Tuesday, December 01, 2009
December 2009
"We're in a new situation; we're going to be driving a lot of business to the exchanges." - Representative Barney Frank, chairman of the Financial Services Committee, during recent debate on derivatives legislation.
The notional value of all derivatives world-wide, according to the Bank of International Settlements, exceeds $600 trillion. The P/E ratios of the publicly trading exchanges clearly do not embrace the potential for the derivatives clearing business, despite the intention of the U.S. government to quickly pass legislation requiring these clearing activites. In March of 2009, the Chicago Mercantile Exchange and Intercontinental Exchange were granted permission from the U.S. government to clear derivatives. Both exchanges have begun clearing these instruments, with the Interncontinental Exchange already clearing about $2.6 trillion worth of CDS. Current Wall Street earnings estimates make no provision for the potential growth of the derivatives clearing business.
Murray Stahl of the
Horizon Research Group has been publishing investment research on the exchanges since 2003, and has written numerous essays on the operational leverage and unappreciated growth potential of these businesses.
The Contrarian Research Report and
The Stahl Report continue to recommend many of the most promising companies in this space. A discussion of the derivatives clearing industry was recently published in
The Stahl Report Compendium in December 2009.
The Political Impact Report, published by the
Institutional Research Group (IRG), specializes in combining in-depth equity research with political and legislative insight. In November of 2009, IRG published a comprehensive report anlayzing each provision of the financial services legislation, and the potential impact, both positive and negative, on specific financial services companies. The eventual benefiits of derivatives clearing was recently detailed in a comprehensive report recommending the purchase of the Chicago Mercantile Exchange.