Chicago Mercantile Exchange

Chicago Mercantile Exchange
Subsidiary
Industry Business services
Founded 1898
Headquarters Chicago, Illinois
Key people
Products Futures and options
Revenue $3.3 billion USD (CME Group 2015 GAAP)
Owner CME Group
Website Group website
Chicago Mercantile Exchange building

The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is an American financial and commodity derivative exchange based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an agricultural commodities exchange. Originally, the exchange was a non-profit organization. The Merc demutualized in November 2000, went public in December 2002, and merged with the Chicago Board of Trade in July 2007 to become a designated contract market of the CME Group Inc., which operates both markets. The Chairman and Chief Executive Officer of CME Group is Terrence A. Duffy, Bryan Durkin is President and Leo Melamed is Chairman Emeritus.[1][2] On August 18, 2008, shareholders approved a merger with the New York Mercantile Exchange (NYMEX) and COMEX. The Merc, CBOT, NYMEX and COMEX are now markets owned by the CME Group.

Today, CME is the largest options and futures contracts open interest (number of contracts outstanding) of any futures exchange in the world, including any in New York City. The Merc trades several types of financial instruments: interest rates, equities, currencies, and commodities. It also offers trading in alternative investments, such as weather and real estate derivatives. As a Designated Self-Regulatory Organization (DSRO), the CME had primary regulatory-audit authority over firms such as the bankrupt MF Global.

CME also pioneered the CME SPAN software that is used around the world as the official performance bond (margin) mechanism of 50 registered exchanges, clearing organizations, service bureaus, and regulatory agencies throughout the world.

Trading platforms

Trading is conducted in two methods; an open outcry format and the Globex Trading System which is an electronic trading platform. Approximately 90 percent of total volume at the exchange occurs electronically on Globex.

Open outcry

Operating during regular trading hours (RTH), the open outcry method consists of floor traders standing in a trading pit to call out orders, prices, and quantities of a particular commodity. Different colored jackets are worn by the traders to indicate what firm they are a part of. In addition, complex hand signals (called Arb) are used. These hand signals were first used in the 1970s. Today, however, headsets are also used by the brokers to communicate with the traders. The pits are areas of the floor that are lowered to facilitate communication, somewhat like a miniature amphitheater. The pits can be raised and lowered depending on trading volume. To an onlooker, the open outcry system can look chaotic and confusing, but in reality the system is a tried and true method of accurate and efficient trading. An illustrated project to record the hand signal language used in CME's trading pits has been compiled.[3]

President George W. Bush at the CME (March 6, 2001)

Electronic trading

Operating virtually around the clock, today the CME Globex Trading System is at the heart of CME. Proposed in 1987, it was introduced in 1992 as the first global electronic trading platform for futures contracts. This fully electronic trading system allows market participants to trade from booths at the exchange or while sitting in a home or office thousands of miles away. On 19 October 2004, the one billionth (1,000,000,000) transaction was recorded.

When Globex was first launched, it used Reuters' technology and network.[4] September 1998 saw the launch of the second generation of Globex using a modified version of the NSC trading system, developed by Paris Bourse for the MATIF (now Euronext).[5]

To connect to Globex, traders connect via Market Data Protocol (MDP) and iLink 2.0 for order routing.

Mergers and acquisitions

In 2006, CME purchased "Swapstream", an interest rate swaps electronic trading platform, based in London.

On October 17, 2006, the Chicago Mercantile Exchange announced the purchase of the Chicago Board of Trade for $8 billion in stock, rejoining the two financial institutions as CME Group Inc. CBOT formerly used outsourced technology platforms but has moved over to CME's Globex trading system. This will provide much of the merger's anticipated savings. The merger will also strengthen the combined group's position in the global derivatives market.[6] The merger agreement was modified on December 20, 2006,[7] May 11, 2007,[8] June 14, 2007,[9] and on July 6, 2007.[10] The merger agreement was passed by shareholders of both CME and the Chicago Board of Trade on July 9, 2007.[11] The merger officially closed on July 12, 2007, after which the Chicago Board of Trade shares (old symbol: BOT) stopped trading and were converted into CME shares as agreed, and the overarching holding company began life as CME Group, a CME/Chicago Board of Trade Company.[12] On January 13, 2008 electronic trading at the Chicago Board of Trade shifted onto the Mercantile Exchange's computer system.[13]

On March 17, 2008, the New York Mercantile Exchange (NYMEX) accepted an offer from CME Group, the parent of the Chicago Mercantile Exchange, to purchase NYMEX for $8.9 billion in cash and CME Group Stock.[14] The acquisition was formally completed on August 22, 2008, and the NYMEX systems were fully integrated by September 30, 2009.[15]

Commodity futures and options

Agricultural Commodity Contracts include: Live Cattle, Lean Hogs, Feeder Cattle, Class IV Milk, Class III Milk, Nonfat Dry Milk Powder, Dry Whey, Cheese, Butter, and Random Length Lumber.

Since December 2017 bitcoin futures are traded.[16]

See also

References

  • Durica, Dr. Michael (2006). Product Development for Electronic Derivative Exchanges: The case of the German ifo business climate index as underlying for exchange traded derivatives to hedge business cycle risk. Pro Business. Berlin. ISBN 3-939533-05-X.

Further reading

  • Lynn, Cari (2004). Leg the Spread: Adventures Inside the Trillion-Dollar Boys' Club of Commodities Trading. Random House/Broadway Books.
  • Olson, Erika (2010). Zero-Sum Game: The Rise of the World's Largest Derivatives Exchange. Wiley.
  • Rodengen, Jeffrey (2008). Past, Present & Futures: Chicago Mercantile Exchange. Write Stuff Syndicate.
  • Tamarkin, Bob (1993). The Merc: The Emergence of a Global Financial Powerhouse. Harper Business.

Notes

  1. ↑ "CMEgroup.com". Investor.cmegroup.com. Retrieved 2012-09-22.
  2. ↑ "CMEgroup.com". Investor.cmegroup.com. Retrieved 2012-09-22.
  3. ↑ "CME Trading Pit Hand Signals History". tradingpithistory.com. Retrieved 16 August 2011.
  4. ↑ "Deflating Globex: electronic exchanges". The Economist. 21 May 1994. Retrieved 24 September 2018 – via Highbeam.
  5. ↑ "Reuters Dumped from Trading Service". Wired. 21 February 1997. |access-date= requires |url= (help)
  6. ↑ "CME news release October 17, 2006".
  7. ↑ "Merger agreement modified December 20, 2006".
  8. ↑ "Merger agreement modified May 11, 2007".
  9. ↑ "Merger agreement modified June 14, 2007".
  10. ↑ "Merger agreement modified July 6, 2007".
  11. ↑ "Merger agreement passed July 9, 2007".
  12. ↑ "CME Group began operations July 13, 2007".
  13. ↑ Saphir, Ann (2008-03-03). "Trading Places". Crain's Chicago Business. Crain Communications Inc.
  14. ↑ "CMEgroup.com". Cmegroup.mediaroom.com. Retrieved 2012-09-22.
  15. ↑ "CMEgroup.com". Investor.cmegroup.com. Retrieved 2012-09-22.
  16. ↑ "Bitcoin Futures Quotes - CME Group". www.cmegroup.com.
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