Futures-exchange operator CME Group is all about enabling its customers to transfer risk efficiently. Last year, the company succeeded in that regard on multiple fronts.
Chicago-based CME increased volume by 9% in 2014 to 13.7 million contracts per day, with notable strength in interest rates and U.S. Treasuries.
“We had high-volume days” such as a record 39.6 million contracts traded on October 15, said CME President and Executive Chairman Terry Duffy. “Our systems performed admirably. We continued to expand our business, including revenue from outside the U.S. continuing to grow.”
Market participants are showing an increased willingness to trade now that they have a better grip on the rule set of the 2010 Dodd-Frank Act. “We’ve been able to work through a lot of the regulatory issues over the last couple years,” Duffy told Markets Media.
“I think people now understand the rules, which is extremely important in our world,” Duffy continued. “We went through so much uncertainty with Dodd-Frank between 2010 and 2013. People shied away from the marketplace because they weren’t quite sure what the rules were.”
Those people are now coming back to trade futures on interest rates, equity indexes, energy, foreign exchange, agricultural commodities, and metals, and Duffy expects CME’s momentum to continue in 2015.
One sign of activity and liquidity in a futures contract is open interest, or the number of contracts that need to be settled. “Open interest was sitting at record levels pretty much throughout last year,” Duffy said. “It sold off a little bit, but now it’s kind of creeping back up to 2014 levels, which is just over 100 million contracts.”
Terry Duffy, CME Group
CME is working to make the trading of interest rate swaps, historically traded relatively inefficiently on an over-the-counter basis, as efficient as possible. “At the end of 2013, we had zero cleared interest rates swap. Last year we had $20 trillion of interest rate swaps cleared at CME. You could take that $20 trillion and offset that against your future’s portfolio — that creates a tremendous amount of capital that is freed up by offsetting those products from cash to the futures portfolio.”
“We saw billions of dollars of savings for a lot of our large clients, who keep large positions in both cash and futures,” Duffy added.
CME has an open-door policy with customers, according to Duffy, who himself spends a lot of time working with end-user clients. “The capital innovation is something I cannot harp on enough, because clients have said they need more capital efficiencies,” he said.
“They needed to get more of their own capital out of the marketplace, but at the same time, they’re trading a little bit bigger, because they’re trying to make the same amount of money with less movement in the marketplace,” Duffy continued. “So when you can create the innovation of risk portfolios of cash and futures, that’s pretty exciting.
CME has also continued product-development initiatives, for example with on-the-run treasuries as well as add-ons to existing products. “We listen to our clients,” Duffy said. “There are things they want to do.”