GO
Loading...

One Big Beneficiary of Market Volatility: Exchanges

Getty Images

Market volatility isn't bad for everyone.

The wild swings over the past few weeks—the Dow has posted triple-digit swings in 12 of the past 16 sessions—have provided a nice boost to trading volume. And that helps market exchanges like the CME, Nasdaq , ICE and CBOE, which generate more revenue when volume spikes.

But while all exchanges should benefit from the increased uncertainty in the markets, Richard Repetto, an analyst at Sandler O'Neil, said the CME is best-positioned, given that it provides a marketplace for trading interest rate futures, such as Treasury-bill futures and Treasury-bond futures.

And the biggest moves so far have been in the interest rate futures market. Average daily volume in CME interest rate futures is 8.9 million so far in June—up nearly 75 percent over the same period a year earlier. For the second quarter, volume is up nearly 33 percent year over year.

As a result, Sandler O'Neil raised its 2013 and 2014 earnings estimates for CME to $3.27 and $3.75, respectively, from $3.18 and $3.50. Shares of CME hit a fresh 52-week high on Tuesday. (Click here for the latest stock price.)

And more volatility may be in store.

Oppenheimer's Chief Market Strategist John Stoltzfus said he expects more turbulence in the coming days and even months as the Fed figures out how it will scale back on monetary support; namely, whether it will gradually pull back or pull the plug all at once.

Also tensions overseas, a selloff in emerging markets and a slow recovery in Europe "will all contribute to ongoing volatility in the markets," said Stoltzfus.

And that increased volatility should continue to bode well for trading volumes, which have been at depressed levels for a long period of time. Volatility in interest rate derivatives, in particular, is likely to increase given the focus on the Fed's plan to scale back on monetary support.

However, Morningstar analyst Gaston Ceron said when it comes to the benefits of market volatility, it's all about finding that Goldilocks sweet spot.

"While volatility does create new trading opportunities for market participants, too much volatility could scare some investors and push them to the sidelines," said Ceron.

—By CNBC's Seema Mody. Follow her on Twitter: @SeemaCnbc

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.