Chicago Mercantile Exchange
Encyclopedia
The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc," or "the Merc") is an American
financial and commodity derivative exchange
based in Chicago
. The CME was founded in 1898 as the Chicago Butter and Egg Board
. Originally, the exchange was a non-profit organization. The exchange demutualized in November 2000, went public
in December 2002, and it merged with the Chicago Board of Trade
in July 2007 to become a designated contract market of the CME Group
Inc. The Chief Executive Officer of CME Group is Craig S. Donohue. 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
.
CME trades several types of financial instruments: interest rate
s, equities, currencies, and commodities. It also offers trading in alternative investments such as weather and real estate derivatives, and has the largest options
and futures contract
s open interest
(number of contracts outstanding) of any futures exchange in the world.
CME also pioneered the CME SPAN
software, 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.
On October 7, 2008, the Chicago Mercantile Exchange (CME) Group announced that it will be teaming up with Citadel LLC to create a transparent electronic trading platform
for credit default swap
s. The joint venture between CME and Citadel will operate as an independent organization with its own board of directors and management team. The new venture plans to initially provide clearing services for contracts involving credit-default swap indices, which typically have more standardized terms than swap contracts for individual bonds. It is expected to eventually expand its offering to include other derivative indices as well as the multitude of single-name corporate derivatives. Major market participants will be invited to join the platform as founding members, in return for receiving a 30% equity portion of the venture.
format and the CME Globex electronic trading platform
. Approximately 80 percent of total volume at the exchange occurs electronically on CME Globex.
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 their function on the floor (traders, runners, CME employees, etc.). In addition, complex hand signals (called Arb
) are used. These hand signals were first used in the 1970s. The pits are areas of the floor that are lowered to facilitate communication, sort of 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.
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platform for futures contract
s. 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. 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
).
To connect to Globex, traders connect via Market Data Protocol (MDP) and iLink 2.0 for order routing.
s 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
. The merger agreement was modified on December 20, 2006, May 11, 2007, June 14, 2007, and on July 6, 2007. The merger agreement was passed by shareholders of both CME and the Chicago Board of Trade on July 9, 2007. 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. On January 13, 2008 electronic trading at the Chicago Board of Trade
shifted onto the Mercantile Exchange's computer system.
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. The acquisition was formally completed on August 22, 2008, and the NYMEX systems were fully integrated by September 30, 2009.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
financial and commodity derivative exchange
Derivatives market
The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets....
based in Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
. The CME was founded in 1898 as the Chicago Butter and Egg Board
Chicago Butter and Egg Board
The Chicago Butter and Egg Board, founded in 1898, was a spin-off entity of the Chicago Board of Trade . In the year 1919, it was re-organized as the Chicago Mercantile Exchange . Roots of the Chicago Butter and Egg Board are traceable to the 19th century.Initially, the Chicago Butter and Egg Board...
. Originally, the exchange was a non-profit organization. The exchange demutualized in November 2000, went public
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
in December 2002, and it merged with the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
in July 2007 to become a designated contract market of the CME Group
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
Inc. The Chief Executive Officer of CME Group is Craig S. Donohue. 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
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
.
CME trades several types of financial instruments: interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s, equities, currencies, and commodities. It also offers trading in alternative investments such as weather and real estate derivatives, and has the largest options
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
and futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s open interest
Open interest
Open interest refers to the total number of derivative contracts, like futures and options, that have not been settled in the immediately previous time period for a specific underlying security...
(number of contracts outstanding) of any futures exchange in the world.
CME also pioneered the CME SPAN
CME SPAN
The Standard Portfolio Analysis of Risk, or SPAN, is a system for calculating margin requirements for futures and options on futures. It was developed and implemented by the Chicago Mercantile Exchange in 1988....
software, 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.
On October 7, 2008, the Chicago Mercantile Exchange (CME) Group announced that it will be teaming up with Citadel LLC to create a transparent electronic trading platform
Electronic trading platform
In finance, an Electronic trading platform is a computer system that can be used to place orders for financial products over a network with a financial intermediary. This includes products such as shares, bonds, currencies, commodities and derivatives with a financial intermediary, such as a...
for credit default swap
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
s. The joint venture between CME and Citadel will operate as an independent organization with its own board of directors and management team. The new venture plans to initially provide clearing services for contracts involving credit-default swap indices, which typically have more standardized terms than swap contracts for individual bonds. It is expected to eventually expand its offering to include other derivative indices as well as the multitude of single-name corporate derivatives. Major market participants will be invited to join the platform as founding members, in return for receiving a 30% equity portion of the venture.
Trading platforms
Trading is conducted in two methods; an open outcryOpen outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
format and the CME Globex electronic trading platform
Electronic trading platform
In finance, an Electronic trading platform is a computer system that can be used to place orders for financial products over a network with a financial intermediary. This includes products such as shares, bonds, currencies, commodities and derivatives with a financial intermediary, such as a...
. Approximately 80 percent of total volume at the exchange occurs electronically on CME Globex.
Open Outcry
Operating during regular trading hours (RTH), the open outcryOpen outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
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 their function on the floor (traders, runners, CME employees, etc.). In addition, complex hand signals (called Arb
Arb (gesture)
Hand Signaling, also known as arb or arbing, short for arbitrage, is a system of hand signals used on financial trading floors to communicate buy and sell information in an open outcry trading environment. The system is used at financial exchanges such as the Chicago Mercantile Exchange and the...
) are used. These hand signals were first used in the 1970s. The pits are areas of the floor that are lowered to facilitate communication, sort of 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.
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 tradingElectronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
platform for futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s. 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'
Reuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
technology and network. September 1998 saw the launch of the second generation of Globex using a modified version of the NSC trading system, developed by Paris Bourse
Paris Bourse
The Paris Bourse is the historical Paris stock exchange, known as Euronext Paris from 2000 onwards.-History and functioning:...
for the MATIF
MATIF
MATIF SA is a private corporation which is both a futures exchange and a clearing house in France. It was absorbed in the merger of the Paris Bourse with Euronext NV to form Euronext Paris...
(now Euronext
Euronext
Euronext N.V. is a pan-European stock exchange based in Amsterdam and with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom. In addition to equities and derivatives markets, the Euronext group provides clearing and information services...
).
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 swapInterest rate swap
An interest rate swap is a popular and highly liquid financial derivative instrument in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate or from one floating rate to another...
s electronic trading platform, based in London.
On October 17, 2006, the Chicago Mercantile Exchange announced the purchase of the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
for $8 billion in stock, rejoining the two financial institutions as CME Group
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
, 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
Derivatives market
The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets....
. The merger agreement was modified on December 20, 2006, May 11, 2007, June 14, 2007, and on July 6, 2007. The merger agreement was passed by shareholders of both CME and the Chicago Board of Trade on July 9, 2007. The merger officially closed on July 12, 2007, after which the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
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. On January 13, 2008 electronic trading at the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
shifted onto the Mercantile Exchange's computer system.
On March 17, 2008, the New York Mercantile Exchange
New York Mercantile Exchange
The New York Mercantile Exchange is the world's largest physical commodity futures exchange. It is located at One North End Avenue in the World Financial Center in the Battery Park City section of Manhattan, New York City...
(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. The acquisition was formally completed on August 22, 2008, and the NYMEX systems were fully integrated by September 30, 2009.
Commodity futures and options
Agricultural Commodity Contracts include: Live Cattle, Lean Hogs，Feeder Cattle, Class IV Milk, Class III Milk, Frozen Pork Bellies, International Skimmed Milk Powder (ISM), Nonfat Dry Milk, Deliverable Nonfat Dry Milk, Dry Whey, Cash-Settled Butter, Butter, Random Length Lumber, Softwood Pulp, Hardwood Pulp.See also
- CME GroupCME GroupThe CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
- DemutualizationDemutualizationDemutualization is the process by which a customer-owned mutual organization or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form...
- List of futures exchanges
- List of traded commodities
- Commodity Exchange ActCommodity Exchange ActCommodity Exchange Act is a federal act passed in 1936 by the U.S. Government ....
- Chicago Board of TradeChicago Board of TradeThe Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...