CME Group’s History of Growth and Durable Advantage Not Going Away Any Time Soon

CME is an exceedingly complicated business to understand in some ways but also a simple one. It is at the forefront of risk management and mitigation and a volume-based business that is highly correlated to economic and commodity cycles. While it has an impressive Market Data division that is growing, over two-thirds of revenue comes from Clearing & Transaction Fees. The trend in these areas had been toward expanding margins as the migration away from physical trading has occurred. Indeed CME recently decided not to open trading pits closed because of COVID-19.

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Source: Thinkorswim

In our pampered times (relative to the harsh past), we can easily forget that boom and bust used to drive capitalism in a much more forceful way. The equity asset class is an innovation that largely reflects the time in which it was developed. We can often forget, in an age focusing solely on growth many years into the future, that one of the main benefits of the equity asset class is that during bumper years shareholders get a piece of the take through dividends or, more recently, buybacks. When we say pampered, we are speaking, of course, on the larger arc of modernity, not discounting that we just survived an awful pandemic that resulted in millions of people dying. CME Group is an out...

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