CME Group Inc., which runs the Chicago Mercantile Exchange and the Chicago Board of Trade, saw a much-needed volume spike this week as investors used futures and options contracts to guard against losses and bet on future market moves.
So far this month, trading at CME (which also operates the New York Mercantile Exchange) rose 32% to 17.5 million contracts a day, a sharp turnaround from the decline in trading the CME reported last month. The company handled more than 100 million contracts this week, a new record.
As pressure mounts in Washington for regulators to curb the excesses that prompted this week’s government bailout of the financial markets, CME stands to benefit further.
“A lot of this comes down to a crisis of confidence in the over-the-counter markets,” CEO Craig Donohue said in an interview earlier this week. The CME is developing plans to clear credit default swaps — the insurance-like contracts at the heart of the American International Group Inc. meltdown — though Mr. Donohue wouldn’t say when. Clearing, or guaranteeing, such contracts could have averted the threat of runaway losses that prompted the government to take control of the insurer.
“It is a tremendous opportunity for CME,” Mr. Donohue says.
Chicago-based Clearing Corp., a clearinghouse largely funded by Wall Street banks, plans its own credit-default swaps clearing operation as soon as next quarter.
The Chicago Board Options Exchange, which saw record volumes this week, could also benefit in the long term.
OptionsXpress Corp. CEO David Fisher, who does business with CBOE and CME, says he believes that the problems in the over-the-counter derivatives market that led to AIG’s collapse will prompt traders to turn to regulated exchanges. “I think there will definitely be some push in that direction from Washington,” he says.
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