CME

CME Group Inc. (CME)

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CME Group (CME)

Q1 2011 Earnings Call

April 28, 2011 8:30 am ET

Executives

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

Bryan Durkin - Chief Operating Officer and Managing Director of Products & Services

Analysts

Matthew Heinz - Stifel, Nicolaus & Co., Inc.

Brian Bedell - ISI Group Inc.

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

Alex Kramm - UBS Investment Bank

Rob Rutschow - Credit Agricole Securities (USA) Inc.

Michael Carrier - Deutsche Bank AG

Jillian Miller - BMO Capital Markets

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

Kenneth Worthington - JP Morgan Chase & Co

Howard Chen - Crédit Suisse AG

Daniel Fannon - Jefferies & Company, Inc.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Christopher Allen - Evercore Partners Inc.

Roger Freeman - Barclays Capital

Presentation

Operator

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

John Peschier

Thanks, and thank you all of you for joining us this morning. Craig and Jamie [ph] will spend a few minutes discussing the highlights of the first quarter, and then, we'll open up the call for your questions.

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.

More detailed information about factors that may affect our performance may be found on our website and also in our forms 10-K and 10-Q. Go to the Investor Relations portion of the website to find these.

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

Craig Donohue

Thank you, John, and thank you for joining us this morning. I'm really pleased to share the highlights of an outstanding quarter in terms of revenue and bottom line results. Our results this quarter are attributable to our continued focus on successfully innovating new products, providing superior customer service and the hard work and commitment of our talented employees. With risk management taking on increased economic importance globally, we saw robust volumes in our core business as we delivered the most comprehensive product offering available to our clients. We successfully advanced several key longer-term initiatives, which we think will continue to position CME Group a step ahead of our competitors.

During the first quarter, we delivered record revenue of $832 million, up 20% driven by average daily volume of 13.8 million contracts. Commodity volume rose 29% while financial products increased 17%. We believe that the breadth and diversity of our products and services is the key differentiator from our competitors.

Interest rate volume was strong in Q1 despite the ongoing 0 interest rate policy in the second round of quantitative easing. Our treasury volume was up 30% while Eurodollars [ph] rose 23%. We had particular strength in our Eurodollar futures and options in the mid-curve area, with Eurodollar futures volume beyond the first two years up 100%, and our Eurodollar mid-curve option complex up 50%. Within treasury futures, the strongest growth came from our five-year treasury product, which increased more than 46%.

In addition to increasing volume, it's important to note our deep liquidity across our interest rate products suite, as well as the rising open interest. For example, within our Eurodollar futures product, throughout the trading day, we averaged more than 60,000 contracts within the best five bids and offers, representing $60 billion of liquidity. Furthermore, our treasury futures contracts average a total of 40,000 contracts. Since the beginning of the year, open interest has increased by 2.5 million contracts or 34% in Eurodollar futures and 1.2 million contracts or 32% in treasuries, growing faster than the same period last year.

Our interest rate team has continued to deliver product extensions that are demonstrably important to our customers. In January, we launched weekly treasury options and we have seen an immediate positive response from our clients. Average daily volumes surged to 14,000 contracts per day in March. This builds upon the extraordinary success of our Ultra Treasury Bond product launched last year. That new offering increased by more than 100% to 52,000 contracts per day in the first quarter, exceeding our own expectations.

In keeping with our commitment to provide innovative risk management solutions to all of our customers, including products that may be more relevant for European and Asian investors, last week, we announced the introduction of new Sovereign Yield Spread [ph] futures. These products, which will be launched at the end of May, are designed to enable asset managers, banks, hedge funds and other institutional investors to efficiently manage exposure at government bond markets in France, Germany, Italy, the U.K., the Netherlands and the U.S.

We also continue to make progress with customer readiness for our interest rate swaps offering. We have cleared trades for 10 large buy-side firms, and we are currently testing with dozens of other firms with many more in the pipeline. Feedback from market participants is that they are waiting for greater clarity on the rules from the CFTC [ph] before clearing significant volumes. We are very pleased with our level of client support relative to our competition, but we expect this area to further strengthen our interest rate product value proposition and deepen our relationships with our client base.

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