By Niket Nishant
(Reuters) -CME Group chief Terry Duffy said on Wednesday the last six to eight weeks were "some of the most unprecedented times that we have seen", emphasizing the degree to which U.S. President Donald Trump’s tariffs have impacted the market.
The derivatives exchange, which facilitates trading of futures and options, posted record trading volumes for the first quarter. The tariff-led volatility boosted its business as clients rushed to hedge their investments to manage risks.
"I’ve been in this business for probably as long as anybody and I have not seen some of the fundamental factors that we’re seeing today," Duffy said, warning that tariffs and mounting government debt globally could pose serious risks.
Business leaders have raised red flags over unsustainable U.S. government debt and growing fiscal deficits. Several corporate executives have also been warning for months that the widening budget deficits are not sustainable.
In the first quarter, concerns over inflation and a potential recession drove increased demand for derivatives.
"I don’t think you have the luxury of not participating... If you do not participate, you could be out of business the next day," Duffy said, referring to the high demand for hedging.
Shares of the company fell 4.2%. They have gained 14% so far this year, while those of rival exchanges Cboe Global and NYSE-owner Intercontinental Exchange (NYSE:ICE) rose 10% and 8%, respectively, up to their last close.
RECORD VOLUMES
CME reported a record average daily volume (ADV) of 29.8 million contracts, up 13% from a year earlier. Several of the company’s products including interest rate futures and options, equity index futures and options and cryptocurrency saw record quarterly growth.
"Current market conditions are ideal for CME," said Michael Miller, equity analyst at Morningstar.
"We recommend against extrapolating too much long-term growth from these results as trading volume can be volatile from quarter to quarter."
Profit grew 12% to $956 million for the three months ended March 31. Excluding one-time costs, CME earned $2.80 per share.
Operating expenses rose 1.1% to $534.4 million, chiefly due to higher spending on technology. Revenue came in at record $1.64 billion, jumping 10% from a year earlier.
The results will set the tone for a crucial year as CME prepares for potential competition with BGC Group’s FMX Futures, an upstart with a high-profile investor base that analysts say could be a disruptor.