Following a display of dissatisfaction with the declining share
price by shareholders in the company's annual meeting,
CME Group Inc.
) announced a five-for-one stock split last Thursday, with the
intention of boosting trading volume. In order to implement the
stock split, the company will give a 400% stock dividend to its
shareholders. The dividend will be paid on July 20, to shareholders
of record as of July 10.
While a stock split will not directly impact share value, it
will make shares more affordable. This in turn will likely boost
demand, which will then drive the price upward. Affordable prices
will also diversify the investor base of CME, which currently has
mostly large institutional investors.
Investors' concerns are justified, given the substantial decline
in CME's trading volume as well as share price. On Thursday, the
company's trading volume was 495,100, down 28% from 688,100 a year
ago. Moreover, the share price also witnessed an 8.5% decline from
May 24, 2011 to close at $256.16.
Management believes that CME's recently acquired 'systemically
important' designation is also partly responsible for the recent
decline in share prices. Systemically important financial
institutions are subject to higher scrutiny and regulation than
others, which sparked unwarranted investor concerns that the
company would have to raise fresh capital to fortify its
Last week, the Financial Stability Oversight Council assigned
the systemically important status to CME's clearing house - CME
Inc. - as well as ICE Clear Credit, the clearing house owned by
The announcement of the stock split has boosted investors'
confidence in the stock, leading to a 1.1% increase in CME's share
price on Thursday to $256.16.
CME currently carries a Zacks #4 Rank, which implies a 'Sell'
rating for the short term.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis
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