Hi YXI friends,

As a futures exchange, CME enjoys an outstanding business model that produces double digit growth and high business margins.

Moreover, CME benefits from the growing uncertainties in financial markets, whether it’s interest rates, equities, or energy and commodities. The carry trade unwind in August was bad for the traders, but brilliant for CME, as contract volumes soared with volatility.

Today, we will review CME’s Q3 earnings and propose a mediume-term trade idea at the end. We evaluate the investment opportunity through business fundamentals, valuation, and price technicals. Let’s dive in.

Table of Contents

• 1. Context

• 2. Revenue Growth Accelerated in Q3

• 3. Free Cash Flow Margins Improved

• 4. Valuation Is Not Cheap

• 5. Technical Analysis Points To The Upside

• 6. Trade Setup

• 7. Rating: Overweight

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Context

CME is the world’s leading financial derivatives marketplace. It facilitates the trading of futures contracts and futures options contracts across Interest Rates, Equity Indexes, FX, Energy, Agricultural Commodities, Metals, and Fixed Income (e.g. Treasuries and Repo).

CME Clearing is one of the worlds’s largest central counterparty clearing houses. It serves as a buyer to every seller to reduce counterparty risks, manages collateral of its clearing members, and facilitates contract settlement. Clearing and transactions fees are by far the largest revenue driver.

CME also provides market data and analytics services through its Market Data Platform.

Finally, CME operates both electronic trading platforms such as CME Globex, BrokerTec, and EBS and OTC clearing services for interest rate swaps and FX options.

2. Revenue Growth Accelerated in Q3