CME Launches INR FX Futures

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Yesterday, CME Group Inc. (CME) unveiled new foreign exchange (:FX) futures contracts in Indian Rupee (INR) on its Globex platform. This is an attempt to take an extra step of developing business into rapidly growing nations.

The new INR futures will begin trading from January 28, 2013 onwards, subject to regulatory approval. On the same day, arch-rival IntercontinentalExchange Inc. (ICE) will begin trading its FX futures contracts in INR and Brazilian Real, as announced last month. Consequently, both the exchanges will become the first ones to offer futures contract in INR in the US.

Meanwhile, CME Group will launch INR FX futures in standard-sized and e-micro contract, which will be 20% of the value of the standard contract. The notional value of a standard-sized contract is pegged at INR5.0 million. Further, this non-deliverable forward currency will be settled in cash and will be hedged against the US dollar.

We believe that the accelerated demand for flexible and capital-efficient exchange tools in the emerging economies are paving way for diversified growth opportunities for the global exchange giants. Further, the addition of INR FX futures completes CME Group’s FX futures’ product suite, which now includes currencies from all the BRIC (Brazil, Russia, India and China) nations.

CME Group now leads the global derivative exchanges with comprehensive product portfolio of 56 futures and 31 options contracts, with an average daily notional value of US$110 billion in 2012. Additionally, the company offers over-the-counter (:OTC) clearing services for 12 OTC non-deliverable forward currency pairs along with 26 cash-settled forward contracts.

Going ahead, CME Group continues to strategize its product and service offering to attain a strong foothold in the emerging markets. The company has achieved a competitive leverage by demonstrating immense growth potential in its futures and OTC market as well. The introduction of new products is also crucial for the company’s core growth, which has been following the ongoing weak industry trends.

Currently, the Zacks Consensus Estimate for the fourth quarter operating earnings is pegged at 64 cents per share, which would dip about 10% from the year-ago quarter. Over the last 30 days, 6 out of 14 analysts covering the stock have reduced their estimates for the fourth quarter of 2012, while one upward revision was witnessed. Subsequently, earnings estimate of $3.04 per share for 2012 exhibit a cautious outlook with an expected year-over-year negative growth of 11%.

The company carries a Zacks #4 Rank that implies a short-term Sell rating, while the long-term recommendation stands at Neutral.

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