CME Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

CME Group (CME)

Q1 2012 Earnings Call

April 26, 2012 8:30 am ET

Executives

John C. Peschier - Managing Director of Investor Relations

Craig Steven Donohue - Chief Executive Officer, Executive Director, Member of Executive Committee and Member of Strategic Steering Committee

Phupinder S. Gill - President

James E. Parisi - Chief Financial Officer and Senior Managing Director of Finance & Corporate Development

Kimberly S. Taylor - President of CME Clearing House Division

Bryan T. Durkin - Chief Operating officer and Managing Director of Products & Services

Terrence A. Duffy - Executive Chairman, Chairman of Executive Committee and Member of Strategic Steering Committee

Unknown Executive -

Analysts

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Howard Chen - Crédit Suisse AG, Research Division

Jillian Miller - BMO Capital Markets U.S.

Alex Kramm - UBS Investment Bank, Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Gaston F. Ceron - Morningstar Inc., Research Division

Presentation

Operator

Good morning, and welcome to the CME Group First Quarter 2012 Earnings Call. As a reminder, this call is being recorded. At this time for opening remarks and introductions, I'd like to turn the conference over to John Peschier. Please go ahead, sir.

John C. Peschier

Thank you, and thank you, all, for joining us. Craig, Gill and Jamie will make some introductory comments, and then we'll open up the call for your questions. Terry, Bryan Durkin and Kim Taylor are on the call as well.

Before they begin, I'll read the Safe Harbor language. Statements made on this call and in the accompanying slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements.

Detailed information about factors that may affect our performance may be found in our filings with the SEC, including our most recent Form 10-K, which is on our website.

Now I'd like to turn the call over to Craig.

Craig Steven Donohue

Thank you, John. Good morning, and thank you for joining us today. Before I turn this over to Gill to review our first quarter performance, I wanted to just say that our succession transition has been going extremely well. As I'm sure everyone appreciates, the close working relationship and teamwork between me, Gill and Terry over these last 9 years is making this transition very easy. Since the announcement of my retirement, we have been, and are continuing to transition internal responsibilities. We've also been spending time with our customers, partners and industry colleagues to ensure a smooth hand-off in areas where I was playing a more active role.

Given our exceptional progress, I would expect that the formal part of my transition can be completed very soon and likely prior to our annual shareholder meeting. This will give us the ability to accelerate Gill's assumption of the CEO role and ensure that we keep moving forward with purpose on the execution of our global growth strategy.

Given that this will be my last earnings call, I want to thank each and everyone of you for your friendship and support during this last 8.5 years. I will miss interacting with you, but wish all of you and my CME Group colleagues much continued success. CME Group is a strong institution with great people, great products and great partners, and I will enjoy watching the company thrive and prosper with your continued support and Gill and Terry's leadership. With that, I'll turn it over to Gill.

Phupinder S. Gill

Thank you, Craig. The CME Group has certainly been blessed to have had Craig at the help over the past 8.5 years.

During -- I'm on to the report now. During the first quarter, global trading volumes were impacted by low levels of volatility. The uncertainty about market direction has lead to greater focus on the release of economic data that measured the overall health of the economy. While concerns remain, there are some positive signs that an improving economy would bode well for our product set as the trading community response to better news.

With that as a backdrop, I'm going to spend my time today talking about the areas that are well within our control. And those include product technology and clearing offerings. We have accomplished a great deal during the first 90 days of the year. Let me provide you with some examples. First, in terms of products, a couple of takeaways. Our volume has been muted, we are performing fairly well compared to our peers in several product areas; and second, we have seen a nice pick-up in open interest, which has jumped by 16% from year-end 2011 to 90.5 million contracts. Lastly, we continue to lead the industry with the breadth of our product innovation and our global relationships.

Interest rate volume was down from a year ago, but down significantly less than our European peers. Although volumes, for us, have been hindered on the short end, it is important to note the deepened liquidity in the middle of the curve has helped. For example, at the beginning of 2011, we launched Mid-Curve Options on year 4, the so-called blue Mid-Curve Options. This contract averaged almost 250,000 contracts per day in March and was very active as volatility picked up temporarily.

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