CME Group is a leading global derivatives exchange that offers a wide range of benchmark products across major asset classes, including interest rates, equity indexes, foreign exchange (FX), agricultural commodities, energy, and metals . The company operates through several exchanges, such as the Chicago Mercantile Exchange (CME), the Board of Trade of the City of Chicago (CBOT), the New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX) . CME Group's offerings include futures and options contracts, as well as cash and over-the-counter (OTC) trading through platforms like CME Globex, BrokerTec for fixed income, and EBS for FX trading .
- Clearing and Transaction Services - Provides clearing and transaction services for futures and options contracts, generating significant revenue through fees.
- Interest Rate Products - Offers products like SOFR futures, catering to the interest rate market.
- Equity Index Products - Includes products such as the E-mini S&P 500, serving the equity index market.
- Foreign Exchange (FX) Products - Facilitates FX trading through platforms like EBS.
- Agricultural Products - Offers futures for commodities like soybean and corn.
- Energy Products - Includes futures for energy commodities such as crude oil and natural gas.
- Metals Products - Provides futures for metals like gold and silver.
- Market Data and Information Services - Supplies market data and information services, contributing to the company's revenue.
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What went well
- CME Group is achieving significant growth in new customer acquisition, with new institutional client growth up almost 40% this year versus our 3-year average, and retail traders increasing by 30% year-over-year.
- CME Group's cryptocurrency futures business is experiencing record volumes, with futures ADV up almost 285% to a record 102,000 contracts, driven by the launch of Bitcoin and Ether ETFs, reinforcing CME's position as a trusted and regulated market leader in crypto derivatives.
- CME Group's Energy business is delivering record revenues and strong volume growth, with volumes up about 21% and options up 45%, fueled by increased international participation and the growth of natural gas trading due to physical flows of U.S. benchmarks globally.
What went wrong
- Increased retail participation may lead to lower rate per contract (RPC), potentially impacting revenue growth. Management acknowledged it's hard to predict the implications, especially as retail traders may focus on smaller products like micros and minis.
- Competition from new platforms offering event contracts, including political election contracts, could impact CME's market share if they do not participate in this segment. CME currently does not plan to enter this market, potentially missing growth opportunities.
- CME's Energy business, while currently experiencing strong growth, could face challenges due to macro changes and structural shifts related to energy transition, possibly affecting future volumes and revenues.
Q&A Summary
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Capital Returns and M&A
Q: What's your updated view on buybacks, dividends, and M&A?
A: We're continuously monitoring our capital return policy to act in the best interest of shareholders. Our dividend policy has served us well in a 0% rate environment. With changing rates, we'll evaluate our approach with the Board but aren't committing to any changes currently. Regarding M&A, we're in a strong global position due to past transactions but are open to opportunities that make sense. -
Competition and Treasury Clearing
Q: What's your perspective on the competitive landscape since FMX launched SOFR futures?
A: FMX's SOFR volumes are modest, but it's early. We're focused on creating efficiencies for our clients, demonstrating the value of CME's products. We haven't needed incentives to grow our interest rate products. Our bid-ask spreads are tighter, reducing costs for participants more than any incentives or transaction fees. We're concerned about U.S. Treasuries being cleared overseas under foreign regulators, which could be detrimental. -
New Customer Acquisition
Q: How is new customer acquisition impacting volumes, and where are clients coming from?
A: New client acquisition is core to our growth, with institutional client growth up almost 40% this year versus our 3-year average. We've built an inside sales team focusing on medium-sized and high-potential accounts. On the retail side, we welcomed over 176,000 new traders year-to-date, with 60,000 in Q3—a 30% increase year-over-year. Growth is from the U.S. (53%), APAC (16%), and EMEA (31%). -
Robinhood's Impact on Volumes
Q: How might Robinhood's 23 million accounts translate into volumes?
A: While excited to work with Robinhood, they are opening access on a measured basis. We don't expect all 23 million accounts to trade futures immediately. However, we've seen faster-than-expected adoption rates with partners like Plus500 and Webull. It's difficult to predict future volumes, but historically, we've seen significant growth over the past 20 years. -
Portfolio Margining and Efficiencies
Q: Can you update us on your efficiency programs and customer savings?
A: Our portfolio margining program delivers average daily savings of about $7 billion to clearing members, mostly from U.S. dollar swap activity. In our cross-margining program with FICC, we have 12 clearing members participating, achieving upwards of $1 billion in average daily savings. Overall, efficiencies between F&O and portfolio margin average close to $20 billion a day. We're focused on growing these programs and working with regulators to expand cross-margining to customers. -
Impact of Retail Trading on RPC
Q: How will increased retail trading affect rate per contract and volumes?
A: It's hard to predict. Retail trading doesn't necessarily mean a lower rate per contract. We price products based on value, not just notional value or contract size. Our focus is on overall revenue and earnings growth, not just RPC. The impact depends on the clients we attract.
- Given the record quarterly revenue and net income, but a valuation that continues to compress versus peers, how are you considering adjusting your capital return strategies, such as implementing share buybacks or modifying your dividend policy, to enhance shareholder value?
- With the emergence of new competitor offerings in SOFR contracts, including aggressive pricing and tiering strategies, how do you plan to defend your market share without compromising on your fee structure or margins?
- As the digital assets market evolves, particularly with the perpetual futures market being significantly larger than the traditional calendar market, what are your plans to capture this growth opportunity, and do you foresee offering perpetual crypto products despite regulatory challenges?
- In light of the recent launch of political election and weather contracts by a large online broker, which is gaining significant media attention, is CME considering entering the event contracts space more aggressively, and how do you assess the potential risks and rewards associated with such a move?
- Considering the ongoing energy transition and structural changes in the global energy markets, how is CME positioning itself to capture growth internationally, and what specific strategies are you implementing to expand beyond your historically U.S.-focused energy business?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance:
- Tax Rate: Lowered to a range of 22.5% to 23% due to strong international revenue growth and operating margin levels .
- Expenses: Reiterated at $1.585 billion for the year, with seasonal increases expected in the fourth quarter .
- Cloud Migration Expenses: On track with guidance of $90 million for the year, with incremental costs expected to continue into the next year .
- Pricing Changes: Expected increase of 1.5% to 2% on clearing and transaction fees and 2.5% to 3% on total revenue due to changes in other fee lines .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Revenue Impact: Expected total revenue impact of 2.5% to 3% for the year, with specific increases of 1.5% to 2% on clearing and transaction fees and 3% to 5% on various data products .
- Expenses: Full-year guidance implied about a $60 million increase in expenses in the second half of the year .
- Capital Expenditures: Approximately $17 million for the second quarter .
- Cash and Dividends: Cash at the end of the period was approximately $2 billion, with dividends paid during the quarter of $419 million .
- Google Partnership: Expenses related to the new colocation facility and cloud migration would not impact current guidance .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- The documents do not provide a detailed list of specific guidance metrics for Q1 2024. However, there is mention of maintaining full-year guidance related to expenses, with expectations of increased project-based spending, including investments in the Google migration and securities clearing, as well as higher marketing spend in the fourth quarter .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Total Adjusted Operating Expenses: Expected to be approximately $1.585 billion, excluding license fees but including cloud migration expenses .
- Capital Expenditures: Expected to be approximately $85 million, net of leasehold improvement allowances .
- Adjusted Effective Tax Rate: Expected to be between 23% and 24% .
- Revenue Impact from Fee Adjustments: Expected to increase futures and options transaction revenue by approximately 1.5% to 2%, with total revenue expected to increase by approximately 2.5% to 3% on similar activity to 2023 .
Competitors mentioned in the company's latest 10K filing.
- ICE (Intercontinental Exchange, Inc.)
- LCH Group
- OCC (Options Clearing Corporation)
- CBOE Clear
- Depository Trust & Clearing Corporation
- Hong Kong Exchanges and Clearing
- Japan Securities Clearing Corporation
- LME Clear
- Deutsche Börse AG
- Euronext N.V.
- Cboe Global Markets Inc
- London Stock Exchange Group Plc
- Nasdaq Inc
Recent developments and announcements about CME.
Corporate Leadership
CFO Change
Lynne Fitzpatrick, who has been the Chief Financial Officer (CFO) of CME Group since April 2023, has been promoted to President and CFO as of November 7, 2024 .