CME Q2 Earnings: Trade Volumes Drive Performance
CME Group (NASDAQ:CME) announced its Q2 earnings on Thursday, July 30, reporting a 12% rise in net revenues to $820 million for the quarter. [1] Solid trading activity through the quarter was largely responsible for driving company-wide revenue growth. Trading commission revenues were up by 12% y-o-y to $682 million in the June quarter. Correspondingly, CME reported a 6% year-over-year rise in trading volumes in Q2 to 13.3 million contracts traded per day.
Additionally, market data revenues rose by 15% over the prior year quarter to $103 million in Q2. CME’s access and communications fees and other revenues combined were also up by over 8% y-o-y to $35.2 million in the June quarter. According to our estimates, CME’s adjusted EBITDA margin in Q2 improved by over 250 basis points over the prior year period to about 67.5%. Since most expenses incurred by exchanges are fixed in nature, the rise in trading activity led to improved margins for the exchange operator.
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Rise In Trading Activity Across Key Asset Classes
The average daily volumes (ADV) of interest rate derivatives stood at 6.6 million contracts traded per day during the June quarter, which was about 1% lower than the comparable prior year period. [2] Although trade volumes were low in April, they picked up in May prior to the Fed announcing that interest rates will rise in the latter half of 2014. [3] Trade volumes remained high in June after the IMF released a statement suggesting that the Fed should hold off on raising rates this year. [4] As a result, revenues generated by interest rate derivative trading rose by about 6% over the prior year quarter to $212 million.
CME reported high trading activity for natural gas and oil contracts in late 2014 owing to the volatility in oil prices. Subsequently, CME announced that its European marketplace will allow trading of natural gas contracts in addition to the existing energy contracts. [5] As a result, energy derivatives volumes were robust through the first quarter, with an average of 2.1 million contracts traded per day. Although ADV was lower than Q1 levels at around 1.7 million contracts traded per day in Q2, volumes were still about 20% higher than the comparable prior year period. [6] Correspondingly, revenues generated by energy derivatives trading was up by about 20% y-o-y to $143 million for the June quarter.
Foreign exchange (FX) derivatives trade volumes were suppressed through the first three quarters of 2014. Subsequently, volumes picked up in Q4 due to the increasing speculation among traders about possible changes in monetary policies from the European Central Bank and the Fed. [7] Consequently, FX derivatives trading volumes stood at about 1 million contracts traded per day in the December quarter. The trend has continued in 2015 thus far, with FX trade volumes standing at over 925,000 trades per day in the first half of 2015. CME reported an ADV of 903,000 trades per day in Q2, which was a massive 43% rise over the comparable prior year quarter. The resulting revenues stood at $47 million for the quarter, which was about 36% higher than the year-ago period.
Sustained Growth For Market Data And Information Services
Market data and information services revenues rose by 15% over the prior year period to $103 million in the June quarter. The company primarily attributed the growth to the elimination of fee waivers, due to which the company charged $42.50 per month to professional traders. Subsequently, the company has witnessed limited attrition in its customer base due to which management expects market data revenues to be around $100 million per quarter in the latter half of 2015.
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- CME Group Inc. Reports Strong Second-Quarter 2015 Financial Results, CME Press Release, July 2015 [↩]
- CME Group Monthly Trade Metrics For May, CME Group Investor Relations, June 2015 [↩]
- Janet Yellen says interest rate hike ‘will be appropriate’ later this year, The Guardian, May 2015 [↩]
- IMF’s Christine Lagarde to Janet Yellen: Please don’t raise interest rates, Fortune, June 2015 [↩]
- CME Group Announces the Launch of a Suite of European Natural Gas Contracts on CME Europe, Market Watch, December 2014 [↩]
- CME Group Volume Averaged 14.6 Million Contracts per Day in June 2015, CME Press Release, July 2015 [↩]
- CME Group FX Volumes Rise 20% as FED Speculation Reactivates USD Volatility, Forex Magnates, September 2014 [↩]