CME Looks To Boost Energy Contract Volumes With New Platform

by Trefis Team
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CME Group
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CME Group (NASDAQ:CME) recently announced the release of an energy brokerage platform CME Direct. [1] This platform will allow trading of energy futures and over-the-counter (OTC) swaps on one single electronic screen. This will be a boon for inter-dealer brokers, who have had to use CME Group’s Globex electronic trading system for futures and Clearport system for swaps, and the platform will be in accordance with the proposal for swap-execution facility required under the Dodd- Frank Act. The company’s rival in the energy market, IntercontinentalExchange (NYSE:ICE), also uses a single screen platform for futures and swaps with its WebICE system.

See Full Analysis for CME Group Here

Testing the waters

Although the integrated platform is still in a nascent stage and presently can be used only for energy products, including NYMEX WTI crude oil, NYMEX Brent, DME Oman crude oil, RBOB Gasoline, New York Heating Oil and Henry Hub Natural Gas futures contract, the company plans to expand use for all products listed on the exchange, including currencies and interest rate.

We expect Energy Contract volumes to rise as the firm licenses the use of the platform to more brokers. CME Group will look to capitalize on the performance of CME ClearPort, which observed record revenues in the first quarter of 2011 even as volumes dropped slightly. (See CME Group’s Fully Valued At $285 As Volumes Suffer)

Energy Contracts account for 21% of our price estimate for CME Group’s stock price.

Futures look bright

The company recently revised its trade timings for grain and oilseed options and futures from 17 hours a day to 21 hours a day [2] and launched short-dated crop options on grain and oilseed futures to attract traders and increase competition. We expect the Commodity and Metal Contracts division to perform well through the Trefis forecast period as the company continues to innovate and expand.

CME saw a jump of 10% in trade volumes from Asia and Europe over the last quarter, and is one of the prime suitors for the lucrative London Metal Exchange (LME), which would complement its metal exchange, Comex, and consolidate its foothold in Europe.

We have a price estimate of $285 on CME Group’s stock, about 10% above the current market price.

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Notes:
  1. CME Group Launches CME Direct Technology for Online Trading of Exchange Listed and OTC Markets, CME Group Press Release, 22nd May, 2012 []
  2. CME Group to Start Expanded CBOT Grain and Oilseed Trading Hours, Press Release, 18th May, 2012 []
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