This exchange owes Powell a huge thank-you for its record earnings
A big pickup in interest-rate trading buoyed CME Group’s record third-quarter results.
CEO and Chairman Terry Duffy hailed this as “the best quarter in CME Group history,” as the exchange set records for revenues generated and operating income earned, with average daily volumes spiking 27% year on year to 28.3 million.
It sure looks like Federal Reserve Chair Jay Powell deserves a tip of the cap from Duffy & Co. The third quarter marked the first time in over a year that the US central bank actually did something with its policy rate — a 50-basis point reduction at its September meeting.
And at 14.9 million daily average volumes, over half of CME’s activity is tied to the interest-rate business, which is up at 36% year on year (that is, faster than its total growth).
“Our SOFR complex traded over 5.9 million contracts per day in the quarter and 6.9 million per day in September, all while seeing the customer network broaden with large open-interest holders reaching a new record high in September,” Duffy said. “Opposing views of potential and actual Fed rate changes combined with ongoing high levels of issuance and deficit financing should continue to provide tailwinds for interest-rates trading.”
SOFR is the secured overnight financing rate and tracks the cost of receiving cash in so-called repo transactions (in which that borrowing is collateralized by US Treasuries), and its gyrations closely track the Federal Reserve’s policy rate.
We’re always on the lookout for how shifts in monetary policy will influence economic activity. Will enough priced-in Fed cuts reinvigorate the housing market? Will businesses feel a little better about borrowing now that costs are lower and a soft landing looks more secure? But no, I guess fortifying the operating performance of an exchange with a lot of rate trading should’ve been the first place we looked.
However, the boost to business from a Federal Reserve that’s once again doing something with its policy rate — and causing traders to make, double down on, and abandon a variety of bets on what it will do next, and when — isn’t enough to please investors this morning. Shares are off about 1.4% as of 10:20 a.m. ET despite posting top and bottom line results that were a touch better than analysts anticipated.
