CME Group Updates: Discussing Entry into Chinese Futures Market

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CME Group (NASDAQ:CME) is reportedly in talks with the China Security Regulatory Commission to start a pilot project that would allow some futures companies from mainland China to buy and sell futures on the CME Group’s exchanges. [1] China banned offshore futures trading 17 years ago to curb speculation amid immature supervision of the Chinese market. CME Group is the world’s leading derivatives exchange and is currently fighting criticism that as MF Global’s regulator at the exchange level, it has not done enough to protect customers who have lost money in the collapse of MF Global [2] CME Group competes with NYSE Euronext (NYSE:NYX), Nasdaq OMX (NASDAQ:NDAQ) and Intercontinental Exchange (NYSE:ICE).

We have a price estimate of $309 on CME Group’s stock, about 20% above the current market price.

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See our full analysis of CME Group

CME Group’s Expansion into China

According to Phupinder Gill, President CME Group, China’s derivatives markets have successfully shaken off early challenges and the country’s regulatory institutions and exchanges have improved risk management capacity. Apart from this pilot project, CME Group is also planning to launch a clearing house in Asia and increase the number of employees in the region. [3]

CME Group’s plan to expand into China is a part of the company’s strategy to diversify its interest outside of North America. Currently, about a fifth of CME Group’s business comes from outside North America and the company is looking to increase that figure by expanding sales of existing products.

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Notes:
  1. CME in talks to enter China’s futures market, Market Watch, Dec 1, 2011 []
  2. CME defends handling of MF Global collapse, Reuters, Nov 30, 2011 []
  3. CME Group in talks to enter China derivatives market: Report, Economic Times, Dec 1, 2011 []