Market volatility boosts CME earnings

By Jiefei Liu

CME Group Inc. reported strong fourth-quarter earnings Thursday, driven by high trading volumes amid market volatility.

CME Group, the Chicago-based derivatives marketplace, reported net income of $373.4 million, or $1.10 per diluted share, up 28 percent from $291.7 million, or 86 cents per share, a year earlier. Analysts’ expectation was $1.06, according to Bloomberg.

CME Group’s fourth-quarter revenues reached $912.9 million, 12.2 percent above $813.8 million in the year-ago period.

Full-year earnings rose to $1.53 billion, or $4.53 per share, 23 percent above last year’s $1.2 billion, or $3.70 per share. Revenues gained 8.1 percent to $3.6 billion from $3.3 billion, with a record daily volume of 15.6 million contracts in 2016.

As the holding company of the Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange and other exchanges, CME Group looks to transaction fees for its predominant revenue. Fourth-quarter clearing and transaction fees reached $768.5 million, up 13 percent compared with last year’s quarter, making up 84.2 percent of total revenues, with energy, metals and interest rates products leading the increase. Trading volume for the quarter averaged 16.3 million per day, up 24 percent from the fourth quarter 2015.


Quarterly Average Daily Volume of CME Group in thousands (Jiefei/MEDILL)

“Our global growth was also impressive,” said Terry Duffy, chief executive officer, during a conference call. He cited a 16 percent volume increase in Europe and a 15 percent increase in Asia.

Duffy expects a further increase in trading from possible deregulation in 2017 under the new Trump administration. He said that would encourage more participants to enter the market because of lower compliance fees and other costs, which could increase market liquidity and diversity.

The possibility of new tariffs under President Trump would also have an influence on the market, Duffy said, because if tariffs are imposed on imported products, the energy complex will gain volatility.

Futures and options trading benefits from volatility, and the greater the uncertainty, the higher the volume. The biggest driving factor of the fourth quarter revenues was Trump’s election, said Michael Wong, an analyst at Morningstar Inc. Not many people anticipated Trump’s winning, he added.

Wong mentioned several other unexpected events that increased volatility and trading volumes in 2016, such as the Brexit vote and the slowdown of China’s economic growth rate.

The new Trump administration and Brexit initiation should bring further volatility, Wong said, but he expressed uncertainty whether 2017 will be as volatile as 2016 and thus whether CME Group will remain at the same revenue level.

Separately, CME Group announced 16 million average daily volume in January, down 12 percent from the year-ago period.

Shares of CME Group rose 36 cents to close at $121.26 Thursday.

Photo at top: Flags fly at CME Group headquarters on LaSalle Street in Chicago. (Jiefei Liu/MEDILL)