Q3 2024 Earnings Summary
- 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.
- 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.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +18% | Reflects broad-based volume growth across key asset classes (e.g., interest rates, metals) and price increases for market data services, continuing the momentum seen in previous periods where higher demand for risk management products boosted revenue. |
Interest Rates Segment | +27% | Driven by increased volatility in interest rate markets and continued strong demand for Treasury futures and SOFR products, building on Q2 2023’s heightened activity attributed to ongoing Fed policy uncertainty and bank collapses. |
Metals Segment | +45% | Reflects safe-haven demand for gold and supply-driven copper price swings, continuing the prior trend of increased volumes amid geopolitical uncertainty and economic concerns; the jump is larger than Q2 2023’s growth due to ongoing market volatility. |
Clearing & Transaction Fees | +19% | Fueled by higher contract volumes and favorable product mix (especially in interest rates and metals), continuing prior quarters’ trends of fees rising through both volume growth and selective fee adjustments. |
BrokerTec Fixed Income | -11% | Ongoing lower cash-trading volumes in U.S. Treasuries compared to heightened levels in earlier periods, reflecting reduced volatility in some parts of the government bond market and continuing the downward trend observed since Q2 2023. |
Operating Income (EBIT) | +25% | Results from strong revenue growth outpacing moderate expense increases, echoing the previous period’s disciplined cost management and volume-driven revenue gains, leading to improved operating margins. |
Net Income | +22% | Supported by record revenue and favorable non-operating income, following the trend from prior quarters of higher interest income and volume-driven top-line expansion, leading to robust bottom-line performance. |
EPS (Basic) | +22% | Reflects net income growth coupled with a relatively stable share count, mirroring the improvements seen in the previous period where strong revenue and prudent cost control led to significant gains in earnings per share. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Growth (Clearing & Transaction Fees) | FY 2024 | 1.5% to 2% | 1.5% to 2% | no change |
Revenue Growth (Total) | FY 2024 | 2.5% to 3% | 2.5% to 3% | no change |
Expense Guidance | FY 2024 | no prior guidance | $1.585B | no prior guidance |
Cloud Migration Expenses | FY 2024 | no prior guidance | $90M | no prior guidance |
Tax Rate | FY 2024 | no prior guidance | 22.5% to 23% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Clearing & Transaction Fees | Q3 2024 (YoY) | 1.5% to 2% increase | 19.49% increase (1,085.5→ 1,297.1) | Beat |
Market Data | Q3 2024 (YoY) | 3% to 5% increase | 6.3% increase (167.6→ 178.2) | Beat |
Total Revenue | Q3 2024 (YoY) | 2.5% to 3% increase | 18.4% increase (1,337.8→ 1,584.4) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent record growth across multiple asset classes | Previously discussed in Q2, Q1, and Q4 as a recurring theme of record ADVs and broad-based expansion. | Broad-based volume increases continued, with every asset class growing for the second consecutive quarter. | Remains a central driver of CME’s performance |
Strong international volume expansion | Q2, Q1, and Q4 also reported rising non-U.S. ADV, with steady and significant year-over-year gains. | Reached a record 8.4M contracts, led by EMEA and APAC. | Continues to expand globally |
Continuing competition from ICE and new entrants (FMX) | In Q2 and Q1, CME reiterated dominant open interest in SOFR products and highlighted client capital efficiencies. | Volumes from FMX’s SOFR futures remained modest, with CME citing tighter bid-ask spreads and capital efficiencies as advantages. | Ongoing, with CME confident in its competitive edge |
Expanding retail participation and potential RPC impact | Discussed in Q2 with strong retail uptake in equity index and metals products. No specific Q1 or Q4 mention. | Acknowledged growth in retail but noted uncertainty over how it affects rate per contract, focusing instead on overall revenue and earnings. | Sentiment evolving from purely positive to a nuanced view on RPC |
Capital efficiency and cross-margining as a strategic edge | In Q2, Q1, and Q4, CME stated capital efficiencies as a core competitive advantage, noting large margin offsets and increasing client adoption. | Emphasized portfolio margining and savings of up to $20B daily, including cross-margining with FICC. | Remains a key differentiator |
Potential margin pressure from expenses and tech spending | In Q2 and Q1, noted cloud migration and technology spend but saw margins remain strong; Q4 2023 also anticipated increased expenses with ongoing cloud investments. | On track with cloud migration costs, reiterating higher Q4 spend for marketing and technology but maintaining a focus on overall earnings growth. | Continues as a watch item but margins remain robust |
New product launches (credit futures, Argus Gulf Coast) | Q1 previewed credit futures launch; Q4 highlighted Argus Gulf Coast success and upcoming corporate bond index futures. | No specific mention in Q3 2024. | Previously emphasized as large opportunities |
Political or regulatory uncertainty no longer mentioned | Q2 contained explicit commentary on political/regulatory risks. Q4 also mentioned broader geopolitical tensions. | Political factors (e.g., U.S. election) were noted, but no significant regulatory uncertainty discussion compared to earlier quarters. | Less explicit focus in Q3 |
Stock price pressure despite record performance | In Q2, CME noted a disconnect between record performance and stock price, exploring capital policy. | Briefly acknowledged questions on valuation but offered no detailed commentary on stock price beyond capital return considerations. | Discussion less prominent in Q3 |
Shifts in sentiment on retail growth—RPC concerns | No specific mention in Q2 or Q1; only broad positivity about retail expansion was previously discussed. | CME acknowledged uncertainty in how retail trends affect RPC, while still seeing retail as an opportunity for overall growth. | Sentiment more cautious due to RPC debate |
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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.