CME Group Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Volume and Open Interest: Third quarter average daily volume was 25.3 million contracts (second highest Q3 in history). Year-end open interest was 126 million contracts (highest in Sept over 5 years, continuing to grow in Oct).
• Innovation and New Products: Crypto complex saw significant growth, with new products like Solana and XRP futures, credit futures, 1-ounce gold futures, and agricultural weekly options. FX Spot+ and BrokerTec Chicago launched with strong volume performance.
• Partnerships and Extensions: Extended cross-margin agreement with DTCC, FTSE Russell Index derivatives license through 2037, intention to offer 24/7 crypto trading, and partnership with FanDuel to develop event-based contracts.

Segment Performance

• Crypto Complex: Third quarter average daily volume of 340,000 contracts (record), up over 225% year-over-year. Driven by success of Solana and XRP futures launched earlier this year.
• Market Data: Reached record quarterly revenue of $203 million, up 14% from prior year.
• Energy: WTI futures share shifted back to CME to 76% in Q3 (up from 74% last quarter). Natural gas complex grew 2% in Q3, led by 12% growth in nat gas options.
• Other Products: Credit futures, 1-ounce gold futures, and agricultural weekly options had record volume in Q3. FX Spot+ set new volume records each month in Q3. BrokerTec Chicago launched 2 weeks ago with strong initial volume.

Guidance

• Expenses: Expect total adjusted operating expenses excluding license fees to be approximately $1.625 billion, $10 million below prior guidance.
• Growth Focus: Focus on driving earnings growth by expanding customer base, serving clients through innovative products, and providing capital efficiencies.

Risks

• Regulatory Uncertainty: For sports-related prediction markets, the government's stance on self-certification as swaps vs. gaming poses a risk.
• Market Volatility: Impact on trading volumes and product performance in volatile market conditions.
• Operational Costs: Costs associated with 24/7 trading and new product launches may affect margins.

Question and Answer

• Q: Talk about long-term retail strategy, partnership with FanDuel, organic growth vs M&A A: Terry Duffy stated the strategy evolves, the partnership with FanDuel is important for distribution, growth can be organic, and M&A is not necessarily off the table but inclined to grow without it.
• Q: Sports-related event contracts, media reports A: Terry Duffy mentioned the government's stance on self-certification is key, sports events market is developing, and some events like political ones are concerning.
• Q: Event contracts, operational aspects, margin, advertising A: Tim McCourt noted event contracts on traditional products like hourly contracts are enabled by scale and technology, and cooperative marketing with partners supports promotion.
• Q: OSTTRA sale proceeds, capital deployment A: Lynne Fitzpatrick said proceeds from OSTTRA sale were ~$1.5 billion, and the Board will be presented with a proposal on capital use, with debt-to-EBITDA being low and focus on organic growth.
• Q: 24/7 trading, tokenization, other asset classes A: Suzanne Sprague discussed preparing for 24/7 crypto trading in 2026 with tokenization efforts with Google, and other asset classes may follow if demand arises.
• Q: Collateral balances, 30% cash minimum A: Lynne Fitzpatrick reported Q3 average cash $135B, noncash $156B, cash balance steady in Oct, with 46% cash in Q3 due to customer allocation decisions.
• Q: Google partnership, expense growth A: Lynne Fitzpatrick mentioned Q3 Google-related expenses ~$27M, year-to-date ~$71M, with guidance embedding ~$100M in expenses and savings from technology and finance team efforts.
• Q: BrokerTec Chicago, volume mix A: Michael Dennis said BrokerTec Chicago launched Oct 6, over $1B notional traded, with 66% volume at price points not on NY Club; early days, mix hard to predict.
• Q: RPC, micros, volume tiering A: Lynne Fitzpatrick explained the impact on equity RPC due to shift from micros to ports full size, with customer mix and member/nonmember effects contributing.
• Q: Credit futures, user engagement, cash-futures link A: Derek Sammann and Tim McCourt discussed credit futures growing, OI record in Sept, over 70 entities traded on FX Spot+, and ongoing efforts to broaden user engagement and link cash and futures markets.