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Edited Transcript of BME.MC earnings conference call or presentation 31-Jul-19 11:00am GMT

Q2 2019 Bolsas y Mercados Espanoles SHMSF SA Earnings Presentation

Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Bolsas y Mercados Espanoles SHMSF SA earnings conference call or presentation Wednesday, July 31, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Warren

Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR

* Javier Hernani Burzaco

Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director

* Marta Bartolomé Yllera

Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Finance Director & CFO

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Conference Call Participants

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* Enrique Yáguez Avilés

Fidentiis Equities S.V.S.A., Research Division - Senior Analyst

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Presentation

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [1]

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[Interpreted] Good morning. So here we are today to report to you on our second quarter results for 2019 as well as the first half year results for 2019. As usual, we have an overall presentation ready for you, and then we'll give you a breakdown by business units. Marta Bartolomé, the CFO, is here with me to give you some more color on the numbers and to talk you through the P&L and balance sheet. And then we'll have Q&A. We'll take questions from the people here in the room with us in Madrid today. And of course, we can take questions through our Investor Relations Officer, Brian Warren, from the webcast.

So the results for this quarter have been a little more sustained. We've had an improvement in Q2 2019, EUR 31.8 million net profit. So that's 0.9% up on Q1, although 6.6% down on Q2 2018. First half of the year, EUR 63.4 million, down 11.8% compared to the first half of 2018.

So even though the results are negative, nevertheless, we believe that this quarter is on a point of upturn. And certainly, it's starting to stabilize as it trends. There are now positive futures in the figures there, which I'd like to underscore for you, but they are significant. Taking into account, particularly the vision we're in now with regard to market volumes.

So just how hard it is to generate our core activity around the equities market because volumes have fallen off by 31% in the first quarter and almost 30% in the first half of the year. Despite that complex volumes-related situation with its consequences, we have -- we'll be talking about the fact that there's very low volatility. We've been in that situation for a long time. And there are negative consequences there because of the provisions for being MiFID for our business, if at all, affecting retail. SMEs, small-market cap companies. We'll give you some more detail a little later on. But volumes are down and the contribution to the result for the equities business unit is lower and our results, therefore, are still being pretty sustained, slightly above market consensus, 2% above with regard to the quarterly result, and 1% for the first half year results.

So despite that, I think the key issues that we pull out from our results is, one, cost containment. I believe we have improved compared to the market consensus, compared also to what our guidance has been. We've been able to -- and make sure that the impact of our projects on costs has been kept well under control. The projects -- I think, later on, I'll give you a summary on implementation of our projects, certainly, from a qualitative standpoint, but the developments are quite relevant.

For instance, since the first -- 21st of June, we've been working on our new futures product. We said that -- we took it up with small volume so far, but we're still getting into that ForEx segment, that we think is interesting. We've chosen a vehicle to get into that market, but it's very different from what other companies involved in acquisitions. So we're bringing out our top products for all our customers, so we do believe that, that is a good way forward for us.

I'd also like to highlight a few of the improvement in our market share for equities. That's quite a big increase. And on the liquidity providers, the incentives to the tariffs to improve liquidity, all of that is working very well. We have some specific results there for some specific stocks, and we're reducing the spread, together with the share. Once again, an important point of view to take note of.

I'll talk to you about the primary market where we haven't had a lot of new IPOs, but capital increases have been very positive. 53 new capital increases during the first half of the year, that's plus 29% or almost EUR 6 billion in capital increases, that's up [26%] (sic) [27.6%]. The -- so primary market plus funding for listed companies is certainly performing very well. And it shows you exactly our position and the business regarding the REITs are also performing well. 78 companies in total now in our REIT segment, the market. That's another element that underlines our sustainability and our growth upside.

Fixed income, we'll be talking about fixed income today. Quite clearly, what we did tell you in previous presentations and in our strategy plan about the change of model is panning out. Terms are down, and we also have the admission to listing through our platform. It's working very well. We have treasuries from 14 countries that are coming on board. And I do believe that the issuance of green bonds is very positive, plus [74%] in the regulated market, and plus 70% in the MARF. Fixed income, therefore, is a business that is operating very well. It's very important. It is supported by regulation, MiFID. We do believe that in this case, regulation has helped the market. There is much more of transparency, and it's underpinning what we are, which is a transparent business, where prices are quite clear and provided transparently.

Derivatives, some product is doing well. Dividend -- the dividend products that we have -- we have certainly improved the impact to our -- impact dividends of products there. So those are my initial comments. REGIS-TR has been performing very well, and multiplied by 2 its results. So if you look at equity accounting method, it's highly consolidated, and it is growing above the regulation standards and reporting news.

And to finish off the -- although there is a complicated situation, we have 3 business units, fixed income, clearing, that have improved their numbers compared to 2018 Q2 and also compared to the first quarter 2019. So 3 business units that are certainly turning in positive results.

Turning to ratios and efficiency. Cost income ratios, of course, lower revenues are affecting us here on cost-to-income ratio figure, although we're still performing very well. But of course, the cost-to-income ratio is suffering because of the lower revenues that we have been in because of volumes coming down. Good ROE. We are more profitable in ROE than our average peer group.

Turning to operating leverage. This is our favorite ratio, 128% is the ratio. So we're covering our fixed cost in -- at a rate of 128%, with revenues not linked to volumes, and that gives us an excellent figure. Although it's not a growth ratio. It is a sustainability indicator. And it is what is underpinning our sustained results, despite the downturn in volumes. And with that 30% drop in equities, in particular. So this ratio shows you that we are still generating projects and ensuring that we can continue to underpin revenues not linked to volumes that contain costs, do some efficient cost management, keeping up the solid operating leverage figure.

Dividends. Yesterday, the Board of Directors approved the payout of an interim dividend that will be paid out on the 13th of September this year. As usual, and it will be EUR 0.40 per share. That's a gross figure, maintaining our policy -- our dividend policy here in the company. We're always trying to pay out shareholders at the highest share possible. And by the end of the year, we always make an adjustment to the dividend through that final complementary dividend that is approved by the shareholders' meeting.

We would imagine that if figures continue to hold up, we will be able to continue to pay out the interim dividends at the same margin. Of course, if revenues improve, then that complimentary -- final dividend will grow in line.

Let me take you straight to the business units. Here I can give you some idea of the margins, the revenues. And you can see the biggest contribution from the different units for consolidated revenues and EBITDA. The revenue mix has certainly changed.

The equities market. The quarter has been very complicated from a newer point of view, down 15% in net revenue. Costs have improved. The cost come -- last year comparison, there is an improvement, particularly with regards to the number of people working in it. Quite clearly, the situation is very complex because of volumes. This is happening right across the [overall] market. It's no comfort for us, but nevertheless, the equities market trends and the instruments are negative. What's happening here in Spain is very similar to what's happening outside of our country, where the trend is affecting us too, unfortunately, because the trend is a downside trend in all equity markets, down around 20% in all equity markets. In our case, it's 30% down.

From the standpoint of yields, performance has been better than Q2 of 2018, when the yield of this quarter, which has been 0.835 basis points, that's 20% better than Q2 last year. In the first half of the year, total yield is 0.942 basis points, that's 14% up compared to Q1. We're down 22% on yields because of the contribution of block trades to volumes in Q2 2019 has been higher than in previous quarters.

I would draw your attention to the fact that there are issuers that have come back to scrip dividend issues. The equities market performance -- that 27% of the capital increases have been done this quarter through scrip dividend issuers. We thought this possibility would perhaps drop off, but we've seen that issuers have come back to this particular option, which is good for us. It gives -- brings in good revenue streams. And if this continues or even if it increases, then yields and profitability for this unit will continue to uphold.

Let me go back to what I was saying before about liquidity providers. The change in the tariff, the incentivization of liquidity through the first positions of the spreads for the most liquid stocks is working. It's working very well. We still have a limited number of liquidity providers. But what we would like to see, and we're hoping this will happen, is to sign 2 or 3 new contracts quite just by pure logic, and then our numbers will be better soon. But the share for June and July has given us a 1% or 2% improvement. 73% was June and that's an improvement on previous months.

And the performance that matters most to us is, of course, the [market] performance in our stocks. With that, we've seen a (inaudible) and others that have consistently improved their spends, so we've been able to do that through the contracts, better spreads, and that makes us more competitive compared to our peers. We do believe that these ideas, these novel ideas that we did undertake to put into practice makes sense.

Turning to listings. We're very, very happy with the performance of capital markets. 53 in new capital increase operations. So almost EUR 6 billion there in new increases amount. We have new [countries], and we have new REITs as well. The situation is getting better, slowly and surely. But there will be no new secondary offerings. Companies that are on our list of possible new listed companies have not yet taken the leap to listing. We're optimistic, though, in the midterm, there are countries -- the companies, rather, that do want to be listed, and they will do it at the right time. We're not -- and we know that private equity is important here, and we're not naïve about this. And we have to make sure that the advantages of being on the listed market is something that we have to broadcast, the transparency in the market given to analysts because we have a major competitor. All markets have the competition out there. And if companies want to actually move in the short term to private equity, we believe that the market is the natural, logical scenario for investment in the short term, and we've seen that not just in BME, but in other markets. The choice of companies to go to private equity, first of all, before deciding to be floated on the stock market. So that's the position we're in, but we're optimistic. I think there is a lot of upside in this country with companies that are just ready to be listed over the next few months.

Fixed income, I did say as we start up the presentation, we're very happy with what we're seeing. I know it's a small contribution to the bottom line, but nevertheless, big changes sometimes kick off with small things. The regulations have quite clearly driven fixed income activity with greater transparency. And I think we've got this right. The model that we have put together to be able to pick up on the momentum of the regulation (inaudible) through the market. Then I think the numbers speak for themselves if you look at revenue figures, but if you just look at the activity, where trading is on the increase, we're seeing more admissions to trading with very exciting figures. The universalization of the platform, I think, is very important here. In other words, we are putting more bonds onto the platform, more admissions there with the treasuries. We have Germany, France, Holland, Italy, France, Portugal, Greece and Ireland right now. This is one way to offer the block trades possibly to our platform. With those bonds, it's very interesting as an opportunity.

Revenues are also better than in the first quarter compared to last year. Green bonds is basically the contribution that the stock market makes BME to ESG bonds. Spain is a country, which is 7th in the world ranking of green bonds. So that's a good placing. If you look at our relevance, we have EUR 2.6 billion in ESG bonds that have already been admitted to trading.

I would also say that we have 78 companies already on the MARF. It's just a small business, but it's growing a lot. We think that this is a very interesting market segment for investors because it's so flexible, because it is versatile, and you can -- gives a lot of room for a quick action. And we're looking at emerging markets. Now there are 4 Portuguese companies that have been admitted to the MARF. And we hope that, that number will go up, and we will be able to bring in companies from other countries that appreciate our added value, we're quick, and we're transparent, and we can give companies certainty about the date of their listing onto the market. This, as I said, is a market that is starting to play a significant role. And the 4 companies I mentioned before, show you that there is efficiency there, and we're now bringing in international investors.

Derivatives now, of course, suffering from lower volatility. 13.8% down and 14.8% down in the second half and that's in volatility -- volatility terms. It's hard to do much business in derivatives, nevertheless, the revenues are up by 1.3% in Q2 compared to last year. That's not bad.

And Futures IBEX 35 performance. The fall off has plateaued recently. Another underlying this, such as futures and shares, we've improved in the second quarter by 93.2% and 79.7% in the first half, 27% up on indexes and 14.7% up for the open position. And these underlying dividend products and the futures dividend products is up 248%. And IBEX 35 Impact Dividend has improved threefold. I know that is just a small product segments, but performance is positive. And also with electricity underlining products, 134% is the increase. So that is a positive trend for some of the products going through our platform.

Let me just highlight again, the implementation of -- on 21st of June of the 17 currency pairs on our FX Rolling Spot Futures. They're operating 23 hours a day. They're cleared and settled in BME Clearing. This is our very first commitment to working on the ForEx market. And I think there is a lot of upside for growth there as we move towards tailor-made products. Products that are responding to exactly what our own customers are looking for.

Clearing. Now remember, we had the ForEx Rolling Futures project, which is a horizontal project, so it involves the market data clearing and settlement as well. It's working well. In this case, in the quarter, we have -- we're up by 7.6% -- we're up in net revenue over the first quarter.

An introduction of ForEx. The rolling products, what we're doing is bringing into the clearing house an extra segment. We're in derivatives, we're in electricity, gas, repos and IFRS and FX Rolling products. So it's a small clearing house if you compare us to the major ones. But what we are trying to do is provide services for those clearing segments that are the ones that our own customers need, and we can certainly leverage on that.

On the repos we did tell you in previous presentations that the connection to BrokerTec, which would be another part of the internalizations that we're doing for services, providing our customers services whatever they need services, including cross-border services and following them wherever they are, operating abroad. This is underlying that 3.5% increase in repo trades through Clearing. 110 operations or trades there -- 1,110 trades there. I think we are able to, certainly, really show you that, that rationale is working. We're accompanying our clients wherever they are in their day-to-day business.

Settlement and Registration. Sustainability is the watchword here. It's a unit whose component of revenue starting to volumes is very important, particularly on Registration. It has been stable, just down 1%, and 61.6% of the total revenues for the unit and 22.3% up in revenues. Despite the disruption of value in IBEX 35, 4.4% less in equities, not -- So volumes not linked -- or revenues not linked to volumes. But once again, we are tied to the market situation, the equities market -- and the equities market downturn is affecting other units like this one. But the contribution made by the units Settlement and Registration for other services, is up 4% in the second quarter and 3.2% compared to -- in the first half of the year compared to the last year.

We've also made progress on some of the projects, such as cross-border settlement and CMS, where we have incorporated, quite recently, the Portuguese, and we can offer the connection in 6 countries. It's an international settlement offering. [To be clear], it's a platform that we will be able to bring in as far as possible and cover all of the needs our customers have in day-to-day trading operations in the market.

Finally, Market Data and Value-Added Services. This business unit is the recently reorganized one. We have an effective division there, VAS, Value-Added Services, quite clearly, are moving down the efficiency and innovation path for most sustained growth. It's all about creativity and ideas. And Berta Ares now leads this department. We've also restructured things there. We want to drive this Value-Added Services unit more than before. We think there's a future for it that would be even brighter.

Now the Market Data side, as I said before, has been boosted by a rolling FX to the segment. And in Market Data, we also have to try and ensure we have better coordination with the market business units. That's certainly necessary.

So that's the business unit breakdown for you. We're very aware of the major difficulties that we have because of the markets, and that's why some of our figures are what they are, but there were some positive futures that I wanted to go over for you. Marta, if you agree, we can move on to the financials.

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Marta Bartolomé Yllera, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Finance Director & CFO [2]

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[Interpreted] So as we usually do, I'll be summarizing the performance of different business units. Including all of the drivers that Javier has mentioned. For all business units, net revenues have amounted to EUR 71 million in the second quarter, 6.4% down as compared to the -- to that same quarter of the previous year. For the semester, we had a 7.9% decrease. If we look at the different business units, net revenues in Equity, Fixed Income and Clearing, show a positive performance, which, nevertheless, has not managed to offset or compensate the drop in trading volumes for Equity. This quarter has been characterized by a drop in volumes that has been global, as Javier mentioned, in equity in the equity business. This has been partially offset by some growth in fixed income and derivatives.

Diversification. Product diversification has actually helped the company during this quarter despite the results in Equity. So we see a 15.3% decrease in the income on Equity, so 16-point-something percent year-to-date. This is much better than the evolution of traded volumes with a 33% drop. Last year, block traders concentration was higher. This is true. Without these blocks, performance is very similar to the rest of the market in Europe.

Fixed Income, as Javier mentioned, show very good figures in trading and listing with a positive impact, 3.9% in trading and 18.8% up in listing. In spite of the situation with tariffs, Clearing shows the evolution of the market, therefore, its performance is mixed, 2.3% up in revenue this quarter. Settlement is much more stable. It is almost flat. The Market Data and Value-Added Services shows different results. The primary service income, 6.5% down. And the others 1.1% up.

And now looking at EBITDA. The performance has been very similar with some exceptions, Market Data and Value-Added Services is one of those exceptions where we have more projects underway. This is not yet reflected on the top line. So the evolution of the performance of EBITDA leaves something to be desired, with one exception, 60.6% up in fixed income because costs have come down, and also in Settlements and Registrations with a 5.2% increase.

As to the balance sheet and financial statements. Let me remind you that the audited statements are available on our website. With full details and information, especially the implementation to -- I mean, as to new developments, implementation of 2 new accounting rules, as we mentioned in the previous presentation, and also the implementation of net 15 and its interpretation, IAS change in admission and registration to registries.

In compared information compared to 2018, we have adjusted the figures as if this rule entered into force on the 1st of July. Additionally, we present a detailed explanation of the implementation of IFRS 16 on leasing, because it does have important implications.

We registered an asset for EUR 20 million. It had to do with rights of use and a financial liability of EUR 26.9 million and a negative impact of $4.5 million. The details can be found in our first half financial statements. And this is perfectly reflected in our balance sheet that you can see on the slide, both in assets, liabilities and reserves. CCP and managed guarantees change every day, and cash and cash equivalents shows some change. Slight decrease as compared to the same date last year.

In the P&L, net result amounted to EUR 31.8 million, with a 6.6% decrease as compared to the previous year, although there was an improvement in Q1. We have EUR 63.4 million in the second half, which is an 11.8% decrease as compared to the previous year. We have a 6.4% decrease in the quarter, a very similar one for the semester.

Operating income show a 2.9% decrease as compared to the previous year. If we were to take into account the effect of the implementation of the new regulation, IAS 16, and the one-off we accounted for last year, I'm referring to redundancies in the second quarter, operating costs would have increased by 2.2%, slightly below the cost guidance we announced for this year.

And since I've mentioned, of course, the guidance that we presented in the first quarter, we were expecting costs to remain flat with a decrease because of that one-off we accounted for in the first quarter. That would be offset by business as usual and by new projects. The message hasn't changed. Of course, we have the reclassification of IAS 16 -- IFRS 16, EUR 1.9 million in operating costs, amortization and financial costs, but the cash outflow would be the same. Because in EBITDA this has been contemplated, this transfer between amortization and financial results with the same cash outflow, which is quite reasonable because the regulation makes it very difficult to see real expenses actually. If we were to take these impact into account, we would see 2.5% or 3% -- an increase of 2.5% or 3% with the new regulation. So we are still comfortable with a cost level, and we've managed to control costs or contain costs better than expected.

And as to the different ratios. The efficiency level, 31.3 (sic) [39.3%] in the year as compared to 37.3 last year. The same level in this quarter, 0.9 points below than the average of our peers. ROE, 39.7% (sic) [31.7%] with a 13% -- or [13] basis points difference versus our peers or percentage points.

So I'll hand it over to Javier.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [3]

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[Interpreted] We will be discussing the business drivers. The same -- I mean, this is another take on what we've already mentioned. If we look at the spreads of the top shares below 4 basis points, which is quite an interesting result. It narrows to the best spread in history for these caps. It's quite encouraging in spite of the volume drop in the market. It's an excellent result. IBEX 35 remains around 5 basis points, which is also very good. In spite of the volume drop and the situation of the market and medium and small cap spread has worsened due to the impact of MiFID and of lower activity levels in these companies as a result of this regulation. In spite of that, tariff measures and liquidity providers are yielding pretty good results considering the advantage of setting the price for all shares.

Once again, I would like to refer to the contribution of the MAB and MARF markets. That's on the rise, the number of companies issuing in these markets, including growth companies and REITs, 114 and 68, respectively. A quite interesting and promising figure considering the contribution we would like to make to these markets. This is what markets should be doing. I'm referring to the Capital Markets Union. I mean, we should be offering new elements and possibilities that will bring us closer to companies to provide them with access to flexible, swift and efficient access to funding. And this, of course, has a positive contribution on job generation and on the profits of those companies. I mean, these are one of the main goals of the Capital Markets Union, which is -- which are perhaps a bit contradictory considering the impact of the MiFID regulation. I'm referring to bundling and other specifications or classes that are undermining these companies. Some companies are losing in many markets. So we will continue to support this capacity to attract funding EUR 12.62 billion is the overall figure, a respectable figure. And outstanding balance in MARF exceeding EUR 4 billion, which is quite promising and interesting, quite frankly. And finally, it's not just about equity. And thanks to this, our performance is being more sustainable than some analysts expected. I'm referring to derivatives and fixed income, with pretty good results. And they amply justify the statement that platforms, of course, are not just about equity. We do have some positive activities and positive figures.

And to conclude, once again, I'd like to underline a key message. Most of what we've been describing and referring to the development of different activities and initiatives, so this is part of our strategic plan. Liquidity providers, FX Rolling, a new model for fixed income, connection to BrokerTec, the development of CBS, I mean, all of these are projects, initiatives, elements, which were part of the strategic plan we presented in the first quarter. Volumes continue to drop, but 3 years down the road, I mean, this is what the scope of the strategic plan, we expect that volumes will increase. But many of the ideas or the initiatives we launched and supported as part of our strategic plan are already underway. Some of them yielding good results, promising interesting results. And we continue to do that because we are convinced that we'll be able to leverage some of these ideas. Amongst the other things, we reorganized the management team. We've recruited new people in the steering committee, José Manuel Ortiz and Berta Ares. And we've also seen relevant changes in different business units and in the way we work and operate. As we announced in our strategic plan, we now have much more flexibility. We're much closer to customers. Hopefully, we're being much more innovative. And these are the pillars for our future where we'll see improvements and better results. Some of these projects we've implemented are starting to yield results in -- despite the market situation. This is quite encouraging for the future of the company.

So this is what we wanted to cover today. Thank you very much for your attention. And now we have some time for the Q&A.

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Questions and Answers

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Enrique Yáguez Avilés, Fidentiis Equities S.V.S.A., Research Division - Senior Analyst [1]

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[Interpreted] Enrique Yáguez from Fidentiis. I have a few questions. You've mentioned yield improvements, significant yield improvements. And you told us that this is the result of several factors. Scrip dividend that's now being offered by some stakeholders in the market. What is the main reason behind this? Is it a one-off? Or will we return to lower levels after this period, lower yield levels?

Secondly, you've told us that you've gained 1 or 2 percentage points in your share, thanks to liquidity providers. Have you seen any response? Are you expecting any results from your peers -- any response?

Third question, I'm referring to the Clearing unit and its revenue. Of course, you've underlined the fact that this is not just about equity that all the businesses are yielding very good results. But if we compare the second quarter to the first quarter, I just can't quite understand the difference.

And lastly, I know that in recent months, the political situation in Spain is more or less stagnant or frozen. Have you seen any developments with the (inaudible)? Or are you just waiting to see what the new government will bring?

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [2]

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The political situation is what it is, and we haven't got anything else to say about the procedure ongoing. Our position is quite clear. And we'll have to see what happens after the summer. We'll see what happens with the new government with the new budget, I think autumn is going to be an exciting time for us all in politics, too. And I have no more comments to make about that, except to say that there has been some development, perhaps, clear developments in Europe, an attempt to ensure there is coordination on the part of more countries in the reinforced corporation with regard to the tax. And that is BME's position. Of course, we are against the financial tax.

But if it is going to be implemented, then it has to be Europe-wide, it shouldn't be implemented on a country-by-country basis because that would, of course, lead to trigger a distortion with regard to pricing and competitiveness. And the only thing I could perhaps say about this current period is that in the European Union, at the very least, they should be -- that vision, once again, this has to be European-wide issue and not just a country-by-country basis. With regard to reinforce cooperation, ECOFIN, I think, has reflected some changes in stances of countries that perhaps were for, now against. And the idea is to get a European-wide solution. That's a good idea.

Yields now. Yields depend totally on what happens mid-caps and big caps, the tariff is different. It's not a -- it's not general. It's not right across the board, and there are different concepts included then somewhat better than others at different times, in general, the tariff changes that we have made, and that changed 2 years ago plus liquidity providers component have made a difference.

The current yields are fairly stable. Of course, there's always some variability there, but we did always want the execution for you to be much more competitive than before and it is, and we're seeing that. And the fees for services, as you know, the markets have to offset that -- the lower revenue streams from the other side. The block traders, well, that changes things a lot. We have more or less the same number of block trades as our competitors in the total market share. That can be changed sometimes because of them having more or us having more block trades at some point of time, the profit is low. But BME market share, of course, goes up because the block trades add up to more market share. But in this period of the year, the contribution of those liquidity providers, I would say, is pretty exciting.

And the response to our competitors. Well, we'll have to see. We have to wait and see. We've seen that happen in other markets in the past. And despite our competitors responding, we've seen perhaps increases in market share. We would expect similar responses. What we do hope, though, is that when -- we're just hoping, it was a number of liquidity providers that we'd like to sign up. We signed 2, and we hope to -- that figure will go up as much as 5. The more we can bring in, the better. The response from our competitors, it's going to be hard for them to actually respond in the same way, the same content. Because what a liquidity provider does is actually avoid certain effects. We're the reference price makers, we set the prices. And the parasite platforms, what they do is to trade once the spread position has been exhausted and depleted. So they've been -- if they've been copying our spread, I would say, nevertheless -- and their ability to respond with regard to liquidity providers is a lot lower. We are competing against not ordinary competitors, but these are free riders. They copy us. You might think that they're in front of us, but that's all relative because it's all about improving execution and first access to execution, but we'll see. Because today, everyone's in this business, I suppose, is to make more money. We'll see what they'll do.

Clearing that makes with regard to Clearing and revenues and in the different segments. Yes, there have been significant changes, different contributions. We have had an improved contribution to revenues from our recurring businesses in derivatives, higher revenues there, certainly in the part of some parties. We, of course, can't relate this to structural changes. It's not necessarily though -- to -- connected to the individual contribution of some segments. I think that's what I can say.

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [3]

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[Interpreted] Well, we could move on to the questions that have come in through the webcast. A lot of questions about revenues. Now on the cost side, we're being asked about whether there's room for improvement on our cost position so far. And whether we could give more color in our guidance. Are we still aligned with previous guidance? Or do we expect to have lower costs? Could we, perhaps -- this is the question, perhaps you could shed some clarity on our cost guidance.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [4]

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[Interpreted] Well, as I mentioned before, we will stay at that level, 2% to 3% per year, especially in project development -- or thanks to project development. And that's our goal, 3 years down the road, we'll remain at that 2% we announced year-on-year. Considering or including that one-off we had last year, but we haven't changed the cost guidance. We remain there.

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [5]

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[Interpreted] There is a question regarding personnel expenses. There is a difference between that 1% reduction or redundancy and the reduction in personnel costs. So we have a question. Is that reduction sustainable? Or is it just a one-off?

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [6]

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[Interpreted] That reduction compared to last year is about this quarter. And for the future quarters, is really that one-off. That we've talked about, that is our change in headcount, EUR 1.8 million is the impact in this quarter, and that figure will be -- rather, that was the previous year's quarter, EUR 1.8 million, I should correct myself there as I speak. And we will have the same amount during the next quarters, then we get to the EUR 5.4 million, which was the final figure. So that's where we'll make the adjustment, and you'll see the real performance of costs. Perhaps you're not taking into account the one-off there.

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [7]

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[Interpreted] Let me go back to revenues. There's a question about how we assess the loss of importance of equities (inaudible) revenues. Could we give an assessment of that situation, please?

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [8]

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[Interpreted] Well, the assessment is, of course, negative. Volumes have gone down. There is no optimal business mix in my opinion. I mean an optimal mix would yield an optimal result. Of course, Equity is contributing less, all the businesses are contributing more, which doesn't make a lot of sense.

Hopefully, we'll see more activity in the market. Of course, the regulatory impact has been relevant, lower volatility and also the situation in the markets, not to mention the political situation worldwide, and this is having a huge impact on our activities, on interest rates in Europe. A negative rate, of course, has a clear impact on our activities. Of course, you might think that very low interest rates are much more attractive for the Equity business. Nevertheless, there is a downside to very low rates. And this has given rise to a very interesting intellectual discussion. I don't believe that it's good because fixed income and equity are 2 sides of the same coin.

An investor may choose or a saver -- someone who is saving may choose one asset or another taking different factors into account.

And this is a very unique, very different situation, which has led many investors not to invest, not to choose any kind of asset. And of course, considering private equity companies and their competition, we have to consider that we are competing against very, very cheap providers, where it's much easier to make profit or make profits with such low interest rates. So my assessment is that equity has been hard hit, in my opinion, by the situation in the market, which is quite unusual. Because, of course, we have to consider the relevance of our companies, of Spanish companies in our market. And of course, banks have been heavily affected by interest rates as well. So it's a unique situation once we see more stability in Spain and around the world, I believe that we'll see an increase in volumes.

So I believe, 3 years will be enough to see some signs of recovery. But of course, some aspects need to be improved. We wanted a business all over the place with equity, fixed income, warrants, settlement. Our duty, of course, is to contribute value to all of our business units and to be able to create or to acquire new businesses to continue to generate funds for the future.

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [9]

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[Interpreted] Another area that has received a lot of interest has to do with Value-Added Services and Market Data. Will we see an increase in revenues and EBITDA in the future in this business unit? And regarding Market Data, is it likely to see some improvement in this segment?

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [10]

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[Interpreted] Well, there's a lot of -- to be done in all of the business units and segments for Market Data and VAS, Value-Added Services. As I said in the presentation, and we made a change there, which I think is important. We have a much clearer focus. Now on products and services to respond to the needs of our customers are more innovative. We'll see this over time. But quite clearly, this is our commitment to bring in better revenues than before. There were things that have always gone well there, but our growth expectations, I think, are a lot higher now that we have done this reorganization and our management team.

And on the Market Data side, it's more of the same thing. We need to coordinate better there. We need to be even more innovative with our products. And quite clearly, we also need to be a customer centered, be close to them, understand their requirements. And they are multichannel customers, market data, equities, fixed income. They cover all of these segments, and we need to be able to leverage on that and have more upside there. I think the focus is right now. And quite obviously, we will start to see some financial results as we move forward. The changes have been -- that have been made are important. What we've done is actually separate out unbundled, the management of the two units with regard to decision-making Market Data on the one hand now and VAS on the other hand.

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [11]

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[Interpreted] We've also had some questions come in about our model. And I believe that, essentially, we've answered those questions unless you want to make any additional comment on the change in tariff fees for liquidity providers. And there's also a request for us to give an assessment on that change and also questions again, and part of our markets share, perhaps are linked to those questions.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [12]

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[Interpreted] Yes. As I said before, liquidity providers and new tariffs, it is yet to be seen what the impact will be. We haven't seen an impact, a significant impact on the yield. Obviously, they are incentives. But volume increase, of course, at the end of the day, has a positive impact. I mean, we are seeing incremental volume increases, thanks to this. So once the activity of liquidity providers is in full swing, once all of them have signed the corresponding contracts and the operators of the different segments, we will have more visibility as it were.

But the initial premise that we have is based on what I've mentioned. These are incremental increases, volume increases that improve the situation overall.

As to the market share, we believe, as we've seen in other markets, once we see -- once all liquidity providers [marry] their full contribution we'll be seeing more relevant market share improvements. I wish to say more than that. But from a qualitative perspective, I must say that we have the right tariffs. And we're following the right approach. And as we've stated in previous meetings of this sort, we'll be following up the market and our clients very closely to know exactly what needs to be done at all times to continue to be price setters in the market, to continue to be a market of reference. This is -- has always been our challenge, and we've always been up to that challenge in spite of MiFID, and in spite of many other things, in spite of that -- those (inaudible) reductions about the equity market. I mean, we have seen a volume drop, all over the place in every market volume drop, but our competitive position has not been undermined, quite the contrary.

We are -- we have the right elements in place to continue to strengthen it and to see improvements in the future. That's the main challenge. And as we announced when we presented the strategic plan, we are implementing the right measures in all businesses, on fixed income and Equity and other units to meet this goal. Strategic plans are based on growth, new projects in organic growth. But they also pay attention to the business as usual. I mean, the contribution of business as usual, which is not insignificant. I mean -- as the stock market, we work brilliantly. And every day, we set high volumes with no failures in a firm and very effective manner, and we have to continue to focus on that. So all of the measures and initiatives I've mentioned, of course, do support business as usual, our core business that will remain a significant element in our activities. So we launched some initiatives, and we are starting to see positive results.

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [13]

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[Interpreted] And another area that has raised a lot of interest as corporate deals or transactions, mergers and acquisitions. Could you give us your take on M&A? And about the rumors about Deutsche Börse.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [14]

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[Interpreted] Well, let me see what I can tell you. With -- what can I say about other people's M&As. I think, to reference to what others want to do and what can we say. It's a position -- and we're still interested in our own organic planning and also perhaps only to work in businesses that make sense with our core strategy, and we want to be a stronger and stronger company to be closer to our customers and to resolve their regulatory issues as well because perhaps their cost situation has been complicated.

We think BME is a great company and that we are gradually building up a richer and richer infrastructure that can really be customer centers. We're going to be close to our customers and be able to actually grow through more efficient operations and trades. And we have a very well-focused strategy plan, all right?

On M&A? Well, what others may or may not do, that's up to them. I don't see that to BME that there will be any direct impact on what is being proposed outside in the business. We have a smaller very concrete business. We have to perhaps expand and grow ourselves in lines that are not going to be affected by the -- any movements out there that we're hearing about. I think we have a market niche with upside for growth that is very exciting. And I think it would be unlikely that others could be competitive -- competing answers invasive ideas.

On Deutsche Börse. So I have no idea, actually, about that. Perhaps, there have been comments made elsewhere?

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Brian Warren, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Head of IR [15]

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[Interpreted] Yes. Yes, there's a question about capacity for growth and what assets that BME might be interested in. And if perhaps expansion -- the expansion of Market Data would be something you'd be interested in doing.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [16]

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[Interpreted] Yes, expanding Market Data is a promising possibility. I mean, we have many ideas about that expansion. And I won't be more specific regarding our targets, the targets we are considering for this expansion. We have no specific proposal on the table, but we are working along different lines. And that was the last question. I have received new projects.

So we can bring this meeting to a close and go on holidays now, right? Thank you very much for your kind attention, and we'll see you on Q3.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]