CME Group Inc ($CME) Q1 2025 Earnings Call

Thanks, Adam, and thank you all for joining us this morning. I'm going to make a few brief comments about our record quarter and the current business environment and then I'm going to ask Suzanne and Sunil to comment on our market operations during this high volatility environment. Following that, Lynn will provide an overview of our first quarter results. In addition to Suzanne, Sunil, and Lynn, we have other members of our management team present to answer questions after the prepared remarks. This quarter represented the highest volume, revenue, operating income, and diluted earnings per share in the history of CME Group. Our quarterly revenue crossed 1.6 billion for the first time, and we also exceeded 1 billion in adjusted net income. Our record-breaking performance in the first quarter demonstrated the growing need for risk management globally. The first quarter average daily volume of 29.8 million contracts not only was the highest quarterly ADV in CME Group's history, it also increased 13% compared to the same period last year. This strong growth was broad-based with year-over-year volume growth in all six asset classes, including all-time quarterly volume records in interest rates, equities, agricultural commodities, and foreign exchange. In aggregate, our commodity sector volumes grew by 19% and our financial products grew by 12%. This quarter highlighted the strength of our product diversity and the ability for customers to manage risk in times of uncertainty. It also reinforces our past comments about the importance of deep liquidity, especially in times of market stress. This was also a record quarter for our international business which averaged 8.8 million contracts per day, up 19% from the prior year. This strength was driven by growth across all asset classes and including quarterly volume records in both EMEA and APAC. We also continued to innovate and evolve our product offerings to meet risk management needs for our clients. We recently announced several new offerings that will create opportunities for stronger links between cash and futures markets. Later this year, we plan to launch BrokerTec Chicago, a central limit order book for cash US treasuries that will be located co-located next to our US Treasury futures and options markets. Thus last week we launched FX Spot Plus which enables spot FX participants to tap into CME FX future liquidity and gives FX futures users broader access to OTC liquidity. Looking forward, we continue to see very strong volumes to start the second quarter as market participants look to hedge exposures to tariff policies and geopolitical dynamics. Our open interest today is 7% higher than at the same point last year with strong open interest growth in our interest rate, energy, and agricultural complexes. This strong open interest trend tends to indicate that despite the high level of volatility, market participants are not leaving the market but rather continuing to use our products to manage their risk exposures. Risk management and resiliency is paramount at CME Group with record activity this past quarter leading into April. I'm going to ask Suzanne Sprague to give you an update on margins and Sunil Chino to give you some color on our resiliency during some of the most unprecedented times that we have seen. With that, I'm going to turn the call over to Suzanne.

Thanks Suzanne. I'm going to ask Sunil Chino now to comment on the technology and the resiliency of our markets.

Thank you Sunil. I asked both Suzanne and Sunil to comment because I think it's critically important for analysts and investors to understand what we do here on a daily basis. Sometimes it doesn't get quite as much attention, but I think during the unprecedented times that we have seen especially over the last six to eight weeks, I want to give you just a little bit of a flavor of how we are operating at CME Group. I think it's really important for you to understand that and we look forward to your further questions during that part of the presentation this morning. So, thank you both to Suzanne and Sunil. Now, I'm going to turn the call over to Lynn to review our financial results in more detail.

Thanks, Kyle. So the question is what are we hearing from clients of why they're not deleveraging during this time period and what are we seeing with some of the smaller contracts as related to agriculture products that have seen some open interest drop. Is that a fair way to categorize your question?

All right. So Derek, why don't you address the commodity issue and I'll address the broader issue, Suzanne and others.

So Kyle, let me address some of the other questions about the broader markets and just talk about some of the fundamentals that we're seeing that I don't know, I've been in this business for probably as long as anybody and I have not seen some of the fundamental factors that we're seeing today. So our open interest as Derek referenced is up 7% across the board in total. So I think that's an important factor. You're also looking at reason why people may not be deleveraging. It's very difficult to take risk off or delever your hedges when the probably the most uncertain times we ever seen in our history. No one's ever traded through these tariffs in the marketplaces to any extent over the last 30 plus years. We've never had $38 trillion of debt on the books of the United States of America. There's debt on books of countries all around the world. There is so much risk out there associated with margins being massively thin that if you do not participate, I don't think you have the luxury of not participating in this volatile time just because if you do not participate, you could be out of business the next day. That's how quick these markets are moving and that's the size of the moves associated with them. So I think that's a big part of the reason why we're not seeing deleveraging like you may have seen like I've seen 25, 30 years ago when the markets got very volatile and people just kind of put their hands in their pocket and tried to wait to see when there's some clarity. You don't have that luxury today because of the fundamentals that are not only here in the United States but globally. So I think that's a big part of why we're not seeing the deleveraging and I think that's why our products are critically important for our user base today.

Thanks, Kyle.

So Dan, I think it's really important. It's hard to give you a one answer on that because every situation's different with margins. So if you want to talk about margins during the '08, '09 crisis, that's a fundamental issue. Why you might move margins up or down? Why you're moving margins up or down in 2025 going on with the geopolitical events of boots on the ground wars in Russia, Ukraine, the issues going on in the Middle East and the tariff conversations that have been going on are completely different than what was going on in '08 with the housing crisis. So, it's hard to pinpoint what exactly can or cannot happen. I will say on margins though, and it's one of the reasons, you know, I pay a lot of attention to what Suzanne and Sunil are doing because it's really important that when we talk about margins and when we work with our clients on margins, we want to make sure we do it in a very judicious way that we're not just being reactive on margins because I think that can be disruptive to markets and that's what puts people on the sidelines when you're disruptive. I think when you're deliberate like we have been and proactive like we have been, you lessen the chance of the reactionary activity of people walking away from your marketplace because not understanding what margins mean to it. So I believe Dan, there's no one simple answer and I promise you I'm not dodging it. You know me better than that. I just think that fundamentally the markets are different today than they were in historical trends that we've seen when we move margins up or down. And Suzanne, if you want to comment, you're happy to.

And again Dan, I think that's one of the reasons why we invested the way we did in SPAN 2 technology. It helps allow us to make some of these decisions but again these are, it's an art not a science all the time and we do work with market participants to make sure that everybody's comfortable. It's a mutualized system and it's critically important to all market participants that we are doing our job correctly. So we take it very seriously and as Suzanne said earlier, this is real time risk management. This isn't T+1 or T+2. This is real time risk management. So appreciate your question Dan. Hopefully that answers it for you.

Thanks, Patrick. Go ahead, Lynn.

Let me just add one thing, Patrick. On the regulatory approvals, we are not anticipating, we've not been advised that there's any hurdles that cannot be crossed. So we're not anticipating any regulatory hurdles on closing this transaction. It's just a time-consuming process.

Thanks, Patrick.

So, Ken, let me just say a couple things. When we acquired that business back in 2018, you know, the business, you know, it's an interesting back office business and it's a decent business. It became much more attractive when we were able to do partnerships with then IHS Markit and then ultimately when S&P acquired them, you know, have another JV with S&P. So, we're as Lynn said, we're only one side of that trade. So, it's a decision process in these JVs about how you want to go about them. Listen, I think it became very lucrative for CME as we put these properties together and we thought it was a good opportunity for us to monetize those gains on behalf of our shareholders and we would not be putting ourselves at any disadvantage whatsoever by not owning them if in fact we still wanted to use some of these services instead of running them. So, I think it was a very smart business decision and that's what we did with it.

Thank you.

Yeah, thanks Ben. Lynn?

Thanks. Thanks, Ben.

Thanks Bill. It's a great question and we have been very pleased with our growth internationally and I'm going to ask Julie Winkler who heads up that division to give some color on that for you.

Thanks, Julie. Thanks.

Yeah, Joanne.

Thanks. Think about that.

Okay, I'm going to ask both Lynn and Joanne to comment.

So Craig, just so I understand your question, you're saying where do we compare against the foreign exchanges on a percent basis?

Yeah. Yeah, we got it. Thanks, Craig.

And Craig, I would just add that the one measuring stick that you have to look at is, as we announced earlier, the record volume coming from outside the US is really the measuring stick how we look at ourselves versus other entities. So at 8.9 million contracts a day, that is a record for CME Group and I think that's something that we're very proud of and we're continuing to build on.

Thanks Brian. So I'm going to ask Lynn to comment on the volume tiers and that would have the impact on the RPC as you saw and then on the micros I'll ask Julie to comment, is it a proxy as it relates from the retail going forward and then I have an opinion on that as well. So go ahead.

And just to add to that a little bit, I do think when you look historically at micros and you look back at the equity markets going back 25 years ago when the multiplier of the S&P 500 was cut to 250, that was a smaller contract and the E-mini came out of that. Now the E-mini is the large contract. The value of a contract sometimes determines where the participant may or may not go. To Julie's point, they can go in different size contracts. And I think that's very important. So to say it's a proxy would be a bit of a stretch I believe. And right now you're seeing institutions trade micros and you're seeing institutions trade the large contracts depending on what their needs are. And again we're trying to have a structure to allow all participants to participate at their comfort level. But you got to remember that a lot of this is depending on the price of the actual product to determine the risk associated with that product. So, if gold's at $3,500 an ounce versus $1,000 an ounce, obviously the contract's much more expensive than it was at $1,000 an ounce.

Yeah, I was just going to say when we look at what the uptake is on the micro gold side that Julie talked about, that's actually a market, to Terry's point, we had saw gold go from 2,000 to 3,500. That's a market that has tracked a lot of not just retail, but small institutional participation. That is such an important product right now that we've actually exercised some pricing power, increased fees on those starting February 1st. And that is a very important point. So on these smaller products that maybe larger participants are trading, we are adjusting the pricing associated with them just like we did with the equity market over the last 25 years as the E-mini became the dominant size contract for the equity market. So we're very aware of that and we don't price them on notional value like we did when they first came out. We price them on what we believe the participant is using them for.

Yeah, Alex, thank you. I appreciate it. First of all, we don't give out the information of the breakdown of the participants whether on the revenue of market data or their trade. But let me comment as it relates to why I think the retail is different today than it may have been a year ago or 10 years ago. The retail today has many more tools to allow their participation into our marketplace as much as well as many others that they did not have just a few years back. So when you look at retail brokers today offering futures, we didn't see that before. There was a comment earlier about Robinhood now offering futures contracts of CME. That was not around a few years ago. So the size of the retail market is so much bigger and diverse than it was years ago. I think that's one of the reasons why we're seeing not the takedown in retail, why we still see the uptick continuing. And it's just the distribution of that product, the technology that allows people to participate. People have access to it. They want access to it. And I think that's the big difference that we're seeing today and we just saw in recent times. And I don't see that going away. I see that only continuing because of the way technology allows people to participate in different markets around the world including CME's.

Thanks, Derek. Can I comment on that?

Thanks Derek. Thank you Ashish.

So the resolution between you say Russia and Ukraine, if there is a resolution obviously.

And what does that mean for the energy market? Is that what you said Chris?

Yeah. Again, I'll let Derek comment, but I think that the resolution of that is not for anybody in this room to try to figure out. There's a lot of people internationally that work for governments that are trying to deal with that issue. All we can say is we hope that it comes to a resolution soon because no one likes to see what's going on with all the bloodshed in these regions. So, as far as the price of the product, I think that it could take some time before the Russian market gets back into the world market if in fact it does. I don't know that, but that would be my political take on it. That it would take a little bit of time for them to be more accepted back into the world global marketplace. So, what does that mean for the price? I don't know. I guess we have to see what the supply is going to look like and also the demand and that will help us more with that. I think that there's many parts of the world that are producing energy today, especially the US that help facilitate what's going on in Russia. And Derek, I'll let you comment more on it, but that is my take on it. I don't know if it's going to have a massive impact on the price of energy once that's resolved. I just hope it gets resolved.

Thanks Derek. Thanks Chris.

Thanks, Stephanie. Suzanne.

And Stephanie, just to add to that, it is important for us to remind everybody, and I know you're going to say this a lot, but we are at $60 billion a day in total offsets on margin on efficiencies today as it relates to all of our asset classes. 20 some odd billion in rates alone, I believe, is the number. The fixed income, the FICC number is probably the smallest of that 60 billion. So we are creating massive efficiencies for our participants and savings on cross margin and we want to continue to create efficiencies across the board through all of our asset classes. So even though the relationship with FICC is massively important to CME and we're going to continue to build on it, we are still creating immense savings for our clients so they can manage their risk the most cost-effective way across all six major asset classes here at CME.

Yeah, thanks. But I'll ask Mike Dennis to give a little color on BrokerTec Chicago and then I'll comment when he's done. Mike.

Yeah. No, I think you said it all correctly, Mike. I think what's important here is we're trying to make sure as Mike said that we can make certain every client is having the ability to have the market to where they believe is in their best interest and the dealer community believes that having, they're one of the constituents among others, that having it side by side against the Treasury futures complex is the right place to be and we've analyzed this every way to Sunday and we don't disagree. So I think it's really important that we look at all constituencies and see what's in the best interest of the market. I think what Mike said is really important and the reason I hesitate because I want to focus on this. The futurization of that marketplace is critically important and it has been my focus for a number of years. The futurization of some of these cash markets and I think we're continuing to see that especially in the rates business. So having that set up in Chicago makes a ton of sense for CME going forward and I'm very excited about the future of our futures franchise, no pun intended, to move that and grow that business exponentially. We have seen BrokerTec grow a little bit over the last quarter, but again I think we're looking at this for the long run and we want to make sure that all participants have access to the marketplace where they feel comfortable in and that's one of the constituencies that does. So long-winded way of saying we want to make sure we have both.

Yeah, thanks Brian. So on the basis trade, I wouldn't say that the decision had any bearing of putting BrokerTec Chicago in Aurora at all as it relates to the basis trade. The basis trade, we all know how that works and having the short in Chicago, I don't think that was our intent at all. It was more to give participants the choice of where they want to execute on their cash side versus their futures both in Chicago and in New York. And that was really the genesis of bringing BrokerTec Chicago to Aurora. Nothing to do with the basis trade as it relates to Aurora. I'll let Lynn make a comment.

Thanks, Brian.

Thank you all for participating in our call this quarter. We look forward to following up on any questions you have. Obviously, we'll be reaching out or you can reach out to us. Have a good day. Thank you very kindly.