With acquisition targets dwindling, competition increasing and regulatory threats looming, CME Group Inc. is hoping it can spark growth through new products and foreign partnerships.
Since the first of the year, the exchange has acquired a controlling interest in Dow Jones indexes, including the ubiquitous Dow Jones industrial average, which will form the basis for new futures on stocks. Last week, CME introduced a new palm-oil futures contract. It also struck a deal with the Chicago Board Options Exchange to form futures contracts tied to volatility indexes and initiated or extended partnerships with exchanges in India, Brazil and Mexico.
“We view the emerging markets as substantial areas of opportunities,” CME CEO Craig Donohue said. “Another exciting area of growth for us is the index services area.”
Now that the biggest U.S. derivatives exchange has swallowed the natural acquisitions, including the Chicago Board of Trade in 2007 and New York Mercantile Exchange in 2008, it's settling back into a more workaday growth strategy: boosting revenue through product innovation. But Mr. Donohue and his boss, Executive Chairman Terrence Duffy, will be hard-pressed to get the kind of growth out of new contracts that CME posted in the past decade, as the credit bubble and acquisitions fueled a spectacular run of double-digit profit growth. From 2005 to 2009, CME's earnings more than doubled. During that time, the stock rose steadily as well, to a high of $710 in December 2007.
And while CME shares are up 60% in the last year, at $313 they remain well below the pinnacle.
As deal-making dries up, the exchange is facing intensifying competition. The upstart NYSE Liffe US futures exchange is laying plans to compete with CME on the Chicago exchange's biggest franchise, interest rate derivatives. And Wall Street-backed ELX Futures LP is pushing the Commodity Futures Trading Commission to break CME's hold on the right to clear all futures-trading positions opened at the exchange.
