The Chicago Mercantile Exchange (
) is the first publicly traded financial exchange in the world.
Historically, the company focused on agricultural products for
farmers in the US which were traded in Chicago. It
has transformed itself into a primarily electronic marketplace
for financial futures and options which serves as risk management
tools in interest rates, equities, foreign exchange, commodities
and alternative investments.
CME competes with other established exchanges
like NYSE Euronext (
), but it remains the largest derivatives exchange in the world.
Below we look at two of the largest value drivers which are
energy and interest rate contracts that account for
24% and 23% of our $323 price estimate
50% of Value From Energy and Interest Rate
CME offers futures and options on energy products such as crude
oil, natural gas, power and other energy related exchange traded
contracts. We estimate that energy contracts accounts for 24% of
our price estimate for CME. CME is benefiting from the increased
use of derivative contracts to hedge against market volatility
witnessed in recent years. As more contracts are traded
electronically on over the counter exchanges and as global markets
become more interconnected, we could see the volume of contracts
traded increase sharply.
We forecast the average daily volume of energy contracts traded
on CME to reach 3.7 million in the coming years from its current
level of 1.7 million, implying a growth rate of around 12%
CME also derives 23% of its value from interest rate contracts.
The company's average daily volume of interest rate contracts will
get a lift from electronic trading. We forecast the daily volume of
interest rate contracts to reach nearly 11 million by 2017 from its
current level of about 5 million. In light of the flood of
government debt to finance budget deficits from the US and Europe,
demand for interest rate products that market participants use for
hedging or speculation could outstrip our current forecasts.
For a variety of factors, given the global economic recovery,
the increased interconnectedness and digitalization of the global
financial system and the ballooning of financial markets, we could
see volume of contracts increase even higher than our
A 10% increase in volumes over our estimates for energy
and interest rate contracts will lead to almost 6% increase in
Trefis price estimate for CME.
Click here to see our full estimates for CME