CME Group Inc. (CME) Earnings Call Transcript & Summary

All right. We are live. So we can go ahead and get started. Thanks, everybody, for joining us this afternoon. I'm Patrick O'Shaughnessy, capital markets analyst at Raymond James. And up next, we have CME Group. Presenting on CME's behalf, we have CFO, John Pietrowicz; Chief Commercial Officer, Julie Winkler; and Global Head of Commodities and Options Products, Derek Sammann. Format for this is just going to be a Q&A fireside type chat. [Operator Instructions] And with that, let's go ahead and get started. So first of all, thank you, everybody, for joining me today.

Thanks, Patrick. Thanks for having us, and good afternoon, everyone. This is actually the last conference I attended last year. So hopefully, I'll be able to see everybody in person next year.

Yes, we got under the wire last year with the fist bumps and elbow bumps and last one for a while. But I think we're all looking forward to being back in Orlando next year. Let me start off with a high-level question for you guys. So I think the glass half empty view of CME is that consensus is projecting that for the third straight year, your non-GAAP EPS is going to be flat to slightly down in 2021. The glass half full view is you're able to post those results despite a massive cyclical headwind facing your largest asset class. For those inclined to take the pessimistic side here and maybe getting frustrated with the near term lack of EPS growth, how do you respond to that?

Well, in terms of the environment, following an extremely volatile Q1 last year, which drove ADV to a record 27 million contracts per day, we saw in the middle of the year volatility challenges in key products, in particular, the short end of the yield curve and WTI. In terms of optimism, we're off to a good start for the year with close to 22 million contracts traded a day. In fact, last week, we traded about 200 million contracts at CME for the week, with particular strengths in the rates complex, which is one of the complexes that we had some volatility challenges in towards the middle of the year. Also, we had an all-time record in open interest in the ultra 10-year, the classic bond and our silver futures as well. We're seeing nice activity in year 3 and year 4 of the euro dollars and expectations of when the Fed will adjust rates has moved forward. So 6 months ago, the market expected the first Fed tightening in late 2024, and that has moved up to 2023 and it could possibly be 2022. So some of the area -- and also some of the areas that we've seen volume strength, we still have very low levels of volatility. For example, the 10-year treasury note is in the fifth percentile of volatility. So we've started off the year strong, and there are definitely positive signs for an improving business environment.

Got you. That's fair. And I think also the macro has probably changed since the last time we on the sell-side published our estimates. So things can move pretty quickly in this business. Many of you...

Yes. You can definitely see the importance of hedging. Markets can change relatively quickly.

Absolutely. Many of your large exchange competitors, including LSE, ICE and NASDAQ, have been very active on the M&A front as they pursue acquisitions in the index space, data and technology. Conversely, CME has been very judicious with this acquisition activity, with NEX Group in 2018 as your only major deal in the past decade. Does CME's recent earnings growth trajectory changed management and the Board's thinking about M&A at all?

No. I mean we're always looking for opportunities to create shareholder value. And M&A is definitely a tool that we've used successfully in the past. And our history really speaks for itself. I mean we've added CBOT, NYMEX, and the move into indexing with our S&P Dow Jones joint venture has been very successful. And we believe the acquisition of NEX will be good for shareholders and for customers. We're also very excited about the joint venture, which we're creating with IHS Markit that will create the leader in the trade processing and risk mitigation services space. So very excited about that. And we think that will be definitely positive for shareholders and for the clients of those businesses. We're very focused on completing the last year of our 3-year integration plan, and we'll continue to evaluate opportunities as they present themselves. But I think we are very pleased with the integration process that we've got with NEX. And I think we've got BrokerTec onto the platform, and we've got EBS towards the back half of this year. So we're very excited about that, and the feedback has been good.

Got it. Makes sense. CME recently announced its transaction fee pricing actions for 2021. And I'd characterize pricing increases as somewhat limited. What's the practical constraint in your pricing power? Is there kind of the concern that you would push elasticity higher than 1 at a certain level of aggressiveness? Is it about managing the long-term relationships with your clients? What are the considerations that you take into account?

We're always evaluating our pricing. Julie, myself, Derek, Sean, Terry, we always are looking at our pricing plans and we look at a number of factors when we adjust pricing, but we always do it with the objective of not impacting volumes. Volumes are good for CME, obviously, because it drives our revenue. But also it's very good for the client because the more volume there is, the tighter the bid-ask spread becomes. And the bid-ask spread is the largest cost for a client in terms of trading. So the tighter the bid-ask spread is, the more trading that occurs. So you create that virtuous cycle. So from our perspective, we always want to make sure we get as much velocity across our platform as we can, 24 hours a day. We got very high incremental margins. So that's what we're focused on, and we want to make sure that we're creating a good environment for our clients. And over the past several years, we have been making adjustments to our pricing. Last year, we adjusted pricing, which impacted revenue about 1.5% to 2%. This year, we had a very targeted approach, where we adjusted fees in our very successful micro products in equities and metals, and along with adjusting our prices in our real-time data portion of our market data business and our nondisplay data feeds. And as Julie will remind me, it had a record quarterly revenue this quarter in terms of our market data business. And the micro fee changes went into effect 1st of February, and the market data feasible in effect the 1st of April. So overall, the changes for 2021 will be more modest than they were last year. It will be a less than 1% impact on transaction fees. And we're being very mindful of as we work with our clients on the migration from BrokerTec, the legacy BrokerTec system on to Globex. And we'll be migrating EBS towards the back half of this year onto Globex. So certainly, that's in our mind as we look at adjusting our prices.

That makes sense. And maybe if I could follow up on that. You mentioned what you don't want to do is change prices to the extent that it impacts trading volumes. Over the years, has there been an instance where CME did increase prices and then in hindsight, you look back and said, well, we actually went too far there, we hurt trading volumes, we hurt the long-term value of the franchise through that, so we need to be maybe more cautious going forward?

No. No, we've been very careful. I don't recall any instance where we've adjusted prices and have looked back on it and thought that was not doing -- not proper for doing that. So we've been very focused on, again, making sure that we do it in a very prudent way. We're really looking at the long-term benefits to the franchise. We look at it with -- making sure that we are always accelerating our volumes across the platform. That's the kind of the mindset that we go into this with. We're constantly thinking to ourselves, how can a customer get exposure to the market somewhere else. And we always want to be the most attractive platform for them to trade on. Again, we've got high incremental margins, and we've got -- we've built liquidity 24 hours a day. So we really want to get that Velocity across the platform all day and all night.

Got you. That makes sense. One of the things that stands out for CME Group is its track record of product innovation. And the beauty of the business model is that your product development costs tend to be relatively minimal, which allows you to try a lot of different ideas. You've had some big wins over the years, like Ultra T Bond futures and then some seemingly good ideas that never really took off, like real estate futures. What's the difference between the successful product launch and an unsuccessful launch?

Great question, Patrick. I think while you definitely are correct that those direct product development costs do tend to be minimal in the total financial outlay that CME incurs as we launch new products is definitely less than other industries. But we're also in this environment that we're acutely aware that in order to launch successful new contracts that we are deploying this quality over quantity type approach because we are working within the broader financial ecosystem. And as John just pointed out, there are alternative products. There are other exchanges that are constantly introducing new products as well. And so what we've really prided ourselves on is making sure that we have a product development process in a go-to-market process that is really maximized throughout that, that's focused on the clients. And so some of those products that you mentioned, they fall more into that product extension bucket or products in adjacent markets, even changes related to existing contract sizes, like modifying the tick size. And then there's the more ambitious ones that we've done, like entering into completely new markets like we did with cryptocurrencies. And so in my experience, I think it just kind of comes down to 3 main things of making sure that those attributes are there for a successful product launch. It's about extensive and really thoughtful client validation to identify those unmet client needs and to use their input to ultimately shape what the product is and how it's designed. We find that if they're involved early, they are far more engaged throughout the process, and that leads to a positive outcome for us as well as them. The second one is really just on preparing the market for launch. And that means engaging those liquidity providers, attracting them with the right incentives for the risk that they will be taking on to make markets in that product. And very importantly, is identifying who can be the early adopters of that product who have a very distinct need to use that new product, and they're not constrained at participating early on in the life of the contract, when liquidity is not what it is in our benchmark products and open interest is relatively small. And then the third piece of that is just we have to deliver a strong and execute a very targeted sales and marketing campaign. And that's about making sure we have enriched content and research out there so that clients can really learn about how this new product can fit their needs, how they can understand how that works. And the commercial organization that I lead is really kind of designed to facilitate this outreach in a very scalable way across the globe. And that's how we find success. And I think working with our clients throughout that is, as I said, a key part of that and making sure that we are very focused on metric-driven approach with our sales campaign and being highly transparent internally, so that we have a process that's also highly repeatable. So that we're not taking these steps on every single time we have a new product, but it's very much a kind of a rinse and repeat type model that we can apply across the business, whether that's commodities, whether that's financial products as well as data. And so that's what is quite exciting as we think about our product development success.

Got it. So well-developed playbook at this point.

Absolutely.

When you guys look at CME's -- expanding CME's user base, where are you thinking that user growth comes from? Is it new market entrants? Is it participants who might traditionally have used swap markets? Is it participants who didn't historically effectively manage their risk exposure? And where are those incremental users coming from?

Good question. I think if we're successful, we hope that that new client acquisition comes from all of those sources that you mentioned. And MCA, in particular, has been a big focus for us over the last 4 years, in efforts to really diversify our client base and ultimately make it easier for new customers to come into our markets to trade. And so we look at this both from institutional new users of our products as well as active individual traders and both of those get coverage within this new client acquisition program that I'll talk about. And so how we go about acquiring them, whether they're institutional retail, are a little bit different, but they're both contributing ultimately to the diversity of the client ecosystem, which is a good thing, as John pointed out for our model from earlier. So in the institutional space, we on-boarded a couple of hundred new product clients last year, which included people like new hedge funds, asset managers, start-ups. And what we found with our institutional new clients is that as we get a client into our markets, their activity then dramatically starts to ramp as they begin to explore our products and they use them far more in years 2 and 3. And so for that, it's ultimately really important that we just get them in the door is the first step. So how we make that work? It's a lead generation model that we built. It leverages client engagement data and a lot of the digitization work that we've done. We have a dedicated global team that is just focused on new client acquisition to drive that activity and outreach. And then we also have a data science team that can help us track those insights, kind of measure those results as well as taking new third-party data sets, so that we can identify net new people that are not users of our markets but maybe are using ETFs that are related to some of our underlying benchmarks. And so that funnel is an important one. I'd say the other thing is really as it relates back to our retail business, our Active Trader business, which is quite different, is we really work very closely with our broker partners. We have 100 of them across the globe. And so that -- what works for that MCA model is really about having the right products and providing education around that and content as well as events. So we brought in over 200,000 new customers, retail customers to that business in 2020, which was amazing. It's up 50% over the previous year. In Asia alone, because of the switch to the virtual environment, we were able to do 65% more events than we did the year before with our partners, and we reached 15x the people that we had before. And so trying to make kind of the best of a challenging situation, I think, in 2020 was a key hallmark of new client acquisition. And it's going to be a key area of focus for us going forward. And again, I think back to the earlier point, right, it's a model that we continually refine, but also one that we found to be successful to be able to give the white glove service to the customers that most needed on the institutional side. And then we'll see them grow over time, which is a great thing for our business.

Very interesting. Shifting gears to the trading volume outlook and kind of touched on this a little bit briefly earlier. But as we look back at the prior nadir in terms of interest rate futures volumes, which was 2012, in the 6 years following that, CME's rate futures volume growth averaged 13% per year. So 2-part question here. One, do you think 2020 is going to prove to be the bottom or the nadir of this cycle? And two, is it reasonable to expect a similar pattern following a 22% volume decline in rates in 2020?

Julie, do you want to take that? Okay, yes. So very, very difficult to predict volumes, obviously. So I mean, we certainly are hoping that 2020 is the nadir of this cycle. As I said at the start, I think we are very well positioned coming out of the site -- coming out of the pandemic in terms of the recovery. When you look at our product set, again, interest rates are an important part of our product set, but we are the most diverse exchange out there. So we've got all of the appropriate -- all of the key products that global customers will be interested in as we pull out of the pandemic. And I think what's particularly interesting here is if you look at the cycle the last time versus the cycle this time, so last time being the great financial crisis and this time being the pandemic, you're seeing a much more compressed period of time, whether it is recovery in terms of jobs, whether it is stimulus from the government. You certainly see a much more compressed time frame than we saw during the great financial crisis, which obviously was a bad balance sheet banking crisis versus this one, which is much more a -- much more of an issue in terms of health. So I think it's hard to predict what the pattern is going to be. But I certainly think we're well positioned. We've developed liquidity across the entire yield curve, and you're seeing that play to our benefit right now. You're seeing expectations coming in, in terms of a Fed rate change. You're seeing record open interest in our Ultra 10-year, our Classic bond. So I think we're seeing some early positive signs. And we traded $127 million interest rate products last week. So I think we're -- I think we've done a good job in terms of positioning ourselves from a sales perspective and from a product perspective to help our clients through the recovery, hopefully.

Got it. Yes. Certainly, a better volumes over the last week. And definitely, the treasury is creating the raw material for your end clients to trade, assuming that they end up with it and not the Fed.

Yes, yes, that's true.

Where does the industry stand in the transition from LIBOR to SOFR and other alternative short-term interest rate benchmarks? And how confident are you in CME's competitive position in this space?

Yes, a great question and one that's been on a big topic of discussion with our clients over the last few years and one that will continue. We feel very confident with where CME is in terms of our competitive position in the short-term space. We have worked extremely hard and very collaboratively with the industry really since 2018. And when I went back and just tried to assess the amount of actual client reach -- outreach that we did tie to this topic, it was pretty staggering. So CME staff conducted over 3,200 global client engagements across SOFR, LIBOR and closely related topic. And so those were direct client engagements done through calls, formal meetings, bills campaign outreach. And it covered the breadth of the marketplace. So the buy side, the banks, brokerage clients, proprietary trading firms, to really help under -- for us to understand what was on their mind, what concerns they had. And then in addition to that, right, there was all the indirect fine outreach related to that transition whether it was through the LIBOR transition or Eurodollar fallback plans that we have a tremendous marketing reach where we can reach clients through our newsletters and our website and webinars. Some of those webinars have been watched by well over 10,000 visitors. And so when you take both that direct piece and the indirect piece, the average has been great, and that's what's really led to this record participation and so for futures. Last week was great to see a new record 265,000 contracts traded. Open interest is swelling 761,000. But what's more exciting to me is just the diverse number of market participants that we now have active in SOFR futures already. And that's more than 500 at this point in time have traded at least 1 SOFR futures contract. And then when we look at that profile of those 500 participants that are active in SOFR, those -- that same group of people account for 90% of the volume of trading in Eurodollar futures. And so clearly, that speaks to a majority of those market participants. They're already operationally ready. They're already trading SOFR futures, and that's a really good sign of how we're positioned going forward. CME has worked very closely with industry groups like ISDA as well as the alternative reference rate committee. And on publishing this transition -- details on this transition and what we intend to do and yet still one day last week someone pointed out, right, 14 million Eurodollar futures contracts traded. And so it's just, to me, is a sign of the strength of our product portfolio and that we're going to continue to give product choice to our customers. And I think in that case, we are in a very strong way to benefit from this transition and keeping close to our clients as well will allow us to do that.

Got it. One of the offsets to rates headwinds in 2020 was significant strength in your equity index franchise, where revenue was up 38% year-over-year. To what extent do you view this equity index strength as sustainable as opposed to a function of elevated market volatility and elevated retail investor engagements because people are working from home?

Well, certainly, 2020 was an amazing year for our equity business, and that was evidenced by the volume and open bridge interest that you saw. So when you get ADV of 5.6 million contracts across the equity suite, that was a growth of 63% over 2019, which is great. So while that volatility in the equity markets provided some great tailwinds, I think there's still a lot of really important themes kind of underneath that that demonstrate that strong potential for this product set going forward. And I can't say it enough but micros, micros, micros and the left and there was clearly -- we saw a lot of pent-up demand for smaller-sized equity products. And we've got this 100 firm, strong broker partner distribution network that was really prime to be able to support these new micro-sized products. And just last week, another record of 4.4 million micros traded. And this is alongside the mini still being a very successful complex as well with 5.8 on the same day. And what's exciting about the micros is that it's helping us to attract record numbers of completely new traders to CME. And that was over 200,000 new traders, as I mentioned earlier, up 50% from the previous year. And so we find that when we can bring those traders in the door through a product like micros, we can also introduce them to other products across our suite. And so that's been a key thing. And another thing that's kind of like the story underneath the story that, yes, maybe they came in because they're trading micro equities. But we can also get them interested in and saw them participating in FX and in ags and in metals. And so that's going to be a great thing as we continue to grow that complex out. I'd say the other thing is the strength of the retail investor really in our market is that futures really are unique in that for traders wanting to take advantage and being able to access the market, we are in the place that's open 24 hours a day. And we have very liquid benchmarks that are available around the clock with that liquidity. And so the gains there, equity index certainly was the product of choice. But I think across the curve, a lot of our investments that we've made internationally, both in Asia and Europe, have paid dividends because those regions are playing a large role in that growth of our retail business, where they pack up 14% year-on-year and EMEA up 18% as well. And then lastly, I think a lot of those products, this is really about offering capitally efficient products to our institutional client base. And I think that's proving out of how we trade in a better way than the OTC market. And how a lot of the successful product innovations, to your point from earlier, in the equity suite are giving people new instruments to trade that they didn't have before. And while much of that OTC market is relatively standardized, we feel that our products continue to feel a need for our clients. And I know Derek's got certainly some things to mention from the commodity side as well. But I think we're feeling quite good in equities.

Got you. Well, that's a good segue for me to bring Derek in on the conversation. Derek, the energy franchise has been bouncing around $700 million in annual revenues for a few years now. Yes. I think there's some speculation, "Hey, are we about to enter commodity super cycle?" If we are, maybe if we're not, what are the implications for the energy franchise? Can you break out of this range going forward?

Yes. That's a great question. I'll comment a super cycle in a second because it's absolutely -- it's not just a narrative that we're hearing in stories being written, FT, Wall Street Journal, Bloomberg or otherwise, we're seeing it in our data. We're seeing it in both the price rises, the increased participation, the cost of record levels of open interest across the franchise right now. And it's absolutely a story that's being fueled by low interest rates and being certainly buoyed by the cheap dollar as well. But on the oil side, energy specifically, we actually put up a year last year that was our second biggest year in the commodities portfolio as a whole. We did about $1.41 billion across the energy, ags and metals business. And first, it's probably good to note that we are the world's largest commodities exchange by revenues. I mean we dwarf any other commodities portfolio out there of other exchanges. So if customers are looking for primary footprint and access to physical markets, whether it's crude oil or natural gas, soybeans, corn, wheat, gold, silver, palladium, the CME Group is the only place for them to get that. It's a global lit market, and we've seen that in the growth of a particular non-U.S. business. Specifically on the energy side, we very quietly put up our second best year ever in the energy franchise, and we not so quietly put up a record year of natural gas. So the energy complex, we spend a lot of time talking about crude oil. But in light of what a lot of people are talking about, what are the transition fuels, what's the future cost of fuel going to look like? Natural gas is a market that we hit over $200 million in revenue last year, almost 500,000 contracts ADV. It's our highest rate per contract energy product. It's priced higher than crude. So when you're seeing outperformance to the tune of 25%, 26% growth in natural gas, that's got a nice lift to the overall rate per contract, the energy business as a whole. When you kind of break down and look at the crude oil market, we actually put up a year last year that, I think, grew, I think, 2% year-on-year versus 2020, pretty extraordinary in light of the amazing volatility that we saw sort of in Feb to May and then the drop-off in the back half of the year. So when you look at the full year of the start to this year, we're already up on full year last year. And what's even more important, you look at the sequential growth of our year-to-date business so far, through yesterday, our business year-to-date is up 26% versus Q4 last year. And it's up 2% versus full year last year on the energy side. That's extraordinary. We're talking about 2.4 million, 2.5 million contracts, whereas Q4 last year, it was banging around 1.9 million, 1.95 million. Couple that with the fact of a huge sequential growth into Q1 and couple that with the fact that we are just below our all-time record of open interest, about 2.51 million contracts open interest in WTI. That is the marker of the successful growth and penetration and increased participation from our commercial participants. So the energy story overall, we're seeing COVID story and resumption of economic activity. We've got crude up through $61, $62 right now. You've got what is effectively a price point in crude where the shale guys in the U.S. are profitable again. So that business that came off-line when we were below $40 for quite a while. That doesn't instantly come back online. That's one of the reasons you're seeing prices will drift up right now because the shale guys, no matter what they say, you don't instantaneously turn off and then instantaneously turn back on again. So what we're actually seeing is a market in backwardation going out the entire calendar year of '21. And what does that mean? That means the near month futures are priced higher than the back month futures. That is a market environment. You couple that with record open interest or close to record open interest and significantly sequential growth quarter-on-quarter. Those are all markers of a very healthy and very vibrant market. Couple that with the broader part of your question, Patrick, on the commodity super cycle, you're seeing soybeans at 15-year high, about $14, $15 a bushel, you've got copper at all-time highs. You've got corn following the same pattern. You've got the reflation story and the global return story driving the price of energy up. There's no other market where customers can come, to the point that Julie made before, one-stop shop for all your physical commodity needs and trade them seamlessly, futures and options, in lit markets in both U.S. and non-U.S. hours. What's important about the commodity story right now is not only is that a cycle that we haven't seen since about 2004, we're far better positioned coming into this super cycle than even we were in 2004, 2005. You've got a U.S. crude oil market that is exportable to the world. We've got lit markets in our markets with a bigger global footprint than we've ever had before and the investments in technology and distribution and sales that Julie referenced, we couldn't be in a stronger position to take advantage of some of the cyclical factors and, certainly, some of the pricing that we're seeing in the commodity story right now. So long answer to a short question, but there's a lot going on. And as I said, just surprising strength come out of the last year and really, really important sequential strength coming into '21 so far.

Much terrific context there. And kind of building on your comments on natural gas, you touched on this a little bit, is there an opportunity for CME to play a greater role in alternative energy and other green initiatives going forward?

Short answer is absolutely. I mean if you actually look at one of the things that we've done, Julie spent a couple of minutes talking about product development. And it's one thing to do product development, where we say we put a new points on the curve or we do weekly auctions and then weekly Wednesday auctions and weekly Monday auctions or do micro contracts. Those are what Julie refers to as product extension. So you're just given a different flavor of an existing product that nestles right inside our existing infrastructure. I think what we're continuing to do is make sure that we are best positioned by working most closely with our end-user commercial participants to build out the relevant portfolio of products as markets evolve. So over the last 6 months, we've rolled out a number of firsts working in conjunction with Julie's research team and my business guys. We've rolled out the first cash settled cobalt futures contract. LME actually had a contract. It's never traded. We rolled it out and have a trade in the first couple of days. Markets around kind of the recyclable and renewable energy space, whether it's the cooking oil contract or what we've done on the energy side, the contract we just rolled out yesterday, our global emissions offset contract, these are products that are positioned for an evolution in the overall market structure of demand for how businesses are evolving. So we've got a number of first out there, including water and a few other products. But as the market goes into a moment of transition, this one happened in the moment. This can be a generational change. But -- by the way, we partner with our commercial customers using Julie's client-facing team and the client salespeople, making sure that we're developing products based on their need that solve their specific issues and we're the natural place for that business to grow. So the answer is yes, and we're doing it. And there's one of the -- there's a couple of slides in our investor deck that talk to some of the things we're doing in the ESG space, including some of these products as well.

Got it. Somewhat recently, Platts added WTI's component to calculate the benchmark Brent price. What are the implications for that for your crude franchise?

It's all very positive. Number one, it's what we've been telling you guys for 7 years, the WTI is the global market of the crude oil market. ICE and Platts have been saying for years, "Oh, it doesn't matter by the time WTI leaves the U.S. shores, it magically turns into Brent somehow." Explicit recognition that the U.S. is the swing producer in the global crude oil market. Otherwise, they wouldn't drop it into the basket. But here's what they're doing. Platts is dropping in a WTI Midland marker into their assessment for Brent. So what does that mean? Well, first, it confirms that U.S. and the WTI are actually the primary markers. And what you're going to see is that WTI marker trades as -- in Midland, that trades as the basis to our WTI contract. So basically reinforces our benchmark status. Anybody that's going to trade and risk manage, they're going to do what they do on all products, use the primary benchmark, which is WTI and then trade as a basis out to other products beyond that. So it reinforces the fact that WTI is that global footprint. Secondly, it does raise some questions as to what is Brent. You've got less than 400,000 barrels being produced out of the North Sea right now. Over the last 5 years, because of the reduction in physical production out of the North Sea, they've dropped in some Euro grades, they dropped in some Finnish grades, some Swedish grades, different products into that basket. Now they're putting the U.S. markers into that. So what that means is customers need to know that today's product and what they care in open interest over the 3 to 5 years' time is going to hedge exactly what it is right now. And there's, I think, some questions as to what Brent will continue to evolve to be will be different in the future than it is now versus WTI. It's exactly what it's always been, and it's been the marker for the global market. So net-net, it just -- it gives those end user commercial participants the certainty of the risk that they're hedging and the product they're using is that global marker. So net-net, it's positive across the board. And we expect to see more basis trading back in the WTI as a result.

Very interesting. Time for one more question. I think this one actually came in online. The question is can you please talk about whether higher retail participation in derivatives markets is good for financial stability? And does it increase the risk of more regulatory scrutiny?

Maybe I'll answer real quick and Julie probably is the expert here. But to the extent that we spend so much time educating our customers and clients and prospective customers on the inner workings and how derivatives markets work specifically, products designed for their needs with all the customer safeguards and protections of the CCP model, central counterparty model and all the work we do around not just providing content to our customers, but partnering with our channel partners who then work directly with those end-user customers. So we have a sophisticated self-directed trader operating in our markets. We have rolled out a product suite of micro-sized contracts that appeal to that self-directed trader looking for smaller sizes. But we think that we're doing that in a smart way that is full of all the customer protections and educational steps. So customers know exactly what they're getting into and understand how the market works. So we see it -- more participants in the market is good, but it's incumbent upon us and our channel partners to make sure that education, training, is part of that overall pitch, not just sign up an account and put $50 in your account and start trading. That's not the end user that we tend to attract into our markets. And Julie can speak more to how we do that. But that's -- it's a big difference, I think, in terms of what you see in derivatives markets versus some of the retail security trade that we've been seeing.

Yes. Derek, some good points there. I think the additional thing is that people's entry point into financial services and financial products is not typically derivatives. And so kind of that natural progression for active retail traders is they're trading in equity accounts. They're moving on the equity options, and then they are entering into derivatives at that point. And so it's really that maturity cycle that we see and working with our broker partners to ensure that they understand that derivatives are different. But they also can understand that once they get inside CME, with the educational opportunities that we provide them along with our broker partners, they also can take advantage of a large suite of products all in one place that they can't do with a lot of these other financial instruments. And really, the 24-hour access is also a key thing because they want to be able to trade when they want to trade. And as we saw last year, that changed quite a bit with the pandemic. So I think it's a very different than the operating market structure that we've been hearing so much about the last week.

Got it. On that note, I think we're out of time, but thank you guys all for the attending the conference again this year and for your thoughtful responses to the questions. And hopefully, we'll see you in Orlando next year.

Thanks, Patrick. We certainly hope we're going to be in Florida next year. So thanks, everyone. Appreciate you guys.

All right. Thank you.

Thanks. Take care.