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CME Group Inc
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Good day, and welcome to the CME Group First Quarter 2021 Earnings Call. At this time, I would like to turn the conference over to John Peschier. Sir, please go ahead.
Good morning, and thank you for joining us today. I'm going to start with the Safe Harbor language, then I will turn it over to Terry and John for brief remarks followed by your questions. Other members of our management team will also participate in the Q&A session. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, on the final page of the earnings release, you will see a reconciliation between GAAP and non-GAAP measures.
With that, I would like to turn it over to Terry.
Thank you, John, and thank you all for joining us this morning. Our comments will be brief so we can get to your questions. As we all continue to navigate through the pandemic, I hope you and your families are staying safe and healthy. We released our executive summary this morning, which provided extensive details on the first quarter of 2021. As John said, I have John, Sean, Derek, Sunil and Julie Winkler with me this morning, and we look forward to addressing any questions you have.
We saw solid volume rebound during the first quarter of this year as we averaged 22 million contracts per day. That represented our third most active quarter ever following the record activity we saw in Q1 of 2020 at the start of the pandemic when we averaged 27 million contracts per day. Importantly, we had a nice rebound from the back half of the year in 2020. We had a 35% sequential increase in average daily volume from Q4 2020 to Q1 2021. Also, interest rates were up 65% to more than 10 million contracts per day in Q1 relative to Q4. In addition, equities, energy and metals were all higher sequentially by approximately 20%.
In terms of products, we had record quarters in Bitcoin futures and silver futures. Micro E-mini NASDAQ and Russell were each up more than 100%. Agricultural markets remained active, particularly in options with more than 60% growth in both corn and soybean options ADV versus Q1 of 2020. Also, we continue to see strong non-US customer volumes originating in Europe and Asia with approximately 6 million per day during Q1 2021 versus 4.7 million per day for all of 2020.
We are also pleased with the transition of BrokerTec onto the Globex platform for the treasury curve trades, and we did see recent all-time record in European repo activity. Last quarter, I mentioned the ongoing innovation across our markets. In Q1, that continued with Japanese energy futures, global emission offset futures, Ether futures, micro Bitcoin futures, lithium futures, Mexican interest rate futures and most recently, CME term sulfur. Also, we announced the JV with IHS Markit, which we are excited about. The main point is that we are constantly finding ways to assist our clients with the world's most diverse product offering across all the critical global asset classes.
With that, let me turn the call over to John, who will discuss the financial results. And I look forward to answering your questions.
Thanks, Terry. During the first quarter, CME generated more than $1.250 billion in revenue, reflecting average daily volume of 21.8 million contracts. Expenses were very carefully managed, and on an adjusted basis, were $437 million for the quarter and $372 million, excluding license fees. CME had an adjusted effective tax rate of 23.6%, which resulted in an adjusted diluted EPS of $1.79. Capital expenditures for the quarter were approximately $27 million. During the first quarter, CME paid out more than $1.2 billion to our shareholders in the form of our annual variable dividend of $2.50 per share and our most recent regular dividend of $0.90 per share. CME's cash at the end of the first quarter was more than $1 billion.
Our 2021 guidance remains unchanged. We expect total adjusted operating expenses, excluding license fees, to come in at $1.575 billion. We anticipate the spending to be weighted heavier in the second half of the year as the global economy potentially opens. We continue to expect CapEx to come in between $180 million and $190 million. Finally, our tax rate guidance remains between 23.2% and 24.2%. Please refer to the last page of our executive commentary for additional financial highlights and details.
With that short summary, we'd like to open up the call for your questions. Based on the number of analysts covering us, please limit yourself to one question, and then feel free to jump back into the queue. Thank you.
[Operator Instructions] Thank you. Our first question will come from Rich Repetto with Piper Sandler.
Yes, good morning, Terry. Good morning, John.
Good morning.
Good morning. And hope everyone is doing well in CME team, as we see light at the end of the tunnel here. But anyway, my question is on the BrokerTec migration. I know you completed it in early February. And Sean has talked about the different things, the relative value spread trades, as well as like other initiatives you're going to do. I'm just going to see what the interest rate outlook is. You also said it took like 3 months for people to get really up to speed and connect and get used to the data and so forth. So I'm just trying to see what could we expect from the migration and the impact on interest rate volumes going forward?
Yes, Rich, thank you for your question. I'll ask Sean to go ahead and give a response. And if anybody else would like to participate, fine. But Sean, why don't you go ahead and start?
Thanks very much, Terry, and thank you, Rich. Great question. So, so far, things have gone very well. If you look at our relative share of the market, which is available through certain market sources, it's been -- on the BrokerTec US treasuries, it's been flat between the fourth quarter and the first quarter. So we're very pleased with that result, given the challenges as you mentioned, participants adopting to the new platform. In addition to that, we're very excited about the new functionality that we have launched. It likewise is taking time for participants to take advantage of the new functionality. We did launch now about a month ago our new RV trading functionality, which I have described before. We have a handful of market makers. We have about 17 customers who are submitting orders and getting executed. And we've executed more than 2 billion worth of volume. We're doing about 120 million a day.
We are very excited, though. Why? Because it is taking time for participants to adopt to it, and we have, honestly, three major ISVs who have not yet fully completed their development. So we do expect them to fully complete their development over the next month or two. And when that occurs, we expect to get a significant ramp-up in volumes and a significant ramp-up in activity. But we're very pleased with that. In addition to that, on May 3, we're going to be reducing the minimum price increment on 3-year notes. You will recall from previous earnings calls, when we reduced the minimum price increment in our two-year notes, both on the BrokerTec platform as well as in the 2-year note futures on the listed platform, that increased our overall volumes in our treasury complex, in this case by about 3 percentage points. So we're excited about both of those developments and things I think are going very well. As Terry mentioned earlier, that migration included not just our US treasuries, but also our repo business. And in particular, we're running all time records. So the first quarter is an all-time record in our European repo, doing almost 300 billion a day. We're also doing about 219 billion a day in our US repo, which is -- which has also gone very well. So in general, I'd say it's all going very, very well and as expected.
Thanks guys. Thank you.
Thanks Rich.
Thank you. Our next question comes from Dan Fannon with Jefferies.
Thanks. Good morning. My question's for John, just on the expense outlook. Obviously, after the first quarter, you're tracking annualized well below your guidance. You talked about second half spend pick up. Can you just maybe discuss some of the specifics that you anticipate in terms of either just travel kind of normalization or what you're spending on? And then also remind us where you are in synergies, if there were any additional realizations here in the first quarter.
Thanks, Dan, and good morning. Yes, we are very effectively managing our expenses here at CME Group. If you recall, we guided $1.650 billion in expenses at the start of 2020. We came in at 15.57. We guided to 15.75 for this year. So very effective expense management over the last couple of years. So in terms of what we see, obviously, this is early in the year. We're hopeful that we see economies begin to open up in the back half of the year. So we did expect or build into our plans for that to occur. We anticipate an additional $20 million compared to last year in terms of spending for that hopeful eventuality. So we are -- we have that going on, which is kind of a back half expense -- expenses. And then we also are building out our East coast and we are working on the migration of EBS on the Globex. So those are a few items that we anticipate incurring additional costs for towards the back half of that year -- of this year.
So from our perspective, we are very focused on managing our expenses. We're going to do everything that we can to keep our expenses down. But we want to balance it with growing the business. So that's the mindset that we have here. So we've got a couple of opportunities in front of us in terms of getting our sales team out there to meet with clients as the economies begin to open. And also we've got the EBS migration and our data center, which are costs -- are more back half-loaded. So those are a couple of items. Secondly, in terms of synergy realization, yes, we are -- we did have synergy realization in the first quarter. We anticipate our $200 million in run rate synergies by the end of this year. That's an additional $60 million in synergies, run rate synergies that we need to achieve. And we achieved about 2/3 of that run rate synergies at the end of the first quarter. So well on track to achieving our $200 million expense synergy target.
Okay, thank you.
Thanks Dan.
Thank you. Our next question comes from Alex Kramm with UBS.
Yes. Hey, good morning, everyone. Can you just give us a quick update on what's happening on the retail side of your business? I mean, I think it's been a nice growth area. So maybe just give us some of the updated kind of stats there and maybe plans for engaging with that customer set more in terms of new products as well. Then on the equity side, it seems like retail has gotten a little bit more tired in the second quarter. So just wondering if you're seeing the same thing on the future side as well? Anything you can point there to in April so far? Thanks.
Thanks, Alex. We'll let Julie Winkler comment on the retail side. Julie?
Sure. Thanks for the question, Alex. Yes, the retail volume and revenue in Q1 was certainly quite strong. The month of March, in particular, was a top 3 all-time revenue month for us in retail behind only March and April last year, which obviously was a time of very historically unprecedented volatility. When we compare Q1 back to Q4, we saw the business up 21% with really all of our regions showing double-digit growth, which is really, really strong. The product growth, it did still largely come from equities, but we also saw some nice pickup in FX and ads. More specifically, right, it was the Micro E-minis, emerging market FX, micro FX, corn and soybean. And it really -- that just speaks to the diversity of our product offering and how appealing that is to our active individual traders.
During Q1, as you kind of expect with everyone still During Q1, as you kind of expect with everyone still more or less at home, a lot of our outreach has been across our digital properties. And so we saw over 0.5 million retail traders visit our SME digital properties, and that's twice the amount that we had at the same time last year. And when we looked at the number of new traders that we were able to add, it was over 50,000 during just the first quarter. And so that was up another 24% over what we were doing in Q4, which just continues to signal the really solid momentum that we've made. As you pointed out, certainly, a key part of this business is just the alignment and the partnership with our global distribution partners. There -- a lot of this is around outreach and product education. The number of active traders that our partners educated on CME products just in Q1 surpassed over 1.5 million traders. A lot of that outreach certainly going on in APAC, but also in the US. And I think that's just continuing to add to the momentum and attracting new customers to the business. A lot of this is still largely virtual, although in-person events are starting as well. We had about 5 in-person events in Q1, so less than 10%, but I think that's another great step to returning to some of that prepandemic form of engagement with our clients. So I think we saw certainly a very strong quarter, and there is definitely a lot of interest about the upcoming micro Bitcoin launch that we have coming in May.
And I would just add, Alex, to what Julie said that you referenced as the retail trader tired as it relates to equities, right now, we're looking at a very seasonal slow month of April. And that's probably what's reflecting on what you're seeing at a very seasonal slow month of April. And that's probably what's reflecting on what you're seeing right now in the last couple of weeks. But I think what Julie said is the important part is the onboarding process that's going on, not only for retail and others, is very exciting for the future growth of not only retail trading but the entire business. So I wouldn't read too much into the recent couple of weeks.
And did you give the revenue or volume percentage of retail for the quarter? Sorry, I don't know if I missed it.
John, do you have it?
In terms of the retail volume for the quarter was about 1.1 million contracts traded today for retail. And what was interesting, it was strong across all of our regions, right? So if you look at it sequentially, Q4 to Q1, US, EMEA, APAC, LatAm and Canada were all up double digits sequentially.
Okay, thank you.
Thanks, Alex.
Thanks, Alex.
Thank you. Our next question comes from Mike Carrier with Bank of America.
Good morning. Thanks for taking the question. Overall volumes are strong in 1Q. We've seen some mixed open interest trends and some moderation. So just wanted to gauge your sense maybe why this is happening? Do you think it's transitory? And then what metrics are you watching that provides you confidence in the growth outlook? Thanks a lot.
Okay. Derek, do you want to start with the...
Yes. It's going to vary a little bit by product, Mike, in terms of kind of what those trends are. And to be honest, it also depends on when you're looking discreetly if we just have big options expiration, we're going to see some OI rollup. But if you look at average OI trends, sequentially, most importantly, from Q4 to Q1 on the commodity side, we're seeing a lot of really significant positive trends indicative of what we're seeing reflected the commercial customer base. So for example, in WTI, we saw a -- with the overall slowdown in the back half of last year, volumes and open interest decreased. We saw open interest in WTI down on 1.9 million contracts marked in November. We've seen that sequentially build up to close to 2.4 million contracts. We actually just had 2.54 million contracts just a month ago, which is close to a 3-year high for us. That's reflective of the sequential participation and increased participation from commercial customers.
Sequentially, our WTI volumes were up from Q4 of 2020 to Q1 2021 by 40%. Commercial customers were up 53%. So that open interest build is reflective of broader participation from the commercial customers on the energy side. I'd also add to that, we set record levels of open interest in both corn options and soybean options. Again, that's driven by the fastest-growing part of our ag business right now, which is commercial customers. We're up 21% with commercial customers. So that sequential growth of record open interest, growth at the fastest participation client group being commercial customers reflective of the increased risk and volatility in that market. And it's just reflective of the work that we do to make sure that CME Group is the primary place for price discovery and most importantly, risk management for all end-user customers across the board. So that's some flavor on the commodity side.
Yes. And I'll ask Sean to comment as well, Alex. But I think Derek touched on a little bit with the options. And I think you look at where CME is at today versus where it was at just a few years ago with the different options that we have today with the different expirations, not just on a quarterly basis, but the weeklies and things of that nature, you're going to see fluctuations in options OI, which drives those numbers quite a lot up and down. But the good news about that is healthy options on futures business helps protect and grow the underlying futures contract in and of itself. So I find that a very good sign, but the volatility in the OI definitely goes in association with the new expirations that we have. I'll let Sean it relates to the rates.
Thanks very much, Terry. So in terms of the rates, obviously, the open interest down a bit, but we're very excited about the huge growth in the first quarter over the fourth quarter and in particular, several different records that we had in terms of average daily volumes. So average daily volumes of our 3-year notes or 5-year notes or ultra 10-year and our 30-year bond. It was the best quarter ever, actually, for those particular items. In addition to that, we saw enormous growth out in our greens and our blues or our third year of Eurodollar futures and our fourth Eurodollar futures. So with the advent of rising rates, particularly on long end, our rates, particularly on long end, our volumes are following through as expected. One of the things to keep in mind is it remains an extremely challenged environment. And the first quarter was, in fact, an extremely challenging environment. If you look at it from a volatility perspective and foreign exchange. The euro, yen and sterling, if you look at the foreign exchange markets, in euro yen and sterling, their ranks in terms of percentile, volatilities going back to 2007, were 14%, 5% and 13%. So essentially, 90% of the time, volatility has been higher since 2007.
If you look likewise at our rates market that out to the eighth Eurodollar future, in the first quarter, we were still running at still just a 5% ranking. So in other words, 95% of the time, going back to 2007, volatilities have been higher. If you go further out the curve, where we saw some increase in volumes that I already spoke about, our 12th Eurodollar future, for example, was at the 34th percentile ranking. And our 10-year notes were at 32%. So still very low volatility, even though we saw very good volumes, especially further out the curve. The other thing I might mention, you asked previously, there was a question previously about retail. And Julie did mention it, but we are excited about our micro Bitcoin launch, which will be happening next week.
Bitcoin, you first talked about before, but I think I might talk about it somewhat differently this than I have in the past. If you look at our first quarter of this year, the revenue was higher than the entirety of last year, and it was about $4.7 million in the first quarter. So it was a positive and for the first time, much stronger than in the past. With the launch of the new micro Bitcoins, today, let me talk about the large Bitcoin futures that we have. It's 5 Bitcoins. And the margin requirements run typically more than $105,000 per contract. Obviously, that is extremely restrictive in terms of the number of participants and the types of participants who can be involved in that.
With the new micro Bitcoin, it's going to be 1/50 of the size. The micro Bitcoin future will have approximately $2,000 margin. So you can see how that opens up a much wider potential customer base for that product. In addition to that, while the notional size of that product is 1/50, the size of the large contract, it's at 1/10 of a Bitcoin, the rack rate fees are 1/2 of our existing Bitcoin futures. So we're looking forward to that launch. In addition to that, the fees relative to other exchanges will be significantly lower even at that fee rate. So we're looking forward to that launch.
Thanks Sean. Okay, great. Thanks for the info.
Thanks Mike.
Thank you. Our next question comes from Chris Harris with Wells Fargo.
Great. Thanks, guys. So it's a good quarter for data revenues. Can you maybe talk a little bit about what drove the increase? And then I believe there was a price increase that went into effect in April. So how should we be thinking about the outlook, given that price increase?
Chris, we'll let Julie go ahead and talk about the market data business, and then John can talk about the price changes associated with this. So Julie?
Sure. Thanks for the question, Chris. Yes, it was a great quarter for market data revenue at 144 million. We're up 10% compared to first quarter of 2020. And it was a number of factors. I'd say, in addition to kind of that new fee structure that we've talked about before on nondisplay data, that was implemented this quarter. We also did some data feed pricing adjustments that were implemented in Q2 of last year. And so this was the first quarter that you would have seen those increases as part of the revenue. And in general, it's just increased demand across our drive data licenses and historical data as well as there were some higher audit findings in there. So I think we're continuing to see there's just consistency in our display device counts. And we believe that, that is a result of really better compliance and also reporting of usage by our client base. And when we kind of look not just at that quarter, but the outlook, I think what we're doing is listening to our clients. And we're delivering data in flexible ways, which is really how they want to take it in and use it on their end. So whether it's the data feed side of things, whether it's the new Google formatting that we're allowing and getting the data in the cloud, all of those adjustments are really just speaking to those broader data trends that are really kind of feeding both automated trading as well as clients' use of more sophisticated algorithms. And that really was the reason for the results. I'll turn it to John, but just what we have coming into effect here, April 1 is a change to the realtime pricing. And so that has not been changed since 2018, and we're taking that price per DCM from $105 per month per DCM to $110. So John?
Yes. Thank you, Julie. Yes. As I mentioned on the last call, we took a very targeted approach to pricing this year. We focused on our micro products. We adjusted the member fees -- I'm sorry, the nonmember fees for our micro equities. We increased that $0.05 per screen -- or $0.05 per side micro gold, which we increased $0.20 per side and micro silver, which we increased $0.40 per side. Those went into effect in February. So you'll see a full quarter impact of those price changes beginning in the second quarter of this year. As Julie mentioned, we also took our pricing on our screens in our market data business from 105 to 110. That's the majority of the revenue for market data comes through on this realtime data, which is what we adjusted. So targeted approach, we should see full quarter impacts of all of our pricing changes this year starting in the second quarter.
Thanks very much and Chris, appreciate it.
Thank you. Our next question comes from Alex Blostein with Goldman Sachs.
Good morning guys. Thanks for taking the question. I was hoping you could spend a couple of minutes on the JV on post-trade services with IHS Markit. Maybe spend a couple of minutes on kind of strategic and financial implications for CME from this transaction over the next kind of 12 to 24 months? Thanks.
Yes, sure. Thanks. I'll start that off. We are very excited about the JV with IHS Markit. And we think that it's going to really be impactful to the industry. It will be a leader in trade processing and risk mitigation services. And it will provide our clients more efficient access to services, and it will be a great platform to launch new solutions across a broad set of asset classes, including interest rates, FX, equity and credit.
So, the largest markets out there, we'll be able to service from an OTC perspective with the JV. And what -- and what's really exciting about the JV is that it's very complementary in terms of services that the IHS Markit business provides and CME's optimization services business provides. So, we're going to have this combined in terms of the business. We anticipate getting the approvals no sooner than mid-summer. But we are well on our way in terms of getting those approvals, and so there's no issues thus far in terms of the combination.
In terms of what this means going forward, this will allow us to innovate and bring to market analytics, workflow tools, and solutions that allow our clients to manage risk and process much more efficiently. If you think about the data that goes to CME Group and the data that goes to Market Serve, which is IHS Markit's business, very similar data. And it will allow customers to connect to one entity versus multiple entities as they have cross-asset class exposures.
So very, very excited about that. And then in terms of financial implications, what you'll see this quarter is a change in accounting for our business. It's going to held-for-sale accounting. So, you'll see on our balance sheet, it's spelled out on our balance sheet. We separate out our assets and liabilities related to the IHS -- I'm sorry, the -- our optimization business in anticipation of the combination. So, you'll see that in our balance sheet.
From a financial perspective, it's immaterial financial implications for our adjusted earnings. On a GAAP basis, you'll see a reduction in our amortization of intangibles. So, our amortization of intangibles have gone down about $17 million per quarter, and that is really because we put on pause any further amortization of intangibles on these assets.
So, those are the financial implications so far. We'll provide more information as we get closer to the combination.
Great. Thank you.
Yes. Thank you.
Thank you. Our next question comes from Ari Ghosh with Crédit Suisse.
Hey good morning everyone. Just a quick one on product development. So again, if you're coming off of a few years of robust product development and again clearly, you've seen strong standard op with these launches. If I look at your recent innovation, it's been skewed around a little more around financial products. So just given the evolving environment of retail, ESG, global participation, etcetera, can you talk about areas of new product focus for CME and where you see the most opportunity over the near to medium term? Thanks.
Okay. Thanks, Ari. I'll let Julie go ahead and comment on that on the new products with her folks are working on these. So Julie, go ahead.
Thanks for the question, Ari. I mean, 2020 was certainly a busy year. I mean, we introduced over 85 new products last year amid the work-from-home environment. And I think we continue to be very focused on identifying those new opportunities with our clients and working across the organization to bring those to market.
The first quarter of 2021 though, was quite active, I would say. And Derek will jump into across the commodity suite. So we had our launch of CBL global emissions offset futures, which was extremely well received by our clients, a major source of engagement with them and one that really is just going to kick-off a number of other new opportunities across the ESG space and the voluntary carbon markets.
We've also been introducing some new Asia-focused products in the first quarter, adding China methylene and also Japanese electricity futures. We just recently introduced or announced the launch of the Mexican short-term interest rate futures. And just this morning talked since the release about the ESG 350 futures contract.
So we're really focused on where there is specific market needs. And I think our clients continue to help us -- lead us to those opportunities. And with that, maybe I'll just turn it over to Derek to go a little deeper on commodities.
Yes, it's a great question. It's one of these things, Ari, that when we launch products, particularly in the emerging either renewable side or we're looking at ESG constraints, these are markets that are in the early stages of development. So it's not like putting a weekly Monday expiration route or a weekly Wednesday operation out or micro contract that instantly throws a bunch of volume out.
So Julie makes the right point. We spend a lot of time working with, particularly our commercial customers, with the end users that actually have these underlying physical risks. And so I'll just give you a quick overview of some of the things that we've launched really over the last 12 months. Julie mentioned a couple that we've launched over the last 3 months.
We already have a pretty healthy slate of bio energy products, whether it's the Chicago, New York ethanol contract that we have, Rotterdam ethanol, 2 contracts that we've launched that are going to sound really niche, but it's exactly in the kind of area that you're talking about, used cooking oil and used cooking oil methyl. These are really, really technical products that serve very specific functions inside the renewable space.
Something that is a little more top of mind, cobalt and lithium. These are battery metals that are obviously absolutely imperative for – as the EV market grows and electronify businesses and cars and you go into carbon neutral world, copper is a big part of that. That's a huge part of our business right now, the fastest-growing part of our metals business.
But most importantly, building these markets out to provide risk management solutions for commercial customers that need to be able to price and have access to these underlying physical products that are part of the future that we're building. So there are a couple of examples in there that are maybe quite narrow, and you're not going to see those do 100,000 contracts anytime soon, but they're serving specific needs. That's what we do. We talk to our commercial customers. Our focus is on how to build products that suit their needs. We can build open interest, bring the commercial customers alongside. And there are many examples we'd go into, but appreciate the question, but I assure you we're spending a lot of time with our global commercial customers building these products. In our investor deck, and we'll make sure that when we put those out, we highlight those to show the work that we're doing in this environmental space on behalf of our customers.
Ari, Let me just make a comment here. Innovation, we've said – I've been here for 41 years. Innovation is the lifeblood of this business as it is every other business in the world that you have to have it. So we are constantly looking at bringing out new products.
The beauty of the world that we live in today, we are able to bring out new products in such an expedited fashion because of technology with everything else that's allowed us to do, whether it's regulatory approvals and things of that nature. And – but what's important here is, and Derek referenced some products, as he referred to them as, is timing is very important.
So you want to make sure that you have products in your pipeline, and then you'll decide how you want to add cost to them when it's time to promote them in a different fashion. So I do think it's important, and Derek is right. You can get a derivative of a derivative and call it a micro and get instant volume. But through some of these other product lines, it takes some time to nurture, to bring forward, but it's important that you continue to innovate. So that's what we do, and the cost associated with it is nowhere near what it used to be 10, 20, 30 years ago.
Appreciate all the color. Thanks so much.
Thank you. Our next question comes from Brian Bedell with Deutsche Bank.
All right. Great. Thanks. Good morning, folks. If you could just touch on the cryptocurrency ecosystem a little bit in terms of how you're thinking about that. Obviously, developing more Bitcoin products and especially on the micro side, I think you said the notion is going down to 1/50 or the margin requirements going down to 1/50.
Just if you can comment on, first, how much demand do you think there will be for that, given obviously you're reaching down into that lower-margin bracket and potentially the pickup from Asia on that? And then secondarily, on the risk side in terms of margining, if you could just talk about how comfortable you are with those lower-margin limits. And as you think about the cryptocurrency trading ecosystem broadly in places where there might be even lower-margin requirements, see any systemic risks in the system, either for Bitcoin trading or that could eventually impact CME on the clearing side?
I think it's a really good question, Brian. And let me ask Sunil to comment on the risk component of it because I know it's the second part of your question. But I do believe it's very relevant as the growth of any product is to make sure you risk manage it properly.
So when you're going into a contract that is margined at $100, 000 or whatever the number is to 2,000, you got to say, 'Well, how are you going to manage that risk?' So I'd like Sunil, who's the President of our clearinghouse, to go ahead and give you a little flavor how he's thinking about it.
Thank you very much, Terry. Very important to note that we did not reduce the margin. The margin is not lower. It is actually – the margin is just the same as the larger contract. The margin is a percentage of the notional. So in this case, our initial margin currently is at 38% of notional. It's still the same thing for the smaller-sized contract. I think what Sean Tully was trying to communicate was the larger contract at a very large notional size, and it was a very higher entry point for smaller clients, who have smaller hedging needs.
So as a result, a smaller contract. Again, it's a 38% margin. But in order to get the same exposure, you'll have to actually get 50 of those contracts to equate to the larger contracts. So you'll end up with the same amount of margin. So there's no difference between the margin of the larger contract and the smaller contract in terms of its relative value to the size of the notional.
So, just so it's clear, Brian, we won't participate in a race to the bottom on margins on any product, especially cryptocurrency. So I think that's one thing that's critically important. Our risk management is one of the hallmarks of the growth of this institution. So we'll be very cautious how we do that.
So you're right, we are going to have participants in here that have a different economic makeup trading these products than the ones that are trading them today, because of the value. That doesn't mean that the risk management changes at all. It will be just as stringent as it is as today. Sean, do you want to comment any more on a smaller contract?
Obviously -- thank you, Terry and Sunil for clarifying what I said. I really appreciate it. No, we're excited about the launch. And the other thing I would add is Ether. So we do have Ether futures that we recently launched as well. Those Ether features doing more than 1,000 contracts a day, and so we continue to see progress.
The other thing I would say is, in terms of the Bitcoin futures that we have already, as well as the Micro E-minis, we've added tens of thousands of new accounts. Actually over the last year, more than 200,000 new tag 50s. So we are penetrating new clients. We're bringing new customers to the exchange, and we're very excited about the new size of this contract, as Terry rightly said, allowing us to penetrate a different economic base of customers. But the ratio, as Sunil said, of margins to the risk is absolutely the same. But we are still very excited about that development.
Thanks, Sean. Brian, I thought I gave some more color, how we're looking at it.
And just one angle of that is, just the cryptocurrency trading that's happening outside of CME on other platforms, are there any -- do you view any systemic risks that would potentially impact CME, or does your margin requirements, basically, they're pretty solid, and you wouldn't see any impact whatsoever?
Yes. I'll let Sunil comment, but I don't know if this is, if someone's sneezes we all get sick type of scenario, if that's where you're going. But let me have Sunil give a comment, as it relates to the risk management of other entities that are trading products and the contagion that could possibly happen to CME.
Great. Indeed.
We don't see any contagion from those. They are serving a different client base. They are not regulated in the U.S., and U.S. persons cannot trade -- technically cannot trade on those platforms.
Our product is completely regulated here, fully regulated and as Terry pointed out, we stand by our risk management. That is very important to us, and we continuously monitor our clearing firms, and we look at contagion risk as well. Thanks.
So, again, we don't have mark-to-myth. We have mark-to-market, and we have margin going back and forth on real-time basis. We can do it as much as an hourly basis if we need be, but we do it twice a day in a typical day. And so, I'm very comfortable with the way we are managing the risk on that.
But again, this is a new asset class. There's a lot of people participating in it all over the world. I think your question is valid, but I like our risk management model and the way we handle our client base.
Perfect. Thank you so much for such a comprehensive answer.
Thank you.
Thank you. Our next question comes from Kyle Voigt with KBW.
Hi. Good morning. Maybe just a modeling question for John. Just trying to better understand the moving pieces in the decline in other revenue. I think you called out client shifting towards cash collateral. I guess, can you just remind us what that means from a fee standpoint? So maybe the current net fees earned on cash collateral and the net investment income line versus the fee rates on the noncash collateral and other revenue. And then also, if you could just help us understand the size of the shift in collateral that client shifting collateral that's occurred over the past quarter or so?
Sure, Kyle. Thank you for the question. Hope you are doing well. In terms of the sequential decline in other revenue, as I mentioned on the last earnings call, there were a couple of items in Q4 that would not continue. And that is driving the majority of the sequential decline. We had an annual adjustment based on exchange activity paid by our partner in Brazil for software that we licensed them. There was also a termination fee related to our agreement with the Korean exchange. Both were booked in Q4, and both agreements concluded in last quarter. So those are not going forward, and I mentioned that at the last earnings call. So there was also lower custody fees in Q4 versus Q1. That was about $2.5 million as customers chose to put cash up at the clearinghouse rather than noncash collateral. So those are the majority drivers of the sequential decline in other revenue.
In terms of our collateral that's put up at the clearinghouse, when you take a look at our -- the average cash balances between the fourth quarter of 2020 and the first quarter of 2021, they increased from $86.1 billion in cash put up in the fourth quarter to $103.5 billion in cash collateral on average in Q1. So we saw an increase in the amount of cash put up at the clearinghouse, but we saw a decline in the return on those balances. It went from approximately 3 basis points down to about 2 basis points in terms of the return. So when you take a look in our other nonoperating section of our income statement, that -- those returns were about flat. So it was about $6 million in the fourth quarter of 2020, and it's about $6. 4 million in the first quarter of 2021. So relatively flat. So the increase in the nonoperating section of our income statement really is a reflection of the -- our equity and unconsolidated subsidiaries, and that's primarily driven by our joint venture with S&P Global in the indexing space. So those are the main changes between other revenue and then our other nonoperating section of our income statement. Thanks, Kyle.
And sorry, John, just on the noncash collateral piece, can you just remind us what the net fees are there that you're earning within other revenue, the fee rate?
Yes. I want to say it's 5 basis points is what we charge for noncash collateral put up at our clearinghouse.
Got it. Thank you.
So that -- obviously, what you're seeing now is people make a decision in terms of what they have on hand to put up at the clearinghouse. And they also will then take a look at the returns they can get depending on what instruments they hold, whether it's for example, US treasuries or whether or not they would -- we would deposit that at the Fed, and then they would get a sharing of that -- of those returns that we put up at the Fed.
Thank you.
All right. Thanks Kyle.
Thank you. Our next question comes from Chris Allen with Compass Point.
Morning everyone. I wanted to follow-up on the market data question from earlier. Market did a future of about 12.7 million year-over-year, about 10%. I was wondering if you can give us some granularity just in terms of the dollar impact from the higher audit findings, you kind of break down the growth between what's been driven by price increases versus organic growth higher demand?
I'll take part of that and then I'll turn it over to Julie to talk a little bit about kind of the organic part of the question. But in terms of the audit findings, what we saw from a sequential increase of about $2 million -- about $2.3 million -- I'm sorry, let me get that correct, $1.2 million in terms of sequential increase in audit findings between Q4 and Q1.
So, when you take a look at the overall increase in -- sequential increase in our market data business, it went up about 4.4 million. So, about a quarter of that was -- of that sequential increase was related to increased audit findings. We did put in an impact -- a structural change in terms of our market data business on non-display fees. And that, I want to say it was about $2 million for this quarter in terms of impact.
I'll turn it over to Julie for any other color.
Yes. I just think -- as John mentioned, those are all right at the additional on the data feed access side of things. That's where we changed the monthly per DCM fee for end users that we're going to take this mailable feed from the vendor. So, that price increase is the one that went into effect the second quarter of last year. That took the -- increased the fee from $375 a month per DCM to $500 for real-time. And then for the delayed fees, it went from $175 a month per DCM to $250.
So from that, we're seeing fees up about 36% there and it's been -- versus what they were before. And then we're also seeing good growth in drive data. So, that's been up another 16%, and a lot of that is just people are continuing to want to use our data in other structured products and indices that they create.
So, that has all kind of helped to contribute to that uplift that we talked about. But the main point being, right, is that subscriber device count still holds strong and does not decline, and we don't see the attrition. That's the key part because that is the majority of that data revenue.
Thanks, Julie. Thanks, John. Go ahead, Chris.
I would say, maybe any color just in terms of how much this kind has increased the absolute numbers, maybe percentage changes year-over-year?
Sorry, can you repeat that?
Yes, we didn't hear you very well, Chris. Can you say it one more time?
Yes, I was just wondering if you could give any color just in terms subscriber account on a year-over-year basis.
Subscriber account, Julie.
Yes, it's roughly flat, Chris. So I mean, I think what's really good news, I think, is really the pandemic really showed the importance of our data. And as we went to this remote working environment, people needed to utilize our data. And with so many -- so much happening in our marketplace, having that information is very important for them to run their businesses. So I've been pretty pleased, especially, we've made some changes to our pricing, and we haven't seen that flow-through from a subscriber perspective at this point.
Thank you.
Thanks Chris.
Thank you. Our next question comes from Ben Herbert with Citi.
Hey good morning. Thanks for taking the question. I was just hoping you could drill down a bit on the continued non-US strength. And I know Julie mentioned retail was strong across regions, but anything to note, particularly on the large OI commercial base and then also maybe against kind of different phases of recovery across the globe? And lastly, John, if you could maybe walk us through how we should be thinking about any RPC impacts from non-US trend? Thanks.
Sure. I'll take part...
Why don't you let Julie go ahead and comment on the strength of the U.S. and Derek and/or Sean can jump in, then you can jump in.
Sure.
Julie?
Yes. So on really the international growth side, this was the second-best record ADV month with 6.2 million contracts trading and being up 33% versus what we saw in the fourth quarter. And this was driven just from a product side across a number of different areas. We saw interest rates up 70%. We saw equities up 15%, energy's asset class 20% and metals, 12%. So those are all clearly strong double-digit growth. This was the interest rates are at the strongest level that we've seen since the first quarter of last year.
From a customer perspective, again, I think growth was generated really across all of the segments when we looked at it most in more detail. And the largest gains, though, were among our hedge fund clients and also bank trading activity. And that continues to kind of demonstrate that diversity of that client ADV contribution that we saw in Q1.
If we just double-click a little bit on Europe, that being up 34% in Q1 to 4.3 million contracts. And there, we saw some strong growth in Eurodollar futures, treasury weeklies across really the whole treasury complex, copper and also gasoline. And APAC was a pretty similar story. There, we saw ADV of 1.5 million contracts. So that was up 33%, major growth again from a product perspective, Eurodollars, treasuries, WTI, copper and bonds.
And when we look across all of the international countries, the top 20 -- all of the top 20 had double-digit growth, which is phenomenal. And this is where we're continuing to put our assets and our resources to kind of continue to grow that business. And in particular, again, I think for all of those regions, the hedge fund and bank clients were really the standout customer contribution side of things. And Derek can go into more detail on commodities.
Yes. I'll touch on just maybe the agricultural piece of this is that was really the standout performer that we saw in some of the trends we talked about earlier. Terry touched on some of these trends in terms of global utilization, the way we're focusing on global customer bases. Now ag showed some significant uptake just given the increased tightening stocks globally, particularly for corn and soybeans. Specifically in Asia Pacific, we set a quarterly volume record for agricultural asset class in Asia.
Our Asian ag volume was up 57% year-on-year. That is a staggering number. But when you look at the continued globalization efforts that we put forward, whether it's electronic trading, whether it's the products that we're building out, whether it's the growth of our options business, we talked about the record corn options and soybean options open interest. Remember that open interest growth generally is reflective of increased participation from commercial participants. We typically see financial players then follow as they're following the open interest trend.
So we saw record quarter. We saw a record individual month in ags in the month of January, and we continue to see going from strength to strength there. So the percent of our business taking place in commodities generally has been an area of growth for us over the last couple of years.
This particular quarter, it was a highlight on ags. And that has obviously had a very significant positive impact on our rate per contract in ags that we saw a couple of cents uptick in rate per contract. Even with very, very strong volumes, both sequentially and year-on-year, we still were able to grow our rate per contract in ag. So I'll turn it over to John for some of the RBC effects.
Yes, thanks. When you take a look at the RBC from participants outside the United States, it's certainly higher than within the US, and it's primarily for a couple of reasons. One, non-US participants tend to be nonmembers of the exchange. They pay a higher rate per contract because they're nonmembers – tend to be nonmembers.
And then secondly, the mix of products that they the trade also tends to have a higher RPC. So when you look at the volume, the volume coming from outside the United States is approximately 29% of our total volume. And then when you look at the revenue, the electronic trading revenue from outside the United States is about 38%. So that gives you an idea in terms of what the premium is that they provide in terms of RPC.
Thanks, guys.
Okay.
Thank you. Our next question comes from Owen Lau with Oppenheimer.
Hey, good morning. Thank you for taking my questions. I want to go back to micro Bitcoin futures. And I'm wondering what has changed since the last earnings call so that CME has decided to launch micro Bitcoin futures? And then Ether futures volume, another record high. What do you want to see to feel comfortable of launching something like micro Ether future? Thank you.
I don't think anything has really changed since our last call. I think that we've always looked at the evolution of this product going to trade – to go into different participants' hands, as we talked about earlier. The – obviously, the massive increase we've seen in the price of the cryptocurrency in and of itself lends to a smaller contract for more participants to manage their risk in as we've talked about earlier.
So I don't think we really had any change of mind since the last call. It's just part of the natural business decisions that we make here going forward. And as it relates to the Ether contract, that's a relatively new contract trading, Julie, with a couple thousand a day maybe, 2,000 a day. And we won't say never to a micro Ether contract. But again, we're going to continue to help nourish that contract along, and we'll see how it goes. So we'll make that decision when the time is right, if, in fact, the time is right. But right now, it was an appropriate move for us to work on the micro contract with Bitcoin. We have listed the contract for several years. We've had an opportunity to risk management as we talked earlier, which is critically important to this institution. So I think that's really the philosophy as it relates to some of the micros.
All right. Thank you.
Thank you.
Thank you. Our next question comes from Simon Clinch with Atlantic Equities.
Hi. Thanks for taking my question so late on the call. I was wondering if we could just go back to -- just help me think about what's going on with some of the trends in RPC? And I'm particularly thinking about the energy side in terms of the mix there and why the opposite tickler these last few months?
Sure. I'll take that and maybe toss it over to Derek to provide some color. So in terms of the RPC in energy, we saw it decline a bit from Q4, and it was primarily driven by increased volume. We saw a substantial increase in the amount of trading activity between Q4 and Q1. And that really -- the increase in trading activity led to more volume discounting. We also saw a higher proportion of member trading activity, which also would have a lower RPC.
And then last, what we saw is really a tremendous increase in the amount of WTI trading, which was up, I think, sequentially, about 37%, about 40%, I should say. And nat gas, which has a higher RPC was relatively flat. So what that did is that had a product mix shift towards WTI. Nat gas was a higher proportion of trading in Q4 than it was in Q1 because of the WTI increase in trading.
I'll turn it over to Derek for some additional color.
Yeah, John. It's a combination of client product and geographical mix for us. We actually saw with the increased volatility around an increasing story around the global super cycle. That's tended to present itself this past quarter more in terms of the record levels of copper that we're looking at right now and that Ags piece of this. So we actually saw some sector rotation of some of the financial players out of energy into copper and Ags. We've talked about some of those trends. And it was a bit of a disappointing gas season for all of us. Last year, we had a really, really active gas season. We just saw gas disappoint over the last couple of months. So from a proportion point of view, a lower proportion total of gas versus WTI.
Understood. Thanks I just wonder if I can follow-on just with a question about -- just going back to expenses again. Because I know that when you originally set your targets for the year, you outlined it in terms of a more constructive revenue environment, I just wondered if you could talk about how -- given where we are in the first quarter and what we've seen, is that what we were talking about in terms of a more constructive revenue environment, or are you expecting more around as we move through the back end of the year?
Yeah. I think it's more along. Obviously, we're very pleased with the first quarter of the year. That's certainly a nice uptick from Q4. So, certainly, very pleased about it. Really, it's more around the opening of the economies around the world and getting the opportunity to get in front of our clients in person, really is what we're thinking about.
And certainly, some early positive signs around that. We do have some of our sales teams meeting with clients in outdoors and the like. But really what we're looking for is getting more customer events, more in-person events, more of our sales team meeting clients around the world. That's really what we were referring to, and that leads to additional travel, additional marketing events. Those are the items that we kind of put into our plans for the back half of this year, and we're hopeful we're going to see that.
Okay. That’s useful. Thank you.
Yeah. Thank you.
Thank you. I'm showing no further questions at the time. I will now turn the call back over for closing remarks.
Well, thank you all very much for joining us today and taking time out of your busy schedules. We look forward to talking to you next quarter. Everybody, stay safe.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.