CME Group Overview. Rick Redding, Managing Director, Products & Services

Transcription

1 2009 Citi Financial Services Conference CME Group Overview Rick Redding, Managing Director, Products & Services January 27, 2008

2 Forward-Looking Statements Statements in these materials 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. Among the factors that might affect our performance are: our ability to realize the benefits and control the costs of our merger with NYMEX Holdings, Inc. and our ability to successfully integrate the businesses of CME Group and NYMEX Holdings, including the fact that such integration may be more difficult, time consuming or costly than expected and revenues following the merger may be lower than expected and expected cost savings from the merger may not be fully realized within the expected time frames or at all; increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities; our ability to keep pace with rapid technological developments, including our ability to complete the development and implementation of the enhanced functionality required by our customers; our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to generate future revenues from processing services; our ability to maintain existing customers and attract new ones; our ability to expand and offer our products in foreign jurisdictions; changes in domestic and foreign regulations; changes in government policy, including policies relating to common or directed clearing, changes as a result of a combination of the Securities and Exchange Commission and the Commodity Futures Trading Commission, or changes relating to the recently enacted Emergency Economic Stabilization Act of 2008; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; our ability to generate revenue from our market data that may be reduced or eliminated by decreased demand or the growth of electronic trading; changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure; the ability of our financial safeguards package to adequately protect us from the credit risks of clearing members; the ability of our compliance and risk management methods to effectively monitor and manage our risks; changes in price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange and commodities markets; economic, political, geopolitical and market conditions, including the recent volatility of the capital and credit markets; natural disasters and other catastrophes, our ability to accommodate increases in trading volume and order transaction traffic without failure or degradation of performance of our systems; our ability to execute our growth strategy and maintain our growth effectively; our ability to manage the risks and control the costs associated with our acquisition, investment and alliance strategy; our ability to continue to generate funds and/or manage our indebtedness to allow us to continue to invest in our business; industry and customer consolidation; decreases in trading and clearing activity; the imposition of a transaction tax on futures and options on futures transactions; the seasonality of the futures business; changes in regulation or our industry as a result of a combination with the Securities and Exchange Commission and the Commodity Futures Trading Commission and changes in the regulation of our industry with respect to speculative trading in commodity interests and derivatives contracts. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available in the Investor Relations section of the CME Group Web site. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Non-GAAP Financial Measures In this presentation we refer to non-gaap financial measures, including pro forma results that assume the merger with CBOT Holdings and acquisition of NYMEX Holdings were completed as of the beginning of the period presented. A reconciliation of these measures to our GAAP financial results is available in the Investor Relations section of the CME Group Web site. NOTE: Unless otherwise noted, all references to CME Group volume, open interest and rate per contract information in the text of this document is based on pro forma results assuming the merger with CBOT Holdings and the acquisition of NYMEX Holdings were completed as of the beginning of the period presented. All data exclude CME Group s non-traditional TRAKRS SM products, for which CME Group receives significantly lower clearing fees of less than one cent per contract on average, as well as CME Group Auction Markets products and Swapstream products. Unless otherwise noted, all year, quarter and month to date volume is through 12/31/08. 2

3 CME Group Overview #1 derivatives exchange in the U.S. and globally by volume Founded in 1898 Strong record of growth organically and through acquisitions CBOT Holdings (2007) NYMEX Holdings (2008) Provides futures & options trading & clearing Interest t rates, equities, energy, commodities, FX, metals Trading conducted electronically on CME Globex and through open outcry 1. In this presentation, pro forma results for CME Group assume the acquisitions of CBOT and NYMEX were completed as of the beginning of the period presented. See the CME Group Inc. Reconciliation of GAAP to Pro Forma Non-GAAP Measures available on our Web site under the Investor Relations section for detail related to the adjustments made to reach the pro forma results. 3

4 CME Group Order Flow Trading venues 1.Trade Matching and Execution CME Globex 79% of 2008 volume traded electronically Open Outcry Privately Negotiated CME Group Clearing 2. Clearing & Settlement Buyer Buyer Buyer CME Clearing House Central Counterparty CME Group Clearing Members Seller Seller Seller Listed futures Over-the-counter (OTC) products 4

5 CME Group Investment Highlights Diverse product portfolio & customer base Proven ability to generate e significant cash flow through cycles Strong competitive advantages Effective risk management philosophy Aggressive focus on expenses, balanced against ongoing strategic investment in long-term opportunities Continued focus on fundamental growth drivers 5

6 CME Group - Diverse Product Portfolio and Customer Base Diverse Products Diverse Customers Managing Risk Q Pro Forma Revenue Mix Equities 22% Foreign Exchange 5% Commodities & Other 8% Notes and Bonds 14% Energy 19% Eurodollars 12% Customers, utilizing a wide range of trading goals and strategies for both hedging and speculating, include: 30-35% 15-20% 10% Proprietary trading firms, primarily algorithmic Proprietary trading of banks and investment banks Top 25 Hedge Funds Other buy side, including: 35-40% Pension funds Index funds Metals Long-only mutual funds 4% Other Insurance companies Quote Fees Revenue Corporates 12% 4% Active individual id traders Note: Assumes NYMEX Holdings acquisition was completed as of July 1, 2008 Note: Customer segmentation percentages are Q308 estimates 6

7 CME Group Performs Through Cycles (round turns in thousands) CME Group Historical Pro Forma ADV 12,992 Recent Recessionary Periods CAGR 23% % % CAGR 14% (4.7%) % Challenges Extreme volatility across all product lines Ongoing credit crisis i Customer dislocations Slowdown in LIBOR/OIS disconnect corporate issuance/ ZIRP mortgage origination Risk aversion Users stockpiling cash Less hedging Represents pro forma ADV (see page 3 for pro forma treatment for CME Group) Note: NYMEX historical data included as of 1982 Opportunities High, but moderating volatility levels Customer recognition of the value of CME Group services Stabilization in credit, mortgage and corporate debt markets Significant treasury debt issuance Redeployment of capital Significant treasury debt issuance 7

8 CME Group s Business Model is Adaptable, Responsive and Well Positioned Diverse asset classes Deep liquidity and central counterparty Clearing (CCP) Benchmark products are compelling for users 3 negative annual growth periods since interest rates introduced, resulting in overall negative volume for CME Interest Rate ADV was down 12% in 2008, but overall ADV was up 4% Awareness of CME s value proposition has never been higher, creating new opportunities CME moving aggressively on OTC opportunities; achieving significant success on ClearPort Q408 speed upgrades reduced average round trip time from 11 ms to 6 ms Algorithmic traders benefiting from volatility; continued growth in firms expected Risk management, hedging needs remain. Bank proprietary trading on CME is primarily to hedge exposure to Interest Rate swaps, a market that grew 17% from December 07 to June 08* *In terms of notional value outstanding. Source: BIS Nov 2008 OTC Derivatives report. 8

9 CME Group Competitive Advantages Unparalleled liquidity pool across all major asset classes Robust & scalable technology Strong investment and constant improvement with CME Globex platform Expanding global l distribution ib ti Globex distributed to over 80 countries Percentage of total volume traded outside of U.S. hours has increased from 4% in 2003 to 17% in 2008 Vertically integrated business model CME Clearing House keeps intense focus on risk management Experienced and proven management team 9

10 CME Globex Provides Competitive Advantages Robust & Scalable Technology Comparing Q408 with Q407: Average daily order volume up 139% Average futures response times reduced by 71% Beyond performance, CME Globex provides: Reliability Enhanced functionality Broad global distribution Large scale Flexible architecture Average Futures Round Trip Time (ms) Annual Speed Improvements 127ms Dec 2008 average round trip time = 6ms Average Daily Order Volume Average Round Trip Time (ms) Average Daily Order Volume (millions) 13ms 10

11 World Futures Exchange Overview North America #1 derivatives exchange market by volume Europe #2 derivatives exchange market by volume Latin America Asia #4 derivatives exchange market by volume #3 derivatives exchange Growing market, esp. Brazil, Mexico Fragmented derivatives market by volume exchange market Source: Futures Industry Association 11

12 Expanding Global Distribution Seven telecommunications hubs in Amsterdam, Dublin, London, Milan, Paris, Singapore and Sao Paulo New hubs planned in Seoul and Shanghai Significant emphasis on building out sales, business and product development functions Emphasis on global emerging g market products Pursuing strategic partnerships with BRICK (Brazil, Russia, India, China, Korea) players 12

13 CME Group s Vertically Integrated Business Model Provides Competitive Advantages Risk Management Expertise CME Clearing House keeps intense focus on risk management Twice daily mark-to-market Over $100bn of collateral on deposit Competitive, transparent and safe markets Unparalleled liquidity pools across all major asset classes No customer has ever lost funds due to counterparty failure Even during the recent Lehman Brothers bankruptcy filing, CME Clearing risk management practices were effective and all obligations were met, evidencing the strength of the procedures in place 13

14 CME Group Financial Results While ADV was down 15% from Q108 to Q308, margin remained stable at 66% ($ in millions) ADV (in thousands) $369 $518 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Pro forma ADV Pro forma Total Revenue Pro forma Total Operating Expense Focus on discretionary costs Hiring, travel, marketing, professional fees Delivering CBOT/NYMEX synergies Prioritizing opportunities in 2009 Variable expenses, such as license fees and employee bonus, move with volume Note: See page 3 for pro forma treatment for CME Group. 14

15 Focus on Fundamental Growth Drivers Continue to innovate and grow the core business Expand global distribution and strategic partnerships Penetrate the larger over-the-counter (OTC) market

16 Growth Potential Penetrating the OTC Markets CME achieving i success with ClearPort and moving forward with other growth initiatives ADV (000s) ClearPort Quarterly ADV 310K 489K ClearPort Platform Highly flexible - able to capitalize on increased awareness of value of central counterparty (CCP) Strengthened by critical relationships with Interdealer brokers (IDBs)/dealers Current annualized revenue run rate Up 58% approximately $250M Significant OTC efforts: CDS Environmental Ags swaps Products Interest rate swaps Launched 141 new products on ClearPort in 2008, 97 of which followed the acquisition Legacy CBOT ethanol swaps just made available first of dozens expected this year 16

17 CME Group is Well Positioned for 2009 Solidified position as largest and most diverse financial exchange Full realization of synergies from CBOT and on track to deliver NYMEX synergies Expanded global footprint (Latin America, Asia, the Middle East) Acquired ClearPort OTC clearing business; significant work on additional OTC clearing initiatives Maintained high operational/risk management standards during enormous market stress Technology speed improvements and functionality enhancements, as well as responsive product offerings, should be beneficial Management vigilant on discretionary expenses, while investing in growth areas While there is market uncertainty for 2009, CME Group is well prepared 17