CME shares rise as profit jumps 21% in 3Q

(Reuters) — CME Group Inc., the world's biggest futures exchange operator, said third-quarter profit rose in line with Wall Street expectations, as an increase in trading helped buoy the bottom line.

Net income jumped 21 percent to $244 million, or $3.66 per share, from $202 million, or $3.04 a share, in the year-earlier quarter. Revenue rose 13 percent to $733 million, as trading increased 14 percent.

Analysts expected earnings of $3.66 per share, on revenue of $730.8 million, according to Thomson Reuters I/B/E/S.

The operator of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange benefited in the quarter from a surge in trading of Treasury futures and energy contracts.

But with trading in contracts tied to short-term interest rates -- among CME's most active products -- expected to slow as the Federal Reserve Bank keeps overnight borrowing costs near zero, CME CEO Craig Donohue continues to seek new avenues for growth.

"In addition to the growth seen in our core business, we advanced many strategic initiatives during the third quarter," Donohue said in a statement. "These endeavors combine to create a strong foundation for capturing future growth opportunities.

CME this month began clearing interest-rate swaps, the biggest part of the $615 trillion over-the-counter derivatives market that regulators are forcing into clearinghouses and onto regulated trading venues as part of recently passed Wall Street reform legislation.

It's a potentially lucrative new business, but also one that will be hotly contested.

CME said it has so far cleared $660 million in swaps, more than the $390 million or so handled by chief U.S. rival International Derivatives Clearing Group, which is majority owned by Nasdag OMX Group Inc.

But CME will also be up against London's largest independent clearinghouse, LCH.Clearnet, which already does a healthy business clearing swaps between dealers.

Donohue said CME has also launched several new products and is working actively with regulators as they write rules to implement sweeping Wall Street reform passed over the summer.

But CME also faces increased competition in its core business.

ELX Futures LP, a Wall-Street backed exchange that offers Treasury futures identical to CME's, has won a 2 percent toehold in that business.

Perhaps more threatening than its still-small market share is ELX's persistant pursuit of regulatory backing for a type of trade that would allow investors to easily transfer trades from CME to ELX. ELX has also loudly criticized CME plans to reduce clearing costs for interest-rate swaps, saying the plan to allow margin offsets against existing CME contracts amounts to anti-competitive activity.

Opening a second competitive front against CME is NYSE Euronext, which expects regulatory approval for a co-owned clearinghouse next quarter that will vie with CME and ELX for interest-rate futures business and, eventually, swaps clearing as well.

CME Group said Thursday it had $613 million in cash on hand at the end of the quarter. Donohue said last quarter the company will seek to return cash to shareholders in the form of dividends or share buybacks, but no details were included in the initial earnings report.

CME shares were up $4.82, or 1.7 percent, to $287.27 in early trading.