CME Earnings: Surge In Trading Volumes And International Expansion Favor Growth

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CME Group

CME Group (NASDAQ:CME) performed impressively  in Q4 2016, reporting 12% growth in revenue and beating the market’s expectations as well as the prior quarters’ growth. The revenues from trading business, after showing moderate growth for most of the year, grew nearly 13% in the fourth quarter. Increased volatility in the stock market resulting from the recently concluded U.S. presidential elections and improved macro factors such as GDP and employment rate led to a significant surge in trading volumes across all asset classes. Moreover, the company’s investment in globalization is paying off with over 50% growth in trading volumes during Asian and European trading hours. Clearing and transaction fees, which generated 85% of the company’s revenue, saw around 13% growth in revenue—nearly five percentage point higher than that for the first nine months of 2016.

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Trading Revenues Benefited From The U.S. Presidential Election And Improving Market Conditions

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The trading volumes, which grew by a moderate 8% in the first three quarters, saw 24% surge in the fourth quarter. Among the various asset classes, interest rate derivatives were had the highest trading volumes, and grew the most during the quarter, driven by the Fed’s interest rate hike in December. With a series of rate hikes expected in the year ahead and Fed’s indication of year end rates in the range as large as 0.9%-2.1%, we expect the increased volatility to propel a significant growth in trading volumes.

Oil prices recovered after prolonged decline for over a year. This possibly drove the energy derivatives trading volumes. Since the outlook for the restricted production of oil remains uncertain, we expect the market volatility to continue in the near term, thus promoting the growth in trading volumes.

The investors’ move to stick with safer investment options, amid unfavorable macro conditions, drove the demand for precious metals such as gold and silver, promoting the trading volumes for metals.

Equity derivatives, which showed decline for most of the year, saw recovery in the last quarter under increased volatility from the improvement in U.S. macro conditions and the recently concluded presidential elections. With investors trying to assess the impact of Donald Trumps’s election on various industries and accordingly take positions in the companies’ stocks, we expect the trading volumes to sustain growth momentum in the near term.

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As the company is looking forward to improvising on its existing risk management capabilities to help customers cope in times of distress, innovations to suit customer requirements and expanding its global footprint, we expect an even better year for the company. The company expects 5% business growth for the year ahead.

See the full Trefis analysis for CME Group.

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