CME sees 20% of trading from overseas ... - Crain's Chicago Business

October 04, 2011

(Reuters) ? CME Group Inc. now gets about a fifth of its business from outside North America, and aims to boost that figure, not by acquisition, but by expanding sales of existing products, executives said on Tuesday.

CME has stayed on the sidelines of a global wave of exchange mergers, even as rivals such as Deutsche Boerse AG and NYSE Euronext have tried to grow by acquiring rivals.

But CME grew to its current size in large part because of past mergers, so when the London Metal Exchange said late last month it was talking to potential suitors, speculation bubbled that CME could be among them.

CME Chief Financial Officer James Parisi played down that prospect on Tuesday, telling analysts that the company had not changed its guidance from several weeks ago, when he said there are no significant mergers or acquisitions in the CME's immediate future.

Still, he and others failed to completely rule out the possibility.

The LME is expected to fetch as much as $1 billion, eight times less than what CME paid for its last major acquisition.

CME has about $700 million of cash, and plenty of stock that could potentially be used as currency.

Parisi declined to say what dollar amount would constitute "significant."

"We are staying very close on the situation with LME but we can't say much about it," said Ken Vroman, a CME managing director.

"We want to be good stewards of your money," CME Executive Chairman Terrence Duffy said.

In a daylong session with analysts broadcast on the Internet, CME officials touted the promise of the overseas market.

"This is only the beginning of the internationalization program," Chief Operating Officer Phupinder Gill told analysts at CME Group headquarters.

About 40 percent of trading in metals comes from outside of North America he said; just 22 percent of trading in interest rates does, suggesting there is plenty of room for growth.

Some 44 percent of market data revenue comes from outside of North America, underscoring the high level of interest in CME products from abroad, Gill said Tuesday.

CME, which operates the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange, gets the bulk of its revenue from trading fees and sales of market data.

CME officials also said they expect to benefit from a global regulatory push to drive more over-the-counter derivatives through clearinghouses such as those CME runs. Not only are more clients trying OTC clearing, they said, but they are also turning to CME futures as an alternative to OTC swaps.

FAREWELL ILLINOIS?

International expansion aside, CME's Duffy again raised the possibility that the CME could relocate its headquarters to another state to escape Illinois' "outrageous" and "inappropriate" taxes.

Illinois raised taxes earlier this year, and several other states are wooing CME with proposals that Duffy called "viable."

Duffy said he is working with Illinois Governor Pat Quinn, state legislators and Chicago Mayor Rahm Emanuel to find a solution that would keep CME in the city, but said he has a "fiduciary duty" to do what is best for shareholders.

CME's roots in Chicago go back to 1848.

Separately, CBOE Holdings Inc. CEO William Brodsky called the state's taxes "unfair and punitive" and said he also cannot rule out the possibility of leaving.

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Source: http://www.chicagobusiness.com/article/20111004/NEWS01/111009958/cme-sees-20-of-trading-from-overseas

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