarter was up 46% over $150 billion.
And, you know, finally our invoice spreads. So, invoice spreads specifically, take advantage of that portfolio margin. This is U.S. Treasury future traded as a spread and insurance wall. And when they're both clear to see me, you can get up to 85% margin savings.
And in terms of that we're doing about 120,000 contracts today, this year relative to 89,000 contracts today last year. So very big increase in uptake of these efficiencies that we're delivering to the marketplace.
Does that help Rich?
Very much. Thank you.
We have a follow-on question from Kyle Voigt from KBW. Next, please go ahead.
Hi, thanks for taking my follow-up question. So, if we look at your total open interest, I think a large majority of the increase year-on-year is due to the extremely strong growth we're seeing in the euro dollar options franchise.
But if we look on the euro dollar futures guide, we're seeing a lot down here in the year. Just wondering if you can comment on what's driving such strong uptake in that euro dollar options business. And then I guess any explanation for why we aren't seeing that growth in the euro dollar future side of the complex as of yet.
Sean.
Yes. So, we've seen, we're very excited about the huge growth that we've had in the euro dollar options. And, as we said earlier, the interest rate environment changed dramatically from last year to this year, where you went from an expectations of Federal Reserve tightening to the expectations of Federal Reserve easing with the Federal Reserve meeting happening today.
You know, as you can see the expectations live on our Fed watch tool. So, in that environment, yes, we've seen people reduce their open interest in the futures contracts relative to the reduced expectations of tightening, but huge increase in options usage relative to the increase in risk in the environment.
So, we're very excited about it. You know, I would expect the industry complex to continue to grow, right. And it continues to be the place where the marketplace goes to manage risk.
We're very excited, we had an old-time record, open interest in interest rates as you're mentioning in June of over 110 million contracts. And I think it's based on the continuous improvement that we are making those products relative to alternatives in order to manage risk.
Just from my past, I will tell you that when you're from a trading perspective, people will look when the fundamentals of any marketplace, especially something that has an impact on so many different products, such as interest rates, when you have a policy of tightening that has been broadcast for several years, and then all of a sudden gets flipped into an easing process.
People will migrate to the options on the futures to manage that risk only because they want to mitigate some of the exposures associated with it. So, it's just a way, I think it's more a little bit of a fundamental confusion in the overall marketplace because of policy has appeared to be changing. Is that fair? Sean.
Yes.
It's helpful. Thanks.
That's not a bad thing from our perspective, either. I just want to make sure we're clear on that. You know, we're very bullish on our options, franchises as throughout all of our asset classes. And I think that's one of the reasons why you're seeing our business grow the way it is, and a lot more people are managing their risk and our options across the asset classes. And that's a healthy sign for this industry, not a negative one.
Thank you.
Thanks.
And we take our last follow-on question from Alex Kramm from UBS. Please go ahead. Your line is open.
Yes. Hey, hello, again. Just as we were talking about regulation earlier, I know you were more focused on Europe, but maybe Terry, does your domain maybe talking a little bit more about the US? Obviously new see FCC Chairman. I'm sure you met plenty of times. We haven't heard publicly a lot from him.
Other than op adds up at the other day, there wasn't much detail but one of the things that I thought was interesting was the whole risk created by in CCP since the financial crisis. So, any thoughts in terms of agenda any change in direction. I know it's early days. But what you focus on. I guess with the change in leadership there.
So, I have met with the Chairman, since he's assumed the role of Chairman just recently and I had the opportunity to work with him when he was over at Treasury as well. I think he is a terrific young man and I think he going to be very good for the industry as I told him. This is one of most dynamic industries in the United States and financial services and he's the guy that is sitting in the right place at the right time.
I think his focus right now is going to make certain what I said earlier, is to make sure that the United States is not franchised by but around the world from a regulatory arbitrage or overreach of regulatory on US participants or what the CFTC should be doing.
Secondly [indiscernible] they do put out a comment afterwards as it relates to CCP risk. I don't think the Chairman was trying to drive tension the CCP risk. He was just making some points and then he has a clarification statements sent out by the commission right thereafter.
So, all-in-all I am very pleased with the new Chairman. I think that he will be good for the industry globally and I think that's a healthy thing as I said earlier, this is a global business, and there's a lot of people counting on that ecosystem to continue to mitigate and manage the risk, and disruptions are not good and clearly is even worse, no clarity is even worse.
I think the Chairman understands that and he is working with his counterparts make sure that we can have a well-functioning futures and options world globally. So, I’m very excited by Chairman Tarbert and his leadership.
All right, very good. Thank you again.
Thank you.
Ladies and gentlemen that now concludes our question and answer session. So, at this time I would like to turn the conference back to Mr. John Peschier for any additional or closing remarks.
I just like to thank you all of you for participating and have a great day. Thank you.
Ladies and gentlemen that now conclude today's conference call. Thank you for your participation. You may now disconnect.