Lynne Fitzpatrick

Thanks, Terry, and thank you, all, for joining us this morning. CME Group set all-time records for quarterly revenue, net income, and earnings per share in the second quarter this year, and immediately surpassed each of those records this quarter, starting with the highest-ever quarterly revenue at nearly $1.6 billion, up 18% from the third quarter in 2023.
Clearing and transaction fee revenue increased 20% on our record quarterly volume. Market data revenue of $178 million increased 6% from the same quarter last year. And other revenue increased 29% to over $109 million. Our strong cost discipline led to adjusted expenses of $489 million for the quarter and $391 million, excluding license fees.
The resulting operating income of approximately $1.1 billion set a new quarterly record. Our adjusted operating margin of 69.1% was up 260 basis points from 66.5% in the same period last year. CME Group had an adjusted effective tax rate of 22.3%. Terry talked about the strength of our international business. The strong growth coming from outside the US has resulted in a lower effective tax rate.
We expect this trend to continue in Q4, and we're lowering our tax rate guidance for the year to a range of 22.5% to 23% as a result. Driven by the strong revenue growth and operating margin level, we delivered the highest quarterly adjusted net income and earnings per share in our history at $977 million and $2.68 per share, respectively, both up 19% from the third quarter last year.
This represents an adjusted net income margin for the quarter of 61.7%. Capital expenditures for the third quarter were approximately $30 million, and cash at the end of the period was approximately $2.6 billion. Our continued product innovation, new customer acquisition, and deep liquid markets across the six major asset classes had led to a consistent higher level of demand for our products.
CME Group's daily trading volumes surpassed 25 million contracts on 55% of the trading days in the first three quarters of 2024 versus 35% of the days in the same period of 2023. Also, each of the last six months were monthly volume records, helping us deliver our best quarterly financial results in Q2, which were immediately surpassed by new records this quarter.
We're very proud of the team for their efforts to provide our clients with the technology and products they need for risk management while driving earnings growth for our shareholders. We'd now like to open the call for your questions.

Question and Answer Session

Operator

(Operator Instructions) Dan Fannon, Jefferies.

Dan Fannon

Thanks. Good morning. CME has had a long-standing capital return policy. And Terry, you've given some thoughts around M&A.
But wanted to get your updated thoughts on both of those after you -- as you just highlighted, record quarter after quarter, and also a valuation that continues to compress versus peers. So curious about a buyback in the context of those two other things around the dividend policy as well as potential M&A.

Terrence Duffy

Thanks, Dan. I think I heard you correctly -- a little soft coming in -- but you asked about buybacks and potential M&A? Did I get it right?

Dan Fannon

Yeah, exactly.

Terrence Duffy

I think that's what you asked for. So on the capital return to shareholders, I have said that we will always be monitoring this to see what is in the best interest of our shareholders at any given point in time. Our dividend policy over the last several years has suited the company extremely well in a zero-rate environment.
With the rates changing dramatically and other things happening throughout the world, we always constantly monitor -- and we will continue to do so again with my Board at its upcoming meetings. It doesn't mean we're doing anything. We're just continuing to monitor it.
As far as M&A activity goes, Dan, we've been very fortunate to be -- put ourselves in a very strong position to be competitive around the globe. But the transactions we've already done. But at the same time, if there's something there that we think makes sense, we're not afraid to take a look at it. But right now, that's all I'll say about M&A.

Dan Fannon

Great. And then just, I guess, as a follow-up, last quarter, you gave us updates around the efficiencies that you provided to your customers. I think with both the DTCC as well as more broadly, can you update us on the number of customers as well as the dollar amounts around that and ultimately, just the conversations on how those are evolving given the increased potential competitive backdrop that's out there today?

Terrence Duffy

Yeah, Dan, that's great. Well, I appreciate the question. And I'm going to turn it over to Suzanne Sprague, who will give you those -- that data. Suzanne?

Suzanne Sprague

Yeah, thanks for the question. So in terms of our portfolio margining program that you mentioned, where we offer offsets between interest rate futures and options against interest rate swaps, we continue delivering average daily savings of about $7 billion, two clearing members through that program. Most of that is from US dollar swap activity.
And then in the cross-margining program with FICC, we continue increasing the number of participants in that program. We currently have 12 clearing members participating in that program and have achieved upwards of $1 billion in average daily savings for that program as well.
So we are still focused on growing both of those programs. And we do continue working with FICC and engaging with the regulators to be able to expand that cross-margining program to customers as well.

Terrence Duffy

So our efficiencies, Dan, just to make sure we're perfectly clear, still averages between F&O and portfolio margin close to $20 billion a day. So we just want to make sure that you don't think that's changed one way or another.

Dan Fannon

Understood. Thank you.

Terrence Duffy

Thanks, Dan.

Operator

Chris Allen, Citi.

Chris Allen

Yeah, morning, everyone. I wanted to ask about new customer acquisition, which you called on the deck for the first time. Any color just in terms of how much impact you're seeing in terms of volumes from new customer acquisition, and where are these new clients coming from?

Terrence Duffy

Thanks, Chris. We appreciate the question. I'm going to turn it over to Ms. Winkler to give you some color on that.
But I think one of the things that I just want to highlight that's really important is the numbers that came from outside of our US, with the record volume. It's a big part of some of the new client acquisition that Julie and her team have been able to do globally. But Julie, I'll return it to you.

Julie Winkler

Yeah, thanks for the question, Chris. New client acquisition has certainly been really a core pillar of our commercial model and an area of investment for us over the last few years. We're excited that those efforts are really yielding strong results.
And we kind of think about this in two different buckets. One is our retail client base, and one is our institutional client base. We are outpacing our 2023 performance by over 3%. And in the new institutional client growth, we're seeing that up almost 40% this year versus our three-year average, which is great.
So I'd say there's a couple of things behind that. Certainly, we've done a lot to build out a new inside sales team. And they're really a dedicated sales team that is focusing on prospecting, lead qualification, and growth around really our medium-sized and high-potential accounts.
They're leveraging data, they're doing automation, and this low-touch sales model really is helping us to drive greater efficiency and also scale in that outreach. We have seen a lot of launch of new hedge funds and really the rise of commodity focused strategies that are also helping create some significant activities across our client base.
CME Direct continues to attract a record number of new option traders. That was up 30% this quarter. And so we see that all is really critical to the institutional model, as well as a lot of the new products that I'm sure we'll talk about on the call today. Whether it's credit or TBAs, those are really powerful opportunities for us to reach new clients and bring them into the CME ecosystem.
On the retail side, really, what we're focused on, less about ADV and more about really how many accounts we're opening and how many new traders we're bringing into CME through our retail channels. In Q3, we welcomed over 176,000 new traders through our retail channels -- sorry -- year to date and 60,000 in Q3 alone.
And so that's a 30% increase year over year. That is pretty consistent as you -- among previous quarters, what you see in the data that we released this time is really kind of the spread across regions where we saw 53% of that growth coming from the US and 16% within APAC and our (technical difficulty) 31% in EMEA.
And so where we're really focused there is on bringing our new to futures brokers into this ecosystem and also our existing partners. And this is a critical part of how we are continuing to drive NCA in the space, working with them on education, on marketing content.
And so where our distribution partners are successful, we have seen that success, too. And that's really what's bringing those new traders to CME. They're attracted by the products that we have, and we expect that to continue in the year ahead.

Chris Allen

And just a quick follow-up. You noted that Plus500, Webull surpassed expectations. And we -- obviously, Robinhood just launched last week on futures trading. So when we think about Robinhood's account growth, is there any way to frame out how you would expect penetration of -- I think it's like 23 million accounts they have right now, and how they may translate into volumes?

Julie Winkler

Yeah. I mean, we're working with all of those firms. I'd say they have their own internal targets about the account openings. And I think with all of this, Robinhood in the one -- in the launch last week, they're going to open up access on still a measured basis, right? And some of these are making sure they are testing these products out. They're working on the content.
So I don't think we're going to see 23 million accounts trading futures immediately. But we really want to work with them to make sure, right, that the products that we are introducing to them and those clients are ready to be trading futures.
And so what we can see both with Plus500 and Webull is that adoption rate has happened even faster than what those firms have predicted. And so I'd say they're very advanced in their customer journey and analytics. And so that's all providing them as well as us information on how we can kind of support the active trader in their journey.

Terrence Duffy

So Chris, just let me add something to that is one of the things we have said, historically, since I took CME public in ['02], it's very difficult to predict future volume. So when you're looking at new client acquisition and what their behavior may or may not be, it's really difficult to pinpoint what that can transition into.
But I do think when you look at the trajectory of our business over the last 20-plus years as being a public company, you could see us up and to the right, growing by customers and of course, the new large open interest holders that I referenced earlier in my comments. So these are all good factors for new client acquisitions. But again, we can't predict future volumes.

Chris Allen

Thanks (inaudible).

Operator

Ben Budish, Barclays.

Ben Budish

Hi, good morning. Thanks for taking the question. I wanted to kind of follow up there. I know it's hard to pick new volumes. But just thinking about like what retail trading activity may look like, can you just talk about the sort of P&L implications?
Presumably, we would see lower rate per contract as people are trading more like the minis and some of the smaller products. But how do you think about what we might sort of be able to expect there? What are the implications from like an RPC and volume perspective?
Again, I know it's hard to predict the volumes themselves. But just how should we think about interpreting results as we start to see a bigger contribution from retail.

Terrence Duffy

So Ben, let me make a couple of comments. I guess, it is very difficult to predict. And every constituency that we have here is completely different. So when I talked earlier in my comments about the tiered pricing, how that incremental volume drops to the bottom line is a good thing, and that does take the RPC down a little bit with those higher tiers. That's still a good thing for us because of the increased volume.
So when you're talking about retail in general, you don't automatically have to assume it's going to be a lower rate per contract because we changed the pricing on some of our products. As you may not recall, we didn't price them based off of a notional value in pricing them. So when we did the E-mini -- or the micro or the mini-Bitcoin contract, we didn't take the notional value and decide that's how the price should look.
We priced it on the constituency of the client base and what they're getting for their value-add that they are receiving from CME Group. So we look at pricing in many different lenses, and it doesn't have to be just the retail client constituency or the size of the contract or the institutional or the size of the contract. So I think it's really important that we continue to strike that balance with our client base to build the business.
But it's hard to say that it will be a lower rate per contract. It's hard to say it will be a higher rate per contract. So again, I think it's -- it all depends on the constituency that we are attracting. And this new retail business -- I have said it a million times over the last year or two -- I think this is going to become more and more blurred as we move forward with other institutional type trading.
And it's going to be in a very exciting time with the proliferation of artificial intelligence, other technologies, the accessibility into marketplaces, what retail can do. But again, it's really hard to predict what that's going to return to in revenues. Lynne?

Lynne Fitzpatrick

Yeah. I would just add, our focus spend is not on growth in RPC. Our focus is on growth in revenue and growth in earnings. So if it's new client acquisition of any type, we're focusing on how we drive that top and bottom line. And we're not focused on that RPC line in particular. It's really the overall picture and growth level.

Terrence Duffy

So Ben, I guess, I'd like to tell you that we have a special formula, but we don't. And I don't think you would want us to have a special format. Because everybody is different as the market continues to grow.
So it's exciting for us. And again, I think the one thing I can truly point to is the pricing change from micros that we did not do based on a notional basis. And that's the trajectory we're going as we look at the constituency.

Ben Budish

Got it. That makes a lot of sense. Maybe one follow-up, just something kind of a little bit more nitpicky. But just curious, the licensing fees picked up this quarter.
I know you exclude those from your core OpEx guidance for the year. But just any color on what we should expect from that line item, the sort of the drivers of the sequential step-up, and how we should think about what that looks like over the next couple of quarters.

Terrence Duffy

Lynne?

Lynne Fitzpatrick

Yeah. So we did see a step-up in licensing fees, not surprising given the high volume levels and the growth there. As you know, a good portion of that, the majority, comes from our equity complex, which had nice growth, 9% up quarter over quarter and 17% year over year.
The other item that you're seeing this quarter is we do have some existing OTC clearing programs that have been in place for a number of years. Given the strong growth in that business over the last year, it has an off-cycle measurement period. So the impact of that was seen in Q3.
I would note, because we did get a couple of questions this morning, there were no new license-fee-related programs in our SOFR or treasury complex. So the two main items are going to be the overall growth in the business and that those programs related to OTC clearing, which again have been in place for many years.
Mike, do you have anything to add on the OTC side?

Michael Dennis

Yeah. Just one thing to add on overall futures and option growth continues to bolster our OTC IRS business. We saw double-digit volume growth year over year in both LatAm and US dollar swap activity.
I think the important figure to highlight, which Suzanne mentioned already today, is that out of the $7 billion to $8 billion in portfolio margin savings that we see in the overall swap complex, over 9% of that is in US dollar swaps. We have about $40 billion in margin collateral for swap activity and 80% of that is being attributed to US dollar swaps. So we've had some considerable buy-side clients and bank clients put true risk with the CME and US dollar swaps, hence, the over $7 billion a day in portfolio margin savings.
I also think it's important to highlight that other CCPs have highlighted the margin and collateral levels. It's important to keep in mind that all of the collateral at other CCPs is not specific to swaps and currencies that would enjoy any material margin savings or SOFR and treasury products. Some of those swaps are related to Swiss, yen, Canada, sterling, and euro.

Terrence Duffy

And for those of you who were wondering who the hell that was, that's Mike Dennis. He's the new head of our [rates] franchise. So thank you, Mike.

Michael Dennis

Thanks, Terry.

Ben Budish

All right, guys. Well, thank you so much for the response. Appreciate it.

Terrence Duffy

Thanks, Ben.

Operator

Ken Worthington, JPMorgan.

Ken Worthington

Hi, good morning. I wanted to ask about the digital business. Can you talk about the launch of Bitcoin and Ethereum ETFs, and the impact that they've had on your futures business? They would appear to have helped a good amount.
And as you think about the opportunity to further grow the digital platform, the perpetual market still seems to be quite a bit bigger than the calendar market. Does the perpetual market present an opportunity for further growth at CME?

Terrence Duffy

Tim?

Tim Mccourt

Great. Thanks, Terry, and thanks for the question. Certainly, the development of the ETFs, both in a spot-based and futures-based ETF structure for Bitcoin and Ether, have not only developed the ecosystem further for those products, but also provided an opportunity for the futures complex to grow at CME.
Like we've seen in a lot of asset classes, futures are at the center of these highly related interrelated ecosystems. And when we see the volumes in our crypto complex, the futures ADV was up almost 285% to a record 102,000 contracts.
And when we look at the micro, they're up even more with Bitcoin up 470% and Ether -- Micro Ether up 641%, respectively. This is because our futures not only enable more common ETF strategies, such as trading ETFs versus futures -- or using futures to source inventory for stock loan in the ETF market.
It's also our futures often provide a better, more efficient way to create and redeem the ETF is our ability to transact these against the underlying index close, the CME CF Bitcoin reference rate, where our reference rates also underlie 7 of the 11 Bitcoin spot ETFs. So this is a growing ecosystem. We are certainly at the center of it here at CME, and we continue to be a leader in the space, offering that regulated, trusted, and transparent futures market.
And Ken, going to the perpetual market, it's not necessarily an easy comparison because those perpetual exists on more crypto-native platforms that are not regulated outside of the US. So we continue to engage with customers to make sure we're working with them to design all the tools they need to manage risk in these uncertain times, whether that's in cryptocurrencies or other products, continue to engage them to make sure they have all tools they need.
But it's critically important that here at CME and for the marketplace, they could do it in a trusted, transparent, and a regulated manner. And that's what we offer with our crypto product here.

Terrence Duffy

Can I give you some color on that Ken? Are you good?

Ken Worthington

Yeah, that was great. Thank you.

Tim Mccourt

Thanks, Ken.

Operator

Patrick Moley, Piper Sandler.

Patrick Moley

Yeah, good morning. Thanks for taking the question. So I had one on the competitive landscape in rates. Today marks the one-month anniversary since FMX launched its SOFR futures contract.
Volumes have been modest, to say the least. So Terry, I was just hoping to get maybe a state of the union on the competitive landscape and just your updated feelings since this competitor exchange launch.

Terrence Duffy

Thanks, Patrick. And again, I think you're right; the volumes have been modest, but it's early. So I'm not drawing any conclusions to -- as it relates to any competitor.
We will continue to stay focused on the things that we are doing today, a lot of which, Patrick, you've heard us highlight over the last several months and years. And we highlighted again today, which is the efficiencies that we've been able to create for our clients in those asset classes that people are trying to compete with us in.
So again, I think that's -- we feel very good about our strong performance. I think there was some question about the growth of our interest rate products that we had to put incentive plans in. We clearly stated that we did not and still had a growth. So I think that goes to show you the value of CME's products to its end users.
And we also will go to the fact that still the cheapest cost to any participant is the transaction fee. The bid offer is extremely expensive when it gets wider. If you look at some of our competitors -- and Mike can maybe add some more color to this -- on the back end of their offering, their spreads are a lot wider than CMEs, which the cost would be dramatically higher than any incentive program that could possibly pay for a transaction fee associated with this. So Mike, you give a little color. Then I'll come back and finish up.

Michael Dennis

Yeah, sure. And thanks for the question, Patrick. Good morning. What Terry is referencing, it's still early days. But what we see is our bid-ask spreads are on average a quarter tick tighter in front-month SOFR contracts and almost a half tick tighter as you move out the SOFR curve. As we all know, half tick equates to $12.50 per contract in SOFR futures, which is towards the size of the transaction fee.

Terrence Duffy

Or potentially whatever the incentive is to trade that market. So anyway, Patrick, I think that we're keeping a close watch on it. But we're staying really focused on our business and bringing the efficiencies.
Suzanne referenced the $1 billion a day that we were achieving with FICC. We want to make sure we can continue to build and grow on that program. We think it's very beneficial. We've got to get more firms signed up.
There's a lot on firm's plate. So we're hopeful that they get signed up for that, and they're starting to see that they don't want to be left out of that potential $1 billion-plus on a daily basis with the FICC arrangement.
So again, I think that's a -- I like our position there, but I won't comment any further than that. If you're referring to some of the local media that's been put out there as it relates to what I have said about treasuries or are you just referring to SOFR, so I know what you were talking about.

Patrick Moley

Just SOFR, but if there's anything that you have to say on treasuries, I'd be happy to hear your thoughts on that.

Terrence Duffy

I've said it pretty loud and clear publicly about how I feel about this. And I know that I keep getting rebuttals that monies from US participants are held in US banks, which is irrelevant. It could be held in Fort Knox; it wouldn't matter.
We are talking about the resolution authority and the authority of who gets to make the decisions over a default. And that would be the Bank of England and the FCA, not the United States of America, if, in fact, those contracts were to be cleared there.
So that has been our argument, and people keep dodging it. I know that they're a duly regulated clearing entity, but that's got nothing to do with our arguments. So I think that I have been to as many people as I possibly can, will continue to be loud about this, and make sure people understand what could be the detrimental effect of having US treasuries, not only being cleared overseas but at the same time, having the resolution authority being overseen by a foreign regulator and not the United States government.
So I will wait to see on that, but I'm not backing down from that argument because I think it's very legitimate. And if they want to move into the United States of America and compete with us here under our laws, as I've said to many people, I'll pull my chair back and walk out because my argument is over. But that's not the case.

Patrick Moley

Okay. That's great color. Thanks for that. And then just a follow-up on pricing, specifically in rates, there's been a lot of speculation recently about what you could potentially do in response to FMX launching, people talking about you possibly cutting rates.
But given what you've spoken about on this call and the value that you feel that you've provided to your customers, you're coming off -- or you're on track for our third consecutive year of record interest rate ADV, I guess the question is, is it misguided for us to assume that rate -- or possible price increases in the rates complex is off the table at this point? Thanks.

Terrence Duffy

I think it's a misguided for anyone to assume they know what we're thinking about how we're going to run the business going forward on pricing. As I've said, we adjust our tiers all the time. We do a whole host of different things throughout the years. It doesn't have to do anything with competition. It's got all to do with the marketplace.
So Patrick, as I said earlier, I clearly stated that we did not put any new incentive plans in place, and we've had an incremental growth. That's a record in this quarter for both SOFR and treasury. So I think that speaks volumes to where we're at today.

Patrick Moley

Okay. Thanks for that, Terry.

Terrence Duffy

Thanks, Patrick.

Operator

Alex Kramm, UBS.

Alex Kramm

Yes, hey, good morning, everyone. Maybe in the context of new customer acquisition and what you focus on a lot, can we maybe go into the energy business in more detail here? I mean, there are clearly a lot of macro changes, structural changes that, quite frankly, from my perspective, seem to be the most interesting asset class in the next couple of years, given energy transition -- everything that's going on.
So you have a very US-focused business, but obviously, some of these changes are global. So just wondering what you're doing to maybe capture some of that structural excitement? And what you're seeing in terms of new customer generation maybe around the world, and what your customers are doing different already and how you're positioned? Thanks.

Terrence Duffy

Thanks for the question. I'm going to turn it to Derek, but I think you raised a really good point about what this asset class could mean over the next couple of years as we either transition out of it or continue to build on top of it. So I think there's a lot of verdicts yet to be read yet. So it's interesting with this asset class. So I think you're right to point it out, Derek.

Derek Sammann

Yeah. Thanks, Alex. I think you're seeing a lot of things that we're seeing right now. And number one, we are putting up a year-to-date record revenues in our energy business. We put together another extremely strong quarter with our volumes up about 21%. And actually, our options business up 45%. That's a new record for us for the quarter across the energy complex as a whole.
You asked a great question. We spent a lot of time digging into where the business growth is coming from, and I'll provide some color as I have on previous calls. When you look at the growth of the business, we look at the record year-to-date results of this business, that business is coming -- we're seeing outsized growth coming from outside the US. That's what we're so excited about.
We talked about the new client acquisition story that Julie talked about, boots on the ground, engaging new customers that for the first time with physical flows of WTI. And Henry Hub hitting the shores of Europe and Asia, that's bringing new commercial and buy-side customers into our market.
When you look at the numbers that underlie that, you look at our buy-side business is up 26% this year. Our commercial customer business up 16% this year. Our bank business, up 13% this year. When you look at where the growth is coming from, from a geographical point of view, our European business this year is up 37%, our LatAm business is up 30%.
So when we're looking at growth, it shouldn't surprise that when you see physical flows of US benchmarks priced on NYMEX -- and this is true on the ags and metals side as well -- those physical flows hitting the shores of Europe and Asia, that's driving new customer acquisition for us. They're not necessarily new customers to the energy complex. But there are customers that recently had only traded European or Asian products. They are now adding our global benchmark. So that is the import risk they're facing right now.
So when you look at the results of the business, we're seeing that the physical flows are driving global participation. So the other couple of pieces I'd point to is that we're seeing growth across not just WTI, we're seeing significant and even faster growth on the natural gas side of the business. When you look at the business this year, we're at a record level of almost 780,000 contracts in our nat gas business. That's up 33% this year.
This is a market where the US is now producing and exporting record amounts of natural gas priced on Henry Hub, which is the market we own roughly 80% of. In a market share perspective, that business is flowing back into CME from European customers, adding Henry Hub pricing exposure to their overall portfolios.
That's been a big driver of the record activity in our nat gas options growth as well as these markets are extremely difficult to hedge on a flat price basis. So we're seeing increased activity on the option side. So hopefully, that gives you some color from the client perspective, from the regional perspective, and from the underlying product perspective.

Terrence Duffy

Lynne?

Lynne Fitzpatrick

Yeah. And just to add a little bit to what Derek was saying, we have seen, with these new supply lines being drawn, the strong growth in both Europe and Asia in our crude business and Henry Hub. I think what we're also seeing as a longer-term trend, one of the limiters on the Henry Hub side is the ability to liquefy natural gas to then export it internationally.
We do expect and we do see the build-out in multiple liquefaction facilities that are ongoing. These are multiyear projects, but there are a number that are meant to come online in the next couple of years. So increasing that capacity and that ability to export could also be a tailwind for our business, as more international customers would then look to hedge back to that export point.

Terrence Duffy

Thanks, Lynne. Thanks, Derek. Alex, did that get to your question?

Alex Kramm

I think it did. Great color. And I'll squeeze one quick one here on the tax rate. Clearly, you're suggesting the international growth is really helping that one.
I mean, that's been really a multiyear trend. So if we continue this for 2025, do you think this -- around 23% is a better tax rate to use? Is that in your plans?

Terrence Duffy

I'm assuming you're referring to energy, Alex, again, on this --?

Alex Kramm

No, no. Sorry, tax rates.

Terrence Duffy

I'm sorry. I thought you -- sorry, we have a bad connection here. It's hard to hear.

Lynne Fitzpatrick

Yeah. So Alex, we did lower it based on the outsized growth that we're seeing internationally. Certainly, we will provide tax guidance as part of our outlook and guidance for the coming years. We have seen that outsized growth for several years, as you noted.
Obviously, there are a number of factors that will be in play, including things like changes in administration, potentially what's going to be the political dynamic and impact on taxes. So it's a little premature for us to take a position on that go-forward tax rate at this point, but we'll certainly follow up on that.

Terrence Duffy

Thanks, Alex. Sorry for the -- couldn't hear you properly on the tax issue.

Alex Kramm

All good.

Terrence Duffy

Thanks.

Operator

Kyle Voigt, KBW.

Kyle Voigt

Thanks for taking my question. Maybe just going back to a broader discussion on pricing, over the past few years, you've announced pricing changes in the fourth quarter that go effective in 1Q. For changes that went effective in 2024, I think you guided to 1.5% to 2%, assuming constant volumes of pricing change. And in '23, I think that was 4% to 5%.
Can you just give us an update on how you're thinking about future pricing over the medium term? And I guess, is there any reason to think that 2024's pricing change levels are not a good baseline assumption for 2025?

Terrence Duffy

Kyle, I think pricing -- we evaluate that throughout the entire year for the next year, and there's a lot that goes into it other than just see if we can increase it by 1% or 2%.
One of the things I've always said -- and I'm sure you've heard me say this -- is there's going to be a good value-add associated to our clients when we change pricing. We invested heavily with our Google transition. We're excited about the future of that, what it means for clients. So that could have an impact on pricing one way or another, maybe to their benefit, obviously.
But again, I think when you look at just blanket pricing increases, that's not something that we do. And I know some suggest that that was becoming a pattern. But it's because of what we were able to deliver to the marketplace over that time period, we were able to do price increases. But again, we evaluate that pricing throughout the entire year before we make any decisions and bring it to my Board.
Lynne, do you want to comment any further?

Lynne Fitzpatrick

Yeah. The only thing I would add, Kyle, is that the 1.5% to 2% you quoted, that was on the clearing and transaction fees. Just keep in mind that we do look at different levers as we're thinking about pricing changes.
Those could include changes to the fee schedule. It could include things like incentive programs or other agreements there. There is the data component and also things on collateral, so noncash and cash collateral fees.
So we did guide to 1.5% to 2% this year on the clearing and transaction fee. We said 2.5% to 3% on total revenue given some of the changes we made on those other fee lines. And we've been tracking towards that throughout the course of this year.

Kyle Voigt

Great, thank you. And then maybe a follow-up for Lynne on the expense trajectory. I think in 2023, you had $56 million of cloud migration expenses. That was expected to grow by $15 million this year. I guess, can you confirm whether that level of migration spend is still on track?
And then can you remind us how we should think about the cloud migration expenses into '25 and '26? Will there be incremental spend needed in each of those years? And maybe address the interplay of that and the trajectory of D&A over that timeframe, too.

Lynne Fitzpatrick

Yeah, sure. So if you look at the migration spend for this year, the total spend is on target for our guidance of $90 million. Now the difference between that and the $15 million increase, you do have some roll-off on existing business as usual expenses as we've been migrating to the cloud.
So you see about $25 million in costs that are rolling off, which would get you to that differential or that increase of $15 million year over year. So we are on track with our guidance on that expenditure.
I think what we've also said is that we would expect incremental costs related to our migration for the first four years. We are in year three. So we do expect to still see incremental costs next year related to that migration.
I would note that the Google-related expenses were included in our overall expense guidance. So that 3.9% implied by our expense guidance did include that Google spend. So that has been trending down as we are starting to see some of the benefits of rolling off that on-premises operating expense.

Kyle Voigt

Great, thank you.

Terrence Duffy

Thanks, Kyle.

Operator

Brian Bedell, Deutsche Bank.

Brian Bedell

Great, thanks. Good morning, folks. Thanks for taking my questions. Maybe just one quick one on -- back to the competitor on SOFR. And Terry, thanks very much for the commentary. They're very, very good and very, very detailed.
On the pricing of the SOFR contracts and tiering, is that something you could use in the future? I mean, compared, obviously, with the tick size and the wideness of the bid-ask spread dwarfing that, it would seem like you wouldn't need to do that. But is that something that you could do in the future in terms of pricing to certain members using any incentives on that should the market share increase from the competitor?

Terrence Duffy

Yeah, Brian, I appreciate the question. And as you can imagine, I'm not going to comment on that because there's so many different levers that we have here to bring value to our clients, as I continue to say. And I'm not going to predetermine what I should or should not do on this call right now.
We have to -- we do a lot of theoretical game planning here at my team. And we look at certain things on pricing. We look at certain things on value-add. But as I said, we did not increase -- put any incentives in for the last -- and we had a record quarter. So we're pretty pleased with the way the market has anticipated our offering to date. So it'd be foolish of me to try to suggest that we would do anything different at this moment.

Brian Bedell

Yeah, totally clear. And then maybe just, Lynne, could you review the collateral balances and the rates paid for the quarter and then, I guess, exiting September, given we had the rate cut in the month?

Lynne Fitzpatrick

Sure. So in Q3, our average cash balances were $72 billion, which was similar to the $73 billion we saw in the prior quarter. Our rate, we earned on that, remained consistent at 36 basis points.
On the noncash collateral side, we saw a slight increase to $165 billion for the quarter versus $161 billion last quarter. And we continue to earn 10 basis points on that noncash collateral.
So far in October, we've seen slight increases in both of those elements. The US cash balances are averaging $73 billion in months to date, and the noncash collateral is averaging $173 billion.

Brian Bedell

Okay. And is the spread the same given the rate cuts, or is that different coming into 3Q?

Lynne Fitzpatrick

Continue on the cash collateral, you have the 25 basis points return to clients. The difference between the 36 that we've been earning in the '25 is our ability to optimize our returns using some other vehicles. So that did not change during the quarter.
If rates continue to decrease, an ability to get those outsized returns might be pressured. But the overall rate that we're paying has not changed, and it's been at that same 25 basis points for quite a few rate hikes. Yeah, it's been since the IRB rate was at 1.65%.

Brian Bedell

Got it. Okay. I'm sorry. So the spread is still 36 basis points. Is that right?

Lynne Fitzpatrick

The spread is still 25. We're earning more because we're able to optimize those returns.

Brian Bedell

Yes, I see what you're saying. Yes, okay. Got it. Yup, thank you.

Terrence Duffy

Thanks, Brian. Anything else? You good?

Brian Bedell

Yeah, totally good. Thank you so much for all the answers.

Terrence Duffy

Thanks, Brian. Appreciate it.

Operator

Craig Siegenthaler, Bank of America.

Craig Siegenthaler

Thank you. Good morning, everyone. Most of my questions were asked, but I wanted to try to ask them in a different way. So I apologize if any repetition.
But first one, we have a follow-up on Robinhood's future and index options launched this quarter. I was curious, which products do you expect to see the largest uptick in demand? We're thinking SPY, WTI.
And also, how do you think SPY will compete against its core competition, including SPX, given its tax efficiency? And we are curious what insight Webull's launch was able to inform you on this, just given Robinhood's differentiated clientele.

Terrence Duffy

All right. Thanks, Craig. I appreciate the question. On the Robinhood and the product, I'll let Julie take that. On the SPX versus the (inaudible), I'm going to let Tim talk about that in a moment. So Julie, why don't you start?

Julie Winkler

Yeah. Thanks for the question Craig. What we have typically seen in new retail clients coming to trade CME products is the first entry point is within our micro equity suite. These active traders are up and using this to hedge existing stock portfolios. They have typical experience trading cash and cash equity options.
And so this is a natural overlay to move into the derivative space in equities first. What we have seen is, as you mentioned, the diversification that we then are quickly able to follow up on is an important part of our product suite for retail, where we are able to then work with our distribution partners to offer them things like WTI and energy, as well as our metals complex has continued to see a lot of growth, too, with our micro gold.
So I'll turn things over to Tim to talk through a little bit of the competition side of things.

Tim Mccourt

Great. Thanks, Craig, and I appreciate the question. When looking at the S&P 500 ecosystem, it is important to note that these are highly interrelated. But just to clarify that when we look at the futures and options on futures products at CME Group, they are also efficient from a tax perspective. They are also a Section 1256 contract that enjoys the blended 60/40 capital gain tax.
That is an index-based determination. That is something that we enjoy other index products are also able to provide; the ETFs are not. And when we look at the way that our contracts will be not only distributed through Robinhood but all of our partners, it continues to be an important tool for traders to manage their risk, to access that market.
And when we look at how we're doing against ETFs, I'm excited by the fact that more retail distribution partners are coming online. Because even if we look at Q3, we've had very strong performance in terms of our futures versus ETF as a product choice.
And when we're looking at that, we're at the highest multiple in my 11 years here at CV tracking it. But our S&P 500 futures at CME Group are out-trading the associated S&P ETF by a factor of 15:1 for the third quarter.
So optimistic about what even more distribution platforms offering our products alongside the cash markets and ETFs. We think it will be a great opportunity for the market to take advantage -- not only advantage of the tax efficiencies, but all the capital efficiencies we offer here at CME Group.

Craig Siegenthaler

Thank you. (multiple speakers) No, that was great. Very comprehensive. Thank you. Just for my follow-up, we have a question on event contracts.
So a large online broker launched a political election and weather contract platform recently. It's been getting a lot of media attention, as I'm sure you're aware, given the upcoming US election. And this is an example of a broker offering contract, so some vertical integration.
I'm wondering if there's an opportunity for CME to play a bigger role in this business and if you think there is a large TAM for event and political election contracts in the United States.

Terrence Duffy

So Craig, thanks for the question. And I will start and then let Tim go ahead, and make a comment or two as well as it relates to that. So we've been asked -- I don't know if your question is being asked in a different way, are we going to list political event contracts? And the answer is, at this moment in time, no. But we never forgo any opportunity that we might see in the future.
But at this given moment in time, we do not see that as an avenue that CME wants to partake in. I don't see that too dissimilar, though, to Bitcoin. We did not participate in that for many, many years until we thought it was mature enough for us to list it and make sure that the product was not readily manipulable under the core principles of the CFTC.
I'm not suggesting that the product that's being listed today is, but we need to know more about it and watch some cycles before we decide to jump into something like that. So I don't know if your question was, are we going to get into that or not.
So I want to make sure that was perfectly clear that at this moment in time, no. But we never forgo potential opportunities if we think that they're right. But timing is always everything for me and my team. So we'll see how that works out. On the other part, I'll let Tim address.

Tim Mccourt

Sure. Thanks, Terry. I think the one thing I would say with respect to our offering of event contracts here at CME Group is it's important for us to offer those products to the market in a way that leverage the other futures contract that we have at CME.
So our approach to event contracts are they have an underlying associated future that also trades at CME Group, which is a key part to our product offering. Also look at longer-dated year-end event contracts on the equity indices. We'll continue to work with market participants to figure out if there are additional types of products that they want in the marketplace.
Like I said earlier, that holds true for all of our asset classes. But for rent contracts, it's key to us right now to focus on transposing the liquidity we have in their sort of older sibling contracts in a new form, offering more ways to trade those same markets. But we'll continue to engage with the market to see what else we should be (technical difficulty)

Terrence Duffy

Thanks, Tim. Craig, did that address your questions?

Craig Siegenthaler

No, that was great. Thank you, guys.

Terrence Duffy

Thanks, Craig. Appreciate it.

Operator

Owen Lau, Oppenheimer.

Owen Lau

Good morning, and thank you for taking my question. So I have a quick question on your expense guidance. If I look at the first three quarters of last year, your comp ratio was about 14% on average. This year, for the first three quarters, your comp ratio is only about 13.1% based on my math.
But your revenue this year is much stronger than last year. So is there any change on the full-year comp expense this year versus last year? And should we expect a big true-up of the incentive comp in the fourth quarter? Thanks.

Terrence Duffy

Thanks, Owen. Lynne?

Lynne Fitzpatrick

Yeah. So Owen, we do have true-ups for incentive comp throughout the year as we look at incentive-based or performance-based compensation. That will flow through in the various quarters.
So I would say what you're seeing is some of the operating leverage in our business. So to drive that revenue, it's not a direct relation to us adding additional headcount. So I think you're just seeing the benefits of that model rolling through this year.

Owen Lau

So we should expect like a bigger true-up in the fourth quarter. Is that what we should think about from margin perspective?

Lynne Fitzpatrick

No, no. So the true-up happens over the course of the year. So if there is any outperformance or underperformance, you will see that in each of the respective quarters. So it's not a true-up of an incentive comp in the fourth quarter. And our expectations on compensation are built into our expense guidance for the year.

Terrence Duffy

(multiple speakers) We're growing revenue with the same amount of people that we have in place with the same cost expense that we have because of the operating leverage model that we have. So that's why the math is off on yours to our picture.

Owen Lau

All right, got it. That's it for me. Thanks a lot.

Terrence Duffy

Thanks, Owen.

Operator

Mike Cyprus, Morgan Stanley.

Mike Cyprys

Hi, good morning. Thanks for taking the question. Maybe one for you, Terry, just coming back to your earlier comments on treasury futures clearing abroad.
Just curious in your conversations with regulators. What level of receptivity are you hearing to your arguments that treasury features should not be cleared abroad? And what actions might we see, if any, taken?
And then if a competitor were to set up a US clearinghouse to clear treasury futures here in the US, what would be the scope for them to sort of access netting benefits from a related clearinghouse in London?

Terrence Duffy

That's a great question, Mike. I mean, one of the things that I am going and talking to about treasury futures clearing is, and I'm getting some traction on, is I don't think people realize the size of the derivatives market than it is today, which is 13% larger than the cash market on an annual basis of notional trade.
So you have a new law on cash treasury clearing. But the exclusivity of that particular law on cash treasuries being cleared under the guidance of and regulation of the SEC, not any joint guidance, I think people start to realize that these products, treasury futures, treasury cash, potentially ETFs, are a huge part of the ecosystem that make that market work. So I think people are realizing that now.
Again, I don't think people realize the size of the derivatives market. And the importance there of it, I think everybody understands. So I think people are starting to take notice of it. I cannot predict what the outcome is going to be one way or another. But I will tell you that there's been inquiries coming from the Hill to the regulators.
I know there's been responses from the regulator back to the Hill that they're taking this very seriously. And they are trying to analyze what it means for a cross-border clearinghouse to be clearing foreign sovereign debt in futures; and how does that work as it relates to potentially the MOUs that are under -- they have today, which have been amended, which nobody is talking about either.
As you may or may not know, the Bank of England changed their bankruptcy laws. And they no longer have -- US participants no longer have protection under the bankruptcy laws of the UK. The UK is now -- the Bank of England is the default for all bankruptcies as related to systemically important institutions. And that is different from what was in the original MOU with the CFTC, when they became registered in both US and the UK.
So I think there's a lot of changes. So people are understanding that. We're explaining that to them, the importance of it, and what does it mean if they were to come open up a clearinghouse in the US as the second part of your question, I believe. And they did have that. LCH under LSE had a US clearing entity, which is now dormie. I don't believe it's up and running at all for any products.
And if, in fact, they decided to reconstitute that clearinghouse here in the US, the offsets would not be what they suspect they would be in London. So they would lose the offsets against the portfolio.
So I guess, I would have to ask what's the benefit of them doing it and the costs associated for the London Clearing House to reconstitute the clearing house in the United States to do so. So I'll turn it to my colleague, Suzanne Sprague, to clean up anything that I said improperly.

Suzanne Sprague

Yeah. Just to the second part of your question on the ability to achieve the offset between clearinghouses in different geographies, it's hard to speculate on how the regulators would look at that today. But our own experience in the past has shown that it is very expensive to do so. So the regulators had basically required the clearing houses to hold capital in the amount equal to the margin savings you give your participants.
So the clearing houses, basically, still have to be fully capitalized in each jurisdiction to recognize the benefit of the margin offsets that you give to customers. And the reason for that, really, has been, back to Terry's point, on the resolution regime, given that the domestic regulator would be the one overseeing the resolution of each clearinghouse.
The domestic regulators have wanted to be fully capitalized even in spite of any margin efficiencies that you're able to give between clearinghouses. So we hadn't been able to get over that hurdle in the past. I would anticipate that would hold true in the future as well.

Mike Cyprys

Super. Thank you for the comprehensive answer there. Just a follow-up, if I could, on interest rate swap clearing. I thought I heard reference to a $40 billion margin of swap collateral. Just curious, how much of that was on the US interest rate side?
And maybe you could just elaborate a bit on, what sort of growth you're seeing across your interest rate swap clearing business? How much of that's contributing overall today? Seems like this could be a growth opportunity for you, given the larger clearing house overseas.
What steps might be able to take to convince customers to move their swap clearing business over to you? How might you increase that appeal and reduce some frictions that make it more seamless for customers to move more activity over?

Terrence Duffy

Suzanne and Mike, you guys want to address that?

Suzanne Sprague

Yeah, sure. Thanks for the question. So in terms of the amount of US dollar swap margin as a percentage of that total, it is the majority. That tends to fluctuate, I think, between about 75% and 80% in terms of the amount of total margin requirement that we have coming from the swap activity.
I will reemphasize again, just the point of the efficiencies that are gained in the portfolio margin program, I think that is a primary driver to the level of activity that we see in our swaps offering. Capital efficiencies in that space have been a large focal point really since the onset of the clearing mandate for swap clearing, especially because the regulations require a five-day margin period of risk for those products.
So there is even more focus on being able to offer efficiencies within the swaps complex and across other asset classes or other complexes within the interest rate asset class like futures and options. So I'll pass it over to Mike for anything else you wanted to add there on the competitive landscape.

Michael Dennis

Yeah, Mike, thanks for the question. Good morning. For me, being here a short period of time, my first order of business was to meet with all the dealers and kind of talk exactly about what you're highlighting is, our margin efficiencies between SOFR futures, treasury futures, and our swap portfolio.
Obviously, a general theme on the Street right now is Basel III Endgame challenges with capital, tightness of liquidity, and how this is all going to impact the balance sheet. So we're definitely in front of clients. We're definitely explaining this value proposition.
We've seen a little bit of renewed interest in sending portfolios to us to do some what-if scenarios and some portfolio calculations. So we do think, to your point, that it is a good area of growth for us.

Mike Cyprys

Great, thank you.

Terrence Duffy

Thanks, Mike.

Operator

Bill Katz, TD Cowen.

Bill Katz

Okay, thank you very much for taking the question this morning. Just maybe on expenses. Just you reiterated your guide of $1.585 billion for the year, which I would assume some seasonal -- a lot of pick-up into the fourth quarter. So how much of that is seasonal versus more structural?
And then as you think about the business conceptually, you're operating at a very high level of profitability, 69% margin. How do we think about that going forward? Is there a natural governor to the margin? Would you let that drop to the bottom line? Thank you.

Lynne Fitzpatrick

Yeah, Bill, this is Lynne. So on your first question, one thing to keep in mind is we typically have some of our larger marketing events in the fourth quarter. So it's not unusual for us to see an increase in that quarter related to that spend. So you will see, if you look back at 2023, the Q3 to Q4 expense growth was $40 million. That is the same growth that would be implied by our guidance of this Q3 to Q4.
So the majority of that is going to be that outsized marketing spend. Some of it also will go to things like the joint support for some of the new retail FCMs that have come online, so kind of capitalizing on some of that opportunity for revenue growth.
And then you will continue to see some of that ramp up in our cloud migration expense that grows in the technology line. As we've moved more applications to the cloud, you will see that grow. And we've seen some of the offsetting declines in depreciation rolling through.
But all of that was anticipated in our guidance. As we continue on that migration path, you would see that amount move up. In terms of margin, we don't target an operating margin. Similar to the question on RPC before, we're focused on how we drive that earnings growth.
If there are opportunities for us to invest in new opportunities or new growth initiatives, we certainly are going to do that, not focusing instead on what our target operating margin would be. We're focusing on driving growth.
So obviously, we have enjoyed very nice margins, and it relates to the ability of us to return a lot of cash to our shareholders. But that is -- that's part of the beauty of our model and the cash-generative nature of the business. But it's not something where we have a specific target in mind for a margin level.

Bill Katz

Okay. Thank you. And just as a quick follow-up, just going back to the rise of the retail opportunity broadly, given that sort of an ongoing opportunity, how do you think about the -- for those clients that may be on the platform already, let's say, a year or so or just whatever the appropriate seasoning point would be, what kind of uplift do you tend to see in terms of that volume growth? And is there any way to sort of think about what that is as a percentage of your total ADV? Thank you.

Terrence Duffy

Thanks, Bill. I'll let Julie talk a little bit on the retail growth. And I think you did a lot of it already, but maybe you can just add a little bit more to it.

Julie Winkler

Yeah. I mean, as Terry mentioned earlier, difficult to kind of predict revenue. And again, you've got to remember, across our distribution partners, they also have slightly different businesses, right? So we have some of our distribution partners that are futures-only firms. We have others that have a broad product portfolio and are initially coming to us as existing CFD providers.
For example, some of these distribution partners that we're working with in Europe, as well as just the account size that each of these different players are targeting as well. And so it's difficult to kind of give a more sweeping or generalized view into what that ADV growth can be, which is really why we're highly focused on bringing that new traders into the marketplace as well as our education and our content opportunities across that.
So we work with each of these distribution partners. We have well over 100 of them around the globe and really try to fine-tune with each of them, what content is most appealing to them and also what else we can be doing in terms of hosting joint events with them, both online and in person.
This still continues to be a great way of how we see acceleration of their revenue growth is to help educate them and bring in other people that are third-party influencers that also just talk about what some of their trading strategies are in the space. So it is really, I'd say, a multifaceted approach in order to bring volume.
And clearly, right, when I spoke earlier about their initial interest in equity, they're going to trade what also is moving, right? And so we often are making sure that we are working with our partners to provide product information to those contracts that are, at that point in time, seeing higher volatility.
And that's where, again, our diverse product portfolio really plays into that, where if equity vol is down, we can very much switch to talking to them about WTI and micro gold, which is really what we saw with micro volume up, right, 35% year on year already.
So this is part of really our strong offering and -- continuing to look at some other new product opportunities in the retail space with our partners for next year, too. So we're excited about that.

Terrence Duffy

Thanks Julie. Thanks, Bill. And just to add to what Julie said, the beauty of this quarter, again, as in the last one, all six of our asset classes were up. It wasn't just one that was moving. All six were up at the same time, which is really amazing for us. So thanks for your question, Bill.

Bill Katz

Thank you, all.

Operator

Thank you, and that was our last question. I'll now turn the call back over to management for any closing remarks.

Terrence Duffy

We thank you, all, for joining us this morning. Appreciate it very much. Look forward to communicating with you throughout the quarter and talking to you again next quarter. So thank you, all. Be safe.

Operator

Thank you. That does conclude today's conference. Thank you, all, for participating. You may disconnect at this time.