In gambling, it’s known that the house has the best odds. The Chicago Mercantile Exchange (CME) acts as the largest casino for trading in bonds, currencies and stock index futures. This is the products in which the ‘whales’ of global finance move billions of dollars each day as they adjust their portfolios. And the CME takes a fee with every transaction.
Earlier this week, the CME released trading volume numbers for August and they were the second-highest monthly on record despite August being a traditionally slow month.
The numbers were up across the board led by equity index contracts increasing over 105% to 5.1 million contracts a day and interest rate volume up 59% to 13.7 million contracts a day.
The heightened trading activity was driven by trade tariff tensions and the unprecedented move in interest rates with over $17 trillion of bonds now sporting negative yield.
There is no reason to think these issues will subside heading into the fourth quarter. In fact with a supposed re-opening of trade talks to resume in October and a key FOMC meeting in mid-September market anxiety and trading volumes are likely to increase.
Another key revenue driver and profit center are fees for market data for which it has a near-monopoly; information services and communication fees have been increasing by over 10% annually for 3 years and will cross the $200 million mark this year.
Shares of CME reflect the robust trading environment with shares in a solid uptrend, up some 30% in the last three months alone.
CME reaps profits by accommodating other peoples forays into the world of trading and risk management. As we head into a very uncertain future, I think the shares will continue higher.
CME shares were trading at $224.01 per share on Friday afternoon, up $2.83 (+1.28%). For the year-to-date, CME has gained 20.04%, versus a 20.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Smith
Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...
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