(Adds details and comments from CEO starting in 10th paragraph.)
By Jacob Bunge
Of DOW JONES NEWSWIRES
CHICAGO -(Dow Jones)- A senior executive at CME Group Inc. (CME) on Wednesday emphasized the health of the exchange company's hedge fund constituency, responding to concerns that deleveraging and redemptions at the funds could weigh down trading volumes next year.
The vast majority of the more than 8,000 hedge funds in the world are not participants in CME's futures and derivatives products, according to Chief Executive Craig Donohue, who counted only the "top 100" hedge funds as major drivers of volume on the exchange.
Of those, the 25 largest funds account for approximately 10% of total CME trading volume, and Donohue said that most of these continue to experience "strong, positive" results.
The hedge fund industry as a whole is down 18% to 21% year to date, according to industry estimates, and market observers see sharply reduced trading activity at the funds as a potential threat to derivatives exchanges already grappling with declining volumes.
Speaking at a Goldman Sachs financial services conference, Donohue said CME has seen only "moderately softer" volumes from its biggest hedge fund participants.
Most of these firms, he said, are geared toward high-frequency algorithmic trading, not holding long-term exposures that require significant financing.
This behavior resembles the proprietary trading firms that account for an estimated 30% to 35% of average daily volume at CME, which Donohue described as key liquidity providers in major products.
CME has been under pressure from investors this year as trading volumes have declined, particularly in the interest rate product complex that has been a key driver of growth in recent years.
CME closed Wednesday at $221.37, up 1.6% from Tuesday, but down from $686 at the start of the year.
Donohue predicted that interest rate futures volume, particularly in Treasury futures, would rebound next year as the government's financial rescue efforts bring increased issuance of Treasury debt.
Donohue said that "extreme volatility" was one of the factors contributing to lower trading activity at CME, which last month reported a 29% decline in average daily volume; year to date, average daily volume remains positive.
He said that there were signs that volatility would moderate next year, luring traders back from the sidelines.
A climate of heightened counterparty risk has pushed more activity toward CME's ClearPort platform, a service for clearing over-the-counter derivatives trades that Donohue said is a $200 million per year business. Acquired via CME's purchase of Nymex, Donohue said CME is readying a pipeline of new ClearPort-ready products for the first two quarters of 2009.
Donohue also noted the imminent launch of CME's credit default swap clearing platform, a joint effort with Citadel Investment Group that will be called the Credit Market Derivatives Exchange, as an expected growth area next year. Getting CMDX off the ground would open the door to clear agricultural and commodity swaps, Donohue said.
With a federal cap-and-trade emissions mandate believed likely as Barack Obama takes office next year, Donohue said CME will seek to involve additional investors, including many major dealer banks and energy companies, in the Green Exchange, a fledgling emissions market acquired via CME's purchase of Nymex.
As to further growth plans, Donohue said CME is "not going to try to do everything. We'll be doing the things that make the most sense."
The New Year will also bring a renewed focus on cost control. Donohue said that CME will look closely at travel, hiring and licensing fees, and also noted that bonus programs for employees are based on trading volumes and cash earnings factors.
Donohue also took the opportunity to insert a quip about his governor, Rod Blagojevich, arrested Tuesday on corruption charges stemming from a federal wiretap.
"I told the audio-visual guy as he was hooking me up that I'm from Illinois, so I'm used to being wired," Donohue joked.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com
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Publié le 10 Décembre 2008 Copyright © 2008 Dowjones