CME Group Inc. (CME)

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CME Group (CME)

Q4 2010 Earnings Call

February 03, 2011 9:00 am ET


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

John Peschier - Managing Director of Investor Relations

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

Craig Donohue - Chief Executive Officer, Executive Director, Member of Executive Committee, Member of Marketing & Public Relations Advisory Committee and Member of Strategic Steering Committee


Brian Bedell - ISI Group Inc.

Alex Kramm - UBS Investment Bank

Rob Rutschow - Credit Agricole Securities (USA) Inc.

Christopher Allen - Banc of America Securities.

Jillian Miller - BMO Capital Markets

Michael Carrier - Deutsche Bank AG

Richard Repetto - Sandler O`Neill

Kenneth Worthington - JP Morgan Chase & Co

Howard Chen - Crédit Suisse AG

Daniel Fannon - Jefferies & Company, Inc.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Jason Shum

Matthew Heinz - Jefferies & Company

Niamh Alexander - Keefe, Bruyette & Woods

Daniel Harris - Goldman Sachs Group Inc.

Roger Freeman - Barclays Capital



Good day, everyone and Welcome to the CME Group Fourth Quarter 2010 Earnings Call. [Operator Instructions] At this time for opening remarks and introductions, it's my pleasure to turn the conference over to John Peschier. Please go ahead, sir.

John Peschier

Thank you, and thank you all for joining us this morning. Craig Donohue, our CEO; and Jamie Parisi, our CFO will spend a few minutes outlining the highlights of the fourth quarter and then we will open up the call for your questions. Terry Duffy, our Chairman, is also here this morning.

Before they'd begin I'll read the Safe Harbor language. Statements made on this call and in the accompanying slides on our website that 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.

For detailed information about factors that may affect our performance may be found in our filings with the SEC, including our most recent forms 10-K and 10-Q, which are available on the Investor Relations portion of our website. During this call, we will refer to GAAP and non-GAAP results. A reconciliation is available in our press release as well as within an income statement trend file in the IR portion of the site, which contains historical quarterly results on a GAAP basis.

Now I'd like to turn the call over to Craig.

Craig Donohue

Thank you, John. Good morning, and thank you for joining us on the CME Group Fourth Quarter Earnings Call.

For the quarter, CME Group posted solid results of $763 million of revenue and $458 million of operating income with an operating margin of 60%. I'll let Jamie get into the details on the financial results, while I'll take an opportunity to talk about the big picture environment for CME Group and our customers.

For the entire financial services industry, the past two years have been filled with challenges and uncertainty on many fronts. I think we can all agree that there is still a fair amount of uncertainty ahead but as I look back on CME Group's response to this environment, I see remarkable progress.

We've consistently worked to support the users of our core products, provide fact-based analysis and insight on prevailing market conditions and look for opportunities to develop new products. This work has enabled us to launch exciting new products such as the Ultra Bond Treasury futures, which traded 34,000 contracts per day in January and which provide a variety of new and useful analytical tools to our customers.

In turn, these allow us to have more meaningful conversations with market participants about their trading needs and continue to evolve new offerings for our customers. We've worked with regulators, customers and service providers to develop and launch a cleared over-the-counter interest rate swaps offering, which has cleared over $980 million since launch. We are in what we consider very early stages with this offering but we are pleased to note that the necessary operational and risk management frameworks are functioning robustly as evidenced by the cleared activity to date and early participation has come from diverse group of firms.

Since our initial launch, we've added two new clearing firms, RBS and Wells Fargo, highlighting the positive reception the offering is getting from market participants. We received all necessary approvals for the launch of CME Clearing Europe, an offering which provides us with long-term strategic flexibility in our efforts to meet our global customer's needs. We are on track to begin clearing nearly 100 over-the-counter energy products later this year. And from there, we will expand to other over-the-counter and listed products. Approximately 20 firms are currently in talks to participate in the offering, including potential clearing members and customers.

We built upon years of education in Washington to call for a measured approach to financial regulation, one that doesn't create unintended consequences and doesn't put U.S. markets at a disadvantage. We recognize that while exchange-traded markets largely will see fairly minimal impacts from Dodd-Frank, regulations for the over-the-counter markets are ongoing. We continue to advocate not just for our benefit but for sound economically rational regulation.

2011 will be a determinative year in this process and we are committed to the high level of engagements that we've shown so far.

We bolstered our products and services capabilities and our global reach by a multiple strategic initiatives. For example, we added Dow Jones Index Services to our product family and Elysian services to our technology suite. On the global front, we deepened our BM&FBOVESPA relationship by initiating a joint multi-asset class platform development effort. Beyond BM&F, we launched or expanded relationships with multiple global partners, including Bursa Malaysia, Nikkei Inc., the National Stock Exchange of India and Bolsa Mexicana. Combined, these efforts help to expand our global membership and clearing membership base and generate opportunities in markets outside the U.S. where we believe customer acquisition initiatives can generate significant long-term growth for us.

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