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Ali Hashmi/MEDILL

CME Group's revenue increased to a record $874 million, boosted by a big increase in clearing and transaction fees.

CME Group’s profit jumps 29 percent as volatility boosts volume

by Ali Hashmi
Nov 01, 2011

Profit at CME Group Inc., the world’s largest futures exchange operator, topped analysts' forecast in the third quarter, boosted by a surge in trading volume due to volatile market conditions.

The Chicago-based company reported net income of $316 million, or $4.74 per diluted share, up 29 percent from $244 million, or $3.66 per share, in the year-ago period. The performance modestly exceeded the $4.69 per share analysts had been expecting. 

Revenue increased 19 percent to a record $874.2 million from $733.4 million a year ago, bolstered by a 22 percent jump in clearing and transaction fees. 

“During the third quarter, we delivered record top-line results with revenue driven primarily by strong trading volume,” said CME Group CEO Craig Donohue in a call with analysts. 

High market volatility related to global economic uncertainty spurred the demand for futures and derivatives products. When equity markets are swinging, investors move in and out of futures and derivatives to hedge and speculate. This drives up trading volume and the transaction fees that CME Group collects. 

“Third quarter average daily volume was 14.7 million contracts, up 27 percent compared to the third quarter of last year,” said Chief Financial Officer James E. Parisi in a call with analysts. 

The company’s expenses also increased but by less than 5 percent. 

"Heightened expense focus contributed to our success,” CEO Donohue said. 

"They continued to show good expense management throughout the quarter," said Morningstar analyst Gaston Ceron in an interview. "That’s one thing that I liked about the quarter.  You can’t always count on rising trading volume to take care of your profits.” 

In a separate development, MF Global Holdings Ltd., a clearing member of CME Group, filed for bankruptcy protection Monday when a potential buyer discovered discrepancies in the company’s books. CME Group said Tuesday that MF Global was not in compliance with collateral segregation requirements that bar companies from using clients’ funds. 

“While we are unable to determine the precise scope of the firm's violation at this time, we are investigating the circumstances of the firm's failure,” Donohue said. It “is a very fluid situation involving complex legal, regulatory and bankruptcy-related issues.” 

For the first nine months, CME Group reported net income of $1.07 billion, or $15.94 per share, up 41 percent from $755.2 million, or $11.39 per share, in the year-ago period. Revenues increased to $2.54 billion, up 14 percent from $2.24 billion a year earlier. 

Half of CME Group’s revenue came from financial products based on U.S. Treasuries, euro dollars, equities and foreign currencies, while 34 percent of revenue originated from commodities. 

CME Group’s shares fell $23.68, down 8.6 percent, to close at $251.88, as financial stocks took a beating after the latest developments in the euro zone debt crisis.