Cboe Global Markets, Inc. (CBOE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Cboe Global Markets First Quarter 2021 Earnings Conference Call. Please note today's event is being recorded. At this time, for opening introductions, I would now like to turn the conference over to Debbie Koopman, Vice President of Investor Relations.

Good morning and thank you for joining us for our first quarter earnings conference call. On the call today, Ed Tilly, our Chairman, President and CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Then, Brian Schell, our Executive Vice President, CFO and Treasurer, will provide an overview of our financial results for the quarter as well as update of our 2021 financial outlook. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be our Chief Operating Officer, Chris Isaacson; and our Chief Strategy Officer, John Deters. In addition, I would like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we will make some forward-looking statements which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise after this conference call. During the course of the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. Now I'd like to turn the call over to Ed.

Thank you, Debbie. Good morning, and thank you for joining us today. I hope you are all doing well and staying healthy. We reported solid financial results for the first quarter of 2021 at Cboe Global Markets while continuing to successfully execute on our strategic growth plan to expand our geographic and asset class footprint, broaden our customer reach, diversify our business mix with recurring revenue and leverage our superior technology. As expected, we have more difficult comparisons this quarter against last year's record first quarter earnings when we saw exceptionally strong trading as the COVID-19 pandemic began sweeping the globe. For the quarter, net revenue was up 2%, and adjusted earnings per share was down 7% year-over-year. However, we saw very strong sequential growth across business segments, with net revenue up 19% over the fourth quarter of 2020 and adjusted EPS up 26%. Our solid results were driven by record trading in multi-listed options and continued growth in our recurring nontransaction revenues as well as the contribution from the acquisitions we completed in 2020. I want to update you on the progress we made this year on 4 key incremental growth drivers I highlighted last quarter. Our plans to launch Cboe Europe derivatives, the opportunity to grow recurring nontransaction revenue, our plans to expand BIDS trading, and efforts to extend across to our products and services, including retail. First, I'd like a moment to highlight a few market dynamics we saw during the quarter. With increased certainty around the political landscape, progress around the vaccine rollout, the reopening of businesses and various companies returning to work, we have seen institutional investors reengage with our index options and volatility products this year. Quarter-over-quarter volume increased by 63% in VIX futures, 29% in VIX options, and 15% in SPX options. In Europe, our successful Brexit transition and the reintroduction of Swiss trading on our U.K. market helped us achieve some notable records across our suite of European and equity products during the first quarter. Cboe Europe periodic auctions had record average daily notional value traded of EUR 1.3 billion during the first quarter, up 5% year-over-year. Additionally, Cboe LIS, our European block trading platform powered by BIDS, had record market share of 24.1%, up from 22.7% market share 1 year ago. As clients have recalibrated their models and readjusted to the new trading landscape in Europe, we're pleased to see that our overall market share has increased to 17.9% month-to-date in April, our highest since July of 2020. We are maintaining our focus on investing in long-term growth, building on the strong foundation we'd laid last year and are excited about the momentum we are seeing across our business. Last month, we announced plans to acquire Chi-X Asia Pacific, which will provide Cboe with a single point of entry into 2 of the world's largest securities markets, Australia and Japan. I'll touch on this exciting deal in a moment. But first, let me update you on key incremental growth drivers I noted earlier and how this planned acquisition complements several of these growth initiatives. I'll begin with the progress we've made growing nontransaction revenues. During the first quarter, we achieved 17% growth in recurring nontransaction revenues, exceeding our expectations. This increase includes organic growth of 14%. Brian will share additional details later in the call, but we are increasing our 2021 growth target for organic recurring nontransaction revenues to a range of 10% to 11% from a range of 6% to 7%. One of our top priorities remains the continued global expansion of our data analytics offering, and last month, we announced the creation of Cboe Data and Access Solutions, a new division that will lead our charge to become a global leader in data and analytics. Led by Catherine Clay, this new division combines our Information Solutions and Market Data and Access Services teams into one group that creates an optimized offering for our global client base. This holistic solution is expected to enable customers around the world to seamlessly access all of Cboe's expanded capabilities, including global indices, interface solutions as well as data, market and risk analytics through a unified offering. Additionally, in connection with the planned Chi-X acquisition, Cathy will lead our effort to build the first truly global equities market data platform that is expected to offer data from most major markets around the world. We recognize that as the trading environment becomes more globalized, customers want greater efficiency in the market infrastructure services they require, and our goal is to align our business to address these client needs for global data and analytics. We are excited about the continued evolution of this business and believe the new data and Access Solutions group will create opportunity to further grow our base of recurring nontransaction revenue. Cathy is a tremendous leader with a track record of delivering results, and we're excited for her to lead this team as we look to expand the business and our market data offering globally. Turning to Cboe Europe Derivatives. Yesterday, we announced plans to go live with this new market on Monday, September 6, subject to regulatory approval. We originally hoped to launch this new venue in June. And while we expect to be operationally ready, the regulatory approval process has taken longer than expected, given this initiative expands our existing clearing capabilities into a new asset class. We are working closely with regulators and continue to have a very constructive engagement with them. Most importantly, we have a critical mass of key market participants ready to support the exchange from day 1, including banks, clearing firms, market makers and proprietary trading firms will help contribute to the provision of liquidity and client order flow in the new market. The team has worked incredibly hard to achieve our mission of creating a modern, vibrant pan-European derivatives market designed to grow the overall derivatives trading landscape while creating new opportunities for customers to express their investment views and manage their equity exposure. Our pan-European model will help provide market participants with the ability to access a modern on-screen derivatives market from one single access point, creating efficiencies in trading and clearing. As previously noted, while our 2021 revenue expectations for European derivatives are modest, we are investing for long-term growth and looking for a gradual revenue build as we gain traction, expand our product offering and unlock the potential we see for considerable growth in this market. Moving to BIDS Trading. We see significant opportunity to leverage the planned Chi-X Asia Pacific acquisition to bring BIDS' industry-leading block trading capabilities to this new geography. With BIDS' current network covering major North American and European equity targets, the planned addition of Asia Pacific equities is expected to create a global block trading platform to serve a broader base of customers. The expansion of BIDS into Canada is well underway, alongside Cboe's technology integration of MATCHNow, the Canadian ATS we acquired last year. With BIDS' extensive global network of more than 460 buy-side investment managers and sell-side constituents, this innovative platform will play a critical role in achieving Cboe's mission of building one of the world's largest global derivatives and securities trading networks. We also remain committed to extending access to our products and services through product innovation, enhancements of our markets as well as expansion of our customer base, both institutional and retail, and made solid progress on this initiative in the first quarter. Last month, we extended equity trading hours on our EDGX Exchange to allow for trading beginning at 4:00 a.m. Eastern Time, and the volume we are handling during this early market session has exceeded our expectations. EDGX is now handling more than 11% of the volume during the early trading session. Earlier this month, we also received approval from the SEC to launch our innovative periodic auctions in the U.S., paving the way for us to provide customers with an on-exchange alternative to off-exchange electronic block trading by enabling them to trade in size while helping to reduce market impact. As I mentioned earlier, we continue to see strong customer adoption of a related product in Europe, and we're excited to build on its success by providing a new version of this product to the U.S. customer base. This long-awaited approval in the U.S. was the result of our steadfast commitment to improving markets for our customers, and we look forward to launching this offering in the third quarter of this year. We are also planning to extend global trading hours for VIX and SPX options in the fourth quarter of this year as part of our 24x5 initiative, subject to regulatory review. The length of global trading hours will complement our planned entry into Asia Pacific and are designed to help meet growing investor demand for the ability to manage risk more efficiently, react to global macroeconomic events as they are happening and adjust SPX and VIX options positions around the clock. The uptick in market engagement from retail and institutional investors alike reinforces the importance of our ongoing commitment to education. Our new core derivatives curriculum from the Options Institute has been met with positive feedback from early participants at all experience levels. We've expanded the derivatives education webinar series to include foundational knowledge on options, pricing models and strategies, and we are on track to launch our first set of online demand courses in June to further build understanding of derivative strategies and applications. Additionally, to meet customer demand for even more learning opportunities, the Options Institute is expected to be launching the Adjunct Faculty Program this June. The program features distinguish practitioners specializing in derivative products, operations and risk management, decision theory and research. Turning now to our plans to acquire Chi-X Asia Pacific. We believe this deal significantly advances our mission to build one of the world's largest global derivatives in securities trading networks, enabling the further expansion of our product offerings to a global network of customers. We believe this exciting investment will complement our North American and European operations and provide a foothold in the key Asia Pacific region, positioning us to become a truly global marketplace for our customers. Chi-X is one of the most successful alternative market operators in Asia Pacific, with core exchange operations in Australia and Japan and a significant sales presence in the region. Asia Pacific is an untapped market for Cboe and we are excited about the potential to offer our unique proprietary products and other services to clients in the region. As I noted earlier, the acquisition provides the opportunity for us to expand our global equities business, including bringing BIDS to the region. Dave Howson, President of Cboe's European and Asia Pacific Operations, will lead our planned expansion into the region, working closely with the Cboe team and Chi-X local management teams. Chi-X leadership has shown an incredible commitment to innovation across market operations, customer service and technology. And I look forward to leveraging the expertise of the team to expand Cboe's geographic reach, enhance existing capabilities and offer new market solutions to investors in the region. The transaction is expected to close in the second or third quarter of 2021, subject to regulatory review and other customary closing conditions. We look forward to welcoming the Chi-X team into the Cboe Global Markets family. With that, I'll turn it over to Brian.

Thanks, Ed, and good morning, everyone. I hope all of you and your families are remaining safe and healthy. Let me remind everyone that unless specifically noted, my comments relate to 1Q '21 as compared to 1Q '20 and are based on our non-GAAP adjusted results. As Ed just indicated, we reported strong financial results for the quarter, our third highest quarter on an adjusted EPS basis. Earnings were down compared to last year's record high, but we continued to build on the positive momentum we ended last year with. We also continued to execute on our strategic initiatives and remain laser-focused on building one of the world's largest global derivatives and securities networks to deliver enhanced value to our customers as well as our shareholders. Now a quick review of the quarter. Our net revenue increased 2% with net transaction fees down 7% and recurring nontransaction revenue up 17%. Adjusted operating expenses increased 26%. Adjusted EBITDA of $250 million was down 6%. And finally, our adjusted diluted earnings per share was $1.53, down 7% compared to last year's record quarterly results, but up 26% quarter-over-quarter. Turning to the key drivers by segment. Our press release and the appendix of our slide deck includes information detailing the key metrics for each of our business segments, so I'll just provide summary thoughts. The revenue decline in our Options segment was driven by lower trading volumes in our proprietary products, offset somewhat by a continuation of strong trading in our multi-listed options, growth in revenue per contract or RPC in our index and multi-listed options, and growth in our recurring nontransaction revenue. The increase in North American equities revenue resulted from the addition of BIDS and MATCHNow, which contributed total revenue of $12.4 million. In addition, recurring nontransaction revenue increased nearly $5 million or 16%, with organic growth of 15%. The revenue decline in Futures resulted from lower trading volume in fixed futures. The revenue increase in Europe primarily reflects the addition of EuroCCP, which contributed $12.1 million. As Ed noted, we achieved some notable records in European equities in the first quarter, underscoring our successful Brexit transition and the reintroduction of Swiss trading on our market, and continued to make meaningful progress on the planned launch of European derivatives. Overall, we are very proud of the European results this quarter given the challenging circumstances. And finally, in FX, the revenue decline was due to lower ADNV, resulting in lower net transaction fees, offset slightly by growth in access and capacity fees. In addition, FX market share grew 80 basis points year-over-year to 16.5%. While not included in our prior year results, I want to point out that the businesses we acquired in 2020 achieved double-digit year-over-year revenue growth, apart from BIDS, which had tougher conversions, like our other trading venues. We recently published historical volume and revenue capture metrics for EuroCCP, BIDS Trading and MATCHNow, which are available on our website where we post our monthly volume statistics. Turning to expenses. Total adjusted expenses were about $125 million for the quarter, up 26% against last year's first quarter. Excluding the impact of acquisitions, adjusted operating expenses were up 8% or $8 million for the quarter. Most of the expense variance related to the acquisitions was compensation and benefits. While first quarter expenses annualized are tracking below our current expense guidance range of $531 million to $539 million, most of the variance is due to timing, so we are reaffirming our previous guidance for 2021 expenses. As we mentioned on our last earnings call, our plans for 2021 and beyond call for continued investments to drive long-term sustainable growth in our business. We started the year strong, achieving 14% organic growth in recurring nontransaction revenue, well ahead of our targeted growth rate for the year of 6% to 7%. Like prior quarters, most of this growth was driven by additional units or subscriptions versus pricing changes. And as Ed mentioned, we now expect the organic annual growth rate in recurring nontransaction revenue to be 10% to 11% for the year. After incorporating our 2020 acquisitions, we similarly now expect the total annual growth rate for this category to be 11% to 12%, up from our prior guidance of 7% to 8%. As a reminder, we define recurring nontransaction revenue as access and capacity plus proprietary market data fees. In the aggregate, we continue to expect the acquisitions closed in 2020 to contribute additional annual net revenue growth of 4% to 6% in 2021. Moving to our expense guidance. As I noted earlier, we continue to expect adjusted operating expenses to be in the range of $531 million to $539 million. Furthermore, I want to reemphasize our plan to invest approximately $24 million to $26 million this year to drive incremental and sustainable long-term organic revenue growth and high-conviction, high-return opportunities. This includes our European derivatives buildout as well as investments to increase access to our existing products and services, especially growth in our index options and futures by developing, listing and distributing unique products, enhancing our marketing, education and content and increasing our efforts to tap into the growing base of retail investors. Keep in mind, our current guidance metrics for 2021 do not include the pending acquisition of Chi-X. We will update our guidance accordingly once that transaction has closed. Turning now to a summary of full year guidance on the next slide. We are reaffirming our guidance for depreciation and amortization, effective tax rate on adjusted earnings and CapEx. A quick note on our effective tax rate, which was 27.9% for the quarter, slightly above last year's first quarter rate of 27% and at the lower end of our guidance range of 27.5% to 29.5%. We are reaffirming this guidance under the current tax laws. While we are not providing full year guidance on interest expense, absent any additional borrowing and significant changes in LIBOR, our interest expense for the second quarter of 2021 is expected to be $12 million to $12.5 million, in line with our first quarter expense of $12.3 million. Moving to capital allocation. Our priorities have not changed as we remain committed to investing in our growth strategy while returning excess cash to shareholders through dividends and share repurchases. As you heard from Ed, our recent acquisitions as well as our pending acquisition of Chi-X underscore our conviction and our ability to deploy capital to help enhance organic growth and strategic value over time, leveraging the robust infrastructure and technology at the core of our strong operating leverage profile. From a capital return perspective, our strong cash flow generation enabled us to return $93 million to shareholders through dividends and share repurchases in the first quarter. We plan to continue being opportunistic with share repurchases. Our leverage ratio was unchanged at 1.4x at March 31 versus year-end 2020. We ended the year with adjusted cash of $264 million, reflecting, in part, higher balances associated with additional regulatory capital, supporting growth in Europe. Now I'd like to turn it back over to Ed for some closing comments before we open it up to Q&A.

Thank you, Brian. In closing, I'm very pleased with the progress we have made as we continue to execute against our strategic growth plan and focus on building one of the world's largest global derivatives and securities networks. Earlier this week, Cboe celebrated its 48th anniversary. The pioneering spirit that drove the creation of our company now fuels our leadership as a global multi-asset market operator. While every year has been remarkable in its own right, the unprecedented events of this past year have reaffirmed what I already knew, the entrepreneurial and collaborative team spirit that has always defined Cboe has never been stronger. I am very proud of what we have accomplished as a team, and I look forward to delivering on our vision as the year progresses. With that, I'll turn to Debbie for instructions on the Q&A portion of the call.

Thanks, Ed. At this point, we'd be happy to take questions. [Operator Instructions] Operator?

[Operator Instructions] And the first question customer Rich Repetto with Piper Sandler.

First, congrats on the strong quarter here. I guess I'm going to skip the Alan Dean-ish expense guidance, but let me go to -- I think I'd like to focus more on -- and I'd be -- the organic growth of the nonrecurring transaction revenue. So I'm just trying to dig under the covers a little bit more, the guidance increased 50% to almost double. I'm just trying to see what increased the momentum a little bit deeper between when you gave the guidance in February to now, what did you see that was able to allow you to increase it so much?

Thanks, Rich. Brian, why don't you jump in?

Yes, I'll take that. Thanks. Rich, we are obviously very excited about this. Obviously, the incremental guidance reflects our increased confidence in that growth rate, which was already strong, obviously going in. And as you recall, the growth rate in the fourth quarter was also kind of that kind of near double-digit teen growth rate. I guess, just kind of again, lay out our investment thesis that we talked about at the end of the fourth quarter results. And basically, that growth is not accidental. It reflects our strategic approach and that longer-term effort, and it's starting to bear fruits. When you think about the cash flow generation of the organization and where you deploy that capital, which is again, a common theme that we wanted to make sure we laid out, part of the expense guidance, part of what we were doing with the cash flow, it's not, "Hey, let's take the extra cash and let's put it in a sock drawer and hope it grows." What reflect the investment thesis is that our global client base has an increasing need for data and analytics and better access. So as you look at the details of where did that growth come from and what we're seeing, it's 3 parts: it's growth in demand to access to our markets; it's growth in demand to our data; and its growth in demand to our analytics and that suite of products. On the access side and you look across -- primarily, this is coming from the options, North American equities and Europe business, is we're seeing a little bit of the macro effect of that increasing demand, increasing activity. But we're also seeing the feedback that the firms are looking for more and more capacity as they potentially -- as they're expanding their trading capacity. On the data side, we're seeing incremental top of book sales, particularly on the equities front, and 75% of that growth is actually international. There is some U.S., but the top of book sales are coming international. And then in the U.S., we're actually seeing more depth to book, I'll call it, more share of wallet demand coming through. On the analytics side is -- what we're seeing is that whole analytics suite is starting to come together. We're seeing increased client demand for access or having the same provider. We're seeing growth on the Silexx platform. We're seeing growth in LiveVol, Hanweck, FT Options and Trade Alert. All of that's coming together from a similar provider. Again, we've talked about this before, pre-trade, at-trade, post-trade, helping provide that risk -- that analytics framework is really starting to bear fruit and where this is coming out. So on a go-forward, the increased guidance reflects the strong pipeline and again, confidence in our efforts. And we're just going to continue to leverage our global network, and we're really excited to grow this part of the business.

Very helpful. I was kidding about the expense.

Thank you.

Thanks, Rich.

And the next question comes from Daniel Fannon with Jefferies.

My question is on M&A and capital allocation. I guess just in general, you've been quite active over the last couple of years. So would you help to characterize the current environment and how you were thinking about M&A today? And then also, do you consider the suite of products within the umbrella and potential divestitures that maybe aren't as core now as maybe they were when you did or acquired them? This thinking about FX today and the kind of the way you looked at growth and some of the strategies and outlook that you have doesn't feel that that's core to some of the things you're focused on today and growth has been relatively stagnant. So just thinking about holistically parts of the business maybe that aren't as strategically important today that maybe it could be a source of funds at some point?

Sure, Dan. Thank you. Let me start with M&A in general. We made comments in the past. And yes, you're right, we've been quite active. On the data and analytics solution, we said we've kind of like where we are. We're in full integration mode. Brian mentioned that pre-, at- and post-trade solutions for our customers, we like that. That's poised for further movement, growth and globalization. So I kind of like where we are in that respect on M&A. As for the other M&A, you noticed in the core business of us matching trades, if a region is open for competition, that makes sense for us to take a hard look at. And with Japan and Australia new to the region, we like going into those regions who are looking for alternatives to the incumbents in an open way. So we'll keep looking in that regard, nothing imminent, but certainly always on our radar. Chris, do you want to jump in on FX? A couple of comments on FX. We actually like that trajectory, by the way, Dan, but Chris, a couple of comments?

Yes, Dan, good question. We -- as Ed mentioned, we really like the FX business. We've actually had a really strong growth rate the last 3 to 4 years. While the market -- overall market volumes have not grown that much, our share of the market has grown, our share of the wallet has grown. We've used data and analytics, again, to grow our share and get closer to our customers. We've also added some nontransactional revenues there. We've launched nondeliverable forwards, our SEF's growing nicely and our full amount platform. So we really like the FX business. And even as -- regarding other M&A that we've announced, if you talk about Chi-X Asia as we're looking to close that, hopefully soon, it opens up opportunities not just in the equities asset classes that we -- of those existing businesses, but there's also, we think, more opportunity across our other asset classes, including FX as we really move into the Asian region.

And the next question comes from Alex Kramm with UBS.

I just want to come back to the recurring revenue growth outlook. You sound pretty confident, but I think you just acknowledged earlier a couple of questions ago that there are some macro factors at play. So just wanted to flesh out what the risk is that this has massively benefited from the activity we've seen in the first quarter and last year, all this retail upside and what could come off again. And related to that, I know the SIP revenues are not part of that recurring guidance, but I think SIP revenues for, I think, the pool, really went up a lot in the first quarter. I think some of that was driven by retail. So again, curious how -- if you have any insight of that size of the pool is sustainable over where it's sitting right now.

Yes. Brian, you want to start with recurring? And Chris can move into the SIP.

Yes. So thanks, Alex. I would say that the -- as you think about that retail participation, that's not really driving some of the access that we're seeing from the growth in the various -- and that's -- again, that's growing across all the asset classes, it's not just kind of the retail effort of maybe in the equities or the options. So we're seeing, again, across all -- again, we can't necessarily point, here's a macro factor, here is the internal kind of the growth driven of the firms themselves. But like I said, as firms have grown this capacity and they continue to execute their trading strategies, you know what, they have not indicated any change. Like I said, we still feel confident in sustaining that overall level of participation and access into our markets. So like I said, it's hard to predict the growth rates in any 1 particular quarter. But over time, we still feel pretty good overall. Again, that macro factor, we can't ignore it, but we don't think it was the primary driver of our growth.

Yes. And Alex, just quickly on the SIP as well. We haven't really projected SIP -- overall SIP market data approval growth for a while. Once quarter-to-quarter, there will be some market data recoveries that come through. But as Brian mentioned in quite a bit of detail already, our growth in nontransaction revenue has primarily come from access, people needing more capacity to our markets as well as data that's unique to us that we're selling here and around the world. As you say, it's 75% coming from outside the U.S., so -- in certain products. So we're excited about that. Our growth plans and nontransaction aren't dependent on the SIP.

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

Right. So it looks like some of your recent transactions are coming together to form more of this cohesive strategy across your business lines, like the way you're leveraging BIDS with Chi-X, for example. So curious, are there other areas where you see similar opportunities with the newly acquired assets? And then Brian, you touched on this a little bit, but curious if the higher recurring growth outlook that you now have, does that embed potential cross-sell opportunities that could come through some of these assets? Or is it primarily as a result of a stronger standalone asset run rate since the acquisition?

All right. Thank you. Let me start. It's great, and I appreciate you pointing that out. Certainly, now, if we look back over our activity over the last 18 months or so, I hope the story is coming together in your head. So exactly right, we're just so pleased yesterday to announce the launch of European derivatives. That was an effort that we began well over a year ago, and being able to come to market in September is quite exciting. And then taking the incredible leadership that Dave Howson as he shepherded that effort with Ade Cordell in Europe, being able to take Dave's expertise and have him oversee the integration of Chi-X, it makes perfect sense for us on a build-out. But importantly, you can see the effect and the vision that we had with our purchase of BIDS, our partner for years in Europe, being able to move into Canada with our MATCHNow ATS acquisition and then now moving that network and reach into the APAC region. So it's just terrific and putting Bryan Harkins in charge of that growth and that rollout, I think we're well positioned to take full advantage of all of the deals that we've expressed to you over the past 18 months. So it's great. It is coming together. I appreciate you pointing that out. And let me turn it over to Chris.

I just want to point out again is the demand for BIDS in other regions and other countries is palpable as we announced our MATCHNow acquisition, now integration, which is coming here, February 1 of next year. The demand for BIDS is extremely high there, and we've already seen that. We're not closed yet with Chi-X, but as Ed mentioned, a lot of demand in Asia for BIDS also. So there's 460 buy-side participants on BIDS, and we think that can grow substantially trading. Existing products of BIDS already trades, but also across new securities in different regions. And I'll end with, all of this, there's data and access related to each of these markets and each of these different trading networks that we have. So that's underpinning or actually outcome -- that outcome of all these -- all this coming together is that you see the non-transaction overperformance.

And the next question comes from Chris Harris of Wells Fargo.

Great. Ed, you mentioned that customers are beginning to come back to the proprietary product suite in a bigger way. Wondering if you can expand on that a little bit, maybe talk about what you're seeing there? And then related to that, do you think the shape of the VIX curve and other dynamics that were affecting the complex are now healed?

It's a great question. And we do, I think, on a macro level, this is exactly when institutions have been -- were telling us in the second half of last year. And of course, we were passing that information along to you. And I think no better place to look as that SPX volume is right around 1.2 million contracts a day, very consistent for the first 4 months of the year. What's been interesting is to see the VIX options growth in the first quarter of the year, and that's changed a bit in April. And really, the efficiency of our institutional users who saw an advantage using VIX options at a time where the difference between realized volatility and implied volatility, buying vol and the exposure of VIX options is relatively cheap. And so we saw institutions in a big way move to using VIX options for hedging purposes. That's changed now in April as we're looking at a more normal realized to implied vol level, so that's exactly the right move from our institution, so really behaving in a very logical way. And then the overall levels of VIX in the fourth quarter, really around 25.5% or so, second quarter about 23%. And then if you take out today, right around 20% or just below 20%. So moving to a more normal contango shape, which should kick in the roll down trade that we've seen in years past. So this is exactly what we expect out of our institutions, and no reason to think that won't continue. So I appreciate that question.

And the next question comes from Owen Lau with Oppenheimer.

Just a quick one for me. How should we think about the incremental financial and nonfinancial impact to Cboe when the hours for SPX and VIX options are expanded potentially in the fourth quarter of this year?

Thank you. Chris, do you want to do a little back on in how we're doing on our year 24x5 effort?

Yes, Owen, great question. So we're really excited about 24x5. This hits on one of the major themes, which is greater access to existing customers, but also access to new customers. So as you said, we plan to launch in the fourth quarter, pending regulatory approval, working very hard on that. We already trade VIX futures 24x5, and this will get us to nearly 24x5 for SPX and VIX options. And we call this global trading hours outside of the U.S. hours. We saw actually more than 100% growth in that segment in SPX options last year, year-over-year. And so we're excited that as we increase the access, so will the volume come. As a bit of a precursor to that, we extended our U.S. equities hours to 4:00 a.m. Eastern, opening up 3 hours earlier. And we've seen quite an uptick in number of customers and our market share coming there, kind of exceeding our expectations. So the world is 24/7 and -- in every asset class, we're moving in that direction. So we're meeting customer demand as we do. So I'll hand it to Brian for maybe the financial impact here.

Chris, let me jump in one more time. And again, I think if you look at the M&A activity, important to note, we've, I think, really outperformed, particularly on the market data sales in APAC. We have a very, very small team who's worked very, very hard. But having a presence with Chi-X now and really sales team on the ground, the timing of 24x5 and the awareness that there is demand for exposure into the U.S. near around the clock really comes together nicely if we look at, hopefully, the approval and closing of Chi-X. So it's coming together for us pretty nicely. But yes, back to you, Brian.

Yes. Just I wanted to just mention that, that -- part of that effort is built into our investments that I mentioned upfront as far as broadly. As far as the revenue expectations, again, it's been more muted as we roll that out. Again, it's later in the year, the annualized impact. So again, it's building -- it's part of building a very broad access, again, as Chris mentioned, to the global network and people continue to take advantage, increase access to the overall product suite, obviously, including the proprietary product suite. So more muted on the revenue side in 2021 and -- but the full burden of the expenses is this year.

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

Great. Maybe just go back to the global data platform concept. And if you could just maybe talk about sort of the timing of developing the more cohesive platform, which it sounds like what you're trying to do, weaving in all of the market data that you trade, both on the proprietary side and also, I can think of both U.S. and even European markets where you have a lot of data for things that you don't trade. But maybe if you can talk about how you view those proprietary angles and shifting that sale from individual pieces of the data to a more cohesive global product that you can sell into institutions and whether it's -- you view that as more of a content sale? Or do you view yourself as getting into really distribution of that content and starting to compete with some of the distributors of data down the road?

Chris, you want to start?

Yes, I'd love to. So obviously, Brian, you recognize we put together the Data and Access Solutions group under Cathy Clay, a tremendous leader. We've recognized this opportunity that we need a cohesive and well-packaged data offering globally. And Cathy is leading the charge there. And so I would say, we're maybe early to middle innings on this effort. So we bought Hanweck FT, Trade Alert last year. We're fully -- nearly fully integrated there, will be done by the end of this year. Now we're putting that together with the real-time data coming off of all our exchanges. As Brian mentioned, 75% of some products are being sold outside the U.S. now. So it is coming together, but it's still, I think, middle innings. Technically, we're bringing it together. But from a packaging perspective, getting the access and the distribution right is -- we're excited about doing that. I'd also mention we -- the way in which we're getting to customers, we want to make sure we get to not just the existing customers with more well-packaged data in a way that they can act upon, but actually new customers that may not have current access using the normal means that you might have. So also, it's exploration of efforts to use the cloud and whatnot to get to new customers. So we have an incredible amount of data, a unique position now when we hopefully close the Chi-X Asia acquisition, this global derivatives and securities network with just an unparalleled amount of data coming from the equity platforms, put that together with our deep analytics, and we're very excited about this. But early to middle innings as we've just formed this group altogether under Cathy.

Right. I'll just -- this is John. Also there, you think about the acquisitions we've done over the past 12 to 18 months. Generally, they're all either productive of data, producive of data or they're data packaging and distribution platforms. And so we think about them as a cohesive whole. You've heard a lot of talk about this today. I mean what we're seeing right now in terms of the performance and the raise on the forward guide in nontransaction revenues is just -- it's increasing return to that scale and scope. And we can give you some direct examples of that. For example, this past quarter, we had a win, a sizable consulting agreement with a global top-tier buy-side firm to look at top to bottom there, their risk systems that is likely to lead to a mandate to sort of look at all of that and replace substantial components of it because we've got a package that really works well together. And we look forward to continuing that globally, again, as we have a footprint in Europe and Asia and North America. That sales effort should be much more routine for us.

Yes. Let me finish up also, Brian. It's important we're on the lookout always for new sources of data as well. And I'll -- CoinRoutes is a great example of us moving into a cryptocurrency market data. That is just an incredible opportunity for us to look at the potential of derived data in crypto, the analytics associated with it in real price data. So there's more to come. We're just getting this up and going.

So as we think of the out years, '22 and '23, I know you're not giving guidance there yet, but it sounds like it would be a good tailwind to the recurring -- to that organic recurring revenue growth rate in next year and beyond.

Okay. Nobody answer that question. That's too forward-looking. Debbie's going to be mad at us, Brian.

Next question comes from Ken Hill with Loop Capital.

I wanted to ask about ESG. I didn't hear anything in the comments today, but I know that's an important initiative within Cboe just given the breadth of capabilities and exposure you guys have across Europe or that seems to be a little more important than the U.S. and adding in Asia. Are there any opportunities you're excited about, either from a transactional product or maybe something on the data side that could resonate a little bit better going forward?

It's a great question. Let me -- before I turn it over to John on the product, I think it's important for us to recognize, we're -- it's very top of mind for all of our associates and what that means to Cboe before we even move to what's tradable, what indices are out there and how our customers can take advantage of investing in ESG. So important for me to mention that on the front end. This is a big deal for us. It's a report that's very important to us. I just reviewed the report that we're about to send out. And all of our associates, this is top of mind. So I want to start there. John, want to move to what's tradable and some of our index partners and the opportunities we see?

Yes. Thanks, Ed. Hi, Ken. Yes, to Ed's point, it really does start at home. We want to walk the walk and talk the talk. And that gives us really insight into the thought process behind ESG so we can have intelligent conversations with our partners. We will be proceeding forward on ESG products, whether data products or tradable products, together with partners. That has always been our forte. And you think about the partners we have today, our deepest partnerships, FTSE Russell, MSCI, S&P, those partners are all making substantial investments in ESG and leading the way into the future here. So we fully intend to leverage what they've built and create really interesting value-added products off of those partnerships. And you'll see many of those come to light over the next couple of quarters.

And the next question comes from Kyle Voigt with KBW.

Just wondering if I can ask a follow-up to an earlier question around the customer reengagement and the index options complex. So if I just take a step back, index option volumes, they've been relatively flat since 2017. That's after a long track record of kind of double-digit volume growth. I know in the past, there were efforts at Cboe to gather more information and data on your end clients to really try to understand who is using the products and why. I'm wondering if you have any color on how the institutional options client mix has changed over the past few years and whether the reengagement that you're currently seeing is the type of reengagement that you think can really reaccelerate that complex back to that double-digit type of growth rate?

Well, that's a terrific question. I think what the biggest observation we see is the change in the size of the contracts that are coming into the SPX complex. It's quite remarkable. Those really, really large trades that we saw before the pandemic have been replaced with smaller order size, in general, which is very telling to us. And then in the super short-dated and low premium contracts, huge uptick in what we'll put in a category of traditional retail. That is retail access that's been around for years. But what has been missing in the SPX, the VIX options, our Mini futures, XSP, our Mini-SPX and what we're looking at is to accommodate new retail, which still does not have access to our proprietary product set. So the rotation to smaller order size, the rotation of more traditional retail is what you see today and at roughly 1.2 million contracts a day, and we're still working on providing access to new retail which we think the more you look at our Mini products and the more we allow or they allow access for their clients into SPX, you -- I would predict that you'll see a movement like a traditional retail out of new retail. So that's our goal, but that's what we're seeing today. That's the biggest change I can tell you is Chi-X.

And next, we have a follow-up from Rich Repetto with Piper Sandler.

Yes, Ed, and this follows on the last question, I guess, and the other trading question earlier. But it seems like in April, someone flipped the switch. If you look at the VIX chart, we're running at 20% in April 1, we just sort of dropped down, and volumes have lightened. I guess any color or indication? It seems like we've had the stair step down with VIX, and the outlook for the pickup in trading that we saw in the first quarter. I think there are -- there is some concern that with the pandemic and people not as exposed to work from home, et cetera, that we may see some lightening in the volumes as we go into the summer. So anyway, your outlook on volumes as we hit this sort of patch in April so far?

I think just volumes overall, Rich, we see a little of the volumes retreating a little bit, but a couple of weeks does not, for our opinion, a trend make. I actually like the momentum, particularly out of retail that we've kind of been spending some time on. Not surprisingly, individual names, the attention that individual trading has had has raised vol across the spectrum. So if you're providing that liquidity in the most volatile single names, you're looking for macro layoff as best you can. That had raised the interest for us and what we saw in AUM and ETPs. We saw that in VIX options, as I said before. The -- really, we're buying implied volatility at discount of what the market was trading at. That's since gone to a more normal relationship, again, if we put today out of the mix. But then what we would expect traditionally is if that volume -- I'm sorry, if that vol went to a more historical contango shape, we'll see the roll down. We should see the roll down trade again. So from our proprietary product perspective, we just see that as a normal rotation. The single name excitement being replaced with more macro as vol contracts a bit. And then going back to a short vol capture trade or roll down trade and going back to a more normal cadence. But it will be interesting to see. I think the uniqueness of Cboe is having a product for any market environment, and that's not different. So again -- and let me -- one more comment on retail. We're after sustainable volume in retail. There's going to be flashes, and we're going to have headlines. There's going to be interesting stories and shiny objects in the corner. We're after what education can provide in -- for the long-term investor and the retail investor that's going to be here year in, year out. So we don't really chase those spikes, we chase sustainable growth. And that's what we're after. So I appreciate that.

And then next, we also have a follow-up from Alex Kramm with UBS.

Yes. I want to ask a question that I feel like I ask every few quarters, and it also pertains to the proprietary products. And maybe some of this was addressed already. But Ed and team, you always to very good job talking about the macro and what investors are doing or clients are doing and why and what we should be looking for. But I feel like what I still always miss is any sort of things you can point to that the underlying customer base is structurally growing? So I don't know if it's like the market data or the access fee is growing as a sign. But with all the efforts that you've been putting in and investing into new sales efforts, et cetera, what can you tell us where you see that there are new clients, new regions, new people that are telling you, we're trading now, we didn't trade a year ago? And any sort of indication that, that's still growing at a healthy clip or not?

I think, Alex, you set me up perfectly with the data and the demand for data. So from an institutional perspective, the data and the back testing is first before conversion. So that's -- I love that. That's the -- that kind of reflects some of the guidance we've seen as the demand for that data is increasing. But again, I want to -- I really want to punch the fact that we've seen no conversion from new retail. Zero. There's no access from the most popular new retail sites. So those millions of new retails we're engaged more broadly in the market are not in our proprietary product set at all. So the low-hanging fruit for us is that conversion. We love the story. We like telling how the management of cash settled. European-style contracts are super easy. And so that's the educational effort. That's what we're going to be pointing at hopefully in the months and quarters to come. But start with that in your head as we watch those numbers, and then we'll look for conversion from new retail. That is a good opportunity for us and one that we'll be chasing the rest of this year.

Alex, this is John. I'll Just jump in on one concrete example as well. While the onboarding for many of our proprietary products on the new platforms is a long process, we, every quarter, every month, work towards extending access. Access is one of our key strategic objectives. And a great example of that is the target outcome product set, which, in the past year or 2, went from 0 to over $5 billion in assets under management between our partners at First Trust, Innovator, TrueMark and others. That product set is a product set that we really work with our partners to create through the whole chain of mechanics that aren't required FLEX options, Silexx entry systems, the NAV calculation and the indexes that guide those products. All of those are things we provide to our partners so that they can offer access to our proprietary products through the wrapper of target outcome funds. And they've had, needless to say in this volatile market, great uptake over the last year or so.

Okay. And just a quick clarification. Ed, you will focus very much on retail again just now. That is not -- I shouldn't read this as a reflection that you think the institutional opportunity is tapped out, right? Like it's just retail, you think is a lot more low-hanging fruit? Is that right?

Sorry, Alex. The data reference was institutional. Retail, we've not seen a history of retail back testing. Really, it is access to the market. It's super short-dated. So that is lower-hanging fruit. And I've referenced traditional retail really being a big mover into the SPX complex over the last quarters and pointing out that the low-hanging fruit is the millions of customers who do not have access to our proprietary product set. That is not instead of an effort on institutions. John, I think, pointed out that the institutions will lead times longer, and it starts with data, back testing and drive down.

Yes, just making sure.

Thanks, Alex, for clarification.

And the next question comes from Sean Horgan with Rosenblatt Securities.

I just wanted to come back to the CoinRoutes announcement from December 2020. I think real price data was originally expected to be available in the first quarter of '21. Can you update us on the progress there and expand on your plans to get involved with cryptocurrency more broadly?

Let me start with more broadly. John, you can go to the CoinRoutes. But as -- look, we know market participants are looking for exposure in crypto. Access has to be the driver. We've talked in the past, we're trying to build an ecosystem. So we start with access to market data, that's the CoinRoutes agreement. From there, you know we have a VanEck bitcoin trust ETF in front of the SEC. So we'd love to deliver on a trusted -- in a trusted way, an ETF, which are really customer-friendly and easy to understand. And then throughout this effort, we need a focus on education. We've not done that in a big way. And then our way -- you take the educated investor in retail access and then you move from the ETF into satisfying the demand for institutional participants. So all of that, pretty early innings if you look at crypto more broadly, and we're in it for the long haul. I think, John, a couple of words on CoinRoutes.

Yes. Thanks, Ed. Sean, great question. Thanks, Ed. Great question, Sean. So we're actually live now on our CCCY channel on CSMI with the CoinRoutes real price indexes, and we're excited about this. A lot of great uptake. And to Ed's point, it really -- it starts with identifying the price -- the accurate prices at which you want to reference your cryptocurrency trading. From there, we add all the things we do as an exchange operator. So what we're solving for is that intersection between regulated exchange operator and the really revolutionary cryptocurrency space and offering our broader services beyond just data to those participants.

And that does conclude the question-and-answer session. I would like to return the floor to Debbie Koopman for any closing comments.

Thanks, Keith. That concludes our call this morning. We appreciate your time and continued interest in our company. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.