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ICE, CME Earnings Rise; Exchanges Eye Regulatory Reform

Trading exchange profitability continued to grow during the third quarter as IntercontinentaExchange (ICE) and CME Group posted 16% and 20% net income increases, respectively, over their third quarter 2008 results.

ICE, which operates regulated exchanges, trading platforms and clearinghouses serving the global markets for agricultural, credit, currency, emissions, energy and equity indexes, posted 3Q2009 net income of $86.9 million ($1.18/share), compared with $75 million ($1.04/share) in the same quarter in 2008. CME Group, which bills itself as the world's largest and most diverse derivatives marketplace with the Chicago Mercantile Exchange, the New York Mercantile Exchange and the Chicago Board of Trade under its umbrella, recorded 3Q2009 net income of $202 million ($3.04/share), up from $169 million ($2.81/share) for 3Q2008.

Regulatory reform was once again a hot topic during the quarter as the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission and U.S. legislators continue to mull new position limits, reporting rules and an overhaul of the over-the-counter (OTC) markets (see NGI, Oct. 26; Oct. 19; Sept. 7).

"ICE has brought innovation to the financial services sector to help ensure the health of the markets we serve, while maintaining a focus on growth," said ICE CEO Jeffrey C. Sprecher. "Over the past year, our markets have shown resilience as customers worldwide increasingly demand the trading and risk management services we offer. We believe that the financial market reforms currently under way will provide greater certainty to market participants, as well as additional opportunities for ICE to leverage the valuable exchange, technology and clearing infrastructure that it has developed over the past decade."

During a conference call, Sprecher noted that while he expects position limits might end up applying to additional OTC contracts as the CFTC works through its obligations under the 2008 farm bill, "such measures are already in effect" for ICE's key revenue-producing products.

ICE CFO Scott Hill added, "Throughout 2009 ICE has taken a leadership role in delivering on reform initiatives that are reducing risk and enhancing markets, made a commitment in terms of capital, time and human resources and [is] confident that these investments will enable us to continue to outperform over the long term."

CME Group Executive Chairman Terry Duffy, said, "Building on solid third quarter results, October has been a strong volume month, particularly in foreign exchange and energy. As the economy continues to stabilize, there is room for further organic growth in our core business. At the same time, we are actively working to ensure that the benefits our business model brings to the financial system are communicated to the legislators and regulators who are charged with regulatory reform."

CME Group CEO Craig Donohue said during a conference call on earnings that the regulatory future is currently uncertain. "While we have not seen convincing evidence that factors other than fundamental supply and demand influenced commodity pricing, and while we are not in favor of position limits as a tool to manage price volatility, we are working closely with market participants and the regulators to ensure that any action taken does not negatively affect the liquidity and efficiency of our markets," he said. "There are several more steps involved before any regulatory or legislative changes are made to any of the previously described issues and time frames will remain beyond our control. As we have for many years, we will continue to leverage our experience in relationships in Washington to both educate and inform key policy makers on the critical factors affecting our markets."

CME Group's 3Q2009 average daily volume (ADV) was 10.1 million contracts, down 23% compared with 3Q2008. The total pro forma average rate per contract (RPC) for CME Group increased 6% from 3Q2008 to 83 cents, and increased 1% compared with 82 cents in 2Q2009.

"As part of our global growth strategy, we have continued to invest in enhancing our global marketing and sales staff and expanding our CME ClearPort OTC clearing services across all asset classes," said Donohue.

ADV for ICE's futures exchanges increased 24% from the same period in the prior year to a record 1,062,429 contracts, and total volume in the quarter rose to a record 68 million contracts. ICE Futures Europe ADV was a record 676,020 contracts, an increase of 19% from 3Q2008, and total volume reached a record 43.3 million contracts. The RPC for ICE Futures Europe in 3Q2009 was $1.53. ICE Futures U.S. ADV was 375,772 contracts, which was 34% higher than 3Q2008 ADV of 280,317 contracts. RPC for ICE Futures U.S. agricultural futures and options contracts was $2.08, and RPC for financial contracts averaged $0.89 in the third quarter of 2009. ADV for ICE Futures Canada was 10,637 contracts during the third quarter, an increase of 12% compared to 9,526 contracts in the year-ago period. ICE Futures U.S. and ICE Futures Canada recorded third quarter volume of 24 million and 0.7 million contracts, respectively.

"Our results in the third quarter reflect strong performance in our core business, as well as ongoing investment in and successful execution of newer initiatives, such as OTC clearing," Hill said.

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