Among the diverse range of derivative contracts offered by the
), energy futures and options contracts remain most valuable for
the company. Apart from energy contracts, CME also offers trade in
interest rates, equity indexes, foreign exchange, agricultural
commodities, metals, weather and real estate. Its main competitors
are NYSE Euronext (
) and Intercontinental Exchange (
We have a price estimate of
$330 on CME's stock
which is about 8-10% above the current market price.
Energy Contracts at a Glance
Energy products primarily consist of crude oil, natural gas,
power and other energy-related exchange-traded contracts and
over-the-counter contracts cleared through CME ClearPort. Future
and options trading on energy contracts allow investors and brokers
to hedge their investments and potentially profit from
them. Energy contracts constitutes almost 24% of our price
estimate of CME.
Customers choose to trade on CME due to its liquidity
and transparency. Market liquidity, or the ability of a market
to absorb the execution of large purchases or sales quickly and
efficiently, is key to attracting customers and is a major strength
Key Drivers of Energy Contracts
1. Average Transaction Fee per Trade
The average transaction fee per trade increased in 2009 due to
the pricing changes when CME took over NYMEX. The dip in 2010 was
due to a faster increase in member trading volumes than non-member
trading volumes as members receive lower rates than non-members.
Moving forward, we expect the average transaction fee per trade to
decline gradually by 1-2% per annum because of the growing
2. Average Daily Volume of Energy Contracts
There has been a steady increase in average daily volume of
energy contracts over the past couple of years with an exception of
2008 due to the economic recession. The options contracts saw an
increase in the volumes during 2009 in a volatile market scenario,
since investors looked to hedge their investments. In 2010, the
growth in volume was attributable to an improved economic outlook
as well as increased liquidity within the energy futures market. We
expect that the volumes will increase during the Trefis forecast
period due to a shift in electronic trading.
See our full analysis of CME.