CME Group (CME) Futures Products Aid Amid Cost Concerns
CME Group Inc. CME is well-poised for growth, driven by higher clearing and transaction fees, strong global presence, and innovative products launches.
CME Group’s top line should continue to gain from higher clearing and transaction fees, market data and information services and other revenues.
Strong market position with diverse derivative product lines, additional market data distribution channels, increase in custody fees and global reach are likely to drive revenues in the long run.
CME Group continues to launch innovative products, tools and services to support customer needs and widen its international presence. Per its strategic initiatives, CME Group has undertaken various product launches. The company launched the Used Cooking Oil Methyl Ester (UCOME) futures contracts to support the transition to a greener energy market for transportation fuels. It unveiled Pork Cutout futures and options to boost its leading agricultural benchmarks. Further, it launched Micro WTI futures to enhance its robust suite of energy futures and options. The launch of Micro WTI was the most successful commodity product launch in the history of CME Group.
Also, recently, it introduced (BSBY)-based interest rate futures to boost the prevailing short-term interest rate futures as well as Term SOFR index products.
Expansion of futures products in emerging markets, non-transaction-related opportunities and over-the-counter offerings should add to the upside. Increasing electronic trading volume adds scalability and hence leverage to CME Group’s operating model.
In the third quarter of 2021, CME Group has teamed up with IHS Markit to combine their post-trade services for over-the-counter (OTC) markets into a new joint venture. The newly formed joint venture is well poised to serve clients globally and offer a wide range of trade services with capital efficiencies across the markets. This deal is expected to boost and expand its post-trade and trade-processing services and enhance the OTC markets. It continues to focus on strategic initiatives to grow the business, including the efforts to serve the OTC markets and to distribute the products and services on a global basis.
The company witnessed a 14% increase in average daily volume in the third quarter of 2021 year over year due to increased volumes in two of the six product lines.
CME Group boasts a strong balance sheet with solid cash balance and has excess borrowing capacity for general corporate purposes.
Given its prudent capital management policy, CME Group undertakes shareholder-friendly moves via dividend hikes. In February 2021, its board of directors hiked its quarterly cash dividend by 6%. Its dividend payments have witnessed an eight-year CAGR (2014-2021) of 8.5%.
However, the company’s expenses escalated over the last several years due to higher compensation and benefits, technology expenses, professional fees and outside services, licensing and other fee agreements, depreciation and amortization, and other. A persistent elevation of expenses might weigh on its margins. For 2021, the company expects total adjusted operating expenses, excluding license fees, of around $1.56 billion, which is $15 million lower than the earlier guidance and almost flat year over year.
Other Players
Other key players from the securities and exchanges industry include Cboe Global Markets, Inc. CBOE, Nasdaq, Inc. NDAQ and OTC Markets Group Inc. OTCM.
Cboe Global’s surpassed estimates in three of the last four quarters and missed in one, with the average beat being 3.80%.
Nasdaq surpassed estimates in each of the last four quarters, with the average earnings surprise being 9.21%.
OTC Markets surpassed estimates in each of the last four quarters, with the average earnings beat being 35.73%.
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