With new financial reform rules from the Commodity Futures Trading Commission (CFTC) still looming ahead, trading exchange heavyweights IntercontinentalExchange (ICE) and CME Group Inc. this month posted strong fourth quarter and full-year earnings. ICE's 4Q2010 revenues increased by 11% from 4Q2009 to $285 million, while CME Group recorded a 14% increase to $763 million.
ICE reported consolidated net income for 4Q2010 grew 18% to $99 million from $84 million in 4Q2009. Diluted earnings per share (EPS) for the quarter were $1.34, up 19% from 4Q2009 diluted EPS of $1.13. Full-year 2010 net income was $398 million, up 26% from $316 million in 2009. Full-year 2010 diluted EPS came in at $5.35, up 25% from $4.27 in 2009.
ICE also enjoyed growth in the fourth quarter in trading volumes done on its system. Consolidated average daily volume in ICE's futures segment in 4Q2010 was 1,265,388 contracts, up 21% compared to the same period of 2009.
"Once again in 2010, we delivered record revenues and earnings," said ICE CFO Scott Hill. "The strength in our commodities business continues into 2011, and we continue to expand our trading, clearing and processing services for market participants worldwide. Our spending discipline, solid balance sheet and strong cash flow allow ICE to continue to invest in an expanded range of services for our customers, while delivering sector-leading growth and returns on capital."
CME Group Inc., which owns the New York Mercantile Exchange, boasted of "solid" results, but recorded a small decline in 4Q net income. 4Q2010 net income was $196 million, down 3% from $203 million in 4Q2009. Diluted EPS for the quarter came in at $2.93, down 4% from $3.04 in 4Q2009.
The company explained that 4Q2010 net income included a $51.3 million charge within tax expense to record the impact of combined state and local tax rates on CME Group's existing deferred tax liabilities due to revised state apportionment estimates resulting from annual state tax filings. Results also included an $8.6 million charge to nonoperating expense accelerated by termination of an interest rate swap associated with early payoff of a term loan. Excluding these items, CME Group said 4Q2010 net income would have been $253 million and diluted EPS would have been $3.77.
CME's 4Q2010 average daily volume was 12 million contracts, up 17% compared with 4Q2009.
"CME Group finished the year with a strong fourth quarter, which grew 17% based on volume increases across all asset classes," said CME Group Executive Chairman Terry Duffy. "This reflects the strength of our customer base and the unique trading and hedging opportunities we provide through our diverse product base. We also saw 33% growth in trading activity outside U.S. trading hours, which reached 16% of total CME Globex volume, the highest percent yet achieved. This highlights the early stage success of our global growth efforts."
Much remains uncertain with regards to the CFTC's work with constructing and implementing the new regulations required under the Dodd-Frank Wall Street Reform Act (see Daily GPI, Jan. 21). Late last month CFTC Commissioner Bart Chilton said the Commission may need legislative authority to impose user fees on traders of futures and swaps if the agency does not receive sufficient funding in fiscal year 2012 to implement the new regulations (see Daily GPI, Feb. 2).
"I do not like having to take this route. Traders and exchanges will not like it. If we don't get funding from our traditional [congressional] appropriations, however, we risk the kind of lax oversight that got us into such a fine economic mess starting just a few short years ago," Chilton told the Institutional Investor TraderForum in New York City in late January.
In a statement, CME CEO Craig Donohue said his company is "very proud of our work to support appropriate and balanced financial regulation. With ongoing economic recovery, advancement of the regulatory process and continued investment in products and services to meet customer needs, we believe CME Group has established a strong position for future growth."
ICE CEO Jeffrey C. Sprecher also weighed in on the changing regulatory landscape. "As part of our commitment to our customers and shareholders, ICE consistently leads in terms of execution on new opportunities and growth despite an uncertain economic and regulatory environment," Sprecher said. "We are serving the rising demands for risk management in global commodities and derivatives with our transparent markets and global clearing houses."
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