By Ateev Bhandari and Atharva Singh
(Reuters) -Derivatives exchange CME Group beat Wall Street estimates for second-quarter profit on Wednesday, as record volatility boosted demand for its products, which are often used to hedge against macroeconomic uncertainty.
The company benefits during volatile periods, as seen with the onset of U.S. President Donald Trump’s seesawing tariffs in early April.
The volatility index, which reflects the extent to which investors are snapping up protection against volatility, reached record levels in early April before retreating on expectations of trade deals.
Such sharp swings can unravel positions by hedge funds, which often trade on thin margins.
Desks across Wall Street leveraged derivatives to prevent unraveling of such positions, resulting in record average daily volumes of 30.2 million contracts in the quarter, up 16% from a year ago.
The company also benefited from rising participation of retail traders. “A big tailwind for CME volumes recently has been the rapid growth of retail adoption of futures products,” Piper Sandler analysts said in a note.
“The number of new retail traders at CME Group increased 57% year over year, contributing to record Micros ADV of 4.1 million contracts in Q2 …,” CEO Terry Duffy said.
Excluding one-time items, profit attributable to CME shareholders was $1.07 billion, or $2.96 per share, for the quarter ended June 30. Analysts on average had expected a profit of $2.92 per share, according to data compiled by LSEG.
UNPRECEDENTED DEBT LEVELS
CEO Duffy said in a post-earnings call that markets have been “massively resilient” through policy changes, including tariffs. But he warned of “unprecedented” debt levels across the U.S. and Europe.
“We’re sitting at record levels of debt,” Duffy said. “People are going to need to manage and mitigate that risk.”
Similar concerns about government fiscal policy have been echoed by several company executives in recent months, including JPMorgan Chase chief Jamie Dimon.
During the quarter, traders also reacted sharply as Trump piled on pressure on Federal Reserve Chairman Jerome Powell to cut interest rates. CME’s interest-rate products saw record quarterly volumes.
CME further benefits from greater uncertainty as it prompts market participants to switch to deeply liquid exchanges, analysts have said. It reported cash reserves of $2.2 billion, up 10% from a year ago.
CME reported record high quarterly revenue of $1.69 billion, up 10.4%. Clearing and transaction fees, which form the bulk of the company’s revenue, jumped 11% to $1.39 billion.
(Reporting by Ateev Bhandari and Atharva Singh in Bengaluru; Editing by Arun Koyyur)
