Tim McCourt: Sure. And thanks, Alex, for the question. I think when we think about the opportunity why we remain excited and very optimistic that the cross margin agreement is finally coming online in January of next year is because this is something that we’ve seen before in our other markets. When you unlock the capital efficiencies of related products, it significantly increases the risk management capabilities of the marketplace and can lead to increased trading velocity in the product. While as Terry said, it’s hard to predict the future. If we look at some of the other areas we’ve unlocked capital historically, portfolio margining of futures versus swaps is probably a pretty good analog to look at, and that’s been in place since 2012.
And since that’s been put in place, the average daily savings have grown from 1 billion in 2013 to a little over 7.5 billion today in 2023. And at that same time, our rates volume grew 109%, and open interest doubled in the complex. And our cash market participation went from about 54% over 100%. So certainly unlocking capital is beneficial to the volume and the velocity of the complex, and we’re optimistic about what we can do once this comes online early next year.
TerrenceDuffy: Hopefully, that gives you a little color to your question, Alex.
Alex Kramm: Very good. Thank you guys.
TerrenceDuffy: I appreciate it.
Operator: Thank you. Our next question is from the line of Owen Lau with Oppenheimer. Please go ahead. Your line is open.
Owen Lau: Hi, good morning. Thank you for taking my question. So it’s somehow related to the last question, but I think you talked about government budget deficit in the past leading to more treasury issuance, which could increase like more hedging activities. Could you please unpack a little bit more on that relationship? Are you saying when we see more treasury issuance that should like kind of induce higher trading activity? I think any more color would be helpful. Thanks.
TerrenceDuffy: Yes. Owen, it’s Terry Duffy here. And one of the things that we have said historically and if you recall some of the comments that our former colleague, Mr. Sean Tully made over the years that when the Fed no longer is acquiring some of these treasuries that the demand for them will have to go somewhere else. The Fed does not hedge their treasury portfolio, as you know. The other people that acquire the issuances coming out from the government need to hedge those. So it’s hard to predict what the issuance is going to be. But again, those — the parties that will be taking the issuance if it’s not the Fed are traditionally people that hedge those in our marketplace. So that should benefit CME. So Tim, maybe you want to add anything more to that?
Tim McCourt: Yes. Sure. Thanks, Owen. When we look at the net issuance of treasury securities, they increased significantly in Q3 compared to Q2, up almost 80%. And that’s not surprising if you remember, this is really looking at the replenishment of the Treasury General Account, which means a record low of just under $50 billion prior to the debt ceiling. And at the end of September, that balance stood about $672 billion. Now it’s important to Terry’s point to look at where that debt is being issued. And comments made previously, a lot of the issuance is going into T-bills on the short end of the curve. That’s what we saw in Q1, Q2, and that pattern has not changed here in Q3. So with respect to how that can impact our complex in treasuries, one would assume that if we look back over historical distributions of how the treasury has looked to issue debt, there’s only so much that can go into the front end of the curve.
It was perhaps a little bit below the historical norms the last several years where the treasury has taken advantage of the lower rates further out the curve. So one can reasonably conclude going forward, they would look further out the curve to be more in line with their traditional or historical allocation where that’s where our complex at CME has all the historical products. As Terry noted, the growing treasury complex from both a volume and an OI perspective, we would expect that issuance further out the curve in the coupons and bonds to increase the velocity as the marketplace looks to digest that issuance, hedge the related trading activity of it. And with the introduction of our T-bills earlier this year that’s off to a great start, we now also have tradable products across the entirety of the curve and even better suited for that risk management needs of the marketplace as they find ways to absorb this increasing debt being issued to the market.
Owen Lau: Got it. Thank you very much.
TerrenceDuffy: Thanks, Owen.
Operator: Thank you. Our next question is from the line of Brian Bedell with Deutsche Bank. Please go ahead. Your line is open.
Brian Bedell: Great. Thanks. Good morning, folks. I have a couple of questions. I’ll get back in the queue for the second one. The first question I have is on just on the — I guess there’s some talk of more regulatory or potentially more regulatory scrutiny around basis trading within futures and treasuries. And just wanted to get your perspective on how you view any potential scrutiny there or the merits of that trade, and I don’t know if you’re able to potentially size the impact on volumes. I know it can be — can change quite dramatically over cycles. So maybe it’s tough to do, but just wanted to get a sense.
TerrenceDuffy: Yes. And Brian, it’s Terry. I’m going to turn it over to Tim, but sometimes there’s problems looking for solutions as they say or solutions looking for problems. And this is government at its finest trying to introduce new legislation where there is no problem with the basis trade is something that will continue to move as well as it should, and the basis trade is actually what keeps the markets in line. So we feel very strongly that this is going to continue to keep the market efficient. And the more you explain that to regulators to show them what kind of potential chaos you could introduce if, in fact, you have additional regulation that takes people out of that trade which widens the basis, they may not like that outcome. So let me turn it over to Tim to give you a little bit more color. But I would be cautious to draw the conclusion that any kind of pending regulation is coming down the pike in the time zone. Tim?
Tim McCourt: That’s correct. I think the one thing I would add is that the existence of basis between cash and futures market is not an isolated phenom to the treasury market. We see this in almost all of our asset classes here at CME. And the fact that you can independently trade the basis as a standalone risk parameter is an important key element to keep these markets aligned and arbitrage-free. It’s something that we’ve seen is vital to the marketplace for this purpose. And it’s something that we also see remaining in this market. It’s not surprising with rates traversing the range that they have that you’re going to see different behavior of the basis that we have in previous decades when we’ve seen similar activity. And it’s something that we engage with the market.
