In Q3, revenues increased 11% y-o-y to $1.2 billion. It was primarily due to higher clearing and transaction fees and improvements in market data and information services.
Below we look at key drivers that present significant upside or downside potential to our price estimate for CME Group.
The CME Group was the first publicly traded exchange in the world. The company operates futures and derivatives exchanges including the Chicago Mercantile Exchange, the New York Mercantile Exchange (NYMEX), the Chicago Board of Trade, and the Dow Jones Index Services. The company provides a marketplace, and back-end financial infrastructure for administrating and setting up futures contracts and options on futures contracts.
Futures and options provide hedging opportunities for individuals and institutions to hedge themselves from market risks and potentially profit from them. Historically, the company has focused on agricultural products for farmers in the U.S. but has diversified into interest rates, foreign exchange, energy, metals, and other commodities.
A significant part of CME Group’s revenues are derived from clearing and transaction fees, which include electronic trading fees, surcharges for privately-negotiated transactions, and other volume-related charges for contracts executed through its trading venues. The fees are calculated per contract, and the revenue generated from the fees fluctuates with the trading volume.
Other factors affecting revenues are rate structure, product mix, trading venue, and the percentage of trades executed by members vis-a-vis trades executed by non-members.
CME Group receives revenue from disseminating market data to subscribers. Its market data services are provided primarily through third-party distributors. Subscribers have access to real-time quotes, trading data, and summary market data for fees that are charged monthly on a per-screen basis.
Volumes generally increase during geopolitical or economic instability, which often results in volatility in oil prices. Accordingly, investors look to hedge their exposure (or earn profits on speculation). As we expect continued volatility, energy contract volumes should increase substantially.