CME Group Inc., the world’s largest futures market, said first-quarter profit fell 12% as lower non-operating revenue and fees per contract cut sales.
Net income dropped to $235.8 million, or 71 cents a share, from $266.6 million, or 80 cents a share, a year earlier, Chicago-based CME said today in a statement distributed by PR Newswire. Excluding a $12 million expense from foreign exchange losses, the company said it earned 73 cents a share, matching the average estimate of 19 analysts surveyed by Bloomberg.
CME Group received on average 78.5 cents per contract, below the forecast of 79.7 cents per contract expected by Rich Repetto, an analyst with Sandler O’Neill & Partners LP in New York. The year-ago figure was 81.1 cents per contract, according to the company. There were also two fewer trading days in the first quarter compared to the year-earlier period, Repetto said, which can cut revenue by 3%.
“They’ve seen a trend in lower screen counts and lower demand” for non-transaction services like the revenue it generates by selling data and information services, Repetto said yesterday before the results were released.
CME Group was little changed at $60.20 as of 11:33 a.m. in New York. The shares had risen 18.7% this year through yesterday.
CME Group is competing to offer clearing services in the $639 trillion over-the-counter derivatives market, where regulators are starting to mandate that contracts including interest-rate and credit-default swaps be backed by clearinghouses.
The company took in $2.8 million in revenue from swaps clearing in the first quarter, Jamie Parisi, chief financial officer, said on a conference call with analysts today. The company earns about $3 for every million dollars of notional amount cleared, he said.
The clearing requirement is being phased in under rules created by the Commodity Futures Trading Commission. The world’s largest dealer banks and other firms active in the market were required to begin clearing most interest-rate and credit swaps on March 11. Smaller hedge funds, insurance companies and regional brokers will have to clear trades as of June 10.
For that group, 270 money managers have registered with CME Group to clear swaps, Chief Executive Officer Phupinder Gill said.
In December, CME Group began offering interest-rate swap futures that convert into cleared swaps if held until delivery. The first chance to take delivery occurred in March, with about 25% of the contracts being converted to cleared swaps, Derek Sammann, senior managing director of financial products and services at CME Group, said on the call.
That was more than the exchange was anticipating, he said.
The swap-futures contracts don’t count toward determining whether users face higher collateral, capital and trading requirements under CFTC rules, CME Group said in February. The regulator requires traders who buy or sell more than $8 billion of swaps annually to face the tougher standards by being designated a dealer or so-called major-swaps participant.
That decision by CME Group has drawn scrutiny from the CFTC, which said in February it was reviewing the contract.
Revenue in the first quarter fell 7.2% to $718.6 million last quarter, from $774.6 million a year ago, the company said. The fees CME Group took in from selling market data and information services fell 29% to $80.9 million in the quarter from $114.2 million a year ago, the company said.
About 12.5 million contracts changed hands per day during the period on CME Group’s markets, which offer futures based on interest rates, equity indexes, commodities and energy products. That was up 1% from the year earlier average of 12.3 million per day, the company said last month.