CME Group witnessed four consecutive quarters of growth in trading activity in 2014. The growth spree continued through the first three quarters of this year, with average daily volumes increasing by an aggregated 7% on an annual basis to 14.2 million contracts per day. This resulted in its transactions and clearing fee revenues growing by 11% y-o-y to $2.1 billion for the same period. Keeping up the trend for the year – except the months of September and October when volumes dipped – CME Group reported its November volumes were up by 6% y-o-y, to an average of 13.7 million contracts traded per day. Below we take a look at CME's November performance across key asset classes.
We have a $91 price estimate for CME's stock, which is slightly lower than the current market price. CME’s stock price has fluctuated between $85 and $100 this year.
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Trading Activity By Asset Class
CME has witnessed a mixed year for trading of interest rate contracts, with the increase in daily volumes through the first two quarters of the year being eroded by a decline in Q3. As a result, CME’s ADV for interest rate derivatives stood at 6.9 million contracts per day through the nine month period ended September – roughly flat over the prior year period. A key reason for the decline in interest rate derivative volumes in Q3, and subsequently October, was a tough year-on-year comparison as trade volumes surged to record levels in the prior year period, when traders began to speculate when the Fed would start raising interest rates. However, trade volumes picked up in November on the back of speculation around the European Central Bank's monetary policy – a trend which could continue through the end of the year. CME reported a 9% rise in interest rate derivative trade volumes over the comparable prior year period to 6.9 million contracts per day.
Conversely, foreign exchange derivatives trading volumes have remained high this year, with volumes rising by 20% y-o-y to 903,000 trades per day for the nine-month period ended September. Within the various currencies traded, Euro-denominated contracts were the most heavily traded for CME in the first three quarters of the year, with a 46% growth in ADV to 319,000 trades per day. The rise in ADV of FX derivatives from late 2014 to the end of Q3 this year was largely caused by speculation around the ECB's monetary policy, debt concerns in Europe and the subsequent strengthening of the U.S. dollar. However, since October, FX volumes have been dropped consistently. November was the third consecutive month which saw a drop in daily volumes of about 23% y-o-y to 929,000 contracts per day. Despite the annual dip in volumes in Q4 thus far, full year volumes are still about 15% higher on a y-o-y basis.
Among other products traded on the exchange, equity indexes (+16%), energy (+2%) and agricultural commodities (+5%) witnessed growth, while metals (-12%) experienced a slump in daily volumes in November. The company stated that the average daily volumes to date in 2015 were 14.1 million contracts, up 3% compared to the year-ago period. If the November volume levels are sustained through December, we will likely see higher transaction and clearing revenues for the company, given that the company has realized a 2% higher average rate per contract in a year thus far.
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