Q2 2023 CME Group Inc Earnings Call

Participants

Adam Minick; Investor Contact; CME Group Inc.

Derek Sammann; Senior MD and Global Head of Commodities, Options Products & International Markets; CME Group Inc.

Julie Winkler; Senior MD & Chief Commercial Officer; CME Group Inc.

Lynne Fitzpatrick; CFO; CME Group Inc.

Sunil Cutinho; Chief Information Officer; CME Group Inc.

Terrence A. Duffy; Chairman & CEO; CME Group Inc.

Tim McCourt; Senior MD and Global Head of Financial & OTC Products; CME Group Inc.

Alexander Kramm; Executive Director and Equity Research Analyst of Exchanges, Ebrokers; UBS Investment Bank, Research Division

Andrew Bond; Senior Analyst; Rosenblatt Securities Inc., Research Division

Benjamin Elliot Budish; Research Analyst; Barclays Bank PLC, Research Division

Brian Bertram Bedell; Director in Equity Research; Deutsche Bank AG, Research Division

Christopher John Allen; MD; Citigroup Inc., Research Division

Craig William Siegenthaler; MD and Head of the North American Asset Managers, Brokers & Exchanges Team; BofA Securities, Research Division

Daniel Thomas Fannon; Senior Equity Research Analyst; Jefferies LLC, Research Division

Kenneth Brooks Worthington; MD; JPMorgan Chase & Co, Research Division

Kyle Kenneth Voigt; MD; Keefe, Bruyette, & Woods, Inc., Research Division

Michael J. Cyprys; Executive Director and Senior Research Analyst; Morgan Stanley, Research Division

Owen Lau; Associate; Oppenheimer & Co. Inc., Research Division

Patrick Malcolm Moley; Research Analyst; Piper Sandler & Co., Research Division

Simon Alistair Vaughan Clinch; Research Analyst; Atlantic Equities LLP, Research Division

Presentation

Operator

Greetings, and welcome to the CME Group Second Quarter 2023 Earnings Conference Call. (Operator Instructions)
It's my pleasure to turn the conference over to Adam Minick. Please go ahead.

Adam Minick

Good morning. I hope you're all doing well today. We will be discussing CME Group's second quarter 2023 financial results. I'll start with the safe harbor language, then I'll turn it over to Terry.
Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any 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 measures.
With that, I'll turn the call over to Terry.

Terrence A. Duffy

Thank you, Adam, and thank you all for joining us this morning. As Adam said, we released our executive commentary earlier today, which provides details on the second quarter of 2023. I will make a few brief comments on the quarter and current outlook, and Lynne will summarize our financial results. In addition to Lynne, we have other members of our management team present to answer questions after the prepared remarks.
As we mentioned last quarter, 2023 is setting up to be an extremely favorable backdrop for risk management. The continued geopolitical uncertainty and the increasing cost of capital for businesses are just a couple of the things that have helped us deliver our financial results for the quarter. The benefit of CME Group's diverse product portfolio, spanning 6 asset classes, was on display. ADV across our commodities asset classes increased 20%, with 34% growth in agricultural products, 27% growth in metals and 9% in energy.
Interest rates. Average daily volume of 11.3 million was up 6% for the quarter and is up 11% compared with the first half of 2022. Despite a substantial decline in equity market volatility, our equity class delivered average daily volume of 6.2 million contracts during Q2. Our non-U.S. ADV was 6.3 million contracts for the quarter, including double-digit year-over-year growth in ags, metals and energy.
Options again played a critical role in Q2 with ADV growth of 20% to 4.7 million contracts, including the highest quarterly agricultural options ADV on record, up 32% from Q2 last year. Our product innovation in this area has driven strong growth with new participants and more product choice to more precisely match risk, as clients continued to look for ways to protect their portfolios in these uncertain times.
As it relates to our rates market. Expectations of short-term rate changes, up or down, and the divergent economic data continued to drive risk management. As we saw with the recent resolution of the debt ceiling, the treasury bill issuance increased dramatically. Over time, we expect a more coupon issuance -- we expect that more coupon issuance and ongoing debt financing will contribute to greater hedging needs for years to come.
On the commodity side, exports are increasing the demand for risk management using our benchmark, agriculture and energy products. With this favorable backdrop, we will continue to focus on opportunities to accelerate growth, including our recent announcement with DTCC to increase cross-margining opportunities for the treasury markets.
Additionally, our ongoing focus on product innovation and data services continues to enhance trading opportunities for our clients. We believe the strong underlying environment, combined with our strategic execution across growth initiatives, positions us for accelerated growth in coming years.
With that, I'll turn the call over to Lynne for the second quarter financial results.

Lynne Fitzpatrick

Thanks, Terry. During the quarter, CME Group generated $1.4 billion in revenue, up about 10% compared with a strong second quarter last year. Clearing and transaction fees grew over 9%, while market data revenue increased 8% versus Q2 '22. Expenses on an adjusted basis were $452 million for the quarter, and flat versus the first quarter at $374 million, excluding license fees. This quarter, our investment in the cloud migration was approximately $15 million.
Our adjusted operating margin for the quarter expanded to 66.8%, up over 250 basis points compared to the same period last year. CME Group had an adjusted effective tax rate of 23.3%, which resulted in adjusted net income of $836 million, driving diluted earnings per share of $2.30, both up 17% from the second quarter last year.
In addition to our expanding margins, the strength of our operating model was evident this quarter as we delivered an increase of approximately $120 million in both revenue and adjusted net income compared to last year. Capital expenditures were approximately $22 million, and CME Group paid dividends during the quarter of $400 million. Our ending cash balance was approximately $2 billion.
As you can see with the current results, the entire team at CME Group is focused on growing the business. We have delivered double-digit adjusted earnings growth in each of the last 8 quarters. Although it is challenging to predict volumes or market conditions over the short term, when you look at the last 5-, 7- or 10-year period, we have grown our earnings by a compound annual growth rate of 10% to 12% per year despite multiple periods of 0 interest rate policy and the impact of the pandemic on the global economy.
As Terry mentioned, we're in a favorable environment for risk management. And we're taking a number of actions designed to accelerate our growth going forward through customer expansion, new product and service innovation and enhancing capital efficiency. Given this, our goal as a management team is to deliver growth in the coming decade above these historical averages.
Terry, I'll turn the call back to you.

Terrence A. Duffy

Thank you, Lynne. We are very pleased with the continued strong financial performance of the company. Before I open the call for questions, I'd like to ask Tim McCourt and Derek Sammann to comment briefly on the recent trends that we are seeing in short-dated options products.
And I'll go to Tim first. Tim?

Tim McCourt

Thanks, Terry. We were pleased with the performance of our equity options on futures, which year-to-date drove 1.3 million contracts per day. Short-dated options, including 0 days to expiry, or 0 DTE options, remain a strong driver of our multiyear growth.
Volume in our same-day expiring options is up 33% from last year and up 220% since 2021, and now make up 27% of our equity options volume. It is important to also note we are seeing volume and open interest growing across the entire maturity curve. Year-to-date equity options are up 6% compared to a record year in 2022, with particular strength in NASDAQ options and Russell 2000 options, which are both up double digits.
This strong growth story further demonstrates that value customers continue to derive from trading products in the most important equity indices at CME Group. And while short-dated options have been largely an equity story to date, we're beginning to see expansion to other parts of the portfolio, which Derek will speak to now.

Derek Sammann

Thanks, Tim. As we discussed in recent quarters, options have become a larger part of our global customers' risk management and trading strategies. Year-to-date, average daily volume in our options franchise across all asset classes is up 26%, driven by interest rates, metals and equities. And our non-U.S. options business is up 33% through June. Within this larger growth story, we've seen growing demand for weekly options expirations across all asset classes, with weekly options volume up 21% year-to-date and growing to 26% of total options trading.
In addition to equities, commodities traders have similarly embraced shorter-dated expirations, which allow our global customers to hedge specific event risks such as crop reports and OPEC meetings. Agricultural weekly options were up 168% in the second quarter, which contributed to a record quarter for agricultural products overall. In energy, our WTI weekly options grew 126% versus second quarter last year, while our gold weekly options were up 33% year-over-year.
The strength of our options franchise allows CME Group to uniquely deliver significant capital and operational efficiencies and meets our customers' needs for short-dated options to help them most effectively manage risk across their entire portfolio.
And with that, we can now open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Benjamin Budish with Barclays.

Benjamin Elliot Budish

I wanted to go back to a comment that you made, Lynne, in your prepared remarks, just about sort of positioning the business to kind of grow faster than the historical average over the next decade. If you could maybe unpack that a little bit. What are sort of like the key elements that you see? Is it sort of a global increase in just need to manage risk? Is it more customers? Is it sort of increasing RPC? More volatility? How do you kind of think about what that looks like over the next decade, as you indicated?

Lynne Fitzpatrick

Sure. I'll start, and I think that a number of my colleagues will want to jump in here. I think the growth story is one that we've been talking about for a while. It's the number of the levers that we look at. If that's new customer expansion, if that's international growth, new product innovation has been certainly a big focus, looking at the OTC alternative products, as well as looking at capital efficiencies.
But I don't know if, Julie, if you want to comment on a few of those initiatives that are underway?

Julie Winkler

Yes. I mean, the -- certainly, the cross-margining initiative is one that our clients are quite excited about and one that we have talked about for a number of years. Delivering that is going to be an important thing. Capital efficiencies continues to be at the top of their list and a very important thing in order to deploy more capital and do more trading at CME Group.
I think the macroeconomic environment is quite positive across a number of our asset classes. And feedback from our clients is that they are using our markets to hedge those growing risks, as well as a need has been seen that, the increased treasury issuance on the horizon, that's going to mean more hedging from broker-dealers as well.
Buy side. Again, I think across the segments, we're sensing quite a bit of positivity. And as we continue to roll out more products, the options that Derek and Tim talked about earlier, also another highlight that we're giving our clients a lot of different instruments to be able to express their forward expectations about the marketplace. And we feel we're very well positioned from our team being able to support them globally. And that is certainly part of the international growth that we have commented on, and believe it still suits us quite well for the future.
We also feel real good about our data services business, delivering the 8% growth. And the number of new products, services and analytics that the team is working hard to deliver, in some cases, things that we had not previously rolled out to our customer based on our data. So I think all of those things give us a positive outlook for the future.

Terrence A. Duffy

Thanks, Julie, and thanks, Lynne. Ben, hopefully, that gave you some color on what we're thinking here with the expansions.

Benjamin Elliot Budish

Yes, very helpful.

Operator

Our next question comes from the line of Dan Fannon with Jefferies.

Daniel Thomas Fannon

I guess a little bit of a follow-up on that. Just you've had good volumes in the first half of the year, but the investor comments and concerns continues to be about sustainability of that and potentially the worst -- or I'm sorry, the best being behind you. So as you think about kind of all the growth opportunities you see and you highlighted already, maybe pick the 1 or 2 that you could -- that you would highlight here in the short term.
And then maybe expand a bit upon the DTCC partnership and what we should think about in terms of how that gets rolled out, and maybe the timing and the potential implications of that agreement.

Terrence A. Duffy

So Dan, thank you for your question. You've got a couple of questions in there. So the DTCC, we did put out the release with DTCC just a couple of weeks back. And we're hoping -- we're waiting on regulatory approval, which we are expecting. And hopefully, we will have that implemented going into the first quarter of 2024. We feel fairly confident about that now. So otherwise, we wouldn't have put out the release. So we are looking at that.
And again, I think you recall going back many quarters, a couple of years back, when Sean Tully gave you some figures in about what he expected as far as the efficiencies of what that agreement could mean once we acquired NEX, which we thought would be somewhere, today, around 20%, and we thought it could be 70%-plus. We still feel very confident that, that is going to be the case once this gets fully implemented and put forward. So that's the DTCC question.
The other question was on a couple of drivers for the business, I think, is what you asked on the out years. And I'll ask Tim to make a couple of comments as it relates to his business, and Derek as well.

Tim McCourt

Sure. Thanks, Terry. As Terry mentioned in the opening remarks, there's certainly a continued period of uncertainty in front of us which will provide a continued tailwind for CME as we continue to offer risk management solutions to our clients.
I think drilling down a little bit, if we think about some of the various asset classes, if we look at the rates complex, where we successfully completed the transition from LIBOR to SOFR, that's not the end of the journey, but it's really the beginning of what's in front of us. If -- to Julie's comments, if you think about coupling that with the macroeconomic backdrop, quantitative tightening and the resolution of the debt ceiling, we're only in the early days of seeing some of those drivers factor into the risk management needs of our clients.
And what I mean by that is, if we look at the recent treasury issuance, most of the analysts are expecting $1.2 trillion to be issued through now, from June and year-end. Most of that issuance is going into T-bills at present instead of coupons. We look at the product offering of CME at present, that is not something that we currently offer with respect to the risk management for accessing the T-bills market. So as that issuance moves from T-bills to coupon, that will be buttressing our treasury complex, both within our futures and options as well as BrokerTec.
I think then, when you also look at the uncertainty in the rates market, with the FOMC meeting today, there's over a 99% chance of another 25 basis point increase. But if you look further out, they're expected to be somewhat range-bound for the rest of the year with possibly one more 25 basis point increase in 2023.
But then, you're seeing the FedWatch Tool at CME predict a 51% chance of a reduction before March of 2024. So sort of this consensus view that rates will go up, stay the same or go down, is going to be a tremendous backdrop for our clients' need to manage that uncertainty and have all the products to do so at CME across the various asset classes, across futures, options, swaps and the cash market.

Terrence A. Duffy

So let me make a couple of comments too, Dan, because I think it's an important question that you asked, and it's really tough for us to predict the future.
But as you recall, at the beginning of 2022, I said it was going to be in a very exciting year because a lot of things are setting up in favor of risk management. We think this is exactly the environment that we've been talking about for several years that we see going out for several more to come. So that's why we're really excited about some of these out years, some of the things that Tim just referenced.
Risk management cannot be neglected for one moment for any business. We have multiple examples of failure, whether it's in small bank failures and others that continue to not manage risk, that they're going to be -- we think potentially have to manage that risk if they're going to stay in business. There's a whole host of factors that are coming to fruition that we think are a tailwind for CME Group.
I'm going to let Derek make a few comments on his asset classes because. I think this is an important question, not only that you're asking, but for all the analysts and investors to listen to. Derek.

Derek Sammann

Yes, I think that we've already heard from Terry on the options and commodities growth. Just a couple of data points that I think underscore the breadth and the scale of the options growth.
Not only is our non-U.S. options growing faster than our U.S. options, options are growing faster than the franchise overall. But also if you look at the first half year volumes, every single asset class with our client segment, with the exception of banks, is up. This business is up 24% year-to-date.
And what's most important is our buy-side client volume in options is up 38% year-to-date. So it speaks to the breadth and the scale and, I think, the attractiveness of our option solutions across the entire customer range. So this is not led by one asset class, not led by one client segment. So it's really grown in scale across a lot of client segments.
And then on the commodity side, you heard Terry talk a lot about the benchmark status of our products. We have built long and hard into expanding our portfolio of products. If you look at what we've done in our energy franchise, building up the crudes grades contracts to both defend but also expand the success and the validity of our WTI market with that crude grades contracts. We set an all-time record of open interest in over 500,000 contracts, open interest in those products.
So as the world evolves, this has been a multiyear story of expansion of our benchmarks serving our clients as the world globalizes, in some cases, the world fragments. We have products for each of those scenarios. So that's what we do, we solve client need and we fill in parts of their portfolio that they need risk management, and we become their solution provider.

Terrence A. Duffy

And as we said, Dan, we can't predict volumes. But as I said in my prepared remarks earlier, when you're looking at the largest asset class, the U.S. equity markets and equity markets around the world in basically a 0-vol environment right now, and we still traded at 6.2 million contracts a day. I think that goes to show you what can happen even when there's no vol. When people say, "Where are the future volumes are?" I think we're just kind of giving you an example where we see they're at, even in low-vol situations.

Operator

Coming up next, we have a question from the line of Kyle Voigt with KBW.

Kyle Kenneth Voigt

Maybe a question for Terry. I mean, since early last year, you sounded more open to executing on M&A if the right opportunity presented itself. I guess given M&A announcements we're seeing from some of your peers domestically and internationally, can you just provide an update on the M&A environment? And given that you've not executed or announced any deals, are you not seeing the right opportunities in terms of checking the right boxes? Or has that been more price-driven?
And then also maybe a question for Lynne or you, Terry. Do you think in terms of the next 10 years, as you mentioned, kind of accelerating the growth, should we think about M&A as being a larger driver of accelerating that growth over the next 10 years versus what we saw over the last 10 years?

Terrence A. Duffy

Kyle, it's a great question. I think when you're looking out several years in the future, there's a lot of things that can happen. And one of the things that I see happening shape CME in the future is the technology growth that we have with our Google transaction that will allow us to do certain things that maybe our competitors can't. But we don't need to do M&A in order to accomplish those goals of growth going forward. So I think we're in a very strong position from that standpoint.
As far as M&A and what my competitors are doing, I don't like to comment on what they're doing. I'm not in the room thinking -- talking to them about what strategic analysis they did and why they're doing those type of transactions. As I've said, we will only do things that we think are strategically benefit to our investors and into our clients. And again, right now, we are focused on the growth of this company through many different avenues.
And if, in fact, there was a transaction, I am still open to it, but it's not going to be out from left field. I assure you. That's something that we've been very focused on. And I'm not saying my competitors are, they're just doing different things.
So we have a strong franchise. We're going to continue to build on it. Tim made reference to early innings in risk management in some of these products. We truly believe that, in the distribution of our products, the technology that -- in the market data that Julie is working on, what we're doing with Google, we think, is really exciting going forward. So we don't necessarily need to do M&A, but we're not going to shy away from it if in fact we see it's a benefit to our investors.
And Lynne, if you want to comment further.

Lynne Fitzpatrick

Yes. I think Terry covered it well. We're looking at the organic growth. And if there were opportunities out there, it's certainly something we'd look at. But we've been very disciplined in our approach to M&A, as you've seen over the years.

Terrence A. Duffy

And Kyle, I will make one more reference. And I think I said this on the prior call. We are in a very strong capital position if in fact there was an M&A transaction to come our way. Where some of our so-called peers, as you referenced, they are getting heavily levered right now. And when assets get shopped, they're going to get shopped at people that can afford to pay for them no matter what they are. It doesn't mean that we're going to acquire them, but we're in a strong position to look at a lot of things strategically that may or may not benefit our business, and we'll make the decisions based on that.

Operator

Our next question comes from the line of Simon Clinch with Atlantic Equities.

Simon Alistair Vaughan Clinch

If we could just run -- go back to what -- Lynne, what you were talking about in terms of the -- I guess, the expanding product opportunities and the pipeline for market data. Or maybe it was who Julie was talking about this. But could you expand on sort of, I guess, how influenced that has been or accelerated that has been by the Google partnership? Or if that has yet to come? And perhaps give us just a flavor of the, I guess, the pace of this innovation over the next several years.

Terrence A. Duffy

Sunil or Julie, you want to touch on the opportunity on the market data, then the Google partnership.

Sunil Cutinho

I'll kick off, Terry, and then I'll have Julie speak to the commercial side. In terms of data platform, we have finally built it. And it's available with about 24 petabytes of date. We have developed a set of services that we are working on releasing to our clients.
I will let Julie speak a little bit about the commercial opportunity in that area.

Julie Winkler

Yes, Simon, why don't I just start for a minute just talking about the data services performance and then just quickly go into some of the product build-outs that we've been working on with Google. As I mentioned earlier, this quarter, we were up 8% versus where we were a year ago. And that is driven from high demand from our professional user bases as well as our retail clients. We're seeing a steady increase in the number of those professional traders that are accessing our real-time exchange content and really seeing growth across all of those subscriber segments, positive.
In Q2, we did not see as many of those one-time true-ups as we saw in the first quarter. So we definitely still had positive growth. But if you remember, back to Q1, Lynne had mentioned some of those onetime payments. So those can come from everything, from audits, true-ups and derived data audit fees, even true-ups to real-time subscribers from accruals. So I just wanted to call that out as well. We continue to say those are sporadic revenue items, but it's worth calling that out this quarter. And again, we're feeling quite positive about where the device usage is as well as the new products that we've been able to introduce.
As Sunil pointed out, and for us being able to really get our data into Google Cloud at the magnitude that we're sitting at now, has allowed us to accelerate the development of new products for our data business, including new analytics products as well.
So we've been highly focused on how we're going to enhance the business. And then that is through making our data more available through APIs, increasing the flexibility in how we can package our data, how we distribute our data, how we're going to be able to price our data. All of this is just much better enabled once this is accessible through the cloud, as well as, we believe, making it much more easy for clients that don't access CME data today, to be able to use these new services.
The computation that you can do is just far enhanced from what we are doing in an on-prem environment. And so that's allowing us to create as well some new compelling trade execution analytics. We've been able to put that into production this quarter and we'll be sharing that with our clients shortly. And so this is really us being able to leverage our own proprietary data and giving our clients this benchmarking activity and allowing them to really take action on that data and providing them with insights.
And all of this just leads into how are we helping our clients better manage their risk. So we're also looking at some new opportunities on the clearing and the risk side. So we'll be seeing more of that roll out. And it's just the speed and efficiency which the cloud puts behind us is allowing that new product production that we otherwise had not seen specifically within the data business. Hope that helps.

Terrence A. Duffy

Thanks, Julie. Simon, hopefully, that gave you some color on that.

Simon Alistair Vaughan Clinch

That's really thorough, yes.

Operator

Next question comes from the line of Alex Kramm with UBS.

Alexander Kramm

Thanks for the proactive comments on some of the equity franchise, the 0 DTE. And it's clearly, some investors are comparing your trends versus some of your competitors out there. I guess the other thing that stands out when I look at that franchise is that the micro percentage has come really down a lot. I don't want to just simplify that as saying retail is off. But just wondering if you could comment on what's going on there. Do you see those volumes going elsewhere? Or is this -- when you talk to maybe your retail brokerage partners, is that just a drying up of REIT activity post COVID?
And then related to that, as you talk about the growth acceleration over the next decade or so, I mean, is retail still a component of that? Or was that just an interesting story opportunity over the last couple of years? But now really, it's about much bigger on other things again?

Terrence A. Duffy

Alex, thank you. Appreciate your question. I'm going to let -- there's a lot of people kind of chomping at the bit to take that question. But I'm going to let Tim start, and then I'm going to join in with the rest of the team. Go ahead, Tim.

Tim McCourt

Great. Thanks, Alex. Thanks for the question. When we look at the Micro and E-mini complex at CME, certainly, we've seen some mean reversion in volume, which is not surprising, given, as Terry mentioned in his comments, the volatility coming inbound from the equity markets as well as upward price trends in all the major indices. When those things couple together, it tends to be a less attractive trade to the more active individual client that we see that prefers the micro over some other products available, not only in CME, but in the ecosystem more broadly.
But it's important to note, this is micro volumes coming off of a phenomenal record 2022. If we look at the Micro S&P 500 as an example, the Q2 volume that we've seen this quarter, while down, is still on par with what we saw in 2020 and 2021 and actually is higher than that. And the same holds true for the Micro NASDAQ. So it's a tough relative comp, but it's certainly a very strong product with respect to its risk management and trading needs that it provides.
The other thing that's interesting to note is the Micro launched in 2019, now a few years old, is really starting to mature as a product. And what I mean by that is, even though some of the volumes have come down, from a revenue perspective, it is actually flat to last year or slightly up through H1. And that's a result of 2 things.
One, the pricing actions we've taken with respect to the Micro E-minis, which continues to be at a premium versus the other risk-adjusted regular E-minis. But the other is the member mix. So even in a lower-volume environment, we're seeing larger nonmember proportionality of that customer mix, which has increased the RPC about $0.10 since this time last year for Micro E-mini. So that is something that is important to remind people of, is the revenue performance of Micro E-minis is different than the volume performance through H1 of 2023.
And with respect to maturation, the other point is look at the open interest of Micro E-minis. If we look at the top 10 open interest days for the Micro E-mini complex at CME, all 10 are in June of 2023, with single-day open interest records in several of the Micro E-mini contracts. This is a statement that the Micro E-mini is becoming a risk management tool alongside a trading tool, where more and more clients are holding them versus just intraday trading, which is a very positive development for the overall health of the market.
The last point that I'll make on this is we can't look at Micro E-minis in isolation. They go hand-in-hand with their older sibling, the E-mini contracts. And when you look at the combined performance and the resilience of the E-minis, the futures conflict at CME for equity indices remains very strong to its most analogous product choice, and that is the ETF.
And what I mean by that, if we look at the S&P, we outtrade the top 3 S&P ETFs by a factor of 10.7:1. That is for Q2 of 2023. That is up from a factor of 9.4 1 year ago in Q2 of 2022. Same thing for the NASDAQ. This quarter, we outtraded the ETFs in our combined futures 9.7:1 versus 7.3 in 2022. And similar to the Dow, this quarter, we outtraded the ETFs 23.3x to that of 16.2x last year. So despite the slowing growth in Micro E-minis off of a record year, still a very strong equity futures offering here at CME.

Terrence A. Duffy

Julie? Thanks, Tim.

Julie Winkler

Yes. And as Tim pointed out, certainly, our equity portion of our retail business is the majority of that. But with equity vol hitting 2-year lows, we would expect there to be some softness in the volume. However, our overall retail business remains extremely strong. We had a record-setting year last year, and we're looking at just revenue being down slightly this year, which is very, very strong performance.
We saw positive growth in both Europe, Greater LATAM and also China in the second quarter. And one of the real barometers that we often mention on this call, and for us, is a key sign of the health of this marketplace for retail participation, is the total number of retail traders, which was up 7% in Q2 over Q2 of 2022, and also just the number of new traders. So our firm's ability and CME's ability to continue to attract new people to CME markets, that was also up 4% in Q2 of 2023.
So I think from our signs, we certainly see the equity vol had some impact on things. But the fact that we have a diverse asset class, we saw increased activity in some of the other asset classes via retail participants, and feel we're still very well positioned for future growth quarters.

Derek Sammann

And just to add a couple of data points to what Julie said specifically. When you look at retail in our metals complex, for example, retail volumes year-to-date are up 21%. And as you know, metals is our highest rate per contract business at $1.50. Also, options growth has benefited from retail participation, up 8% this year.
So the benefit of being able to walk into a customer, any customer or distribution partner, and offer every major benchmark liquidity product to them means, that when sector rotation happens, we're going to be the beneficiary of that. So we see strength in certain asset classes. When they start to rotate, whether because you've got normalization of volatility over cost of capital, we're going to benefit from that. And we see that. That's the benefit of the story and the growth behind the franchise.

Terrence A. Duffy

So Alex, you've heard a few comments. And I think, hopefully, you find them all salient. And one of the things that we talk about in retail, and we always have, it's an ebb and flow situation for a lot of people. Our retail is described a little bit different as more professional-type participants as Ms. Winkler was pointing out.
So when you talk about COVID and you talk about other factors, yes, that was in there. But our retail is classified as different than the average person trading on maybe a Robinhood platform or something of that nature. And what Tim had to say about how the competitors are performing against CME, you can clearly see that our volume share is not only not decreasing, but increasing against the lookalike or competitive type products. So hopefully, those questions are been answered properly for you.

Alexander Kramm

Yes. Lots of great color.

Operator

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Brian Bertram Bedell

Maybe if I can just go back to the options story. Obviously, that's been improving nicely. The numbers I'm looking at, I think options as a percentage of total ADV was in the mid- to high teens over the last couple of years now. You've sort of vectored above 20%. So I just wanted to sort of try to understand your confidence of that type of trend improving over the next year.
And then maybe just talk about the RPC dynamics of the options business first into the future in terms of whether you think that's potentially accretive to RPC.
And then you also mentioned on Page 3 of the quarterly earnings commentary about the direct front-end platform helping stimulate trading of electronic options. Is that just in the energy complex? Or is that set across the business?

Terrence A. Duffy

Thanks, Brian. Derek and Tim, do you want to start? And then I'm going to...

Derek Sammann

Yes. In reverse order, I'll actually start with your last question, Brian. So yes, you've heard us talk on previous calls about CME Direct. That is our proprietary front-end that we provide to our customers that gives them all the functionality, all the analytics, all the capabilities and all the connectivity, including API access to our markets for both futures and options.
That really started as a mechanism to make sure that we were able to provide the full breadth of capabilities and services to our global customer base seamlessly, connecting to everything that we had to offer. That's now extended itself. So this is across asset class, not just limited to energy. And the growth that we've seen there has been substantial. It's actually rapidly evolved to become the single-largest ISV provider or link into our options business with the highest rates of penetration on the interest rate side. So it's an integral part to our growth story.
In the options analytics space, we've developed a whole suite of capabilities, whether it's pre-trade analytics or post-trade tools, to help customers look at, vet positions and strategies they want to implement. That's new capability we developed over the last 4 to 5 years. And it's just -- as we continue to expand the tools and capabilities, it just brings more customers that are willing and able to trade options, and creates a seamless experience, one single front end into all of our asset classes with a full suite of functional and analytical tools.
We think we're still in the early innings of developing those capabilities in partnership with QuickStrike, and we're very happy with the growth that we're seeing there. That's actually becoming a critical part of our futures delivery as well as all of our blocks are reported through there.
The last piece I'd note on the front end there is that we're seeing the largest uptake in growth there, is from some of our buy-side participants and brokers as well. So this is a platform that brings customers to our market, provides a full suite of services and introduces them to everything we have to offer.
The last piece is the -- when you referenced the overall percent of options as a percent of total volume, there's 2 parts to that. Not only are we seeing options continue to outpace futures, which is positive for the franchise in that more options business brings more embedded futures, hedging associated with it, but as I mentioned at the top of the call, with our options business year-to-date up about 24%, our non-U.S. options business is growing even faster, up 33% for the first full half year.
So when we think about growth levers and opportunities, the way our sales force is out there specifically educating clients on options use, how to access those tools at CME Group and the growth that we're seeing, we think we've got still a good deal of penetration yet ahead of us when you look at the footprint that we have in options in Europe and Asia versus the U.S. So a lot to like in the story.

Terrence A. Duffy

So let me just accentuate a couple of points here, Brian, because I think it's really important. We're the largest futures exchange in the world. Our futures franchise is massive. One of the reasons it is what it is, is because of the growth of options. But the real growth is in the future for the out years. So if our options business continues to be here or better, it only bolsters our futures and hedging business going forward. That's, to me, a real story for the futures franchise of CME Group.
So it's not just an option story like some people are talking about it. They're different firms that they represent. We are a futures exchange with options, and the options grow the futures as well. And that point cannot be missed. I don't want you to think we're only growing options and futures or not. So that's a very important point that we have to go forward.

Brian Bertram Bedell

That's super helpful. And just the RPC dynamics, I guess, of the options versus the futures?

Terrence A. Duffy

Say that again?

Brian Bertram Bedell

The RPC dynamic [of options versus] the futures.

Terrence A. Duffy

Yes.

Lynne Fitzpatrick

Yes. So the total RPC this quarter across our options complex was $0.666, so slightly down from what we saw overall. It does depend on asset class, how that will compare and what is trading, in terms of those options.

Operator

And up next, we have a question from Craig Siegenthaler with Bank of America.

Craig William Siegenthaler

Our question's on pricing. Given your success with the larger-than-usual price hikes earlier this year, could we start to see larger price hikes again next year in 1Q '24 and then again in 1Q '25?

Terrence A. Duffy

Sure, Craig, it's Terry Duffy. Let me make a comment on that. Price hikes are part of the business, but we're -- it's not the strategy in how we grow the business. So we look -- everybody has got costs that they have, are incurring, and we're no different. But that's not our strategy to grow the revenue of the company. Our strategy is to grow the business, not grow what we charge. So again, we will continue to look at that on a month-by-month basis and make decisions as we see fit. But we're not prepared to say right now what our pricing will or will not be in the next couple of years, on the out years.
Lynne?

Lynne Fitzpatrick

And just to add to that. Craig, as you know, we do have a very bottoms-up build on that pricing strategy. This is not an approach where we have a target that we are looking to hit. It's really market by market, product by product, customer type. And we will determine what we think is the right adjustment, if any, for that market. So it's something that we evaluate in that time period. And we don't look at a multiyear pricing strategy. It really depends on the market environment, the health of the market.
And what we ultimately are trying never to do is impact volumes because we want to see that velocity of trade moving through our systems given the high level of incremental margins that we earn on that trading.

Operator

And our next question comes from the line of Owen Lau with Oppenheimer.

Owen Lau

So I have a quick two-part question. The first one is a follow-up to the market data question. It was up year-over-year, but down sequentially. How much was the onetime payment in the first quarter?
And then the second one is about digital assets. I think CME will launch an Ether-Bitcoin ratio future soon. Could you please give us an update on the digital assets trading and institutional participation in CME? And how could the summary judgment from Judge Torres on the Ripple case potentially impact CME?

Terrence A. Duffy

So thanks, Owen. I'm going to ask Lynne to give you the first one on the market data question. Then Tim will touch on the digital assets.

Lynne Fitzpatrick

Yes. So Owen, in the first quarter, we saw about $4 million in onetime audit fee and catch-up payments that we didn't see in Q2. This quarter, we saw about $0.5 million in audit fees. So that really explains that differential Q1 to Q2.

Tim McCourt

Great, and thanks, Owen. When we look at the cryptocurrency complex at CME, you're correct, we recently announced, which I think is an innovative and interesting product, and that is the Bitcoin-Ether ratio spread contract that will go live the weekend of July 29. That's interesting where it's effectively the price of Ether divided by the price of Bitcoin in one contract. That will trade alongside the other cryptocurrency products, including offsets for clearing at CME.
When we look at the crypto composite, CME remains strong. Our value proposition remains salient with our institutional client base. We've seen continued adoption of our products in terms of both traders in the OTC space as well as futures traders as well as the growing importance of our contracts as the underlying of some of the most popular ETFs out there in this space, which are continuing to grow both trading volume and open interest.
When we look at the volume that we're doing in the larger size Bitcoin and Ether contracts, that is up about 6% versus this period, H1 through 2022, and on pace for another strong year in crypto here at CME. When we look at our product development, we do stay currently in the Bitcoin and Ether lane for tradable products. We do have a multitude of reference rates.
But with regards to your question about the Ripple case, it's really not in our position to comment on that case. Our mantra and the philosophy that we use is we will continue to only deploy products as the regulated venue, offering regulated products. And we'll wait for further regulatory clarity from the SEC and the CFTC before we introduce additional product.

Operator

And our next question comes from the line of Ken Worthington with JPMorgan.

Kenneth Brooks Worthington

The SEC has a number of proposals for centralized clearing in the rates markets for treasuries and repo, so a couple of questions here. I guess, first, Terry, which of the major parts of the clearing proposals are most likely to make their way into the final rules?
Maybe second, how do you think these rules could impact rate liquidity and volatility and ultimately flow through CME rate activity?
And then lastly, to what extent is participating directly in a clearing platform for treasuries and repo important or even a priority for CME?

Terrence A. Duffy

Okay. Ken, there's a lot to unpack there and a lot that I don't have the answers for, because these proposals that you're referring to at the SEC on the treasury market, I think there's a lot to be done yet before they're finalized to a point where we see how they're going to be implemented.
As far as the trading on the repo, Tim, if you want to comment on that. But on the SEC proposals, Ken, I don't see anything in there that's a negative for CME, for starters. I want to make sure I say that, if in fact, it was to go through as proposed. And I see it only as a net positive for CME.
So what that is, I don't want to make predictions on what it could or could not be. It reminds me a lot of -- and I don't want to put the same analysis on it, but during 2010 Dodd-Frank, when they said that swaps clearing was going to be worth $1 billion to everybody that had a clearinghouse, it was a bit of a misdirect because that was made up by some government officials, not us.
So I want to be careful on that, Ken, about how do we make any predictions where it's going. But I will say there, I don't see any negatives in any of the proposals for CME as I've gone through them.
But Tim, do you want to make a comment on it?

Tim McCourt

Sure. I think the one thing I would add is, while we continue to evaluate the proposals and the various suggestions and regulatory reforms that may be discussed, we're certainly looking to participate in those conversations with our clients and with the regulators to see what makes sense from a risk management and a clearing perspective for our customers.
As Terry said, very hard to predict what the final rules may look like. But I think broadly speaking, when we look at the totality and the gravity of the interest rate complex at CME across futures and options, cash market or BrokerTec and OTC clearing, we certainly are already in a position of strength with the ability to unlock capital efficiencies for our clients. We are averaging about $7.5 billion of savings across the portfolio margining the rates complex today.
So anything that would increase the velocity or the benefits of central clearing is certainly will be something that we're looking to engage. But it's important to note, not only with our portfolio margining, as Terry said earlier, with FICC cross-margining on the horizon, with the expanded suite of products available to the client across SOFR, the Ultra 10 notes, the Ultra 10 bonds, is that we're already providing a lot of capital savings to clients, where these may be additive. But we'll have to wait and see how the final rules shake out.

Operator

And up next, we have a question from the line of Michael Cyprys with Morgan Stanley.

Michael J. Cyprys

I wanted to ask about capital management. If we look back over the past decade, you guys have returned a tremendous amount of capital through the dividend and primarily the special dividend. A lot of that was during a 0 rate backdrop. But with meaningfully higher rates today, over 5%, just curious how the rate backdrop is impacting your calculus and thought process around capital management. And to what extent might you think about evolving, shifting the policy and considering buybacks?

Terrence A. Duffy

Thanks, Mike. I'll let Lynne comment, and I will as well.

Lynne Fitzpatrick

Yes. So as you know, Michael, we've had that policy in place with our variable dividend since 2012. We've returned over $21.5 billion to shareholders in the form of dividends during that time. We do think a lot of our shareholders appreciate the transparency of that approach and the ability to track progress towards it as we move through the year. So we do like both the flexibility and that transparency.
That being said, we always do look at alternatives to make sure that the way we are returning capital is the most attractive form for our investor base. And to date, we have found that, that dividend policy has been preferred.

Terrence A. Duffy

And Michael, just so you know, I mean, as far as share repurchases, we've talked about that. We continue to talk about it. And as Lynne just referenced, we will do what we believe is in the best of the shareholders at that time. So we're not taking anything off the table, but right now, our dividend policy has proven out to be the right one for now.

Operator

Our next question comes from the line of Patrick Moley with Piper Sandler.

Patrick Malcolm Moley

So I wanted to go back to the expanded cross-margining opportunities with the DTCC. Terry, I know this is something that's been in the works for a little while now. So just wondering what maybe caused this to come to fruition now. And then assuming you do receive regulatory approval and launch in the first quarter, how quickly would you expect that to maybe ramp in terms of client utilization?

Terrence A. Duffy

Yes. Thanks, Patrick. Congratulations on your new role there at the firm. I will say a couple of things. The agreement with DTCC has been in the works for a long time. So you're exactly right, a little frustrating on that part.
Why now? I think that when you look at where -- listen, we're only one part of the equation. We needed DTCC to be prepared to do this as well. They had some other projects in the works they had to finish up. And everything takes a little bit longer than you anticipate. So we couldn't control their side of what they needed to do for this agreement.
We have now come to a finalization on this with them. And like I said earlier, we're looking to have this as soon as it's approved, hopefully being implemented by Q1 of next year. And again, extremely excited about what this could do for the marketplace because of what Tim and others have said, what we see in the out years as far as risk management goes and how necessary it's going to be for all products.
So if you're going to have that, capital efficiencies amongst products is key in order to grow these businesses and make it more efficient for each and every client. So we do believe that this cross-margining agreement will be extremely beneficial to the clients and make their capital more efficient, which, in return, should benefit CME immensely.
Tim, I'll let you comment more on the agreement under what Patrick has raised.

Tim McCourt

Yes. Thanks, Terry. So again, when we look at this announcement, we're excited, one, that we're finally able to bring this to market early next year. But it's also sort of when we look at the benefit to clients and we look at the immediate benefits or the near-term benefit. And certainly, the expansions of the products that are now available for the cross-margin agreement.
Again, like I was saying earlier, that includes our SOFR futures, the Ultra 10-year U.S. Treasury note futures, the Ultra treasury bond futures. The FICC cleared treasury notes and bonds and repo transactions that have a time to maturity of greater than 1 year will also be eligible. So this is exciting in terms of trying to unlock those benefits. And as we've said previously on the earnings calls and certainly before, we think our present clients are taking advantage of them, but typically more to the order of 20% or 30%. We do expect to get those offset percentages closer to 70% or slightly higher.
But this is the first step, right? The part of -- important part of entering into these agreements is that we will continue to work with the client to try and avail even more capital efficiencies after this initial rollout. This is something that we're engaging with clients about, and we'd look to further expand the program to allow clients to avail these efficiencies, in addition to the common clearing member proprietary account. So lots of things on the horizon that we continue to explore years down the road beyond just the initial rollout of early next year.

Operator

And we now have a question from the line of Chris Allen with Citi.

Christopher John Allen

I was wondering if we could get an update on the collateral balances, both cash and noncash, during the quarter; related revenues you generate during the quarter; where they currently stand for July.

Terrence A. Duffy

Thanks, Chris. Lynne?

Lynne Fitzpatrick

Sure. If we look at the quarter, the average balance for cash was $120.1 billion. That was up from $109.6 billion last quarter. For the noncash balances, we saw $109.4 billion on average, up from $99.2 billion in the first quarter. So we earned $107 million on the cash balances this quarter and just under $20 million on the noncash balances this quarter. Again, that noncash amount rolls through the other revenue line.
If you look at year-to-date -- month-to-date so far in July, the balances in cash have come down. We're seeing about $100.9 billion in cash on average so far in July. And the noncash balances so far this month are running at $127.9 billion.

Operator

And we now have a question from the line of Andrew Bond with Rosenblatt Securities.

Andrew Bond

So energy open interest is beginning to trend upward from the longer-term decline. Can you talk a little bit about the overall health of the energy business? The drivers here structurally? And if the geopolitical environment is still impacting current trends in natural gas and oil?

Terrence A. Duffy

Thanks, Andrew. Good question. And Derek?

Derek Sammann

Yes. It's -- I think we've seen a really nice return to, I would say, normalized levels of volatility and therefore normalized levels of margin required to trade. As we saw some of that business shift up, particularly financial players step out of the energy business last year, we're seeing that business return significantly. You pointed to the trend, not just in the open interest, but volumes as well.
When you look at the primary drivers, there are some cyclical, some structural. The cyclicals, we certainly put ourselves in the position to be the biggest beneficiaries of those. And you look at particularly the strength of a globalizing natural gas franchise that is really globally centered around Henry Hub, natural gas continues to be exported at record amounts out of the U.S. through the LNG facilities. That's at max capacity right now. There are more facilities coming on board over the next 5 years.
So from a term perspective, CME Group's Henry Hub franchise is the central pricing point for global natural gas. When you look at growth across the client segments there, we're seeing significant growth. And actually, new client acquisition is happening the fastest in natural gas with our European customer base. That shouldn't surprise given some of the challenges that the Ukraine War has posed in terms of disruption to fuel supplies of both crude and natural gas. So when we look at that global growth, that's particularly strong in natural gas out of Europe. And we're seeing significant growth in options there as well.
It's a similar structural story that's taking place in crude oil. As you know, in June, Platts implemented a Midland WTI marker into the Brent basket, and that has actually just further reinforced WTI as the primary global benchmark setting the price of oil in terms of the outsized footprint WTI has in the pricing of oil.
Seeing this shift, and as I talked about on last call, that over time, WTI would be that global physical benchmark of reference, that position has only strengthened. And we have taken a significant work to build out, as I mentioned before, the Gulf Coast crudes grades contracts, that connect specifically our physically delivered WTI contract out to the export market as the U.S. is now exporting over 4 million barrels a day, a record clip as well.
So those contracts themselves have over 500,000 of open interest. That complements the growth of just under 2 million contracts open interest in WTI. So the structural shifts for both Henry Hub, a market that we own 82% market share of; and WTI, a market we own 90% market share of, will continue to be central to not just the energy transition, but growth in the franchise overall across client segments.

Terrence A. Duffy

Andrew, let me just say one more thing because you referenced it, and I talk about this a lot, too, is geopolitical. I think geopolitical has got a factor in every single trade and every single asset class going forward. I mean, the tensions around the world are just amazing when you look at, not only with the -- what's going on between Ukraine and Russia and the rest of the world being involved and the potential of what's going on between China and Taiwan. I mean, the tensions are so high all over the world that geopolitical has a factor in every one of these markets, and risk management is critical to it. So I think you're spot on for raising the geopolitical risk, but it's not only associated with LNG, it's across the board.

Operator

And our final question comes from the line of Brian Bedell with Deutsche Bank.

Brian Bertram Bedell

Great. My questions have been answered. Just one clarification. The rate paid -- or I'm sorry, the rate earned on the cash collateral balances in the second quarter, and the rate that you're paying out to the clients?

Lynne Fitzpatrick

Yes. So the rate on the Fed accounts remains at the 25 basis points. It's been at that level for the last 8 rate hikes. We are earning -- we earned in the second quarter about 34 basis points, up just slightly from what we had seen in Q1.

Operator

Thank you. I will now turn the call back to the management for their closing remarks. Please go ahead.

Terrence A. Duffy

Let me thank all of you for participating in the call today. We appreciate your questions and the opportunity to answer them. Have a nice day, and we look forward to speaking to you soon. Thank you.

Operator

Thank you. And that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. Have a great day.