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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and 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 Peschier. Please go ahead, sir.
Good morning, everyone. Thanks for joining us. I'm going to start with the safe harbor language, and then I'll 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. For 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, and 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. So 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 clearing house, 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 [Technical Difficulty] organization has resulted in another successful year of reducing our total controllable costs, while continuing to invest for the future. We also continue 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 rollbacks. 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 sox product areas post solid growth in January as we continued 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 your questions - open the call for your questions. And 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.
[Operator Instructions]. Our first question comes from Brian Bedell with Deutsche Bank.
Maybe just quickly on, I guess, both tax reform and the expense outlook. First of all, should - with your expense guidance just up about 2%, 2.5% to 3%, should 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 increasing the cash flow. And 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 are seeing earlier in the year, how should we think about expenses potentially flexing up, I guess, would your incremental margin - what do you view as your incremental operating margins?
Thank you, Brian. Several questions in there. So 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 tax reform - 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. And this provides us more financial flexibility. In terms of the expense guidance, it's often 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 increasing - increases, the staffing related to growth initiatives.
And 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 no 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 reforms. So it's - 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.
And you're still being incremental margins over 90%?
Yes. I mean, it's obviously going to be a function - since you have our expense guidance, it's really a function of sales. And if you could see in our first quarter so far, our volumes are up about 18%. So very, very positive and we would expect our incremental margins to stay in kind of the range it's been.
Our next question comes from Chris Allen with Rosenblatt.
I wanted to ask about market data, so run rate's increased 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?
It's Bryan. With respect to the derived data, we continue to see a nice pipeline of demand for that product. And 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. So 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 recognize that. However, our goal within the audit is to make sure that we have compliancy and that we're protecting our IP in that regard. And hopefully, correcting some noncompliance 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. And quite frankly, we've seen that from some of our user base properly recording and reporting their real time data usage. So we feel that all of this is having the intended effects.
So were there any like any onetime catch up on audit that we should be aware of just kind of not get over our skis in terms of modeling going forward?
It's hard for me to comment on the audits. I would 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.
We'll take our next question from Alex Kramm with UBS.
I 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 for this year is the very strong growth so far this year. In particular, relative to your primary competitor. Now 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. I mean there's regulatory changes or you know that the sales performance - but anything you could add would be great.
Yes, Alex, this is Derek, thanks. We are very pleased with the results that we've posted up in 2017. I think we're chock-full of records that we've pointed to in the documentation we sent you guys. Going from a very strong record year in 2017, as you pointed out we started with a record year so far in '18. What we're seeing is broad-based growth across the entire energy complex. We spend a lot of time talking about WTI, we're - actually have just posted a new record ADV month in January, inclusive of not just WTI, but also our gasoline contracts 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.
And in some of the documentation we've provided you guys, we're showing that, 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. But that's a function of the sale campaign that Terry referred to earlier. The efforts and investment we've made in the front-end of technology to access customers to provide liquidity 24/7 and we're seeing that flow through across into our commercial customer base, which has been the central focus point for the last 2.5 years on the business side and sales side, leveraging our regional sales people. So 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 in the waterborne products.
Our next question comes from Dan Fannon with Jefferies.
I guess another question on market data. I think there's a price increase coming on April 1. Can you talk about that and what you're kind of expecting for attrition? And then, Bryan, just to follow up on the further - your earlier comment 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 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 to $105. We have not increased prices for several years. Yet we continue to increase the number of products across both futures and options. And we offer, I believe, the broadest space 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 justifies - 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 and as a result, that has reduced some of that attrition pressures. So we'll monitor it closely.
Our next question comes from Michael Carrier with Bank of America.
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 just your typical customers that are picking up their activity, given kind of a shifting outlook. Or you're seeing users that might have been more dormant pick up their level of activity? So 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?
Mike, it's Terry Duffy. I think the best way for us to try to give you a little bit of color on that is to let Sean and Derek walk through. As you've seen, especially in our interest rate complex as we've hit open interest records, we've hit new records in Globex trading. Derek talked about the amount of records in our releases. So I think what will be helpful is if we let both Sean and Derek make some quick comments on what we're seeing for the first month of '18. Sean?
Thanks very much, Terry, and thanks for the question. So we've 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's asset classes. So we're continuing to penetrate a much larger customer base, in particular, much larger customer base relative to alternative products. Another example we've been talking about continuously over the last few years, is our penetration of the cash Treasury bond market. So currently, our treasury futures are trading about 94.6% of the volume of the cash Treasury bond market. That's up from the 80% area last year and up from 55% if you go back six years ago. So we've seen tremendous growth there. This year, very exciting again. We've just seen, in the last couple of weeks, a new record number of large open interest holders in our interest rate complex.
We've seen a new record open interest in our foreign exchange complex. And we've seen records in our Eurodollar options on Globex. Actually, we had a record day, just a couple of weeks ago. And very interesting thing, nothing we've talked about - as spoke about earlier is the electronification of our markets, how it gives us much better access to international participants and how when you electronify our markets, we see a much higher velocity of growth. So we had - again, we had a record Eurodollar options volume date earlier this month, one. Two, on that day, very interestingly, we had a 47% electronic market. Not only that, but in fact, we did more volume on the box from Globex on that day than we did on the Eurodollar options, than we did in the pit. So the strategy that we've been following in terms of the electronification is absolutely working in terms of getting more participants, more global participants and higher velocity of growth. So we're very excited about our sales approaches, we're very excited also about new products.
On the new products side, a lot of excitement there with all of the new participants. So we had great growth in our weekly options, a lot of new weekly options. We launched Wednesday Weekly Treasury Options last year. They're doing over 18,000 a day. As you, I think, know, in our S&P options over the last 1.5 years, 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 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. So 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?
Yes, some similar trends. I'll reference some comments early on the energy side. Really, our focal points on energy and we've got - with so many records, Peschier told me to stop sending them data to put into this thing, so 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 2.5 years. And if you look at the growth, it's 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, so the strength continues.
And I think the - true on the metal side as well, particular strength in our industrial metals in 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. And options continues to accelerate and strengthen our order book in futures as options traders tend to hedge their exposures in our underlying futures. And if you look at our starting point in January of '18, we came off a total year record in ADV for 2017, and we're setting an all-time options record in January of '18 as well. Our option ADV overall was up about 30% in January. And it'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 somehow 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.
So 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. So 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. And our remit around here is to continue to add customers, globalize business and enhance that customer experience around our product set.
We'll take our next question from Rich Repetto with Sandler O'Neill.
I guess the question is, you had record revenues in 2017, you got strong January volumes, you got price increase coming in, you had 94% incremental margins and controlled expenses looking forward. So 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. And potentially diluting this, I guess, pure profitable model, versus the other advantages of building scale and looking for additional products, et cetera. So the outlook for M&A given all the talk that's been out there.
Well, 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. So 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 can add value to this company. I have said this before and I'll say it again, over the last 14 months, 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. And 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.
And 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. So thanks for the question, we are - 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 in 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. So 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.
Our next question comes from Patrick O'Shaughnessy with Raymond James.
Question for you about cryptocurrencies. Obviously, still in the early days for you guys, but now we're starting to hear, I think, increased conversation from the CFTC about their desire to regulate and provide oversight of cryptocurrencies. So 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. And then I'll ask Sean to jump in as well and anybody else around the table. The crypto market is something - obviously it's brand new as far as a listed product goes. But 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 is actually, I think, helped mitigate some of the volatility in the product in and of itself. But 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 functionalities, similar to what we have on the equity markets on the percentages.
So I think it's 7, 13 and 20 that we have on percentages as a market to - market volatility increases or decreases. So 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 and 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 and then people got more comfortable with different methodologies. So you could use that as an example of cryptocurrencies to some example. This is new to the marketplace with the exception, as I said earlier, it's nine years old. And we will continue to work with the regulator and 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 very much a walk as we go through this, not run. So 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. So I don't know if that completely answers your question because this is - this topic is so broad and there are so many different opinions on it. So only I can say to you is, on 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. John referenced some new contracts that are trading 30,000 to 50,000 a day. That's not this product. We also design this product, as you know, to make sure that we do not attract the small retail participants, that's not something that we wanted to be a part of.
So 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. So Sean, you can comment on it if 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.
Yes, I think, Terry, I think you captured it very well. We - 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 crop firms. And about 32% of the volume so far is coming from outside of the United States. So we are getting additional participants. But it's relatively a small part of our activity.
We'll go to Ben Herbert with Citi.
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 the new product launches in '18 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. So the foreign exchange business last year, significantly outperforming the largest two cash market competitors in terms of volumes. And 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 were in the process of offering several new products that we're very excited about. We recently launched Wednesday Weekly Options, they 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 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. So the monthlies are very exciting. Because for the first time, we are - we have a product that's trading about 10,000 contracts a day. It's going to offer participants an alternate to FX forwards on the IMM 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. So 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. So 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 market places and those participants. So 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'd like to say is, we're following the same playbook that we've followed in interest rates. If you look over the last six years, what we've accomplished in interest rates is new products. 17% of our interest rate revenue in 2017, actually came from new product 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, representing the same risk. This is the same study that Greenwich Associates published in regards to our interest rate futures back in 2015. So 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.
Our next question comes from Kyle Voigt with KBW.
Maybe one just on the net investment income, just wonder if you could give us an update on the cash balances, how does it sit currently? Your net investment income in 4Q? And then lastly, how your take rate on those balances has changed after the December hike? I think you passed along 80% of the benefit. But just wanted to clarify.
Sure. Thanks, Kyle. This is John. And yes, in terms of the Fed activity, no, 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 $1 billion - little over $1 billion. So that decrease of - offset the small benefit that we got because we didn't start earning until 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. And was that just because total collateral was down in your keeping? Or was that just - was that a shift - a mix shift, just customers holding less cash?
Yes, that's an excellent question. It's a - we saw both cash and noncash collateral decrease between Q3 and Q4.
Our next question comes from Ken Worthington with JPMorgan.
Maybe for Derek, it was mentioned a lot of times during the quarter, a number of times record volumes in natural gas. So I'm wondering how the natural gas market is evolving, we're obviously seeing more LNG capabilities coming online. But things that seem 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. So 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. So maybe how the gas business is sort of flowing into ClearPort and this migration from - I'm sorry, yes, into ClearPort and how the migration is working from ClearPort to Globex? I think there's like six questions in there, but all gas related.
All right. Well, you know I talk fast, Ken, so I'll try to keep up with you. Relative to the - there's a structural story in the gas market you've heard us talk about and it's absolutely playing out over the course of the multiyear horizon. 2017, I think you saw a very, very tight range from a trading price perspective, we're starting to see that breakout. 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. And we've seen that correlation break down as gas itself has been able to separate itself from oil. And now you're seeing a growing infrastructure for exportable Henry Hub gas in the form of LNG or liquid natural gas.
There's 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 frac-ing revolution that generally we associate with crude oil and WTI coming out of the Permian basin, there's 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, basis Henry Hub gas, coming out of the U.S. that will 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 is up 55%. Nat gas futures alone has been 744,000 contracts a day. As I mentioned, that's contributed to our overall energy record this year. And the last piece, I think you talked about ClearPort versus electronic trading or Globex trading. We're actually seeing a shift from broker market - market structure nat gas options to electronic trading of natural gas options. So 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. And in January of this year, so four quarters later, that's north of 62%. So 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. And relative to the total non-U.S. growth in Jan, we're seeing that continue to grow apace.
So growth in global participation end-user participants in our nat gas is following a very similar path to what we put in place for WTI net structural story as well. So we're very excited about that. We are also right in the sake of what's called the gas season, natural gas from November to March. So typically, we see volume boost, but this is an outsized growth in January, which given investments we've made, we think that we can continue to globalize participation as that market connects globally with Henry Hub at its core.
I would just add on the international perspective, the growth in nat gas, both out of EMEA as well as Asia has been tremendous. I mean, 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 in the last couple of quarters.
Our next question comes from Chris Harris with Wells Fargo.
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. So we talked a little bit about it before, I mean, 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.
Our next question comes from Alex Blostein with Goldman Sachs.
Just a quick follow-up, I guess, at this point. At the end of last year, you made a number of pricing increases, we talked about pricing increase in the market data side, but I don't think we talked much about on the trading side of things. And I think in the past you were able to kind of provide, given the same kind of volume mix and customer mix, the implications on kind of blended RPC could be for you guys for 2018. Just broader strokes, that would be helpful. And 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 kind of 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. And it's part of our normal course of business, we review incentive plans, volume tiers and the face rates that we charge our customers. And we're very targeted with how we approach pricing, really does not impact - 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.
Yes, so there's probably four things I'll 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. So we're investing in acquiring a global customer base and that typically is positive for our mix shift. Within the customer mix itself, as we focused on our commercial customers, that also typically carries a higher RPC than our base rate. Very few of our biggest commercial customers are actually members - direct members, they change for various reasons. So as we continue to focus on to that end-user customer base, good for the open interest and good for drawing financial participants in, but they also typically carry a high RPC.
And finally, from a venue and a products 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. And as we shift businesses from brokers to electronic trading, typically that's positive to the RPC as well. So hopefully those four mix, whether it's product venue or client, give you a sense of what we're seeing in the energy side.
Our next question comes from Brian Bedell with Deutsche Bank.
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 and, Sean, do 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. And then last year was double the volume the year before. So 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 time, we also mentioned that last year we saw growth in the NASDAQ futures and NASDAQ also has a somewhat higher RPC. So a number of positive tellings 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. So the primary drivers were the Bitcoin, the Russell 2000 and the NASDAQ.
The BTIC, you mean for this...
The BTIC, and the Russell 2000 and NASDAQ.
Yes, if I could squeeze just one more in maybe just on market data, I know there's a lot of moving parts here because of the audit's uncertain. And then the - with the price increases on the terminals, potential attrition rate is in question. But 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. 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 Bryan indicated, we're building up a pipeline in terms of opportunities in the derived data side. And also, we're making good progress in terms of ensuring compliance with our reporting of terminals. So that should help with the attrition numbers. You are correct, we do have an increase in April from $85 to $105, so we're going to keep a strong eye on kind of the attrition impact to that. But combining that with in-sourcing the audit function should be helpful ensuring compliance and ensuring that the reported numbers are accurate.
Our next question comes from Alex Kramm with UBS.
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 tax - from the lower tax rate, et cetera, how are you thinking about the dividend in general? I think somebody asked about the variable dividend but - sorry, yes, the variable dividend. But given the higher run rate, is there like a position to actually bring the quarterly up as well? I mean, how does - maybe this is for Terry, how does the board think about that? I mean has there been discussions around the bringing the quarterly up as well with the 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. So 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. So we'll be discussing quarterlies and other capital return policies as it relates to the dividend.
All right. Fair enough. And then just maybe secondly on the expense guide, I think you laid out kind of like the drivers of expenses for this year higher. But 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 and they might be like 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. So 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 mean, I think our technology team has done a fantastic job in terms of architecting our systems, so 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. And 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 we're doing - performance that our systems have, we also are very cognizant of security and that's an area that we continue to invest in to ensure that our - ensure the integrity of our markets.
So it is an area that we are continuously investing in and continuously innovating on. Just kind of 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 hedging - hedge accounting, I think both are positive.
Our next question comes from Patrick O'Shaughnessy with Raymond James.
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. But one area that kind of jumped out to me was your S&P 500 futures. If we look at CBOT, their SGX 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 SGX a little bit more or is there something else going on?
This is Sean jumping in. No, our volumes in our options have grown as a portion of the overall marketplace over the last few years consistently. So while there may be short-term fluctuations that are somewhat different, certainly over the longer term, we have been outperforming the other marketplaces. And in particular, our - 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. So we're actually doing very, very well.
Yes, I think that's important. I just want to jump in on that a little bit because I think Sean nailed it. But when you're in these low volatility times, options become a very attractive play. And that's what we're seeing. So that's why we're seeing the growth in our options and our features. So I think you're not actually comparing the right products. So when you look at our options growth on our S&P versus just the futures against the SGX, it's a little bit different. So Mobile increases more activity in options.
Our next question comes from Jeremy Campbell with Barclays.
Just wanted to do a quick follow-up here. I mean, your slide deck still says you still keep - you look to keep $700 million of minimum cash. I think, per prior calls and conversations, there's 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 kind of 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 dividend out almost $1.2 billion with our annual variable dividend, which got us down to about $715 million in terms of the minimum cash balance. So it's 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. So our cash levels, taking into consideration the annual variable dividend, was about $145 million lower than it's been over the last year and significantly lower than it's been over the last couple of years. So we've been much closer to the $700 million target.
And our final question comes from Jonathan Casteleyn with Hedgeye.
First to your thoughts on activity levels in fixed income versus quantitative tightening. So this has been largely loss diagnostics in its $4 trillion position. So I'm curious as it unwinds, it's [indiscernible]. Exactly what do you think the activity rate could be on the exchange?
So certainly since October, the Federal Reserve has been reducing the size of its balance sheet. As they've announced, as we know, right, 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 the $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 purchase 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. And so therefore, on a gradual basis, it should help to increase our volumes.
Okay, makes sense. And quickly, I have a question for Terry. Obviously, you seem to have your finger on the pulse on the comings and goings in the regulatory environment in D.C. So curious, just some perspective about how you think the environment's getting more restrictive, less restrictive? And any sort of catalyst coming down the pipe from a regulatory standpoint?
So I got most of your question, we have maybe a little telecommunications problem with the call. But I think that your question was based around the regulatory environment. Is it better, worse, indifferent. Is that kind of the general question?
Yes, exactly. Sorry about that. Yes.
Yes. I would say that the regulatory environment is, obviously, for the most part the same. I think when you look at Dodd-Frank, just as it 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. So 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 their - under the EMIR 2.0 regulation. So 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, that will continue to be the same equivalence of rating, even though they're coming up with new regulation. There's a lot of people on the regulatory side here in the United States in 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. So from the most part, I would call it positive to neutral? And - but that's an ever-changing environment and we keep a very close watch on it.
Thank you. And 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.