"All I want in life is an unfair advantage."
Now, I've seen probably about a dozen American CEOs lay claim to being the originator of that quote, but whoever said it was really on to something. By no means do I think that Chicago Mercantile Exchange
The leading futures exchange in this country, the Merc produced yet another solid quarter as attempts to protect against, or profit from, volatility in the interest rate, foreign exchange, equity, and commodity markets boosted volumes. Revenue rose 22% for the period as a 30% increase in average daily volumes more than offset an 8% decrease in the exchange's average take per contract. Another perk to the Merc is that running the exchange is a rather profitable endeavor. The company's pre-tax margin expanded again and net income rose 30% from the year-ago level.
It would seem to me that it's business as usual for the company. Its electronic trading platform, Globex, continues to hold an increasing share of the contract volume, ending the quarter with almost 70%. And while average daily volumes skip around a bit from quarter to quarter, the Merc had higher volumes across the board, but especially in interest rate and foreign exchange products.
The futures world has gotten a bit more attention than usual lately, with the IPO of CBOTHoldings
On the Refco front, I've heard suggestions that its collapse might have caused some spikes in volume as people rushed to liquidate their positions and get their cash out before it collapsed. Whether that's true or not, Refco's clearing member firm, Refco LLC, is a separate entity, and Merc management doesn't seem to think there will be any significant negative impact on its business.
The Chicago Merc has some of the most appealing traits you can find in a public company -- a nice, wide moat and a fast-growing business that is profitable and cash-rich. Still, I'm not sure that's worth more than 33 times next year's earnings. I like the Merc as a customer and I like the business, but I'd probably be more interested in taking a flier on Archipelago Holdings
For more exchanges of ideas:
Archipelago Holdings is a Motley Fool Rule Breakers recommendation.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).