By Ann Saphir
Aug 1 CME Group Inc, the world's biggest
futures exchange operator, on Thursday reported a 27 percent
rise in quarterly profit, beating expectations, as trading
jumped both at home and abroad.
The rise was driven in large part by renewed market
speculation over when the U.S. Federal Reserve will exit its
bond-buying stimulus program, which helped buoy trading of CME's
flagship interest-rate futures contracts.
The results also suggested Chief Executive Phupinder Gill's
focus on international markets was paying off, as trading from
Asia and Latin America rose to record highs. Overall trading at
CME's exchanges, which include the Chicago Board of Trade and
the New York Mercantile Exchange, rose 16 percent to a daily
average of 14.3 million contracts in the quarter.
Net income rose to $311.2 million, or 93 cents a share, in
the second quarter, from $244.9 million, or 74 cents a share, a
year earlier, the Chicago-based company said. Analysts, on
average, expected net income of 89 cents a share, according to
Thomson Reuters I/B/E/S.
Still, shares of CME were down 2.5 percent to $72.20 on the
Nasdaq, on worries that trading volumes were back on a decline.
CME exchanges handled an average of 10.9 million contracts each
day last month, based on daily reports available on CME's
website. CME reports July trading volume on Friday.
"There's always the argument that says the good news is past
and the slowdown we're seeing this month may mean we're going to
have earnings estimates that are weaker in this quarter," said
Brad Hintz, an analyst for Bernstein Research. "If you're a
short-term investor, that's a hedge fund, you're actually
looking at the trading volumes day to day."
Gill and other top executives have redoubled overseas sales
efforts, focusing on energy trading as they visited London,
Geneva, Shanghai and Tokyo on a recent trip.
CME Group is trying to attract new global customers to all
three oil benchmark contracts, and Gill said the effort is
paying off, citing a rise in trades of energy futures and
options, among its most profitable contracts.
A pipeline of brokers in China is eager to sign on to CME
Group as full members, he said, further boosting prospects
CME Group plans to open its first exchange abroad, in
London, later this year.
A rise in payments from Brazilian strategic partner BM&F
Bovespa boosted revenue as well, said Wells Fargo analyst
CME Group is a frequent critic of increased regulation, but
on Thursday's earnings conference call, top executives suggested
the company is benefiting from recent rule changes.
Regulator scrutiny of Wall Street's trading in physical
commodities, a major headache for some of its biggest customers,
could be a "net positive" for the company if customers turn to
futures markets to replace bets in the cash markets, CME
Executive Chairman Terrence Duffy told analysts on the call.
New government mandates for clearing of over-the-counter
swaps drove an increase in the company's cleared swaps business.
The volume of rates contracts tripled from the prior quarter to
$41 billion in notional value each day, Gill said.
Daily volume so far this quarter has climbed to $62 billion,
he said, as more asset managers, insurance companies and
government-backed entities used the service.
Revenue rose to $816.1 million from $795.9 million a year
earlier. Expenses fell to $308.3 million from $326.7 million.
CME ended the quarter with cash and marketable securities on
hand of $2 billion.