CME Group Inc (CME) Q3 2022 Earnings Call Transcript

CME Group Inc (NASDAQ:CME) Q3 2022 Earnings Call dated Oct. 26, 2022.

Corporate Participants:

John Peschier — Investor Relations

Terry Duffy — Chairman and Chief Executive Officer

Sean Tully — Senior Managing Director, Global Head of Rates & OTC Products

Tim McCourt — Senior Managing Director, Global Head of Equity and FX Products

Derek Sammann — Senior Managing Director, Global Head of Commodities, Options & International Markets

John Pietrowicz — Chief Financial Officer

Lynne Fitzpatrick — Senior Managing Director & Deputy Chief Financial Officer

Sunil Cutinho — Chief Information Officer

Analysts:

Rich Repetto — Piper Sandler — Analyst

Dan Fannon — Jefferies & Company, Inc. — Analyst

Alex Kramm — UBS — Analyst

Michael Cyprys — Morgan Stanley — Analyst

Brian Bedell — Deutsche Bank — Analyst

Kyle Voigt — KBW — Analyst

Alex Blostein — Goldman Sachs — Analyst

Gautam Sawant — Credit Suisse — Analyst

Owen Lau — Oppenheimer — Analyst

Christopher Allen — Citi — Analyst

Kenneth Worthington — J.P. Morgan — Analyst

Simon Clinch — Atlantic Equities — Analyst

Andrew Bond — Rosenblatt Securities — Analyst

Presenatation:

Operator

Hello and welcome to CME Group Third Quarter 2022 Earnings Call. My name is Sarah and I will be your coordinator for today’s event. [Operator Instructions]

I will now hand you over to your host, John Peschier to begin today’s conference. Thank you.

John Peschier — Investor Relations

Good morning and I hope you all are doing well today, I’m going to start with the safe harbor language. Then I’ll turn it over to Terry and team for brief remarks followed by your question. Other members of our management team will also participate in the Q&A session. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statement. 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 statement.

Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measure. On a personal note, today will be my last earnings call as I am retiring after more than 20 years with CME. My first day on the job was December 24th of 2001 with a plan that CME would go public soon after I joined. CME ultimately went public in December of 2002 and has been an amazing journey, we have created a lot of value for our investors. I want to thank all of our shareholders and sell-side analysts who I’ve met on this journey and I want to thank all my CME colleagues I’ve worked with closely with during the last two decades, in particular the CFO’s Dave, Jamie and John.

Most importantly, Jennifer and Dorge Susan Jacks with whom I have worked closely with for many years have been instrumental to our success. Lastly, I’d like to thank Terry for his leadership of this successful journey. He and I are the only ones left who were on the first CME earnings call in 2003 and it’s been a great run.

With that, I will turn it over to Terry.

Terry Duffy — Chairman and Chief Executive Officer

Well, thank you all for joining us this morning and let me take a quick moment first to thank you John on behalf of all of us for an incredible run more than two decades as you said with CME and giving service to the organization and Shareholder Relations organization. You have been an instrumental for us and our Investor Relations and analyst our reach helping us grow from our early days, as you said as a public company to the leading derivatives marketplace we have become today. As a friend and respected colleague to so many, you’ve made a significant impact on our business, there is no doubt you will be missed. We wish you nothing but the best for you and your family going forward and again on behalf of everybody at CME and throughout the investor community, John, we thank you very much for your leadership. Thank you.

John Peschier — Investor Relations

Thank you.

Terry Duffy — Chairman and Chief Executive Officer

We are leaving the investment community in good hands with remaining members of the Investor Relations team as John referenced Jennifer George and Susan Jacks, who have worked side by side with John through his entire career, as well as Adam Minick, who you will — all get to know soon, who recently joined the Investor Relations Department coming over from our strategy department, so we look forward to all of you meeting up with Adam.

We released our executive commentary earlier today which provided extensive details on the third quarter of 2022. I have John, Lynne, Sean, Derek, Sunil and Julie Winkler on the call this morning, as well as Tim McCourt our Global Head of Equity and FX products. I felt it was important to take sometime to not only run through a snapshot of our current business and financial results, but more importantly to expand on why we feel our business is in such a strong position to finish out the year and head into 2023 on a high note.

I will start and then Sean, Tim and Derek will provide some thoughts before John finishes up our commentary with details related to our financial results and our JV. Then he will then open — we will open the call for your questions. Let me start by talking about the tremendous amount of uncertainty in the markets today, whether that be uncertainty around the US Federal Reserve policy, varying views about the recession risk with inflation at levels not seen since the 1980s or uncertainty around the size and speed of the unwind of the Fed’s balance sheet. When there is uncertainty driving activity in our interest rate business, the impacts cascade to other asset classes, most prominently in equities, as rate changes impact corporate valuations and in foreign-exchange with varying policies and approaches from Central Banks around the world.

We’re also seeing high-level of volatility in the commodities markets, which appear likely to persist given the impact of the Russian invasion in Ukraine and the resulting disruption, affecting both agriculture and energy markets in the region and around the world. Risk management is our business and we have been and always will be committed to helping our customers manage uncertainty. We do this across our unique breadth of asset classes and our broad range of deeply liquid globally relevant products.

But that being said, let me transition into our Q3 performance. Our performance from Q3 and year-to-date in 2022 highlights the effectiveness of our risk management solution. Our volume is up 23% year-to-date versus the same-period last year and up 19% from the same period in 2019, prior to the pandemic. The highest average daily volume quarter in CME’s Group’s history was Q1 of 2020 when risk management was critical at the onset of the pandemic. The first three quarters of this year have been the second, third and fourth highest ADV quarters in our history.

So far in 2022, our interest rates, equities and FX products have hit peak levels of large open interest holders. With our interest rate products at an all-time high again, just last week suggesting that this represents a risk on environment. Additionally, Q3 represented our fifth sequential quarter of double digit year-over-year growth in total ADV. With the pandemic becoming part of our lives, global economics and market participants are left to manage not only uncertain market risk, but also potential new risk associated with the pandemic.

We’re pleased the NEX integration is complete and market participants are able to access cash treasuries and cash foreign exchange through one platform, complementing our existing futures on treasuries and on foreign exchange. The breadth of the assets we built overtime combined with the work we are currently doing a partnership with Google to transform markets will provide us further opportunity to continue our industry leading innovation going forward and we are 100% focused on growing in the short-term, while also positioning the business for long-term sustained growth.

I’ll now turn it over to Sean and then Tim and Derek to dig into more detail around these things.

Sean Tully — Senior Managing Director, Global Head of Rates & OTC Products

Thanks, Terry. With a return of interest rate volatility and Central Bank activity, we’ve seen strong year-over-year growth in our fixed-income businesses. Interest rate futures and options ADV were up 28% in Q3 and we’ve now delivered six consecutive double digit year-over-year ADV growth quarters for the asset class. The tailwinds Terry described should continue moving through 2023. Every FOMC meeting is in play and with high and uncertain inflation a re-jobs report and every consumer price index reading is important. You could see this very clearly with the 34 million contracts trading on a single day on October 13th, following the latest CPI release and the uncertainty here could remain for years as inflation ratings for rent and shelter tend to lag the real economy by up to 18 months.

These factors have led to significant trading volumes in our short-term interest rate complex with volumes up 45% through the first three quarters. During this time, we have progressed the Euro Dollar to SOFR migration, with SOFR futures and options both now trading more contracts per day then their Euro dollar counterparts, reaching a record 5.9 million SOFR contracts traded on October 13th. Lastly, our ARC endorsed term SOFR benchmark has already been licensed to over 1,700 firms in 83 different countries and has been referenced in over 2.8 trillion of loans and OTC derivatives. On the long-end of the curve, we saw double digit ADV growth in both Q2 and Q3 in treasury futures and treasury options have had particular strength with 21% growth in Q3. The tailwinds from Fed balance sheet reduction and inflation are becoming larger and have the potential to be long lasting due to the huge increase in government debt. And as Terry mentioned, uncertainty and monetary policy then drives uncertainty in other asset classes.

I’ll turn it over to Tim to speak to this very point.

Tim McCourt — Senior Managing Director, Global Head of Equity and FX Products

Thanks, Sean and it’s a pleasure to be on the call today. Allow me to start with the strength of our equity index business for our deep and liquid markets offer access to the most important global benchmark indices on one platform around-the-clock. This strong foundation positioned us well in 2022 as interest rate expectations have led to equity valuation adjustments, an increased need for risk management. The first three quarters of this year with the first, second and third highest ADV quarters on record respectively for overall equity index ADV, as well as equity index options ADV. Year-to-date through Q3, total ADV has increased 44% and options ADV has increased 74% compared with the same time frame of last year. It is important to note that our growth is driven not only by volatility, but also by product innovation. One of our most successful innovations was the launch of our Micro E-mini products in 2019. We view the micros as a useful tool to continue to attract new international and US-based customers, given the smaller contract size and the lower upfront financial commitment.

Due to the premium price point on our risk equivalent basis, the $3.2 million micro equity contracts that trade per day at the revenue equivalent of approximately $1 million E-mini contracts despite being one-tenth the notional side. We’ve also introduced a suite of products that bring traditional OTC functionality to CME such as basis traded index close, adjusted interest rate total return futures, sector futures, dividend futures, equity option block and most recently derived block functionality. These OTC alternative products meet customer’s need under the uncleared margin rules, while benefiting from the capital efficiency afforded by our equities franchise.

These premium products command fees of three to four times that of standard equity rates and added approximately 160,000 contracts per day in the third quarter. Now I will turn to FX, which has certainly come alive following an extended period of historic low-volatility with the third quarter FX ADV up 41% year-over-year. Similar to equities, we have introduced innovations on our FX business during the low volatility period and we are now harvesting those investment.

We changed minimum price increments, built-out emerging market currencies, introduced OTC alternatives like FX Link, added EBS cash markets and created tools and analytics that show the efficiencies of trading FX at CME. These innovations position us well to continue to benefit from the volatility in the currency market as the desperate interest rate approaches that the global central banks continue to flow through to the foreign exchange market.

Derek will now address the trends in our commodities, options and international businesses.

Derek Sammann — Senior Managing Director, Global Head of Commodities, Options & International Markets

Thanks, Tim. While our energy business which has been impacted by temporary market dislocations was the only asset class that was down in Q3, we like our long term structural positives for our US energy benchmarks including WTI crude oil, refined products and Henry Hub natural gas. US is producing nearly 12 million-barrels of oil a day and exporting record levels of crude and refined products. The US is the marginal supplier of crude oil to Europe and Asia which positions WTI and refined product benchmarks well for the long-term, beyond the current supply and price dislocations. Similarly the US is the world’s largest producer and exporter of natural gas, boosted by increasing the liquefied natural gas exports priced off Henry Hub futures markets. Additional LNG facilities are coming online in the US in the medium-term which further bolsters Henry Hub as the benchmark for the global natural gas market for decades to come. As the market transitions through the short-term disruptions caused by the war in Ukraine, we believe that we have the strongest portfolio of risk management tools in the Global Energy and Environmental Products markets, which positions us well to grow this asset class over the long-term.

In agricultural products, CME’s market serve as the benchmarks for global price discovery in grains, oilseeds, livestock, dairy and lumber. We saw increased customer activity in the third quarter with average daily volume of 1.2 million contracts, up 6% year-over-year with particular strength and options. Buy side and bank customers are strongest performing client segments this year and our strongest global growth is coming from Latin America.

Turning to Metals, third quarter average daily volume increased 4% to 498,000 contracts led by 20% growth in September. CME Group’s aluminum futures continue to see strong adoption by both commercial and financial market participants, given the customer growth we’re seeing, the adoption of COMEX aluminum by top metals broker Meraux and the success we’ve had in getting reference prices to be included in physical procurement contracts and commercial customers, we feel that we are at an inflection point for growth in this important market.

Turning to options, we continue to see options ADV and open interest outpacing futures. Terry spoke earlier about the high levels of uncertainty in the world today and options are a powerful tool for helping our global customers to manage risk in that environment and can be a more cost-effective means for getting exposure since only the option premium is included.

With year-to-date options ADV up 27% to 4.1 million contracts a day, we are on-track to surpass our record year from 2019 of 4 million contracts. Finally, our international business continues to generate record volumes. In the third quarter, we delivered $6.1 million ADV, up 21% versus last year. Based on our strong year-to-date results, we are on track to deliver another record year with our non US ADV through September of 6.5 million contracts compared to our record 5.5 million ADV from last year.

With that, I’ll turn it over to John.

John Pietrowicz — Chief Financial Officer

Thanks, Derek. CME’s revenue for the third quarter was approximately $1.230 billion, driven by a 26.1% growth in trading activity. This was up 10.6% compared to the third quarter of last year and up nearly 15% when adjusting for the impacts of the formation of OSTTRA, our post-trade joint-venture with S&P Global that we formed in September of last year. This is our fourth consecutive quarter when making net adjustment of double-digit revenue growth, demonstrating the importance of our markets in these uncertain times.

Market data revenue was again a record during the quarter up 6% compared to a year-ago to $154 million reflecting the strong need for the information our markets produce. Expenses continued to be very carefully managed and on a adjusted basis were $441 million for the quarter and $359 million excluding license fees. Our efforts towards moving to the cloud progressed as expected and we are nearing the completion of the initial foundational work necessary to migrate our applications.

Year-to-date, we spent approximately $21 million in incremental cash cost towards that effort and expect to end the year at approximately $30 million and within our first year guidance for that project. On a year-to-date adjusted basis, excluding our Google spend license fees and the impacts of the formation of OSTTRA, our revenues were up 13% and our expenses were only up 3%. We continue to manage our capital expenditures effectively and with an eye towards our move to the cloud. As a result, we are lowering our capex guidance to $100 million.

For the quarter, our capital expenditures were approximately $20 million. Our joint-ventures and investments continued to produce meaningful results for CME Group. Year-to-date on an adjusted basis, these investments have contributed $272.5 million or close to 10% of our pre-tax income this year. In addition to the earnings they contribute, their strategic importance continues to play out. The OSTTRA joint ventures capturing synergies through the combination of our post-trade businesses with that of S&P Global. This creates the leader in this space and has the scope and scale for long term growth.

Our S&P, Dow Jones Indices joint-venture has delivered 14% average annual earnings growth since the first full-year of inception in 2013. Strategically, the exclusive rights to the indices that we have secured through our ownership of the joint-venture underpins over 20% of the overall futures contracts traded at CME Group and create significant capital efficiencies across our equity complex, making us the global destination for equity futures.

We also benefit from the trading of products license by the joint-venture to other exchanges and from the continuing move from active to passive investing. These joint-ventures and other investments that we’ve made continue to position CME well strategically and financially. For the quarter, CME had an adjusted effective tax rate at 23.4%, which resulted in an adjusted net income of $790 million, up 25% from the third quarter last year and an adjusted EPS attributable to common shareholders of $1.98. C&P paid out $2.3 billion of dividends so far this year and cash at the end of the quarter was approximately $2.2 billion.

In summary, our global benchmarks, data, innovation, investments and strong focus on execution continue to address the needs of our clients and deliver results for our shareholders. Please refer to the last page of our executive commentary for additional financial highlights and details.

We’d like to now open up the call for your questions, based on the number of analysts covering us, please limit yourself to one question and then feel free to jump back into the queue. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from the line of Rich Repetto from Piper Sandler, please go ahead.

Rich Repetto — Piper Sandler — Analyst

Yeah, good morning, Terry. Good. Morning, John. Can I guess first thing is for John Peschier, you’ve done a very thoughtful and unwaveringly committed loyal employee and it’s been a pleasure to work with for however many years. He’s done a great job training Jennifer and Susan, we’re excited to work with the team going-forward as well, so congrats John.

John Peschier — Investor Relations

Thanks, Rich.

Rich Repetto — Piper Sandler — Analyst

Terry, I guess my one question would be the media reported I think within the last month or so that you apply for an FCM license or try to obtain an FCM license through the CFTC. Just trying to understand what was the purpose of the rationale behind doing that? Thank you.

Terry Duffy — Chairman and Chief Executive Officer

Yeah, thanks, Rich. Appreciate it. First it was at the NFA we filed the application and then eventually go to the CFTC to score, all right, cadence perspective, but I think what’s important is, I never define how we would ever use an FCM and I think there has been a tremendous amount of speculation about how CME would or would not use an FCM. I also think it’s important to note that I don’t know and I don’t know anybody that does know what an FCM is going to look like three, five, 10, 15 years from now and I just don’t know what that’s going to look like, is it going to look the same as it does today or will look completely different? I don’t know, I don’t think that’s in anyone’s best interest to wait to find out, I think it should be going along with that process to see, but I want to make sure some things very clear, my commitment, our commitment at CME to our FCM community as I’ve said is unwavering.

And we are going to continue to work to make them better our existing FCMs and our future FCMs, how we can partner with them and make them better. So I think that’s really important. And also I know there has been speculation about CME is looking to get their own FCM because of retail products. Let me be very clear about this.

Our existing FCM base and our future FCM base wherever that may or may not be has plenty of wherewithal to address the retail market for CME Group, so that is not, not the purpose of doing an FCM. So I think it’s really important that we just clarify a few of these things, but again my position is and the company’s position as we want to work with our continued — our existing FCM we will continue to do so, that is the model that we enjoy, but we’re also not of the mind that we don’t think things could potentially change down the road and we will be prepared. So when I say that, our cost associated with this FCM so far is about zero, so we have not put any money into this, we just filed an application, but we will be watching this space very-very carefully and again we will not ever put CME in a position where it’s coming from behind, we will always be leading going-forward.

So I hopefully I answered the questions and more but I really want to make it clear there been no defined FCM that CME has applied for that is competing with the existing FCM model today. I know all the pitfalls that people have talked about what the DS status, things of that nature, those things can all be worked around if in fact they need to be worked around, but that’s not the purpose of our application.

Rich Repetto — Piper Sandler — Analyst

Got it, super helpful, Terry and I’ll get back in the queue. Thank you.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Rich.

Operator

The next question comes from the line of Dan Fannon from Jefferies, please go ahead.

Dan Fannon — Jefferies & Company, Inc. — Analyst

Thanks, good morning and congrats John Peschier on your retirement. My question is for the other John just on expenses, just obviously the guidance implies a pretty material step-up into the fourth quarter. So could you talk about what that entails in terms of where — what you’re spending on and how that ramps? And then I know it’s early, but just thinking about 2023 and kind of the roll-forward of the Google spend and other investment priorities, can you talk about how to think about a growth in expenses versus what you guys have done historically.

John Pietrowicz — Chief Financial Officer

Yeah, thanks, Dan. Thanks for the question, pardon me. Yeah, the fourth quarter of this year — fourth quarter of all years, generally speaking in the fourth quarter of this year is traditionally the heaviest quarter in terms of expenses and we expected that to occur this year. There are a number of planned customer events and marketing spend in the fourth quarter and we expect increased in-person sales activity, reflecting to the — reflecting the improved business environment.

So if you look at last year and adjust for OSTTRA, you saw about a 10% increase in expenses from Q3 to Q4, this year it’s a little bit heavier between Q3 and Q4, this would imply about a 15% increase. And if you look at the expense spend between Q3 and Q4 last year, we did not have the improving business environment that we see this year. So we are expecting definitely more increased in-person sales activity, marketing spend and travel. So that accounts for some of the increase that we’re seeing this year.

The remainder so when you take a look at sorry when you take a look at Q3 to Q4, we expect approximately 70% of the increase to be in the marketing, travel and in-person events. The remainder of the sequential increase would be related to salary and wages, reflecting variable compensation related to our company’s performance and staffing of key roles and customer-facing resources. So last year again the variable compensation is higher this year than last year and also the number of employees are higher this year than last year and we’re expecting to hire more going into the fourth quarter.

We also expect to see increased professional services as we are investing in growth projects. So that kind of accounts for Q4 growth compared to Q3 and a bit about the difference between last year and this year. You are right as we are early in the process of looking at our budget for next year. And as you know and this entire team knows, the entire group here at CME has done a very effective job over the years of managing our costs and we tend to do the same towards this incoming year.

It’s a bit too early to give guidance and as I said, we’re still in the budget building process and that has to be approved by the Board. So we are definitely keeping our eyes on inflationary impacts and we’re looking to mitigate those impacts through process efficiencies, leveraging lower cost locations, partnering with vendors and being judicious in hiring. So I think the way to think about 2023 is to think about how we’ve been managing costs over the last several years, we’ve done a very effective job ensuring that we’re spending highly, very efficiently and we’ll continue to leverage that approach going into next year.

So, that’s some of the kind of the core business. In terms of the Google spend, in terms of our migration, we’re working through the plan for next year now. We are as I mentioned the last I guess couple of earnings calls ago, we’re expecting on average to be approximately $30 million in incremental spend over the next four years as we approach the point where costs will be lower assuming similar volume levels. And I think we’re planning on kind of a similar type spend as this year, but there will be a function of how fast we’re going be migrating the applications on to the Google platform.

So we’re pretty — we’re pleased with where we’re at in terms of Google progress, it’s about where we expected it would be. And as I said in my prepared remarks the initial foundation that we needed to create in order to start rolling those apps is nearing completion. So we’ll be looking to see the apps migrate at a quicker rate going into 2023. So that’s the kind of the expense view this — so far this year.

Dan Fannon — Jefferies & Company, Inc. — Analyst

Great. Thank you.

John Pietrowicz — Chief Financial Officer

Yeah, thanks, Dan.

Operator

The next question comes from the line of Alex Kramm from UBS. Please go ahead.

Alex Kramm — UBS — Analyst

Yes, hey, good morning everyone. I want to talk about the LIBOR, SOFR or Eurodollar SOFR transition now that you have. I guess a day the next April to basically shut down Eurodollar if I understand this correctly. I want to really understand what that means both from a potential volume and also revenue impact. So can you remind us, what you’re charging for when it comes to SOFR and Eurodollar today independently where there still certain discounts or non charging. And then more importantly as one contract goes away, I assume today there is a lot of I guess trading or are being between those two products happening. So just wondering if you have an estimate how much that could be today and how much of that could potentially go away, so we are clear about again like revenue or volume impacts come April next year. Thanks.

Sean Tully — Senior Managing Director, Global Head of Rates & OTC Products

Thanks, Terry and thanks Alex for the question. We are very pleased with the progress we have made in the SOFR transition. SOFR futures traded 2.6 million contracts a day in September, while SOFR options traded more than 850,000 contracts per day. SOFR futures are now trading more than double the volumes of Eurodollar futures and SOFR options are now trading 130% of what Eurodollar options trade everyday.

SOFR futures now have more than 8 million contracts in open interest or 98.5% of Eurodollar futures and SOFR options have reached 15 million contracts open interest or 70% of Eurodollar options. In terms of RPC, as you know in June, July and August, we executed our SOFR first for options initiative, which had very strong support from US and UK regulators, as well as from our customers. On the back of that, we’ve achieved the incredibly strong growth that you’ve seen. That program in terms of SOFR first for options was completed at the end of August. That program had first of all fee waivers for all participants for June, July and August and secondly significantly enhanced incentives to create liquidity in order to build the same ecosystem and to have as much liquidity and efficiency in that marketplace as the marketplace has enjoyed in Eurodollar futures and options.

We have now achieved very much of what we needed to there and with that as I said we did remove those fee waivers at the end of August and we did decrease the overall incentives to market participants. As you know incentives are important to ensure that we have liquidity for all participants and our Eurodollar futures have had incentives historically and continue to have incentives. Now so we do expect that the incentives that are required for Eurodollar futures and options will be required in the longer run for SOFR futures and options.

We do expect however that we will be able to continue to decrease the incentives, the extra incentives above what we have for Eurodollar futures and options in the coming months. So we think we’re in a very good place. We think we’re on a very good path, we are following our plan. And overall I think we’re in a good place.

Terry Duffy — Chairman and Chief Executive Officer

Alex, let me just — it’s Terry Duffy, let me add to what Sean said because one of the parts of your question that we didn’t answer is on the hour between Eurodollars and SOFR. You have to remember what Sean said, I said and others did, year and a half-two years ago and subsequently every quarter going forward is that we were added an extreme benefit to have both these contracts listed as CME and we did see a lot of trading volume back and forth between the two, but the objective and the goal was to have that hour end-up in the SOFR products knowing full well that the LIBOR was going to be discontinued.

So I think when you look at the hour, you will have to look at it in a success rate of our being from Eurodollars into the SOFR what Sean gave you the statistics, which are now larger than the Eurodollars. So, Sean.

Sean Tully — Senior Managing Director, Global Head of Rates & OTC Products

Yeah I apologize not answering that part of the question, thank you, Terry. So the inter commodity spreads between the two products are running between 250,000 and 350,000 contracts a day to make it perfectly quantitative.

Terry Duffy — Chairman and Chief Executive Officer

Yeah, so hopefully that gives you a little bit more insight, all along that was our strategy as the incumbent of the Eurodollars is to move it into the SOFR and we successfully did that.

Alex Kramm — UBS — Analyst

Yeah, no, that’s great, great numbers. Yeah, thank you.

Operator

For our next question, we have Michael Cyprys from Morgan Stanley on the line, please go ahead.

Michael Cyprys — Morgan Stanley — Analyst

Hey, good morning. Thanks for taking the question. Just wanted to ask about customer collateral, just given the movement in interest rate. I was hoping you can update us on your latest expectations around the take rates on cash collateral, as well as non-cash collateral and how you expect those take rates and balances to evolve from here, particularly if we get another 75 basis point hike in November and what you expect to see from customers in terms of shifting back and forth between cash and non-cash collateral? Thank you.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Michael, I’ll let John go ahead and answer that and I might jump in as well.

John Pietrowicz — Chief Financial Officer

Yeah, thanks, thanks Michael. Yeah, let’s take a look at our collateral earnings in its totality. So first in the non-operating section of our income statement, we’ve got earnings on cash held by clients at the clearinghouse and that was up $14 million sequentially. Average cash balances were lower by $27.5 billion to $117.5 billion and that was more than offset by higher returns, which were 29 basis-points for the quarter, an increase of 9 basis points. The last two rate hikes were passed on to our clients which help lessen the reduction in those balances.

So looking in our other revenue section of our income statement, custody revenue was up $9 million driven primarily by an increase in average non cash collateral balances held by our clients in the clearinghouse and a fee increase on those balances from five basis points to seven basis points. Balances eligibly charged to fee increased from an average of $81 billion in Q2 to $95 billion in Q3. So we had an sequential increase in non-cash collateral earnings of $9 million which is in the revenue line, an increase of $14 million sequentially on cash and that’s in the non-operating section of our income statement for a total of $23 million sequential increase in earnings on collateral.

So let’s take a look at what is going on in the fourth quarter so far. So average cash balances through October 24th were $117.8 billion, so roughly flat with the average for Q3. And we had an ending balance of cash of $110 billion on October 24th. Non-cash collateral which is subject to fees, again there’s an other non-cash collateral which we don’t earn fees on, but non-cash collateral subject to fees average for October so far through the 24th was $90.3 billion, with an ending balance of $95.6 billion.

So that gives you an idea of what happened for the quarter and how we’re — how those balances are trending for the fourth quarter so far. So in terms of what happens going forward, there’s a number of factors that play into that. First is the total amount of collateral that needs to be put up at the clearinghouse which is subject to the types of trading and the risk management required for that trading that determines the total size of the amount of collateral that’s put up.

And then clients will have a certain amount of cash and non-cash collateral that they need just to run their business, so they’ll put that up depending on what they have on hand and to the extent they can optimize their portfolio, they will put up that instrument that yields the highest return. So look at the amount of cash that the amount of return they can get on cash they put up the clearinghouse versus other instruments that they could put up at the clearinghouse.

Now what we’ve done over the last several rate hikes is that we’ve maintained the minus 25 basis point spread versus what the Fed has moved. And I think that’s proven to be effective to maintain the balances that we’ve been able to maintain so far, but it’s really going to be a function of what their businesses require and how they optimize their portfolio.

Michael Cyprys — Morgan Stanley — Analyst

Great, thank you.

John Pietrowicz — Chief Financial Officer

Thank you, thanks for the question, Mike.

Operator

Our next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Brian Bedell — Deutsche Bank — Analyst

Great, thanks very much for taking my question. Maybe just one other clarification on the collateral balances, were there other drivers in that non operating income line in the investment income and other non-operating costs aside from the collateral balances is one question. The other question if I can speak one in, on the RPC trends coming into the fourth quarter I guess first of all is sort of some of that noise on the RPC on rates from that SOFR LIBOR transition and you expect that to sort of go away in the fourth quarter over the next coming months. And then it looks like you have pricing power on the micro products as well across that franchise, so maybe just some sort of outlook is how that you think may that may develop coming into 2023?

Terry Duffy — Chairman and Chief Executive Officer

Okay, while Brian, there is a lot of questions in there. So, let’s start out and take a look at the entire non-operating section of our income statement and I think that’ll be helpful for that for you to understand with all the moving parts are there. So if you take a look between Q2 and Q3 in the non-operating section of our income statement, you see that it’s a sequential increase of $13 million. I talked a little bit about the earnings on cash held by our clients at the clearinghouse and that was up $14 million.

We also saw earnings on CME cash and that was up about $8.6 million, so that was an increase in earnings. We did see a slight increase in interest expense that was up about $0.5 million and that was related to a credit that we received last quarter. And then finally is the earnings in unconsolidated subsidiaries and I think you’re again I kind of highlighted in the prepared remarks, we’re very pleased with the way our joint-ventures and investments have been performing.

This quarter however we did see some impacts of one-time items in the joint-venture. So OSTTRA which is our post-trade joint-venture with S&P Global was down about $3 million and the S&P/Dow Jones sequentially was down about $6 million and that’s because both in Q2 and in Q3 there were one-time adjustments. If you normalize those out, the earnings on those joint-ventures were relatively flat with earnings on the OSTTRA joint-venture in the $19.5 million to $20 million range.

And then if you look at the S&P/Dow Jones joint-venture, it’s results are roughly in the $61 million to $62 million range. So in another kind of key point to make there is that, when you look at the non-operatings — when you look at the S&P/Dow Jones joint-venture in the equity and unconsolidated subsidiaries line, year-to-date the joint venture when you make the adjustments for the onetime items is up about 13% year-over-year and has had a CAGR of 16% since 2020. So very pleased with how those are performing.

So that gives you kind of the breakdown on that part of your question. You had a question about the RPC which I think Sean you kind of hit that the last question, do you want to just kind of reemphasize that?

Sean Tully — Senior Managing Director, Global Head of Rates & OTC Products

Yeah in terms of the RPC, as I said, we had market wide fee waivers in June, July and August, all of those were removed at the end of August. In addition to that, we had very significant liquidity incentives in June, July and August and all of those are gone. We do have some incentives that are greater than the incentives that we have had historically for Eurodollar futures and options still in place. However, we will look to reduce those as we have been. I do expect, right, a significantly higher RPC for SOFR options for obvious reasons in Q4, again the fee waivers are gone and the additional — the significant additional liquidity incentives that we had during June, July and August are gone. So those will be positive impacts in Q4.

Terry Duffy — Chairman and Chief Executive Officer

And then there was a question on, I think Brian you had a question on the pricing power for micros…

Brian Bedell — Deutsche Bank — Analyst

For the micros, yeah, they’ve been increasing across all the categories, so just wondering if that’s sustainable?

Terry Duffy — Chairman and Chief Executive Officer

Why don’t you breakdown the asset class that you’re talking about, but you want to talk Tim about the equities or go ahead, John.

Tim McCourt — Senior Managing Director, Global Head of Equity and FX Products

Yeah, sure, so this is Tim and thanks Brian, when we look at the Micro E-mini contracts, as I said in my opening remarks, they are a premium price to the older sibling E-mini contract, they’re about one-tenth a size, but they’re depending on the index you’re looking at between one-fourth to one third a cost, that is something that is of importance, it’s been a good driver of growth both in terms of volume and revenue for us. I think one thing that’s important to note with respect to the pricing power of Micro E-minis not commenting on where that might go in the future is that when we look at, there is relative value to other product choices in the market despite being at a premium, it’s still growing faster than say the spot ETF, you look at the micro S&P E-mini contract growth in 2021, that’s up 0.57% versus last year. When you look at the spot ETF, that’s up only a little over 30% despite.

So despite the premium through the E-mini contract and the premium to the ETF it is still a tremendous value to the marketplace as evidenced by the premium price that command, as well as sustained growth at CME and versus comparable product.

John Pietrowicz — Chief Financial Officer

Yeah and just in terms of pricing in general, as I mentioned from the question that Dan Fannon had, we’re going through the budget building process right now and this is the time that we take a look at our pricing. There’s a number of factors that go into the pricing decisions including the health of the market, how much other, how our clients can get exposure in other markets, innovation that we’ve created, the liquidity that we created. We’ve done I think a tremendous job of developing a lot of value for our clients, but that is in the process that we normally do every year about this time.

We review our incentive plans as Sean has mentioned and we do that regularly. So we’ll reallocate resources in terms of programs to ensure that we’re developing the liquidity and creating value for our clients. So that process is underway now as we develop the plan for 2023.

Brian Bedell — Deutsche Bank — Analyst

Great. Thanks so much and congrats to John Peschier also.

John Peschier — Investor Relations

Thank you.

Brian Bedell — Deutsche Bank — Analyst

Thanks.

Operator

The next question comes from the line of Kyle Voigt from KBW. Please go ahead.

Kyle Voigt — KBW — Analyst

Hi, good morning. Maybe a question on the growth in Asia was extremely strong in the quarter at 41%. We also had the growth there is accelerated over each of the past three quarters. Let’s take a lot of that growth being driven by equity index and FX, maybe you could help us drill in a bit further and provide anymore color or help us understand which customer segments you think are driving that growth or is it asset managers, hedge funds, retail or other users? And is there a way to help investors kind of frame the ultimate size of that opportunity from Asia and how much more runway there is to grow at these levels?

Terry Duffy — Chairman and Chief Executive Officer

Derek?

Derek Sammann — Senior Managing Director, Global Head of Commodities, Options & International Markets

Yeah, appreciate the question, Kyle. Yeah international continues to go from strength-to-strength as I mentioned at the top of the call, we’re on-track for a pretty significant beat on last year’s total non-US volume record which is $5.5 million last year referencing 6.5 this year. And as you rightly point out, our growth in Asia continues to go from strength-to-strength. In the Q3 of this year, we put our sixth consecutive quarter up and fit that 14th consecutive quarter of growth.

On the APAC business, we’re up 41% this year, our fastest growing part of our business. EMEA grew 14% and LATAM grew at about 31%. When you dig into the region as you rightly point out, we’ve seen particular strength and growth with our financial products, equities, fixed income, actually Asia interestingly is — are the strongest area of growth for our energy business, our Asian energy business is up 30% year-to-date this year as well.

So it’s broad growth, equities is a strong driver for us when you look at the individual countries, it is spread strong across multiple countries, there is no one particular country that’s delivering strongest growth where we’ve seen particular bright spots is in Korea. Our Korean business this year is up 45%, that is now stepped into our second largest revenue generator for us across all of our non-US jurisdictions that have been a pretty significant climb over the last couple of years.

Other significant growth drivers coming out of Asia is Taiwan is up 53% volumes this year, India up 65% and the Middle-East primarily United Arab Emirates and Dubai specifically is showing volume growth that’s almost 70% growth. So Asia continues to be a strong support area for us, Julie Winkler and her global sales team are pursuing the global sales campaigns for our regional products and bringing in new clients working through our channel partners, retail is a big part of that story and the micro story and I said that’s a strong part of the energy growth there as well.

So hopefully I gave you some color on what we’re seeing and we think that we’re probably early innings of the client penetration in Asia as well going-forward.

Terry Duffy — Chairman and Chief Executive Officer

Kyle and I know the analyst as well, Derek has now taken over the international business over the last several months. He’s restructured the division and he has actually been globe trading around and being a customer-facing participant as a managing team member. So I think that adds a lot to the success of the international businesses, putting face with the name and name with the face whatever you’d like to say, that’s prudent really important for us to get back out there, we’ve been stressing this. John reflected some of the cost in our numbers, but we are back-in front of clients all over the world and Derek has done a really good job of that and heading up the new international. Okay? And I think the numbers are reflecting, so thank you for your question.

Kyle Voigt — KBW — Analyst

Yeah, thank you.

Operator

Our next question comes from the line of Alex Blostein from Goldman Sachs, please go ahead.

Alex Blostein — Goldman Sachs — Analyst

Great, good morning. Thanks for taking the question. I was hoping we could zone in on sort of what are some of the dynamics in cash, fixed-income markets. We’ve seen volumes relatively slow there especially in light of the volatility we’ve seen in the market price broadly and CME’s revenue I guess on the kind of former NEX businesses have also been trending a little bit slower. So any color you can provide in terms of the look-through to clients who is doing better, who is doing worse. And what do you think optimally needs to happen to get this market going a little bit more, is Q3 the catalyst or as long as well as high as it is there is just muted activity.

Terry Duffy — Chairman and Chief Executive Officer

John, you want to go ahead and address that?

John Pietrowicz — Chief Financial Officer

Sure, thanks very much for the question, Alex. If you look our BrokerTec US Treasury volumes were up 11% year-over-year year-to-date and it’s very similar to our treasury futures complex. So BrokerTec, US Treasuries and CME’s treasury futures, the most liquid treasury instrument available on the planet are growing at similar level. If you look at the BrokerTec business in a bit more detail, US repo was up 21% year-over-year and European Repo is up 17% year-over-year. So our US repo business and our European repo business are on-track for all-time record years.

Some of the initiatives that we have been engaged in relative to the post migration of BrokerTec to Globex have also seen some good success. Our RV trading order type achieved a new all-time record in the third quarter was 2.1 billion a day and our cross-selling of BrokerTec into our futures clients working with our CD&S team under Julie Winkler, we’ve added nine new clients to the BrokerTec platform that have never traded on it before and they are currently trading 6.1 billion a day.

If you look at the Graner survey likewise, you can see our results there, but year-over-year in September we saw significant increase in-market share relative to the alternative marketplaces. In terms of go-forward for the treasury market as we said in our opening remarks, inflation obviously is at the highest-level in four years and is very volatile. You’ve also only just begun to see the Federal Reserve reduces its balance sheet. The Federal Reserve to date has only reduced its balance sheet by about $200 billion. If you look at their expectations or reduction in-balance sheet for next year at $95 billion a month, that would mean more than $1 trillion in reduction in that Fed balance sheet next year relative to the $200 billion that we’ve seen so far.

So in terms of the BrokerTec business doing well post migration, new initiatives getting good traction, we’re also investing in further analytics, we’re also investing in direct streaming platform, leveraging the technology that we built for UBS, so we’re using that technology a second time for a new business. So overall I think that that the increased, the increased deficits of the US government, the decreased size of the Fed balance sheet and the high level of inflation should be a tailwind for that business for years to come.

Alex Blostein — Goldman Sachs — Analyst

Okay, thanks.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Alex.

Operator

The next question comes from the line of Gautam Sawant from Credit Suisse. Please go ahead.

Gautam Sawant — Credit Suisse — Analyst

Good morning and thank you for taking my question, I just had two follow-ups here, one was just on the commentary around the interest rates complex, given the types of trading and risk management strategies you’re seeing right now with the rising short-term rate. Can you speak to the types of trading strategies or changes in client behavior that could translate into activity migrating from the short end of the curve to maybe the medium and longer-term products?

John Pietrowicz — Chief Financial Officer

Yeah, sure. We’ve seen far stronger growth in the short end as we mentioned, with every single Fed meeting in play. We’ve also seen very strong growth in our SOFR futures and options, that’s a long and we have seen double-digit growth although at a slower pace. We do expect as I said already with the reduction in the size of the Fed balance sheet and they expect $1 trillion deficits as far as the I can see from the Congressional Budget Office that that long end will have a tailwind for market participants as we move forward.

Gautam Sawant — Credit Suisse — Analyst

Okay. Thank you. And as a follow-up, can you just provide an update on the metal complex and if there is an increased willingness to participate from maybe some of the international physical warehouse operators?

Terry Duffy — Chairman and Chief Executive Officer

Derek?

Derek Sammann — Senior Managing Director, Global Head of Commodities, Options & International Markets

Yeah, this is Derek, good question. We’ve certainly seen pretty significant change in what’s happening in the industrial metals market post March of this year. We as we’ve been talking about have been putting significant efforts into providing a robust alternative market in-markets like aluminum, we’ve established a great deal of success in the copper markets over the last five years. We have seen significant increase in activity in our aluminum business specifically since March, we’ve seen an influx of new client interest and demand from customers looking to take advantage of what they know is how COMEX markets operate within CME Group on the precious metal side and on the copper side. As I mentioned the top of my call, there was an exciting development and announcement yesterday out of London where Meraux which is the largest broker on the LME has announced they will be providing direct market access into COMEX aluminum products and providing commentary on a daily basis to expand their customer market reach and access into COMEX aluminum markets.

We’re also seeing more commercial customers right in COMEX references for aluminum for their physical procurement which when you’re moving physical benchmarks that’s a heavy-lift. So we’re excited to see both on the commercial participant side, as well as on the financial participant side, increasing record levels of volume open interest and commercial participation, as well as the broker intermediary adoption of COMEX based on client demand. So we are here to serve client needs, we’re seeing that and our global efforts to procure access into that market I think has been something we’ve done a good job over the last few months were point of inflection in this market, but we like where things are positioned and where we’re going from here.

Gautam Sawant — Credit Suisse — Analyst

Thanks, Derek.

Terry Duffy — Chairman and Chief Executive Officer

Thank you for the question.

Gautam Sawant — Credit Suisse — Analyst

Thank you.

Operator

The next question comes from the line of Owen Lau from Oppenheimer, please go ahead.

Owen Lau — Oppenheimer — Analyst

Good morning and thank you for taking my question. First of all congrats John for the retirement. So in terms of capital return, in terms of capital return, given the amount of cash you have on your balance sheet and also the leverage, how do you think about variable dividend this year. Also for valuation given where your share is trading compared to historical level, how would you think about share buybacks as well? Thank you.

Terry Duffy — Chairman and Chief Executive Officer

I’m going to let John and Lynne comment a little bit here, but on our variable, obviously, we meet with our Board and our Finance Committee, we walk through a process and make a determination and we look at obviously certain factors and the market what we see coming. So we don’t, we will be getting that information coming out end of the year beginning next sometime next.

Lynne Fitzpatrick — Senior Managing Director & Deputy Chief Financial Officer

Generally early December.

Terry Duffy — Chairman and Chief Executive Officer

Early December, okay, so we got a little time on that one, yes, so we’re not going to commit to where we’re at on that yet, we are still finalizing that process.

Lynne Fitzpatrick — Senior Managing Director & Deputy Chief Financial Officer

Yeah so I guess I would just add that the structure we have has been in-place since 2012, we’ve returned over $18.8 billion to shareholders through dividends since that time. We do like the transparency of the approach and we think it has served us well, but as Terry said this policy is something we review regularly with our finance committee of the Board and we’ll continue to do that going-forward.

Owen Lau — Oppenheimer — Analyst

Got it, thank you very much.

Terry Duffy — Chairman and Chief Executive Officer

Thanks so much.

Operator

The next question comes from the line of Chris Allen from Citi, please go ahead.

Christopher Allen — Citi — Analyst

Good morning everyone and congrats Mr. Peschier, hope you a lot of golf in the future.

John Peschier — Investor Relations

I get to play with you, Chris, thank you.

Christopher Allen — Citi — Analyst

Hopefully, no calories [Indecipherable] this time. Yeah, I just wanted to ask about, basically and back to the rates market and revisiting some of the questions already asked. We’re seeing consistent headlines and liquidity issues in US Treasuries, seem to be exacerbated by high volatility levels. And it is a cautious outlook when you talk to players in the treasury complex and also the swaptions market for example moving forward. So, I’m just trying to reconcile that with you’re seeing a record large open interest holders in rates right now, growth in a very good trajectory in rates. So maybe help us understand like how you’re thinking about potential liquidity issues and volatility issues in the cash markets and other OTC markets and how that’s impacting you or it’s not impacting particularly the treasury complex on the future side moving forward.

Terry Duffy — Chairman and Chief Executive Officer

John?

John Pietrowicz — Chief Financial Officer

Yeah, thanks for the question, Chris, a really good one. If you look at the ten-year notes as of a week ago, we had the fastest increase in US 10-year note yields over the previous 12 weeks, since 1987. So the level of volatility and the speed with which rates are trading, we have not seen in more than 35 years. Given that whenever you have much greater volatility, it makes sense for market participants to reduce what they are trading right in terms of the size. So in terms of prudent risk management for our customers, there is a tenancy to — lower the amount of liquidity that they are willing to give at any individual price level.

We are seeing through this very high volatility that every price level is typically trading in our markets even when the markets move quickly. So overall I think the markets are operating very well and something to keep in mind is that as prices move much more quickly top of book tends to be much smaller and that is just a natural reaction to how the market works. And again I would say it’s prudent risk management by our customers.

Terry Duffy — Chairman and Chief Executive Officer

Yes, I would also say this has had to be the most telecast liquidity potential drop that we’ve ever seen, when you have the Fed raising 3/4 of a percent at a cliff and also them talking about bringing down their balance sheet at the exact same time what people expected liquidity to maybe be a little bit disruptive but I think price to Sean’s point price that into their activity. So I think this is different than when we saw in 2018 when they had to step-in to add some liquidity.

So I think this has been fairly well telecast it about what’s happening with the liquidity situation and participants are priced to that and so the volatility is going to be there we know that and we think we benefit from it.

Christopher Allen — Citi — Analyst

Did you guys think about this is kind of a temporary situation that volatility settle down be a positive catalyst moving forward?

Terry Duffy — Chairman and Chief Executive Officer

I won’t speak for Sean, but when he referenced some of the numbers that we could go out for years to come, we are at $31 trillion on the debt and rising, we have a whole host of other issues fundamentally associated with not only with the US, but globally. I don’t think this is a one-and-done deal, so this could be around for a while.

Christopher Allen — Citi — Analyst

Thanks, guys.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Chris.

Operator

The next question comes from the line of Ken Worthington from J.P. Morgan. Please go ahead.

Kenneth Worthington — J.P. Morgan — Analyst

Hi, thanks for taking my question. If we take into open interest after jumping in February from about 100 million contracts to 110, open interest has been stable at about $50 million of futures OI, about $60 million of options OI. What is the outlook or what is your outlook for open interest over the next 12 months or so? Maybe what asset classes do you think might see the best percentage growth from current levels and is it ultimately lower volatility that drives a better OI outlook from here or might it be something else?

Terry Duffy — Chairman and Chief Executive Officer

You know, Ken, I think that’s no crystal ball here but anybody in the room to make that determination of what it could or could not be, it’s just like we cannot predict future volumes, we just don’t know, there’s so many geopolitical factors, pandemic factors, a whole host of issues that could have a reflection on open interest or not, the trade could go up but open interest going down, the trade could go downward open interest going up who knows what the ultimate is going to look like.

We do believe that the open interest is a function that we keep a very close watch on Julie and her team Julie Winkler and team have an internal tool that helps us give guidance to what we think internally, you open which is going to look like. But again it’s very, very difficult to make that prediction and especially on the asset classes. When you look at some of the asset classes, I guess you would think in fundamentally that the Ag should be higher and maybe something else should be lower or the energy should be higher and something else should be lower and maybe it’s the opposite for that particular time. People do different things at different times, which has a massive reflection on the open interest each and every day, that’s obviously why we publish it, so people can see the transparency average. Derek?

Derek Sammann — Senior Managing Director, Global Head of Commodities, Options & International Markets

Yeah, I think that’s probably a bit of history there relative to the options, Ken, when you actually look at across every single-asset class now on the financial side has been a very strong year up across-the-board, commodities is stronger on the volume side. When you look at the options versus futures side, the story you hear continue to tell, options continue to perform more strongly than our futures, our futures year-to-date across the entire franchise are up 21%, options are up 27%, when you dig into the open interest there, it’s even a stronger story even asset classes in commodities where futures volumes are down and open interest is down, you actually see open interest and volumes in options for example when we’re seeing energy futures open interest down 24% energy options, open interest is up 6%.

So every single asset class almost regardless of the volume trajectory this year, you see an open interest again, I think that’s reflective of more people using options more broadly as a bigger part of their portfolio management tools and that’s why it’s important that we provide the deepest most look at electronic markets in every asset class and we’re seeing growth in futures and options.

Terry Duffy — Chairman and Chief Executive Officer

Just be careful, don’t price in that if the options OI is higher than the futures that has an effect on the business because futures and options open interest can go back-and-forth for a whole host of reasons and there is no one particular reason why that would be more options growth and futures growth are more futures open interest and options open interest. So please be careful not to hold to that number of growth in options open interest because it goes back-and-forth.

Kenneth Worthington — J.P. Morgan — Analyst

Great, thank you very much.

Terry Duffy — Chairman and Chief Executive Officer

Thank you, Ken.

Operator

The next question comes from the line of Craig Siegenthaler from Bank of America, please go ahead.

Unidentified Participant — — Analyst

Hey, good morning everyone. This is Eli from Craig’s team, thanks for taking my question. Could you discuss the opportunity in front of CME with the mortgage TBA futures, it’s definitely a large addressable market, but could you maybe elaborate on the deficiencies with the existing system for hedging. And then maybe discuss how this new product could potentially address those? Thanks.

Terry Duffy — Chairman and Chief Executive Officer

Yeah, I’ll let John go ahead and address that market.

John Pietrowicz — Chief Financial Officer

As you know, we continuously innovate and continuously launch new products that we see client demand for. In terms of our TBA futures, we are launching them on November 7th. The unique value proposition that we offer here is a distribution to our client set, so many of CME Group’s clients do not have access to the TBA market today and they want to be able to trade the TBA market. So this will allow us to use our distribution channel to have a much wider audience, have access to the marketplace then has liquid access to it today.

In addition to that, as with any new rates product that we add to our platform, this will offer unique portfolio margin or margin offset opportunity, so you’ll be able to trade the TBA futures at a spread to our treasury futures. If you look in the cash market, TBA’s versus cash treasuries is very commentary. So the ability to trade the TBA futures versus CME’s very liquid Treasury futures, number one. And then secondly, the ability to wider audience, ability to trade those spreads last the portfolio margining, you can get between the treasury futures and the TBA’s are all unique value propositions. I don’t know, I’m not going to predict, I think new product launches are very difficult to predict so I will not predict the impact.

In addition to that though a couple of things I would mention as long as you brought it up. We are also launching on October 31st, OSTTRA futures. So OSTTRA is the European short term rate, it is the European equivalent of SOFR. There is no significantly successful OSTTRA future on the market. If you look at the foreign-exchange cross-currency swap market today, it is being quoted as a spread between SOFR and OSTTRA. So we are very excited and we’re seeing a lot of demand for OSTTRA futures.

We’re very excited about how participants can use our OSTTRA futures at a spread to our SOFR futures in order to manage their short-term interest-rate risk both in the US and Europe as well as our cross-currency business. In addition to that, we’re seeing very strong demand as I said earlier have our repo business. So OSTTRA rates are used heavily in European Repo, we’re seeing an all-time record year in European repo, we’re also seeing demand for our — from our European repo participants.

Last thing I will mention is in terms of portfolio margining, we will be launching in December of this year, portfolio margining between SOFR options and interest rate swaps and also treasury options and interest-rate swaps for the first time. We’re very excited that in the month of September we offer market participants a new all-time record in terms of efficiencies of $8.4 billion a day on average. And as you can see, we’re continuously enhancing that offering as we as I just said in December. So I hope that helps to answer the question.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Eli for your question. John, thank you.

Operator

The next question comes from the line of Simon Clinch from Atlantic Equities, please go ahead.

Simon Clinch — Atlantic Equities — Analyst

Hi, guys. Thanks for taking my question and I’ll just say congrats to you John Peschier as well for retiring, way too young, so I’m very jealous.

John Peschier — Investor Relations

Thanks, Simon.

Simon Clinch — Atlantic Equities — Analyst

Thanks. So my question actually is just on the treasury market, the cash treasuries market, I have been reading about the prospects of the market moving to all trading and I was just wondering how CME’s BrokerTec is positioned for any kind of transition like that and sort of what the implications are generally speaking for you?

Terry Duffy — Chairman and Chief Executive Officer

[Indecipherable] your day.

Unidentified Speaker —

Thanks very much for the question. Clearly, Mr. Genser has set out several new proposals in terms of the US Treasury market, including requirements for certain hedge funds and proprietary trading firms to become broker dealers before treasury platforms to become full rig ETS compliant. And most recently, for significant increases in their requirements to clear US Treasuries, many are talking about this as very being very similar to the requirements to clear US swaps now almost a decade ago.

So we navigated that at CME Group I think very successfully with and when we used it in order to build our OTC swap clearing business and we use it to build unique efficiencies that could not be offered by anyone else, as I mentioned earlier in the portfolio margining between swaps and futures. And so we will navigate this similarly, we are all over it, we are in close contact with our customers. We are closely watching the developments in the proposed regulations and we will adjust our products and services in order to ensure that we provide everything that our clients need in that type of environment.

Simon Clinch — Atlantic Equities — Analyst

Great thanks very much.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Simon.

Operator

The next question comes from the line of Andrew Bond from Rosenblatt Securities, please go ahead.

Andrew Bond — Rosenblatt Securities — Analyst

Hey, good morning. Just want to follow-up on the open interest question, particularly in energy. I just wanted if you could discuss some of the dynamics driving the natural gas market currently. Over the past few years we’ve seen the emergence of TCF as kind of more of a global benchmark as natural gas move from originally to a globally price commodity. And then we’ve seen some shift back to the US dislocation in Europe and Russia, but CME open interest has remained relatively low. So can you kind of discuss the Henry Hub benchmark, do you think it becomes somewhat dislocated relative to the international gas market or are there other dynamics that are driving this market? Thanks.

Sean Tully — Senior Managing Director, Global Head of Rates & OTC Products

Yeah, great question, appreciate that, you heard us talk about the prominence that physical benchmarks play in global energy markets, WTI and Henry Hub specifically. When you look at the global trends in the energy markets, right now the US is now the largest producer and exporter of natural gas in that LNG shipment is now becoming more important than ever before relevant pipeline gas coming into Europe from what used to be Russia, TCF is under pressure to be redefined into something different than pipeline gas because that simply has been cut-off.

There is both opportunity and threat in that situation, certainly TTF market is trying to figure out what that input is going to be. Right now we have actually just about three weeks ago launched eight new contract for to specifically address what is a gap in the European natural gas market to specifically go into a European LNG contract which is an import contract-based in Northern Europe. So as TTF no longer can rely on pipeline gas coming in from Russia, we worked with Platts as a price assessment agent to launch a futures contract that as European LNG that we think is probably the best opportunity for the market to adopt as LNG is going to be that import source of gas for Europe.

Taking a step back and look at the long-term picture, given the lowest price gas the world is coming from the US or record export levels and if you look at the as I mentioned at the top of the call the pipeline for LNG liquefaction facilities coming out-of-the US over the next 10 years, natural gas is a transition fuel, but it’s also the energy fuel of the future self not just the transition. Henry Hub is the price marker for LNG cargoes coming out-of-the US, increasingly that is becoming the source of fuel for Asia and Europe.

So Henry Hub is at the pivotal center of the natural gas market, we think as a physical marker, where LNG cargo shipments are priced off Henry Hub that further positions and strengthens Henry Hub as the central price market globally for both Europe and Asia. So we like the position, we like the structural growth of physical benchmarks with the US being the leader of the exporter of these markets and we think that the long term prospects for Henry Hub and our market particularly are very well-placed for long-term strength there.

Andrew Bond — Rosenblatt Securities — Analyst

Great, thanks.

Terry Duffy — Chairman and Chief Executive Officer

Thank you.

Operator

And as per our last question we have Rich Repetto from Piper Sandler on the line, please go ahead.

Rich Repetto — Piper Sandler — Analyst

Yeah, thank you, since it was already brought up earlier, I do want to point out a flower in John Peschier’s service and that’s his golf game was very suspect over the 20 years, but anyway leave it that.

John Peschier — Investor Relations

[Speech Overlap] last week [Speech Overlap].

Rich Repetto — Piper Sandler — Analyst

Well, you have more time to work on it like Chris said. I do have a series question though. So it’s been mentioned a number of times about cross margining and margining efficiencies. And I know, Terry you’ve been working on it and I think there’s a leadership change going on at DTCC. So I guess what is the potential or when we to get increased cross margining efficiencies in the treasury complex with DTCC and is that something like it’s come on-board and it just immediately releases capital and is a benefit to clients?

Terry Duffy — Chairman and Chief Executive Officer

Yeah, Rich, let me make a couple of comments about that on the timing and then I’ll let Sunil who obviously is been living and breathing this for several years in his former life in clearing entity, working with DTCC and the regulators. We are at a point now where I believe sometime early next month we’ll be doing the final filings along with the — to the government agencies to submit into the SEC for approval on the cross margining and then hopefully sometime thereafter when the clock is up or in between that we will get it.

I think we’d add, it’s been a long process in achieving to try to achieve these efficiencies. So we feel confident that we’re going to get them and hopefully we’re at the in the ninth inning of getting approval on this, but again I don’t want to over promise and under deliver on that. But I do that is the timeline right now, I’ve been head-to-head with DTCC here in Chicago. The new President of it, two weeks ago we had a good meeting, I’ve talked to the SEC, I’ve talked to others. I think we’re in a very strong position to get this done, but let me ask ask Sunil and give comments as it relates to the offsets for the clients.

Sunil Cutinho — Chief Information Officer

Rich, the — I’ll spend a brief moment on offsets. We’ve done cross margining with several bearing houses, we do that with DTCC today as well. The effort we’re going through right now is to improve the margin and portfolio benefit. In terms of actual offset, it’s a function of one’s portfolio, so if it is duration matched and it’s basis trade, then the offsets tend to be very high, but if it is of a different nature than the offsets are a function of that risk profile. So it’s very hard to actually come and give an exact offset number and it’s very portfolio dependent.

Having said that the idea here is to give clients who trade both futures and cash products, they’re most capital-efficient to do, so they can carry their portfolios, so that’s our objective and I think we’re on our way to actually deliver that.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Sunil.

Rich Repetto — Piper Sandler — Analyst

Got it, thank you.

Terry Duffy — Chairman and Chief Executive Officer

Thanks, Rich.

John Peschier — Investor Relations

Thanks, Rich.

Operator

As there are no further questions, I’ll hand the floor back to management for closing remarks.

Terry Duffy — Chairman and Chief Executive Officer

Well again, well, thank you John again, but thank you all for participating in today’s call. We appreciate you taking time to listen to us and we look forward to talking to you soon. Be well.

Operator

[Operator Closing Remarks]