Trade Volumes Down For CME Across Key Asset Classes In October
Leading exchange operator CME Group (NASDAQ:CME) has witnessed strong average daily trading volumes through the first three quarters of the year across various asset classes, including commodities, energy, foreign exchange and equity contracts. As a result, its transactions and clearing fee revenues grew by 10% y-o-y to $2.5 billion for the nine month period ended September. The company recently reported its trade metrics for October 2015, with total volumes declining significantly, primarily due to a tough year-on-year comparison over October last year, when trade volumes surged to record levels. Below we take a look at CME’s October performance across key asset classes.
We have an $91 price estimate for CME’s stock, which is slightly lower than the current market price. CME’s stock price has fluctuated between $85 and $100 this year.
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Trading Activity By Asset Class
CME’s Average daily volumes (ADV) fell sequentially and annually to 12.8 million contracts in October. [1] Comparatively, the company reported strong growth in the quarter ended September as net revenues rose by 12% y-o-y to $850 million due to a 7% annual increase in trade volumes.
Among the various asset classes, interest rate derivatives contribute roughly half the trades on CME’s platforms. According to our estimates, interest rate derivative trading makes up almost a quarter of the company’s valuation. The company saw strong trade volumes for interest rate contracts in the first three quarters of the year, with the ADV for interest rate derivatives standing at 6.9 million contracts traded per day through the nine month period ended September. Subsequently, CME reported a 37% y-o-y decline in trade volumes to 5.8 million contracts traded per day in October. [2]
Volatility in the equity markets caused equity derivative trading to rise in the previous quarter. [3] As a result, the company’s ADV for equity derivatives was up by a massive 27% y-o-y to 3.3 million contracts traded per day in Q3. However, in October, the product registered a fall in volumes to 2.8 million contracts, which was about 33% lower than the year-ago period. A slight stabilization of the Chinese economy and lower volatility in the equity markets led to the decline in volumes. Moreover, it was a tough year-over-year comparison given that the company reported a record month for equity derivative trade volumes in October of last year. [4]
Trading activity for energy products has been high in 2015 thus far, owing to volatility in oil prices. Moreover, the launch of European natural gas contracts on its CME Europe platform in late 2014 helped the exchange operator give impetus to its natural gas and oil contract trading. [5] The strong momentum in ADV continued in October, with a 17% annual rise to 2 million contracts traded per day. With the current geopolitical situation and increased uncertainty in oil prices, CME could continue to witness elevated trade volumes for energy derivatives. We currently forecast the volumes to be around 1.8 million contracts per day for the full year.
Similarly, FX trading volumes were high in late 2014 and the first half of the year due to speculation among traders about a possible change in monetary policy from the Fed and the European Central Bank (ECB). [6] Subsequently, CME reported an 18% annual decline in trading of FX derivatives to 947,000 contracts traded per day in the September quarter. The trend continued in October, with FX volumes declining by 25% y-o-y to 735,000 contracts traded per day. Despite the relatively low volumes in the latter half of the year, we currently forecast CME’s ADV for FX contracts to stand at about 930,000 contracts per day for the full year, which is about 15% higher than the previous year levels.
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- CME Group Volume Averaged 12.8 Million Contracts per Day in October 2015, CME Press Release, October 2015 [↩]
- CME Opening Remarks, CME Group, October 2015 [↩]
- CME Quarter 3, 2015 Report, SEC, September 2015 [↩]
- CME Group Volume Averaged a Record 17.6 Million Contracts per Day in October 2014, CME Press Release, November 2014 [↩]
- CME Group Announces the Launch of a Suite of European Natural Gas Contracts on CME Europe, Market Watch, December 2014 [↩]
- CME Group FX Volumes Rise 20% as FED Speculation Reactivates USD Volatility, Forex Magnates, September 2014 [↩]