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.
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.
Now that the three waves of the Dodd-Frank clearing mandate are behind us, the market is shifting from a compliance phase to an optimization phase. This is a common theme we hear from market participants in our meetings. With increasing client demand for greater capital efficiencies, we now have six clearing members live with portfolio margining of cleared OTC interest rate swaps and interest rate futures, including a few who started offering this solution to customers within the last month.
In addition, product expansion has also played a key role in market share gains. During the third-quarter 2013, we launched the Singapore Dollar, which is our 17th interest rate swap currency and puts us in line with our competitor. Open interest within OTC is something we and market participants are monitoring closely, as we move closer to 50% market share. Interest rate swap open interest is currently north of $7.4 trillion, and has increased by more than $3.2 trillion since our last earnings call. During this time, our main competitor has added about $500 billion. Clearly, we have done extremely well attracting phase 2 clients, made up primarily of asset managers, insurance companies, and GSE’s, and we are pulling in more high turnover customers as well.
The bottom line is winning the dealer-to-customer OTC business strengthens our overall franchise, and opens up avenues for core revenue growth. Although it is very difficult to quantify and is still in the early stages, we are seeing evidence that our interest rate complex is benefitting from a migration of activity from OTC into futures. Since May, we have seen a more than 20% growth in our interest rate complex each month when compared to the same month of the prior year. This year, we have seen a significant shift in the use of treasury futures versus cash treasuries as evidenced by cash market penetration, which you can see on slide 13. Our interest rate non-member percentage, which tends to be driven by the so called real money clients, rose nicely from Q2 to Q3, which helped the rate per contract.