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Edited Transcript of BME.MC earnings conference call or presentation 31-Oct-19 12:00pm GMT

Q3 2019 Bolsas y Mercados Espanoles SHMSF SA Earnings Presentation

Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Bolsas y Mercados Espanoles SHMSF SA earnings conference call or presentation Thursday, October 31, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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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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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Good morning to you. Thank you very much for joining us at this event to report our results for Q3 and also the first 9 months of 2019.

As usual, we'll start off with an explanation of the company's business with our business lines, and then, Marta Bartolomé, our CFO, will be taking you through the key figures in more detail. And we'll, of course, have a Q&A session at the end, both here in the room and through the Internet.

So Q3 2019, the results are pretty much in line with the market consensus. We haven't really surprised the market at all, just a few minor points better on costs from the consensus in general, EUR 29.9 million or almost EUR 30 million in net profit for Q3. We think that's a good figure, good result, but it's 1.8% down on the third quarter of 2018 and down on the second quarter as well, 6.1%. But basically, there's volumes and negative downturn in the cycle. We do hope that, that situation will, of course, be turned around very soon, but that is the situation we're in, and the company has to try to offset through other ideas and other initiatives in our Strategic Plan what we are losing on the volume side.

There are some good news, though, and I think I should highlight those pieces of good news for you. Clearing results for the quarter, positive figures there. That gives us a feeling, certainly, that there is a change in the trend in [operating.] And also in the Settlement & Registration, a stable position, which also indicates that we perhaps have hit the bottom of the floor. And it's up to -- I'd also like to underscore the fact that we are at an important moment in time in our Strategic Plan.

Our Strategic Plan is really working very well internally. Our transformation, our revamping with very clear goals. We have made a lot of progress over the last few months. We have certainly become very much customer-focused, innovation-focused, and it was absolutely necessary for us to do that so that the company can be further diversified towards other sources of revenues not linked to volumes.

The big news of the quarter is the fact that we have been awarded an A- credit rating from S&P. That's something we're very happy about. It's a good rating and the Standard & Poor's analysis of our Strategic Plan. And the intent behind it is highly positive because it has given us top credibility. It was very important for us to get that A- rating. And I think this is the start of a new track. We will be able to have inorganic -- nonorganic growth and be more aggressive then. We're looking at revenues not linked to volumes. So maximum levels, 128% is over our cost base. Capital flows -- also, major capital flows, with up 10% to 86 capital increases over the last 9 months. It's almost EUR 9.8 billion, and that's 14.6% up year-to-date. And so capital flows, investment flows, very positive, and that part of our DNA, of course.

This is the new [blood] out there in the market that's coming in. Despite the fact that this is not a peak position that we're in with regard to IPOs, we are still getting a feel for the market there to those figures. And that's very important looking ahead to the midterm.

I'd also like to highlight our fixed income position. We were absolutely right, I think, when we changed our model for fixed income. The revenues perhaps are not yet matching up to the changes in the tariffs, in our fees, but certainly activity figures, they're very, very high. And I think our fixed income segment is becoming much more robust, more positive as we move forward and taking advantage of the [method] regulatory wave. It's all about transparency, as you know. And the BME hallmark, basically, that is price formation, markets and transparency.

So let me start straight to our classic ratios for you, efficiency. Actually, there is a little more convergence here, but we still had -- you can see, according to the market consensus with the figures that we're doing things well on the cost front. And we are up there with the investor in -- on the efficiency side. And of course, ROE, return on equity, we are leading the pack a long way ahead of our average peer group.

I already mentioned that our revenue is not linked to volumes compared to our cost base. At peak position, we've hit 128%. We think that is important because that is our -- the very heart of our Strategic Plan. We think that is the way we have to go, diversification towards new services, new ideas, that will allow us to be decoupled from the low volume moments in the cycle, such as the one we are experiencing now. But our Strategic Plan is being rolled out. And together with our cost containment measures, we're controlling costs there. And we will continue this way. Even if we didn't have -- if we didn't make a single euro through volumes, we'd still have that margin that we're making. That 128% is an [acute] figure as we move forward.

Turning now to dividends. Quite obviously, with these financials, it's perfectly sustainable to pay out the EUR 0.60 per share for interim dividend proposal that would be on the 30th December. Our commitment is, as ever, to pay out the maximum amount in dividends to our shareholders and to really get as much profitability there for shareholders.

Turning to the business units. The structure of revenues and expenditure is pretty much the same. Equities have fallen because of the lower volumes. And if I take you straight to that particular business unit, equity market, in principle, in Q3, in the third quarter, we have suffered on the volume side. I did say that as you [run,] but we're still working on the microstructure of the business itself. We think that's fundamental.

Some elements have really gone well. On the yield side, with the change in the tariffs that we made, that has made a big difference to our tariff structure. We have high yields that we're obtaining at slightly above the basis point. That is plus 3% over there. Last 9 months is slightly below that, 0.97, which is plus 8%.

Let me just emphasize that, that is the total yield for you. After that radical change that we did with regard to the execution yield, we certainly -- we significantly brought down the execution fee for the high liquidity figures, more than EUR 10 billion improvement. And nevertheless, we've got that offsetting with services for participation in those auctions, so the order handling to the market. But we're still able to keep up the yields in this business unit.

Once again, those changes that we have made. But I think we've been very, very precise. So a great position there. We're keeping up our profitability. We've improved our position with regard to the best execution and that fee for execution. So the better yield has also been partly due to the fact that we have a lower component for block trades.

That's the volatile random aspect. Sometimes it's up, but sometimes it's down. It's been down. It's a lower weight of the block trades. And that the average yield has been higher with regard to the execution yield. To our share now, still stable, about 70%, 71% of the market share. If we compare us to our competitors in the market. We have, for the last 15 or 16 months, consecutively, held that market share. And the measures that we've taken with regard to our tariffs, I think, have quite clearly had that impact and kept our stable market share position.

I'd also wanted to say that the tariff measures that we have taken as incentives towards more liquidity, looking at the liquidity providers, so they are also successful. It's -- the maturity has been quite slow, [unsure,] but we're seeing some interesting narrowing now of the average spread of IBEX 35, specifically some of those shares every month. As you know, you can see through our website reports that we post liquid metrics, what is going on there.

We go through the stocks, one by one. We look at the spreads and the depth of the book and the different market shares that we've got compared to our competitors in the market. And this new scheme is quite -- obviously, working out. And certainly for the IBEX 35, on average, the liquidity providers are helping us not just to keep up our market share and even to have an upside there. But for us, it's absolutely essential to narrow the spreads down -- on the IBEX 35 stocks.

I should also add that we are in the midst of some work we're doing to try and provide favorable tariffs for the liquidity providers that contribute to more liquidity of the retail books, so through the European investor book. We're working on that now. We do think it will be an exciting possibility to offer that service. I know what the stock markets -- the stock exchanges offer that service. It will improve our execution of all of our trades, right from the big institutional traders to the retail investors to get that liquidity in all of those segments. So that's a very exciting prospect.

Listing. The company that has announced it will be floating on the market before the end of the year. That is the main contribution here to our activity, the rest of the year. The results in IPOs have basically being focused on the alternative market, the MAB. And generally speaking, the IPO market is the way it is in Europe. A lot of uncertainty still hanging over companies that had hoped to have an IPO, and they changed their plans. The same goes here. We have a list, it's pretty much frozen. It has been in the same state for quite a while now because the market does not see that it is the right time yet to [build up] from the primary markets where volumes, the IPOs, are not positive. Capital increases, which are very important in this market, have given us a tremendous amount of liquidity in a lot of the stocks. That explains the narrow spreads that we've got.

As I said earlier on, as I started off this conference call, 86 different capital increases. That's up 10% year-to-date. That's a big figure, EUR 9.7 billion in capital increases. So I think that figure shows you that Spanish companies are still there, really going to the market for funding support despite the low interest rates. That environment that we're in right now, when we're -- we're competing with a huge pool of liquidity there for financing companies. They are still -- they still understand that equity is the way to really get their funding, their equity, their capital increases. That is what they want to actually use to shore up the funding possibilities for projects.

Total flows, then. You've got the figures there. We had 11 -- it's almost EUR 10 billion as I said, 11 new REITs were incorporated in the third quarter; 82 companies at the moment. They may sound a small figure, but it certainly shows that we can provide that support for 8 -- and they're good for the progress of the construction sector, for instance, and it's all about transparency and savings that can be attracted to this sector, which is so important in the real estate sector for the economy.

So the R-E-I-T, the REITs sector is so important. Companies expansion, 41 companies in MAB. As you know, this is a very low-margin activity, but it's also extremely important for us to be able to contribute to the financing of companies in this company -- in this country. And we have our base portfolio of companies. And we will, hopefully, see them take that jump over to the IBEX 35. It's happened before. So we have the -- this young portfolio, new ideas, not just REITs, but we're also seeing consultancy companies, industrial companies, software companies joining that market. It's very exciting because of the contributions that is being made to liquidity and financing. Basically, the [presence] in this company.

Turning to fixed income now. As I said, as I started off this presentation, on the revenue side, we did take a decision to drive some incentivizing tariffs to compete against the rest of the market. And we decided that we would be able to settle in different infrastructures in the market so that we would help our customers -- our major focus in the Strategic Plan is our customers. We want the customers to come to us and find all the solutions that they need in fixed income so they wouldn't go off -- so they would stay with us and do trading with us and clearing on settlement or they could, of course, go else and split those activities up. But we just want to be really flexible, understand their needs. That model was an excellent choice on the volume side. There's certainly a benefit there.

The admissions to trading have gone up 67.7% in Q3, the total amount traded. These are big figures. That was 99% in public and 81.4% in just 9 months. I think we're building up a very exciting fixed income segment with solid foundations. It's much broader and much more customer focused. And that is where we need to be. We need to understand what our customers want and need.

Turning to the MARF, which is the -- which is basically the MAB's mirror, the alternative fixed income market. Good figures there, with growth up 108.6% in Q3, almost EUR 3 billion there, plus 66.7% (sic) [67.7%] in the case of the first 9 months. The -- with these growth rates, we're showing we have flexibility, we have the capability to actually give our customers what they need in fixed income. They want speed, they want clarity. We are quite clearly pushing with that admissions volume, which is starting to be a very relevant figure.

The sustainable bonds, EUR 5 billion, issued by Spanish companies already. That is another strategic line for us. We want to be in that line. We want to make a contribution through the markets to sustainability, to the economy. And green bonds are also -- sustainable bonds are starting to build up a lot of traction.

In the MARF, I should have said that we always have 74 companies there, 5 of them are Portuguese. And so our position or penetration in the market in Portugal is quite natural, really. I think that's working as it should be.

Repatriation. The volumes of fixed income from Spanish issuers to other stock markets because of speed or flexibility or whatever reasons. What we're seeing movements that are showing us the trend. We have [Reina] and [Endesa] come to us and said they will be issuing in Spain, and they will also help us to bring more depth to the development of the market.

Derivatives. Figures are positive there. One of the 2 business units that has had a positive key figures, a change in trend, we would say. Volatility was huge as a [focus.] Derivatives is all about volatility, and so we have benefited there. We have 8.6% (sic) [20.4%] in options of IBEX; 20.4% (sic) [26.6%] in futures mini and micro; and 26.6% (sic) [125.5%] in the dividend impact ones (sic) [Impacto Div]. These figures are up, in total, 105%. Open position is also growing by 2.5% and 8.1% in shares [in almost] indexes and also having a direct impact on our results, keeping up our positions.

Additional elements then. The FX xRolling is still operating. The volumes are low still, but it's not yet significant for our top line. But in our Strategic Plan, we've said that we will, of course, rely on these products. They need a lot of traction, they need upside. It's not likely that they will actually give us big figures in the first few months, but we want to be in that segment. We want to be in ForEx. We want to provide that service to our customers, and we are managing to get it in place to make sure that we will be bringing in revenues and, soon. Electricity, there was a use of hedges that is growing here, 141.2% in volumes. Okay, the volume figures are -- the volumes themselves are low, but it is showing us that there is a lot of resilience there.

A product can be brought out. It is exciting for your customers and if it can be -- it can keep up, that it pays dividends and brings in revenues [as for] development. Always makes sense to bring out those products.

Clearing is another unit with positive figures because of those financial derivatives that have made their contribution to the top line, the open position I was talking about before. Volatility is obviously helpful for the volumes in derivatives, also in clearing and in equities, in some cases, energy, electricity and gas. Once again, the open position is up 43.8%. And contracts or trades, 107%. Repos. The repo segment has been mixed. We have more cash of plus 13%, but lower trade, that's minus 11%. But at least, we have good market exposure. It's not at all easy to have a clearing house that deals with very different segments like ours does. We've shown that we have the technology. We have the know-how. We're small, if you compare us to our peers worldwide. But we do have the raw material there to grow and to do much more there.

Interest rate swaps, for instance. Volumes still low, but it's working, so operating. Once again, resilience and ability to develop products is something that we have to keep up. It's absolutely key for the future development of the company.

Settlement & Registration. Stability. This is a business unit, which, thanks to registration itself, which takes up 62% of the net revenues. It was down slightly on equities, which is because, of course, of the stock market performance. And once the IBEX 35 goes up, and we have better share prices and the custody, the equity side will go up as well. We have all of those capital increases I was talking about before. And here, as soon as we have a price recovery, I think we will have -- we should have better revenues here for Settlement & Registration because there'll be more shares, more volumes, more trade through those increases, and we should have a direct impact there.

On the equity side, it's growing. Volumes, as I said, up and those listings mean more revenues. Settlement grew in the third quarter because of the market operations, a number of trades, mainly. Don't forget that from the stance of on licenses and [sales] Iberclear, of course, it's, of course, subject to the CSDR regulation and like all of the European companies has to get relicensed. We've got that license. There was a lot of work that went into it, a lot of [internal] bureaucracy, a lot of paperwork. We had top people in the company tracking this. It's an asset for us, isn't it? The license itself. And after the endeavors that we've made to, of course, make sure that all of our infrastructure is in line with all of the regulations, CSDR regulations, MiFID, et cetera, et cetera, it's a huge regulatory mountain that you have to climb. But we've got up to the top through the last stage, and we will have more capabilities, a more customer focus, now that we've been able to go through the regulatory -- the hoops that we've gone through as usual as everyone does.

Market Data and value-added services. Now once again, let me explain. This is the very heart of our Strategic Plan here. The results are mixed in market data. On the primary information sources, 2.8% up in customers. Users slightly down. We have included FX xRolling here. We offer -- of course, we're totally comprehensive for the products that we have, and we've included the FX xRolling in it as well.

The Latin American exchange data is an initiative that we have as a joint venture with the Mexican Stock Exchange, and that is operating or progressing well on the operational side. We should be able to pick out a -- first products on the 1st of January. We are starting to market them, and we're seeing that there is quite a lot of uptake for information buyers there. It makes sense. We're very happy with our collaboration with the Mexican Stock Exchange. It gives us a lot of exposure in Latin America, and we believe there's a lot of future there.

And it also means that we have a product [now,] which is, once again, absolutely customer-focused. It's what is being asked for standardized information on the whole region, and it has a good future ahead of it. So we will go into production, the 1st January, and of course, we'll report to you as soon as we get our initial revenue figures there for you.

Value-added services, as I said, this is a strategic focus. We have to continue to diversify the company. We have to provide innovation a place in which it can grow, digitization, new products. We have to be close to our customers to give a response for their needs. We have done so much work on the regulatory side to be able to adapt to the needs of our customers. We need to continue to do that within our regulatory hub. That is the vision of the Strategic Plan. Our customers need a company like BME, a company they can trust, they can rely on. A company that's neutral, independent and capable of producing high-quality infrastructure services for everyone so that our clients, our main clients, banks and financial institutions can be sure that we will be there to provide them with a quality solution so that they can do what they need to do, and we will do what we need to do on the regulatory side.

So a huge focus on digital transformation in the company not just on the sales side for our products, but internally here in BME. Quite clearly, there is the possibility of developing products, leveraging on the back of new technologies. So we have undertaken a major restructuring in-house to ensure that those capabilities and that knowhow can grow as time goes by in the midterm. So that is our focus in, I guess, in our Strategic Plan.

We're also moving forward in Latin America. We have a project developing in Costa Rica, Mexico, Bolivia and Chile. We're very interested in doing more business in Latin America. And that is one of the ways that we are working on.

Well, that is what I wanted to present to you with regard to the different business units. I'll give the floor now to Marta for the key 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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I'll start with a summary with our business units. Overall, net revenues have grown EUR 70 million in the third quarter of the year, with a drop of 2.4% against last year. Half year revenues -- sorry, I mean, for the first 9 months, it dropped 6.1%. But the breakdown per business unit for derivatives and clearing show a positive growth as we've seen with the growth of 9.2% and 9.5%, respectively, mainly due to the improved performance of trading on the index contracts, products that have a greater margin, and also the revenues, thanks to our open positions in the case of clearing.

In addition, settlements and clearing is slightly positive and flat in the quarter and year-to-date, delivered on positive development in settlements and other services and [insurance.] On the other hand, against these positive data, this doesn't offset the market data value services, fixed income and, mainly, the impact of volumes in equity. The first one, market data and value-added series dropped this semester in both segment, although year-to-date revenues for VAS grow however 5%.

Fixed income dropped in this quarter -- has a drop this quarter due to [harvesting] and investing for the quarter, but overall trading goes up. Year-to-date, however, grows 3.6% in year-to-date, as I've said. The equity business unit drops in the quarter 8% and year-to-date 14%, which shows a negative performance of overall trading in equity, which, however, has moderated. It's dropped by [12%] in this quarter.

In addition, the impact -- in addition to what we mentioned of growth and investment flows have been channeled through the stock exchange that shows a year-to-date growth of 15%, which has contributed positively to lifting revenues.

EBITDAs per business unit. The performance, again, very similar, as you can see in the breakdown. VAS, I want to highlight in which we're introducing new -- more products and services, which [consume] more revenues, but the EBITDA performance is lower.

The fixed income, on the other hand, has EBITDA with a growth of 17.2% for year-to-date based on cost -- significant cost reduction there.

Looking at our financial statements. I won't go to detail here, certainly not in the balance sheet. Now the impact of the new IFRS 15 and IFRS 16 I've already mentioned a number of times. And because these are [contemplated, we'll see it] in the half year report, so I don't want to go into detail. But there will be -- there's differences here compared to the half year results because of first -- because of the earlier applications -- early application -- since the application is on January 2019.

Our cash position is EUR 285 million as 30 September 2019 compared to EUR 311 million in 2018 considering the total sum of cash equivalents plus current financial assets.

Moving on to the income statement now. The results for third quarter reached EUR 29 million, 20.8, with a growth of -- sorry, a drop of 1.8%. And year-to-date is EUR 93.3 million, with a drop of 8.9%. Net total revenue is EUR 70 million compared to last year. And the year-to-date, overall, they dropped 6.1%.

On the other hand, operating costs or expenses for the first half of the year dropped by [8.4%], a decrease of 3.9%; and in the quarter, there's a drop of 5.8%.

We do have some items in the first -- in the other quarters that we've been adjusting from since 2016, a one-off that we had last year. Operating expenses went up in the quarter [1.9%] and -- which is a [little of] improvement for the first 9 months of 1%. EBITDA for the quarter is -- remains flat. So there is an improvement in trend compared to previous quarters, but nonetheless drops year-to-date 7.6%.

Ratios. Highlight the efficiency of cost of income that we saw earlier is 39.6% for the year compared to 38.7% for the previous year. And for the quarter, it grows -- it improves 1.5% compared to the previous -- to year-on-year.

Return on equity, 2 percentage points above our [sector] -- 12 percentage points. Well, this is a slight drop for us. And well (inaudible)

I'll give it back to you to discuss our business (inaudible).

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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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Okay. Thank you.

Just a reminder of our standing vis-à-vis the development of our -- on our Strategic Plan. We're starting to [plan it] earlier. And this particular slide, summarizing in a single sheet .2 years of work, 2 years of work. It seems like we have done a whole lot of work, actually. From just a single glance, you can see everything in one slide. Which is -- it's very good, very descriptive, actually, to show you what the framework of what we're doing here, what sort of initiatives we have up and running.

The industry trends, I said, we've spoken about that. We're in a low volume cycle in Spain, with increasing competition, which, of course, we have to face that through the [initiatives] that we have on liquidity and tariffs. It has been a sector with increasing complexity, where we have to be attentive to alternatives and new business opportunities that come up and make sure that we're ready to introduce into our business right away. But also the need like all companies, certainly, in the finance world, technology and digital transformation is key, which are key drivers that we have to bring in as soon as possible to our business model to make sure that they become sources of new income ahead of the robustness as well.

Regulatory framework. Obviously, major sectors -- major changes in this sector and how it's impacting business models, now and in the future. These action plans that we have is very clear. We want to be the benchmark company across the industry for those companies that are growing. We want our customers to continue to trust us. It's a message that we continue to put forward because we think that we're going to be with these companies in the future.

Sustainability and growth in the future. The financial targets are (inaudible) already for us. It's certainly, for us, capital allocation and inorganic growth. As I said earlier, well that -- I'll talk about the rating in a minute, but that's part of it. But it's critical for what we want to do.

So what are we doing as far as transformation plan of the company? Well, mainly to adapt the organizational structure, where it's focused on the customer, committed again to [transformational] operations, group-wide, commercial, technological side of the business so we can reach out to our customers and serve them better, not lose any opportunities, using, hopefully, our talent and to be committed to people that can bring in new ideas, new business opportunities and to reorganize ourselves.

So we can have flat, a more flat, flatter, open, more customer-focused organization, of course, adapting to the technological change in where we're investing and doing a lot of new things. As I said, I think this is a very quick summary here in the slide. I think I'm going to frame it and put it right at my bedroom. So obviously, I can see it. Not when I sleep. It's just to wake up and see it in the morning.

Okay. So as far as the rating. I do want to, again, address the rating and how important this is for us. You can see a summary there. It's a summary of what we're doing internally because the internal restructuring of the company and in customer focus through this, what we're doing, is achieving organic growth. We're very much aware that the market appreciates our ability to sustain results. In such a difficult moment with a downturn in volumes. But what the market expects of BME's growth, is growth, because that's what they expect also from all companies, particularly this sector. We know there's growth, and that's something we have to address, outstanding for us.

So there's 2 things we wanted to lever our growth in, and that's the internal restructuring and, of course, organic growth as well, be able to work faster, introduce our ideas faster, good contact with the customer. And then we have the inorganic growth, which are main lever there in addition to our targets. Of course, it's a fact that we have a very good rating. It's an anchor A rating. It's A- again, but it's among -- it's top of the first segment for the sector for the industry. And it's a big support to us vis-à-vis our budgets because it supports what we want to do, what we're out to do and what we're doing. So it does provide a lot of credibility to our numbers.

So I think we have all the different components within the company to be more aggressive, more ambitious. And that's what we're trying to do from now on. [Everybody else's] Strategic Plan's a 3-year plan. And of course, these plans naturally need to -- we have to work on them and make sure it's [matures] and we're working on it consistently. We have a more robust approach. We're putting everything -- we said everything needed to ensure that we can deliver on those targets.

So that's basically what I want to share with you today. We'll move on to the Q&A.

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Questions and Answers

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Unidentified Company Representative, [1]

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If there any questions, anybody in the room? Otherwise, we'll move on to the questions that are coming in through the Internet. Thank you very much.

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Unidentified Analyst, [2]

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(inaudible) I have a number of questions for you today. The first one is regarding the Strategic Plan. Are you comfortable with these financial targets? I know you've done all the -- the groundwork has been done already, but the base has dropped a little bit.

The second one is regarding the rating. Now I remember this rating is -- takes into account a certain maximum debt capacity or maximum debt level. Can you comment on that, please? Liquidity providers, I think, in the previous quarter, you were negotiating with other providers. I want to know, how is that coming along? And you also mentioned just now that for retail. Is that also included?

And finally, also whether -- if you're pleased with the pricing policy? Is there additional flexibility to increase prices anywhere in the business?

I'm sorry, my final question now. Yes. At some point in the conference call with Deutsche Börse someone mentioned in that call, conference call, there is some pressure from market participants to increase our participation in CCPs. Can you comment, please?

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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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Well, I think you've really run through the whole value change there, haven't you? So I'll start off talking about our targets in our Strategic Plan. They are transparent. So we all know that on the volume side, we're not -- we're doing badly. We were expecting volumes to pick up, and it didn't happen. So there's still that side that we need to go back over. We need to revise that. So we have 2.5 years, 2 and a bit years ahead of us, really, to see if there is that recovery in volumes.

We would hope that the general conditions of the market in Spain and Spanish companies as targets for investment will improve. It's not a question of numbers really because they are good and country growth is good. But we're a little on the sidelines, I think, of the target for outside investors. So volumes has to -- [this has] to improve. But I'm actually convinced -- I firmly believe that if we had a more stable backdrop, then the volumes would look very different as we move forward. We'll see.

The targets linked to growth, internal growth or inorganic growth in projects, well, they are still very much valid and ongoing. We have a reasonable amount of time ahead of us to make sure that those projects really ramp up to top level of activity, and we should be able to deliver. It's an exciting time. And we are very open and transparent about the track that we want to go down, and we're hopeful there.

There was another financial question maybe for you. Was it about the rating? I think. Was it?

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Marta Bartolomé Yllera, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Finance Director & CFO [4]

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Yes. About 2x EBITDA there with leverage that would be progressive and phased in. And as required by the asset, that's the range really.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [5]

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Liquidity was the other question. Well, we're still moving forward on that. We're close to signing a couple of contracts with other liquidity providers on the general side. This is also an area that needs time to mature. Time definitely is needed. But we've already signed quite a number, and we're seeing results that are tangible. And we're seeing the narrowing of those spreads, and that was our ultimate goal.

And on the retail side, we're also working. They're different contracts. The liquidity providers there, they have a different way of doing things. But we would expect to -- to be improvement there for all of our books. This is not something that we're doing alone. It's already being done in other markets. It's already successful elsewhere. And we believe that this will work in the Spanish market. And we're seeing that initially, it's working.

Pricing policy was another question. It's tricky to put up prices. We have our competitors right down the whole value change, and putting up prices is always a difficult thing to do. The added value in prices, I think, is the key to putting up prices. And that's what we're doing with value-added services. We're trying to make sure that there are good yields there because what we would like is to provide services with good -- that will have the good margins incorporated into them. And I think that's what we have to do. We have to try and push up our margins because in the traditional part of the value change, there is a lot of competition for us.

And the CCPs, well, this is an ongoing issue, isn't it? It's an old issue. There was a report published recently about some of the players in the market. It wasn't really so much about CCPs but about banks, about bank guarantees, the cost of guarantees, the skin in the game.

What about CCPs and where they fit in, in all of this? It's an ongoing debate. Everyone expects someone else to be putting up the guarantee and not doing it themselves. But the CCPs, this is a wonderful idea. It's a great invention and especially because they have tremendous flexibility because you've got the guarantees that you need. They can go up or down, depending on the level of risk. We have online systems for the risk profile, and you can actually put up the collateral that is needed. So collateral changes can be very, very flexibility -- very flexibly.

I understand the debates about this. I understand the stance taken by others. But we have to make sure that these clearinghouses can give us that security that we need, with the traffic -- amount of traffic there and because of the flexibility needs. Because if you're going to be freezing up a lot of -- huge amounts of guarantees on CCP balance sheets.

So for me, that really does kill off the wonderful contribution to the world economy that can be made here through those fast-moving CCPs. If they can really move around that collateral very quickly, it is an asset that we have to look after and not the opposite.

Generally speaking, if we -- if you were thinking about freezing huge amounts of equity on balance sheets, so I think you really would not be doing the financial industry a favor. And you have to keep working there. So we are well positioned there because of the ability that we have to be able to be very flexible. And of course, BME Clearing is overcapitalized if you compare to the risks.

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Unidentified Company Representative, [6]

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Any other questions? Well, in that case, we'll move on to the questions that are coming in over the webcast. We're being asked generally about our projects and how they're progressing. We're asked if we're happy with the pace of progress, what pipeline we've got in mind as well.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [7]

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In general, on projects, well, we're never quite pleased. It's always from organic point of view, that's where we want to grow. We're very demanding with ourselves and what we want to do and how that reflects in our revenues. There's a [Board] there, that we're always pushing back. Some of them are already -- xRolling I think one of them is a fine example.

ForEx is just one step, where we'll continue to take more steps in the future. We've identified similar customers, new needs, all the needs as well that could be served in new or better ways. So we continue to work hand-in-hand with the customers to provide our service. So I think it's a big field where the other stock exchanges are also committed.

I've actually bought trading platforms, and we thought that being third or fourth with a smaller platform didn't make a lot of sense but certainly to focus on our customer needs, which will give us a more solid base in the future with this lower volatility and certainly closer to the real business that our customers have, which is not necessarily trading but rather be able to serve our customers, our end customers. And certainly, ForEx needs in banking, which is a need. I think we started out fairly well here. We'll continue to grow with new services.

In cross-border settlement, we're already operating in this field. We have our own revenues, flows, I think customers are pleased with this concept. Again, it's to lever our infrastructure and offer liquidity worldwide through different agreements belonging to this organization. We [frame] agreement also with Citi to provide liquidity in many countries. And we're starting to see already the results, positive results of that initiative.

Of course, it makes perfect sense to focus in single point, the liquidity of [other] markets and currencies in a single account. Strategically, that's a great value. We need to continue to press on with the sales effort here, and again, to listen to our customers to see if our solution is 100% what they need on an individual basis. But again, I think it's been the right approach. We already have a line of revenues coming in. I don't want to go into more details. [There's lot of many] products. Funds is another one.

As I said earlier, knowing that we have -- there's enough -- a lot of competition here, but there's room for us. But we're taking it for a different angle than existing platforms. And we're trying to understand what elements in our systems can be made more flexible vis-à-vis our competitors, but of course, keeping up what makes us different at the same time. I know this takes a lot of time. It's a recurring question, but we continue that we have room in this business based on what we are and what we do, which is the work with the market and try to handle funds in a different way, manage them differently than from other platforms are doing. So we're still there.

It's a project that to date hasn't represented significant income, lower expenses, but we're willing to invest. And it's something that we certainly focus on that vis-à-vis the future. It just takes time. Vis-à-vis the future.

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Unidentified Company Representative, [8]

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As of our opinion how do we see future performance in 2 specific fields? One is trading fees -- tariffs and the other one on the financial results in a scenario where we have negative interest rates in deposits.

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Javier Hernani Burzaco, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - CEO & Director [9]

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Tariffs, tariff, yes, low interest rate environment. We could be here a whole hour, and I could tell you what I thought about that. But tariffs, we did say in our Strategic Plan that we would, of course, track very closely what is happening in the market, be close to our customers and that flexibility in equity. Tariffs [fears] we want to put in incentives to liquidity in big stocks, in the major stocks and the major trades, at the retail trades. So that's an example of what we are ready to do. We're ready to listen and to work out where the niches are, to see where we can get into those niches and understand what our customers want. We've done that in fixed income already.

We have [basically] a complete [tender] on our tariffs. So we've become very competitive because we are building up a much stronger fixed income franchise and really going where our customers want us to go. Nobody has the perfect tariff in this market anyway. They don't have the perfect product. But what we do have is the right attitude. We understand the game. We know where we can make more money. We know how to understand our customers.

And I believe, personally, that we have done this very clearly over the last few months, and we'll continue to do it. And we will make sure that we can shore up the profitability of the company as any company anywhere in the world, in any sector would do, we would do that.

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Marta Bartolomé Yllera, Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. - Finance Director & CFO [10]

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Well, on the financial side, I would expect your question was more about the progress and performance, our financial expense. And you perhaps are talking about year-to-date. I mean of course, it's impossible to get away from IFRS 16. But there was an impact from registration on the operating cost, on the depreciation side and the financial result, which is affecting both the quarter results and the year-to-date. There are other things. We have dividends on the Mexican stock market, which have perhaps softened the impact in one of the quarters. And day to day, our own treasury position is one we're struggling with, just as any other company is.

But in a negative interest rate environment, of course, we are not immune to impacts. And when we are managing our own collateral, we can actually pass on the positive interest rate position to others. So we do that, too, when it's negative. But we, of course, are also affected by the negative interest rate scenario. But IFRS 16, the main impact there is explained on Page 5 in the report. I don't want to take up too much time with the numbers here.

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Unidentified Company Representative, [11]

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Market data. There's a question here. The people who were struck by the increase in the number of clients. But the number of users has fallen. And the question is about why that has happened.

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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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Well it's two different things. Users and clients, the clients are that -- is large accounts and financial institutions. And users are those that are actually behind looking at the screens, getting our information. So that's 2 different dynamics here. So whether we getting to connect to our platform, we get new financial institutions to connect brokers, what have you, to connect our platform. We've obviously used our market data. The primary source, a very important source. And then depending as well on movements in the banks, where there's changes in how they look at the markets, that's something that impacts.

The number of users is a proxy of the actual market in Spain. What they're saying -- what I'm saying here is that they have been looking at us less. And also with the high equity, there have -- we have lower equity, so have lower users. So wanted to get -- is make sure that we get [not necessarily] more attractive market from -- I mean obviously, some companies do better than others. But it's important to get all the companies with a better performance in Spain.

That's not the point. The problem is [on] attractiveness. It's really just the stability in the market and things and also country issues happening that people don't like watching television, so we need -- as we get more stability, I'm sure we get more users with certainly more companies.

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Unidentified Company Representative, [13]

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Final question. One question on the rating and M&A. They're asking about the rating. This is -- are we going to be using this in the short term? And regarding M&A, rumors and movements have taken place, considering all the above units, Oslo, London, Hong Kong, everything that was published on [Sekerbank], what's BME's position? What makes us -- to BME, given this environment, if there's an access to having transformational operations, of mergers of stock exchanges. What operation do you want to do?

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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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First of all, let me say that we have a Strategic Plan already, which is highly ambitious and very exciting. I think that's the very first thing any BME investor has to look at. We've got our rating, as you've said, because we do want to use it to be able to buy out businesses that are a fit with our Strategic Plan, and that is a key focus moving ahead. The rating is obviously a prerequisite to be able to do that. Otherwise, we would not be able to be players. It's necessary, but not enough, yes.

The targets, yes. We're looking around. There's a lot of diversity out there. And we have to make sure that whatever it is that we target fits our plan. And there's a lot of interest from financial institutions to finance us at very competitive prices. So we should be able to be a player in -- within the ranges that Marta -- the call before. So we will continue to move forward. We will continue to detect opportunities we have and the means to be able to take up the opportunities, and we will do that.

M&A, well, there's always that possibility. This is a very dynamic sector. There have been some major deals over recent months. Of course, we are paying attention to what is happening around us. We're not deaf, blind or dumb at all in this market, but our focus right now is to build a stronger BME so that BME in the future can continue to be a crucial strategic element in our economy, in the businesses run by our customers with regulation.

We know regulation gives us some things. It takes away others. We have to be able to incorporate that regulation into a company and make sure that we continue to be a strong company in the future. So there's nothing concrete at the moment. But what is concrete is that we do have a plan. And that isn't up there in the cloud. It's on the table in front of us, and it will allow us to be a key player in the sector changes, sooner and in future years.

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Unidentified Company Representative, [15]

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The very last question was actually about the same thing, and you just answered it. So I think that's it for all the questions. Well, thank you to everyone for joining us during this conference call and this webcast presentation. The next one will be in February, where we'll be giving you the full year results. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]