IN many ways, 2012 was a year that agriculture might like to forget: A record drought devastated yields and sapped the profitability from many sectors of the livestock industry.
For CME Group, meanwhile, a global financial crisis and a pair of front-page futures trading scandals pillaged trading volumes and financial results.
CME is "the world's leading and most diverse derivatives marketplace," but a host of factors kept a lid on its financial performance last year. With a return to relative normalcy in many of its trading segments, volumes have posted double-digit growth in recent months and earnings have responded in kind.
Customer funds scandals at futures commission merchants MF Global and Peregrine Financial Group (PFG) rocked the futures industry to its core, and the monthly trading volumes on CME's various exchanges, including the Chicago Board of Trade and Chicago Mercantile Exchange, were among the most visible indicators of what many called a "crisis of confidence."
Earlier this month, CME reported that net profit in the third quarter jumped more than 8.5%, topping $236.7 million. Revenues beat Wall Street expectations as well, rising nearly 12% to $714.6 million for the quarter.
"Third-quarter top-line results included substantial progress in our core business as well as expansion in over-the-counter clearing," CME chief executive officer Phupinder Gill said. "Average daily volume was up 11%, driven primarily by continued strong performance in our interest rate and metal complexes, as well as strong growth in our options products, which increased by 31%."
Compared with the third quarter of 2012, Gill said electronic trading volumes outside the U.S. grew 16% during the quarter, including year-over-year volume gains of 23% in Latin America, 22% in Asia and 15% in Europe.
For the quarter, average daily volume was 12.0 million contracts, up 11% from the same quarter last year, including 29% growth in interest rate volumes and 10% growth in metal volumes. Clearing and transaction fee revenues were up 6% from the same period last year.
Volume in each of the past two months has shown double-digit improvement, with September's volume up 10% from the prior year and October volume up 12%. Average daily volume was 13.1 million contracts in September but dropped to 11.1 million in October despite three additional trading days during the latter month.
Although its origins are in farm commodities, CME's growth story of late is driven almost entirely by non-agricultural trading. In fact, agricultural trading volumes fell 15% in September compared with last year, although October saw 1% growth in total exchange average daily volume.
With volumes ranging from more than 900,000 to nearly 1.1 million contracts per day, agricultural futures and options comprise less than 10% of CME's volume, with interest rate products garnering the lion's share of trading. Interest rates represented more than 43% of October trading volume, for example, compared with just less than 9% for agricultural commodities.
In November, the exchange announced record trading volume for several products, including coal futures, coil steel index futures and iron ore futures, all of which are traded on the New York Mercantile Exchange platform.
Customers and traders were pleased earlier this month when CME lowered its initial margin requirements for both soybean and wheat futures by 17.1% and 17.5%, respectively, for speculative traders. However, recent announcements regarding clearing fee increases for a broad range of products had many in the trade none too happy with the exchange operator.
"These increases are substantial and affect both members and non-members. The changes were met with disbelief from much-beleaguered futures market participants," Leslie Rosenthal, managing member of Rosenthal Collins Group in Chicago, Ill., wrote in a letter to traders.
In the letter, Rosenthal urged fellow futures market participants to protest the fee increases and ask the CME board of directors to delay the increases and to undertake further discussion with customers and stakeholders.
Rosenthal also criticized a new market data fee that would levy a monthly charge on all market participants with access to a trading platform or quote screen.
"This new tax on futures traders is mind-numbing in its breadth and complexity," Rosenthal wrote. "A five-page fee matrix accompanied by three pages of footnotes describes a regime where market participants will pay monthly fees of anywhere from $5 to hundreds of dollars based on the number of exchanges and the type of access (they use)."
According to the letter, professional traders will pay $85 per month per user identification number for each CME exchange the trader utilizes. Rosenthal calculated that a professional trader accessing four different CME-operated platforms on a single trading screen would pay $340 per month.
A CME spokesman told Feedstuffs that the exchange operator has levied no substantial fee changes since 2009 "because we have been mindful to client impact during a challenging market environment" and added that CME reviewed the proposed transaction fee increases "holistically, considering customer segment and individual impacts."
The spokesman said CME spent many years standardizing market data policies under one market data agreement to ensure compliance and consistency across all customers.
"We were and are continuing to be mindful and sensitive to timing and client administrative impact in light of overall market events," the spokesman concluded.