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Cboe Global Markets, Inc. (NYSEMKT:CBOE)
Q2 2018 Earnings Conference Call
Aug. 3, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Cboe Global Markets 2018 second quarter financial results conference call. All participants will be in listen-only mode. Should you need assistance, please speak to our conference specialist by pressing the * key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your touchtone phone. To withdraw your question, please press * then 2. Please note, this event is being recorded. Now, I'll turn the conference over to Debbie Koopman. Please go ahead, ma'am.

Debbie Koopman -- Vice President, Investor Relations

Thank you. Good morning and thank you for joining us for our second quarter earnings conference call. On the call today, Ed Tilly, 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 second quarter 2018 financial results for an updated guidance for certain financial metrics. Following their comments, we will open the call for 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'll 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 FCC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publically update any forward-looking statements whether as a result of new information, future events, or otherwise after this conference call. Also, note that references made to the planned migration of the Cboe options exchange is subject to regulatory review. During the course of the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings material. Now, I'd like to turn the call over to Ed Tilly.

Ed Tilly -- Chairman and Chief Executive Officer

Thank you, Debbie, and good morning and thank you for joining us today. Before jumping into our quarterly report, I'll touch on yesterday's announcement of our plans to transfer the primary listing of our company's stock on our own exchange on September 17th, 2018 under our existing ticker symbol CBOE. The move leverages the strengths of Cboe Global Markets and as a leading equities market operator; it is a point of pride internally to exclusively list our stock in our own venue.

I'm pleased now to report on a strong quarter 2018 at Cboe Global Markets where we increased our adjusted earnings per share by 21% year-over-year to $1.05 with a net revenue of $284 million, which was up 6%. Additionally, as we announced earlier this week, our board increased our share repurchase authorization by $100 million and raised the third quarter cash dividend by 15% to $0.31 per share. This marks the eighth consecutive year that our board has raised our dividend and the second time this year we increased our share repurchase authorization reflecting our confidence in the future cash flow generating capabilities of our business and our ongoing focus on efficiently allocating capital to create long-term shareholder value.

Turning now to volume in the second quarter and a look at the environment going forward. We continue to see notable success in our FX market, growing average daily notional value for the second quarter by 38% from the prior year. In addition, we saw healthy growth in our European equities driven primarily by stronger revenue capture. The major growth story for the quarter, of course, was the ongoing double-digit growth in SPX options.

Trading in SPX options, the most widely traded index options complex in the world, increased 18% for the quarter. Together, VIX and SPX form a powerful set of risk management tools for investors globally. As we've said in the past, traders are becoming increasingly attuned to the unique properties of our products and used them opportunistically to hedge, generate alpha, or simply take a position on the direction and volatility in the US stock market.

Clearly, market conditions in the second quarter favored SPX options as a more cost-effective way to hedge market exposure and to monetize market moves than VIX options on a relative basis. The choppy trading we saw in the weeks following February 5th continued into the second quarter. Daily closed to closed and intraday moves in the S&P 500 were on average two times greater than before February and created opportunities for SPX options traders looking to monetize those price swings.

At the same time, our VVIX index, which reflects the cost of VIX options continued to trade at historically elevated levels. While market conditions were favorable for SPX trading in the second quarter, the lingering instability in the VIX futures term structure made it difficult for traders to consistently harvest the roll down premium measured by the difference between first and second-month VIX futures prices. This premium is important because it generates returns for short volatility strategies using VIX futures and volatility-related ETPs.

As the VIX futures curve moved back and forth between upwards sloping and flat, the average roll down premium was only about a third of what it was in 2017. Recently though, we have seen a return to the stable, upwards sloping pattern that is more conducive to short volatility strategies. In July, the VIX futures curve was in contango every day and the average roll down premium recovered to just under 2017 levels.

With stock prices largely recovering from their February lows and the ever-present threat of a global trade war, we are seeing growing demand from market hedges. Not only has SVX options volume remained solid but in May and June, we began to see more large trades and VIX options as the VIX index trended below 15 for the first time since February and averaging just over 13 in July. We said many times before that we expect market conditions to change. And we expect a shift in how traders use our products when markets move and opportunities change. We are confident that our SPX and VIX products offer a complementary set of trading tools to manage risk in any market environment.

I'll note here that in the face of recent liquidity challenge in other global markets, we are particularly encouraged by growth in the displayed size and our proprietary SPX and VIX options, which in each of the past two months has exceeded every month in 2017. Since moving SPX options to our hybrid-trading platform at the end of April, displayed sizes increased significantly and currently averages over 500 contracts. With consistent volume growth and now displayed size of $150 million of notional value on average, our SVX option complex offers a robust set of trading tool for traders around the world and continues to be the go-to-market for hedging US equities.

Regardless of market conditions, we remain laser-focused on our commitments to product innovation, seamless trading solutions, and leading-edge technology. I'll take a few moments here to provide an update on strategic initiatives. As traders regroup on the volatility front and as we come out of a typical summer trader season, we are geared up to expand our risk management conference program this fall with the addition of a mini RMC to be held in Tel Aviv in November. Our Tel Aviv event will follow this year's annual RMC Europe and Ireland and will proceed our annual RMC Asia in Hong Kong. We have seen strong trading and growing interest in VIX futures and options in the Israeli market and look forward to introducing RMC to the region. We will continue to use this one-day mini RMC format based on customer demand and where we see strong potential to increase trading in our proprietary products around the globe.

We've leveraged our product innovation expertise to tap into the growing corporate bond marketplace with the creation of Cboe iBoxx futures, which we plan to launch later this quarter subject to regulatory review. Cboe iBoxx futures are expected to allow market participants globally to officially participate in the $8.5 trillion US corporate bond market and to hedge the corporate bond credit risk of ETFs or US treasury bonds with a standardized centrally cleared trading vehicle. We have received a very positive customer feedback on this product, which will be the first exchange-listed futures product linked to a broad-based corporate bond index. We are pleased to be working with BlackRock and market to take iBoxx futures from product concept to tradable reality.

IBHY futures represent a significant first step for Cboe into the credit space and we intend to further expand our presence in that space through ongoing collaboration with the market. We're also working diligently to prepare our business for the post-Brexit world. On July 3rd, we announced plans to establish a new venue in Amsterdam, which leaves us well positioned to continue to serve customers across Europe after the UK's planned exit from the European Union. We believe the Netherlands is supportive of competitive and open financial market infrastructures and Amsterdam is a well-known location for us given our ownership stake in Pan-European clearinghouse EuroCCP, which is also based there.

Additionally, we have long-standing good relations with the Dutch authority for financial markets, AFM and Central Bank, which we believe share a deep understanding of the equities and derivatives markets. We will continue to operate our existing recognized investment exchange in the UK and our intention is to offer similar services in both the UK and EU venues. Mark Hemsley and the team are working closely with our European customers who are also busy executing Brexit plants to ensure preparedness.

Turning now to the migration of Cboe exchanges onto batch proprietary technology. We successfully completed our on-time migration of C2 options exchange on May 14th and are now fully engaged in the migration of Cboe options exchange targeted for October 7th, 2019. The completion of the CFE and C2 migrations and the introduction of several technical enhancements and preparation for the Cboe migration leave us well on track to our ultimate goal of providing our customers with a common, world-class trading experience across all of our equities, options, and futures markets.

In closing, I would like to thank our team for another strong quarter. We continue to lay the groundwork for future growth with our planned rollout of iBoxx futures by expanding global educational efforts and by advancing our technology integration. I look forward to all we can accomplish to power the potential of our customers and shareholders in the coming months and quarters. With that, I will now turn it over to Brian.

Brian Schell -- Executive Vice President and Chief Financial Officer

Thanks, Ed, and good morning, everyone. Before I begin, my comments relate to 2Q18 as compared to 2Q17 and are based on non-GAAP adjusted results. As Ed already noted, we reported solid financial results for the quarter. In summary, our net revenue grew 6% with net transaction fees up 5% and non-transaction revenue up 8%. Adjusted operating expenses increased 5%. Adjusted EBITDA of 188 million also grew 5%. And finally, our adjusted diluted earnings per share grew 21% to $1.05.

The press release we issued this morning in our slide deck provide the key operating metrics on volume and revenue capture for each of our segments as well as an overview of key revenue variances. Additional disclosures can also be found in our form 10Q filed this morning. At this point, I'd like to briefly highlight some of the key drivers influencing our performance in each segment.

In our options segment, the 8% increase in net revenue was primarily driven by higher net transaction fees from our index options, which resulted from a 9% increase in revenue per contract offset slightly by a 1% decrease in average daily volume. The increase RPC primarily reflects a shift in the mix of index products traded with more coming from SPX options as well as pricing changes implemented to the beginning of the year. While market share was down in our multi-listed options business, this was more than offset primarily by higher RPC as we attracted more profitable flow to our options market as well as higher industry volumes.

Turning to futures, the 13% decrease in net revenue resulted from a 16% decrease in ADV and a 7% decline in RPC with the latter reflecting a shift in the volume mix toward participants qualifying for lower trading fees. To enhance revenue capture, we recently modified the fee schedule for VIX futures with changes effective August 1st.

Turning to US equities, net revenue grew 4% primarily driven by higher market date of revenues, which was up 8% in the second quarter with SEF market data revenue up 4% and proprietary market date up 22%. The increase in SEF revenue was primarily due to audit recoveries. Looking at the growth in our proprietary market data revenue, the majority came from pricing changes implemented at the beginning of the year. However, about 20% of the increase this quarter came from subscription growth. We expect continued growth and proprietary market data in 2018 as we benefit from pricing changes in customer response to our Cboe one product. And absent any additional audit recoveries, which are unpredictable, as well as any pricing changes, we expect downward pressure on SEF market data revenue due to industry consolidation.

Net revenue for European equities increased 26% on a US dollar basis, reflecting growth in both net transaction and non-transaction revenues as well as the strength of the pound sterling versus the US dollar. On a local currency basis, net revenue increased a healthy 12%. Higher net transaction fees were the key growth driver, reflecting favorable net capture despite a 2% decline in market volumes. The higher capture resulted from strong periodic options volume, which has a higher relative net capture, as well as price changes implemented January 1st. Given the better than expected response to our periodic options and assuming no significant mix shift, we do expect the capture rate for the second half of the year to be in line with the stronger rate we reported for the second quarter.

The increase in market data fee, the nexus fees, was primarily due to price changes implemented on January 1st. Net revenue for global FX grew 33% this quarter with revenue nearly matching our record first quarter. While second quarter volumes declined modestly versus the first quarter, it grew 38% year-over-year and our market share remains strong at 14.9%. While growth in the overall FX spot market has been favorable, we continue to believe our market share is a result of our ongoing technology enhancements as well as more effective liquidity provisioning.

Turning to expenses. Total adjusted operating expenses of $106 million for the quarter up 5% compared with last year's second quarter. The key expense variance was in compensation and benefits resulting from one; higher salaries, primarily a result of annual salary adjustments and lower capitalization of wages related to software development. And two, higher incentive compensation, which is in line with our year to date financial performance and differences in the timing expense recognition versus last year as we harmonized bonus programs under the combined company.

As we pointed out on our last earnings call, there are several incremental expenses impacting our year-over-year comparability, such as expenses associated with the Silexx acquisition, the increased strength of the pound sterling, and the gross-up of author-related expenses. In total, these accounted for about 3.5 million in incremental expenses this quarter with the currency impact being the largest. If you also adjust for those items, expenses would be up about 1%. We are reconfirming our full year expense guidance to be in the range of 420 million to 428 million. In the second quarter, we realized $4.2 million in pre-tax expense synergies primarily from compensation and benefits bring the year to date expense synergies to 7.2 million.

Turning to income taxes. Our effective tax rate on adjusted earnings in the quarter was approximately 29%, above the high-end of our annual guidance range of 26.5% to 28.5% but in line with the guidance, we provided on our last earnings call. The effective tax rate on adjusted earnings in the second quarter of 2017 was 36.2%; the decline primarily reflects the favorable impact of corporate tax reform.

We are reaffirming that we expect the annual effective tax rate on adjusted earnings to be in the range of 26.5% to 28.5% for 2018. The tax rate for the third and fourth quarters expected to be at the higher end but within our guidance range. In addition, we are lowering our guidance for CapEx and for depreciation and amortization. We now expect CapEx to be 35 million to 40 million versus our previous guidance of 45 million to 50 million. This change reflects more efficient technologies spending and lower software development capitalization. We are also lowering our guidance for depreciation amortization to 43 million 48 million versus our previous guidance of $53 million to $58 million, reflecting in part the lower CapEx.

Moving to capital allocation. Our strong financial results, cash flow generation, and financial position enabled us to reprioritize our capital deployment this quarter in favor of share repurchases, while also investing into the growth of the business and making dividend payments. We returned nearly $79 million to our shareholders this quarter through more than $48 million of share repurchases of our common stock and $31 million of dividends.

In addition, as Ed mentioned, our board increased our share repurchase authorization by $100 million and raised our third quarter cash dividend by 15% to $0.31 per share underscoring our unwavering commitment to enhancing value for our shareholders in part by returning capital directly to them. Year to date through July 31st we have repurchased approximately 1.1 million shares of Cboe common stock for nearly $122 million. We ended the quarter with adjusted cash in investments of $116 million with our leverage ratio and our leverage ratio was unchanged from last quarter at 1.6 times.

In summary, Cboe delivered solid quarterly results and continued to demonstrate our focus on growing our proprietary index products as we prepare to expand into a new asset class by launching the first broad-based US corporate bond index futures, growth in a diverse set of revenue streams, disciplined expense management, leveraging the scale of our business producing higher operating profit margins, and integration plan on track, an ongoing focus on capital allocation by continuing to return capital shareholders through quarterly dividends and share repurchases and even raising the quarterly dividend. And with that, I'll turn it over to Debbie for instructions on the Q&A portion of the call.

Questions and Answers:

Debbie Koopman -- Vice President, Investor Relations

Thanks, Brian. At this point, we'd 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

Thank you. And again, as a reminder, just press * and then 1 to ask a question. The first question comes from Rich Repetto with Sandler O'Neill.

Rich Repetto -- Sandler O'Neill -- Analyst

Good morning, guys. I guess the first question is on everybody's mind but can you give us any comfort that the volume slowdown in July is seasonal or cyclical rather than anything that's more permanent? Can you give us an anecdotal -- what you're hearing from clients, et cetera? Because we're seeing this across the board.

Ed Tilly -- Chairman and Chief Executive Officer

Good morning, thanks for the question. We have seen across the board. I think for us and what we're hearing from the marketplace and feedback is the strategies that have been employed over the last couple of years. This really gets to, Rich, probably a second part that you're thinking; how much of this is just the major market is cyclical and how much of this is actually structural in the marketplace? I point out a bright spot right out of the gate. And SPX continues to really draw the attention of those hedgers and those that are looking for position in the US market.

So if we kind of keep SPX to the side and just talk about volumes in general, I think what we're expecting in this market is a return to a lot of the strategies that were present prior to February 5. And what do I mean by that? We purposely showed you roll down strategies in premium harvesting that have just basically gone away and are now with a structure in the VIX structure coming back. I would expect to see those trades coming back into our marketplace showing up in VIX options and VIX futures. Can't guarantee it; but the market is setting up for the reemployment of those cyclical strategies that are really coming to market when we have a term structure, a risk profile that our customers are used to seeing.

So I would expect in this market condition to see a return of that. As for the market in general, we've seen some shifting in volume. We've seen some pretty good uptake in multi-list options. I think that shows where the retail heart is. Basic options, strategies that perform well in any marketplace. Retailers going back to the basics with pure and simple overwrite strategies. So while we can't predict exactly what will happen in the months to come, the way the market is setting up is favorable to trades that we have seen in the past. So, again, impossible for us to predict volumes going forward. We've never been very good at it. But we will tell you that the structure of the marketplace is setting up for a continuation -- or a furthering of some of the strategy we see in the past. Chris, anything to add?

Chris Concannon -- President and Chief Operating Officer

No, just I think the FDX growth that we've seen year-over-year in the quarter and then year-over-year even in July is reflective of the liquidity in the SPX and some of that is related to the replatforming to hybrid. I think it's important to point out that we have made structural changes to that product and we're really feeling the benefit of those structural changes.

Ed Tilly -- Chairman and Chief Executive Officer

And I think those changes go to your point, it really shows up in that liquidity. So when there is a need to employ those various strategies, the liquidities in the marketplace is certainly in the SPX to Chris' point and we see it also in VIX options. So there is liquidity ready and when there is the demand coming from the customers, we're confident that our market will be able to satisfy those needs.

Rich Repetto -- Sandler O'Neill -- Analyst

Thank you, I know Chris is working on his volume and generation machine and you've got to get that cranked up as well.

Ed Tilly -- Chairman and Chief Executive Officer

If he can make it so, he would, Rich.

Chris Concannon -- President and Chief Operating Officer

It's working in FX, Rich.

Operator

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

Ken Worthington -- JP Morgan -- Analyst

Hi, thank you for taking my question and I apologize for the background noise. You've pursued a number of pricing changes this quarter and I guess you are always pursuing pricing changes. But you changed prices for product holders in VIX. I apologize; I missed it, what's the impact you see on RPC there? And in the past, I think you said that VIX is working well and you didn't want to muck with the pricing. Why is now the right time to make changes there? And then you made changes in port and just disaster recovery fees. As you think about the pricing power you have in conductivity and data and given depressed activity level flatly, what are your thoughts on now being the right time to be more aggressive on pricing there? Thank you.

Brian Schell -- Executive Vice President and Chief Financial Officer

The first part is that obviously, we can't give a prediction on the pricing, is where that will look. I think what we talked about as far as a sin quarter reflect were a couple of things as far as the dynamics of a lower RPC during the quarter with seeing some of the block trading volume going away. Some of it related to the ETPs that was associated with some of that volume in the VIX futures market, which without that patent can generate a lower capture of what we'll see.

And we also saw with some of the volume mix we saw some of those more significant players who are actually qualified at the lower tier. So that was the mix. The overall change absent some of that we would expect to see an increase, so call that some level of baseline up from where we saw it obviously the last quarter. But absent some of the other mix changes that I previously referenced, I wouldn't set the expectation that we'll be back to where we were say, 2Q of last year when we had that different mix of client volumes.

Chris Concannon -- President and Chief Operating Officer

I'll just add; we have been looking to change the VIX future's pricing. We looked originally to change it at the beginning of the year with some of our other annual pricing adjustments. We chose to delay that because we were migrating to the VIX platform on CFE. We wanted to look at the behavioral changes post that migration and what we saw was quite attractive for a pricing adjustment. So this pricing adjustment is, I would say, long overdue. It was really to eliminate the day trader rebate that we had that would create some of the mix from quarter to quarter. So this should create a much more stable RPC, a much more attractive RPC over time.

And more importantly, we paused because of that migration and now we're happy with the results of that migration. With regard to your question around what I call non-transaction revenue, we have a very healthy balance with our clients to not overcharge but continue to grow that area of our business where we charge for access, we charge for data, we charge for connectivity. So it's a careful balance that we have. Certainly, our proprietary market data continues to outperform in terms of growth, new clients, new subscriptions, and that's the best way to grow that revenue is really adding new clients. So we're very excited about that.

John Deters -- Chief Strategy Officer

Definitely look at page 31 where we break out that mix that Chris was talking about in terms of our segments. For the segment that has the greatest volume headwinds, the futures segment; really mark non-transaction revenue with more opportunity than it is risk.

Operator

The next question comes from Alex Graham of UBS.

Alex Graham ­-- UBS -- Analyst

Good morning everyone. Actually, thanks for the segue just there because the one thing I wanted to ask about is actually on page 31. Maybe too small of a number to harp on but in the futures segment, I did notice that the exchange service is another fee, which are only $1.7 million but they were down 50% quarter-over-quarter. So when I look at that number and I look at what's going on, your VIX franchise looks like some clients are massively paying you less or something, which is, I don't know, connectivity or whatever. So maybe you can just flesh it out a little bit and maybe, in particular, say what client types you've seen pullback in that area because obviously, that's something people have been wondering about for a while. Thank you.

Brian Schell -- Executive Vice President and Chief Financial Officer

I think that -- it is a nice segue from Chris' earlier point about -- we look at different parts of the business collectively as you look at non-transaction fees. And as we've looked at A. a shifting of the new technologists implemented and the services we provide with the underlying batch technology some of that non-transaction revenue may fall in the different buckets of where we've categorized it from just a pure accounting standpoint. In a way, we look at access fees and exchange services in other fees very collectively so I wouldn't get too focused on the differentiation of growth from one category to another.

This is really of how we ended up implementing some of the tech and how we charge for it kind of falling into the different bucket, shifting more into the access fees and how we deliver that value. If you look at the stats and look at the capacity that our clients now have on the CFE platform and the speed and what they're able to do -- some of that's reflected in those services. So that's showing up more in access fees versus a decline or people running away from exchange services and other fees.

Ed Tilly -- Chairman and Chief Executive Officer

Alex, you really just need to look at that page and add together at least the two access fees in exchange services. I even add together market data fees to point out again that there's more opportunity than risk in these items for CFE.

Operator

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

Ben Herbert -- Citi -- Analyst

Hey, good morning, thanks for taking my question. I appreciate a lot of the discussion around mix in the fixed features complex but just wanted to go back to -- there was a slide last quarter on CFE new user accounts and if you could just kind of give us some update around growth there quarter-over-quarter and then anything you're seeing there?

Chris Concannon -- President and Chief Operating Officer

Obviously, we focused on the user accounts, really the active user accounts in and around our migration. The most important thing we were studying was making sure that the story continued from the active users prior to migration and active users post-migration. So that's why -- that was the story that we were trying to convey in the last quarter because it was strictly around the CFE migration. We also looked at our activity on the C2 migration and the mix certainly was successful in the migration of C2. It was really more focused around the migration and continuing the activity around that migration.

Ed Tilly -- Chairman and Chief Executive Officer

I think Chris, to your point, bringing that up was very important. We had a lot of CFE users who had never written to bats tech, different than C2. So very important and mindful of that number as for the first time some of those customers were writing to and using that tech.

Operator

And the next question comes from Jeremy Campbell with Barclays.

Jeremy Campbell -- Barclays -- Analyst

Thanks. Just back to the VIX, I guess for a second here. And we've talked ad nauseam about a lot of the issues happen since February but we kind of put some of the structural issues around EPPs and the shape of the curve aside where there isn't a ton of visibility in volumes. How do you think about the secular demand for your VIX products that would move volumes higher? And where do you see that next level of incremental demand coming from? Is it global users? Retail adoption now that EPPs been delivered a little bit? Or something else? How are you thinking about that?

Ed Tilly -- Chairman and Chief Executive Officer

That's a great question. I think what we'll see in this marketplace -- we're setting up and have begun to see, if you remember, the $0.50 premium option hedging strategy that was really common for us last year. Those trades are coming back into the marketplace where, and I reference VVIX as really a good look for you all into the relative price of hedging with VIX versus askew, which might give you a pretty good look of the relative cost of hedging with SPX.

We see the VVIX lining up and then we've seen the 50,000-lot trader come back into the marketplace. What's still missing is that million-contract trade that we saw at the end of last year and into and up to February. The market's setting up for that trade as well. I don't know that they'll come back but I would anticipate in this market environment that the structure is perfect for those strategies. And as you know, there are tagalong or copycat strategies that go along with the 50,000-lot trade and a smaller version of the million-contract hedge for the unknown-unknowns.

I expect to see that volume either come back and then grow as a result. As for structurally and retail, what we're noticing with the really simple strategy -- and I'll go back to that roll down premium and how that's changed. Really easy to take a position that you collect money that rolled down collection and inverse ETPs. That was really simple. The ETP that won't be named that went away, and then the delivered S60 -- it was really a buy, forget, and take advantage of the roll down. What we're noticing is the most sophisticated ETP traders, the retail customer base, showing up and shorting VXX. It's the same position and collection opportunity in the roll down as being longly inverted. So as the user is looking to employ the same strategies that were very successful in a normal volatility structure that you point out, the pividend of VXX is the same exposure to roll down and we've seen the short interest in VXX grow.

So that's our answer. It takes education and persistence and that's what we're out there doing. But we need a marketplace that's something to point to and we're finally coming into that market where we can go back to the street and say, 'Hey, this is pretty familiar, it's what you're used to,' and from there I would expect to see some of those strategies coming back.

John Deters -- Chief Strategy Officer

To the point of secular shift, the way to think about this premium capture that Ed was talking about, it's an insurance marketplace. You've got insureds who are buying insurance and you've got insurance writers. And we had a hurricane event in February. Ed used the word "regroup" earlier in the prepared remarks and you've got always after an event like that there's a regrouping where the insurance writers assess their participation in the marketplace, the insured reds assess their needs for insurance. But the risk, the volatility risk that our traders hedge in our marketplace that is a constant. There's nothing secular about that. We've got every confidence that when people do go through the regrouping process, the needs that we provide in our marketplace exclusively will really resonate.

Operator

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

Michael Carrier -- Bank of America -- Analyst

Thanks, guys. Brian, maybe on some of the guidance that you gave. Two maybe clarifications. So first, just on the market data. You mentioned the SEF likely trending lower but proprietary you're still seeing growth. I just on a net basis, do you still see some growth in that overall business? On the expense guidance, you guys kept it the same but depreciation amortization was lower. So just wanted to understand sort of what was the offset to that. If we do remain in a muted volume backdrop, do you have some flexibility particularly on the comp just given that we saw some increase there?

Brian Schell -- Executive Vice President and Chief Financial Officer

Let's talk about the market data first. The big unknown, obviously, with the SEF is -- what's been a somewhat of a variance has been into the audit recovers. Like I said earlier in the comments, that they are somewhat unpredictable. Overall, we still are optimistic about that growth just given the success of the proprietary. And that's actually been outpacing on a percentage basis and the overall dollar contribution on a year-over-year basis of each quarter has been helping to carry that category even though the SEF revenues may be flattish given where they are. So we still remain optimistic given both subscriptions, flash user growth, and the pricing changes that were implemented. We still see the growth there, we're still optimistic, and that really hasn't changed. Any variance on the upside has been the audit recoveries and certainly that we've seen so far in 2018.

On the expense guidance -- and again, on the proprietary like I said, with that 22% growth rate we had, that's been the trend the last several quarters. Like I said, so we're continuing to be excited about the work that we're doing there as that expands geographically and across other aspect classes. On the expense side, the couple of dynamics that are going on there with respect to comp; if volumes say, for example, in that scenario you talked about are muted, they don't necessarily growth to a level of expectations.

One of the self-correcting mechanisms we have within comp is the bonus element which a lot of times is based on expectations set at the beginning of the year of how we're gonna do in various measures respect to revenue growth or earnings growth. And as that becomes potentially more muted, that amount will fall and so that accrual will be less and actually may even reverse itself. So you'll see some contraction in that number.

The other thing that's actually potentially driving it up a little bit is the capitalized wages that I mentioned earlier is the technology team on the upside is that they are doing a very good job from an efficiency standpoint of spending less dollars from a cash flow standpoint but that goes into how they're actually capitalizing and how we look at that. They're actually capitalizing less wages than they did last year. It has a slightly negative GAAP impact but it shows up obviously in a slightly higher expense but net as far as overall results it ends up being a more efficient cash flow spend. So that's maybe elevating that a little bit more than what you might've expected as well.

Operator

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

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks, good morning, folks. Maybe just to go back to the set up that you talked about in terms of the increasing usage of vol fall structure. We are seeing a little bit of pick up in VIX futures just in the last few days. But if you can talk about maybe the interplay between the SPX options complex and the VIX options complex in whether all of the RPC increase in the second quarter versus the first quarter was due to the premium RPC on the SPX? And then, as we move forward into this quarter to the extent people embrace VIX options more, will we see a substitution effect back to the VIX options? A lot of things you talked about, Chris, was the SPX options, do you think that would be independent? We could see an environment where we could see an improvement in SPX options volumes this quarter in conjunction with increasing usage of the short vol strategies?

Ed Tilly -- Chairman and Chief Executive Officer

Let me try to maybe ask it one other way and see if I'm capturing your intention, I'll ask Brian to speak to specifically the mix and how we benefited from a pivot on some of the S&P 500 hedging moving into SPX and the difference there. I think as I can make it -- what I'm hearing is if we see a change to the normal term structure, does all of the increased volumes we see in SPX, does that just go back into VIX and the entire complex just remain flat? Is that a simple way?

Brian Bedell -- Deutsche Bank -- Analyst

Yeah, it's a two-part question. It's one on the durability of the short vol strategies and then yes, exactly what you just said in terms of that mix.

Ed Tilly -- Chairman and Chief Executive Officer

I do expect some movement if you're hedging the S&P 500 with SPX and you've not gone into VIX basically because VIX call options are historically at a higher level than they have been so you need to hedge your 500 in, you've gone into the SPX. I think we will see some shift back into VIX. But what is completely missing is just the opinion on volatility and the strategies around vol. Those come back and they don't come from typical SPX users. That is an opinion on the term structure. There is a trade up and down the term structure that just goes away when it's flat.

So there are those strategies that are now sidelined or have been on the sideline and that is taking a position in the difference between a front-month that might be 13 and a back month that's trending to the average of roughly 17.5. So all of that trade is not dependent on the 500. Those are roll down and premium harvesting strategies found in the term structure, found in option positions in the VIX complex. So there are strategies that are just not in the market today. So I hope that gives you a little look. Oh, and the $0.50 a great example of that, right? And so is the million contract trade that is using volatility to take an expression in a look forward in vol. as for the mix shift in the benefits, Brian, I think maybe you can take the second part of the question.

Brian Schell -- Executive Vice President and Chief Financial Officer

That may have been whether people looked at the result and the growth in the options segment while some of the index options volumes was somewhat muted from a year-over-year from peer contract growth rate. You saw all the RPC increase 9%, largely reflecting an -- and all of this will be kind of high level numbers -- if you think about the pure VIX SPX mix of going 60% SPX and VIX being roughly 40% from a year ago period to this period of more of a 70-30 mix SPX to VIX, you'll see that 9% improvement or roughly a $0.06 improvement on a rate per contract. You can see how just that pure mix shift was very favorable, obviously, to the top line and bottom-line result. So you can see can be very powerful from that extent despite the flash volumes from a year-over-year basis.

Operator

The next question comes from Alex Blostein with Goldman Sachs.

Alex Blostein -- Goldman Sachs -- Analyst

Thanks. Hey, good morning, guys. Question for you around the multi-listed options business. Looks like the volumes there really kind of buck into trend a year-over-year if you look at third quarter results so far. Any sense of what's driving that? Is it retailers, is it something else? And then maybe hit on the Cboe Bats combine market share slipping but still on the Cboe side of what's driving that? Thanks.

Ed Tilly -- Chairman and Chief Executive Officer

Really, in the multi-list, we've been very excited about seeing the overall market growth for the first time in a number of years and it's really driven by retail demand, retail stepping back in. Two options in the use of options. Even in this environment, that's impressive to see given a global volume challenges that we're seeing in other markets. So we're excited about multi-list. We made a capture decision at the beginning of 2018 around our various markets.

Obviously, we have four of them all offering very different products to our clients. That capture did impact our market share relative to the market but overall very happy with the outcome of adjusting capture up to the detriment of market share. We're very comfortable with our position going forward. And obviously, we have one major migration left. That's our C1 platform. We're excited about the performance of C2 and EDGX because it's carrying many of the different features and functionality. So we continue to be excited around our market share and our capture prior to our migration in 2019.

Operator

The next question comes from Chris Harris with Wells Fargo.

Chris Harris -- Wells Fargo -- Analyst

OCC is under investigation by a few regulatory agencies. Wonder if you guys could comment as to whether there's any potential negative implications for CBOE?

Ed Tilly -- Chairman and Chief Executive Officer

We obviously, I was just on the board of OCC, and we're not gonna comment on any speculation around investigations from a regulator just in general. So until there's actually print from a regulator, we'll have no opinion on articles written in speculation around OCC.

Chris Concannon -- President and Chief Operating Officer

I will just add we just recently saw an FCC approval of an OCC clearing fund filing, which is an important indicator the FCC's recognized how the formula works and there is an expected reduction in the clearing fund going forward. That is beneficial to all of our products, our multi-list products as well as our proprietary products.

Operator

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

Kyle Voigt -- KBW -- Analyst

Hi, good morning. Sorry if I missed this, but just a question on moving your listing from NASDAQ to your own exchange, I think that's previously a target of entering the corporate listing space at one point but then shelved those ambitions to focus on ETP listings. Should we be correct in thinking that Cboe Global Markets isn't the only corporate listing you'd expect to eventually list on your exchange? And maybe just an update on thoughts and strategy.

Ed Tilly -- Chairman and Chief Executive Officer

Look, we've been highly focused on the ETP listing market. We think our opportunity to continue to grow that market and continue the success we've had in listing ETPs. We now account some of the largest issuers of ETPs across our market. Just recently added First Trust to one of the larger ETP issuers. So we're excited about the ETP listing business being listed on both Cboe's exchange as well as NASDAQ isn't the way we wanted to sell our ETP listings to our favorite issuers.

We wanted to reflect our belief in our ability to be a primary listing by switching our listing to be primary with Cboe exchange. As we look at the lack of success that IEX has had in the corporate listing area, we would expect a very challenging business opportunity in corporate listings. We don't sit here very excited about corporate listings and all of our focus is on ETP listings and the continued success we can have there.

Operator

Thank you. The next question comes from Patrick O'Shaughnessy with Raymond James.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning. Can you speak to the feedback you've received from market participants on your planned corporate bond index futures contract? On a somewhat related note, whether you have plans to build a presence in the credit space or whether your plans to build a presence in the credit space extend to play in a role in the cash credit market.

Ed Tilly -- Chairman and Chief Executive Officer

Great question because you brought up one of our favorite recent products, the iBoxx iShares futures product. The feedback we've gotten since the announcement has been exceptional. It's the first time that Cboe is talking to some of the credit funds in the market. So it's a very exciting conversation for us. The demand has been quite high from not only the end users finding some benefit to the product but also our bank partners seeing a great opportunity in having a cleared corporate bond index future. Overall, we also -- the other benefit that we've seen and demand we've seen is propriety market makers that are making markets in the iBoxx ETFs are excited about having a hedging instrument in the futures market as well and these are really the identical players that are in our VIX futures and in the VIX ETPs. We know them quite well and they see it as a huge benefit. John, do you want to add anything?

John Deters -- Chief Strategy Officer

Glad you asked about it because it's an interesting one for us. It's been inspiring for the team, for the product development team to receive the feedback they have. I think it's different and contrasts quite markedly from our XPT futures launch where the word spread largely through a press driven process. Here, word is really spread by word of mouth. It's almost been viral in its distribution in terms of how people have learned about it because there hasn't been a lot of pickup in the press.

And I think it's because we've created a very elegant structure that taps into the ETP ecosystem and we're catering to a massively underserved credit market. And so I think we've tapped into something really special with this product design and we look forward to launching it this summer. We're right on track with development as we said during our announcement, we expect a summer launch.

Chris Concannon -- President and Chief Operating Officer

I'll just add our partners have been exceptional in this launch; both market as well as iShares BlackRock. They're excited about the product; they're side by side with us reaching out to the clients. Their distribution network is quite impressive and certainly our early days of discussion through their distribution network and the skillset of their sales force is quite helpful. We're excited about the partnership, we're excited about the product, and we're very excited about stepping into the space, this credit space that today we haven't really dabbled in a big way.

Operator

Thank you. The next question's a follow-up from Brian Bedell.

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks very much. Maybe you could just talk buyback. Just looking at your evaluation, it's the cheapest I've seen it in almost ever, it looks like about two standard deviations below its average on a relative PE basis, save the S&T it certainly appears. Maybe if you could talk, Brian, about the capacity to accelerate the pace of the buyback into that 225 million remaining authorization and particularly if you think the volume of story on the VIX in the index side might actually improve in the near term?

Brian Schell -- Executive Vice President and Chief Financial Officer

On the buyback, I think we've been very clear, certainly reflective of the first quarter and second quarter as well as dialogue, conversations we've had with our board as far as their point of view. We do think that the share repurchase is a very good opportunity to deploy capital. Certainly, at these levels. Absent anything else is something that we'd expect to continue to see that trend continue. I will say, though, and we've been from a leverage standpoint as far as the aggressive in accelerating it. We've obviously done it with cash on hand that, as we've been able to grow and cash flow from operations.

I don't think there's any expectations unless you'd see something differently but we'd go out and borrow, significantly increasing our leverage to be able to do that all else being equal. But like I said, we've said in consistent with what we said and what you've seen also in the first couple of quarters is that this is a good place to deploy the capital and certainly at this level that would be no change.

Operator

Thank you. And the next question comes from Chris Allen with Compass Point.

Chris Allen -- Compass Point -- Analyst

Morning, everyone. Wanted to ask on some recent FCC actions. On July 31st, they issued a stay against fee changes proposed by the consolidated tape. And this follows June when they pushed back on a fee increase request asking for more information. So just wondering how you're viewing about how the FCC's thinking about market data fees? Is that factoring into how you're thinking about SEF data moving forward? And is there any impact for proprietary data fees as well?

Chris Concannon -- President and Chief Operating Officer

Really, as we think about it, first we look at our proprietary market data and continue to see organic growth there. That's a result of zero-fee adjustments. So we're excited that our fee set a while ago, which is an aggressive fee, much lower than the competition continues to attract new users and new subscribers not only here in the US but obviously, internationally as well. So when we think about our growth prospects in market data, we first look at the proprietary and really think about the proprietary market data across all of our platforms, both futures, options, European, and FX.

Really, with regards to the FCC and their activity around the sip, there continues to be discussion around the prior rule filing that is being discussed with the FCC on the sip. The recent action around the CTA is really around an interpretation -- kind of in the weeds interpretation of the CTA and how you interpret around display and non-display functions in the CTA plan. We don't look at the CTA and the sips as being a huge growth engine for market data.

We certainly see them as flat to down over time and are all of our focus is on the proprietary data side. But really, the stresses the proprietary data from all of our platforms across all the various asset classes we continue to see healthy growth across all those platforms. Back to the FCC discussion, I think those discussions will continue to play out. But again, the recent action on the CTA is really around an interpretation on how to treat certain platforms that distribute the CTA market data.

Operator

Thank you. And as that was the last question, I would like to return the floor to Debbie Koopman for any closing comments.

Debbie Koopman -- Vice President, Investor Relations

That concludes our call this morning. We appreciate your time and continued interest in our company. Thank you.

Operator

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

Duration: 60 minutes

Call participants:

Debbie Koopman -- Vice President, Investor Relations

Ed Tilly -- Chairman and Chief Executive Officer

Brian Schell -- Executive Vice President and Chief Financial Officer

Rich Repetto -- Sandler O'Neill -- Analyst

Chris Concannon -- President and Chief Operating Officer

Ken Worthington -- JP Morgan -- Analyst

John Deters -- Chief Strategy Officer

Alex Graham ­-- UBS -- Analyst

Ben Herbert -- Citi -- Analyst

Jeremy Campbell -- Barclays -- Analyst

Michael Carrier -- Bank of America -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Chris Harris -- Wells Fargo -- Analyst

Kyle Voigt -- KBW -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

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