‘As Good As It Gets’ For Exchanges

Shanny Basar

CME Group reported record volumes as analysts at German bank Berenberg said increased volatility has led to robust volume growth across most products for exchanges around the globe.

The US exchange said today that average daily volume for last year reached a high of 19.2 million contracts, 18% higher than in 2017. Last year 91 trading days also exceeded 20 million contracts, more than double the 34 days in 2017. CME highlighted that average daily volume records were reached across a range of products – interest rate; metals; foreign exchange and options.

Chris Turner and Panos Ellinas, analysts at Berenberg, said in a report last month: “We expect unsettled markets in 2019 to provide a supportive backdrop for volumes in CME’s core products, while its acquisition of NEX Group adds under-appreciated strategic optionality.”

In November last year CME Group completed its acquisition of UK-based NEX Group, which provides electronic trading for foreign exchange and fixed income, and post-trade and data services.

Terrence Duffy,
CME Group

Terry Duffy, CME Group chairman and chief executive, said in a statement: “Together, we will provide efficient access to futures, cash and OTC markets, as well as post-trade services and data offerings that will further support cost-effective trading and risk management.”

CME and the London Stock Exchange Group were the top picks in the global exchange space for the Berenberg analysts.

The analysts said in a report: “As good as it gets for exchanges: robust volume growth has continued across most products this quarter, reinforcing the positive outlook from November’s sector note.”

Deutsche Börse also reported that last year the German exchange’s cash market achieved the highest trading volume in a decade.

Consultancy Greenwich Associates highlighted the growing importance and size of exchanges in its outlook for this year, Top 9 Market Structure Trends for 2019.

The Greenwich report highlighted that CME Group had a market capitalization of $7bn (€6.1bn) and the equivalent at rival ICE was $4bn in the fourth quarter of 2008. They have since grown to $65bn and $46bn respectively.

“That equates to growth of roughly 1000%,” added the study. “While not every exchange group saw such dramatic gains, the importance of exchanges around the world has grown tremendously, and 2019 will see them advance even more.”

The consultants expect exchanges to expand this year due to the growth of exchange-trade funds, new exchange-listed and cleared derivatives and further consolidation. They also said exchanges will a push into two non-traditional businesses: products traded over-the-counter and the sale of index-related products and data.

“Spot foreign exchange, government bonds and corporate bonds have been at the center of several acquisitions over the past years (i.e., NEX Group, InteractiveData, BondPoint, TMC, FastMatch, 360T),” continued Greenwich. “2019 will provide an opportunity for the exchanges to bring those purchases to the next level, with a wide range of new product integrations, trading methods, clearing solutions, and data offerings further cementing their critical place in the capital markets ecosystem.”

The Berenberg analysts also highlighted the secular trends for exchanges.

“LSE will benefit from the 43% year-on-year spike in interest rate swap client-clearing volumes quarter to date, but our positive stance is more structural, reflecting its exposure to secular growth in OTC clearing and index services,” said the Berenberg report.

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