Simon Clinch: Hi, guys. Thanks for taking my question. Maybe show up, I can go back to you, just on the points on the previous question about, I guess, the Fed balance sheet reduction and I guess the surprise that we haven’t really started to see the benefit of that yet in the long-term rates franchise. That’s something I’ve been puzzling here over myself in terms of substantially higher outstanding debt that’s out there, the shifting balance towards more public holders of that debt. And yet the open interest relative to those levels of outstanding that seems still seems to be relatively low to sort to what it could be. What do you think would be the actual catalyst or what’s holding back that thesis from playing out at this particular point?
Sean Tully: Yes, I don’t see anything necessarily holding it back. I’m just looking at the fact. While in 2018, when the Fed is balance sheet by $500 billion, we saw a 26% increase in our treasury futures. The Fed €“ let’s maybe a bit careful here, right? The Fed didn’t start to substantially reduce its balance sheet until September. So it’s actually a very recent phenomenon, although it’s been about $500 billion. So as we know, the Fed is expected to reduce their balance sheet by more than $1 trillion this year. So I would wait and see. Again, it was €“ it had a very positive tailwind for our business in 2018, but as I said earlier, it has not yet shown us significant positive results this year. And that’s not yet.
Simon Clinch: Okay. There is more case of it’s just still early €“ point, I guess.
Sean Tully: Yes.
Simon Clinch: Okay. Okay. Great. And I was just wondering as well, in terms of €“ just going back to crashes as well as a follow-up. How should we think about the overall levels of collateral requirements at the moment? And how that should trend over time? Because obviously, they have resurged during the last year and I am just wondering how we think about things normalizing over the next couple of years and the impact to the business?
John Pietrowicz: Yes. This is John. I’ll jump in and then maybe Sunil can make a couple of comments. I would say it’s very difficult to discern overall collateral balances. When you think about it, really, it is a function of the trading that’s occurring on the exchange and the open interest that we have in our clearinghouse and the risk associated with those trades. So from our perspective, it’s really all about risk management and ensuring that the safety and soundness of the markets, and that’s very paramount. As Terry indicated, at the start, we’ve been doing a lot to incent our clients to keep our cash balances or to keep them the collateral in cash here at CME Group. We do it for two reasons. One, obviously, we earn more on it than non-cash collateral.
But most importantly, from a risk management perspective, having cash is much more advantageous from a risk management perspective. than non-cash collateral. So we try to strike that appropriate balance. Ultimately, though, it’s a decision by our clients each and every day in terms of whether or not it’s going to be cash or non-cash based upon the returns that they can get. So we’ve been, I think, really prudent in terms of how we’ve been approaching it. And obviously, it’s something that has benefited our clients because they get access to the Fed the Fed balance to the Fed. And then also, it’s been beneficial for us. I’ll turn it over to €“ I don’t need to turn it over to Sunil. I guess I hit it.
Simon Clinch: Thanks.
Terrence Duffy: Hey, thanks, Simon.
Operator: Our next question is coming from the line of Michael Cyprys with Morgan Stanley. Please go ahead.
Michael Cyprys: Hey, good morning. Thanks for taking the question. I was hoping we could spend a moment on the energy complex with volume a bit year-on-year in January. I was hoping you might be able to elaborate on what you’re seeing across the marketplace. How you see the opportunity taking shape for this year in energy? And maybe you could talk a little bit about how the customer participation has varied across your customer sets to what extent have elevated margin levels still holding back volume and activity at this point? And how you see all that evolving this year? Thank you.
John Pietrowicz: Yes. Thanks, Michael. Appreciate the question. Following the largest demand shock, we ever saw in the energy market in 2020, followed by the largest supply shock ever €˜22. We’re actually starting to see the global energy market begin to normalize. One of the indicators we’re seeing there is financial players are starting to return to this market. One of those clear indicators we’re seeing of that this year so far, we’re seeing our open interest recover in our WCI complex. We’re up about 28%, up to about 1.8 million open interest since the end of €˜22. And that’s really a function of both margins normalizing, but we’re seeing hedge funds managers and particularly index trackers come back into the market.
They exited largely in the challenging circumstances of last year. Despite the fact that it was a challenging year last year, you look at some of the points that really carry the franchise or carrying over into this year to a degree. Last year, our options market performed extremely well on the energy side with energy revenue on the option side, up 9% versus the previous year. Globally, we also saw continued growth outside the U.S. with our LATAM business and energy up 70% last year and our APAC volumes up 15% last year. Finally, we saw continued growth back on the client side, specifically in retail, with our Micro WTI contract in the fourth quarter, TI volumes up 28% to a little over 100,000 contracts. So, good global participation and good client segment participation.
More importantly, when you think about where the energy markets are going, we continue to see the energy markets revolve and evolve around WTI as the central marketplace and price setter for both physical and financial markets. Couple of proof points here. Number one, the U.S. is now exporting a record level of 4.1 million barrels in Q4. We look to believe that, that export capacity will continue to grow. U.S. waterborne crude exports are not equal to Iraq and the number slot behind only Saudi Arabia. So U.S. is putting more WTI product out into the global markets. We are also expecting that and the market expects global oil production out of the U.S. to increase about 1 million barrels between now and 2024. So, that just increased WTI’s footprint globally.
So, the U.S. exports already up about 40% on €˜22 versus €˜21, and exports roughly up double into Asia since 2018, we continue to see exports of U.S. product out into the global market. So, what does that mean, what we are seeing not only is that strong and positions WTI at the central point of price making for the global oil market. But actually, our Argus Gulf Coast grades contract has a combined open interest of about 375,000 contracts. And we just had a record volume about 11,000 contracts this year. So, when you think about what that means, you got WTI set and the global price of oil, Brent is not going to be put in the Midland WTI grade into that assessment. That means that continually centralized the WTI there. We have got the largest export market and now production on the upswing.
So, we like that we have got the strongest position in the export market and in that basis contract, those Argus grades contract, as I said, about 375,000 contracts open interest, 87% of that is commercial participation. That’s where customers price discover and WTI, and then they hedge their exposure out to the basis to the Gulf, and then it exports from there. So, we like the position that we are in, in terms of the centrality of WTI. We think we have got the right product mix and we got the client mix and financial players coming back in. So, like Terry said, we can’t predict what volumes are, but we can talk about the very strong structural position that WTI has in the global oil market going forward.
Michael Cyprys: Great. Thank you.
Operator: Our next question is coming from the line of Owen Lau with Oppenheimer. Please go ahead.
Owen Lau: Good morning and thank you for taking my question. Could you please give us an update about your strategy and outlook in the digital asset space? Do you see your clients pulling back? And then you recently launched three Metaverse reference rates and indices. What other reference rates or products would make sense for C&E down the road? Thank you.
Terrence Duffy: Thanks Owen. Tim?
Tim McCourt: Yes. Thanks for the question. So, when we look at the digital asset space and the cryptocurrency business at CME, we remain seeing very strong growth in our offering. So, just as a reminder, our approach to the cryptocurrency products as being the regulated venue, offering regulated products in a way that provides bonafide risk management and trusted access to the marketplace. We have seen that value proposition remain true in Q4 with some of the more widespread events in the cryptocurrency space, where we saw record volumes in November, record large open interest holders of 439 holders in the month of November. And that momentum hasn’t slowed down with respect to the adoption and continued growth at CME. What I mean by that is, let’s look at the number of accounts.
Typically, we add about 450 accounts per month in our cryptocurrency business. And in November, we added 934, over doubling the normal account opening. And in January, we have seen over 700 accounts €“ new accounts opened with respect to trading cryptocurrency products at CME. That’s really a testament to the marketplace broadly turning to CME in times of stress in the rest of the cryptocurrency ecosystem. When we look at the product development front, we have focused on additional pricing products. These are non-tradable reference rates in real-time indices. We did in last month, introduced three new reference rates around the Metaverse, that complements some of the additional indices we introduced with respect to D5 sector in cryptocurrency as well as the more than dozen so more traditional cryptocurrency tokens that we also have reference rates on.
And really, the strategy here is we want to make sure that CME, along with our partner, CF Benchmarks, remains one of the preeminent pricing providers for cryptocurrency as people need a trusted source to figure out on a given day, once a day with reference rates or real-time tick-by-tick, what these assets are worth. That is where we will continue to develop on the reference rate pricing, but we will listen to customers. We don’t necessarily have anything else in the hopper with respect to additional tokens, additional reference rate. We have almost 50 real-time indices and reference rates out there at present. And our product development will be, again, sort of in the Bitcoin and Ether lane as a function of the regulatory landscape that we find ourselves in.
However, the one thing I will add is when we look at the broader ecosystem, the product development is not just a function of what CME can lift, but our products are being more increasingly used by other participants in the marketplace as the underlying for ETF, structured products, OTC trades. So, we are at the center of the growing ecosystem with respect to Bitcoin and Ether regulated products, and we expect that trend to continue in 2023.
