Cboe Global Markets, Inc.
Q2 2014 Earnings Call Transcript

Published: 1 Aug 2014

[Operator:]

Good day ladies and gentlemen, and welcome to the CBOE Holdings Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time (Operator Instructions) As a reminder, today's call is being recorded. I would now like to turn the conference over to Debbie Koopman, Vice President, Investor Relations. Please.

[Deborah L. Koopman:]

Good morning. And thank you for joining us for our second quarter 2014 earnings conference call. And thank you for your patience. On the call today, Ed Tilly, our CEO, will provide an update on our strategic initiatives for 2014, and Alan Dean, our Executive Vice President and Chief Financial Officer, will review our second quarter 2014 financial results. Following their comments we will open the call to Q&A. Also joining us for Q&A is our President and Chief Operating Officer, Ed Provost. In addition, I would like to point out that this presentation will include the use of several 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. As a preliminary note, you should be aware that this presentation contains 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 results and outcomes may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may effect 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. Now I would like to turn the call over to Ed Tilly.

[Edward T. Tilly:]

Good morning and thank you for joining us today. Trading activity in the second quarter reflected low market volatility and investor complacency. Overall volume in options and futures at CBOE Holdings averaged 4.8 million contracts per day, down 14%from the first quarter and 3% from the second quarter of 2013. Despite the low-volume trading environment, CBOE posted solid financial results and continued to deliver long-term value to our stockholders and market participants. We raised our quarterly dividend, increased our share repurchase authorization and continued to advance our strategic growth initiatives so that CBOE is well positioned to benefit as market conditions improve over time. So now an update on our strategic initiatives for 2014

[Alan J. Dean:]

Thanks Ed and good morning everyone. Although our second quarter results fell below last year’s record second quarter, it was a solid quarter, particularly considering the challenging market conditions. I'll start with a summary of the second quarter. Operating revenue came in at $143.9 million, down 5% compared with last year's second quarter. Adjusted operating income was $69.7 million, representing an operating margin of 48.4%, a decline of 280 basis points compared with the second quarter of 2013. Adjusted net income allocated to common stockholders was $42.6 million, 9% below the second quarter of 2013, resulting in adjusted diluted earnings per share of $0.50, a 7% decrease versus $0.54 per share for the same period last year. Before I continue, let me point out that our GAAP results reported for the second quarter of 2013 included certain unusual items that impact the comparison of our operating performance. These items are detailed in our non-GAAP information provided in the press release and in the appendix of our slide deck. There were no non-GAAP adjustments in the second quarter of this year. Turning to the details of the quarter, as shown on this chart, the variance in operating revenue was primarily driven by lower revenue from transaction fees and regulatory fees, offset somewhat by higher market data fees. Transaction fees decreased $8.2 million, or 8%, compared with the second quarter of 2013 reflecting a 4% decline in trading volume and a 4% decrease in the average revenue per contract or RPC versus last year’s second quarter. In addition, there was one less trading day this quarter versus last year's second quarter. Trading volume declined year-over year in each product category except equity options, which increased 11%, while exchange-traded products declined 17%, index options fell 6% and futures contracts were down 9%. Our blended revenue per contract, including options and futures, declined to $32.2 from $33.4 in last year's second quarter. The RPC decline was mainly due to a shift in the volume mix, with lower-margin, multiply-listed options accounting for a higher percentage of trading volume in the quarter versus last year's second quarter. In addition, volume-based incentives increased in the second quarter of 2014, primarily as a result of higher trading volume in equity options that qualified for the volume-based incentives at CBOE. As I mentioned earlier, equity options volume increased 11% in the quarter and this category accounts for a greater share of volume-based incentives. While there are a number of variables that impact our revenue per contract, keep in mind that all of the volume tiers used in determining volume-based incentives are based on relative volume thresholds reached each month versus nominal contracts per month, which was used in prior years. This methodology tends to curtail the changes in revenue per contract, either up or down, as trading volume changes. Overall, revenue per contract in our options business declined to $27.5 compared with $28.9 in the second quarter of 2013. The revenue per contract on equity options and exchange-traded products declined by 13% and 6%, respectively, while the RPC for index options was relatively unchanged year-over-year at $0.67. Conversely, revenue per contract at CFE, our futures exchange, increased 6% to $1.64 from $1.54 in last year's second quarter. While multiply-listed options represented a higher percentage of our trading volume during the quarter, the percentage of transaction fee revenue contributed from these contracts fell due to the lower revenue per contract. As depicted on this slide, in the second quarter, multiply-listed options accounted for 66.1% of total contracts traded versus 65.3% in the second quarter of 2013. Trading in our highest-margin index options and futures contracts represented 33.9% of total contracts traded, down from 34.7% in last year's second quarter. Converting the volume into transaction fees, you see that in the second quarter of 2014 index options and futures contracts accounted for 81% of our transaction fees, up slightly from 80% in the second quarter of 2013. The lower trading volume industrywide also impacted our regulatory fees, which declined by $0.7 million. As we have told you, our goal is to align the revenue we collect from regulatory fees with our regulatory expenses. Based on our year-to-date revenue collected and expenses, we are reducing the rate per contract assessed for CBOE and C2's options regulatory fees, effective today. Consequently, we expect regulatory fees to decline in the third quarters and fourth quarters compared with the second quarter of this year. To give you some context, assuming industrywide consumer volume, customer volume is the same in the third quarters and fourth quarters of this year as it was in the second quarter, regulatory fees would go down by about $0.5 million in each of those quarters. On the plus side, revenue generated from market data fees increased $2.1 million as a result of higher market data revenue from both OPRA and CBOE's market data services. The increase in revenue from OPRA resulted from an increase in CBOE's share of industry transactions. CBOE and C2's share of OPRA revenue increased to 24.4% from 20.9% in last year's second quarter. The increase in revenue from CBOE's market data services was primarily due to an increase in subscribers. Moving down the income statement to expenses, this next slide details total adjusted operating expense of $74.2 million for the quarter, up $0.6 million, or 1%, versus last year's second quarter. This increase primarily reflects higher expenses for depreciation and amortization, facilities costs and other expenses, partially offset by lower costs for outside services. The higher depreciation and amortization expense is directly related to our increased capital spending this year, which I will touch on later. Core operating expense of $48.5 million was down $1.1 million, or 2%, compared with the second quarter of 2013. Looking at the details, the key drivers were lower expenses for outside services, offset somewhat by higher expenses for facilities costs and other expenses. The year-over-year decrease in outside services was primarily due to lower legal expenses. In light of the uncertain market conditions, we are in the process of scrutinizing all expenses, as we always do when we see lackluster trading volume over a prolonged period. Based on our expected cost reductions and year-to-date results, we are lowering our guidance for core expenses to a range of $186 million to $190 million. While disciplined cost management is very much a part of our culture, we push even harder to gain operating efficiencies when trading volume languishes. Looking at volume based-expenses, royalty fees increased by $0.2 million, or 1%. While the key driver of royalty fees is the trading volume in our licensed products, it also includes fees related to certain order flow for multiply-listed options directed to CBOE and fees associated with our market data sales. Higher fees associated with these two items accounted for the increase in royalty fees. Our GAAP effective tax rate for the quarter was 38.1% versus 38.4% in last year’s second quarter. This brings our cumulative effective tax rate to 39% through June, which is in line with our guidance. Based on what we know now, we still expect the full year tax rate to be in line with our guidance of 38.5% to 39.5%. Taking a look at the balance sheet, we finished the quarter with cash and cash equivalents of $145.1 million, compared to $191.1 million at the end of March and $221.3 million at the end of December. The decrease in cash primarily reflects cash used to repurchase shares and tax payments made during the quarter. In terms of capital allocation, our track record of solid earnings and strong cash flow generation allows us to both invest in our business and increase our cash returned to shareholders. Through the first six months of this year we have used $31 million to pay regular dividends, nearly $44 million for a special dividend payment and another $97 million to purchase our stock. Capital expenditures through June were $28 million, more than double our spending through June of 2013. This increase accounts for the higher depreciation and amortization expense I mentioned earlier. To date, capital expenditures are in line with our guidance range of $47 million to $50 million for the full year, so we are reaffirming our guidance. During the second quarter of 2014, we repurchased over one million shares of common stock under our share repurchase program at an average price of $50.57, totaling $51.1 million. Since the inception of our plan through June 30, we used over $230 million to repurchase nearly 6.4 million shares at an average price of $36.26. At quarter end, we had $69.7 million available based on our share repurchase authorizations at that time. Our capital allocation continues to be disciplined and balanced. We were pleased to announce that the Board increased our quarterly dividend rate by 17% to $0.21 per share from $0.18 per share, effective with the third quarter dividend payment. This increase is our fourth consecutive since we instituted a dividend payment in September 2010, following our IPO. Since that time, we have more than doubled our quarterly dividend. The Board also increased the share repurchase authorization by $100 million. We plan to continue to return cash through our share repurchase program. Taking into account this most recent increase and buyback activity through July 30. We have approximately $150 million available under our share repurchase authorization. These initiatives underscore our efforts to maximize value for our shareholders. In closing, we will continue to focus on being well positioned to take advantage of more favorable market conditions, while being nimble enough to adapt during lower volume periods. We remain very optimistic about our long-term growth prospects and we believe we are well positioned to generate even stronger financial results as market conditions improve and trading volume picks up. With that, I’ll turn the call back over to Debbie.

[Deborah L. Koopman:]

At this time, we’ll be happy to take questions. We ask that you please limit your questions to one per person to allow time to get everyone's questions asked. Please feel free to get back in the queue and if time permits we will take a second question.

[Operator:]

(Operator Instructions) Our first question is from Rich Repetto of Sandler O'Neill. You may begin.

[Richard H. Repetto:]

Yes, good morning, guys. Well, Alan you met the consensus but even the Patriots don't win the Super Bowl every year. Anyway, so my favorite question on the VIX open interest really isn't a question anymore because you are at record levels as you ended the quarter, but Ed as you talked about volatility you talked about going back to normalized levels. I guess my one question would be, if anybody knows about volatility it is you guys. And what do you think is the normalized level of volatility? And what do you think are the factors that are keeping it lower I guess – than the normalized level that you believe it should be at?

[Edward T. Tilly:]

Yes, Rich. Great question. We do watch volatility and although I think the public and we couldn't be more appreciative of the visibility in volatility that VIX has on all the financial news networks. From a trader's perspective we look at the shape of the volatility curve overtime. And, so in my prepared remarks we see that upward sloping normal curve back to historic levels. So if you look out from today's level of 2014 or 2015 or so, we go over time in the next couple of VIX's futures contracts up to 2015 even 2016 toward the end of the year. So that's approaching our more historic level of 2017 and 2018 in VIX. And, days like yesterday couldn't give better examples for us how we are in a great position and poised for volume as we return back to more normal levels. We traded 1.4 million contracts in VIX options yesterday, 380,000 VIX futures, set a record in extended trading hours for VIX futures overnight surpassing the old record. That is happening right now. That session isn't even closed. So we do look to and expect the market to return and trend back to that historic level, 2017 and 2018. It's what we are seeing if we look at the term structure in VIX. And we have a great look into the market's expectation and the cost of hedging risk overtime.

[Richard H. Repetto:]

Okay. So I guess you don't believe there's any environmental factor that is really changed the outlook for the long term?

[Edward T. Tilly:]

Well, no. As we said in the first quarter when we were setting records and really we were enjoying some higher levels of volatility, we said look – that is not a trend line nor is a sub-historic level. And while it has been somewhat extended in months now as opposed to weeks, days like yesterday reaffirm our position that we are on track. The message is getting out there. Your open interest comment, as we have been teaching you, people accumulate volatility and holding volatility whether it's ETNs, our futures, our options, and taking those positions preparing for moves in the market that will inevitably come and we saw that yesterday. We saw that this morning and the overnight session reaffirms it. The world is seeing that as well.

[Richard H. Repetto:]

Great, thanks, Ed. Thanks for the color on the VIX. Thank you.

[Operator:]

Thank you. Our next question is from Alex Kramm of UBS. You may begin.

[Alex Kramm:]

Hey, good morning, everyone.

[Edward T. Tilly:]

Good morning.

[Alex Kramm:]

I guess this is for Alan. Obviously appreciative of some of the more expense controls here in this environment. But it looks like in general you are already running a very, very tight ship so almost to the point where sometimes people wonder if you are under investing. But can you give us a little bit more sense of where these incremental cutting's coming from, what areas? Because again all of these monthly line items look pretty small as they are already and then maybe even a little bit more on the trajectory. I mean is this something that is going to happen very quickly in the third quarter, or how should we think about the trajectory of expenses for the next two quarters?

[Alan J. Dean:]

Good question, Alex. Let me address the under investing part first. You notice we didn't change guidance on our CapEx for the year. And we felt that all of those the projects in our capital guidance spending this year critical and are important to achieving our strategic objectives so we didn't touch them, didn't reduce them. And that's the way we approach expenses, expense reduction. And one we – when we reduce expenses we'll look to delay things, pare things back. We will touch on many line items here at the exchange all again keeping in mind our overall objective of not impairing our growth prospects in the future. So, I would expect that many of the reductions that would account for our reduction in our guidance and core expenses to happen rather quickly, some may be delayed. At this point in time I really can't go into by line item because I am in the midst of the cost reductions. But the playbook that we refer to is similar to this one that we have used in the past. So we will look at, as an example, travel and meetings. Do we have to – is there anything we can pare back there? Or consulting costs is there something that we can delay until next year? So that is outside services. That's a couple of examples of things that we look at.

[Alex Kramm:]

Okay. That's a start. Thank you.

[Alan J. Dean:]

You’re welcome.

[Operator:]

Thank you. Our next question is from Jillian Miller of BMO Capital Markets. You may begin.

[Jillian R. Miller:]

Thanks, guys. So you mentioned four different indicators that give you confidence your VIX futures product is still in fairly rapid growth phase. And I was specifically thinking about the increased data usage and number of trading permits. I was hoping you might be able to give a little but more detail there. Like can you tell us how many VIX futures data subscribers there are today versus last year, or two years ago or how many trading permits are outstanding today versus a year ago like something more quantitative might be helpful, thanks.

[Edward T. Tilly:]

Let me start with permits. I think what’s important for us is seeing renewed interest in let let's say someone tries trading VIX futures it may or may not work. But then the interest in us and our CFE business development guys going out and finding new users who turn around and start trading is really what we are focused on. That said, there are new users that we measure each and every month. And we couldn't be more encouraged by that pipeline and the amount of trading permits holders that are signing up. And more importantly the amount of those trading permits holders that are actually engaged in and trading regularly. So, it doesn’t – we are interested in every trade, obviously, but watching the new entrants come in and participate in the extended trading hours and that's really more of the turnover that we’re looking at. And so the actual number of trading permit holders, although it is up this year, its important for us to make sure that they are engaged and getting that market data and engaging in our markets each and every day. And I think Ed will speak a bit on the market data aspect.

[Edward L. Provost:]

Hi Jillian its Provost. So we have a fully dedicated person who sells CFE market data. He does that domestically and internationally and the international aspect of his sales effort has been of great focus in the last six months. We have seen good growth in the number of subscribers to CFE market data. Some of these are current users who are transitioning from prior carriers and a good number of them are new customers. So it gives us great confidence that even though volume in the VIX products over the last several months has not been as strong as we might like because of market conditions, there is a continued and growing interest internationally in the product and I think that is largely driven by the 24-hour trading. So we are very optimistic given the interest in the subscribing to the CFE market data.

[Jillian R. Miller:]

Okay. Thanks, guys.

[Edward T. Tilly:]

Thanks Jillian.

[Operator:]

Thank you. Our next question comes from Christian Bolu of Credit Suisse. You may began.

[Christian Bolu:]

Good morning, guys.

[Edward T. Tilly:]

Hi Christian.

[Edward L. Provost:]

Good morning.

[Christian Bolu:]

Thanks for the updates on the interest rate VIX. Could you just speak about your appetite to launch or relaunch VIX products on other asset classes outside equities and interest rates? And maybe just rank which of those asset classes would have the greatest potential. Thank you.

[Edward T. Tilly:]

Sure. We would love to. So what we've seen and really the power of volatility product is when it is truly negatively correlated. And we have experimented, as you know, in commodities and commodities tend to have rising volatility as the trend in that underlying commodity is moving. So for example, gold has a higher volatility when there is a sense of a scarcity to the upside as well as an anticipated move to the downside, so it's not always negatively correlated. And the securities in S&P 500, in the Russell contract, the negative correlation is really the power of the hedge, and we saw that most clearly on days like yesterday. So as we look at the opportunities we look out over those that the market has grabbed and embraced as hedging vehicle. Now we think there's a terrific case to be made as pure trading vehicles. So when we relaunch or we look at commodities again it will really able in being able to point at look at the trading opportunity, the high volatility of volatility, no matter what the asset class is. So a lot of that education is probably in the second phase when we go back to the commodity space. We are very encouraged, as you asked your question, about getting into fixed income and our partnership with using CME/CBOT market data for the 10-year note, couldn't be more excited. It brings us to completely new users, but what we've learned from broadening and VIX futures, will allow us to get into these other asset classes and attack the pure trading aspect of trading volatility.

[Christian Bolu:]

That's a very good color. Thank you so much.

[Operator:]

Thank you and our next question is from Chris Harris of Wells Fargo. You may begin.

[Christopher M. Harris:]

Thanks. I just want to follow-up on that last question a little bit. As you guys roll out more of these newer VIX products, how do you envision the uptake playing out? And I guess what I'm wondering is, do you think the uptake is going to follow the same path as the original VIX through the ETPs or potentially take some other form?

[Edward T. Tilly:]

I think it will be a combination. So if we look back at the success that we had in VIX in the S&P 500 really the futures served as a hedging vehicle for options. And if we look our short-term VXST, which I know Ed wants to speak to, we look at even early options interest outpacing the interest in futures so again the futures are serving as the hedging vehicle and a level to trade even the short-term. So as we look out and we are expanding, I do think and expect that overtime we will see some ETPs dedicated to short-term, would not surprise me if the major banks and institutions see some early success in any asset class, there could be an ETN to follow. We know there is great interest, but in order to manage that ETN to replicate the strategy that the underlying is providing, there needs to be some critical mass in either the futures or the option so that you can the option so that you can replicate and you can sell that strategy to your customers. So we are encouraged, there is interest and we will follow the very successful roadmap that we have seen in our original VIX contract and extend that to short-term, to Russell, to interest rate and into commodities.

[Christopher M. Harris:]

Thanks.

[Operator:]

Thank you. Our next question is from Alex Blostein of Goldman Sachs you may begin.

[Alexander Blostein:]

Hi. Good morning, guys.

[Edward T. Tilly:]

Hey.

[Alexander Blostein:]

So when we kind of take a step back here and we think about the growth of the VIX futures product at CFE broadly, it does feel like there's a little bit more beta to it than we have seen in the past. And I fully appreciate the fact that lower vol, higher vol, that matters a lot still for the growth of the product, but I guess I'm trying to understand do you think that is a fair assessment, A? And B, given the fact that you are rolling out a number of new products and you have a number of new initiatives in place, when we look over the next 12-months, what are the key products that you think will drive the organic growth in this business, so maybe calling out two or three things?

[Edward T. Tilly:]

So going out over time I think what we are most encouraged, I wouldn't call it a new product actually, I actually, I would call it a new touch point or new access, we couldn't be more pleased with the extended trading hours and the uptake, as Ed Provost said earlier, not just domestic. And we know that we have domestic access into extended trading hours, but the international feedback we are getting on having these markets open could not have a better example than overnight last night to this morning's open. Breaking a record and being touch and satisfy demand for not just that delta-1 hedging of the S&P 500 but rather offering exposure to volatility around the clock. Setting a new record today, coming off of our lows yesterday, coming into uncertainty this morning before the fed number, so that there is a demand to access the world’s benchmark of volatility as measured by VIX. So, but that said I would let Ed make a couple of comments as well.

[Edward L. Provost:]

I would just add to that Alex that our international efforts in not to down play our domestic efforts which are continuing and we think is tremendous untapped potential domestically, but Ed referenced earlier on our RMC in Europe where we have a significant audience following the volatility products, both with respect to the S&P and the Russell products. Just last week we were in China speaking to several hundred people from a combination of federal agencies, futures organizations and potential market markers and they are developing markets. We will be in Australia before the end of the year working with our partner down there who has been a licensee of our VIX methodology for several years helping them further develop their volatility product. We think that is good for our product, because our VIX product is as I mentioned the global proxy for market volatility. So again, general market conditions is going to be probably the biggest driver, but education globally will be the key that we focus in.

[Edward T. Tilly:]

So and you asked other opportunities. So I don’t want to undervalue I think the opportunity we have at our RMC to actually focus on Russell as well, there has been great interest as you know in small caps and the difference is Russell has a higher volatility, I think there is an educational opportunity for us to raise the awareness of accessing volatility in a very liquid market by trading Russell VIX. And I also think obviously our partnership with the CME really allows our business development guys to be exposed to a whole new asset class which is bigger than what we’re currently focused on. It will be a longer runway, this won’t be right out of the gate, it’s not our expectation, but boy the potential is terrific to make even marginal inroads compared to where we have with the 500, because it’s just such a bigger market. So we are encouraged, we’re still on-track as I had mentioned in the prepared remarks for later this year to launch the BXTYN futures, concentration on Russell and really spotlighting the difference between 500 and the 2000, but we are really poised to do it all.

[Alexander Blostein:]

Got it. Thank you for pretty concrete answers. Thanks, guys.

[Operator:]

Thank you. Our next question is form Niamh Alexander of KBW. You may begin.

[Kyle K. Voigt:]

Hi. This is actually Kyle Voigt. I am stepping in for Niamh.

[Edward T. Tilly:]

Hey Kyle.

[Kyle K. Voigt:]

Hi. Just on the royalties, this question is for Alan, they were just a bit higher than expected for the quarter. I appreciate the color that the increase was result link to order flow for certain multi-list options but could you just give me some more color there? Is this a good ratio to think of going forward as far as fees per license contracts, or is there another way we should think about this?

[Alan J. Dean:]

Yes. It’s a good question, there was an anomaly this quarter in royalty fees and we've seen it happen in other quarters, particularly last year, still the best correlation to royalty fees is our volume and our proprietary products index in futures products. I think you will see some variation from quarter-to-quarter, but I don’t have a better metric for you. I think you would be conservative and safe if you use the metric that occurred in this quarter which was higher than what we saw in last quarter. So I think you will see some variability, but it should be a conservative estimate if you use this quarter’s correlation.

[Kyle K. Voigt:]

All right, thanks. Appreciate it.

[Operator:]

Thank you. Our next question is from Gaston Ceron, Morningstar. You may begin.

[Gaston F. Ceron:]

Hi. Good morning.

[Edward T. Tilly:]

Good morning.

[Alan J. Dean:]

Good morning.

[Gaston F. Ceron:]

Just had a quick follow-up, I think likely for Alan on the CapEx. I know I asked about this before I think a couple of quarters ago, but now that we are about halfway through the year and you've got a decent chunk of your stepped-up CapEx in the books here, just curious if you have any better feeling as you look out further into 2015 and beyond whether we are likely to stay at these elevated levels, or whether there is hope for this thing kind of trending down a little bit?

[Alan J. Dean:]

Yes, good question, Gaston. I don't have more concrete – a better estimate that I had before of spending in next year and year before. If you look at our capital spending prior years was around $30 million to $35 million this year it jumps up $47 million to $50 million. I would expect it to drop back a bit next year, but we are in the midst of the planning process for next year and beyond. So if it does change I don't think it would be at a level that would be shocking to you. So I expect it to go down a bit, maybe not by much, maybe not back to the $30 million to $35 million level, but to be at $50 million again, that is possible but unlikely. But I am not sure.

[Gaston F. Ceron:]

Thank you for the color.

[Operator:]

Thank you. Our next question is from Ken Worthington of JP Morgan. You may begin.

[Amanda Yao:]

Hi, this is actually Amanda Yao sitting in for Ken. All of our questions have been asked and answered at this time. Thank you.

[Edward T. Tilly:]

Thank you.

[Alan J. Dean:]

Thank you.

[Operator:]

Thank you. Our next question is from Jillian Miller of BMO Capital Market. You may begin.

[Jillian R. Miller:]

Thanks. I was just wondering if you could remind us what your economics are like on the Treasury Note Volatility product. Well, I guess you haven't launched it yet, but what they would be like because you are co-launching with CME so I am assuming there is some kind of revenue capture?

[Edward T. Tilly:]

Yes, I would assume we haven't set prices for what the interest rate VIX would be but the way I am thinking about it right now to be an RPC on the futures side similar to what we are capturing on our normal VIX, something in that neighborhood. Soon as I get better clarity, of course, we will get back to our shareholders.

[Jillian R. Miller:]

Great. Thank you.

[Operator:]

Thank you. I am show no further questions at this time. I would like turn the conference back over to Debbie Koopman for closing remarks.

[Deborah L. Koopman:]

Thank you. That completes our call this morning. We appreciate your time and continued interest in CBOE. Please give me a call with any follow up questions you may have. Thanks again.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. And have a wonderful day.