Standard & Poor’s Ratings Services has downgraded its corporate credit rating on CME Group Inc. (NYSE: CME). What is interesting is why… S&P noted that the exchange and clearinghouse has increased its financial risk profile due to the high growth of the OTC clearing operations. That is the ‘over-the-counter’ clearing. CME also has a damage to its prior reputation after MF Global’s failing.
MF Global was a large broker in CME operations and the exchange operator was not viewed favorably at all by those who were shafted in the MF Global aftermath.
As far as the downgrade itself, S&P cut the CME rating down to ‘AA-‘ from ‘AA’ and the outlook remains Negative. In short, this could drop down to the ‘A’ ratings. While it is still easily investment-grade for bond investors, it is not exactly going in the right direction.
While some protection in OTC rate swaps have been placed, the expansion into credit default swaps is viewed as an area outside of the exchange’s history.
Our take… CME’s role in regulating and handling the MF Global meltdown is not over. Neither is S&P’s ongoing review here.
The stock does not seem to care as the shares are up 2.4% at $282.79. Maybe bond investors were expecting a worse reaction.
JON C. OGG
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