BGC - CME Group Vs. FMX: May The Race To The Bottom Begin
2024-07-05 14:02:05 ET
Summary
- CME Group Inc. is a leading financial services company with a focus on interest rate and Treasury futures, which have shown strong growth over the years.
- BGC Group's FMX Futures Exchange aims to challenge CME's monopoly in U.S. interest rate futures trading.
- In this update, I discuss the main risks and explain why I strongly doubt that FMX can develop into a significant competitor for CME Group.
Introduction
CME Group Inc. ( CME ) is one of the world's leading financial services companies and the go-to venue for futures and other derivatives for hedging purposes. As I explained in my first article published over a year ago, I view CME as somewhat counter-cyclical and therefore an ideal addition to my diversified portfolio. Of course, CME is not necessarily counter-cyclical in terms of share price action, but from an operational perspective - and as a long-term investor, I don't care about short-term stock performance as long as underlying earnings and cash flow remain strong. While many financial services companies struggle with a volatile and/or uncertain market environment, CME benefits.
One of the most important categories for CME - I'm almost inclined to say it's the bread-and-butter segment - is interest rate and Treasury futures. While this category accounted for around 40% of average daily contract volume ((ADV)) after the Great Recession in 2009, the contribution stabilized at over 50% (excluding the pandemic-related blip in mid-2020, Figure 1). While ADV as a whole has grown at a CAGR of 6.4% over the last 15 years, ADV for interest rate products has grown significantly faster at 8.9% per year....
CME Group Vs. FMX: May The Race To The Bottom Begin