CME Group Targets Bigger Share of Swaps Clearing Headed to $366

November 11th, 2011 by Trefis Team
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CME Group (NASDAQ:CME) cleared $45.5 billion of swaps in the month of October 2011, a monthly record for the company. The exchange is looking to expand its footprint in clearing over-the-counter derivatives as regulators force these derivatives to go through a clearing house in order to bring more transparency and reduce counter-party risk. [1] Interest rate swaps make up the biggest portion of the over-the-counter derivatives market and its size is estimated to be about $480 trillion. London based LCH.Clearnet is the market leader and has cleared about $300 trillion of interest rate swaps.

We have a price estimate of $366 for CME Group’s stock, about 15% above the current market price.

See our full analysis of CME Group here

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CME Group has a long way to go before it can be a serious threat to LCH.Clearnet. CME Group’s strategy for growth revolves around targeting swaps held by hedge funds and buy-side traders instead of swap dealers who bring most of the business for LCH.Clearnet. CME Group also plans to extend its interest rate swaps offerings by the end of this year to include contracts denominated in the British pound, the yen, the Swiss franc and the Canadian dollar. As regulators force more derivatives into clearinghouses, competition is bound to increase and new clearinghouses will line-up to grab a piece of the OTC derivatives market.

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Notes:
  1. CME Group swaps clearing gains pace with Oct record, Reuters, Nov 9, 2011 [↩]