Rising trading volumes boost earnings at CME

Earnings at CME Group, which owns the Chicago Board of Trade, beat Wall Street estimates for the third quarter. Ali Hashmi/MEDILL

By Nicholas Heinzmann

CME Group Inc., riding higher trading volume and continued expansion in its international market, reported stronger-than-expected third quarter earnings Thursday.

In the latest quarter, net income at the exchange operator rose 23 percent to $290 million, or 86 cents per diluted share, from $236.7 million, or 71 cents per diluted share, a year earlier. Thursday’s per share earnings topped by 4 cents the 82 cents analysts surveyed by Bloomberg had been expecting.

Revenues rose 6.7 percent to $762.4 million compared with $714.6 million last year.

“Our core business performed very well during the third quarter,” said CME Group Executive Chairman and President Terry Duffy in a press release. “In addition,” he said, “the momentum has continued, and October is on track to have the highest monthly volume in our history.”

CME, the parent company of the Chicago Board of Trade, has faced a challenging financial market this year. Less volatility, low interest rates and concerns about high-speed trading in the previous quarter put a damper on trading activity. That dented CME’s profits, which are heavily dependent on fees it charges for transactions and trade clearing.

But recently, trading volume has climbed thanks to a renewed streak of volatility, as well as growth in the company’s electronic platform abroad. Contracts based on interest rates surged, as investors use derivative contracts to bet on when the Fed will raise interest rates.

“We feel that the robust activity in interest-rate derivatives helping to drive the volume surge has some legs,” Morningstar analyst Gaston Ceron said in a note Thursday. “The U.S. economy will keep rate futures volumes at healthy levels for some time.”

Average daily volume during the third quarter was 13.5 million contracts, up 12 percent from the third quarter in 2013. Volume for interest rate contracts jumped 19 percent to a record average of 7.2 million per day.

Continuing this trend, trading volume — driven by the same trends that bolstered the third quarter — has been high in October. CME reported two of its top three highest volume days this month. October has seen strong activity across the board, said CEO Phupinder Gill in a conference call Thursday, with “all six product lines up and financial products up more the 50 percent compared to October last year.”

Growth in trading volume abroad contributed to the strong results. CME outperformed its two largest Europe-based competitors, which saw drop in volume compared with the year earlier period. Third quarter average daily volume from European clients, Gill said, was 2.1 million contracts, up 22 percent, outperforming North America, which rose by 13 percent.

That continued growth in electronic trading reflects another move by CME: two weeks ago, the company reduced its workforce by five percent in a cost-cutting move designed to appease critics.

“Given the revenue headwinds the firm has faced the past few years, we believe CME took the right step by cutting 5 percent of its staff,” Morningstar’s Ceron said. The savings from layoffs are expected “to offset cost increases in other parts of the company, including salary increases for continuing employees and spending on professional services,” rather than take a big chunk out of its expense base.

CME’s upside earnings performance had little effect on the company’s share price. In afternoon NASDAQ trading, CME shares were down 20 cents, or less than one percent, at $81.63.