CME Group Q3 2013 Earnings Conference Call Transcript


Q3 2013 Earnings Conference Call
Event Held on November 4, 2013 9:00 a.m. Eastern Time     


Section I: Management Presentation


Welcome to the CME Group Third Quarter 2013 Earnings Call. Your lines have been placed on listen-only until the question and answer session. (Operator Instructions) At this time I will turn the call over to Mr. John Peschier . You may begin sir

John Peschier – Investor Relations

Thank you and thank all of you for joining us this morning. Bill and Jamie will spend a few minutes outlining the highlights of the quarter and then we will open up the call for your questions. Terry, Bryan, Kim and Bob Zagotta, Head of Products and Services are on the call, along with Sean Tully, our Head of Rates and OTC, Derek Sammann who is in charge Options, FX and Metals.

Before they begin, I’ll read the Safe Harbor Language. Statements made on the call and in the slides on the website 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 Gill – Chief Executive Officer

Good morning and thank you for joining us this morning. I am going to highlight CME Group’s third quarter and then turn it over to Jamie to review our financials. Our focus this morning is about what’s new and relevant during the quarter. We’ve made some good traction since our last earnings call, in terms of the core business and expanding our OTC clearing activity. Within our core futures complex, third quarter average daily volume was up 11% compared to the same period last year, driven primarily by continued strong growth in interest rates and metals. We drove strong growth in electronic trading volumes outside the U.S. in our entire business.

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For the third quarter, Latin America volumes were up 23%. Asia volumes were up 22%, and in Europe, activity rose 15% compared to third-quarter 2012. We have been investing considerable time and effort in these areas, and I am glad to see it driving volume and revenue growth. In addition, we are making a concerted effort to drive growth in our options business globally. This business increased by 31% in third-quarter 2013 versus last year. Both interest rate and equity options were up 54%, and FX options rose 32%. In September, our treasury options reached an all-time high of 57% electronically traded on CME Globex.

Overall, in October, approximately 48% of our total options volume traded electronically, compared to 35% in all of 2012. Additionally, options trading from European clients jumped by more than 100% in Q3 to more than 100,000 contracts per day. Asia and Latin America were each up over 70%.

Lastly, within Natural Gas Options, our market share jumped above 70% in September, compared to a range of 50% to 60% for most of the year. As I mentioned, one of the main drivers of the top line growth this quarter was interest rates. Average daily volume was 5.8 million contracts per day in Q3, up 29% versus Q3 2012, and OI to date through October is up more than 60% since the beginning of the year. All four of the major components of our rates business, Eurodollar futures and options, and treasury futures and options, were up more than 20% in Q3. Eurodollar options volume had particular strength, up 56%, with volume rebounding in the front month of the curve during September, which we haven’t seen in a long time. That is illustrated on slide 10 in our earnings deck.

Turning to interest rate OTC clearing, we continue to see a dramatic increase in our cleared swaps business. Our market share in the dealer to client business has grown from 5% in Q1, to 14% in Q2, 31% in Q3, and 33% so far in Q4. We averaged $81 billion per day in the third quarter, doubling the activity from the second-quarter 2013. So far, the fourth quarter is up 26% sequentially to $102 billion.

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