Increased Volatility In Derivatives Market Propels Trading Volumes For CME In December And 2016

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CME Group (NASDAQ:CME) has seen massive growth in trading volumes across most of its asset lines through the year. The daily trading volumes for December, the fourth quarter and full year grew year on year by 15%, 24% and 12%, respectively. The company’s revenues grew nearly 14% in the first 3 quarters of 2016 and the stock price has surged 35% since the beginning of 2016. Increased volatility in derivatives market across multiple asset classes (including oil, metal and interest rates) have continued to attract investors’ attention, thereby promoting the trading commissions for the exchange.

Oil prices have continued to fluctuate for over a year, due to over-supply and governing bodies’ unwillingness to cut down on production.The daily trading volumes for December, fourth quarter and year 2016 grew year on year by 25%, 27% and 23%, respectively. With the recent announcement of capping the production, the oil prices have started recovering. We believe that the volatility in oil market is likely to sustain in the near term and consequently have a positive influence on the energy derivative volumes.

With unfavorable macro-conditions prevailing in the country for most of the year, investors possibly chose to stick with safer investment options. This saw demand for precious metals like gold and silver soar and thereby, promote the trading volumes for metals. Daily trading volumes for December, the fourth quarter and year  grew year on year by 36%, 49% and 34%, respectively. With increased volatility in the equity market over the past two months, metal derivative volumes have witnessed subdued growth.

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Interest rate derivative have also grown under Fed’s indications of rate hike through most of the year. With the recent hike, the volumes saw a massive rise in the December.The daily trading volumes for December, fourth quarter and year 2016 grew by 29%, 36% and 12% year on year, respectively.We believe that a series of expected hikes in 2017 will continue to propel the growth in its derivatives volume all through the year.

Equity derivative have picked up pace under increased volatility from the improvement in U.S. macro conditions and the recently concluded presidential elections. With the volatility likely to sustain in the near term, equity derivative shall continue to grow.

See the full Trefis analysis for CME Group.

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