CME Group

CME has multiple overlapping moats. It is the world’s leading regulated derivatives marketplace, with benchmarks in interest rates, equity indexes, FX, energy, agricultural and metals futures.

Its markets have deep liquidity and global reach, creating a strong network effect: more participants attract still more participants, reinforcing CME’s position. High capital requirements and regulatory approvals deter new exchanges.

The brand and exchange licenses are intangible assets – Brand Finance ranks CME “the world’s most valuable exchange brand” for 11 consecutive years. It also benefits from cost and scale advantages: CME processes far more futures contracts than any rival, so its technology and clearing fixed costs are amortized over enormous volume.

Potential moat erosion comes from new platforms or degrades in market share if competitors price aggressively, but so far CME has maintained its leading position. Its NFTs and incumbency suggest a durable moat, so this score is high.

CME enjoys high profitability, but it has only moderate pricing power. Fees per contract are subject to competition and commissions agreements, so CME cannot unilaterally raise prices without risking volume to ICE or other venues.

In practice, CME’s average fee per contract has been essentially unchanged (about $0.692) year-over-year, meaning growth to date has come from volume, not price hikes.

On the other hand, CME has very little fixed contract pricing, so it’s conceivable it could increase fees more in the future, though in practice it maintains a volume-driven incentive structure.

Overall margins are very high (~60% op margin in 2023-2024), but since little margin expansion has been demonstrated via pricing, we rate pricing power as only moderate.

Revenue and cash flow at CME are highly predictable over the long term. All exchange revenues are transaction-based, so growth roughly tracks global economic activity and volatility – good long-term secular drivers. In recent years CME’s revenues grew ~10% annualized (2022 to 2024) with net income ~9% CAGR.

This was achieved even prior to the recent volatility spike, reflecting underlying growth. While volume fluctuates with market events, CME’s business model is like a tollbooth: customers need to hedge interest rates, equities, FX etc, and will keep trading.

CME also has recurring market-data subscriptions and growing OTC/spot arm, diversifying income. Because of the stable growth trend and visibility, predictability is scored high.

CME’s balance sheet is very strong. End-2024 net liquidity was essentially zero–CME had $3.1B cash versus $3.4B debt, implying minimal leverage on a ~$85B market cap. This is extremely conservative for a financial services company.

CME’s financial metrics are robust, with all clearinghouse units required to hold large prefunded accounts, further strengthening their position. We see virtually no risk of financial distress, so CME scores very high here.

CME returns capital to shareholders via dividends and occasionally M&A. Reinvestment into the core business is modest – capex is low (~$90M/year for technology) – but acquisitions have expanded its product scope. The firm’s approach is conservative: it has prioritized stable dividends over share buybacks.

Since 2012, CME has paid $24.3B in dividends, and in 2023 alone $3.5B was paid. A $3B buyback was authorized in Dec 2024, but none had been executed by year-end. Overall, capital allocation is competent but not exemplary in buybacks.

CEO Terrence Duffy is a seasoned executive and long-time exchange member and board member. He has led CME through major acquisitions and market expansions, maintaining focus on shareholder return. Management has shown discipline with the dividend policy and cautious M&A. Overall, the leadership earns a high score for execution and alignment.