By Tom Polansek
CHICAGO Feb 4 Exchange-operator CME Group Inc
reported higher quarterly earnings on Tuesday as trading
in its flagship interest rate contracts surged 29 percent.
The quarterly profit still fell short of analysts'
expectations due to unexpected expenses related to a
cyber-attack and a drop in the average fee paid per contract to
CME, which owns the Chicago Board of Trade and Chicago
Shares of the company dipped.
Interest-rate trading volume jumped in the fourth quarter as
the U.S. Federal Reserve started to trim bond purchases in its
extraordinary economic stimulus program.
The company will see volume gains as the Fed winds down the
program since a "tremendous" number of traders are waiting for
the Fed program to end before they re-enter markets, CME
Executive Chairman Terry Duffy told analysts on a conference
"The Fed tapering has clearly been beneficial to volumes,"
Christopher Harris, a Wells Fargo Securities analyst who covers
CME, said on the call.
Net profit rose to $193.1 million, or 58 cents a share, from
$166.8 million a year earlier, or 50 cents a share. Adjusted
earnings were 64 cents a share. Analysts expected 68 cents,
according to Thomson Reuters I/B/E/S.
Revenue increased to $687 million from $660.9 million a year
CME spent $8 million in the fourth quarter in response to a
cyber-attack in July, Chief Financial Officer James Parisi said.
The company, which spent the same amount in the third quarter
after the hacking, had not planned for the expenses, he told
analysts on the call.
CME also reported a $27 million loss on the sale of the
building that houses the New York Mercantile Exchange.
Brookfield Office Properties Inc bought the building
for $200 million in November.
Lower-than-expected earnings per share "could give investors
some pause today, although expenses were likely elevated on
one-time spending," said Alex Kramm, an analyst for UBS.
"CME is well positioned to thrive as several headwinds fade
and could become tailwinds," he said. "Volume in CME's interest
rate products has been subdued, but this has changed with the
recent volatility in interest rates."
Average daily trading volume was 11.3 million contracts, up
11 percent from a year earlier, according to CME data. The
increase was led by a 29 percent jump in interest rate volume,
to an average of 5.3 million contracts a day.
Trading volumes have benefited from government mandates on
the clearing of over-the-counter swaps.
Last November Chicago-based CME received regulatory approval
to operate a swap execution facility (SEF) that will allow
customers to execute commodity swaps alongside listed futures.
SEFs are a new type of trading venue that came out of the
post-crisis regulatory crackdown on over-the-counter
derivatives. Swaps, typically traded in private transactions
between banks and hedge funds, derive their value from interest
rates, credit, foreign exchange, equities and commodities and
estimated to be a $630 trillion market.
Overall, the average fee, or rate, per contract at CME was
78 cents during the quarter, down from 83.1 cents a year earlier
but up from 76.2 cents in the third quarter. The increase from
the previous quarter was "driven primarily by a higher
proportion of total volume coming from energy and agricultural
products, which have higher average fees," according to the
CME angered brokers and traders last year by announcing it
would hike transaction and market-data fees for the first time
The company expects revenues from transaction fees to rise 2
percent to 3 percent because of the recent increases, CFO Parisi
said. He projected a "somewhat meaningful" increase from higher
market-data fees, but declined to be more specific.
CME did not update the time line for the launch of its first
overseas exchange in London, which has been delayed since last
year, Chief Executive Phupinder Gill said. He told Reuters in
December the launch could "very possibly" take place in the
The stock was off 0.5 percent to $72.78 on Nasdaq. Shares
are down about 7 percent so far this year but up nearly 30
percent from a year ago. Rival IntercontinentalExchange Group
Inc is off about 8 percent in 2014 but up 45 percent
from a year ago.