CME Group Q3 Net Income Dropped $74.5 Million or 24% When Compared to Q2 2013, ADV Plummeted

Chicago-based operator of commodity futures marketplaces, CME Group, with some of the biggest commodities exchanges across the globe, including the Chicago Mercantile Exchange (CME) under its subsidiaries, reported consolidated financial results for the third quarter (Q3) ending September 30, 2013, that reflected Average Daily Volumes (ADV) had dropped from 14.3 million contracts in Q2 2013, to 12 million contracts in Q3 2013, despite a year-over-year increase in both revenues and net income. Basic Earnings Per Common Share attributable to CME Group in Q3 ending September 30, 2013, were $0.71 and 24% lower than the previous Q2 ending June 30, 2013, of $0.94 earnings reflecting a change of 23 cents as net income fell.

Total income of $816.1 million in Q2 2013, fell by $101.5 million to $714.6 in Q3, nearly 12.5% lower over the previous quarter. This affected operating income which was $107.3 million lower over the previous quarter, or down 21% in Q3 2013 resulting in $400.5 million, according to the press release. Q3 net income resulted in $236.7 million down to $74.5 million or almost 24% over Q2 2013.

Despite a lower quarter, these three key revenue metrics were higher year-over-year (when compared to the same period last year). Lower ADV across major product lines can be seen to have dropped across all segments over the previous quarter, although also higher year-over-year . The decrease was most reflected in electronic venues which fell by 2.25 million contracts from 12.45 million in the second quarter to 10.19 million contracts in the third quarter, reflecting a 18% drop. The only higher figure of the reporting venues segments was the open outcry line which saw slightly higher ADV in Q3 by 3.4% or 39,000 contracts over the previous quarter.

Although ADV was lower over the previous quarter, the average Rate Per Contract (RPC) increased from $0.748 in the Q2 to $0.762 in Q3 2013, and attributable to primarily strong higher paying non-member participation during third quarter relative to last quarter. Commenting in the official corporate release, Terry Duffy, Group Executive Chairman and President, CME Group, highlighted growth segments and the transition from a compliance phase towards an optimization phase as industry adjusts to waves of Dodd-Frank related mandates and said:

"Our business continued to trend positively in the third quarter, as demand for our products increased in several major categories, most notably our over-the-counter interest rate swap Clearing ." Mr. Duffy added to the corporate statement regarding the Q3 results, "We experienced an increase in dealer-to-client market share from 5 percent in the first quarter of this year to 31 percent in the third quarter, in addition to approaching 50 percent of open interest. This is due to our strong value proposition and product expansion. Now that the three waves of the Dodd-Frank clearing mandate are completed, the market is shifting from a compliance phase to an optimization phase. Going forward, our interest rate complex will continue to benefit from our success in OTC clearing."

CME Group Chief Executive Officer, Phupinder Gill, echoed progress in core segments year-over-year and said in the corporate announcement regarding the results, "Third-quarter 2013 top-line results included substantial progress in our core business as well as expansion in over-the-counter clearing." Mr.Gill concluded in the release, "Average daily volume was up 11 percent, 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 percent. In addition, our efforts to grow the business globally continue to take root. Electronic trading volumes outside the United States grew 16 percent, with volumes up 23 percent in Latin America, 22 percent in Asia and 15 percent in Europe compared with third-quarter 2012."

According to the company's consolidated financial balance sheet in Q3 2013, Total Assets increased over the previous quarter and were higher by $2.09 billion to $48.97 billion, and may be certainly enough to weather lower trading volumes over the previous quarter as other metrics remain higher year-over-year. The earnings report today followed the company's earlier release of October volumes. CME Group Inc is currently trading down near almost six-tenths of a percent in the pre-market trading session (as of publication), according to NASDAQ ticker symbol: CME.