Message from CEO and President
In the face of challenges, CME Group achieved strong 2011 results and demonstrated the growing success of long-term initiatives that expand our core business and advance our globalization strategy.
Through continued emphasis on innovation and the successful execution of our growth strategy, CME Group realized very positive financial results in 2011. Our 10 percent increase in average daily volume, which grew to 13.4 million contracts, was underscored by record annual average daily volumes in our foreign exchange (FX), agricultural commodity, energy and metals businesses. And despite continued macroeconomic challenges, the diversity of the business brought great stability and value. Our interest rate and energy products accounted for 22 percent and 21 percent of 2011 revenues, respectively. Equities (18 percent), market data and information services (13 percent), agricultural commodities (11 percent), FX (6 percent) and metals (5 percent) rounded out revenue contributions, with the remaining 4 percent coming from other sources.
The progress made in executing our growth strategy is also deserving of additional detail. We made significant progress in launching new products, deepening relationships with our international strategic partners, expanding participation in our over-the-counter (OTC) clearing offerings, and solidifying our position as a leader in index services and information products, all of which have paved the way toward a successful 2012.
Growing the Core
Throughout the year, we continued to launch new products, acquire more customers and realize our goal of expanding our business through cross-selling. These efforts helped build on our already marked success in growing the core through new product offerings – since January 2010, new product launches have accounted for 107 million contracts in volume and 10 million contracts in open interest.
Within financial products, we had significant success growing our Eurodollar volumes and open interest further out the yield curve despite the zero interest rate policy in the United States. For example, trading volume in Eurodollar futures expiring in years 3 through 10 grew by 43 percent, and Eurodollar Mid-Curve options grew by 21 percent, driven largely by the new Blue Mid-Curve Options with 47,000 contracts in average daily volumes in 2011. Also, our new Ultra Treasury Bond futures increased by 101 percent in average daily volume to a total of 15.5 million contracts.
Our emerging markets FX products likewise experienced strong growth, with Brazilian Real futures increasing by 421 percent, Russian Ruble futures by 188 percent and Mexican Peso futures by 36 percent. We also achieved 60 percent growth in our ex-pit business, namely through a 10-fold increase in clearing FX products through CME ClearPort.
In agricultural commodities, we successfully introduced a broad range of new products including weekly, calendar and inter-commodity spread options. These new products provide our customers with tailored tools to manage risk around USDA crop report releases or short-term growing season weather fluctuations at significantly reduced costs.
We also experienced growth in our energy products (average daily volume increased 7 percent) and see significant positives on the horizon. Our flagship Henry Hub Natural Gas contracts have set multiple volume and open interest records so far in 2012. Also, our benchmark waterborne WTI contracts will benefit from the June 2012 reversal of the Seaway pipeline and TransCanada’s commitment to build the Cushing-to-Gulf Coast leg of its Keystone project by 2013. These two developments will allow more than 1 million barrels of oil per day to flow from Cushing, Okla, to the Gulf of Mexico, which should result in a narrowing of the WTI-Brent spread and strengthening of WTI correlations with other crudes.
In metals, we achieved impressive growth in our Copper futures contracts, with an average daily volume of 53,000 contracts in the fourth quarter – our highest quarterly average yet – and have seen continued growth into 2012, with February average daily volume exceeding 78,000 contracts. We further made progress with our Virtual Steel Mill complex, expanding into Iron Ore swaps and options and Steel futures. Like Copper, we expect these positive trends to continue into 2012.
Globalizing Our Business
Underlying our globalization strategy is our conviction to take advantage of significant growth opportunities in developing and emerging markets given macroeconomic growth trends there versus the United States and Europe. Consequently, we have taken the lead in our industry by fostering strategic partnerships and making investments to expand our global distribution network.
In 2011, we continued to expand market access through new telecommunications hubs in Seoul, Kuala Lumpur, Singapore, São Paulo and Mexico City. These hubs will provide foreign firms with direct connections that offer lower latency, greater reliability and more scalability. Demonstrating the effectiveness of these efforts and the increasingly global nature of our business, in 2011, CME Globex volume during non-U.S. hours grew by 16 percent versus 11 percent during U.S. trading hours. This resulted in record levels of non-U.S. electronic trading revenues in 2011 of approximately $550 million.
We also made progress with our linkages with leading exchanges around the world. In the Americas, we worked with our partner BM&FBOVESPA to successfully launch the derivatives segment of a new multi-asset class electronic trading platform and recently announced an agreement to cross-list key equity index, agricultural and energy benchmark contracts. We also launched the second phase of our order routing agreement with the Mexican Derivatives Exchange.
In the Asia-Pacific region, we worked with the Korea Exchange (KRX) to grow our business in hosting KRX’s benchmark KOSPI 200 futures during KRX’s overnight hours and saw a 400 percent increase in volume in KOSPI 200 futures on CME Globex. We worked with our partners at Bursa Malaysia Derivatives and set an annual volume record in Crude Palm Oil futures, with average daily volume up 39 percent from 2010. We expanded our partnership with the Osaka Securities Exchange to include joint product development and marketing, with a view toward offering Japanese yen-denominated products to our global customer base.
Moreover, our partners at the National Stock Exchange of India successfully launched S&P 500 futures and options, as well as DJIA futures, denominated in rupee. In turn, we listed on CME Globex U.S. dollar denominated futures contracts on the S&P CNX Nifty Index (the Nifty 50), India’s leading benchmark for large companies. Through all of these efforts, we have opened access to our markets and created a pathway for CME Group customers to trade key benchmarks of our partners.
Finally, we worked hard in restructuring the Dubai Mercantile Exchange (DME). With our plan to double our ownership stake in DME to 50 percent, we will continue to promote DME’s Oman Sour Crude contract as the benchmark oil contract for the East of Suez markets.Continue reading