CME Group Inc. (CME)

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CME Group (CME)

Q4 2011 Earnings Call

February 02, 2012 8:30 am ET


John C. Peschier - Managing Director of Investor Relations

Craig Steven Donohue - Chief Executive Officer and Member of Strategic Steering Committee

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

Terrence A. Duffy - Executive Chairman, 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 and Managing Director of Products & Services

Phupinder S. Gill - President


Howard Chen - Crédit Suisse AG, Research Division

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

Alex Kramm - UBS Investment Bank, Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Jillian Miller - BMO Capital Markets U.S.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

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

Edward Ditmire - Macquarie Research

Rob Rutschow - Credit Agricole Securities (USA) Inc., Research Division

Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

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

Brian Bedell - ISI Group Inc., Research Division



Good day, everyone, and welcome to the CME Group Fourth Quarter and Full Year 2011 Earnings Call. As a reminder, this call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to John Peschier. Please go ahead, sir.

John C. Peschier

Thanks, and good morning, everyone and thank you for joining us. Craig Donohue and Jamie Parisi will spend a few minutes outlining the highlights of 2011 and the fourth quarter, and then we'll open up the call for your questions. In addition, Terry Duffy, Phupinder Gill, Bryan Durkin and Kim Taylor are also here right now.

Before they 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 10Q, which you can find in our website.

With that I'd like to turn the call over to Craig.

Craig Steven Donohue

Thanks, John. Good morning and thank you for joining us. I'm going to highlight CME Group's 2011 accomplishments and then share some thoughts about 2012, afterwards Jamie will review our fourth quarter financial results.

Overall, 2011 results were strong despite a challenging backdrop. 2011 volume averaged a record 13.4 million contracts per day, up 10% from 2010. Highlights for the year included record annual average daily volume for our FX, commodity, energy, and metals product lines, as well as double-digit average daily volume growth in our interest rate, equity index, commodity and metals product lines.

Fourth quarter volume averaged 11.7 million contracts per day, down 2% from Q4 2010, but included 24% average daily volume growth in equity index products and 8% growth in energy contracts.

During the year, we increased global market share relative to our top 3 competitors. On the short end of the interest rate curve, despite the continued 0 interest rate policy, our Eurodollar volumes increased by 9% while life's [ph] Euribor volumes were essentially flat. On the long end of the curve, our treasury product volumes grew by 13%, outpacing Eurex's interest rate volumes which grew at only 10%. Our Commodity product volumes were also quite strong during the year.

After an extremely robust third quarter, we saw decreased volumes and open interest in November and December due to the Eurozone crisis, the failure of MF Global and normal seasonal patterns. Nevertheless, we have seen a strong rebound in open interest since the beginning of this year. You may recall that open interest peaked on September 14, at 103 million contracts, and net open interest declined by 14% from 91 million contracts to 78 million contracts between Q3 and Q4 of last year. However, open interest has now increased by 11% to 87 million contracts since the beginning of the year with growth in all 6 product areas.

While macroeconomic conditions in 2011 were challenging, many believed that the U.S. economy is poised for a much better year in 2012. There are increasing signs that the 0 interest rate policy of the Federal Reserve is finally getting some traction. Most segments of the economy, including consumers, corporations and state and local governments appear to have completed their adjustments to the post 2008 reality of less leverage and more modest income expectations. Moreover, the economy is learning to live with greater policy and regulatory ambiguity. All of this suggests that the U.S. economy could realize better-than-expected real GDP growth in 2012 despite existing headwinds.

While we cannot control macroeconomic influences, I would like to highlight that we made excellent progress in 2011 in executing all 3 components of our global growth strategy. First, we have continued to successfully drive increased core business growth from our non-U.S. customers and to increase volumes and revenues from Europe, Asia and Latin America. Second, we have significantly increased our exposure to non-transaction fee-based revenue streams. These include our successfully launched co-location services on January 30 and our Dow Jones Index services business which we plan to combine with the S&P Index services business. Third, we have made excellent progress in expanding CME ClearPort, launching CME Clearing Europe and continuing our substantial progress in clearing, interest rate and credit default swaps. Let me briefly discuss each area.

In 2011, we reached record levels of non-U.S. electronic trading revenues estimated at more than $550 million. Additionally, 2011 volumes during non-U.S. hours, grew by 16% compared to 11% during U.S. trading hours. We are driving this growth through new global product offerings, increased sales staffing in Europe, Asia and Latin America, and by attracting new international clearing member firms.

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