High Trade Volumes, Market Data Drive CME’s Q3 Results
CME Group (NASDAQ:CME) announced its Q3 earnings on October 29, reporting a 12% rise in net revenues to $850 million for the quarter. [1] A sustained period of high trade volumes through the quarter was largely responsible for driving company-wide revenue growth. CME reported a 7% year-over-year rise in average daily volume (ADV) of derivatives on its trading platforms in Q3 to 14.4 million contracts traded per day. As a result, trading commission revenues were up by 11% y-o-y to $715 million in the September quarter.
CME’s operating expenses remained flat over the prior year quarter at just under $334 million in Q3. As a result, the revenue growth directly impacted the company’s bottom line. According to our estimates, CME’s adjusted EBITDA margin in Q3 improved by over 340 basis points over the prior year period to about 67.5%. Correspondingly, the company’s net income and EPS were up by 23-24% y-o-y to $360 million and $1.07, respectively.
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Rise In Trading Activity Across Key Asset Classes
Trading activity for energy products has been high since the fourth quarter of last year, owing to volatility in oil prices, which helped the exchange operator in terms of natural gas and oil contract trading. At the time, CME also announced the launch of European natural gas contracts on its CME Europe in addition to the rise in trading volumes of energy contracts. [2] As a result of the addition of natural gas contracts and continued volatility in oil prices, trade volumes for energy derivatives stayed over 1.9 million contracts traded per day through the first half of the year, which was about 22% higher than the comparable year-ago period. Volumes remained high through Q3, with the ADV standing at just under 2 million contracts per day through the quarter – 26% higher than prior year levels. Resulting revenues were up by about 17% y-o-y to $151 million through the quarter. The company now plans to introduce European emissions futures in November to further enhance this segment. [3]
Similarly, CME has witnessed a sustained period of high FX trading this year. The company averaged 954,000 trades per day in Q1, which was 17% higher on a y-o-y basis. CME reported an ADV of 903,000 trades per day in Q2, which was a massive 43% rise over the comparable prior year quarter. Trading activity for FX derivatives continued to be strong in Q3 as well, with an average of 855,000 trades per day through the quarter, which was a 7% annual increase. The company also realized a higher rate per contract through the quarter, which led revenues generated by FX trading to rise by over 22% y-o-y to $49 million.
Moreover, equity derivative trade volumes surged by 27% over the previous year quarter to 3.3 million contracts traded per day. Volatility in the equity markets led equity derivative trading to rise through the quarter. [4] The average realized revenue per contract for equity derivatives was also up to $0.71 per contract from $0.69 in the comparable prior year period. As a result, the revenue generated by trading of equity derivatives was up by 31% on an annual basis to $149 million for the quarter.
Sustained Growth For Market Data And Information Services
Solid growth in CME’s trading business was complemented by its market data and information services businesses. Market data revenues rose by 13% over the prior year quarter to just under $100 million in Q3. Moreover, CME’s access and communications fees and other revenues combined were also up by 9% y-o-y to $35.8 million in the September quarter. [1]
CME’s market data division has witnessed consistent growth since the beginning of the year, which the company primarily attributed to the elimination of fee waivers, due to which the company charged $42.50 per month to professional traders. However, management mentioned that there could be limited growth in the coming quarters owing to tough year-over-year comparisons. Moreover, CME is likely to face additional competition from rival exchange operator Intercontinental Exchange Group (NYSE:ICE), which acquired data services firm IDC for $5.2 billion in late October.
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- CME Group Inc. Reports Strong Third-Quarter 2015 Financial Results, CME Press Release, October 2015 [↩] [↩]
- CME Group Announces the Launch of a Suite of European Natural Gas Contracts on CME Europe, Market Watch, December 2014 [↩]
- CME Q3 Earnings Call Transcript, Seeking Alpha, October 2015 [↩]
- Q3 2015 – Fed Passes On Rate Hike And Volatility Arises, Seeking Alpha, October 2015 [↩]