CME

CME Group Inc. (CME)

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CME Group (CME)

Q3 2013 Earnings Call

November 04, 2013 8:30 am ET

Executives

John C. Peschier - Managing Director of Investor Relations

Phupinder S. Gill - Chief Executive Officer, Director, Member of Executive Committee and Member of Strategic Steering Committee

James E. Parisi - Chief Financial Officer and Senior Managing Director of Finance & Corporate Development

Derek Sammann - Senior Managing Director of FX, Metals and Options Solutions

Sean Tully - Managing Director of Interest Rate Products

Terrence A. Duffy - Executive Chairman, President, Chairman of Executive Committee and Member of Strategic Steering Committee

Kimberly S. Taylor - President of CME Clearing House Division

Bryan T. Durkin - Chief Operating Officer

Analysts

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Howard Chen - Cr├ędit Suisse AG, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Jillian Miller - BMO Capital Markets U.S.

Daniel Thomas Fannon - Jefferies LLC, Research Division

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Christopher J. Allen - Evercore Partners Inc., Research Division

Presentation

Operator

Welcome to the CME Group Third Quarter 2013 Earnings Call. [Operator Instructions] At this time, I'll turn the call over to Mr. John Peschier. You may begin, sir.

John C. Peschier

Thank you, and thank all of you for joining us this morning. Gill and Jamie will spend a few minutes outlining the highlights of the quarter, and then we'll open up the call for your questions.

Terry, Bryan, Kim and Bob Zagotta, Head of Products and Services, are on the call; while Sean Tully, our Head of Rates and OTC; and Derek Sammann, who is in charge of Options, FX and Metals.

Before they begin, I'll read the Safe Harbor language.

Statements made on the call and in the slides on the website are not historical facts are forward-looking statements.

These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.

Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements.

More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on the Investor Relations section of our website.

Now, I'd like to turn the call over to Gill.

Phupinder S. Gill

Good morning, and thank you for joining us this morning. I'm going to highlight CME Group's third quarter, and then turn it over to Jamie to review our financials. Our focus this morning is about what's new and relevant during the quarter.

We've made some good traction since our last earnings call in terms of the core business and expanding our OTC clearing activity. Within our core futures complex, third quarter average daily volume was up 11% compared to the same period last year, driven primarily by continued strong growth in interest rate and mad metals.

We drove strong growth in electronic trading volumes outside the U.S. in our entire business.

For the third quarter, Latin America volumes are up 23%; Asia volumes are up 22%; and in Europe, activity rose 15% compared to the third quarter 2012.

We have been investing considerable time and effort in these areas, and I'm glad to see it driving volume and revenue growth.

In addition, we are making a concerted effort to drive growth in our options business globally. This business increased by 31% in third quarter 2013 versus last year.

Both interest rate and equity options were up 54%, and FX options rose 32%. In September, our treasury options reached an all-time high of 57% electronically traded on CME Globex.

Overall, in October, approximately 48% of our total options volume traded electronically compared to 35% in all of 2012.

Additionally, options trading from European clients jumped by more than 100% in Q3 to more than 100,000 contracts per day.

Asia and Latin America were each up over 70%. Lastly, within the natural gas options, our market share jumped above 70% in September compared to a range of 50% to 60% for much of the year.

As I mentioned, one of the main drivers of the top line growth this quarter was interest rates. Average daily volume was 5.8 million contracts per day in Q3, up 27 -- up, I'm sorry, 29% versus Q3 2012, and open interest to-date through October was -- is up more than 60% since the beginning of the year.

All 4 of the major components of our rates business, Eurodollar futures and options, and treasury futures and options, were up more than 20% in Q3.

Eurodollar options volume had particular strength, up 56%, with volume rebounding in the front month of the curve during September, which we haven't seen in a long time. That is illustrated on Slide 10 in our earnings deck.

Turning to interest rate OTC clearing. We continue to see a dramatic increase in our credit swaps business. Our market share in the dealer-to-client business has grown from 5% in Q1 to 14% in Q2, 31% in Q3 and 33% so far in Q4.

We averaged $81 billion per day in the third quarter, doubling the activity from the second quarter 2013.

So far, the fourth quarter is up 26% sequentially to $102 billion.

Now that the 3 waves from the Dodd-Frank clearing mandate are behind us, the market is shifting from a compliance phase to an optimization phase. This is a common scene we hear from market participants in our meetings.

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