Outlook for CME Group's Interest Rate Trading Volume
CME Group ( CME ) provides trading across major asset classes including interest rates, equity indexes, foreign exchange and energy. Interest rate contracts constitutes about 23% of out $323 price estimate for CME Group. Notably, interest rate trading volume for CME Group increased by 25% in Q1 2011. The company competes with NYSE Euronext ( NYX ), Nasdaq OMX ( NDAQ ) as well as others like BATS Global and Direct Edge.
Interest rate contracts are primarily based on Eurodollars, U.S. Treasuries, swaps and other dollar-related instruments that customers can utilize to manage short, medium and long term interest rate risk. Interest rate contracts are the largest class of financial products traded on CME Group.
The average daily volume of interest rate contracts increased by almost 25% in Q1 2011 compared to the same quarter of the prior year. Growth in average daily volume is attributable to a strong rise in Treasury and Eurodollar volume, which increased by 30% and 23% respectively. In January 2011 CME Group launched weekly Treasury options, which saw a positive reception from customers. Eurodollar futures and options trading also picked up, bolstering average daily volume for the company.
We expect average daily volume of interest rate contracts to increase to 12.5 million by the end of our forecast period, from about 5.46 million in 2010 because of improvements in the company's trading platform, declines in average transaction fees and CME Group's initiatives to expand globally.