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Categorized | Capital Markets

CME’s profits drop as trading volumes fall

Posted on July 31, 2014

CME Group, operator of the world’s largest futures exchange, reported a 15 per cent drop in second-quarter earnings, missing expectations as trading volumes tumbled.

Terry Duffy, executive chairman, said the exchange was hit by “historically low levels of volatility” across the market during the quarter ending in June. But he said conditions could soon change.

    “We continue to see positive economic signs that could potentially lead to a more traditional Federal Reserve monetary policy,” he said. “This would . . . likely accelerate market activity as firms shift back into growth mode.”

    Trading volumes for CME’s flagship interest rate products tend to grow when traders believe a rate rise is coming. Speculation of a possible rate rise has been driven by the Fed’s decision to taper its asset purchases.

    But the Fed’s approach has caused some uncertainty as to when it will raise rates. On Wednesday the bank cut its monthly asset purchases by a further $10bn to $25bn-a-month, but also laid the groundwork for low interest rates.

    During the second quarter CME reported an average daily volume of 12.6m contracts, down 12 per cent from the same period last year due to low volatility.

    Clearing and transaction fees fell 12 per cent to $609m, compared to last year when CME said traders had reacted strongly to the Fed “chairman’s comments about potential tapering on quantitative easing”, CME reported.

    Mr Duffy said geopolitical uncertainty caused by the war in the Gaza Strip, the crisis in Ukraine and the downing of Malaysia Airlines flight MH17, has tamped down volatility in energy markets.

    “I think these are all confusing signals to any energy trader, and I would be afraid a little bit right now to trade at all,” he said to analysts on a conference call. “I think we’ll get more certainty on the geopolitical stuff, and that’s when you’ll see volatility come back into the marketplace.”

    The Chicago-based company reported earnings of $264m, or 77 cents a share excluding one-time items, compared to $311m, or 93 cents a share, during the same period last year. Revenues fell 10 per cent from $816m to $732m.

    Analysts had expected earnings of 79 cents a share on sales of $741m.

    The news came the day after CME said it would acquire GFI Group’s energy and foreign exchange software business in a deal worth $655m including debt as it seeks to expand its global reach.

    Shares in the company fell 2.5 per cent to $73.94 by close of New York trading.