Transcript GLOBAL LEADERSHIP IN THE FINANCIAL MARKETPLACE

Trends in the World Oil Markets
2nd International Conference
Exchange and OTC Petroleum Product Market in Russia
Moscow,
October 1, 2010
Daniel Brusstar, Director, Energy Research
Agenda
• CME Group after NYMEX-merger
• OTC Oil Market Trends
• Tighter Government Controls on the Market
• Recent Developments
• Volume trends
• CME Clearing: Looking to the Future
1
CME Group Overview
• Largest futures exchange in
the U.S. and globally by
volume
• Strong record of growth, both
organically and through
acquisitions
– CBOT Holdings (2007)
– NYMEX Holdings (2008)
• Deep liquidity in futures and
options
– Execution and clearing services
for interest rates, equities,
energy, commodities, FX, metals
• Worldwide distribution through
CME Globex
• Proven CME/NYMEX Clearing
– Listed futures and options
– OTC products via CME ClearPort
1. In this presentation, pro forma results for CME Group assume the acquisitions of CBOT and NYMEX were completed as of the beginning of
the period presented. See the CME Group Inc. Reconciliation of GAAP to Pro Forma Non-GAAP Measures available on our Web site under
the Investor Relations section for detail related to the adjustments made to reach the pro forma results.
2
Futures and Clearing of OTC Deals
• Futures are traded on regulated Exchanges
• Exchanges do not trade, influence or set prices.
• Price discovery occurs at the exchange either electronically or via “open outcry” in
trading pits
• The U.S. Commodity Futures Trading Commission (CFTC) regulates futures
industry and provides oversight of Clearing services
• Transactions processed and guaranteed by centralized Clearing House
• Over-the-Counter (OTC) Oil and Refined Products (Physical Deals, Financial
Swaps, and Options) are Cleared with Full Credit Protection of a Regulated
Clearing House
• Clearing house requires performance bonds, i.e., Margin, from Clearing Members
to secure each transaction
• Futures and OTC Deals are “marked-to-market” daily (traders pay losses and
collect profits daily in cash)
CME ClearPort Clearing Overview
A comprehensive set of flexible clearing services for the OTC market
• To significantly mitigate your counterparty risk
• To achieve capital efficiencies
• To access the advantages of security, efficiency and confidence while
still trading off-exchange via brokers or directly with counterparties
ClearPort provides clearing services across multiple markets
• Launched in 2002 to provide centralized clearing for Oil and Natural
Gas markets
• Since then, product breadth, volume and liquidity have grown
substantially across Europe, Russia, and Asia
OTC Oil Market Trends
Clearing = Full Credit Protection
Price Volatility in the Oil Markets Followed
by Major Credit Market Problems
• Due to economic crisis, our energy customers have been forced to
change trading and hedging habits
• Increased risk from financial institutions – no counterparty is safe
• Cleared Physical Deals
• Cleared Financial Swaps and Options
• Clearing of OTC deals through a central counterparty clearing
model continues to grow and now dominates energy derivatives
markets – increased price transparency and credit mitigation
6
Recent Developments in the OTC Oil Markets
• Tighter Government Regulation of Oil Markets in the
U.S., Europe, and Russia
• Global OTC energy derivatives markets now
predominantly Cleared due to credit concerns
• Global oil markets are moving toward the “Cleared”
model
7
New U.S. Regulation of the Oil Market
• Mandate for clearing of standardized swaps
• Reporting of ALL cleared and non-cleared swaps
• Minimum capital requirements
• Business conduct standards – New core principals for
market participants
• Position limits
8
Growth in Clearing of Oil Markets
• Growth in Futures volume for Physical Oil deals
• Global OTC energy swaps markets now
predominantly Cleared due to credit concerns
• Global oil markets are moving toward the
“Cleared” model
• OTC Clearing of Asian and European Oil
contracts grew over 50% in Volume during Past
Year
9
WTI Futures Historical Volatility and Prices
140%
$160
120%
$140
$120
100%
$100
80%
$80
60%
$60
40%
$40
20%
$20
0%
$0
WTI Price
Light Sweet Crude Oil (CL)
Source: CME Group
10
NYMEX WTI Crude Oil (CL) Futures Volume
Number of contracts traded in 1,000 barrels
20,000,000
18,000,000
2008
16,000,000
2010
2009
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
Source: CME Group
11
CME Clearing of OTC Petroleum and Crude Swaps & Options
4,000,000
2008
Volume (1,000 barrel size)
3,500,000
3,000,000
2009
2010
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Source: CME Group
12
Average Daily Volume (1,000 Barrel Size)
CME Cleared Volume of LPG
2,100
2,050
2,000
1,950
1,900
1,850
1,800
1,750
1,700
1,650
2009
2010
CME Cleared Volume of LPG
13
CME Clearing: Looking to the Future
CME Clearing Services Extended Globally
• Tighter Government Regulation Could Lead to Expanded
Clearing of Oil Products
• Trend Towards Expanded Clearing in Asian and Middle East
markets
• CME Interested to Offer Clearing to the Russian Petroleum
Markets
• Extend Clearing to New product sectors, such as LPGs,
Petrochemicals, and Plastics
• Physical Propane, Ethane, Natural Gasoline, and Normal Butane listed on June 14
• Physical Ethylene delivered in Mont Belvieu, Texas
• Polyethylene and Polypropylene Plastics delivered in Houston, Texas
CME Clearing: Key Benefits
• CME Clearing guarantees the performance of each transaction
Mitigate your risk
• Counterparty risk is shared among clearing members,
providing you with additional security
• Over $100B in margin and financial safeguards*
Access to independent
valuations
Enhance your efficiency
Know your costs
• Neutral, third-party settlement prices and mark-to-market process
enable you to track positions and assess risk
• Replaces significant time and expense of documentation with
real-time trade confirmations and straight-through processing
• Cost of margin offset by reduced expenses from credit
assessments and having to manage flow among counterparties
• No CME Group clearing member has failed to meet a
A century of experience
performance bond/delivery obligation
• No customer has lost funds as a result of a clearing member
firm failure
Note: Financial Safeguards funding reported as of March 31, 2009
16
Evolution of CME Clearing
ClearPort Clearing Has Served a Market in Crisis
(Growth in Average Daily Volumes Cleared)
545,799
510,000
467,802
313,128
335,720
139,177
24,137
2002
Dec 2001
Enron
bankruptcy
May 2002
ClearPort
launched
2003
56,971
2004
2005
2006
34 different
OTC
contracts
cleared
through
ClearPort
Clearing
system
2007
2008
2009
Acquisition of
NYMEX and
ClearPort
More than
700 products
available for
clearing
(Bar chart illustrates average daily volume in round turns)
17
Questions
Daniel Brusstar
[email protected]
212-299-2604