By Ann Saphir
(Reuters) - CME Group Inc , the world's largest futures exchange operator, reported a drop in first-quarter profit as trading in its lucrative energy products slumped and average revenue per trade fell.
The Chicago-based company also said on Thursday that April trading rose a respectable 8 percent at its five U.S. exchanges, and energy trading surged 20 percent.
Executives on a conference call said increased volatility and U.S. oil production indicated energy trading would remain strong.
But with trading in interest-rate contracts, by far CME's most active products, down 2 percent last month, Chief Executive Officer Phupinder Gill is focusing on capturing new revenue from international expansion and clearing over-the-counter swaps.
CME plans to open its first overseas exchange, in London, this summer, and Gill told analysts that trading in Asia hit a record high in the first quarter.
Closer to home, new U.S. rules next month will require a broader group of traders to clear most swaps, and Gill is counting on the mandates to bump up swaps clearing and futures trading at CME.
"We are working with hundreds of customers and many intermediaries to ensure operational readiness" by June 10, when a second new swaps mandate takes effect, said Gill, who marks his first anniversary as CME's chief this month.
About 270 firms will be ready to clear by then, executives said, with a bigger number in the pipeline for a third and final swaps-clearing mandate in September.
Regulators globally are pushing more over-the-counter derivatives into clearinghouses and onto regulated trading venues after problems in the $600 trillion swaps market exacerbated the 2007-2009 financial crisis.
CME said OTC clearing revenues for the quarter were $2.8 million, and analysts are looking for more.
"We continue to like CME, but think it will take more follow-through on recent positive volume trends and acceleration in OTC activity to move shares much higher in the near term," said UBS analyst Alex Kramm.
Shares of CME were down 1 percent at $59.55 in morning Nasdaq trading.
Net income declined in the first quarter to $235.8 million, or 71 cents a share, from $266.6 million, or 80 cents a share, a year earlier.
Excluding $12 million in expenses due to currency losses, the profit was 73 cents a share, in line with the analysts' average estimate, according to Thomson Reuters I/B/E/S.
Overall trading activity rose 1.4 percent in the quarter to 12.5 million contracts on an average day.
Trading in energy products, among CME's most lucrative, declined about 11 percent, and average revenue per contract fell to 78.5 cents from 81.1 cents a year earlier.
That helped drag down total sales to $718.6 million from $774.6 million.
The company had $1.9 billion in cash and $2.9 billion in debt at the end of the quarter.
CME Executive Chairman Terrence Duffy told analysts he thought it was unlikely that a proposed tax increase on futures traders would become law.
(Reporting by Ann Saphir; Editing by Jeffrey Benkoe and Lisa Von Ahn)