Thank you, Keith. Good morning, and thank you for joining us for our third quarter earnings conference call.

On the call today, Ed Tilly, our Chairman, President, and CEO, will discuss the quarter and provide an update on our strategic initiatives. Then Brian Schell, our Executive Vice President and CFO, will provide an overview of our third quarter 2019 financial results and updated guidance for certain financial metrics.

Following their comments, we will open the call to Q&A. Also joining us for Q&A will be our Chief Operating Officer, Chris Isaacson, and our Chief Strategy Officer, John Deters.

In addition, I'd like to point out that this presentation will include the use of 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.

While we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risk, 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 referring to non-GAAP measures as defined and reconciled in our earnings materials. Now I'd like to turn the call over to Ed Tilly.

Thank you, Debbie. Good morning, and thank you for joining us today.

I'm pleased to report on financial results for the third quarter 2019 at Cboe Global Markets, where we continued to focus on executing our strategic initiatives to drive long-term growth, including the migration of Cboe Options Exchange to our proprietary technology. That migration, which marked the final step on our company's multi-exchange technology integration, was completed on October 7th.

The successful completion of the integration provides our customers with a single, world-class trading experience across our markets, enhancing our value proposition for customers and shareholders alike. This major step forward also enables us to redirect our technology efforts toward accelerating our organic growth as we pivot from integration to building new technologies, including the development of a state-of-the-art research and data platform and enhancing the global distribution of our products.

We're grateful to our customers for their loyalty and assistance. I thank them for working with us throughout this major effort.

In return, we are committed to continually upgrading our technology to meet their evolving needs and to provide them with unparalleled service. With that, I will turn toward an overview of the trading and volatility landscape with an update on strategic growth initiatives to increase trading in our proprietary products.

Equity markets remained strong and volatile in the third quarter as ongoing global growth concerns continued. The Federal Reserve responded with rate cuts in July, September, and earlier this week, but in each instance remained non-committal regarding further easing going forward.

We believe this uncertainty, combined with the lack of concrete plans to resolve the US-China trade war, continued to drive hedging activity. Index options and futures volume at Cboe climbed higher in the third quarter.

Index options volume rose 13% year-over-year, led by a 23% increase in VIX options trading and a 6% increase in SPX options. SPX FLEX open interest also hit a new all-time record high of more than 925,000 contracts.

Cboe created FLEX options to provide investors with a customizable way to manage risk and a centrally cleared alternative to the OTC market. Options-based strategies used by mutual funds and ETFs continued to be a key growth driver.

According to Morningstar data, assets under management tied to options-based strategies hit a record $22 billion at the end of August, an increase of 24% this year, and is on track for one of the biggest advances of the past decade. Looking ahead in index options trading, we responded to customer demand by adding Monday expiring options to XSP, our mini SPX contract, which provides our customers with a smaller notional contract able to address their more granular risk management needs.

In addition, we listed October 20th and November 20th Friday SPX options expirations, providing greater precision around options positioning going into the 2020 presidential election. Open interest grew to over 30,000 contracts in just the first 4 weeks of trading.

Turning now to 3Q 19 VIX futures volume, which increased 19% year-over-year, primarily driven by robust volumes in August and continued growth in the volatility-linked ETP complex. Volatility-linked ETP AUM reached $4.8 billion in early October, its highest level since January 2018, and continues to be driven by growth in both long and levered long funds.

Long and levered long AUM represented over 90% of total AUM versus its previous high of just under 40% in January 2018. Education and client outreach is key to increasing trading in and expanding the customer base for all of our proprietary products.

In September, we hosted our 8th Annual European Risk Management Conference, held this year in Munich. The event drew a near-record number of participants from 16 countries to explore the latest in derivative strategy and risk management.

Industry experts delivered over 20 different presentations with themes ranging from how changes in margin and capital requirements will affect portfolios to how institutional investors use option strategies to manage risk. Organic growth remains our primary focus.

We continue to evolve our sales and coverage teams, including adding top industry talent to better address our clients' needs and deliver best-in-class risk management solutions. Now turning to European equities.

As announced this morning, Mark Hemsley, President of Cboe Europe, is expected to retire at the end of February 2020 after 11 successful years at the company. Mark's many contributions include positioning Cboe Europe for future success by establishing a strong team of trading, technology, and capital markets experts.

While Mark remains at Cboe for several more months, I would like to take this opportunity to offer my sincere thanks for his outstanding leadership, deep industry expertise, and valued counsel. Dave Howson, currently COO of Cboe Europe, is expected to succeed Mark.

Since joining the company in 2013, Dave has worked closely with Mark to shape and drive our Europe strategy and has been the driving force behind many of our successful product launches and technology initiatives. Dave's appointment is part of a long-established succession plan, and he has the full support of the Cboe Global Markets board and management team.

In other Cboe Europe developments, we recently launched our Netherlands-based trade reporting facility and trading venue to provide customers with an EU venue to conduct equities trading and trade reporting activities for European Economic Area stocks. Our fully operational Dutch venue enables us to continue to service our pan-European customer base should future political and regulatory developments hamper cross-border equity trading while also positioning us to further expand our business.

While overall European equities volume remained light in the third quarter, closing auction volume continued to rise in Europe. In response, this past August, we launched Cboe Closing Cross, which we designed to bring needed competition to the post-close trading session.

The new service is intended to provide a cost-effective, one-stop solution for customers looking to execute their post-trade trading activities across 17 European markets. In closing, I'd like to thank our team for the progress made throughout the third quarter in laying the foundation for our company's ongoing growth.

Their ability to successfully conclude a massive technology integration and upgrade on time and with little to no disruption to our customers is to be commended. Our unique and expansive product set now trades on one world-class platform.

With this foundation in place, we are redoubling our efforts to mine the considerable opportunities we see to continue for continued organic growth at Cboe Global Markets. We will leverage our technology, an efficiently focused sales force, and a new initiative to revamp our educational efforts to expand our customer reach, to set new standards in trading resources, and with our customers to define the marketplace of tomorrow.

With that, I will now turn it over to Brian.

Thanks, Ed, and good morning, everyone. Before I begin, I want to remind everyone that unless specifically noted, my comments relate to third quarter 2019 as compared to third quarter 2018 and are based on our non-GAAP adjusted results.

Overall, our net revenue was up 9% with net transaction fees up 7% and non-transaction revenue up 11%. Adjusted EBITDA rose 15% with margin increasing 380 basis points to nearly 71%.

Finally, our adjusted diluted earnings per share increased 22% to $1.29. 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 key revenue variances.

I'd like to briefly highlight some of the key drivers influencing our performance in each business segment. A consistent theme for Cboe this year has been the growth of our recurring revenue stream of proprietary market data and access and capacity fees.

Combined, they increased 6% in the quarter and 7% year-to-date compared to the same periods last year, in line with our expectations for mid to high single-digit growth in 2019. We continue to see opportunity across all of our asset classes and believe that the completion of our technology migration will provide additional revenue opportunity over the long term.

As relates to proprietary market data, about 75% of this growth this quarter was a result of incremental subscriptions, and nearly 85% of the growth of our access and capacity fees was also attributable to incremental units. Now I'd like to turn to our segments.

In our options segment, the 10% or $13 million increase in net revenue was primarily driven by growth in net transaction fees and market data fees, with non-transaction fees up 10%. Index options average daily volume, or ADV, was up 13% for the quarter, and revenue per contract, or RPC, was up 2%, with the latter reflecting a change in mix within our SPX products.

In multi-list options, a 15% increase in ADV was offset by an 18% decline in RPC, reflecting higher volume-based rebates as our market share moved up over 200 basis points year-over-year and 130 basis points compared to second quarter 2019, driven by increased member order flow. Turning to futures, the 28% or $8 million increase in net revenue primarily resulted from a 17% increase in ADV and a 2% increase in RPC.

The higher RPC year-over-year primarily reflects the impact of new pricing implemented in the latter part of 2018, as well as lower volume-based rebates. Futures revenue also included $2.7 million from incremental equity received as a result of an agreement with American Financial Exchange related to the launch of Ameribor futures on CFE.

This income was included in other revenue and is not expected to be a recurring item. Turning to US equities, net revenue was up 6% or $4 million, primarily due to higher SIP market data revenue as a result of audit recoveries of a similar amount.

This increase was offset somewhat by a decrease in net transaction fees resulting from a 23% decline in net capture on flat matched ADV. The net capture decline reflects fee changes implemented in the second quarter aimed at capturing additional market share.

Market share for the third quarter increased to 17.2% from 15.7% in the second quarter of 2019 and was down just slightly from last year's third quarter. Net revenue for European equities decreased 7% on a US dollar basis, reflecting the unfavorable impact of foreign currency translation and lower market volumes.

On a local currency basis, net revenue was down only 2%, reflecting a 13% decrease in transaction fees, offset somewhat by a 16% increase in non-transaction revenue. The growth in non-transaction revenue reflects increases in access and capacity fees and other revenue, which includes licensing and trade reporting revenue.

The decline in net transaction fees was due to lower market volumes and market share, offset somewhat by favorable net capture. The higher capture resulted from continued strong periodic auction and LIS volume.

We attribute a portion of the lower volumes and market share to the ongoing uncertainty around the timing and final outcome of Brexit and Swiss equivalence. Net revenue for Global FX decreased 4% this quarter, reflecting a 12% decline in market volumes, offset somewhat by a 7% increase in net capture, primarily reflecting the impact of fee changes made in 2018.

In addition, market share of 14.1% was down 70 basis points year-over-year. Turning to expenses, total adjusted operating expenses were about $97 million for the quarter, down 3% versus last year's third quarter.

The key expense variance was in compensation and benefits, primarily resulting from a decrease in incentive and equity-based compensation. The decline in incentive-based compensation is aligned with our year-to-date financial performance versus targeted performance.

As a result of the year-to-date decrease, primarily in compensation and benefits, relative to our original expectations, we are adjusting our full-year 2019 expense guidance to be in the range of $390 to $395 million, down $15 to $18 million from our previous guidance range. With respect to our 2020 expense guidance, we still expect a range of $420 to $428 million, which takes into account, among other things, achieving our targeted incentive compensation in 2020, the absence of approximately $6 million in favorable expense adjustments in 2019, transitioning to our new corporate headquarters in 2020 and moving our trading floor in 2021, which creates some short-term duplicative expenses, the benefit of synergies expected to be realized in 2020 from the C1 technology migration, and the continuation of investing to support our organic growth initiatives, which Ed referenced earlier.

We plan to finalize our 2020 expense guidance on the next earnings call once we have completed our 2020 business plan, including any potential negative P&L impact from the amount of software development expensed versus capitalized. With the final technology migration complete, we are reaffirming our run-rate synergy target with a high degree of confidence.

Chris Isaacson and his team concluded the technology migration in line with the updated plan established in May of 2018. We expect to exit 2019 with $80 million of run-rate synergies and exit 2020 with $85 million.

Note that the remaining $5 million of run-rate synergies in 2020 will be reflected in a reduction in cost of revenues versus operating expenses. Turning to income taxes, our effective tax rate on adjusted earnings for the quarter was 24.1%, below our prior guidance and lower than last year's third quarter rate of 26.4%.

The tax rate decrease was primarily due to benefits related to tax reform and recognized upon the completion of our 2018 US federal income tax return. We are adjusting our full-year 2019 tax rate on adjusted earnings guidance to be in a range of 25.5% to 27.5%, down from 27% to 29%.

We are also adjusting our guidance for capital spending to $35 to $40 million, down from $50 to $55 million due to a shift in timing for leasehold improvements associated with our Chicago headquarters relocation. We now expect those dollars to move into 2020.

Furthermore, we are reaffirming our guidance range for depreciation and amortization of $35 to $40 million for 2019. Before I review our capital allocation activities, we discussed the potential sale of our headquarters building in our last earnings call.

I'd like to note that the cash proceeds from the sale, the potential sale, is expected to be less than $30 million and are not likely to be received until sometime in 2021. Turning to capital allocation, we remain committed to a disciplined and consistent capital allocation strategy that includes reinvesting in our business, complementing our organic growth with potential acquisitions, and providing steady distributions to our shareholders through increased dividends and opportunistic share repurchases in order to maximize shareholder value.

During the third quarter, we returned over $40 million to shareholders through dividends and $52 million through share repurchases. Furthermore, earlier this week, our board increased our share repurchase authorization by $250 million.

Including this new authorization and share repurchases of over $55 million in October, we had approximately $313 million of share repurchase authorization available at October 30th, 2019. During the quarter, we also used $50 million to reduce debt under our term loan agreement.

Our debt now stands at $875 million, and we have $250 million in availability under our revolver if a short-term funding need arises. At quarter end, our leverage ratio stands at 1.1 times, down from 1.2 times at the end of the second quarter, and we ended the quarter with adjusted cash of $151 million.

In summary, Cboe is executing on strategic initiatives and setting the stage for both short-term and long-term performance with our continued focus on defining markets globally, growing our proprietary index products, growing our recurring revenue streams, leveraging our freed-up technology resources to focus on organic growth initiatives, disciplined expense management to leverage the scale of our business, delivering on our synergy targets, maintaining balance sheet flexibility, and a capital allocation plan that allows us to invest in the growth of our business while returning capital to shareholders through dividends and opportunistic share repurchases. With that, I will turn it over to Debbie for instructions on the Q&A portion of the call.

Thanks, Brian. At this point, we'd be happy to take your 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.

Keith?

Good morning, Ed. Good morning, Brian.

First, I want to give a shout out to Mark. I know he's been a big contributor to the European success over a decade now.

We're going to miss him.

Thanks for that, Rich. Thank you.

Next, I guess, Brian, on the expense guidance, you certainly outperformed this quarter, you lowered guidance for the year. When we run through the numbers and take a look at, what's the guidance for next year, that $420 to $428 million, compared to the midpoint of, this year, it still looks like an 8% increase at the midpoint.

That's, and I would expect you'd still get some, what do you call, carryover synergies. Could you walk us through or how you looking at, where these the expense increases, at least initially right now, that you got in those numbers?

Rich, just to clarify, you're talking about for 2020?

Yes.

As you look through the, if you think about the math of how we're getting to that consistent range that we put out there for 2020, when we walk back through it, I kind gave you the list of items that you need to factor in your calculus for 2020 is, and I'll walk through them just briefly again, is when you look at some of the items that we had a favorable impact of, with a senior leadership departure, there were some accounting adjustments there. I think we quantified that to $6 [to?]

$7 million previously. When I personally like to add back what I'm hoping to target to make on incentive compensation for the entire organization, that's another, quantify that, call it $10 to $15 million, that would just re-add right back onto the expense base rolling forward.

When you look at the impact of the, and we've laid out a table, and thanks to Debbie Koopman of working with the finance team and helping the analysts and the investment community understand laying that table out today, fully understand the timing and how those expense synergies hit our income statement, is we're looking for all around here, roughly $20 million of benefit coming into 2020 that we didn't get the run-rate benefit of in 2019. That's largely offset if you look at our historical core growth expense rate, expense rate growth of roughly it's been ranging over 4% to 6% over time.

If you take even at the low end of that, roughly the 4% on a base of roughly $400 million, that largely offsets the synergies that we incremental synergies we expect to realize. That puts us in the low 4, call it $410 to $415 million range of expenses into 2020.

Then we've, as you've heard us talk about with the incremental investments that we're focusing on what we want to do as far as, continuing to plow, our efforts back into the organic growth of the business, that's going to require additional operating expense. We've talked about some of the duplicate short-term expenses of some of the occupancy that we have.

A little bit of the wild card there is, and this is a really high-class problem to have with the wonderful world-class technology team that we have, is that the efficiency of which they develop technology and how we look at our software capitalization process, we do follow GAAP. We absolutely follow GAAP.

They the spend that they have is such a smaller footprint, and the speed of which they develop and implement, it doesn't allow for a large accumulation of dollars on any one project such that it triggers our software capitalization development threshold so that it enters the balance sheet, and therefore, it's just immediately expensed. While on a cash-flow basis it's much, much more efficient over time, it doesn't show up, and it shows up as a short-term GAAP expense issue as if we're spending more money, where in reality the benefit to the organization is actually better from a cash-flow standpoint.

It just doesn't show up on a P&L basis until, say, 5, 6, 7 years down the road when the amortization of what has been capitalized eventually runs off. It's a wonderful problem to have, and we'll highlight it for everyone and try and model that out.

I shake my head and look at Chris, you're killing me. Anyway, so, but it's a wonderful problem to have, again, with the efficiency and, so that very quickly, as you add those 4, 5, 6 items back into the run rate from 2019, we very easily get back to that range.

Okay. Thanks for running through that, and I won't make any smart-guy comments about Alan Dean conservatism there.

You just did, Rich. I'm sure he's listening.

I'm sure he is. He's proud right now.

Wow.

Hi. Good morning.

With the new technology launch for C1, what changes have you seen in trading metrics thus far? Are the changes to trading functionality or protocol that are now being implemented or contemplated for SPX or VIX as a result of the migration?

Then you mentioned the opportunity for new data, access, and other products as a result of the migration. Can you update us on your thoughts or even timing here?

Yeah.

Good morning, Ken. Thanks for the question.

I'm extremely pleased to report on the successful migration and what we've seen thus far. As Ed mentioned, we're now on a common world-class platform across our equity options and futures exchanges.

What we've seen in the first 4 weeks, today's the end of the fourth week post-migration, what we've seen thus far is a more deterministic platform. As Brian mentioned, we're actually now already on weekly software releases, we've found a new normal, normal operations, which allows us to better respond to our customers in a more agile way.

There's better capacity, better risk controls, and improved complex order handling. As a major part of this integration, we also made some pretty material enhancements to the VIX settlement process to improve liquidity.

You were asking about SPX and VIX. Very pleased to report on October 16th, we had our first monthly VIX settlement.

As a result of those changes, we traded almost 128,000 contracts right at the mid-market. Those changes included providing better certainty for conversions of a traded settlement.

We have a lot better visibility and access into the auction because we're providing more granular market data to market participants. We improved the clarity of the rules around settlement, and we are enforcing them systematically.

This has all led to increased participation by members, resulting in about a 40% tighter spread around the auction. As a leader, global leader in volatility, we'll continue to engage with customers to see how we can continue to improve this process.

Extremely pleased about the overall migration, what we're seeing thus far, as well as that first VIX settlement. You asked also about 2020 and the data platform.

The data platform is really the one of the key initiatives we're very excited about for 2020. I'd say we have really 5 goals with that platform: one, to enable better data-driven decision-making for us and our customers; two, to provide actionable insight within and across all of our markets; we want to standardize and monetize our historical data in a better way; we want to facilitate new tradable products; and finally, better define and measure our increased sales and distribution efforts that Ed and Brian both talked about across our customer segments and geographies, but especially in our prop products.

That data platform, we're just getting started. We just finished migration, we're in the design phase right now.

We think this data platform is going to give us better visibility into product usage, highlight capital inefficiencies that we can help solve, and give us better cross-market analytics. This is really us doubling down on previous investments we've made, smaller investments if you think about investments that Cboe made with LiveVol for enhance derived data, and even a previous effort in our FX market around liquidity management that has driven growth in that business line.

We're extremely excited about this for 2020.

Chris, I think you left out the Sola and Flex integration, and we called out Flex and the growth of open interest, maybe if you can touch on that a bit, too, because it does add color to enhancements for SPX and the product offering in a much bigger way. Maybe just a couple words on that.

Yeah. As part of the integration, Ken, we obviously bought Sola Silexx about 2 years ago in 2017, and we immediately saw the opportunity there to have Silexx as the front end to be used to enter Flex orders.

We showed you the Flex growth this year that's been tremendous. With the migration, Silexx is now the front end for all Flex for our customers.

On the first day, on the first week, we traded more than 100,000 contracts through the Silexx platform on Flex. We're expect that we'll continue to add more features and functionality for Flex.

There's already a laundry list that folks have brought forward, and we're excited to work through that list as we enter 2020.

Then I'd like to punch one more of the points you made, and I can't stress enough how capital efficiencies and recognizing potential offsets among our product set that make or break the adoption of a new product. Certainly, we expect with capital efficiencies and identifying those margin offsets should increase existing customers being able to engage with new ways of our existing products in much bigger ways.

A lot of information coming as a result of the completion of this platform, but it is a 2020 effort, and it's what we want to deliver to the marketplace.

Okay. Great.

Thank you very much.

Good morning, and thanks for taking the question. Brian, just two clarifications just on the guidance in 2020.

You mentioned, the $10 to $15 million in incentive comp. I guess just, not wanting you to predict volumes, but just what environment or maybe metrics, do you need to meet or hit that level just given that, obviously 2019 was tougher for the whole, industry, and it seems like incentive comp, is on the low side?

Just want to make sure, that's tied into a similar kind of revenue environment for your expectations. Then just on your tax guide, you mentioned the lower, for '19.

Does that flow into '20, or too early, to tell, but any guidance there would be helpful. Thanks.

Thanks. Good questions for clarification for 2020.

On the 2020, I would just say that the, and again, this is all conditioned upon a 2020 business plan and what, what we, work with our board as far as where we are and what are those targets and as we set our compensation and what our targets should be. That is not final, and obviously to the extent that we can disclose things that we will and we can in our proxy, things of that nature.

Broadly, I would just say that it will have to be a it will be a better environment, growth. We are largely focused on growth, and that incentive comp is there to be make sure it's in alignment with growth.

I can't really provide you the clarity on what those numbers are other than I can assure you that, as unsophisticated as this sounds, we are paid to grow this business and add shareholder value. There's an expectation that the numbers that we deliver are better than where they were previously.

I don't mean to be flippant, but I just don't have a specific metrics to give you on that number as far as those metrics go.

Let me take it a little higher, though, Brian, and kind of answer the question a little bit repeating what we said last quarter. What we've identified, the demand from our customer base for more knowledge and product use case, that investment in our team has already started.

The restructure and redefine Global Client Services team is really built and has been built over the last 6 months to better align the sales and coverage with our customers' needs. That's where it starts.

If we align and we're going to tell our board that there's an organic growth story for 2020, and we have the team on the field ready to go. That's how the incentive comp and that's how the structure changes.

That's what we're going to be presenting to our board in the December cycle for a business plan for 2020. It is an organic growth story, and it's already started with the people.

Michael, this is John. Just while we're on that topic, also there's an intentional tie-in here with what Chris was talking about in terms of our data platform build-out in 2020, which is that we need to be able to understand very precisely where to target our Global Client Services team's efforts.

Then once they've targeted those efforts in a particular area, to benchmark our performance. How are we doing?

How are we doing reaching those clients and educating them? All of this is really a holistic effort to accelerate our organic growth into 2020.

Okay. Helpful color.

Then to follow up on the... Then just the tax rate if you have...

Sure. Then to follow up on the tax rate, if you look at our tax rate and what's driving the lower numbers, the lower effective tax rate, and I think if you look in context for where we were in '18, where we've guided for '19, and then just a peek at 2020 and think about that, the lower numbers of what you've seen have largely been driven by discrete items that aren't necessarily as predictable, clearly, year over year.

If you look at 2018, for example, we had close to 4 percentage points of discrete items that kind of lowered our rate. If you look, if you back that out, that was roughly 29% an effective tax rate.

If you look at the midpoint of 2019 and where we are and you look at the discrete items of where we are and we back those out, we get close to that, 28%, 29% level as far as where that kind of run rate goes. 2020 will largely be indicative of the level of discrete items that we have, but I would say it anchors around closer to that 28%, 29% range of what we've seen in '18 and '19.

I know some of the other exchanges have talked about the foreign-derived intangible income benefit that they've received, and they've recognized that benefit with some clarity around the 2018, tax return as they've updated their returns and received some final technical guidance. We do not have as large of a benefit from that just given the relative composition of our revenue base.

There is small some. It's marginal, and it's just not the same order of magnitude as the other exchanges.

We don't expect that same continuation similar to what others have reported going into the 2020 rate.

All right. Thanks for all the color.

Thank you.

Morning, everyone. I just want to follow up on Ken's question earlier about the C1, the impact of the migration.

I was wondering if you give us any color in terms of what the impact's been from a maybe from a depth-of-book perspective, impact on spreads in the market, just looking for something to quantify market quality impact. Also, could you give us an update in terms of the key products that trades continue to trade on the floor, where they currently stand in terms of percentage of floor-based trading, whether you've seen any impact from the initial migration?

Thanks.

Yeah. Thanks, Chris.

I'll take that question. I'd say it's a little early to draw any firm conclusions given we're just 4 weeks in.

I will just I want to offer thanks to our customers. On the the day after migration, we all the customers that traded on Friday traded on Monday.

Liquidity metrics, I don't have any hard and firm market quality metrics to give you. All all I can say is that the the break between floor and electronic trading is roughly the same, maybe a percentage or 2 higher or lower depending upon the day.

We continue to see market share that and market share and volumes that are basically identical to what they were. For instance, if you look at October the 11th, the Friday after migration, 5 days in, our market share and our volume were basically identical to what they were on October the 4th, which was pretty amazing from my perspective, thanks to our customers' engagement and a and a and a great effort by the Cboe associates.

A little early to say on exactly how market quality metrics are going to be going forward. We can probably provide a lot more color on the next call on that.

I did provide some market quality metrics around the VIX settlement. As I said, 40% tighter spreads leading into that critical settlement.

What we've seen this far is positive, but too early to have any firm conclusions.

Thanks, Chris.

Hey. Good morning, everyone.

Just wanted to shift gears to the equities business for a second. I think you gave a decent amount of color on kind of the quarter-over-quarter pricing decline, the net capture decline.

Just wanted you to flush it out maybe a little bit more. The reason why I ask is, obviously, the third quarter was a good volume quarter.

Your quarter-over volumes were up 11% quarter-over-quarter. If we look at it in terms of revenues for the whole segment, even including the pick-up in market data revenues, if you back out the audit fees, I think you made $3 million less quarter-over-quarter.

Just wondering what you're doing exactly there because the math doesn't seem to make sense.

No, Alex, and that's a fair point. We knew that going in that this is a, versus managing it, I'll call it quarter-over-quarter or either consecutive or year over year, is that we announced, we were very clear that we were not happy with the market share that where we were, call it the second quarter of the prior year, and we made those pricing changes.

It was a series of pricing changes on the various exchange medallions and where we wanted to re-establish a higher number than where we were sitting. We looked at that as a long-term play is that we know that shorter term, we could potentially, have a slip in, the overall net revenue number with some of the pricing changes we're making.

We believe that the long-term value of that business requires a level of market share that's closer to where we are today and such that it continues to promote the value of our market data, the value of our access and capacity fees. You have to look at it in combination over a longer-term trend versus a quarter-quarter-over change is the way I would encourage, it's certainly the way we look at it, we'd encourage, people to hopefully take that same point of view when they're looking at the value overall of what we're doing to manage that business.

Alex, yeah, Brian covered it well. Even today, this was all in preparation for we launched Retail Priority today on the EDGX book.

The market share gain has primarily come on EDGX, where we're trying to invite retail back to that market now with this new feature that's not really based on lower net capture or buying the market share, it's based on functionality and priority. We're quite pleased with the progress we made in the third quarter exactly as we'd intended to do.

As Brian said, this is a long-term investment in a business that we're committed to and where we'll continue to compete for that market share and tune capture as we go along.

Makes sense. It is competitive.

Thank you.

great. Thanks.

Good morning, guys. Maybe just to go back on the expenses for 2020 and to think about it in a different lens, in an adjusted operating margin lens.

Solid margin this quarter. As we think about 2020 and that expense outlook, is it possible to improve on this margin, or do you view this third quarter as a high point?

Then just different components of that, maybe if you can comment on to what extent you think trading volume could improve as the results of the better liquidity and functionality of the new system. Then Brian, just wanted to just talk about the duplicate expenses from the headquarters transition that's in the 2020 number.

Okay.

I think there were... I think you broke the rule again, Brian.

...three or four questions there. We'll try and break those down.

He's pretty good at that. He gets them in.

That's the Repetto trick right there. I'm going to try and maybe duplicate the,

I'll try to group the expense questions together, hopefully hit those, and then I think we'll move the trading volumes/improvement to liquidity as the last item we'll try to address. I'm sure the team's looking at me, they probably don't want me to, but anyway.

We'll let's talk about the improved margin. The margin that we have is that we have a margin threshold, and we don't manage the business by I have to have X percent of EBITDA margin.

Again, they are a short-term measure of how effective you were and maybe a particular quarter or over a period of time. We're looking at that, I think it's better to look at margins over at least on an annual basis versus any one quarter.

We had some, if you look, for example, we had some other income that hit this quarter that aren't kind of always part of the core run rate of what we're doing. There were certainly activities that we did to earn that income.

If you back out some of those items, the EBITDA margin was, probably closer to that, it probably declines by 150 basis points, roughly, of that 68.5% to 69% versus closer to the 71% that were reported. A measure I do like to look at is as you look at performance is, what is the margin on the incremental revenues over different periods?

In this particular quarter, and you see this a lot, or certainly we've seen this when you introduce synergies and you're becoming more efficient, a lot of times the margin on the incremental revenue is in excess of 100%, which we did in this quarter. That is, reflective of the activities that we're doing, the cost discipline, and a bunch of different circumstances.

Again, that's nice to claim in any one quarter when it goes up like this. Again, that is not something it is inconsistent, or say it a better way, it is something we would expect to see in an environment where we're seeing synergies starting to show up in an organization over the long term.

Are we targeting an ex- in excess of 70% margin in the future? That would be great to achieve, but that's not something we're driving.

When we go into growth mode and we put in investment mode, there may be some quarters where that margin may be slightly lower. As with all scaled businesses, when you see that incremental tick up in volume in any one period of time, you better see a very efficient margin on that incremental revenue, which I think we've been able to continue to demonstrate over time.

On the duplicate expenses, we'll provide a little bit more guidance to that as we roll in on the next earnings call as far as the overall order of magnitude and how that impacts the run rate. Again, that's just something that we want to provide some clarity on as far as that reconciliation coming out of '19 into '20.

Again, that's a short-term impact of more of a 2020 as we carry some of the costs of both, call it both locations, really preparing ourselves for a much more efficient '21 and '22, which is actually one of the whole, one of the primary reasons of moving that the headquarters location and the trading floor is that this is a long-term benefit that we will achieve that won't show up on the expense side in 2020.

So... Before this is Tilly.

Before I turn it over to Chris for another comment, I think, on the system enhancements and the migration to one common platform, I think it's important for us to look at, volume doesn't originate with a technology upgrade. It really allows our customers to express their best market and to express how it is they'd like to be represented in the marketplace no better, I think, than this technology integration.

I think we'll get the best of their desires and their expression of risk going forward. More importantly, I think, if you refer back to our prepared remarks, is the street, the world is looking for us to provide with them the ability to hedge what is going to be, certainly at this point looking forward, an uncertain 2020.

The listing and the open interest in November October-November SPX series, that's a first. First, the demand to list and, second, the adoption of a new cycle and series around a presidential election and answering that need, that's more telling to us and how we look at a potentially volatile 2020.

I'd also say there's a pick-up in interest around the primary, which we've never seen. We're going into 2020 ready.

I want Chris actually to be able to punch the readiness from a systems perspective, but most importantly, the team on the street, as I said, we've got the team who's going to be out in front of our customers, explaining to them the opportunities, the products, use cases in what is already setting up to be uncertainty. Chris, really I don't want to minimize, though, the importance of having this upgrade and having it completed.

Yeah. As Ed mentioned, it's all about customers being able to manage their risk and represent their best interests, and the technology should facilitate that.

We believe that'll facilitate that better over the long term. With a massive migration as this was for us and our customers, honestly, they're still adjusting.

These are the first few weeks. The new system feels a lot different to them than the old system, and so they're still tuning on their side.

I honestly expect that through probably the next month or two as they get the feel for it. Ultimately, I mentioned the enhanced risk controls, better complex order handling, we believe that the functionality, the technology is going to facilitate more trading over the long term.

I mentioned already with those better risk controls, better safety, also new features and functionality, such as with Flex, to help facilitate those new products that are really catching on.

That's great color. Thank you so much.

Hi. Good morning.

Maybe just to do this, but one more on expenses. Just the long-term organic expense growth rate that you mentioned, that 4% to 6% historically, and that's also kind of shaping that 2020 guidance.

If I look at your peers globally, most of them are growing expenses in a 2% to 4% organic expense growth range. Just wondering if you could provide more color as to whether or not that 4% to 6% long-term growth rate is the right range going forward, how often that is under review by the management team.

Then also if you think it is, I guess where's the incremental expense spend going versus your global peers? Is it product development or certain segments that requires more investment?

I think

that's a great question, and I think that evolves over time is that I don't think I have necessarily any incremental insight into, call it that longer-term nature of it. I think that what we do focus on is I just go back to our strategy of what, and I don't think that's a strategy all of a sudden that changes in '21 or '22, and I think it's been a consistent theme of this organization is driving our investment, driving our efforts into the growth of the proprietary products suite of what we do today.

Whether that's going to come in the form of technology, whether that's going to come in the form of and whether that's through a incremental hardware spend, but we have such an efficient hardware footprint right now that typically has not been a big expense driver as far as that growth rate goes. If I look at, the impact of our technology refresh from that hardware standpoint, again, that's not necessarily a big driver that's going to continue to contribute to a higher 4% to 6% growth rate in the long term.

I would say it's more around the activities that we have versus being able to identify that's going to show up in compensation costs, that's going to show up in facilities, or it's going to show up in X, Y, and Z. It's more of if I think what you would we look at it is, what are the activities, initiatives, and projects around growing that core growth rate versus looking at specific line item is here's where I would expect to see it.

I think there's also a penetration aspect to the expense, Brian, and Kyle, you touched on it a bit. We're distributing this unique product set way more broadly.

This is not a mature product. In order We want that FaceTime, we want that interaction, and we're willing to go out there, as Brian points out, and spend the money and the time to grow this product.

We are not at the end of a lifecycle in SPX, VIX futures, or VIX options. I think it's a big difference when you compare us to our competitors and what it is they look to a long-term organic growth.

It's a little bit puzzling to us. Organic growth for us is truly that.

We are growing this product set.

Yeah. Again, I think the point there is that you have to have that longer-term perspective.

If there is something that we believe has a real strong growth potential that we need to pursue, you could potentially see that expense number tick up in any one particular year. We have to hold ourselves accountable to make sure that has the appropriate return on that investment.

By the way, I think that's that growth profile, organic growth profile and our I think our outperformance goes beyond strictly the proprietary products or the way we look at data and growth in data. When we target, mid to high single digits, that requires some investment.

We do that because that data, typically the data we sell supports incremental trading in our venues and our proprietary products, it's this beneficial cycle. If we were looking at the whole complex in a low to mid single-digits growth trajectory, that just implies very, very different expense growth profile.

That's really helpful. Thank you so much.

Hey. Good morning, everyone.

Was hoping to get your perspective on trends we've seen in October, quite a challenging month for the industry as a whole. When I look at the proprietary products at Cboe, VIX futures, VIX options, SPX options, things seem to be underperforming whether the cash markets or sort of other derivative buckets.

Looking to get a little more color sort of what's going on underneath the hood, whether the migration has caused any sort of temporary slow down, because if we look at, kind of external metrics, whether it's ETP AUM or VIX term structure, it doesn't feel particularly different than what we've seen in the past, but the volumes look a lot weaker. Kind of trying to get a sense of what's going on.

Thanks.

Alex, I can't believe we made it this far into the call without a macro market observation from us. It's what we live every day.

We absolutely love it. Happy to do that.

I think you're right. Let's take the last week, Monday and Tuesday of this week, and compare those proprietary products, the ones you outlined, we stacked them together, and compared them to Wednesday and yesterday, and we see the effect on our volumes in just a small change or small adjustment in the market.

To your point, 1.5 million to 1.6 million in that product stack compared to yesterday, 2.5 to 2.6 million contracts. It's a massive change in a short period of time, and it's just a small change in the perception of the market and it's whether or not this upward trend that we've observed over the last months will continue or not and what happens on a small and slight correction.

Likened this to the observations that we had in the probably the second quarter call when we were looking back on the January and February volumes. This is the same.

If you missed the rally at the end of last year, started around Christmas Eve and continued, through February, you played catch-up in the entire month of January. There was very, very little interest in hedging.

You were chasing the upside. How we measure that and what our observations is we look at the interest in buying upside calls as opposed to hedging and the engagement in our VIX complex and as SPX out-of-the-money puts.

So 3 weeks ago, call buying was at a 1-year low, everyone was focused on downside, and since then, call volume demand has surged to a 1-year high. That's that catch-up.

We look back at the trends in the marketplace, and we understand how our customers are engaging. While no model can predict the future, we do see patterns in the past, and we look how our customers are engaging going forward.

I go back to the observation in the demand in and around the anticipated uncertainty for 2020, and I'm very, very comfortable after watching yesterday and the day before that there is customers ready to engage back into hedging when you're done chasing. That's the color over the last 2 weeks or so, and more to come.

In real time, as often as we can update, you will be happy to do that. That's what we do.

Right.

The migration itself didn't really have much to do with...

I would say it had nothing to do with volumes because you just see the engagement, it's instant when there's a need to come back and hedge. If again, if it's global risk, dollar-denominated, you come to Cboe, period.

Got it. Thanks.

Thank you. Can you guys give us your thoughts on the outlook for RPC kind of across the complex?

Then related to that, with the migration of C1, might we see better stability in multi-list RPC? I would look at,

let's start with, we look start with U.S. equities.

We've already talked about, you heard earlier comments about the competitive nature of that, and so with we don't see that competitive environment changing in any way. Chris Isaacson highlighted our continued focus on continuing to bring functionality and competitiveness.

We talked about the Retail Priority and things that we are doing to continue to enhance our position and what we do and the benefits we provide to our customers, not just through a pricing change. We don't expect that pricing environment to necessarily change or be radically different from the U.S.

equity standpoint. From the U.S.

options, talk from the multi-list standpoint, that is also obviously an equally competitive environment. We've seen some of the benefits of, I would say, the various technology of what we're doing to where we are with respect to the Cboe migration platform, and particularly when we see the multi-list, we've actually seen an improvement on there.

When we look at the factors influencing the RPC for if we look back to the third quarter, we have seen increased concentration of the larger participants and the mix changes and market share on BZX, EDGX, and C2. We've seen a little bit of a shift in mix also on the with when we saw the slight decline in the multi-list, the higher volume with the market maker rebate tiers, resulting in increased volume-based rebates.

We've seen that happen. That's not a bad thing.

That's a good thing as far as...

It's hard to predict. ...and very hard to predict as far as where that goes.

Have we potentially bottomed out? I think that we probably hit that bottom a while ago with respect to that whether it's a 5 or 6 cent net capture, but it's obviously offset by incremental volumes and market share that we see within the multi-list.

With respect to FX, that's also a very competitive environment, and we will see some ebbs and flows quarter-over-quarter. Again, that's we've seen some growth in that business due to what we've done uniquely as far as our curated liquidity, the different products that we're bringing.

We've talked about Full Amount and what that's done, and the different pricing around that. That's been a very nice growth story traditionally as well,

even though we may see some macro, ebbs and flows that may depress some of the volumes. We continue to see, reasonable efforts there from that standpoint.

I just add on European equities, as we've introduced new trading mechanisms like Periodic Auctions and Cboe LIS, the larger the trade size, the less frequent the trades, the higher the capture is on that. That's helped us even as people are waiting for what's going to happen with Brexit, the RPC has gone up in the European equities business.

As we think about capture, yes, we're definitely very, very competitive in those multi-list or competitive markets, but we're also looking to introduce new trading mechanisms that potentially can offer higher capture because they're providing more value in those trading situations to our customers.

To wrap up on the proprietary, as Ed mentioned earlier, as far as where we believe where we are as far as our growth cycle, again, this is not a ratchet up the price because we need incremental revenue and show that growth. This is a unit story.

This is a volume story. This is a secular story of how do we move that organic needle, and it's not through RPC as far as a revenue standpoint.

That's not a lever that we anticipate being a big driver for us going forward showing up in the revenue line item. There may be adjustments due to some volume rebates and things that we've mentioned that would show up.

There might be some mix shifts that might show up, but largely it's not something that we're specifically planning on driving incremental revenues through price adjustments at the RPC line item.

Good morning, and thank you for taking my questions. Just following up Chris's comments related to EDGX and Retail Priority program, given the backdrop of a zero-trading commission, what has your conversation with the online brokers and other brokerage firms been like over the past month?

In terms of allocating resources, do you think rebate would be more important than execution quality going forward in terms of getting the trade? Then finally, how are you going to position Cboe to capture any additional opportunity if there's any?

Thank you. Yeah.

Owen, thanks for the question. Very astute questioning there.

I think retail brokers are very, very focused on execution quality, and that's the reason that we're bringing out Retail Priority today is they want faster time to execution for their retail limit orders. The market of limit orders are already going to the wholesalers, but the retail limit orders can come back to the exchanges if with the enhanced priority, which will improve their time to execution.

The zero commissions and how it will impact those retail brokers and their order routing, I think they're going to continue to be very, very focused on execution quality. In fact, in 2020, there's additional disclosure regime coming out around rule called Rule 606 that will demand more disclosure about routing practices, which I think is a positive development.

There may be more scrutiny or focus on payment for order flow. This is why we are excited about Retail Priority.

We think it's a win for retail brokers, it's a win for retail customers that they'll get a better trading outcome. We also look forward to bringing in potentially in 2020 some new order type functionality for institutional orders as well.

Owen, I just this is John. I just I'd add it's a great points by Chris, and I think high level, the way we think about this trend playing out, it's sort of a natural progression.

It's it it is It's step 0 is quite an absolute number, it it takes people by surprise. If you wind the clock back 10, 15 years, this is this has been going on.

We're we were sort of, we, meaning exchanges broadly, we were some of the first to feel the impact of competitive pressures. Our our execution fees on equities have come down quite dramatically to a point where that's not the really the crux of economic conversation with the retail brokers.

More to Chris's point, it's around execution quality because if you're getting compensated through basically monetizing the bid-ask spread, you you have to make absolutely sure that your customers aren't in some way being disadvantaged. You have to have the right algorithms in place.

You have to have the right data to back up that analysis. That's where we really help out the the retail brokers.

They're great, great friends of ours overall. They're democratizing finance.

That should grow the pie, and that's what we like to see over time. ):

Thank you very much. That's very helpful.

Thanks. This concludes our call this morning.

We appreciate your time and continued interest in Cboe Global Markets. Have a good day.