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CME Group Benefits From the Return of Market Volatility

By Simon Erickson - Updated May 2, 2018 at 9:39AM

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Record-setting trading volumes made for an excellent quarter at the world's largest derivatives exchange.

Four months in, and 2018 is already proving to be a year of market volatility.

The S&P 500 has delivered three times as many days with moves of 1% or more (in either direction) than it did in all of 2017. This return of volatility has in turn driven excellent results for CME Group (CME -0.26%), which runs the world's largest derivatives exchange, and released a strong first-quarter report last week.

A picture of stock market charts

Photo Source: Getty Images

CME Group results: The raw numbers

Metric Q1 2018 Q1 2017 Year-Over-Year Change
Revenue $1.109 billion $929 million 19%
Operating income $741 million $601 million 23%
Adjusted EPS $1.86 $1.22 52%

Data source: CME Group. EPS are on a fully diluted basis.

What happened this quarter?

The Q1 results reflected the return of trading volume to CME's platform. 

  • Adjusted earnings shot up 52% due to a combination of rising revenue and cost-control measures.
  • Average daily volume of 22.2 million contracts was an all-time high, and 30% higher than Q1 2017. ADV increased in every one of CME's six product lines, and set new records in five of them. Lower-priced financial product volume increased 49%, while higher-priced commodity products were up 15%.
  • Average rate per contract fell approximately 4%, from $0.736 last year to $0.706 this quarter. Interest-rate and foreign-exchange contracts both increased significantly in volumes, but fell in terms of annual rates.
  • International growth was particularly strong, with a 41% rise in revenue in Asia and a 37% increase in Europe.
  • Due to market volatility in cryptocurrencies, CME's new bitcoin futures had an excellent inaugural quarter.

What management had to say

Group Chairman and CEO Terrence Duffy noted his company's broad-based strength in the period.

Many of the themes that we have spoken about in the past few years were clearly on display this quarter. Those include our focus on driving trading volume 24 hours a day, delivering additional innovative features and options of products to meet client needs and drive additional revenue and remaining efficient on the expense side. A combination of those efforts led to over 50% adjusted net income and diluted earnings-per-share growth.

Looking forward

CME also reached an agreement this quarter to acquire U.K.-based NEX Group for $5.5 billion, which will broaden the offerings of its platform. The purchase sends a signal that CME's international momentum will continue, and investors should expect more contributions from abroad to the bottom line as the company's presence expands in Europe and in Asia.

The company's solid cash flow generation has rewarded shareholders: CME has paid out nearly $10 billion to shareholders since it implemented its variable dividend policy in 2012. We'll watch for continued market volatility and rising trading volumes to further boost those cash flows and dividends in the year ahead.

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