(Adds details, comments from executives, analysts) CME Group Inc, the largest U.S. futures exchange operator, on Monday said quarterly profits jumped amid increased trading of its flagship interest rate contracts and a reduced tax rate.
Overall trading at CME's exchanges, which include the Chicago Board of Trade and the New York Mercantile Exchange, rose 11 percent during the quarter to a daily average of 12 million contracts. The increase included 29 percent growth in interest rate volume and 10 percent growth in metals volume, the company said.
In October, total volume averaged 11.1 million contracts per day, up 12 percent from a year earlier, and interest rate volume averaged 4.9 million contracts per day, up 20 percent.
Interest-rate futures volume has felt a boost from renewed market speculation over when the U.S. Federal Reserve will exit its bond-buying stimulus program. CME also has seen signs that volume has benefited from a migration of business into interest-rate futures markets from the over-the-counter market, Chief Executive Phupinder Gill told analysts on a conference call.
Regulators globally have pushed more over-the-counter derivatives into clearinghouses and on to regulated trading venues after problems in the $600 trillion swaps market exacerbated the 2007-2009 financial crisis.
"The OTC clearing business is strengthening our overall interest rate franchise," CME Chief Financial Officer Jamie Parisi said on the call.
Net profit at the Chicago-based exchange operator rose to $236.7 million, or 71 cents a share, in the third quarter, from $218 million a year ago, or 66 cents a share.
Adjusted earnings were 75 cents a share. Analysts expected 73 cents, according to Thomson Reuters I/B/E/S. Revenue rose to $714.6 million from $683.2 million, beating expectations for $713.3 million.
A large factor was a lower adjusted tax rate of 35.6 percent, which added 4 cents to results, UBS analyst Alex Kramm said. He had estimated the rate at 38.5 percent.
Results were "a bit soft despite the headline beat, which was pretty much driven by tax," added Christopher Harris, senior analyst for Wells Fargo.
CME reported earnings just before the start of an annual futures industry conference in Chicago this week, where increased demand for over-the-counter clearing will be among the hot topics.
CME has applied with the U.S. Commodity Futures Trading Commission to register as a swap execution facility (SEF), an exchange-like platform created as a result of the global crackdown on the derivatives that helped bring the credit crisis.
Regulators in major financial markets around the world are rewriting rules on swaps, the over-the-counter securities that derive their value from interest rates, credit, foreign exchange, equities and commodities.
Wall Street banks trade swaps in privately negotiated deals, largely over the phone, through a handful of brokers such as Britain's ICAP Plc. Regulators want to shed more light on the market. With the move to SEFs, swaps will be traded on exchange-like platforms.
"We continue to see a dramatic increase in our cleared swaps business," Gill said.
Gill took the helm at CME last year, vowing an international perspective for the 165-year-old U.S. futures powerhouse. CME in September delayed for the second time the launch of its first exchange abroad in London and did not provide a new start date. 1/8ID: nL5N0HN2SV 3/8
CME hopes to have an announcement "very soon" about the launch date, Gill said on Monday.
CME also said it expected to sell its NYMEX building in New York by the end of the year, but had not finalized a deal yet.
(Reporting by Tom Polansek; Editing by Chizu Nomiyama)