Terry Duffy: Thanks, Simon. Tim?
Tim McCourt: Great. Thanks, Simon. As we’ve talked about over the last several months, the basis trade remains an important part of keeping these markets in line and the efficient transfer of risk between the related markets of cash and futures. It’s something that gets a lot of talk, I think, just given the increase in the size of that trade, but it’s also important to remember when we look at how that trade is grown and the participants on that trade with respect to increasing the size over the last several months and years is, it is proportionate to the debt outstanding and the debt issuance of the market. So it’s scaling in sort of a linear fashion to that. And it’s important to put it in context. Just can’t discreetly look at the size of the trade and compare it to something over a decade ago without the larger context of what’s going on with respect to the debt [market issuance in the] (ph) treasury markets themselves.
So it’s something that remains efficient for the marketplace. It’s an important part of the risk management tool. And something also important to remind folks in this discourse on this topic is that we do have our own margin and risk management system with respect to the treasury futures side that remains as it is regardless if you’re trading against the basis or trading in outright. We have all our risk management in place. So I think it’s just important for people to understand when they’re looking at the basis trade to really understand the benefits it provides to the market and make sure we’re accurately talking about the future side and the cash side. But I think it’s something that will continue. And it’s — as similar to my other comments, very hard to speculate on what might happen in the event of an unwind or as we continue to move further into the QT cycle in the rates environment.
That’s something that, as Terry said in his opening remark, it’s more important that in these uncertain times that we are here to help clients manage that risk and we’ll do that regardless of what’s happening in any of the one specific asset classes but it’s something that we’ll have to make sure we’re continuing to serve our clients’ needs. That’s what’s important going forward rather than necessarily trying to quantify an impact from a volume perspective.
Terry Duffy: Thanks, Jim. Thanks, Simon.
Simon Clinch: Thanks.
Operator: Our next question is coming from the line of Chris Allen with Citi. Please go ahead.
Chris Allen: Yeah, good morning everyone. Thanks for the question. I wanted to ask on energy, which obviously globalization is having a positive impact here and I think longer term energy transition will be structural catalyst. Kind of curious how you’re thinking about energy transition impacting other asset classes, namely whether there’s an impact you see in ags and metals and then the growth opportunity moving forward?
Terry Duffy: You got it, Derek?
Derek Sammann: Yeah. So I think we’ve talked about this in the past. We’re seeing the lines of distinction blurring between energy traders, ag traders and metal traders. So when you look at kind of the growth of the commodities portfolio, and Julie touched on this a little bit earlier, overall, the portfolio grew very strongly last year, metals up 15%, ags up 17%. So it’s not just a function of crossing asset class lines, it’s functionalizing adoption of our benchmarks as well. We’re seeing our biggest grains traders move into energy. We’re seeing our biggest energy producers move out into things like soybean oil and voluntary credit market. So that’s the benefit of having a single platform, where we have been able to put up record volumes in participation in our commodities portfolio as a whole.
Julie also referenced earlier the strong participation we’ve seen from buy-side and commercial customers across ags, energy and metals. We saw buy-side client growth last year, up 30%. Commercials across all energy, ags and metals were up 15%. So I think it’s a story of making sure, Terry mentioned this point earlier, having the right products in the right market circumstances. We have the benchmarks. We have the liquidity, futures and options, leading technology, best-in-class capital efficiencies across these asset classes. And I think it’s generated the results that we put forward.
Terry Duffy: Lynne? Thanks, Derek. Lynne?
Lynne Fitzpatrick: One part I just wanted to highlight that Derek said, we do have the customer bases and the network across these asset classes, so energy, ags, metals. And when those lines are blurring, we already have that network. So we’re making sure that we have those products available for those customers to trade. As this transition develops, we can be that natural home for those customers that are already here at CME.
Terry Duffy: Thanks, Chris.
Derek Sammann: Thanks, Chris.
Chris Allen: Thank you, everybody.
Operator: Our next question is coming from the line of Craig Siegenthaler with Bank of America. Please go ahead.
Craig Siegenthaler: Good morning everyone. My question is on the November pricing schedule update. You didn’t increase pricing on a rate. So we’re curious to why you didn’t touch rates.
Terry Duffy: Let me just touch on that a little bit, Craig, because I don’t want you to read any more into it than where it’s at. You’ve got to remember, we just came off of the biggest transition of a benchmark from LIBOR to SOFR. And we thought it was really important to let the market continue to mature, even though we’ve become the natural home for SOFR, I think we’re just at 100% of the market. There’s a handful — is that fair? 99.9% of the market is now at CME. From my standpoint, as I look at the pricing with my team and I look at some of the rates businesses, I really believe it was important to let that benchmark continue to mature. And I didn’t think it was appropriate to raise them on the mature products right now as we’re going through a cycle where risk management continues to be critical.
We had a great expansion, as I said earlier, from what I believe is a movement a little bit from cash into futures. And I don’t want to ruin that momentum. I want to let it continue to flow. But again, it was basically around the maturity of the SOFR futures contract and the options associated with it. So that was really my thinking with my team when we did the pricing on the rates. Lynne?
Lynne Fitzpatrick: Yeah, the only thing I would add to that is keep in mind, Craig, because we were incenting the SOFR product over the last couple of years, as those have rolled off, we have had some pricing — natural pricing increases as the incentives have rolled off. So they weren’t necessarily on the exact pricing change, but they were related to those incentives that have rolled off over time as it’s matured.
Terry Duffy: Does that give you a little color why we did it, Craig?
Craig Siegenthaler: No, that’s perfect. Thank you, Terry.
Terry Duffy: Thank you. Appreciate it. Thank you, sir.
Operator: And our next question is a follow-up question. It’s coming from the line of Alex Kramm with UBS. Please go ahead.
Alex Kramm: Hey, hello again. I think we have a little bit extra time. Just a couple of modeling cleanup questions here. One, just to come back to the pricing question from Craig. Can you actually, from a modeling perspective, help us where we would see the biggest impact on RPC? I know we can probably look at your pricing schedule, but it’s thousands of lines. And then I have another one after that.
Terry Duffy: Okay. Lynne?
Lynne Fitzpatrick: Yeah. It’s fairly well spread. I would say equities in agriculture probably were a bit higher than some of the other asset classes, but it’s fairly well spread with the exception of rates, which we just discussed.
Alex Kramm: Great. Thank you. And then my other one, I don’t think anybody has asked yet, but can you just give us an update on balances in the Clearinghouse cash and then obviously non-cash collateral, the return you had, and then maybe related to that, when I look at some of the data that we track on that, it seems like the cash balances have been super consistent over the last one, two quarters. So just wondering if there’s anything you would point to why we may have found a floor to those declines that we had seen in cash balances over the last couple years? Thanks.
Terry Duffy: I’m going to jump in before Lynne does and I’m going to ask Suzanne too also, you can go ahead. But I think what’s interesting is, Alex, on that point we’ve seen some really massive fluctuations in that cash balances that go up and down in a very short period of time. I mean, I’m talking about days. So it’s really hard to say if there’s a floor on that or not or if there’s a ceiling on that or not because it does fluctuate and I think after you saw some of the recent numbers as of yesterday, I think it caught some people offside a little bit and that we don’t know what that means to our cash balance at the Fed or not. So I think it’s quite fascinating what’s going on right now and I think that’s going to be a bit of a pattern this year. So I don’t want to draw too much conclusions on where that balance is going to be at or not but it’s really going to be hard for us to predict what our floor could possibly be on it. Go ahead, Lynne.
Lynne Fitzpatrick: Yeah and just to provide you a little more of the data, Alex. So for Q3 our average cash balances were $91 billion. In Q4, the average was $75 billion and we’ve seen that $75 billion continue in the early parts of Q1. The earnings on the cash balance was consistent with last quarter at about 36 basis points. On the non-cash side, in Q3 we were at $137 billion on average. In Q4, that went up to $153 billion. Just a reminder that was at 7 basis points in Q4 and increased to 10 basis points here in Q1. In the early part of Q1 through February 6, our average is $160 billion on that fee eligible non-cash.
Alex Kramm: Fantastic. Thanks for the follow-up.
