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CME earnings drop, hit by slower trading

Updated: March 7, 2013 10:10AM

CME Group Inc., owner of the Chicago futures markets, Tuesday reported a 77 percent drop in its fourth-quarter profit as sluggish trading continued to slam its financial results.

The company said it earned $166.8 million in the fourth quarter, 50 cents a share, compared with $745.9 million, $2.25 a share, in the same period during 2011. The 2011 profit included a onetime tax windfall of $377 million. Revenue fell 10.3 percent to $660.9 million.

CME makes 80 percent of its money from clearing and transaction fees on each contract traded, and its average daily volume in the fourth quarter was down 13 percent from the same period in the prior year.

Executives have attributed the dip to lower volatility in the financial markets, with some blame assigned to financial scandals at two major brokerages that reduced customer trust in the futures markets. The scandals shook CME enough to plan a $10 million marketing campaign in 2013 to “build trust” among customers, following a similar pitch in 2012, said Chief Financial Officer James Parisi.

Results for the most recent quarter included a $43.5 million income tax expense due to a reapportionment of income taxes owed to various states. Stripping away special charges, the results were in line with analyst projections as reported by Thomson Reuters I/B/E/S.

Executive Chairman Terry Duffy said the company has forged partnerships to extend the global reach of its markets. It also expects new business from federal regulations that will require over-the-counter markets to run trades through clearinghouses such as one that CME runs.

“Throughout 2012 and into this year, we continue to work with regulators and other futures industry participants to strengthen customer protections and ensure the integrity of these critical market,” Duffy said of impending Dodd-Frank rules.

CME owns the Chicago Mercantile Exchange and the Chicago Board of Trade.

For all of 2012, CME reported a profit of $906.7 million, $2.70 a share, compared with $1.81 billion, $5.43 a share, for 2011. Revenue declined 11 percent to $2.91 billion.

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