CME Group Inc.’s second-quarter profit jumped 10%, beating analyst expectations, as the company cut expenses and boosted per-contract trading fees.
The exchange operator’s second-quarter results include operations at the New York Mercantile Exchange, which were not included in the year-earlier figures. CME Group acquired Nymex during the third quarter of 2008.
Net income for the quarter ended June 30 rose to $222 million from $201 million a year earlier. Revenue rose 15% to $648 million. Earnings per share declined to $3.33, from $3.67, after the acquisition of Nymex increased CME’s shares outstanding.
When Nymex’s results are included in the 2008 figures, combined profits fell 15% from the year-earlier period.
Still, that was better than most analysts projected. Analysts polled by Thomson Reuters, on average, forecast earnings of $3.23 per share.
Factoring in Nymex’s 2008 quarterly results, revenue declined 14% amid slowing trading volume. Meanwhile, CME cut expenses by 13% on a combined basis.
CME average daily trading volume fell 21% to about 8.8 million trades per day during the second quarter. New York Mercantile Exchange volume dipped 8% to about 1.7 million trades per day. With lower volume, fewer traders hit thresholds qualifying them for fee discounts, and average per-contract fees rose to 67 cents from 64.8 cents a year earlier.
Despite the year-over-year decline in trading, CME Group said it started to see a recovery in trading at the end of the second quarter as markets began to strengthen.
“As the economy showed signs of stability, we saw increased volumes in June, particularly in interest rates, foreign exchange and agricultural markets,” Terrence A. Duffy, CME Group executive chairman, said in a statement.
Looking forward, CME expects to bring in new revenue from a range of initiatives, including broadening its over-the-counter clearing services to beyond its current energy- and agricultural-based contracts.
Competitor IntercontinentalExchange Inc. has been clearing one such target market, credit default swaps, since March. But CME Chief Executive Officer Craig S. Donohue said ICE’s head start doesn’t put CME out of the game.
“We are still very committed to a multi-asset class service capacity in over-the-counter clearing, including credit default swaps,” Mr. Donohue said in an interview. “We have dealers that are working with us and spending valuable time and resources to understand the operational issues.”
CME also is working on an interest-rate swap clearing service, an undertaking Mr. Donohue describes as a “major transformation in the way that swaps dealers actually conduct their business,” a move that takes time and money to complete. The interest-rate swaps market is many times bigger than the credit default swaps market. He declined to say which service is closer to launch.
Regulatory reform also will affect CME’s growth potential, either positively — by creating incentives for more exchange-based trading — or negatively, by encouraging some traders to turn to foreign or off-exchange markets. Mr. Donohue said the exact nature of such reform is not yet clear, but he and other CME brass are doing what they can to shape it. He and Mr. Duffy were both in Washington, D.C., Wednesday, and next week Mr. Donohue testifies in a Congressional hearing.
One thing won’t change, Mr. Donohue said. Although Chicago Board Options Exchange Chairman William Brodsky was in Washington this week calling for the merger of two federal agencies that regulate financial markets, Mr. Donohue said he’s convinced such a merger is off the table.
“It very distinctly is not part of the president’s proposals,” he said. Among Senate and House leaders as well, he said, “There is very little to no interest or appetite in considering a merger.”
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