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CME Group Q3 2013 Earnings Conference Call Transcript

Jamie Parisi – CFO

Sure. You hit all the main components as the equity license fees from S&P, NASDAQ, Dow, et cetera are in there. You’ve got a ClearPort fee sharing and you have got this now the OTC revenue sharing. So, generally I would say the equity — license fees are the largest components followed by the energy component and then followed by the OTC share. Just to be clear in this quarter the OTC revenue share amount that we booked in there included some catch up for prior quarters as well.

Alex Kramm – Analyst, UBS

Okay, but you can’t give us the exact number or anything close in percentages?

Jamie Parisi – CFO

No.

Alex Kramm – Analyst, UBS

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And then secondly, just coming back to I think Howard’s residual question on the dividends and the appetite there. I mean it looks like you have – significant cash you now have built up and there will be more by the time you want to pay this dividend. So if I think about the variable dividends, you really still think or does the board when you talk to them still view this as a true variable one-time or could you make an argument where you showed should bring it up a nice amount from last quarter? And then may be or from last year and then maybe start thinking about repurchase of a little bit more again or is this really just what it’s going to be and expect most of this is to be paid out?

Jamie Parisi – CFO

I would say that the philosophical bend is absolutely towards dividend, so I wouldn’t expect any buyback of any significant nature going forward, at least in the near term. And as you said one time around that dividend but it is really an annual variable recurring dividend. So I think it’s a bit of a unique structures we have discussed before and I think also the board and the management is very comfortable with the way that’s been working out.

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Operator

Your next question comes from Chris Harris with Wells Fargo Securities.

Chris Harris – Analyst, Wells Fargo Securities

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Broader finance question, how should we expect your capital needs to change as your swaps business gets larger?

Jamie Parisi – CFO

The amount of you mean our the capital requirement on the organization? I don’t see them changing all that significantly. The capital requirements tend to be for the most part tied to the size of the annual expense for the business. So I don’t see large increases there. And then we also size our contribution to the financial safeguards package in a very conservative fashion. So we feel very comfortable with the amount that we’ve got there as well.

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Operator

Thank you. Our next question comes from Jillian Miller with BMO Capital Markets.

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Jillian Miller – Analyst, BMO Capital Markets

On portfolio margin I know you said 6 clearing members are alive, but I just wanted to get an idea for what percentage of your business that represents. Are we talking about 10% or 15% of your cleared interest rate swaps that’s benefiting from that now or is it 50% or more?

Phupinder Gill – Chief Executive Officer

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Hi, this is Gill. That’s the clearing numbers and their participation is yielding about a $1 billion worth of margin savings and it’s currently a small percentage of the overall business. So firms are still coming up to speed there.

Jillian Miller – Analyst, BMO Capital Markets

Does the rollout of that I guess to larger percentage of your business, does that mean that you are going to gain more shares as expectations or do you think that everybody’s kind of already baking that eventuality into where they are doing their business right now?

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Phupinder Gill – Chief Executive Officer

I think from an anticipation point of view, a lot of firms have started to test how this would actually work because it can be unless you’ve automated the process, it can be very manually intensive. So what a lot of firms have been doing over the last six months or so is making sure they have the process to automate those trades. The opportunity beyond the existing open interest on the rate side against the OTC open interest is on a going forward basis as firms then puts on, our clients can put on positions that are risk minimizing or risk neutral on a going forward basis and eventually get to an optimized state where they can use some portion of their business for being futures and options and some portions would be in swaps.

So, there are two ways to look at this opportunity, one with respect to the existing open interest in the futures side and secondly, on a going forward basis with the deliverable swap huge futures, the clearing of the swaps and more development on the future side would be the opportunities that our firms would have.

Jamie Parisi – CFO

And just to add on to that I mean I think we have to keep in mind that we are just off the heels of the mandates themselves and so in our interactions through our sales calls the firms are saying look first and foremost, we need to make sure that we just got compliant. Now we really spending our time on how to most effectively utilize our capital and any opportunities that you have specifically from a margin savings perspective. We’re very keen to be able to test and see how that benefits our firms. So we’re going through that optimization phase now.

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