CME Group Inc logo is seen displayed in this illustration taken April 10, 2023. REUTERS/Dado Ruvic/Illustration

By Prakhar Srivastava

(Reuters) -Derivatives exchange CME Group beat Wall Street estimates for third-quarter profit on Wednesday, as lower expenses helped counter a decline in trading volumes across most asset classes.

The company, which facilitates futures and options trading, experienced a slowdown as easing market volatility and stable energy prices curbed investor hedging activity. Lower volatility typically reduces the need for traders to hedge, leading to softer trading volume.

Total average daily trading volumes (ADV) for the world's largest derivatives marketplace fell about 10.5% compared with a year earlier to 25.3 million contracts.

Energy markets cooled as oil price volatility hit an 18-month low, dragging CME's energy ADV down 10.7%.

Clearing and transaction fees, which make up the bulk of CME's revenue, fell 5.3% to $1.23 billion.

Cryptocurrency trading, however, hit a record high, with ADV surging to 340,000 contracts.

"CME and Nasdaq both delivered solid expense-led beats, and we expect a similar trend to play out generally across peers," said TD Cowen analyst Bill Katz.

"Key developments likely to center on all things digital/AI as relates to volumes and expense curves."

CME's adjusted expenses were $486.6 million in the quarter, compared with $488.8 million a year earlier.

Excluding one-time items, profit attributable to CME shareholders was $966.1 million, or $2.68 per share, while analysts estimated $2.63 per share, according to data compiled by LSEG.

PURSUIT OF DIVERSIFICATION

CME is pushing to diversify beyond its traditional rate, energy and commodity markets through retail and digital asset businesses to broaden its revenue base.

In August, the company announced a tie-up with sports-betting firm FanDuel to develop event-based contracts aimed at retail traders.

"FanDuel is very important for CME. We're looking at 13 million potential accounts that will have access to CME's products," said CEO Terry Duffy.

The exchange is preparing to offer 24/7 crypto trading in 2026, and has also explored extending round-the-clock trading to other asset classes.

(Reporting by Prakhar Srivastava in Bengaluru; Editing by Shilpi Majumdar and Krishna Chandra Eluri)