CME to Launch European Futures


Chicago-based exchange company CME Group Inc. (CME) announced an agreement to introduce European futures market. To realize this maneuver, the company has commenced a program to test the platform’s trading systems with prospective clients.  

The launch of its London-based CME Europe venture is expected on Sep 9, 2013 subject to approval from U.K. regulators. The initial launch date was delayed by three months owing to the pending approval from the Financial Conduct Authority, the new U.K. exchange regulator

The launch is planned to commence with currency futures contracts. The initial launch will offer 30 contracts which will include futures in denominations including euro, sterling, U.S. dollar, yen, Swiss Franc, Canadian dollar and other currencies. The new contracts might be denominated in European or Asian currencies.

Subsequently, contracts related to equities, interest rates and commodity prices might also be introduced. New contracts would be launched part by part as management is of the opinion that the market at present would not be able to handle a host of new products simultaneously.

This venture marks the company’s first overseas exchange that aims to cater to prospective European and Asian clients. For clients who prefer to trade futures under the U.K. bankruptcy regime over the U.S. market are expected to be facilitated through the launch.

The planned acquisition of NYSE Euronext Inc. (NYX) by IntercontinentalExchange Inc. (ICE) invites staunch competition for CME. NYX and ICE already have operations in Europe. Nevertheless, foraying into the European futures market, CME now aims to take a share of the pie.

In the first quarter of 2013, revenues of the company declined 7.2% year over year to $718.6 million. Through the deal, CME aims to improve its revenues through customer additions in U.K. Through a likely successful launch of its European futures market at the scheduled period, we expect CME to gain a significant clientele base thereby enhancing revenues and in turn earnings going forward.

We project a long term earnings growth of 12.08% on the back of sales growth of 6.05%. The Zacks Consensus Estimate for full year 2013 is currently pegged at $3.12 representing a year-over-year improvement of 3.02%.

CME currently carries a Zacks Rank #3 (Hold). Among others in the industry, CBOE Holdings Inc. (CBOE) carries a favorable Zacks Rank #2 (Buy) and appears impressive.

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