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ICE, CME See Earnings, Volumes Heading Separate Ways

Third quarter earnings for commodity exchange heavyweights and rivals IntercontinentalExchange Inc. (ICE) and CME Group Inc. read like A Tale of Two Cities with ICE recording a 12% jump and CME Group posting a 16% drop in net incomes when compared to the companies' respective 3Q2007 results. Likewise, ICE says it saw trading volumes rise in 3Q2008 over 3Q2007, while CME Group reported a small decline.

Atlanta-based ICE, which operates global exchanges and over-the-counter (OTC) markets, reported consolidated net income for the third quarter of 2008 of $75 million, or $1.04/share, compared to $67 million, or 93 cents/share, during 3Q2007. Chicago-based CME Group, which completed its acquisition of Nymex Holdings in late August (see NGI, Sept. 1), recorded net income for 3Q2008 adhering to the generally accepted accounting principles (GAAP) of $169 million, or $2.81/share, compared to 3Q2007 net income of $202 million, or $3.87/share.

However, on a pro forma non-GAAP basis, which reflects the operations of both CME Group and Nymex as if they were combined for all periods reported, and excludes a net impact of $76 million of merger-related and other items, CME Group net income for 3Q2008 was $278 million, or $4.13/share, compared to $269 million, or $4/share, in last year's quarter. CME Group operates an international marketplace through the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (Nymex).

ICE's consolidated revenues in the third quarter rose to $201 million, the second highest quarterly revenues in the company's history and a 33% increase over 3Q2007 revenues of $152 million.

"Amid a challenging global economic environment, ICE has continued to produce strong results by remaining focused on the risk management needs of our customers and by delivering on our growth initiatives," said ICE CEO Jeffrey C. Sprecher. "With the acquisition of Creditex, the successful transition of the Russell index futures to ICE, the implementation of new clearing technology and the launch of ICE Clear Europe next week, we continue to meet our objectives in a dynamic environment."

CME Group's pro forma non-GAAP total revenues for the quarter increased 6% to $787 million compared to $744 million and total operating expenses decreased 3% from $276 million during 3Q2007 to $269 million for the just completed quarter.

"CME Group's record quarterly volumes in our E-mini and FX complexes in the third quarter highlight the diversity and strength of our product base," said CME Group Chairman Terry Duffy. "We are focused on continued innovation across our product lines and our technology and to that end are very excited about the strategic opportunities offered by the completion of the Nymex acquisition. Nymex's energy and metals products, as well as the ClearPort over-the-counter clearing platform, provide additional ways for our customers to manage risk during even the most challenging market conditions."

Transaction revenues in ICE's consolidated futures segment, comprising ICE Futures Europe, ICE Futures U.S. and ICE Futures Canada, totaled $81 million in 3Q2008, an increase of 11% over $73 million in the same period in 2007. Third quarter 2008 volume for all ICE futures exchanges increased 13% to 56.2 million contracts from 3Q2007. Average daily volume for ICE Futures U.S. was 280,177 contracts in 3Q2008, a 35% increase compared to the 3Q2007.

CME Group said its 3Q2008 average daily volume for CME, CBOT and Nymex of 13.2 million contracts drove $665 million in clearing and transaction fee revenue, an increase of 4% from $641 million in 3Q2007. However, CME Group -- including legacy results for CBOT and Nymex -- in 3Q2007 saw a higher average daily volume of 14.1 million contracts. Third-quarter 2008 quotation data fees were up 24% to $92 million, which included $4 million from a market data subscriber audit.

"At a time of unprecedented turmoil in financial markets, CME Group continues to provide the transparency, liquidity and security that enable our customers to manage their risks effectively," said CME Group CEO Craig Donohue. "Our strong third-quarter results underscore the value of what we provide to our customers and the strength of our business model when compared to other financial sector companies. CME Group has successfully guaranteed the performance of every contract on our exchanges for more than a century, ensuring that no customer has ever suffered a loss due to a clearing member default."

Looking ahead, CME Group said it expects total pro forma operating expenses in the fourth quarter to range from $270-275 million. Fourth-quarter capital expenditures are expected to range from $85-95 million. In addition, the expected effective tax rate for fourth-quarter 2008 and the full-year 2009 will range between 41-42%.

ICE said it expects 2008 capital expenditures to be in the range of $35 million to 37 million, including $11-12 million for leasehold improvements relating to the relocation and expansion of the London office, which houses futures, OTC, clearing and market data staff and operations. The company, which had 795 employees as of Sept. 30, said it expects headcount to increase by up to 2% during 4Q2008, excluding increases relating to any future acquisitions.

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