CME Group Inc.

blanket pricing increases. That's not something that we do. And I know some suggest that that was becoming a pattern, but it's because of what we were able to deliver to the marketplace over that time period, we were able to do price increases. But again, we evaluate that pricing throughout the entire year before we make any decisions and bring it to my board. Lynn, do you want to come any further?

Yeah, the only thing I would add, Kyle, is that the 1.5% to 2% You quoted that was on the clearing and transaction fee. Just keep in mind that we do look at different levers as we're thinking about pricing changes. Those could include changes to the fee schedule. It could include things like incentive programs or other agreements there. There is the data component and also things on collateral, so non-cash and cash collateral fees. So we did guide to 1.5% to 2% this year on the clearing and transaction fee. We said two and a half to three percent on total revenue, given some of the changes we made on those other fee lines. And we've been tracking towards that throughout the course of this year.

Great. Thank you. And then maybe a follow up for Lynn on the expense trajectory. I think in 2023 you had 56 million of cloud migration expenses that was expected to grow by 15 million this year. I guess, can you confirm whether that level of migration spend is still on track? And then can you remind us how we should think about the cloud migration expenses into 25 and 26? Will there be incremental spend needed in each of those years? And maybe address the interplay of that and the trajectory of DNA over that timeframe, too.

Yeah, sure. So if you look at the migration spend for this year, the total spend is on target for our guidance of $90 million. Now the difference between that and the 15 million increase, you do have some roll off on existing kind of business as usual expenses as we've been migrating to the cloud. So you see about 25 million in costs that are rolling off, which would get you to that differential or that increase of 15 million year over year. So we are on track with our guidance on that expenditure. Like what we've also said is that we would expect incremental costs related to our migration for the first four years. We are in year three, so we do expect to still see incremental costs next year related to that migration. I would note that the Google-related expenses were included in our overall expense guidance, so that 3.9% implied by our expense guidance did include that Google spend. So that has been trending down as we are starting to see some of the benefits of rolling off that on-premises operating expense.

Great. Thank you.

Thanks, Bell.

Thank you. Our next question is from Brian Bedell with Deutsche Bank. You may go ahead.

Great. Thanks. Good morning, folks. Thanks for taking my questions. Maybe just one quick one back to the competitor on SOFR. And Terry, thanks very much for the commentary. They're very detailed. On the pricing of the SOFR contracts and tiering, is that Is that something you could use in the future? I mean, compared, obviously, with the tick size and the wideness of the bid-ask spread dwarfing that, it would seem like you wouldn't need to do that. But is that something that you could do in the future in terms of pricing to certain members or using any incentives on that? Should the market share increase from the competitor?

Yeah, Brian, appreciate the question. And as you can imagine, I'm not going to comment on that because there's so many different levers that we have here to bring value to our clients as I continue to say. And I'm not going to predetermine what I should or should not do on this call right now. We do a lot of theoretical game planning here at my team. And we look at certain things on pricing. We look at certain things on value add. But as I said, we did not increase, put any incentives in for the last – and we had a record quarter. So we are pretty pleased with the way the market has anticipated our offering to date. So it would be foolish of me to try to suggest that we would do anything different at this moment.

Gregg Yeah, totally, totally clear. And then maybe just Lynn, could you review the collateral balances and the rates paid for the quarter, and then I guess exiting September given we had the rate cut in the month?

Sure. So in Q3, our average cash balances were $72 billion, which was similar to the $73 billion we saw in the prior quarter. Our rate, we earned on that, remained consistent at 36 basis points. On the non-cash collateral side, we saw a slight increase to $165 billion for the quarter versus $161 billion last quarter, and we continue to earn 10 basis points on that non-cash collateral. So far in October, we've seen slight increases in both of those elements. The U.S. cash balances are averaging $73 billion in months to date. And the non-cash collateral is averaging $173 billion.

And is the spread the same given the rate cuts, or is that different coming into 3Q?

Continue on the cash collateral. You have the 25 basis points returned to clients. The difference between the 36 that we've been earning and the 25 is our ability to optimize our returns using some other vehicles. So that did not change during the quarter. If rates continue to decrease, an ability to get those outsized returns might be pressured, but the overall rate that we're paying has not changed, and it's been at that same 25 basis points for quite a few rate hikes. Yeah, it's been since the The IORB rate was at 1.65%. Got it, got it.

Okay, so I'm sorry, so the spread is still 36 basis points. Is that right?

The spread is still 25. We're earning more because we're able to optimize those returns.

Oh, yes, I see what you're saying. Yep, okay, got it, got it. Yep, thank you.

Thanks, Brian.

Anything else?

Good?

Oh, yep, totally good. Thank you so much for all the answers.

Thanks, Brian.

Appreciate it.

Thank you. Our next question is from Craig Sigenthaler with Bank of America. You may go ahead.

Thank you. Good morning, everyone. Most of my questions were asked, but I wanted to try to ask them in a different way, so I apologize if any repetition. But first one, we have a follow-up on Robinhood's future and index options launched this quarter. I was curious, which products do you expect to see the largest uptick in demand? You know, we're thinking SPY, WTI. And also, how do you think SPY will compete against its core competition, including SPX, given its tax efficiency? And we are curious what insight Weevil's launch was able to inform you on this, just given Robinhood's differentiated clientele.

All right.

Thanks, Craig. Appreciate the question. On the Robinhood and the product, I'll let Julie take that on this SPX versus the Spooz. I'm going to let Tim talk about that in a moment. So Julie, why don't you start?

Yeah, thanks for the question Craig. You know, what we have typically seen in new retail clients coming to trade CME products is the first entry point is within our micro equity suite. These active traders are often using this to hedge existing stock portfolios. They have typical experience trading cash and cash equity options. And so this is a natural overlay to move into the derivative space in equities first. What we have seen is, as you mentioned, the diversification that we then are quickly able to follow up on is an important part of our product suite for retail where we are able to then work with our distribution partners to offer them things like WTI and energy as well as our metals complex has continued to see a lot of growth too with our micro gold. So I'll turn things over to Tim to talk through a little bit of the competition side of things.

Great, thanks, Craig, and appreciate the question. When looking at the S&P 500 ecosystem, it's important to note that these are highly interrelated, but just to clarify that when we look at the futures and options on futures products at CME Group, they are also efficient from the tax perspective. They are also a Section 1256 contract that enjoys the blended 60-40 capital gains tax. That is an index-based determination. That is something that we enjoy. other index products are also able to provide that ETFs are not. And when we look at the way that our contracts will be not only distributed through Robinhood, but all of our partners, it continues to be an important tool for traders to manage their risk to access that market. And when we look at how we're doing against ETFs, I'm excited by the fact that more retail distribution partners are coming online. Because even if we look at At Q3, we've had very strong performance in terms of our futures versus ETS as a product choice. And when we're looking at that, we're at the highest multiple in my 11 years here at CME tracking it. But our S&P 500 futures at CME Group are out trading the associated S&P ETS by a factor of 15 to 1. for the third quarter. So optimistic about what even more distribution platforms offering our products alongside the cash markets and ETFs. We think it'll be a great opportunity for the market to take not only advantage of the tax efficiencies, but all the capital efficiencies we offer here at C&P Group.

Thank you. No, that was great. Very comprehensive. Thank you. Just for my follow up, we have a question on event contracts. A large online broker launched a political election and weather contract platform recently. It's been getting a lot of media attention, as I'm sure you're aware, given the upcoming U.S. election. And this is an example of a broker offering contracts, so some vertical integration. I'm wondering if there's an opportunity for CMA to play a bigger role in this business, and if you think there is a large TAM for event and political election contracts in the United States.

So, Craig, thanks for the question. And I will start and then let Tim go ahead and make a comment or two as well as it relates to that. So that we've been asked, I don't know if your question is being asked in a different way. Are we, are we going to list political event contracts? And the answer is at this moment in time, no, but we never forego any opportunity that we might see in the future. Um, but at this given moment in time, we do not see that as an avenue that CME wants to partake in. I don't see that too dissimilar though to Bitcoin. We did not participate in that for many, many years until we thought it was mature enough for us to list it and make sure that the product was not readily maniputable under the core principles of the CFTC. I'm not suggesting that the product that's being listed today is, but we need to know more about it and watch some cycles before we decide to jump into something like that. So I don't know if your question was, are we going to get into that or not? So I want to make sure that was perfectly clear. that at this moment in time, no, but we never forego potential opportunities if we think that they're right. But timing is always everything for me and my team. So we'll see how that works out. On the other part, I'll let Tim address.

Sure. Thanks, Terry. I think the one thing I would say with respect to our offering of event contracts here at CME Group is it's important for us to offer those products to the market in a way that leverages the other futures contracts that we have at CME. So our approach to event contracts are they have an underlying associated future that also trades at CME Group which is a key part to our product offering. We also look at longer dated year-end event contracts on the equity indices. We'll continue to work with market participants to figure out if there are additional types of products that they want in the marketplace. Like I said earlier, that holds true for all of our asset classes. But for event contracts, it's key to us right now to focus on transposing the liquidity we have in their sort of older sibling contracts in a new form, offering more ways to trade those same markets. We'll continue to engage with the market to see what else we should do.

Thanks, Tim. Greg, did that address your questions?

No, that was great. Thank you, guys. Thanks, Greg. Appreciate it.

Thank you. Our next question is from Owen Lau with Oppenheimer. You may go ahead.

Good morning and thank you for taking my question. So I have a quick question on your expense guidance. If I look at the first three quarters of last year, your com ratio was about 14% on average. This year for the first three quarters, your com ratio is only about 13.1% based on my math. But your revenue this year is much stronger than last year. So is there any change on the full-year comp expense this year versus last year? And should we expect a big true-up of your incentive comp in the fourth quarter? Thanks. Thanks, Owen. Lynn?

Yeah, so we do have true-ups for our incentive comp throughout the year as we look at incentive-based or performance-based compensation that will flow through in the various quarters. So I would say what you are seeing is some of the operating leverage in our business. to drive that revenue, it's not a direct relation to us adding additional headcount. So I think you're just seeing the benefits of that model rolling through this year.

So we should expect like a bigger drop in the fourth quarter, is that what we should think about from modern perspective?

No, so the true-up happens over the course of the year. So if there is any outperformance or underperformance, you will see that in each of the respective quarters. So it's not a large true-up on incentive comp in the fourth quarter. And our expectations on compensation are built into our expense guidance for the year.

Okay. So, and I think what Linda said, we're growing revenue with the same amount of people that we have in place with the same cost expense that we have because of the the operating leverage model that we have. So that's why the math is on yours to our favor.

All right, got it. That's it for me. Thanks a lot. Thanks, Owen.

Thank you. The next question is from Mike Cypress with Morgan Stanley. You may go ahead.

Hi, good morning. Thanks for taking the question. Maybe one for you, Terry, just coming back to your earlier comments on Treasury futures clearing abroad. Just curious in your conversations with regulators, level of receptivity are you hearing to your arguments that treasury futures should not be cleared abroad and what actions might we see if any taken? And then if a competitor were to set up a US clearinghouse to clear treasury futures here in the US, what would be the scope for them to sort of access netting benefits from