CME CME Group Inc

On Monday, leading US futures exchange operator, CME Group Inc. (CME) announced the launch of a new clearing platform for its over-the-counter (OTC) foreign exchange (forex) transactions through CME ClearPort.

Initially, the company has started the OTC clearing of US dollar against Chilean peso based on the rapidly growing opportunities in Chile, which enjoys vast exposures in foreign investments.

Hence, CME is head-on to explore this region and utilize its clearing services to reduce the credit crunch and minimise the counterparty risks in currency hedging. This process will not only enhance the liquidity and operational efficiency in Chile but will also help CME expand its clearing services across borders.

The latest forex clearing initiative was also the result of an exemption granted to the forex swaps by the Treasury last month. Hence, forex swaps are now free from the new regulations that are being imposed on the derivative transactions.

Moreover, CME is keen on boosting its OTC clearing business, now that its main stream interest rate future swaps has become intensely competitive. Particularly, the launch of NYSE Euronext Inc.’s (NYX) New York Portfolio Clearing (NYPC) and the Eurodollar futures in NYSE Liffe US, in March this year, has created a challenging operating environment for CME.

Moreover, the proposed merger agreement between NYSE and Deutsche Boerse, in a $10 billion deal, has further brought in scepticism over CME global derivatives trading market share. The prospective NYSE–Deutsche Boerse deal’s combined exchanges and clearing houses would generate an annual €4.0 billion ($5.5 billion) in revenues, much higher than any other exchange group.

Even the next biggest operator in the US generates €2.3 billion in revenues. Hence, a direct competitive pressure surmounts and to mitigate this risk, the company continues to grow through product diversification and cross-selling activities.

In March this year, CME also launched a new clearing membership platform, Financial Instruments Clearing Membership (FICM). This new platform has helped reduce the trader’s cost by nearly 65% and provides a cross-margin for the company’s interest rate futures products and US Treasury’s futures franchise.

However, the prime reason for the reduction in margin payments is to challenge its arch rival NYSE’s growing future trading initiatives, a sector in which CME almost enjoyed a monopoly.

Nevertheless, over the last few quarters, CME has been posting strong trading volumes, which has also helped in strengthening the cash flow and capital position. Hence, CME has been making earnest efforts to expand its operations and simultaneously return wealth to investors, thereby retaining market confidence. After a whooping dividend hike of 22% in February, recently the company also announced a new $750 million share buyback program.

Moreover, the company’s efforts to promote, expand and cross-sell its core exchange-traded business through meaningful acquisitions, a strong portfolio along with its global presence will generate decent growth in the long run.

On Monday, the shares of CME closed at $298.43, up 1.4%, on the NASDAQ Stock Exchange.

 
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