Exchange operator CME’s profit tops views in volatile quarter

By Anirban Chakroborti and John McCrank

(Reuters) -CME Group Inc on Wednesday reported fourth-quarter profits above Wall Street expectations, as global pricing pressures, rising interest rates and recessionary fears drove greater use of the futures exchange operator’s risk hedging tools.

Red-hot inflation, paired with the U.S. Federal Reserve’s hawkish monetary policy, roiled markets in the quarter, helping boost CME’s average daily volume (ADV) nearly 6% to 21.8 million contracts in the three months ended Dec. 31.

Major stock indexes ended 2022 with their biggest one-year declines since the 2008 financial crisis, with the S&P 500 19.4% lower and the Nasdaq down 33%.

That helped push up fourth-quarter demand for CME’s equity index futures, which saw ADV rise 26% from a year earlier, to 7.5 million contracts. Options ADV rose 13% to 4.2 million and FX ADV jumped 25% to 1 million.

Stripping out onetime costs, like M&A fees, CME earned $1.92 per share, 4 cents above the mean estimate of analysts, according to Refinitiv data.

The beat was driven by lower-than-expected compensation expenses, Jefferies analyst Daniel Fannon said in a client note.

So far in 2023, CME is averaging around 23 million contracts per day, in line with 2022’s average, which was a record year for the Chicago-based company, Chief Executive Officer Terry Duffy said on a call with analysts.

Higher interest rates, rising geopolitical tensions, and other factors, such as political wrangling around the U.S. debt ceiling, could prompt greater use of CME’s risk management tools this year, Duffy said.

“We have a Congress like I’ve never seen in the history. I’m not so sure it’s going to be as easy as people believe that they can negotiate a debt ceiling agreement,” he said.

Clearing and transaction fees rose 3% to $981.4 million in the quarter.

Overall revenue was up 5% at $1.21 billion.

(Reporting by Anirban Chakroborti in Bengaluru and John McCrank in New York; Editing by Shilpi Majumdar)