CME Group Inc. (CME)

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CME Group (CME)

Q2 2013 Earnings Call

August 01, 2013 8:30 am ET


Jennifer George

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

Bryan T. Durkin - Chief Operating Officer

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


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

Howard Chen - Crédit Suisse AG, Research Division

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

Kenneth Hill - Barclays Capital, Research Division

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

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

Daniel Thomas Fannon - Jefferies LLC, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Michael Carrier - BofA Merrill Lynch, Research Division

Brian Bedell - ISI Group Inc., Research Division

Gaston F. Ceron - Morningstar Inc., Research Division

Kenneth M. Leon - S&P Capital IQ Equity Research



Welcome to CME Group Second Quarter 2013 Earnings Call. [Operator Instructions] I will now turn the call over to Jennifer George. You may begin.

Jennifer George

Thank you for joining us. Gill and Jamie will spend a few minutes outlining the highlights of the second quarter, and then we will open up the call for your questions. Terry, Bryan and Bob are on the call as well and will participate in the Q&A.

Before they begin, I'll read the Safe Harbor language. Statements made on this call and in the slides on our website that are historical -- 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.

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 today. I'm going to highlight CME Group's second quarter, and then turn it over to Jamie to review our financials.

I'm pleased to announce strong results for the second quarter, highlighted by multiple records across our industry-leading diverse portfolio of products.

Within our core futures, we are seeing a glimpse of how our complex will perform as our economy improves and government intervention recedes. There's a lot of interesting activity happening within our interest rates, OTC and energy complexes, which I'll spend some time discussing this morning, along with a few other areas.

Second quarter average daily volume was 14.3 million contracts, up 16% from the second quarter of last year. In addition to robust activity from U.S. customers, we had strong growth in electronic trading volumes outside of the U.S. Asia volumes were up 28% on our Globex electronic trading platform. European volumes were up 18% compared to second quarter 2012, and our emerging Latin America business rose 40%.

Open interest also jumped 26% year-to-date, up to 88 million contracts, driven by broad-based growth across our product complex, including euro dollar and treasury options, E-mini options, WTI futures, natural gas, gold futures and corn.

Additionally, the second phase of the OTC clearing mandate was completed successfully on June 10, and we are steadily picking up market share versus LCH SwapClear.

Turning to the highlights of our core. Our interest rate complex continues to perform well. Second quarter average daily volume was 6.8 million, up 33% compared to the same period last year. Treasury average daily volume was 3.8 million overall, up 38% compared to last year, with strong growth in options, up 82% versus the same period last year.

We set an all-time treasury futures volume record in May, which exceeded the prior record in February.

Euro dollars futures and options averaged 3 million contracts per day, up 28% versus the second quarter 2012. July volumes there remain strong, relatively speaking, up 28%.

Turning to OTC clearing, as I mentioned earlier, there has been a nice increase in activity following wave 2 of the Dodd-Frank clearing mandate that started on June 10. Category 2 clients have overwhelmingly chosen CME Clearing, and Category 1 hedge funds and international dealers are shifting more of their volume to what they consider to be the most capital efficient clearing solution, which is CME. At this point, over 300 institutions have cleared trades with us. We had 29 new clients in July, who had not previously traded on our platform.

This momentum has led to strong sequential growth in the daily notional amount cleared in interest rate swaps. Second quarter averaged $41 billion per day, tripling activity during the first quarter. Third quarter to date is currently at $62 billion per day. Our dealer-to-customer market share has grown from 5% in Q1 to 23% in July.

In addition, open interest increased by more than 100% during the last 2 months from $2 trillion to over $4 trillion, with over 3,600 client accounts currently holding open positions, while our competitors' open interest grew by 6% during the same period. Since May 31, combined IRF open interest between CME and LCH has increased by $2.5 trillion, and we have accounted for $2 trillion or over 80% of that amount. I believe this indicates we have done very well attracting Phase 2 clients, made up primarily of asset managers, insurance companies and GSEs to our platforms.

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