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Cboe Global Markets, Inc. (NASDAQ:CBOE)
Q4 2017 Earnings Conference Call
Feb. 9, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Cboe 2017 Fourth Quarter Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please speak to a conference specialist by pressing *0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press *1 on your touchtone phone. To withdraw your question, please press *2. Please note this event is being recorded. I now would like to turn the call over to Debbie Koopman. Ms. Koopman, please go ahead.

Deborah L. Koopman -- Vice President of Investor Relations

Thank you. Good morning and thank you for joining us for our Fourth Quarter Earnings Conference Call. On the call today, Ed Tilley, our Chairman and CEO, will discuss the quarter and provide an update on our strategic initiative, then Brian Schell, our Executive Vice President and CFO, will provide an overview of our fourth quarter 2017 financial results and guidance for certain financial metrics for 2018. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be our President and COO Chris Concannon and our Chief Strategy Officer John Deters. In addition, I'd like to point out that this presentation will include the use of several slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website.

During our remarks, we will make some forward-looking statements which represent our current judgment on what the future may hold, and while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise after this conference call.

During the course of the call this morning, we will be referencing non-GAAP measures as defined and reconciled in our earnings materials. We will also refer to non-GAAP adjusted combined results, which are also reconciled in our earnings materials. As you know, we completed our acquisition of Bats Global Markets on February 28th, 2017. The combined results present information regarding the combined operations as if the Bats acquisition had closed at the beginning of 2016 in order to provide a supplemental discussion of our results and review of our business. Now, I'd like to turn the call over to Ed Tilley.

Edward T. Tilly -- Chairman and Chief Executive Officer

Thank you, Debbie, and good morning. I know many of you joined us for our call on Wednesday. Thank you and thank you again for joining us today. I am pleased to report on a strong fourth quarter 2017 at Cboe Global Markets. As we approach the one-year anniversary of our acquisition of Bats Global Markets, I am gratified to report that we accomplished what we set out to do within the first year -- chiefly, to integrate two great teams while continuing to serve our customers with superior products and services and to grow our respective business lines.

A strong fourth quarter capped off a year of tremendous growth, including an increase in total options average daily volume of 11% on a combined company basis, outpacing the 4% gain made by the industry overall, new record trading volume and VIX options and futures, with each increasing 23% over the previous year, an all-time high in SPX weeklies trading, which drove another record year in SVX trading, an 82% increase in ETP listings, bringing our total number to 250 at year's end with a market share of 12%, record trading in our Large In Scale platform, now one of the largest block trading facilities in Europe, record Cboe FX market share and average daily notional value fueled by increased use of our London matching engine.

Our ability to deliver superior results across key business lines in 2017 while making great strides in our integration with Bats positions us to more fully leverage our increased global reach and expanded product line. Our mission to power potential to stay ahead of an evolving marketplace is fueled by our commitment to relentless product innovation, leading-edge technology, and seamless trading solutions.

I'll take a minute here to look at our recent progress in those three key areas. Our commitment to drive growth through product innovation was evidenced by our December 10th launch of Cboe bitcoin futures XBT, the world's first exchange-listed regulated bitcoin futures product. We are encouraged by the early trading in XBT futures, which continues to steadily build in an efficient, transparent, and orderly marketplace. At the time of our first XBT settlement auction on January 17th, over 124,000 contracts had traded, representing a notional value of over $1.5 billion. Moreover, the successful settlement process worked exactly as designed.

The migration of the Cboe exchanges onto Bats proprietary technology is central to our commitment to providing customers with superior trading technology. We expect the migration to maximize our value proposition and to power our company's ongoing growth. Working closely with our customers is key. We held our fourth conference call with customers in December, and their feedback remains positive.

The migration of the Cboe futures exchange to Bats technology remains on track for February 25th, 2018. We are simultaneously preparing for the migration of C2 options exchange, planned for May 14, 2018. I'm pleased to add that we successfully launched our new index platform on January 22nd. The new platform serves as the foundation for our growing index business and enables us to better calculate and disseminate data for new and existing indices.

We're committed to enhancing the customer's trading experience through regulatory advocacy, new technologies, and education. We continue to work on behalf of our customers by vigorously advocating for the SEC's approval of the Cboe Market Close auction, a closing match process for non-Cboe securities. We created CMC as a competitive alternative, and we're encouraged by the approval of our proposal by the SEC staff on January 17th. The subsequent appeals by competitors will delay the benefits we believe CMC can deliver to investors in U.S. equity markets, but we continue to work proactively with the SEC on a favorable resolution.

We made inroads recently on behalf of our customers by seeking and receiving permission from Japan and Hong Kong regulators to add Cboe Global Markets' U.S. equities to the respective lists of approved exchanges. These designations are expected to increase global access to our growing ETF listing business.

We viewed our preparations for MiFID II as an opportunity to help customers navigate the changing regulatory environment in Europe with value-added products and services. We have already seen an uptake in volume in our new product offerings that, while still a small piece of our overall European business, is encouraging given these are very early days.

It is a credit to our entire team that we were able to deliver superior results throughout the year while also successfully combining two strong companies into one greater company. As a result, we are well-positioned to continue to execute on our growth initiatives, including growing our proprietary products, expanding our global reach across asset classes, migrating our exchanges to Bats technology, and achieving our acquisition synergy targets. With that, I will now turn it over to Brian.

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Ed, and good morning to everyone. Before I begin, I want to remind everyone that unless specifically noted, my comments related to fourth quarter 2017 as compared to the prior year period and are based on our non-GAAP adjusted combined results, including Bats. On that basis, our fourth-quarter results followed the same general theme you've heard from us throughout 2017, with solid financial results primarily driven by the continued strength of our proprietary index products against the backdrop of low market volatility, growth in non-transaction revenue, expense discipline coupled with the overachievement of expense synergies, and all of that leading to margin expansion and earnings growth.

Summarizing our combined results for fourth quarter 2017 versus 2016, we continue to grow net revenue, posting a 7% increase in combined net revenue with increases across each business segment. Our options and futures segments contributed the largest revenue gains, which drove organic growth of 8% for the quarter and 9% for the full year.

We held operating expenses relatively flat for the quarter which, combined with our revenue growth, resulted in a 260-basis-point improvement in our adjusted operating margin, a 90-basis-point lift in our adjusted EBITDA margin, adjusted diluted earnings per share of $0.87, up 12%, and lastly, given the tax reform legislation passed in December, we revalued our deferred tax liability and recorded a one-time tax benefit of approximately $192 million, or $1.70 per diluted share, in the fourth quarter, which is included in our non-GAAP adjustments. More to come later on the impact of tax reform.

The press release we issued this morning and our slide deck provide the key operating metrics on volume and revenue capture for each of our segments, as well as an overview of our key revenue variances. At this point, I'd like to highlight some the key drivers influencing our performance in each segment.

In our options segment, the 3% increase in net revenue was driven by higher net transaction fees, offset somewhat by lower regulatory fees and an increase in royalty payments. The increase in royalties was due to higher volume in our licensed index products as well as a mix shift between index products traded. Decline in regulatory fees primarily reflects lower regulatory costs. Earlier this month, we lowered our options regulatory fee, and expect 2018's regulatory revenue to be about 12% to 13% below 2017's full-year net regulatory revenue of $32 million. However, given that revenues from regulatory fees must be used for regulatory costs, this should have no impact on our bottom line in 2018.

As Ed noted, we remain focused on growing our proprietary products, as we did in 2017, with the delivery of record volume of both SPX and VIX options. In 2018, we plan to continue to focus our efforts on growing our proprietary index products with ongoing education, business development, and various incentive programs, such as those aimed at large over-the-counter trades and retail volumes. While the incentive programs may put some pressure on RPC, we expect the overall impact to be net positive.

Turning to futures, we had another record year, with a growth in both contract volume and RPC, with the latter reflecting a modification to our day trade fee program, which had a favorable impact on RPC for the fourth quarter and the entire year. For 2018, we continue to be optimistic about a successful technology migration later this month, which we believe will have a positive impact on trading as we provide CFE market participants with enhanced trading tools and a better trading experience.

Turning to U.S. equities, net revenue was up slightly, driven by growth in non-transaction revenue, partially offset by lower net transaction fees. The continued low volatility levels in 4Q '17 produced lower overall equities volumes and a higher percentage of volume traded off exchange. As this slide shows, our SIP market data revenue was flat year over year for the quarter and full year, proprietary market data accounting for nearly all of the market data revenue gains.

Our proprietary market data revenue saw growth of 39% in the quarter and 24% for the year, with approximately one-fourth of each coming from new customers or additional sales to existing customers and the remainder from pricing changes. While we expect continued growth in proprietary market data in 2018, we also expect to see additional downward pressure on SIP revenue due to industry consolidation and potential of continued off-exchange trading.

Net revenue for European equities increased 17% on a U.S. dollar basis, reflecting growth in net transaction fees and non-transaction revenue, as well as benefiting from the strength of the pound sterling versus the dollar. On a local currency basis, net revenue increased 10%. As Ed noted, our focus for European equities has been to be ready on Day 1 with a full suite of products and services that addresses the new requirements of MiFID II. We look forward to building on the early success we are experiencing under this new regulatory regime.

Net revenue for global FX showed steady progress this year, and the fourth quarter marked a high point for the year both in market share and average daily notional value traded on the Cboe FX platform. Much of the growth was driven by the increased volumes on our London matching engine and better overall fill rates. We plan to focus our efforts on continuing to grow the core Spot FX offering while also diversifying our revenues with new products and expanding our market data offerings.

Turning to expenses, total adjusted operating expenses of $105 million for the quarter were relatively flat compared with the prior year and in line with our guidance. Looking at the key expense variances, the increasing compensation in benefits reflects higher incentive-based compensation aligned with our financial and operational performance. The decline in professional fees and outside services primarily reflects the realization of synergies.

For the fourth quarter and full year of 2017, we realized $7.5 million and $24.6 million in pre-tax expense synergies respectively, primarily from compensation in benefits, and professional fees, and outside services. We ended 2017 with approximately $33 million in GAAP run-rate synergies. In 2018, we are forecasting incremental run rate expense synergies of $17 million, for a total of $50 million. Most of the expense synergy relative to 2017 is expected to come from IT-related expenses, and while the projected 2018 run rate is equivalent to the run rate we originally expected for 2019, reflecting an earlier realization of expense savings than planned, it is still too early to revise our long-term synergy forecasts.

Keep in mind that projected run rate expense synergies for our technology migration are heavily weighted toward our largest and most complex exchange, C1. As stated on previous calls, we plan to provide further guidance on a target date for the C1 technology migration after we complete the CFE technology migration, and once we complete the technology migration of C2 in May, we expect to be in a better position to make any revisions to our long-term expense synergy run rate forecast.

Looking at our expense guidance for the full year 2018, we expect adjusted operating expenses to be in a range of $420 million to $428 million, reflecting our expectations for expenses to be up 1% to 3% versus 2017. Note that this guidance includes approximately $8 million -- or 2% of 2017 adjusted operating expenses -- for incremental expenses primarily associated with the recent Silexx acquisition, the increased strength of the pound sterling, and offer-related expenses that we have an offsetting benefit in our net revenues.

Turning to depreciation and amortization expense, which is included in our total expense guidance, is expected to be $53 million to $58 million, which excludes amortization of acquired intangible assets of about $157 million and will be excluded from our non-GAAP results. Lastly, capital spending in 2018 is expected to range from $50 million to $55 million, which includes our investment to migrate the Cboe futures and options exchanges onto proprietary Bats technology, as well as the ongoing investment in technology and software to support Cboe's current trading platform.

Now, let's spend some time on income taxes. Like most U.S. companies, our current and future results are impacted by the recently enacted U.S. corporate tax reform. Consequently, our fourth-quarter results included a one-time benefit of $192 million through the remeasurement of our deferred tax positions. However, our effective tax rate on adjusted earnings for the fourth quarter was approximately 37%-again, within the guidance range we provided on our last call.

Looking further at the impact of tax reform on 2018, given the predominance of our U.S. earnings contribution, we expect to see a significant reduction in our overall corporate tax rate, driven primarily by the reduction in Cboe's statutory corporate tax rate from 35% to 21%. However, the new tax law both repeals a number of deductions relevant to Cboe, most notably the domestic production activities deduction, also referred to as Section 199, and deductibility of certain other expenses, and introduces incremental taxes on foreign earnings.

We expect the effective tax rate on adjusted earnings to be in a range of 26.5% to 28.5%. This tax rate guidance reflects the net impact of the corporate tax reform and a full year of the Illinois state tax increase enacted in July of 2017, resulting in an expected total net reduction in our effective tax rate in the range of 8 to 10 percentage points.

Turning to capital allocation, we remain focused on allocating capital in the most efficient manner to create long-term shareholder value. While the reduction in the corporate tax rate is expected to increase our earnings and provide additional cash, our capital allocation priorities have not changed. We plan to continue to invest in the growth of our business, return capital through dividends with a goal of steady annual increases, pay down our debt, and evaluate share repurchases. Our quarterly results once again generated strong cash flows, which enabled us to reduce our debt by an additional $75 million and pay out dividends of nearly $31 million, while still ending the year with adjusted cash and investments of $120 million and a leverage ratio of 1.8 times.

To summarize, during the fourth quarter, we built on the strong momentum we experienced throughout 2017 and continued to demonstrate our focus on and strength of our proprietary index products, resulting in strong organic growth, diversifying and stabilizing our revenue streams with a growing base of non-transaction revenue, disciplined expense management, leveraging the scale of our business model, producing higher profitability margins, a migration plan on track with improved expense synergy realization, and ongoing focus on capital allocation by reducing debt while continuing to return capital to shareholders through quarterly dividends. With that, I will turn the call back over to Ed.

Edward T. Tilly -- Chairman and Chief Executive Officer

Thank you, Brian. Before opening up for Q&A, I'd like to take a moment to provide follow-up on the two areas of most interest to you on our call Wednesday: The percentage of VIX futures tied to ETP trading -- both long and short -- and who is trading VIX futures. This first slide shows average AUM on a quarterly basis for the top long and short VIX-linked ETPs, which represent roughly 90% of VIX ETP assets, as relatively flat between Q4 2015 and January of 2018. During the same period, overall VIX futures ADV increased by 82%, so while ETP assets continued to be important, the growth in VIX futures trading is no longer reliant on ETP activity.

This next slide demonstrates how our efforts to educate and grow our user base have increased the number of unique user accounts associated with trading on CFE from 4,495 in Q4 2015 to 5,706 in Q4 2017, representing an increase of 27%. Unique accounts encompass a broad range of market participants, including asset managers, dealers, market makers, proprietary traders, and brokerage execution professionals. During this period, growth from overseas users interested in accessing our global trading hours session has been particularly strong, with these user accounts up 57%.

As we mentioned Wednesday, the activity we see from issuers of XIV and SVXY is less than 5% of all VIX futures trading, representing average daily volume of about 12,000 contracts. It's important to note that non-institutional holders of these ETPs in the last reported period represented approximately just 21% of total holdings, with the remainder consisting of sophisticated institutional users who employ inverse VIX ETPs as part of a diverse mix of trading and investing strategies.

I thank you again for your time, both today and Wednesday. We continue to make volatility trading a primary educational focus. The growth in VIX futures and options trading is a result of the utility of these products under virtually any market condition. We see every change in market condition as an opportunity to redouble our educational efforts. With that, I will turn it over to Debbie for instructions on the Q&A portion of the call.

Questions and Answers:

Deborah L. Koopman -- Vice President of Investor Relations

Thanks, Ed. At this point, we would be happy to take questions. We ask that you please limit your questions to one per person to allow time to get to everyone. Feel free to get back in the queue, and if time permits, we'll take a second question. Operator?

Operator

Yes, thank you. We will now be in the question and answer session. To ask a question, you can press *1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. At this time, we will pause momentarily to assemble the roster. And, the first question comes from Richard Repetto with Sandler O'Neill.

Richard Repetto -- Sandler O'Neill & Partners -- Principal

Yeah, good morning, Ed, Brian, and Chris. I guess my question -- I'll try to stay broad since we've only got one question -- thank you for the call on Wednesday night and the follow-up, Ed, with the slides here this morning on the ETPs. I guess the broad question is... The stock has been down significantly in February, and if you look at the overall growth of the Cboe complex, what do you think people are missing? Do you think they're overweighting the concerns from the inverse ETF debacle? What do you think investors -- what one thing or few things would you highlight that you think are either more important? Or, maybe this inverse ETF thing is not a concern to you.

Edward T. Tilly -- Chairman and Chief Executive Officer

Boy, Rich, that is a terrific question. VIX has been incredibly difficult to understand, and therefore to model. The growth rate, the adoption rate, the evolving utility, and application make it so. As a result, so too is Cboe. So, we enjoy -- as you know -- incredible growth and profit tremendously when the world markets go sideways, and we enjoy an industry-envious position and growth when the world markets are calm. So, those that continue to view our proprietary products like stocks -- they attempt to fit them into equity buckets -- will at times, and have in the past, miss the growth potential and, as a result, miss the Cboe story.

So, from my perspective, one key missing piece and the story that we've been telling you throughout the years from our IPO and leading into 2016 is how do you supplement this unique product mix with world-class technology platforms? So, we remedied that with the Bats acquisition that we're coming up on a one-year anniversary. So, if you look at the combination now of the most widely followed volatility benchmark in the world, in dollar-denominated U.S. benchmarks, there's just an opportunity to express any view of a U.S. market.

European and U.S. equities and a growing FX platform -- the combination coupled now with Bats technology is an absolutely incredible story, but this market, as it has in the past -- we've seen corrections in the past, we've talked about them in the past, quarterly calls have reflected on them. The incredible record-setting volumes that we've had over the past week or two -- we've seen those in the past. These are teaching opportunities. We get to go back to the street. We have people near conversion. You all know the lead time for conversion into trading is long. These are those events in the market that make the story that we've been telling in how markets resonate. That turns into volume over the years. It may not be tomorrow, but that is the story we're able to tell that is unique to Cboe.

So, sorry for the little rant there, Rich, but I certainly appreciate the question because we do scratch our heads here when we look at the utility of what we've built here and how we've set the marketplace and continued to educate the marketplace to take advantage of these moves. Chris, something to add?

Chris Concannon -- President and Chief Operating Officer

Rich, I'll just add that as a fairly new player to the VIX complex and the SPX complex, what I've seen over the last year is an educational effort around how to protect your portfolio from an event like Monday, and that is the primary tool that is being used whether it's an SPX package or a VIX package that large institutional players are using. This event is one of the most successful-selling items for us and for our complex because of the protection -- if you were long VIX or if you were using SPX to protect your portfolio, these events are wonderful events for us and our selling efforts to add our products into people's portfolio.

Look, I'm concerned about the damage caused into funds, but when I look at the institutional holdings of those funds, these are professionals that know what they're doing, certainly benefited from being short in '17 in those funds, but when you look at what we've been selling and how we've been selling it, portfolio protection is at all-time high right now in terms of need and exposure, so that's the story that I think is missed in this. The other story is our markets -- the U.S equity markets, the U.S. options markets, and the U.S. futures markets -- performed exactly as designed under tremendous stress, not only on Monday, but again yesterday. Unfortunately, the media doesn't print stories that we all worked exceptionally well. They only print stories when something breaks.

John F. Deters -- Chief Strategy Officer and Head of Corporate Initiatives

Further to Chris' point about institutional players being largely in these strategies, the short VIX strategy. We've told you that, we've shown you how our direct exposure is limited, but I think it's important to point out that already, in the days since the rapid increase in VIX, we've seen AUM in the open SVXY short ETF increase from under $100 million in assets to almost $700 million -- $670 million as of yesterday -- so people are rotating back into that strategy. We saw this at the end of 2015 and 2016, where the short VIX strategy increased from its low by 400% within the following year and we're seeing it again now. What happened is a couple issuers made a self-interested decision to redeem their notes. What did not happen is that people did not flee the short VIX strategy.

Richard Repetto -- Sandler O'Neill & Partners -- Principal

Great. Thanks, guys, for the color and the feedback.

Edward T. Tilly -- Chairman and Chief Executive Officer

You can tell we love the business, Rich. Sorry for all that passion right out of the gate.

Richard Repetto -- Sandler O'Neill & Partners -- Principal

I get it. Thank you.

Operator

Thank you. The next question comes from Michael Carrier of Bank of America Merrill Lynch.

Sameer Murukutla -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, guys. This is Sameer Murukutla on for Mike Carrier. Just a few questions wrapping, one on capital management for Brian. Given the new lower tax rate and the somewhat decent leverage, can you give us more details on how you're going to evaluate share repurchases going forward? Brian, has your view on leverage changed since Alan has retired? Can you give us an update on what your minimum cash needs are?

Edward T. Tilly -- Chairman and Chief Executive Officer

Who's Alan?

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

Alan, if you're listening, that was Ed. So, let's talk about share repurchases. Just to make sure I got that, the share repurchase opportunity leverage and the minimum cash balance. So, if we address the share repurchase, as we've previously indicated, we have approximately $100 million of capacity left under our current authorization, and capital allocation is a topic we regularly discuss with our board.

The $400 million of debt reduction in '17 really put us in a great position to continue to evaluate all of our capital allocation alternatives in 2018, including share repurchases, which is more directly your question there. As such, with the strong cash flows from '17, our current year-to-date volumes, and the incremental cash expected from the lower tax rates -- again, our capacity to deploy capital toward debt reduction -- which continues to be a focus -- and share repurchases or incremental dividends. Like I said, it's all there on the table.

As I mentioned, 2017, just put us in a great environment to evaluate it, open up all the options, and in looking at our role -- to the next question about the leverage, we don't have a targeted leverage ratio, but our objective was always to achieve that long-term balance sheet flexibility. That's what we've always been working toward for that capital allocation of what you saw us do during 2017. As far as a minimum cash number, there's a minimum cash that I would say -- from an operating standpoint, on the balance sheet, we try to target that roughly $80 million to $100 million number at the end of the quarter or throughout the period as we look for various working capital needs or any type that might happen for the inflows and outflows, so that's a range that we ballpark as far as any incremental needs that we might have during the quarter.

Sameer Murukutla -- Bank of America Merrill Lynch -- Analyst

Perfect. Thanks for answering all of those questions.

Operator

Thank you. The next question comes from Ken Worthington with JP Morgan.

Kenneth Worthington -- JP Morgan -- Analyst

Hi, Ed. Good morning. Thank you for taking my question. You and CME both had tax rates in the 36% to 37% range in '17. Your guidance is 26.5% to 28.5%. CME's falls to 24%. Can you speculate on the more modest tax benefit here? What I'm trying to figure out is how conservative you're being in your assumptions. I think you mentioned in the prepared remarks incremental taxes on foreign earnings. Can you flesh this out to me? Your foreign business is still pretty small from an earnings perspective. Thanks.

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure. A couple of things: I don't have the detailed reconciliation from what you were talking about earlier. John and I talk regularly, but that's not something that we've compared tax rates on -- all those items. I can only speak more specifically to the Cboe tax rate.

As you look at the corporate tax reduction of that 14%-and, I appreciate the 8% to 10% being more modest. I'll take it every quarter, that's pretty awesome, but as far as the impact on cash flows -- but, as I break it down at a high level, that 8% to 10% reduction -- we would say that if we talk about the 2% to 3% bucketed toward the state impacts from both Illinois as well as the loss of some of the federal benefit -- you lose that because your state rate actually goes up a little bit of how much you can actually deduct -- and then, Section 199, and whether that was a bigger or smaller benefit to us versus anyone else. Obviously, I don't know, so that's one area of potential speculation -- how that lays out -- because as you know, this is a very complex area and it's very unique to jurisdictions and where they're reporting the income.

The other one I would put in another bucket of a bunch of miscellaneous items, which again, will be very unique to each institution and each company, whether it be 162M and whether those expenses were relative to a larger or smaller expense base or earnings base could have a different impact. The foreign tax that I mentioned could be both a mix shift because of the different rates now. You have the new tax that was introduced on the high yield on the assets, so that does have an impact, and I would say that makes up the remaining change of the overall tax rate impact that gets us down to that 8- to 10-percentage-point reduction.

Kenneth Worthington -- JP Morgan -- Analyst

Okay, thank you very much.

Operator

Thank you. The next question comes from Alex Kramm with UBS.

Alex Kramm -- UBS Investment Bank -- Analyst

Hey, good morning, everyone. I wanted to just come back to the first two questions that were asked and combine them for Ed, meaning I guess you guys couldn't be more optimistic that this is a nonevent, but obviously, as Rich pointed out, the stock has come off -- it's off 20% or so from the high -- so I hear Brian's comment on capital allocation, but when it comes to senior management, how opportunistic do you think you should be right now in terms of buying back the stock and maybe push some deleveraging out a little bit considering your confidence level here?

Edward T. Tilly -- Chairman and Chief Executive Officer

It's a good question, and maybe a little bit more specific to what Brian said, our goal and what we shared with you last year was delivering. That was the No. 1 goal of the board and it was on the advice of the senior management team. What Brian is saying is we believe the balance sheet is at a very nice place for us as far as flexibility. We think we are freed to look at the world differently than we would have been a year ago at the closing of this deal. We are in the middle of an integration and a platform migration, so that's the timing of how we see deals going forward. This is the one we continue to be focused on.

You are asking the exact question that the board is going to ask senior management next week. Is this the right time to get back into it and opportunistically repurchase our shares? We're telling you that our recommendation to the board is we like the flexibility of the balance sheet and we should be entertaining all methods and modes to return cash back to our shareholders, whether it's the continuation of deleveraging, and adding share repurchases, and considering a change in the regular dividends. So, everything on the table, but your timing and painfully pointing out, Alex -- I appreciate that -- what the stock's done over the past three days is what will make this even more of a focus next week, I can assure you.

Alex Kramm -- UBS Investment Bank -- Analyst

All right, thank you for your personal comment.

Operator

Thank you. The next question comes from Alex Blostein with Goldman Sachs.

Alex Blostein -- Goldman Sachs -- Managing Director

Hey, guys. Good morning. Thanks for taking the question. I wanted to go back to Slide 26, and I appreciate all the difficulty gathering this information in a short period of time, so thank you for that. When you guys talk about unique users, what's the makeup of the growth in customer types that you highlight on the page -- the 27% growth? And, any sense you guys can give us of what percentage of this new user growth has been by participants deploying a short volatility strategy, other than the market makers because they'll do both.

John F. Deters -- Chief Strategy Officer and Head of Corporate Initiatives

I think the perspective we can give -- I'd start with saying that the user growth has been -- apart from the outsized growth we've seen in participants in our global trading hours, otherwise, I think the user base has been pretty well distributed across those categories of market participants that Ed described in his comments, so it's very broad-based. This is somewhat of a guess, but I think that the percentage of those new users employing short strategies would be just about consistent with what the short strategy employment has been in the past, and you can see this in the ebb and flow. It's just one indicator, but you see this in the ebb and flow of assets in the two strategies, long and short. The application of the two strategies changes with market environment. Most of these new users are institutional representatives, and they'll appreciate that fact.

Let me give you just a little more color on the change in composition of our market participants, particularly in the VIX futures complex. From that same period -- Q4 '15 to Q4 '17 -- if you look at the ADV by origin, we split the origin into three broad buckets: Customer, firm, and market maker. I'm happy to explain some of the color one what each of those means -- firm being classic sell-side, customer being classic nonmember buy-side, and market maker being more member buy-side -- so, think real market makers in the market, proprietary trading firms, and that type. We've seen a growth of about 67% in customers -- so, classic buy-side really growing strongly. And then, we see growth that's similar, about 60% -- a little bit less -- in market makers. And then, firms have been fairly stable. The representation from firms is just a smaller cohort of market participants.

So, what this all means is that new customers -- new real, buy-side end users -- are coming into the VIX market. That generates activity from the market maker community at a ratio of about 3 to 1, so every new contract that comes in from a customer spins up approximately three new contracts from market makers, and that's the kind of benefit of having more participants doing more business in the VIX futures market.

Edward T. Tilly -- Chairman and Chief Executive Officer

Let me just add, Alex -- because it's kind of lost when we look at markets like this, but all of this growth is before the migration to Bats tech. So, the excitement around that globally and domestically about the enhancements and the upgrade in the performance that's expected in the order types and order handling -- we can't be more excited to introduce all of these users to new tech and then be able to go out and appeal to those that have been waiting for our technology migration. So, we think the timing moving into the February 25th date really couldn't be better. With all of the eyes around the world on our VIX futures contract and looking forward to a migration, we think the timing is great.

Alex Blostein -- Goldman Sachs -- Managing Director

Got it. Great, thanks, guys.

Operator

Thank you. The next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell -- Deutsche Bank -- Vice President

Great, thanks very much. Good morning, folks. Maybe just to come back, I guess it's the No. 1 question -- I totally appreciate everything you've been saying about the short vol, especially on Wednesday's call, but maybe for Slide 27, any sense of what those numbers would be pro forma for the entire VIX ETP usage? And then, if you were to expand that to what you think the portion is to short vol strategy. Even if we think that's going to continue, I think a lot of people are trying to get a sense of your exposure there. And then, if I can just sneak one more in, Chris, if you can talk about Hotspot, FX, and the volumes there increasing pretty dramatically next year, and maybe if you could talk about what's driving that for you guys.

Chris Concannon -- President and Chief Operating Officer

I'll start with Hotspot, and then we can talk about the VIX complex. Hotspot has been growing. It's been a very exciting 2017. The FX business is up 13% in revenue in a market that was, by most measures, down -- the overall FX spot market, by some measures, is flat to down, so we're growing in our market share as well as in our overall notional volumes. Really, what we've spent the last year working on -- and, it's really under Brian Harkins' efforts -- was looking inside our liquidity pool and really mastering matching the right liquidity with the right takers.

The FX market is a lot more complicated than a straight equity market, so we've deployed a great deal of data analysis, execution quality measures, pushing them out to our clients, and the clients are really reacting to them -- not only the market makers having better experience, but really, the takers are finding the right liquidity and the right pair. So, I would say it's the service level that we delivered combined with upgrades in our technology.

The FX technology has been upgraded from London to the New York platform, so it's running at much higher speeds with much higher turnover. I would add that the London matching engine has been really a driver of growth we're seeing. We've always planned that the London matching engine would be an opportunity for growth, and now, we're seeing it firsthand. That was the fastest-growing match for us -- as it should -- as we took on the competition in London. Again, Reuters is the only matching in the London area, so we're really attacking that London FX spot business.

Edward T. Tilly -- Chairman and Chief Executive Officer

On Cboe FX, Chris.

Chris Concannon -- President and Chief Operating Officer

On Cboe FX.

John F. Deters -- Chief Strategy Officer and Head of Corporate Initiatives

I'll speak to the first question, on Slide 27 and drilling down a little bit more. So, the first part of the question was if you could expand from the short ETPs to the direct volume from short and long ETPs, the total direct volume from short and long would be more like 7%, so it's not double the percentage of 4.4% that we showed you for the short. In terms of the -- outside of short ETPs, the overall VIX futures volume from those employing short strategies -- I can't give you a precise number there.

What we can say is that there are literally a dozen or more volatility trading strategies that our market participants employ, all the way from calendar spreads and roll strategies, to arb strategies, to long and short of a variety of stripes -- short-term short, long-term short, long-term long, short-term long. So, this is a strategy of many, and outside the ETPs, those who employed the short VIX strategy are true professionals.

So, this gets back to the point that we made earlier that the short VIX strategy is not going away, in particular for those market participants. We've seen it already in the last couple days since the volatility spike, and we have an event like we had earlier this week in terms of the short VIX strategy performance. When the volatility level -- when the level of VIX doubles, increases by 100%, once you increase by 100% and you reset to historic norms, you don't increase by 100% again, so it's really an exceptional event when the level of VIX increases and doubles in a matter of just a handful of days. That's occurred, and now, we're at a point where -- and, professionals know this -- the short VIX strategy tends to work quite well.

Brian Bedell -- Deutsche Bank -- Vice President

Okay, that's great color. Thank you.

Operator

Thank you. And, the next question comes from Ben Herbert with Citi.

Ben Herbert -- Citigroup Research -- Vice President

Hey, good morning. Thanks for taking my question. I just wanted to shift gears maybe to the OpEx guide and how you see run rate organic growth there versus what you might be spending on integrating the platforms this year.

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

If you think about the synergy and how that's built into the overall 1% to 3% target, I noted in my remarks about the incremental expenses that we'll see that while there are associated revenue line items attached to those items I mentioned, it's not necessarily a true -- there is an offset on the revenue side.

We typically have targeted -- as we have historically -- what I'll call a core growth rate in expenses. We're trying to limit that to a 3% to 5% range, and if you look at the impact of the synergies that are actually realized -- not just the run rate -- because the realized number is going to be a sum percentage of the run rate element, as you saw in 2017, and that number is closer to 75% of what the run rate was of what we realized. When you factor that in, I think we're still going to be in that range of 3% to 5% core expense run rate for the business as we roll forward. So, we still try to manage it within those parameters to say how well we're doing when we're trying to keep that expense line item in check.

Ben Herbert -- Citigroup Research -- Vice President

Thank you.

Operator

Thank you. The next question comes from Chris Harris with Wells Fargo.

Chris Harris -- Wells Fargo Securities -- Analyst

Great, thanks. So, I think the point you guys made the other night about long vol strategies coming back as vol normalizes definitely makes a lot of sense. I'm just wondering if there's any way you can quantify that for us. How much volume do you guys think has been out of the market over the last few years due to the extreme low levels of vol?

John F. Deters -- Chief Strategy Officer and Head of Corporate Initiatives

It's a good question. Because long and short strategies tend to flip back and forth a little bit over time, I think the overall volume exposure that we pointed to -- the 7% combined long and short -- is probably a fairly consistent number, almost more consistent in volume terms than it is in percentage terms. So, as we grow our VIX futures volume because of penetration of new customers, overseas penetration, et cetera, I'm not sure that percentage will maintain, but the volume certainly will maintain. I would point to -- I think the best evidence we have of the long vol strategy returning is the assets associated with long volatility ETPs because that's very transparent and it's a daily metric. We hit a record in assets a couple days ago and it's interesting to note that the last time we hit the record was at the beginning of 2016, during this time when the short vol strategy was hit hard, that we mentioned before.

So, it's predictable -- when the short vol strategy hits hard, people migrate to the long vol, and we hit records there. So, today, we're a little bit off that high that we had a couple days ago in terms of assets in the long vol strategy, but we're kind of in the ballpark of $3.1 billion for the long strategy today. So, clearly, it's a mathematical equation. There are dollars in the strategies, and the dollars in the strategies result in volume.

Edward T. Tilly -- Chairman and Chief Executive Officer

Chris, I'd add that we referenced on the call the other day the strategy that we have not seen wholly in a year and a half starts in VIX options, and it's actually just the vertical trade trading the level of VIX, and I probably didn't give a very good example the other day, but if you can imagine VIX at its historic level of $18.00 and the trade between $17.00 and $22.00 -- that's a really interesting vertical trade from an options trader's perspective. It's much more so when you're at low VIX and the options really let you trade the option change between $10.00 and $11.00 or $10.00 and $12.00. That gap becomes a trade in options. Those options -- that gamma -- is hedged in VIX futures. So, we haven't seen that because we haven't had any sustained level of volatility here. It's a trade that we've seen in years past. I would expect that given this environment, we will see that picking up again as well.

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

Chris, I'd just add that the notion of -- professional traders love to trade velocity. They love to trade products that have volatility. Now, we have -- if you look at 2017 with muted volatility, the vol of vol was also muted. In this environment, the velocity of the VIX has turned up another notch, and that becomes an attractive trade in and of itself regardless of short/long. The vol of vol is now a very attractive trade among professional users.

Chris Harris -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you. The next question comes from Chris Allen with Rosenblatt.

Chris Allen -- Rosenblatt Securities -- Managing Director

Good morning, everyone. I just wanted to ask about non-transactional revenues. You pointed to regulatory fees being down next year, some SIP pressure, and cash equities. I'm wondering where there is growth opportunity to potentially offset within market data, access fees, exchange service, and other fees.

Chris Concannon -- President and Chief Operating Officer

As we look over that landscape, I'm obviously not going to get into a specific projection of the revenues, but we'll take a couple of those items there. On market data, I think it's appropriate -- and, that's why we split it out -- yes, we think there'll be pressure on the SIP and, obviously, on the equities with industry consolidation and potential for our share as far as what happens to off-exchange trading on the equities side as far as that kind of flowing out that the proprietary growth -- while I can't necessarily project that that's going to have the same success rate, we do see continued momentum there. We do see continued growth on the proprietary side.

As far as the access fees, that's another opportunity where we see that something that has continued to have some positive opportunity as we rationalize across the exchanges and the services that we offer. So, we do think while it's going to come under pressure just because of the pure size of the SIP -- and, that's not going to grow as far as what it has in the past -- that we'll have a little bit of a drag on the non-transaction revenue category, even pulling out of the regulatory fees, which I would separate out as you look at the core non-transaction fees as far as that part of that offering. So, we do see some pockets of growth heading into 2018.

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

Chris, I would just add that when I look at the proprietary market data feeds, that's really where our largest opportunity is. We're continuing to see demand from overseas in our products, with a great deal of success coming out of Asia, also out of Europe. There is demand for U.S. equity real-time data at a cost that is much lower than the competition, so we're seeing that demand come in. That demand is very focused on U.S. ETFs. As the ETF market in the U.S. continues to explode and thrive and the products continue to do the things that they're designed to do, we're seeing international demand inbound, not only for those products as you look at the AUM growth, but as a result of that growth, they're also demanding real-time data. So, we're very excited about the growth opportunity in our proprietary data products in 2018.

Chris Allen -- Rosenblatt Securities -- Managing Director

Thanks.

Operator

Thank you. The next question comes from Kyle Voigt with KBW.

Kyle Voigt -- Keefe, Bruyette & Woods -- Managing Director

Hi, good morning. Just another question on the market environment for VIX trading. Ed, I know you said earlier that VIX trading remains attractive in any market condition, and you gave some good examples of that in the current environment, but I also think in early 2015, you cited this flat term structure of VIX futures as a key reason why the volumes were lagging in 2015 and into 2016 a bit despite an uptick in volatility at the time. I know we have this inverted term structure now, but if we move into an environment with a flat term structure, would that concern you? If not, what's changed?

Edward T. Tilly -- Chairman and Chief Executive Officer

Flat -- historically, we rarely remain flat, and as you point out, with inverted now -- the trade back into inverted -- you'll see a great deal of volume moving into that trade. It's just not sustainable. Inverted term structure is about 30% of the time, and it's not very long-lasting, as is flat. So, again, if you reduce down, there's been a lot written about VIX and volatility. VIX is a pure measure of the market's expected risk and the price of insuring a portfolio with the S&P 500. I can't say that enough.

Rarely, I do have a flat expectation over time. It's just not natural. When we look out over time, we're usually more uncertain over time, which is why there's that normal upward-sloping curve involved. So, I do think if we remain flat, some of the strategies obviously change, but they're never long-lasting from a historical perspective when we go back into that normal shape. So, I would expect while flat, a bit muted on some of the strategies, but the trade out of that flat is what we'd see coming into the marketplace, and our participants making trades accordingly. So, I would expect a return to an upward-sloping curve.

John F. Deters -- Chief Strategy Officer and Head of Corporate Initiatives

Kyle, just to support that, you really have to think about the different overall economic environment we're in now versus that time period in late '15 and early '16 where you've got real significant moves in rates and uncertainty about where the rates will unfold, you've got credit coming into question for the first time in many years, and you've got this choppiness in the equity market itself in terms of realized volatility. It all adds up to an entirely different situation from where we were in '15 and '16, where a flat yield curve actually reflected the sentiment.

Kyle Voigt -- Keefe, Bruyette & Woods -- Managing Director

Thank you.

Edward T. Tilly -- Chairman and Chief Executive Officer

Kyle, let me give you one more just to look at. We've used it in the past, and I think it's good to be mindful of it now, and it's the effect on realized vol on your expectations on implied volatility. So, this inverted shape right now is because realized is so high, and we've always said that that is an anchor when realized volatility is low and it's very buoyant to volatility and perceptions when realized vol is high. So, it's that relationship that's out of whack and that relationship that tends to be the trade, so keep an eye on realized, and that'll give you some guidance as to how that curve is going to change over time.

Operator

Thank you. The next question is a follow-up from Alex Kramm with UBS.

Alex Kramm -- UBS Investment Bank -- Analyst

Hey, thanks for squeezing me in. I just wanted to come back to Chris Allen's question for a little bit about the market data and other non-transaction fees. I think the answer was primarily around equities, but how about the futures business? You may have talked about this before, but as you do that migration in a month or so, that business will throw off a lot more market data like proprietary data and depth of book, stuff like that that didn't even exist in these old structures. So, considering the growing participation in the market that you've been pointing out, shouldn't there be a lot more market data that you can sell? I don't know if there's a fee schedule yet, but can you help us at all in terms of the opportunity there?

Edward T. Tilly -- Chairman and Chief Executive Officer

Great question. Thanks for helping me answer the question better. Absolutely, we're very excited about the futures migration. Heads down here. February 25th is the migration. We are not only putting in a new platform, but we're creating the opportunity for new data products. We have a depth-of-book feed that will be coming off of our futures platform, we have a top-of-book feed, and we have a great deal of demand. If you look at the chart that we showed you on the growth of the users of our CFE platform, that's also reflective of the growth of our data use, so every one of those users needs to have eyeballs on real-time data both top-of-book and now with the potential for a depth-of-book product that is typically priced at a higher-end price.

So, we're very excited about the opportunity with the new platform. Obviously, we're very excited about where the data will go. Our bitcoin futures launch put demand on our market data in our futures product, so we think with additional futures product launches over the course of 2018, the demand for that data will continue to grow.

Alex Kramm -- UBS Investment Bank -- Analyst

But, too early to talk about size, I guess.

Edward T. Tilly -- Chairman and Chief Executive Officer

Yeah, very early to talk about size right now, but my level of excitement is high.

Alex Kramm -- UBS Investment Bank -- Analyst

Okay. And then, lastly, one follow-up. The multiply listed options business doesn't come up a lot anymore because it's become a smaller piece, but those volumes have really surprised us this year, too. Any commentary in general about what's going on in the equity options market? I know there's been more volatility, but it seems like there's been more than people would have expected, so any comments would be helpful.

Edward T. Tilly -- Chairman and Chief Executive Officer

No. Look, in the more recent activity that we've seen, we've seen an explosion in volume in the multi-list options business. That's after several years of very muted, sometimes declined volumes, so we're excited about that recent activity, but I will tell you -- in 2017, even with the platforms being worked on and a lot of focus on replatforming our futures product, we were able to deliver growth in our multi-list options. So, one of the most exciting platforms that we delivered in 2017 was the complex order book on EDGX, and we've just seen record after record in our complex order book platform since the launch, and what's great about that is that complex order book was delivered as a production platform for our C2 platform, so that complex order book will show itself in a slightly different form in C2, but it's very exciting to see the growth of that and the opportunity that we have when we deliver C2 with a complex order book that looks very similar.

Alex Kramm -- UBS Investment Bank -- Analyst

All right. Thank you again.

Operator

Thank you. At this time, I would like to return the call to management for any closing comments.

Deborah L. Koopman -- Vice President of Investor Relations

Thank you very much for your interest today, and we look forward to speaking to you. Thank you.

Operator

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 64 minutes

Call participants:

Edward T. Tilly -- Chairman and Chief Executive Officer

Brian N. Schell -- Executive Vice President, Chief Financial Officer, and Treasurer

Chris Concannon -- President and Chief Operating Officer

John F. Deters -- Chief Strategy Officer and Head of Corporate Initiatives

Deborah L. Koopman -- Vice President of Investor Relations

Richard Repetto -- Sandler O'Neill & Partners -- Principal

Sameer Murukutla -- Bank of America Merrill Lynch -- Analyst

Kenneth Worthington -- JP Morgan -- Analyst

Alex Kramm -- UBS Investment Bank -- Analyst

Alex Blostein -- Goldman Sachs -- Managing Director

Brian Bedell -- Deutsche Bank -- Vice President

Ben Herbert -- Citigroup Research -- Vice President

Chris Harris -- Wells Fargo Securities -- Analyst

Chris Allen -- Rosenblatt Securities -- Managing Director

Kyle Voigt -- Keefe, Bruyette & Woods -- Managing Director

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