CME Launches CME Direct Messenger - Analyst Blog
CME Group Inc. ( CME ) has launched an instant messaging ("IM") platform called the CME Direct Messenger. The new service will leverage the messaging platform of Pivot Inc which was recently taken over by CME Group. This initiative is primarily targeted to provide convenience and facilitate traders in the energy markets.
CME Direct Messenger will be a part of CME Direct, the company's recent technological investment that offers exchange listed and over-the-counter ("OTC") markets simultaneous trading opportunities. This latest platform will offer messaging facilities instantly, "content parsing" and also broadcast technologies.
CME Direct Messenger will bring together the technology that is used to distribute and negotiate various orders in the energy and equity markets. This is expected to simplify pre-trade, trade and post-trade workflows of traders and brokers.
The platform will connect front-to-back-office to facilitate trading in CME Group's listed and OTC energy products. It will also be fully automated, first of its kind and will boost trading opportunities, improve efficiency and complement the existing electronic trading platform for energy markets.
While it represents a positive step by the company to be at par with its peers with respect to technological advancements and simplification of the trading process, we feel that it should be cautious regarding its increasing expenditures and declining top line.
CME Group is also expected to begin preparation for the second phase of the co-location build-out, which is projected to start during the second half of 2012. Also, this is expected to escalate the overall expenses of the company.
In the last reported quarter, CME Group's total revenues declined 5.1% year over year and total operating expenses climbed 7.5%, exceeding management's projections. However, its earnings per share of 89 cents surpassed the Zacks Consensus Estimate of 82 cents and the year-ago quarter's earnings of 88 cents. The earnings per share include the effect of a 5-for-1 common stock split on July 20, 2012.
CME Group should be wary of its peers as one of its closest competitors, NYSE Euronext, Inc. ( NYX ), is equally proactive and a combative rival. In an effort to furnish investors an alternative way to execute their trading, NYSE Euronext was granted permission by the U.S. Securities and Exchange Commission ("SEC") to introduce its innovative Retail Liquidity Program ("RLP").
The RLP will allow shares to be traded separately even before it is available for trading on the New York Stock Exchange ("NYSE") floor. This technology would allow sufficient cost savings and ensure better pricing with respect to retail equity trading for NYSE and NYSE MKT listed and NASDAQ UTP-traded equity securities.
NYSE Euronext is geared to kick start the first-of-its-kind program this month. It is also expected that with the introduction of RLP, the company will outpace its peers to become the only U.S. bourse to offer such technology.
Currently, CME Group carries a Zacks Rank #3, which translates into a short-term Hold rating. We maintain our long-term Neutral recommendation on the stock.
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