Q2 2024 Earnings Summary
- Significant growth in natural gas futures and options, with natural gas up 29% and options up 54%, driven by increasing global demand and CME's dominant market share of 80% in natural gas futures and 69% in Henry Hub options.
- Expansion of retail business, witnessing a 70% increase in retail metals volume in Q2, attributed to onboarding new large retail brokers and strong interest in micro contracts like micro copper, micro silver, and micro gold.
- Provision of substantial capital efficiencies to customers, achieving $20 billion per day in margin savings, and the DTCC cross-margining program reaching $1 billion in savings, which is a record for CME.
- CME Group's stock has been under pressure despite record earnings, possibly due to concerns about interest rates and competitive threats.
- Analysts question CME's ability to respond to increasing competition, particularly in the interest rate futures market, which could impact their market share and pricing power.
- There are concerns that CME's margin efficiencies and capital savings—for example, the claimed $20 billion per day in client savings—might be challenged by potential competitors, potentially eroding their competitive advantage.
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Competition Strategy
Q: How will CME respond to new competitors?
A: CME has invested over the last 8–10 years to create unparalleled efficiencies for clients, including $20 billion in daily margin savings. Walking away from such savings to an unproven model seems unlikely for customers. CME is prepared to compete with any new entrants and believes competition makes everyone better. They are in a strong position and will continue focusing on providing value to clients. -
Margin Efficiencies
Q: Can you elaborate on the $20 billion daily margin savings?
A: The margin savings are roughly split into $12 billion for futures and options, $7 billion for swaps with futures and options, and $1 billion including cash flow. CME's unique ability to provide efficiencies across futures, options, swaps, and cash products sets it apart, as competitors currently offer zero efficiencies in this area. -
Pricing Dynamics
Q: What's impacting the rates RPC and pricing outlook?
A: Rates volumes increased 14% year-over-year, leading to downward pressure on RPC due to increased volume tiering. There is also a higher contribution from treasuries and an increase in members this quarter. CME doesn't believe in raising prices simply because it can; instead, it focuses on adding value for clients. Any price increases are based on a bottom-up approach considering market health and customer value. -
Energy Growth in WTI and Natural Gas
Q: What's driving growth in WTI and natural gas volumes?
A: Energy volumes are up 16% to 2.4 million contracts. WTI growth is driven by record amounts of U.S. crude oil in the global market, leading to European volumes up 53% and WTI futures up 42% among European customers. In natural gas, futures are up 29%, and options up 54%, with global demand increasing due to the energy transition. CME holds an 80% market share in natural gas futures. -
Treasury Clearing Plans
Q: What are CME's plans for treasury clearing?
A: CME is working with the SEC to get approval for its treasury clearing offering, aiming to have all information submitted by mid-September. They plan to be ready to test in the second half of next year to meet the January 2026 deadline for U.S. actives and June 2026 for repo. CME has a long-standing partnership with FICC, providing significant savings to clients, and intends to offer a complementary service. -
Expenses and Google Partnership
Q: How will expenses and the Google partnership affect guidance?
A: CME remains comfortable with full-year expense guidance, expecting about a $60 million increase in the second half. Increases are due to marketing spend, retail marketing, cloud consumption from the Google migration, and project-based work like the treasury clearing project. The new colocation facility with Google doesn't impact current guidance; any future impacts will be included in guidance as they arise. -
Retail Growth
Q: How are new retail brokers impacting volumes?
A: CME saw strong growth in retail participants and revenue in Q2. New channel partners distributing CME futures for the first time contributed significantly, with notable interest in dollar-denominated equity index offerings. Mini and micro NASDAQ suites saw over 20% uptake. Metals activity among retail clients increased, with revenue up significantly due to records in micro copper, micro silver, and micro gold. -
Impact of Upcoming Elections
Q: How might the upcoming election affect CME?
A: Regardless of who wins the election, uncertainty leads to market volatility, which is beneficial for CME as markets need to manage risk. CME expects continued usage of its products across all asset classes, as seen with volumes up across all six asset classes.