Duncan Niederauer: The goal is to try to start giving you more transparency in these ins and outs because it''s an increasingly complex business.
Mike Geltzeiler: What you will find is the spirit of transparency they convey in this call. It’s difficult for us to go into too much detail but we''re happy to do it with anyone in the analyst community one-on-one.
We believe that with the headcount management we''ve been undertaking this year and the expense management on the technology side that we''ve been undertaking, we''re all very confident that our so-called core expense phase is absolutely going down. The challenge is GL goes out, Wombat came in, AEMS comes in, Amex comes in and all this stuff is going to hit our P&L in different ways.
If we hadn''t done Wombat, AEMS or Amex in 2008, if you ask me to make an estimate on what the start of year headcount versus the end of year headcount would be, I would say 8% to 10% lower ballpark. It''s not going to be 8% to 10% lower because the three businesses that we acquired are going to add 800 to 900 people to our headcount by the end of the year. All of those acquisitions bring revenue with them.
Rich Repetto (Sandler O''Neill): What is your strategy regarding CDS in Europe?
Larry Leibowitz: There''s still a little bit of work to do with the regulators. I don''t think it''s a boat that we''re going to miss but at the same time it''s yet to be determined exactly what the market structure''s going to be. We''ve been talking to the regulators in Washington. We''ve been talking to some of the market participants as well, trying to figure out what it is they want from us. However, what you''ve seen us do with CDS in Europe, you should absolutely expect us to at a minimum roll that platform that is part of our futures strategy in the US.
Edward Ditmire (Fox-Pitt): Can you talk about the revenues associated with the Qatar investment?
Duncan Niederauer: The only revenues you should really think about are tied to the exchange solutions business.
As we get to the final documents, certainly in the next quarter''s call, we''ll be able to give you a lot more clarity on what the size of the technology contract will be and it''s duration and then we''ll try to give you a flavor not only for the revenue but potentially for the contribution to margin.
We hope to close that deal in probably the September or October timeframe in Qatar and by the time we do the third quarter call, that should be closed and we should be able to give you more visibility then.
Roger Freeman (Lehman Brothers): What has been the response so far from the Pack Epsilon pricing you rolled out a month ago?
Duncan Niederauer: We had about six people sign up for it for the first month. About three of them did volume levels similar to what they have done prior to July and the other three substantially increased their volume with us in July. We''ve got a handful more that are starting up in August and a few more in the pipeline for September. We’re monitoring that fairly closely.
It would look like the early returns are reasonably good. I think importantly, it also gets us closer to that trading segment than we''ve been before and hopefully that will also help us kick start the pan Europe platform as well.
Roger Freeman (Lehman Brothers): Of these six that have signed up, is the net revenue neutral or a decrease?
Duncan Niederauer: It''s actually been an increase because three of them increased their volumes so much from where they were before that net-net, it''s been an increase for us. For the other three, since their volume didn''t really go up, they actually haven''t probably achieved as much as they would hope to at Pack Epsilon in terms of getting the cost reductions for them that would come with higher volume.
Ken Worthington (JP Morgan): In terms of pricing, B-Clear seems to be a critical mass and the volume''s been growing. To what extent can you alter pricing to make that business a real big revenue contributor to your European operations?
Duncan Niederauer: There''s no question it has gotten traction, probably more traction than we might have drawn up on paper actually. It''s been quite successful and part of that is obviously the environment in which everything is operating. It''s something we''re watching very closely.
We recognize that it is an area where if certain things break the way they might; there could be an even more meaningful role for us to play in this space. You can assume we''re modeling what the possibilities are and there is more and more of a demand for the transparency around reporting and clearing at a minimum that things like B-Clear provide and we would hope that it might be a place where you would have a little bit of pricing power.
Ken Worthington (JP Morgan): In terms for us spending time on things that matter, can this really matter? Can this be your big diversified company? Can this actually be a big enough deal to move the needle or it is just too small?
Duncan Niederauer: It all depends. If it doesn''t become a global product for us, it''s hard for me to imagine you would want to spend a meaningful chunk of your time on it. If we really extend it, beyond what it is today and really bring some elements of this into the US, maybe not just in the CDS space, but in the credit space more broadly, or the OTC space more broadly, then I would probably change my answer. However, at this time, it''s still a bit embryonic.
Ken Worthington (JP Morgan): I thought B-Clear was largely OTC equity clearing. You are trying to apply this to the CDS. How different are the users and how hard is it to transition this to CDS clearing?
Duncan Niederauer: The platform in terms of transitioning to other products is actually trivial. That''s quite easy. The customer overlaps so far is looking pretty good and that was really driven less by us and more by the customers and what we said to the dealers is we''re not trying to cut them out of the dealer-to-dealer CDS space. This is more of what I would call a B to C platform rather than a B to B platform. A lot of consumers want us to expand a platform like this into other products. We''re studying it actively right now.
Dan Fannon (Jefferies): Regarding the US futures initiative, how far along are you in establishing the infrastructure? Do you expect to be close to fully operational shortly after receiving the SEC approval?
Larry Leibowitz: The approval that we''re waiting for comes from the CFTC. We hope to have the DCM license from the CFTC by Labor Day. If I were a betting man, I would say it will be sometime in August. Shortly thereafter we will certainly be operational with the gold and silver platform.
We have a few startup costs we have to incur. The fact is we already were the technology provider for the platform. Now that we''re in-sourcing AEMS, it''s really not that different. We were already the technology provider for that complex for the CBOT. We''ve got the technology and we''ve procured the data center space. The license is soon to follow and then we will not have a clearing solution other than outsourcing to the CME.
We will therefore get started quickly. It will just be with the gold and silver contract. You should expect to see us launching more products shortly behind that and then we''ve been having a lot of conversations with market participants to try to figure out what everybody wants in terms of the next range of products.
Dan Fannon (Jefferies): Do you have any initial indication from your customer base as to the demand in the initial levels of liquidity that you expect for the platform?
Duncan Niederauer: When we start with the metals platform, we''re going to have to get a little creative because the CME NYMEX combination has reasonably dominant market share in these gold and silver products. We''ve been trying to talk to a lot of clients who are not currently customers of that complex but are customers elsewhere in our business to see if we can get that going. Those conversations have been going well.
If I had to foretell the future a bit, the area that''s the product area that''s been coming up a lot in these conversations has been focused on the ETF arena. Given the dominance we will have in ETF listing after the Amex transaction, that''s been a place where I would say, if I had to guess what the next product launch might be, ETF would certainly be in the running.
|
