Q3 2023 Cboe Global Markets Inc Earnings Call

Participants

David Howson; Executive VP & Global President; Cboe Global Markets, Inc.

Frederic J. Tomczyk; CEO & Director; Cboe Global Markets, Inc.

Jill M. Griebenow; CFO, CAO & Executive VP; Cboe Global Markets, Inc.

John F. Deters; Executive VP & Chief Strategy Officer; Cboe Global Markets, Inc.

Kenneth William Hill; VP of IR; Cboe Global Markets, Inc.

Unidentified Company Representative

Alexander Blostein; Lead Capital Markets Analyst; Goldman Sachs Group, Inc., Research Division

Alexander Kramm; Executive Director and Equity Research Analyst of Exchanges, Ebrokers; UBS Investment Bank, Research Division

Andrew Bond; Senior Analyst; Rosenblatt Securities Inc., Research Division

Benjamin Elliot Budish; Research Analyst; Barclays Bank PLC, Research Division

Brian Bertram Bedell; Director in Equity Research; Deutsche Bank AG, Research Division

Christopher John Allen; MD; Citigroup Inc., Research Division

Craig William Siegenthaler; MD & Head of the North American Asset Managers, Brokers & Exchanges Team; BofA Securities, Research Division

Daniel Thomas Fannon; Senior Equity Research Analyst; Jefferies LLC, Research Division

Kyle Kenneth Voigt; MD; Keefe, Bruyette, & Woods, Inc., Research Division

Michael J. Cyprys; Executive Director and Senior Research Analyst; Morgan Stanley, Research Division

Owen Lau; Associate; Oppenheimer & Co. Inc., Research Division

Patrick Malcolm Moley; Research Analyst; Piper Sandler & Co., Research Division

Presentation

Operator

Good morning, and welcome to the Cboe Global Markets Third Quarter 2023 Earnings Call. Please note that this call is being recorded. (Operator Instructions) I'd now like to turn the call over to Ken Hill, Vice President of Investor Relations. Please go ahead, sir.

Kenneth William Hill

Good morning. Thank you for joining us for our third quarter earnings conference call. On the call today, Fred Tomczyk, our CEO; and Dave Howson, our Global President, will discuss our performance for the quarter and provide an update of our strategic initiatives. Then Jill Griebenow, our Executive Vice President, Chief Financial Officer and Chief Accounting Officer, will provide an overview of our financial results for the quarter as well as discuss our 2023 financial outlook. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be Chris Isaacson, our Chief Operating Officer; and our Chief Strategy Officer, John Deters.
I would like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website.
During our remarks, we'll make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties actual. Outcomes and results may differ materially from what is expressed or implied in these forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise after this conference call. During the call this morning, we'll be referring to non-GAAP measures as defined and reconciled in our earnings material.
Now I'd like to turn the call over to Fred.

Frederic J. Tomczyk

Thanks, Ken, and thanks, everyone, for joining the call this morning. Having taken the helm at Cboe 6 weeks ago, I've been impressed with the strength of the Cboe team and our focus on our clients, which has resulted in another strong quarter for the company.
For today's call, I will highlight our overall results and share my priorities as Cboe's new CEO. I will then hand it over to our Global President, Dave Howson, to walk through the progress we made against our strategic priorities.
I am pleased to report record third quarter adjusted earnings for Cboe. During the quarter, we grew net revenue by 9% year-over-year to $481 million and adjusted earnings per share by 18% to $2.06. These results were driven by record activity across our Derivatives business, the continued growth of our Data and Access Solutions business, lower third quarter operating expenses and a lower corporate tax rate. Our Derivatives franchise delivered another record quarter as total organic net revenue increased 15%. As the uncertain macro and geopolitical environment impacted markets globally, investors and traders relied on our suite of index options and volatility products to help manage risk and generate income in an uncertain environment.
We believe our Derivatives business remains incredibly resilient, supported by a growing customer base and an auctions product that is becoming increasingly recurring in nature as investors shift to shorter-duration expirations and more frequently positioned around changing market environments. During the quarter, organic net revenue in our Data and Access Solutions business increased 9%. Net revenue in our Cash and Spot Markets business decreased by 6% during the quarter, reflecting the muted volumes we saw across global equity markets. These solid results were made possible by the continued execution of our strategy to build the world's largest derivatives and securities network and position Cboe for a strong finish to the year.
Now as a Cboe Board member for the last 4 years, I've been very close to the business and support of the team as Cboe expanded and evolved into the leading global derivatives and securities network that it is today. The company has a solid foundation, a global ambition and a strong management team that I'm honored to lead. In my new role, I am primarily focused on 3 key priorities that I believe will further strengthen Cboe and enhance shareholder value: first, sharpening our strategic focus; second, effective allocation of our capital; and three, developing talent and management succession.
While I arguably support Cboe's strategic direction, I see opportunity to refine this strategy to provide a clear focus on the core elements of our business that drive revenue and earnings growth. I believe a sharpened strategy will enhance the margin profile of our business and increase shareholder value over the longer term. I will also focus on ensuring our capital allocation plan is delivering the kind of returns our shareholders expect from Cboe. I'm intent on increasing the efficiency of our investments that we make across the business to generate durable revenue growth. Finally, talent development and succession planning, which is always an important component of any CEO's duties and responsibilities, will be a priority for me.
I'll now turn the call over to Dave Howson to talk through how we are driving results within our strategy.

David Howson

Thanks, Fred. As Fred noted, our strategy yielded solid results during the third quarter as we continue to advance our top strategic growth priorities: Derivatives, Data and Access Solutions and Digital.
Before moving to the record results for our Derivatives and D&A businesses, let me provide an update on our Digital segment. We are working with our customers and the CFTC on final preparations for the planned launch of margin futures in the first quarter of 2024, subject to regulatory approvals. With this launch, Cboe Digital will be the first U.S. regulated crypto-native exchange and clearinghouse to offer spot and leverage derivatives on a single platform. We look forward to bringing this unique product to market.
Turning to Derivatives and Data and Access Solutions. Last month, we made important leadership changes to further support our global growth strategy. Cathy Clay, who previously led our Data and Access Solutions business, was appointed to Global Head of Derivatives, a new role for the organization as we reorganized the team for the next chapter of global growth. Furthermore, we tapped our strong bench of talent to promote Adam Inzirillo to Global Head of Data and Access Solutions. By aligning our organizational structure to the global nature of the business, we anticipate harnessing the full strength of Cboe, increasing efficiency and collaboration across business lines and regions while enabling us to better deliver world-class products and services in a globally consistent manner to our clients.
Turning to Derivatives on Slide 8. It was another record quarter for the business as traders and investors turn to our flagship S&P 500 and VIX Index products to help navigate the uncertain macro environment. SPX volumes surged 21% to a record ADV of 2.9 million contracts in the third quarter, while our Mini-SPX contract, (inaudible), jumped 82% year-over-year. Within SPX, the fastest-growing segment continued to be the 0-day to expiry options, gaining 33% year-over-year. Investors use these for hedging, income generation, expressing views on market direction and more.
The diversity of use cases is why we expect to continue to see strong and sustained volume in 0DT options regardless of what the market is doing or where the VIX is trading. These options have opened up a whole new risk premium for investors to capture, namely intraday risk. And as uncertainty increases regarding the longer-term macro picture, interest in capturing shorter-term trends and dislocations have led to a higher share going to 0DTE options, now comprising around 48% of all SPX volumes in the third quarter. However, it's important to note that while the 0DTE options are making up a bigger part of the pie, the pie itself is growing as well.
Other expiries are also seeing higher volume, including our standard monthly SPX options contract that expires in the third Friday of every month. We believe that bonds are being used less as a diversifier of equity risk, and investors are increasingly turning to auctions to help hedge their portfolios. That hedging demand helps explain why VIX auction volumes have been so strong with ADV surging 60% year-on-year, even as overall VIX levels stay muted. Investors use VIX options primarily to protect against potential black swan events, which typically happen when volatility levels are low or in other words, when least expected.
We believe the [idea] of buying VIX call options is to potentially capture that complex move if the VIX triples or quadruples, something that is harder to do when the VIX Index was in the mid-20s last year versus the mid-teens this year. With macro and geopolitical risks arising across the world, we're seeing strong global demand for our products with SPX and VIX options ADV during global trading hours increasing 95% and 10%, respectively, year-over-year. As markets change, our Derivatives product suite remains well positioned for customers in any market environment. Our VIX and SPX products anchor a remarkable toolkit that allows customers to choose the right product size and expiry to meet their needs, be it risk management or income generation.
Complementing the burgeoning activity posted by our Derivatives business, Cboe is continuously working to expand its suite of data products to enhance the overall trading ecosystem. In collaboration with S&P Dow Jones Indices, Cboe's product innovation arm, Cboe Labs, recently launched several new benchmark indices for market participants. We were incredibly excited to bring to market the Cboe S&P 500 Dispersion Index known by ticker DSPX as well as our 4 new credit volatility indices. Early market reception has been extremely favorable as each of these indices is designed to provide investors with key information to help them better manage their strategies and portfolios, potentially fueling further growth in our tradable products.
On the innovation front in Europe, we are excited about the upcoming launch of single stock options on the Cboe European Derivatives Exchange beginning next week. The commitment secured from leading market participants ahead of the launch highlight the opportunity to materially advance the European options market for clients. As we plan to introduce a liquidity provider and market-maker programs in the first quarter of next year, subject to regulatory approvals, we anticipate volumes on the platform to grow. We see the launch of single stock options as a key milestone for our European derivatives initiative and our broader ambition of creating the leading marketplace to manage risk around the globe.
Moving to Slide 10. Our Data and Access Solutions business posted record results during the third quarter with net revenue increasing 8.7% on an organic basis. The durable year-over-year growth was fueled by an expanding global customer base and an evolving portfolio of market data solutions. Through our bundled data offerings and cloud strategy, we can package high-quality data from across markets and deliver it to customers globally in a consistent and cost-effective manner, extending the addressable market for this business. We continue to see solid customer adoption of Cboe Global Cloud, a real-time data streaming service that provides simple, effective access to Cboe's robust suite of market data.
Nearly 80% of customers utilizing this service are located outside of the Americas, reflecting our expanded global footprint. Additionally, through our cross-region sales efforts, many customers are subscribing to multiple [grade] products offered by Cboe Global Cloud, given the simple, efficient access to high-quality data this service affords. As we look across our global network on Slide 11, we continue to build on a solid foundation of our global cash equities business, where we have a strong presence in 7 of the top 10 global equity markets serving a diverse customer base. While overall performance in our Cash and Spot Markets reflected the muted volumes we saw across global equity markets during the quarter, we are upbeat about the long-term potential.
In Asia Pacific. Cboe Australian market share grew to 17.9% in the third quarter, up from 16.7% in the previous year as momentum continued to build post our technology migration. Later this month, we expect to complete the technology migration of Cboe Japan through our world-class technology stack and launched Cboe BIDS Japan subject to regulatory approvals, further extending our unique block trading network to this important market. We are grateful to our customers for their partnership and look forward to providing them with the best-in-class trading experience that our global customers have come to rely on at Cboe.
In Europe. The Cboe Europe Equities business reported market share of 23.2%, while Cboe BIDS Europe experienced another strong quarter and remained the largest block trading venue in Europe. Cboe Clear Europe market share grew to 33.8% in the third quarter, up from 33.2% in the prior year quarter. In North America, Canadian equities market share rose to 15.2%, up from 12.2% in the third quarter of 2022. While U.S. equities market share fell to 12.7% compared to 13.3% in the prior year period, Cboe's addressable market share, which excludes closing auctions and off-exchange volume, remained stable.
Lastly, our Global FX business had another record quarter. Net revenues were up 6% year-over-year in the third quarter as the business expanded spot market share to a record 20.2%, up from 17.8% a year ago. Our NDF offering, which trades on Cboe SEF, our swap execution facility, continued to see strong results with volumes increasing 19% year-over-year with ADV of $1.1 billion. These record results were driven by new client growth and increased utilization of our platform by existing clients.
In summary, Cboe delivered another outstanding quarter. And we see strong momentum as we head into the final months of the year and into 2024. With our strong foundation of Derivatives, Cash and Spot Markets coupled with our Data and Access Solutions, we will continue to harness the power of our market to deliver innovative products and services to our customers. As we sharpen our strategy and focus, we see even more opportunity for Cboe to maximize its global potential and drive further value for our shareholders.
With that, I'll turn the call over to Jill.

Jill M. Griebenow

Thanks, Dave. As Fred and Dave highlighted, Cboe posted a record third quarter with adjusted diluted earnings per share of 18% on a year-over-year basis to $2.06. I want to provide some high-level takeaways from the record quarter before delving into an investment of the segment results.
Our third quarter net revenue increased 9% to finish at $481 million. The growth was again driven by the strength in our Derivatives market categories and the solid results from our Data and Access Solutions business. Specifically, Derivatives market produced 15% year-over-year organic net revenue growth in the third quarter as traders and investors found increase in utility in our toolkit of proprietary products. Data and Access Solutions net revenues increased 9% on an organic basis during the quarter. We are pleased with the revenue growth acceleration we have seen through 2023 and remain excited by the continued momentum into year-end.
Cash and Spot Markets' net revenues decreased 6% during the quarter on an organic basis as the trade environment remained muted across the globe. Adjusted operating expenses increased a modest 4% to $180 million, with the year-over-year growth tempered by a $10 million benefit from executive changes made during the quarter. And adjusted EBITDA of $321 million grew a solid 12% versus third quarter of 2022.
Turning to the key drivers by segment. Our press release in the appendix of our slide deck include information detailing the key metrics from our business segments. I'll provide some highlights for each. The Options segment, again, provided the highest growth of any segment for the quarter. Net revenues grew a robust 14%, led by a strong contribution of our Index business and favorable revenue per contract trend, given the mix shift to index options. Total options ADV was up 8% as our higher-priced options ADV increased 28% over third quarter 2022 levels. Revenue per contract moved 12% higher, given the continued positive contribution of higher capture index products. And market data and access and capacity fees were up 19% and 5%, respectively, as compared to third quarter 2022.
North American Equities net revenue was down 2% on a year-over-year basis in the third quarter. While access to capacity fees increased 6% and proprietary market data was up 4%, U.S. industry volumes remained a headwind for the segment. Net transaction fees were down 11%, given softer industry volumes and market share in our U.S. businesses. And while our U.S. on-exchange market share has trended lower on an absolute basis, our share remains stable when adjusting for the increase in off-exchange market volume and auction activity during the third quarter.
The Europe and APAC segment reported a 2% year-over-year increase in net revenue as stronger nontransaction revenues and favorable foreign exchange trends were tempered by volume headwinds. Market data, access and capacity and other, which includes the positive impact of interest income during the quarter, were up a combined 18% on a year-over-year basis. This outperformance was tempered by softer industry volumes in Europe, down 13% versus the third quarter of '22.
In the Futures segment, third quarter net revenue was up 14% as net transaction fees, access capacity fees and market data revenue each produced double-digit year-over-year revenue growth for the quarter. Activity in the complex accelerated as volumes increased 12% on a year-over-year basis. On the nontransaction side, access and capacity fees continue to perform well, up 14% versus the third quarter of last year, and market data revenues increased by 16%. And finally, net revenue in the FX segment notched another quarterly gain, growing by 6%, making it the 10th consecutive quarter of year-over-year net revenue gains for the segment. Net transaction fees revenue was up 5% as average daily notional value increased by 8%, and market share had another record at 20.2% for the quarter.
Turning now to Cboe's Data and Access Solutions business. Net revenues were up a strong 8.7% on an organic basis. Net revenue growth continued to be driven by additional subscriptions and units, accounting for 2/3 of the organic market data growth and just over half of the organic access and capacity fee growth in the third quarter. The uptick in pricing for access and capacity fees was driven by the first pricing increase we have passed through in over 5 years for physical connectivity to our multi-exchange network.
Last quarter, we spoke to selectively increasing pricing to support innovation and keep pace with the utility we provide to market. We intend to continue to lead with new user and unit growth as we provide exceptional value to our customers. But we'll remain mindful of competitive pricing and our need to support continued innovation for our products. We are pleased with the overall acceleration in organic net revenue trends for the segment and believe the momentum positions us well to hit our full year and medium-term guidance range of 7% to 10%. More specifically, we expect to see continued strength from proprietary data sales benefiting from the sustained growth across our Derivatives complex.
In Australia, we continue to see a solid uptick in data sales and access and migration. We expect that momentum to continue. And finally, we anticipate a continued focus on our sales effort to distribute our content globally, adding to the enhanced distribution capabilities that Cboe Global Cloud presents.
Turning to expenses. Total adjusted operating expenses were approximately $180 million for the quarter, up 4% compared to last year. The modest increase was a product of higher technology support services and professional and outside services fees to support some of our key growth initiatives, and an increased travel and promotional spend given higher ongoing corporate marketing expenses. These higher year-over-year changes were partially offset by a 6% year-over-year decline in compensation and benefits, given a $10 million benefit to executive changes. As we have historically done, we did not adjust for the impact of executive departures, but we would not expect the impact to be a recurring element in the Cboe expense base.
Moving to our expense guidance. We are lowering our full year 2023 expense guidance range by $12 million to $754 million to $762 million from $766 million to $774 million. The 3 basic components of full year expense builds are outlined on Slide 18 of our earnings presentation: expenses from 2022 acquisitions, core expense growth and growth investments.
Looking at the details of our 3 expense categories. The incremental 2023 expenses from our 2022 acquisitions remains at $30 million to $31 million, following a reduction in expenses earlier in the year. (inaudible) change in our overall expense forecast comes in the core expense category, now calling for growth of $51 million to $55 million versus our prior expectation of $59 million to $64 million. The reduction is a product of the strong expense management trends we are seeing this year, as highlighted in our third quarter results and modest growth expectations moving forward.
In addition, we have recalibrated our cap-related costs given our updated expectations. Overall, we expect core expenses to grow by 8% in 2023.
Moving on to growth-generating investments. We anticipate that the investments we are making in the business to help drive incremental revenue to our bottom line will be in the range of $21 million to [$24 million]. Our new range is roughly $3 million to $4 million lower than our prior range, but we remain committed to investing in high-return areas like D&A expansion, a more aggressive marketing campaign and targeted products and services R&D efforts across our ecosystem.
Looking at our full year guidance more broadly on the next slide, we are making some positive refinements to our forward outlook across our businesses. At a high level, we are reaffirming our organic total net revenue growth range of 7% to 9% for 2023 and expect to finish at the high end of the range for the year.
As a reminder, this remains above our medium-term guidance of 5% to 7% introduced at our Investor Day nearly 2 years ago, a function of the durable innovation we have seen across the entire ecosystem at Cboe. As mentioned earlier, we are reaffirming our D&A organic net revenue growth rate of 7% to 10% for 2023, in line with our medium-term expectations.
Given the company's positive marks on its investment in the 7RIDGE fund, which owns trading technologies, we are again increasing our expected benefits to the other income line. Our new guidance range of $38 million to $44 million is $4 million above our prior range of $34 million to $40 million.
Our full year guidance on depreciation and amortization remains at $40 million to $44 million. And we expect the effective tax rate on adjusted earnings under the current tax laws to come in at 27.5% to 29.5%, down from our prior guidance of 28.5% to 30.5% in 2023.
Outside of our annual guidance, net interest expense for the third quarter of 2023 was $12 million. For fourth quarter, we expect net interest expense to be in the range of $11 million to $12 million.
On the capital front, our focus remains maximizing long-term shareholder value through effective capital management. In the third quarter, we returned a total of $58.5 million to shareholders in the form of a $0.55 per share quarterly dividend.
In addition, last week, we announced an increase in our share repurchase authorization, adding $250 million to bring our total capacity to $390 million available for share repurchases. We remain well positioned to invest in our business, support our dividend and opportunistically repurchase shares, given our continued strong free cash flow generation.
Turning to our balance sheet. We paid down $90 million on our term loan facility that matures in December of this year during the quarter. Our third quarter leverage ratio declined slightly to 1.3x from 1.4x in the prior quarter as a result of the debt pay down. Since the end of the third quarter, we have paid down the remaining $75 million on our term loan facility. Overall, we remain comfortable with our debt profile, having locked in low, medium- to longer-term fixed rates averaging below 3% on our outstanding debt. Moving forward, we will continue to put capital to work in value-enhancing ways across our ecosystem while looking to strike the right balance between investing in future growth and driving margin efficiency.
Before I turn the call over to Fred for some closing remarks, I want to congratulate Ken Hill, who was recently promoted to Treasurer and Vice President, Investor Relations. Since joining Cboe in 2021, Ken has made an incredible impact with our Investor Relations program, and I'm delighted for him to expand his leadership with the Treasurer role.
Now I'd like to turn it back over to Fred for some closing comments before we open it up to Q&A.

Frederic J. Tomczyk

Thanks, Jill. In summary, I want to thank the entire Cboe team for the warm welcome and the incredible achievements over the last quarter. Cboe's success this year and over the last 50 years is a testament to the enduring strength and resiliency of the team, who continue to rise to any occasion and deliver results. I'm very excited about the future of Cboe Global Markets.

Kenneth William Hill

At this point, we'd be happy to take questions. (Operator Instructions)

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Patrick Moley with Piper Sandler.

Patrick Malcolm Moley

Fred, I just wanted to dig into the 3 key priorities you laid out in your prepared remarks. I was hoping you can maybe elaborate on the comments you made about refining the strategic vision, what areas are you focused on where you see the most opportunity for improving efficiencies? And what impact would you expect this to have on your overall expense growth going forward?

Frederic J. Tomczyk

Thanks, Patrick. So obviously, I've been following the strategy from the Board level, and I'm providing my input, comments to the management team through the process.
I generally agree with the direction. So clearly, as a Board member, I had my input to that. However, I have been clear that I consider that the current strategy is too broad. When you just say new asset classes, new geographies, as I used to say to my predecessor, anything fits in there. And so I think a good strategy provides greater direction and focus to an organization. So that's the first point.
Second, all good strategy starts with a good organic strategy. So we're definitely going to focus on that to make sure we have a good, solid organic strategy. And then the inorganic part of that strategy will complement that organic strategy but not be the main game, so to speak.
I also believe that any good strategy has to be built by the management team with everybody providing their input along the way. And it has to be reviewed and approved by the Board. To me, what's important as the first step is you have a common frame of reference. And what I mean by that is we all agree on what the trends are in the business, where the world is going, splitting between what I call secular and cyclical trends. And you always line up your strategies to go with the secular trends, and you adjust over the short term for cyclical trends.
Also, there are good competitive analysis and then a good SWOT analysis of what Cboe is really good at and what it can bring to different parts of the world. From that, we'll follow your key strategic themes, why they're important. And then your various actions will follow on over the next 2 to 3 years but between organic and inorganic.
And when I talk about efficiencies, obviously, I clearly recognize that the EBITDA margins have been falling the last 3 or 4 years. I'm okay with EBITDA margins falling slightly as long as it is for a good reason. But I think we want to sort of stabilize that trend and start to turn it in the future looking forward. Does that answer your question?

Patrick Malcolm Moley

Yes, it does.

Operator

Our next question comes from Dan Fannon with Jefferies.

Daniel Thomas Fannon

I wanted to follow up on that. And maybe if you could talk about capital allocation going forward. The authorization last week and the message we heard this morning sounds similar in terms of how you guys have allocated capital previously. But should -- given the organic and sharpening focus of the business, should we think about buybacks and -- as more of a focus here in the near term?

Frederic J. Tomczyk

I would lay it out this way. I would say we'll have discipline, number one. Number -- first and foremost, we think the best use of our capital is to invest in organic initiatives. We've seen some good returns from some of those initiatives. And so that will continue to be a focus. Secondly, obviously, we have a dividend. We consider that as something we just have to do almost like an interest payment to return capital to our shareholders through a form of a regular dividend. Third, I think right now and as you can see from Jill's comments, we've been paying down our floating rate debt, given the rise of interest rates. And we're happy that we've got that back down to essentially 0. And then we will look at share repurchases on an opportunistic basis from this point forward. And then lastly, M&A, I think you should expect you'll see less M&A going forward and a more focused M&A strategy. I'm a much bigger fan of what I call deliberate M&A transactions. But right now, we're going to focus on making sure our strategy is tight. We're all on the same page and making sure our organic growth strategy is where we want it to be.

Operator

Our next question comes from Chris Allen with Citi.

Christopher John Allen

Wanted to follow up on basically the last 2 questions. Just in terms of stabilizing EBITDA margins and potential room for improvement there, any color just in terms of specific opportunities that you see? And any color on the time frame to expect some room for improvement there?

Frederic J. Tomczyk

Well, I'm 6 weeks in, so I think you can ask me that question maybe next quarter. But suffice it to say that it's certainly an area of focus for me to try to stabilize those margins and find ways to improve them going forward, which I think the management team will do where we get good operating leverage in the business. But at this point, 6 weeks in, I don't have anything specific.

Operator

Our next question comes from Ben Budish with Barclays.

Benjamin Elliot Budish

To be original, I'm going to continue to follow up on those first 3 questions. Maybe -- you talked about narrowing the strategic focus going forward. To what extent does that perhaps refer to divestitures as well? It sounds like maybe there was a little bit of disagreement with your predecessor about the breadth of the M&A strategy. So are you talking about being more focused going forward or for revisiting the existing portfolio, how are you thinking about balancing those 2 things?

Frederic J. Tomczyk

I wouldn't say there was much of a disagreement between Ed and I as much as I didn't think there's the strategy provided enough focus to the organization and focusing where we allocate our capital in terms of M&A. So that -- but I don't think there was a difference of opinion on strategy, so to speak. It's much more about narrowing it. So that's -- I don't know what else to add there. Anybody else?

David Howson

So in terms of the product lines that we're in, we've got some exciting new events coming up with launches in our Digital business of margin futures in the new year with new product launches to come there. And we've got the Asia Pacific replatforming that's going to happen later this year to get us onto a common technology platform. And what we saw with the Australian migration was that increasing data and access and capacity there. So as we get these new acquisitions onto that common world-class technology platform, there's some great opportunities to see that longer-term growth come from some of those more recent acquisitions.

John F. Deters

This is John. I think really integrations and focus to Dave and Fred's point for past acquisitions. And we do see as a consequence of the way we approach integration, deep integration, that our return on invested capital for the tranches of deals that we pursue improves over time. We manage those returns for 3- to 5-year outcomes. And so we're still in process there.

Frederic J. Tomczyk

Yes. On divestitures, at this point, I don't have anything specific in my mind with respect to divestitures. It's something every management team considers over time. But right now, I would answer no. Obviously, we want to see how our Digital business does. The world has changed since we bought that asset. And as we launch a managed futures or margin futures, we want to see how that starts to take. It's clearly an asset class that doesn't have the trajectory it used to have, but we still think there is demand for the market for that particular asset class. And we do believe, given all that's gone on, that our strategy is right in terms of turning that asset class into putting a place of trusted markets where everybody has an appetite for it.

Operator

Our next question comes from Craig Siegenthaler with Bank of America.

Craig William Siegenthaler

I also want to wish both Fred and Ken a congrats on the new roles. Just starting with index options volume. The long-term trajectory here is obviously very robust, but there has been a deceleration over the near term. So I wanted to see what you attribute the slowing to, in your view? And then also, do you think the 0-day contribution, which is now in the high 40% range, is close to secular equilibrium? Or do you think 0-day mix could move higher?

David Howson

Thanks very much for the question. Certainly, we've had a great Q3 with a number of records coming through Q3. [Surface] SPX volume 2.9 million contracts are up significantly over the prior year and VIX options up 60% versus the prior year. And then as we think about momentum, we think about October as we begun with some record there. And in fact, 2023 has seen 9 of the top 10 SPX [data], and 6 of those have been in October. So good momentum coming through there, really driven in SPX there by 3 factors. One would be the pickup in hedging as investors have rerisked throughout the year. The second would be those investors catching up with performance through SPX [combine] buying there. And then thirdly, of course, the 0DTE complex that you mentioned.
48%, as you quote there, of the SPX volume coming from 0 days to expiry, you've seen an increase in the proportion there of institutional engagement as more funds, more strategies have been set up to trade this incredibly balanced ecosystem, where hedging, income generation, tactical strategy and systematic trading have all come to light. And so in terms of the sustainability there, we see that really persisting. And why do we think that? We think that because it's continued over the last 18 months through different market cycles and different volatility regimes.
And so as we look forward, we really think about the continued uncertainty in the marketplace. We kind of think about the Fed. We think about inflation. We think about geopolitical issues there and really options and our volatility toolkit really being the place to come to manage our risk. And then when you think about options themselves, it's a real durable recurring income stream. Options expire every day, every week, every month, every year. And investors will continue to reposition and reengage around that uncertainty that is really forecast for the rest of next year.

Frederic J. Tomczyk

Just to add on to that. I mean, I haven't seen index options slow down. It continued to rise. Equity volumes are off as they are around the globe, but index options continue to grow and into October continues to grow.

David Howson

I would just mention also that on our global trading hours in the script, you heard us talk about 95% year-over-year growth of SPX index options volumes. In global trading hours, VIX is growing as well. We still see opportunities for growth in access and distribution around the world and around the clock.

Operator

Our next question comes from Alex Kramm with UBS.

Alexander Kramm

Fred, good to be talking again. It's been a few years, but good to have you again. In terms of the topic du jour and maybe this is a continuation from Ben's question earlier as it comes to divestitures. Maybe getting more specific, the one area that you didn't highlight was the European derivative expansion. We've been at this for a while now. And I know there's some new milestones coming here early next year. But just wondering, if you look at an initiative like that where when we talk to clients, we hear limited appetite. Just wondering if maybe your patience with a project like that may be more limited than what's been done before. And then maybe for Jill, on the same topic. Can you just remind us how much the drag is of the European derivatives business today in terms of expenses?

Frederic J. Tomczyk

Yes. Maybe I'll start, and I'll turn it over to Dave for a second. But we just launched European derivatives, so it's a little early to make a judgment on it. Contrary to what -- I think there's 2 different ways that people look at derivatives in different markets. Sometimes they want access to the U.S. And if you talk to our clients, our bigger clients, they continue to tell me anyway that there's a lot of demand for liquidity moving into the U.S. So that's one point. And second point, obviously, it's very early with respect to the multi-list European option expansion here. So I don't -- I wouldn't prejudge it at this point, but I'll ask Dave, who has a better perspective on that.

David Howson

Yes. Thanks, Fred. And thanks, Alex, for the question here. When we think about European derivatives, and we've always signaled this. It's going to be a journey and not an event in time. When you're launching a brand-new exchange, a brand-new clearinghouse and a brand-new product or indeed just one of those at a time, they all need time to gain critical mass. And we're really looking forward to the launch of single stock options in a couple of weeks, whereby we've got some strong support from industry participants.
And when you look at the growth so far, it was the second best quarter for us in Q3 for index [options] and futures in Europe with some new participants, new futures and options market makers and some new nonbank FCMs. So traction continuing to build that. And then when we look at the value proposition, that white space to move into for the European derivatives market, it's significantly still there. 10 years ago, Europe and the U.S. has market sizes around about the same. Now it's 8x to 10x difference in those market sizes.
Clearly, a number of factors there, but we see room to grow and expand the European market by bringing that U.S. market structure to bear. And with regards to the project itself and the build costs and the build effort going forward, it's purely incremental. We already have the largest pan-European equity exchange in Europe. We already have the largest cash equity clearinghouse in Europe and the staff to run them. So by leveraging our global technology platform and reusing the functionality from the U.S., it was a marginal incremental effort for us then.
So for us, it's not a significant burn that concerns us while we really look to take advantage of this real gap in the market that we think over time we can move into. We can move into it with great product development and greater partnership with our customers there. So certainly, we remain committed to this process.

Operator

Our next question comes from Owen Lau with Oppenheimer.

Owen Lau

So there is some speculation about the future ownership of Cboe recently. And Fred, you also mentioned succession planning in the prepared remarks. Could you please elaborate that point a little bit more?

Frederic J. Tomczyk

Could you repeat the second part of your question there for me for a second, Owen?

Owen Lau

Sorry. You mentioned the succession planning in your prepared remarks. Could you please just elaborate that point a little bit more?

Frederic J. Tomczyk

Maybe I'll start with the second one first. So I always remember the first time I became a CEO, and I was pretty young that my Board was very clear to me that my job, priority one in my first day of the job, was to plan for my own succession. And so clearly, that's going to be a focus here in terms of making sure we have the talent in the organization we need and that we have the leadership and the place is set up for an orderly succession.
In my experience, when you surround yourself with really good people, and I've got a good team around me here, basically business becomes easier. When you're fighting, you don't have good people and good leadership in the organization, things get harder. But you should assume that I'm going to continue to work on developing the talent and the team around me as they grow into their jobs and hopefully more bigger jobs. And when the time comes for me to step down, someone's ready, I'll be the first one to say, "I'll hand it over to my successor."
With respect to Cboe ownership, I would emphasize these rumors have come and gone over the years. Having said that, I don't think Cboe is more for sale today than it was 2 months ago or 3 months ago. We're just continuing -- the most important thing for us is to keep our heads down and stay focused on running our business. And we'll deal with anything that comes at us in due course.

Operator

Our next question comes from Alex Blostein with Goldman Sachs.

Alexander Blostein

I was hoping we could spend a couple of minutes and just dig into some of the expense strategy you highlighted both for the year and maybe get your early thoughts into '24. The specific area I was hoping to kind of double click into the consolidated audit trail. I know it's been a pretty big drag on expenses for you guys this year. Just curious how you see that evolving. There's obviously things that have come out of the SEC that could make this better for Cboe and others next year and beyond. So maybe again, help us frame the cat sort of cost drag this year, how are you thinking about it for next year? And any early thoughts for '24 expenses?

Jill M. Griebenow

You bet. So I can -- this is Jill. I'll take this one. As you alluded to, there has been, I guess, some noise with the cat this year. I will say as we've taken a look and firmed up our guidance as we head into the fourth quarter, you do notice that we have that core cost -- or that cat costs built into our core expenses. And that's really a function of the funding model being recently approved, coupled with the fact that the cat is now in its final build stage. So we're just, again, getting that into our core expense base and really looking to see that moderate. As it relates to 2024, too early to comment on that. We will share our full year projections with you in February of next year. But again, for 2023, as we communicated today, we did trim our expense guidance and then our core expense growth looking to come in at about an 8% growth over 2022.

Operator

Our next question comes from Brian Bedell with Deutsche Bank.

Brian Bertram Bedell

Great. Fred, great to hear your voice again, and congrats to Ken as well. My question may be focused on Europe actually. Just in terms of -- I guess a 2-part question. Just a bigger picture there. How important is the development of the consolidated tape to the overall European strategy? And then weaving in the derivative part of that, I guess, do you view that as a separate -- completely separate strategy for your overall European business? And then are you still looking for -- I think you were trying to get to a $25 million annualized revenue run rate, I think, exiting 2025. I just want to see if that's still the plan on the derivatives.

David Howson

Thanks very much for the question there. Yes, we've been huge proponents over the last decade of the benefits that a consolidated tape would bring Europe, clearly hugely beneficial for the U.S. marketplace. So that single pane of glass of the globe into the equity markets and the fixed income markets in Europe is something we've really been pushing for. Recent development show a reasonably good structure coming through there for the consolidated tape, which we are very interested in and may even think about whether or not we would want to be the provider of that consolidated tape. Not likely to see an actual tape come through, though, till about 2026, given the way the legislative process run. So really important really for the overall capital markets in Europe.
And as the pan-European exchange of the pan-European clearinghouse, we really fit the capital markets union model very, very, very well there. And just dovetail with the derivatives market. In many ways, when you think about our approach being a pan-European approach, once again, there are single stock shop there, enabling us to offer greater capital efficiency on transparent onboard model there, with Cboe Clear Europe having the ability to access all of the CSDs around Europe and provide a cleaner and more capital-efficient post-rate solution.
And then when we think about the prognosis of the business and how we're going, you mentioned that guide there. We've got single-stock options coming in a couple of weeks. And as that begins to gain traction, we'll be able to take a look at how that's building and consider the revenue profile and growth profile as that comes to bear.

Operator

Our next question comes from Kyle Voigt with KBW.

Kyle Kenneth Voigt

Maybe just a question on pricing. You noted the ability to raise price in areas where you're clearly providing incremental value, which recently is the case in the Access Solutions business. But kind of porting that thinking over to the transaction side of the business, you're clearly providing significantly more value in SPX and 0DTE specifically given the volume growth we've seen this year. I guess under the contract with S&P, can you remind us how much flexibility you have to make pricing changes across that SPX complex? And is this something that you would be considering heading into 2024?

David Howson

Thanks a lot. Excellent question there. We've -- if I give you a little walk around the mark of pricing, we've got in Q3, 59% came from organic subscriptions and unit growth there. And so when we think generally about pricing across the data franchise, we're really focusing on distribution, a really great opportunity, particularly over in Asia Pacific and EMEA to sell our data products there. We saw 39% of the growth in Q3 coming from outside America. So we see a good runway there. So focused predominantly on distribution and broadening access. We've got this consistent pipes to deliver our data over the cloud revenue there, again, 78% or nearly 80% of that revenue coming internationally. So good runway there, surprising but told we could use when we look across the scheme. But really, it's about that runway of new users.
When we're talking about the competitive markets that we run from a transactional basis, that's really looking to maximize the revenue per contract, the market share and the market quality there. And that's a skill that the teams have honed down to a fine art. And then when we come to the proprietary products there, the answer is yes, we can adjust the pricing of the trading of SPX options as we need to. But when you think -- look back to my earlier answer of that momentum, we're seeing that growth at the moment is continuing to broaden that adoption.
And as Chris mentioned, fabulous opportunity there out in global trading hours as we, again, look to their international capability and also think about those retail brokers coming through into next year. So pricing is right priced at the moment. It's cost-effective place to build liquidity, manage risk in that complex is something that, in general, we will look though to see where we can enhance some value in certain pockets there. But broadly, the gain there is about expanding the access and distribution.

John F. Deters

Kyle, this is John. Just to be clear, we don't have any constraints on any of our partnership relationships even beyond S&P, in terms of being able to respond to the market environment with the correct pricing approach.

Operator

Our next question comes from Andrew Bond with Rosenblatt Securities.

Andrew Bond

Just wanted to get your thoughts on the SEC's latest market structure proposal. It looks to ban volume-based pricing tiers and exchanges. Can you walk us through maybe why providing the tiers is important for liquidity provisioning? And how does it impact competition, not just with other exchanges but off-exchange markets and the broker internalization?

David Howson

Thanks very much for the question there. Yes, the rule proposal that looks to focus on rebate tiers, not rebate alone, but rebate tiers for that agency flow. As a general principle there, we don't support government-imposed price controls in particular, in highly competitive markets, as you mentioned. We think it would diminish the tool that is currently really used to help us drive competition between the trading venues. And so that utility there is really important for us to be on [there] and could even result in higher costs to the end users as those costs will likely end up being passed back up the food chain.
So for us, we really like to focus on competing on a level playing field. Some of the prior proposals coming in the back end of last year focused on leveling that playing field. And this one, this potential proposal here, looks to go somewhat against that. So we'll be engaging with common letters and with the SEC and the industry participants to make sure that we have a do-no-harm approach and actually think about the holistic market structure first because what's better for the investors is better for the market, and we look to enjoy competing within those constraints.

Operator

Our next question comes from Michael Cyprys with Morgan Stanley.

Michael J. Cyprys

Wanted to ask on the index options suite. With the SPX dailies, you now have expiries going out 30 days. But maybe you can just remind us on the SPX expiries, what do you have beyond 30 days? And to what extent might there be any sort of innovation opportunities to fill out more maturities to allow more precise hedging with longer duration and potentially expand the user base even more? I guess said another way, why not have dailies going out 365 days instead of just for 30 days?

David Howson

Yes, great question. Great, so we are continually thinking about how we can innovate around our volatility talk, sort of the dispersion index, you saw the credit mix indices come out there as well. But purely on SPX, we've got 5 weeks of SPX weekly expiries going out now to customers to be able to utilize those. As we go on strikes and expiries, we always manage that fine balance between liquidity provision and to be able to manage the number of strikes and number of series that the market has to manage and digest, and really conscious about adding value where it comes through.
And in terms of longer dated, I would mention that Cboe was a pioneer of the [LEAPs] option that's longer dated. Option is going out multiple years. There's a great utility for some of the, say, insurers and other asset managers out there and other buy-side funds to really gain some real value there.
So we've got a broad range of strikes and exposure now. And really, we'll be customer-led. We want to give our end customers, investors what they need and also what the liquidity providers are able to support in a reliable and consistent manner. So think about ways in which more may come through there.

Unidentified Company Representative

Mike, I just mentioned that we -- so we had a Tuesdays, Thursdays about 1.5 years ago. But we added the fifth week of dailies or Tuesdays, Thursdays, just in the last few months. That was based on customer demand. So as Dave said, as customers demand more and we think we have appropriate liquidity provision, we'll continue to add strikes if the market wants it.

Operator

Our final question is a follow-up from Owen Lau with Oppenheimer.

Owen Lau

So Coinbase recently launched a crypto futures trading together with the spot trading. Could you please talk about how Cboe Digital will compete in this space and the value proposition? And I guess more importantly, given the low trading volume for the industry, how do you think about the investments in this space longer term?

David Howson

Thanks, Owen. As we've been talking about, we're really excited about the launch of our margin futures product in early 2024. There's great engagement from customers and [SPMs] and as we build out that project.
Following that, we do have further derivatives products in the pipeline. The thing that's unique about Cboe Digital, once we have that launch, is that the spot and the margin futures will be on the same technology platform underneath the same regulatory umbrella. So over the same APIs, over the same connection. You can trade both the spot and physically and cash settle, all cash settled margin futures all on the same platform there. So real unique value being added there.
And then when we think about the prognosis for the future, we think about the hopeful approval of those spot ETH and spot Bitcoin ETFs, which we will know more about in the new year. At Cboe, we're supporting 8 issuers of those ETFs with 5 surveillance-sharing agreements in place. So when they come to market, not only do we get to list those products and have the trading, but actually the ecosystem that we have there with that U.S.-based regulated exchange and clearinghouse to support those authorized participants and market makers, who will be supporting and needing to manage their exposure in those products.
So we see a good ecosystem benefits coming that. And then when you look at the regulatory direction, although it may slow a little is certainly coming in Cboe's direction where we run a transparent, regulated, customer-first, intermediate-driven model.

Operator

There are no further questions at this time. I will now turn the call back to the management team for any closing remarks.

Frederic J. Tomczyk

Okay. Thank you, and thanks, everyone, for joining us this morning. I wish you all a good weekend. And we look forward to seeing you all in the future in person as I start to get out from the office. Take care.

Operator

This concludes today's conference call. Thank you for joining us. You may now disconnect.