CBOE Holdings Inc  (NASDAQ: CBOE) Q1 2020 Earnings Call Transcript

CBOE Holdings Inc  (CBOE) Q1 2020 earnings call dated May 01, 2020

Corporate Participants:

Debbie Koopman — Vice President, Investor Relations

Edward T. Tilly — Chairman, President and Chief Executive Officer

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

John F. Deters — Chief Strategy Officer and Head of Corporate Initiatives

Chris Isaacson — Executive Vice President and Chief Operating Officer

Analysts:

Richard Repetto — Piper Sandler — Analyst

Kenneth Worthington — JPMorgan Chase & Co. — Analyst

Daniel Fannon — Jefferies & Company Inc. — Analyst

Alex Kramm — UBS Investment Bank — Analyst

Michael Carrier — Bank of America Merrill Lynch — Analyst

Christopher Allen — Compass Point — Analyst

Brian Bedell — Deutsche Bank — Analyst

Ari Ghosh — Credit Suisse — Analyst

Christopher Harris — Wells Fargo — Analyst

Owen Lau — Oppenheimer & Co. — Analyst

Kyle Voigt — Keefe, Bruyette & Woods Inc. — Analyst

Presentation:

Operator

Hello and welcome to the Cboe Global Markets 2020 First Quarter Financial Results. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded.

I would now like to turn the conference over to your host today, Debbie Koopman, please go ahead ma’am.

Debbie Koopman — Vice President, Investor Relations

Thank you. Good morning and thank you for joining us for our first quarter earnings call. On the call today, Ed Tilly, our Chairman, President and CEO, will discuss the quarter and provide an update on our strategic initiatives. Then, Brian Schell, our Executive Vice President and CFO, will provide an overview of our financial results and provide updated 2020 guidance for certain financial metrics. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be our Chief Operating Officer, Chris Isaacson and our Chief Strategy Officer, John Deters.

In addition, I would like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the investor relations portion of our website. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold, and while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our SEC filings for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, after this conference call. During the course of the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. Today’s speakers are joining from different locations, so we would ask that you please be patient if there are any technical difficulties.

Now, I’d like to turn the call over to Ed.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Thank you, Debbie. Good morning. I would like to thank you for joining us and to extend my best wishes for your health and health of your families and colleagues.

The first quarter 2020 was a stunning period in history encompassing the nascent spread of the COVID-19 virus to a global pandemic, threatening lives, markets and economies. The growing spread of the virus fueled tremendous market uncertainty as well as concern for the health of our employees, market participants and communities. Our first priority was to help mitigate the risk of potential exposure to our team members and trading floor community, while working closely with our regulators and customers to maintain continuous and orderly markets. We began transitioning employees to work from home ahead of government mandates and on March 16th, we made A very difficult, but necessary, decision to temporarily close the trading floor for the first time in our 47-year history and transition Cboe Options Exchange to all-electronic trading.

Cboe’s hybrid trading system has always provided best-in-class liquidity and access through open-outcry and electronic trading mechanisms. While the historic action of closing the floor proved to be a short-term distraction, thanks to the collaboration and input from our floor trading community and the responsiveness of our regulators, we were able to complete this transition in a two-day period. The SEC’s collaboration and support was critical in enabling us to work quickly through the rule changes needed to close gaps through technology for a seamless transition. Although it remains unclear when and how we may re-open the floor, we are in discussions with our trading floor community and working through various scenarios, so we are well prepared for any eventuality. The health and safety of our trading floor community, which includes market participants and Cboe team members is our highest priority and will dictate when and how we re-open the trading floor.

In the meantime, the electronic component of our hybrid system remains industry-leading, and we are actively working on electronic solutions to replicate the benefits of floor trading in order to better respond to the demand for high risk and complex trades that are temporarily more difficult to satisfy. The recent market instability reconfirms the importance of transparent, accessible and regulated markets. Throughout this period of extreme market conditions, our exchanges performed without incident, processing dramatically increased volumes across all of our markets.

Turning now to a look at the recent trading environment. The S&P 500 index touched record highs in mid-February. With a variety of known-unknowns on the horizon, combined with initial concerns around the impact and severity of the coronavirus, hedging was top of mind for most investors. As we have seen before, in the midst of extreme market uncertainty, the world turns to Cboe to leverage the utility of SPX and VIX options and VIX futures to navigate market turbulence. This played out vividly in the first quarter 2020 with year-over-year increases of 43% in index options and 44% in VIX futures as investors repositioned and monetized hedges during the subsequent market sell-off. Higher trading volumes in the first quarter gave way to lower volumes across our proprietary products in April. As we look across our diversified product line, we continued to see strong volume in multi-listed options and US Equities as users of our index products de-risked or regrouped.

Volumes will ebb and flow as uncertainty plays out. The extended disruption in the market has been colored by record levels in realized and implied equity volatility, while rates have collapsed and oil prices traded negative. Currently, as we have seen before during times of extreme market stress, investors de-risk until the event is more clearly defined. When they are better able to assess risk, they reengage. Tragically, this is an ongoing crisis, and we expect to see new permutations of volatility as it continues to evolve. No one can say with certainty how this situation will play out, but the path to recovery is unlikely to be linear. We expect investors to continue to deploy and redeploy our unique product set to trade their changing market views and hedge their positions as the crisis evolves.

We remain focused on listening to our customers by delivering products and solutions tailored to help them reposition to better navigate this new and extraordinary environment. We are actively redefining how we approach investor education. Two new initiatives include virtual forums for industry experts to share the latest in risk management strategies and webinars covering a broad range of topics designed to increase awareness about the benefits of allocating to Cboe products. Further, we are positioned to assist our customers by offering customized trading resources that address the complexity of managing risk through periods of heightened and prolonged uncertainty.

Silexx, Cboe’s proprietary order and execution management system continues to provide critical functionality throughout the challenges presented by the COVID-19 pandemic. In order to facilitate access to an all-electronic environment, we expedited development work on Silexx, which enabled floor traders to replicate their work streams in both Flex and listed options and remain active in the new virtual environment. In addition, we offered Silexx free to our floor trading permit holders through the end of May to help them adjust and provide continuous liquidity. By facilitating access to our market in an all-electronic environment, we help to ensure the continuation of a fair and orderly marketplace.

Along with the growing need for robust, customized tools, we saw increased demand for historical datasets and sophisticated analytics as the world tries to make sense of the current economic environment and prepares for what lies ahead. By offering a comprehensive suite of data solutions, analytics and indices, we provide market participants tools for better understanding risk and accessing Cboe markets. Understanding risk has never been more important than now; it follows that portfolio risk and margin efficiency rank at the top of what our customers need. This highlights the importance and timeliness of our recent acquisitions of Hanweck, a real-time risk analytics company, and FT Options, a portfolio management platform provider. Similar to our Silexx acquisition two and a half years ago, our Hanweck and FT Options acquisitions were based on our ongoing commitment to investing in tools to grow the utility of our product suite. The value of these investments may not manifest immediately, but eventually market conditions make clear how these resources draw users to our markets and help establish higher baselines of product volumes once participants re-establish their views on the market.

We also support customers through product innovation that delivers value in a variety of market environments. For example, in our US equities business, we are encouraged by the positive response we have seen to our new Retail Priority offering, with steady increases in ADV each month and representing about 5% of shares executed on Cboe EDGX in April. On March 6, we launched Cboe Market Close, which enables us to tap into part of the closing auction market volume, while benefitting the industry with an on-exchange, price-competitive alternative. As expected, the market environment during the quarter limited customer uptake of CMC, but we expect uptake to increase based on recent customer outreach for certification and testing. Meanwhile, our post close trading service in Europe, Cboe Closing Cross has begun to gain traction and we expect that volume to continue to build, as well.

In addition, Cboe BZX was the first exchange to list actively managed semi-transparent ETFs for trading, leading the industry and supporting our issuers with the approval and listing of this ground breaking ETF innovation. With other listings of this type in the pipeline, we are focused on establishing Cboe as the listing venue of choice in this arena.

Turning to Europe, the close of the EuroCCP transaction remains on track and is currently expected to close in the next few months, pending regulatory approval and other closing conditions. As we have mentioned, we expect EuroCCP to enable us to grow our current European business, to further diversify our revenue stream by enabling us to bring to market a European derivatives business that leverages our expertise in actively quoted markets to better serve our global customer base. EuroCCP is the central link in the pan-European equity market network and we value the business for the critical role it plays in settlement across Europe. Additionally, as an in-EU clearinghouse, we see EuroCCP as a strategic asset in light of the political and regulatory uncertainty surrounding Brexit and the future framework of European capital markets. We look forward to sharing additional details on our European derivatives launch plans in the coming weeks.

As a global exchange operator, Cboe is deeply committed to providing orderly markets throughout this crisis. I would like to thank our trading community and regulators for their critical work in enabling us to maintain robust and reliable markets during this critical time. I believe the highly collaborative efforts with our regulators throughout this crisis can serve as a model for productive collaboration going forward. Special thank also to the Cboe team. Our associates are deeply experienced in the business of risk management, which requires prudence, knowledge, flexibility and composure, qualities in abundance across our team. Their collective experience and dedication enabled us to successfully navigate extraordinary short-term challenges, while continuing to execute strategic growth initiatives across all of our business lines.

Good citizenship is one of Cboe’s guiding principles, and we are also mindful of our role as a global corporate citizen with offices and customers around the world. The giving spirit of our team is inspiring. Our company-wide corporate giving and the generosity of our associates is focused on providing relief to those suffering from the crisis and to containing its spread. We believe the experience of our team, our diversified product line, which includes but extends well beyond our unique proprietary products, and the expansion and growing utility of our customized trading resources leaves us well positioned to continue to deliver positive results for our customers and investors as we move forward.

With that, I will turn it over to Brian.

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

Thanks Ed and good morning, everyone. I hope everyone and their families are remaining safe and healthy and I would like to echo the thanks to Cboe Chairman, Edward to make this call possible this morning.

Let me remind everyone that unless specifically noted, my comments relate to 1Q20 as compared to 1Q19 and are based on our non-GAAP adjusted results. As Ed noted, we reported record financial results for the quarter, underscoring the strength and resiliency of Cboe’s franchise and the utility of our products, particularly in times of market turbulence.

Our net revenue increased 28%, with net transaction fees up 43%, and non-transaction revenue up 7%. Adjusted operating expenses increased just 5%, which combined with our strong revenue growth resulted in adjusted EBITDA growth of 42%, resulting in very healthy margin of over 74%. The Adjusted EBITDA margin on incremental net revenue was 103%. And finally, our adjusted diluted earnings per share increased 48% to $1.65.

Consistent with our prior guidance, we grew our quarterly recurring revenue stream of proprietary market data and access and capacity fees by 8% compared to first quarter 2019. This increase includes over $2 million attributed to the acquisitions of Hanweck and FT Options in the quarter. Organic growth was 7%, which excludes the acquisitions and the shift of approximately $1 million in revenue reported in access and capacity fees in 1Q19, which is now reported in transaction fees. The growth in proprietary market data and access and capacity fees continued to be driven by incremental subscriptions and units, accounting for about 86% and 77% of the growth this quarter, respectively. In our last call, we noted our expectation that these revenues would grow in the low-to-mid-single digits organically and mid-to-high-single digits on a reported basis, which is inclusive of the acquisitions of Hanweck and FT Options.

Looking ahead, the reported growth rate for the non-transaction fees is now expected to be lower in the low-to-mid single digits purely due to the realignment of certain fees as a result of our move to all-electronic trading. Certain floor broker access and capacity fees have been suspended due to the temporary floor closing. However, we have implemented comparable transaction-related fees in an attempt to achieve a neutral net revenue impact, all else remaining equal. Having said this, we remain optimistic about achieving the underlying organic growth target of the remaining proprietary market data and access and capacity fee category. This revenue shift will occur in the second quarter, again in the form of higher transaction fee revenue associated with higher RPC for our index options and lower access and capacity fees.

Now, a review of our segments. In our options segment, the 36% or $50 million increase in net revenue was driven by growth in net transaction fees, particularly in our index options, where average daily volume climbed 44% for the quarter and RPC grew 7%. The RPC lift reflects a mix shift by order execution and type as well as pricing changes implemented during the quarter, most notably, a fee increase for SPX options as well a fee decrease for VIX. In multi-listed options, ADV increased by 55% and RPC fell by 21% with the latter primarily due to a shift in customer mix and higher volume rebates versus the first quarter of 2019.

Turning to futures, the 36% or $11 million increase in net revenue primarily reflects a 43% increase in ADV and a 1% increase in RPC. The higher RPC year-over-year was primarily due to a mix shift with a greater percentage of volume coming from higher RPC order types, including block trades. In US Equities, net revenue increased 14% or $11 million, primarily due to higher transaction fees with equities volume benefiting from the return of volatility to the market, shifting more trading to on-exchange venues versus off-exchange or dollars working in the background.

Our market share increased year-over-year and sequentially and has been particularly strong on our Cboe BZX exchange, where we have benefited from the rise in ETF trading, a key volume growth driver in US equities. Net revenue for European Equities increased 15% on a US dollar basis and 17% on a local currency basis, reflecting higher market volumes and higher capture, offset somewhat by lower market share. The higher capture resulted from continued strong periodic auction and LIS volume. The net revenue increase reflects a 17% increase in transaction fees and non-transaction revenue. The growth in non-transaction revenue reflects increases in access and capacity fees, primarily due to the incremental connections with the opening of our Amsterdam network in October of 2019, and other revenue, which includes licensing and trade reporting revenue. The decline in market share was primarily a result of significant market profile shifts due to the highly volatile market conditions in the quarter which saw many participants recalibrate their models. Additionally, volumes were impacted by our loss of ability to offer Swiss securities for trading, due to the Swiss equivalency matter.

Net revenue for Global FX increased 22% for the quarter, hitting a new all-time high, reflecting a 19% increase in market volumes and a 3% increase in net capture with the latter reflecting a mix shift in volume by customer type. We maintained strong market share and set new ADV highs in our full amount offering as well as on Cboe SEF for NDF’s.

Turning to expenses, total adjusted operating expenses were about $99 million for the quarter, up 5% against last year’s first quarter. A key expense variance was in compensation and benefits, reflecting the net impact of a $5 million increase in incentive-based compensation, resulting from higher bonus expense this quarter and forfeitures of unvested equity awards in 1Q19, a $2 million increase as a result of lower capitalized wages relating to software development; and a $2 million decline in benefits due to the adjustment of deferred compensation plan assets. Note that there is an offsetting $2 million charge in other income, resulting in no impact to earnings. This adjustment reflects the change in the valuation of certain deferred compensation plan assets and we do not attempt to forecast or include as part of our overall expense guidance.

Looking ahead to the remainder of 2020, while much uncertainty remains around how this pandemic plays out, we remain steadfast in our execution of prudent expense management. In light of the COVID-19 crisis, we have re-calibrated our 2020 expense plan with a focus on deploying our resources to have the greatest impact. We are reducing our guidance for 2020 adjusted, operating expenses by $16 million to a range of $419 million to $427 million, primarily reflecting lower compensation costs and lower expenses for travel and entertainment and marketing events, resulting from the current environment. Expenses are expected to ramp-up in the second half of the year as we plan to accelerate our existing growth initiatives and complete our Chicago headquarters build-out.

This slide provides an update to the 2019 to 2020 expense bridge we provided in our last earnings call, indicating we now expect core expense growth to be flat to up 1% because of changes to our assumptions. As a reminder, this guidance does not include our planned acquisition of EuroCCP and the build-out of pan-European derivatives trading and clearing. We plan to incorporate that into our 2020 guidance after the acquisition closes, which we still expect to occur in the next few months, subject to regulatory approvals and other closing conditions.

Turning to income taxes, our effective tax rate on adjusted earnings for the quarter was 27%, at the lower end of our guidance range but above last year’s first quarter rate of 25.4%. The year-over-year tax rate increase was primarily due to greater excess tax benefits associated with equity awards in the first quarter of 2019 versus 2020. We are reaffirming our 2020 full year tax rate on adjusted earnings, which is expected to be in a range of 26.5% to 28.5%.

We are also reaffirming our capital spending guidance for 2020 of $65 million to $70 million. We are still on track to move into our new Chicago headquarters in the early part of the third quarter, however, this could shift based on availability of our current suppliers. Furthermore, we still expect depreciation and amortization to be $34 million to $38 million for 2020, which excludes amortization of intangibles of approximately $120 million in 2020.

Turning to capital allocation. Let me underscore, we remain focused on investing in the growth of our business to build upon our strengths while returning excess cash to shareholders through dividends and share repurchases. Our financial position continues to be very strong. We have very good cash flow generation capabilities and a solid balance sheet. During the first quarter, we returned $120 million to shareholders through share repurchases and $40 million through dividends and at March 31, our share repurchase authorization available was $180 million.

Our debt remains at $875 million and we have $250 million in availability under our revolver, if a short-term funding need arises. Our leverage ratio moved to 1 times at quarter-end, down from 1.2 times at the end of the year, reflecting higher trailing 12 months of earnings and, we ended the year with adjusted cash of $137 million. We expect to see approximately $25 million to $30 million of liquidity benefit primarily from the immediate deductibility of leasehold improvement, expenses from Chicago headquarters move, deferral of first quarter tax payments and employer social security taxes as allowed by the US CARES Act. We do expect to maintain a more conservative cash position in the near term and evaluate funding alternatives opportunistically.

In closing, these unprecedented times leave us with many unknowns, but what we do know is, we just reported record quarterly financial results across almost every financial metric; our technology infrastructure handled messaging volumes that were double prior peaks, with no service disruptions; we worked collaboratively with our regulators and trading floor community to migrate to an all-electronic exchange and our workforce converted to a work from home environment, all without skipping a beat. The underlying fundamentals of our business are strong and our philosophy of maintaining financial flexibility is in place for times like these.

Regardless of market conditions, we remain focused on serving the needs of our customers and delivering sustainable returns to our shareholders, while guarding the health and welfare of our associates.

With that, I will turn it over to Debbie for instructions on Q&A portion of the call.

Debbie Koopman — Vice President, Investor Relations

Thanks, Brian. At this point, we would be happy to take questions. We ask that you please limit your questions to one per person to allow time to get to everyone. Feel free to get back in the queue and if time permits we’ll take your second question. Turning back to Keith now.

Questions and Answers:

Operator

Yes. Thank you. As mentioned, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from Rich Repetto with Piper Sandler.

Richard Repetto — Piper Sandler — Analyst

Yeah. Good morning, Ed, and good morning, Brian. I hope everybody, you and Cboe team are all safe and healthy. Congratulations on the outstanding margin you reported in the quarter. I guess my question is on proprietary trading volumes and just trying to understand the impact of the floor closures, if you can quantify that at least on the complex trading of the SPX Options. And then just to get more into what you talked about in the prepared remarks, have we seen a more pull back from either speculators or is it the two hedgers? And then I’m just trying to understand how equity volumes in multi-listed options remain elevated, but we’ve seen the proprietary product volumes in April pull back quite a bit.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Rich, thank you and good morning. Great question. I like the way you combined that. Let me first answer the floor perspective. I think in the kerfuffle of moving to all-electronic, we — I think manage to satisfy the demand for the majority of our customer flow really well. But that said, the most complex trades, those that are most risky, we have not been able to fully satisfy and I think there is pent-up demand — I know there is pent-up demand and frustration with some of those more complex trades and their attempt to access the pool of liquidity, that is the SPX. So we’re going to work on that. I’m going to provide you some detail there.

The second part of your question on speculation versus hedging. Speculation is alive and well. The activity we see in single name product I think goes right to that question. There are winners and there are losers in this incredible market move. And even today with a 60 Spoo move I anticipate there’ll be a lot of speculative play and we’ll see that in multi-list options and including spiders. The SPX, you’re right. Institutional-based. The hedging tool for hedging US — exposure to the US market period. So I think the hedgers are on the sidelines to your observation as well.

Let me get back to the question on how then to return the utility, that is the floor of the SPX through the experience of those that are still frustrated by access into SPX. We have a two-pronged approach. One, we are preparing for the open of the Cboe trading floor. We’ll be ready in and around June 1, safety first is going to be our guideline. We have our own members of the Cboe community going down — back down to that floor to service our trading community. So the health of both of those groups is first and foremost. We recognize the impact that we potentially can have on the Chicago community if we act too quickly and recklessly. So it will be safety first, but we’ll be ready operationally June 1 to go back to open outcry trading.

The other path that we’re pursuing is what electronic solutions can we offer to the marketplace that bridge the gap between the experience that was found on the trading floor. The utility that brokers provide, the ability for market makers to trade with market makers, how do we provide that solution electronically? We’re well into the design of that technology solution and we will be vetting that with the SEC immediately. So I’d say two-pronged approach, ready for open outcry June 1, parallel path on electronic solution. So we will return the experience for all of our users to what they’re used to gaining access to the S&P 500 complex.

Richard Repetto — Piper Sandler — Analyst

Thank you.

Operator

Thank you. And the next question comes from Ken Worthington with JPMorgan.

Kenneth Worthington — JPMorgan Chase & Co. — Analyst

Hi, good morning. Thank you for taking my questions. Can you talk about the damage done to your clients in VIX this financial correction? While firm seem to be positioned very differently this time in VIX versus what they had — where they had been in 2018, there still seems to have been damaged done to those who were short volatility. And we may see this in the multi-year lows and open interest and futures. So how would you compare the damage done this time in 2020 versus what we saw in 2018? And to what extent are you seeing signs of recovery?

Edward T. Tilly — Chairman, President and Chief Executive Officer

First, I guess, I’d have to see damage done before I can see signs of recovery. I will say that the big volume change that we see, I think I would point to most that is affecting the volume in VIX futures is the massive reduction in AUM and ETPs, and as a result, the lower required need to rebalance at the end of each and every night and VIX futures. So most intense in the levered and inverse ETPs were about a 10th of the AUM that we were pre-sell off. So I don’t think that — I would not categorize this at all in the parallel you’re drawing to the last major spike in VIX, where we did lose flow and strategy. I don’t see the same here and I certainly haven’t heard stories that resemble anything like we’ve seen a couple of years ago.

So I think this is normal. I think the rest of the VIX open interest, there was a great deal of monetization of hedging. So if you had VIX option positions on or if you had the right position in VIX, not surprisingly, you reach exploration, you hold those positions exploration and mid-30s VIX level is not where you re-engage, you let those options expire. And we’re at a higher level, we’re at flat line VIX right now. We’ve talked about this for years we’ve seen the market go to flat-line, the market is most indecisive when the volatility surface is flat. This does not surprise us at all.

John F. Deters — Chief Strategy Officer and Head of Corporate Initiatives

Ken, this is John Deters. So to Ed’s points on the ETP dynamics, just very, very different patterns from what we saw the back a couple of years ago, in particular, you can track when you look at short, one of the important things to look at is the short interest in the long ETPs. And where the short interest really accelerated was after the VIX level started to lift up. So rather than people being caught short, they went short when VIX was hitting 70, 80. Now that we’re at 30, the term structure is flat, people don’t have views on whether that’s going up or down, the shorts are out of the market, the longs are not back in and you can see that through the inflows — the asset inflows into the ETPs which have generally been negative. So people are waiting to reestablish a view, that’s simply it.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Ken, let me give you just a reference point on the March expiry and kind of prove the point a little bit about not rolling and reestablishing, expire is at 69 level. So that’s not a role level. I think it’s a wait and see. And that’s exactly what we’re observing today. But thank you. It was a great question.

Operator

Thank you. And the next question comes from Dan Fannon with Jefferies.

Daniel Fannon — Jefferies & Company Inc. — Analyst

Thanks. Good morning. The derisking you highlighted across the customer base here in I guess later March and April. I guess without clarity in the pandemic re-engagements likely to be a bit delayed, but I guess, if you think longer term, the addressable market for your products in terms of hedging through periods of volatility. Can you talk about kind of new customers and new opportunity and how the market might be more broader for the utility of your products kind of post events like the last few months?

Edward T. Tilly — Chairman, President and Chief Executive Officer

Yeah, it’s great. And what we’re doing is, we told you this was the year of organic growth. And the team is so fired up, we have the right people on the street with the right people in front of customers, the engagement was solid and that is still going to be our story, but we’re pushing that out a little bit. This is a back to basics. Our existing customers need more information in the volatility environment and you’re right, you cannot see the end of this pandemic yet. And that shows up in the flatness and the elevated nature of the curve right now, so it’s really difficult to look through. So the engagement has to be different, but we’re engaging virtually each and every day with the existing customers. And I’d say, if we were — our goal was — 60% in 2020 to engage with existing customers and 40% out in gaining new, I would say, we’re probably at an 80%-20% now re-engaging within existing, while still trying to cultivate new. So it is a little — a bit more of a pivot back to the people we know, who are needing more information in this environment. And back to the growth story, I would hope by third and fourth quarter of this year.

Operator

Thank you. And the next question comes from Alex Kramm with UBS.

Alex Kramm — UBS Investment Bank — Analyst

Yeah. Hey. Hello, everyone. Wanted to just I guess a numbers question on what you outlined on the access fees and the price change there. Can you just give us a little bit more color what the dollar impact is on access fees and obviously, I guess, you’re trying to get an offset on the transaction side, but is that basically a plan for one month now, you just said that floor may re-open in the beginning of June. And then maybe just related to that, I mean, how did you think about that pricing change? I mean, is there a situation where you’re introducing higher transaction fees to some clients, who only trade electronically anyways, and now you are implementing more friction into the marketplace at a time when you are desperately looking for more volume or how should I think about the puts and takes of the new pricing schedule?

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

Yeah. Alex, happy to provide a little bit more color there. So the high level number is about $1.5 million per month roughly on that fee shift that you would see. And that RPC, like I said is something that we looked at and say, we’re not trying to make more money as a result of the change, we’re trying to just basically do a neutral offset. And it’s not an exact science, but the goal would be to, while it won’t be a 100% is that the same folks who would have paid that — call it that access fee would be seeing a slightly higher transaction fee on their trade is the way we tried to structure that. So it’s not across the entire complex, obviously, it’s not exact, it’s not perfect the way the fee schedules work, but I would say the bulk of that of what that RPC shift would be on those who were paying the access and capacity fee that I mentioned as far as the shift goes.

As far as the, how long and everything else. Ed talked about potential timing change as far as, obviously, there is conditions that have met of local areas lifting restrictions and a lot of things that go into that. What I was doing and when we provide that guidance is, we don’t know exactly when that will shift. So if it’s only a month and we’re back, then it’s only a month and we’ll update the guidance. So I think that was a very good question for you to ask to kind of assess that out on a kind of a monthly basis of what we’d expect to see because we would then go back to flip the fees back to where they were quote pre-temporary foreclosure.

Alex Kramm — UBS Investment Bank — Analyst

Great. Thank you.

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

Yeah.

Edward T. Tilly — Chairman, President and Chief Executive Officer

I think we lost the connection, Debbie.

Debbie Koopman — Vice President, Investor Relations

I’m not hearing anything.

Operator

The next question comes from Mike Carrier with Bank of America.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Excellent.

Michael Carrier — Bank of America Merrill Lynch — Analyst

Hi. Thanks. Thanks guys for taking the question. Hey Brian, just a question on the expense guidance and I understand things are so influx, so it’s probably tough to be too precise. But typically the range that you provide that range constitutes a pretty kind of broad like outcome in terms of like the bonus and how that gets accrued. I guess, just given this year with the uncertainties on like the pits closed versus going back and kind of reengaging in somewhat normal operations and travel, how much of that is included in the range? Meaning, in terms of being on hold versus going back? And then I know you mentioned EuroCCP is not included, I think initially you guys said something around $0.08 to $0.10 dilutive in year one. But has any of that changed versus what you know as of now? Thanks.

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

So I mean, Mike, I’m going to try and interpret the first question on the bonus impact I think broadly — so I’ll try to answer that broadly. And then on the EuroCCP I’ll answer that one, because when we gave that guidance that was again meant to be broadly, I’ll call it a — some of that was a bit of a 12-month perspective, so if it was delayed some of that could get shifted a little bit into outside of 2020 and then more into ’21 as we kind of roll that forward.

So it was — when we, obviously, when doing all of our modeling look at the impacts, look at when the investment occurs, we had certain expectations of when that would hit in 2021 — excuse me then when that would hit in 2020. So I would say stay tuned for when we see that actually does get closed and we’ll refresh that. We continue to — obviously, like the US and in Europe, continuing to engage those clients. There continues to be very strong interest in what we’re doing there. And we haven’t seen anybody back away and say we don’t want to do this, but realizing the environment we’re in, we’ll have to evaluate the timing and whether this expenses happened exact same time as we had initially indicated, but that’s kind of why we also then are waiting to update that guidance until that closes to again give everybody more clarity as far as the timing goes.

On the bonuses and what that reflects, essentially sometimes that compensation is a little — it basically has to have a full-year perspective on it, because essentially what firms are required to do is forecast where they expect to make earnings for the entire year and book an accrual based on kind of we’ll call it one quarter the way through and have expectations along the way. We’ve made what we think are conservative assumptions as far as how our year goes, we have different scenarios that we look at, evaluate the higher or lower volume impacts. And obviously any impact to those expectations that occur relative to what we’ve assumed obviously can change the accrual for the bonus itself, but right now, we feel very comfortable that we’re kind of in a solid range of where we are.

And as I said, I think that if that number goes up, it will be only due to higher volumes. And if it goes down and it’s not as where people — we might expect them to be that guidance could come down a bit. So I know you’re probably looking for explicit number, but just know that overall bonus and you look at the expense structure, compensation is a big driver of the overall expense guidance.

Michael Carrier — Bank of America Merrill Lynch — Analyst

All right. Thanks.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Mike, just a couple of additional things on EuroCCP. To Brian’s point, the previous estimate in terms of EPS impact was an estimate in terms of timing, it was also an estimate in terms of where we thought those facility fees would come in. And I think one thing that we’ve been pleased about over this period even through the market turmoil is we’ve been able to successfully make progress on the syndication. We now have signed commitments for the full facility, really just waiting for those final regulator approvals and the fees have really come in right in the ballpark of where we anticipated even in this environment. So it’s terrific.

And just in terms of the longer-term derivatives plan in Europe, we’re as excited as ever, some things may face delay here and there, but we’re finding banks who are really engaging with us, they’re ready to participate and we’re also I think in a position to apply some of the lessons we’re learning in our markets here in the US in terms of liquidity provision and new ways to electronically source liquidity supply that will really bear fruit in Europe. Since obviously I mean, Europe is not going to be a floor environment, but we can still place some of the electronic lessons we’re learning today there.

Operator

Thank you. And the next question comes from Chris Allen with Compass Point.

Christopher Allen — Compass Point — Analyst

Good morning, everyone. I wanted to revisit Rich’s question a little bit, just the answer there. I was wondering if you could help us quantify how much activity is driven by the complex trades. Because what everyone is trying to parse out is what level of decline has been driven by, as you talked about the flatness of the VIX curve and elevated VIX versus what’s been driven by the foreclosure there. So any color there would be helpful. And also, how is your — the four participants who are being impacted by the fee shift we just discussed, how did they receive that in terms of — particularly just given what is the likelihood there of lower levels of activity right now?

Edward T. Tilly — Chairman, President and Chief Executive Officer

So I’ll take them in reverse. Good question. As far as the fee level, look at it this way. This is primarily SPX issue. If you were trading the at-the-money options before the move and it was $0.63 to $0.68, you’re trading the at-the-money options today and it’s $40 or $50 premium and there is another dime or so in fees, that is not the friction point. So while no one wants their fees to go up relative to the options that you’re trading. This is not an issue that is affecting at all from our opinion, the volumes in the SPX. It is not why you wouldn’t trade the SPX.

As for the complexity, I think you’re on to it. If we look at the most complex trades with exposure to the S&P 500 are in multi-leg spreads and if I define those as the most complex, they are I think six legs and over, right? So pretty simple to trade electronically a two-leg spread, but if you get into six and over, it becomes more difficult. Before March that was about 5.5% of the SPX volume. After the major move and we went to all-electronic, that’s about 2.3%, 2.4%. So that is a massive amount of volume that is been frustrated [Phonetic] by an all-electronic environment and it is exactly the benefit we think we will gain when we return to either open outcry and/or an electronic solution that satisfies those most complex trades.

And what we haven’t spent a lot of time on is the market maker experience not in fees, but in their ability to continue to reposition their own risk with fellow market makers that may or may not have the same exposure. That is very, very difficult to do in an all-electronic environment. It’s very, very easy to do when the most liquid pool of liquidity that SPX pit allows you that interaction with other market makers leading to re-balance and reposition their own portfolios. We will need a solution for that electronically and we have that design. So as I say, the parallel path we’re chasing right now, we will provide solutions both all electronically and a return to open outcry trading.

Operator

Thank you. And the next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell — Deutsche Bank — Analyst

Great. Thanks. Good morning, folks. Hope everyone is safe and well also. Just to come back on obviously the topic that you’re on the floor, just maybe a different way, just in my own volume calculations here for quarter-to-date across SPX, VIX options and VIX futures. SPX volumes are down a little bit 30%, while the VIX options are down 60% and futures are 65%. Maybe this is too simplistic, but from my understanding, the SPX is more heavily or has a higher floor participation, where VIX traditionally has a higher electronic usage, and of course, futures does as well. Is that contraction in SPX volume somewhat of a reasonable proxy for the contribution from the volume decline in the floor, if we were to look at that way?

And then also on the development of the electronic complex order types that you’re working on, I guess, how quickly do you think that would be effective? And then would people continue to use that if it was affected to the extent that they would in the future be less active on the floor and rather use the electronic version?

Edward T. Tilly — Chairman, President and Chief Executive Officer

So let me answer the electronic version versus the open outcry a little different way. So our position on the open outcry trading has not changed since we went hybrid. So if you can think 10 to 15 years ago, the expectation was the trading floor would close. Cboe has an electronic solution that should satisfy the majority of its users and no longer find utility in the pit. Our position has always been that when our customers tell us that there is no utility in the trading crowd, when brokers provide no service to their customers, the electronic solution will close the trading floor not Cboe and not its management team. That position has not changed.

We have been adding and improving technology from the moment hybrid was introduced. We’ll continue to do so. Now in this instance, we have been able to isolate needs that have not been satisfied in an electronic environment with much more clarity. So the focus and the direction is clear. The design is already done and the interaction now will be with our regulators and timing of a launch in our Phase 1. That is not going to be the last phase. We will have multiple phases of adding technology and solutions to the experience that our customers have today using open outcry. So I do think there has been an impact in SPX due to the frustration of not being able to get those most risky and most complex orders done. I’m not sure, if I answered all your questions. So please reengage with me if I left something out.

Chris Isaacson — Executive Vice President and Chief Operating Officer

Brian, This is Chris Isaacson. I would just add here. This is a long history of making technological advancements to satisfy and provide the utility that our customers want, including on the floor. So we went to hybrid for the SPX monthly contract in 2018, massive integration effort to new technology in 2019. We pivoted on a dime when we were forced to close the trading floor. We’re working very quickly to satisfy the utility of trading for whether physically or in a virtual mode. As Ed said, we’re all over this, the design is nearly done and subject to regulatory approval, and working with them. We will be ready for any outcome here regardless of how COVID-19 progresses.

Brian Bedell — Deutsche Bank — Analyst

Since we would expect a recovery based on the work you’re doing there. And then secondarily, what you mentioned to an earlier question as people put risk back on in the market that’s a whole another dynamic of that recovery, but that’s a little bit more uncertain on the second part.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Great.

Chris Isaacson — Executive Vice President and Chief Operating Officer

Yes.

Brian Bedell — Deutsche Bank — Analyst

Yeah. Thank you.

Operator

Thank you. And the next question comes from Ari Ghosh with Credit Suisse.

Ari Ghosh — Credit Suisse — Analyst

Hey. Good morning, everyone. So, Brian, just on Hanweck and FT Options. Can you remind us again what the revenue contribution look like in 1Q and the outlook for the remainder of the year? And then just more broadly on — when I think about market data and access, additional subs and new clients have been key drivers of growth over here. So appreciate any color on what you’ve seen thus far in April and expectations near term around new client growth just given some of — the continued market uncertainty and day-to-day business disruptions? Thank you.

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

Yeah, sure. Thanks for the question, Ari. So on the Hanweck and FT, we didn’t provide guidance on the acquisition, we just kind of — we’ll continue to let everybody know the incremental amount that’s in our numbers as it’s new because we want to continue to highlight the organic growth that we’ve been able to experience and continue to drive going forward. So stay tuned as we continue to report that. It was about $2.5 million. I think we had in our slide deck you’ll see that for the first couple of months for February and in March in the quarter.

As far as the underlying proprietary market data and the access capacity fees and what that looks like, we look at that pipeline, we’re in communication with our business development team, again, we still feel good about that organic growth, you’ve seen the really, really strong numbers as far as the units and subscribers driving that growth versus any price changes.

With respect to the connectivity part of that, that actually is probably surprises to the upside as far as strength goes, which is not surprising given the environment, the additional need for capacity and the connectivity of it, that’s probably slightly higher than our expectations and some of that also in line with as the Amsterdam operations like I mentioned earlier in prepared remarks have come online.

With respect to the proprietary market data, again, if we look at kind of some of our, call it three larger geographic areas of Europe, US and Asia, we continue to see good pipeline and we still feel good about those sales granted the in-person contact has slowed, but the interest continues to be strong. And so while we may have seen a little bit of acceleration than we have maybe originally expected in access capacity fees, that’s more than offset than some of the growth that we’ve seen in the pipeline may be pushed back a quarter or two relative to interest, but we still see a very strong and healthy underlying environment for that category.

Edward T. Tilly — Chairman, President and Chief Executive Officer

And Ari, to support that, these are not the proprietary datasets that we sell are not heavy in-person sales cycle type datasets. These are things that are taken electronically by market participants. We started immediately after we closed the Hanweck and FT Options deals, we started really the cross-sell effort, a very, very small minority of customers across those businesses and across our own existing proprietary product businesses were overlapping. And so I think those efforts continue and I think we’re very positive about the potential for new client uptake across the product sets of the three businesses.

Ari Ghosh — Credit Suisse — Analyst

Great. Thank you very much.

Operator

Thank you. And the next question comes from Chris Harris with Wells Fargo.

Christopher Harris — Wells Fargo — Analyst

Thanks, guys. So historically when volumes move from open outcry to electronic, they tend to go up. Could that outcome happen with your electronic solution for complex orders? Or is there something maybe different about that to suggest that won’t occur? And if it does have that potential, why not move away from the floor entirely.

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

So I do think it has the potential, but if you can — just the image you need is we have excess supply of liquidity. That’s not deployed in the market right now from our traditional market maker group, who are global in nature, running their own — primarily running their own book. We have excess demand for access into the SPX that is global in its nature and wanting exposure to the US market and no better benchmark than the S&P 500.

The frustration is in the logistics of that pipeline and matching these buyers and sellers. That’s it. So now any solution will we believe show up in more volume when more buyers can meet more sellers. So the potential is, yes. The electronification in a number of different phases can prove to be show up in volumes that are greater than they would otherwise have been. But when you say, why not just close the trading floor? It is the answer that I gave a bit ago is because our customers haven’t found that satisfaction yet and still have great utility in the floor. I can’t stress enough the value-added by both the brokerage community that we have today, our members of the Cboe that are representing those global customers and the liquidity providers who are making those lit markets each and every day. What we need to do, what we’re challenging ourselves with is not reuniting them just on the floor, but providing solutions that allow them to meet in a new electronic or virtual world.

Christopher Harris — Wells Fargo — Analyst

Okay. Thank you.

Operator

Thank you. And then next question comes from Owen Lau with Oppenheimer.

Owen Lau — Oppenheimer & Co. — Analyst

Good morning. And thank you for taking my question. So in terms of capital return, given where your stock is trading right now. How should investors think about maybe regular dividends, and special dividends, if it’s on the table and share repurchases this year? And then for real estate expense longer term, how this COVID-19 changed your operating plan of the new headquarters and trading floor relocation? Maybe in terms of the design and the need of the space because more people may want to work from home going forward. Any more color would be helpful. Thank you.

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

Yeah, sure. So I would say the capital allocation story hasn’t changed as far as what we do, what we prioritize and taking a look at that. You saw our activity of returning capital to shareholders in the first quarter and we’ve always said it was a priority to have an increase to the annual dividend. And we’ve done that over the last several years. And obviously, we haven’t made a decision — the Board hasn’t made a decision on the dividends as we go forward and what that looks like, but we will continue to take a perspective of our entire capital structure and the preference to return capital, but we’ve always said, it’s one of our goals and that the share repurchase, once financial flexibility to establish, share repurchase continues to be opportunistic. I did say in our prepared remarks that we are going to preference liquidity and credit right now versus being aggressive on the share repurchase opportunity. So I think that’s kind of where we are right now as far as until the environment becomes a little bit more known. I would say that, and it’s no indication of what we think the value of the stock price is. So make that clear. And again, to make it clear the dividend growth continues and always will be a priority for Cboe.

As far as your question on operating expenses what that looks like from real estate. We don’t expect — obviously, real estate over the long term is variable and we will adjust accordingly. I think shorter term, I would stick with our original guidance of where we were. We’re actually going to see a slightly uptick during 2020 given the overlap in what we’re doing. And the overlap that we have as we transition to new headquarters. But I wouldn’t look for any significant change to that than what we’ve already guided in 2020. I guess that over the long-term, if we see less space being used or we need to make it a little bit more efficient and there is more work from home, which we all expect, we don’t expect that to see a significant change to our overall expense guidance that we’ve had, but good question. Longer term, we expect that to come down over-time. But shorter term, we don’t expect to see a material change in what we’ve guided to.

Owen Lau — Oppenheimer & Co. — Analyst

Okay. Thank you.

Edward T. Tilly — Chairman, President and Chief Executive Officer

Chris, a little bit — Chris, maybe on the operationally the design question on returning to the floor and maybe in a new layout of employing the best of safety and practice in social distancing and what our considerations are.

Chris Isaacson — Executive Vice President and Chief Operating Officer

Yeah, absolutely. Thanks. And so on to your question there, when we do return to the office for the trading floor, we’re obviously going to employ everything we need to in order to keep everyone safe from the very beginning of COVID-19 response and now forward planning. It’s about the safety of our associates and our customers. So when we come back to the trading floor hopefully as early as June 1, we’ll have social distancing in place and likely an alternating plan and more alternating plan with groups coming in to ensure the liquidity the floor can offer, but also the safety of the trading floor community. And then our associates, of course, we’re going to be very cautious in bringing them back to the office to ensure their health and safety also. So it doesn’t have a long-term change really in our real estate expenses as Brian mentioned or nothing notable at this point, but we are proceeding with caution to ensure everyone’s safety.

Owen Lau — Oppenheimer & Co. — Analyst

Okay. Thank you very much.

Operator

Thank you. And the next question comes from Kyle Voigt with KBW.

Kyle Voigt — Keefe, Bruyette & Woods Inc. — Analyst

Hi, good morning. Maybe a follow-up for Brian on the expense guidance. Now you’re lowering the core growth rate from 4% to 5% to 0% to 1% in 2020 in the updated guidance. Just wondering as we look out to 2021, how should we think about the growth off of this new lower expense base in 2020? I’m just wondering if there will be elevated core growth in 2021 if some projects and other expenses are being pushed back into next year?

Brian N. Schell — Executive Vice President, Chief Financial Officer and Treasurer

Yeah. I would say that that’s a very good question as far as the follow-up goes. The way we think about it and the way that guidance is built is, as I hinted to not hinted to, but I tried to layout in the prepared remarks is that we do expect a ramp-up of expenses in Q3 and then more fully in Q4. And so I would say that the modeling is likely going to be kind of — absent anything one-time items or something like that, that would be a little bit more unusual in any one particular quarter. I would expect that 2021 guide to be more based on a kind of an annualized more of a run rate off of Q4, as far as, if we’re able to get — able to get more of those initiatives up and running into the fourth quarter, you would expect that then to rerun forward, because certainly some of the discretionary expenses and I call them discretionary meaning that the marketing and the promotion and things like that, that just aren’t happening right now because of the events aren’t being done, the sponsorships aren’t there, some of those are literally being pushed into the fourth quarter or deferring into the year, that’s likely more of a better run rate for 2021 looking at — again more of the fourth quarter versus kind of an absolute percentage growth rate over the entire 2020.

Kyle Voigt — Keefe, Bruyette & Woods Inc. — Analyst

That’s helpful. Thank you.

Operator

Thank you. And that’s all the time we have for questions right now. I would like to return the floor for any closing comments.

Debbie Koopman — Vice President, Investor Relations

Thank you. I want to thank everybody for their time this morning and let you know that we’ll be available for any follow-up. So please feel free to contact me. Thanks, and have a good weekend.

Operator

[Operator Closing Remarks]