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Chicago Mercantile Exchange

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Chicago Mercantile Exchange



 
 
The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc," or "the Merc") is an American
United States

The United States of America is a Federal government constitutional republic comprising U.S. state and a federal district. The country is situated mostly in central North America, where its Contiguous United States and Washington, D.C., the Capital districts and territories, lie between the Pacific Ocean and Atlantic Oceans, Borders of the U...
 financial and commodity derivative exchange based in Chicago
Chicago

Chicago is the largest city in the U.S. state of Illinois and the Midwestern United States, as well as the List of United States cities by population city in the United States with more than 2.8 million residents....
. 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 ....
. Originally, the exchange was a non-profit organization. The exchange demutualized in November 2000, went public
Initial public offering

Initial public offering , also referred to simply as a "public offering" or "flotation," is when a company issues common stock or Share to the public for the first time....
 in December 2002, and 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 exchange. More than 50 different option s and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading....
 in July 2007 to become CME Group
CME Group

CME Group Inc. is the world?s largest futures exchange. CME Group was created July 12, 2007 from the merger between the Chicago Mercantile Exchange and the Chicago Board of Trade ....
 Inc. The Chief Executive Officer of CME Group is Craig S.






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The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc," or "the Merc") is an American
United States

The United States of America is a Federal government constitutional republic comprising U.S. state and a federal district. The country is situated mostly in central North America, where its Contiguous United States and Washington, D.C., the Capital districts and territories, lie between the Pacific Ocean and Atlantic Oceans, Borders of the U...
 financial and commodity derivative exchange based in Chicago
Chicago

Chicago is the largest city in the U.S. state of Illinois and the Midwestern United States, as well as the List of United States cities by population city in the United States with more than 2.8 million residents....
. 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 ....
. Originally, the exchange was a non-profit organization. The exchange demutualized in November 2000, went public
Initial public offering

Initial public offering , also referred to simply as a "public offering" or "flotation," is when a company issues common stock or Share to the public for the first time....
 in December 2002, and 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 exchange. More than 50 different option s and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading....
 in July 2007 to become CME Group
CME Group

CME Group Inc. is the world?s largest futures exchange. CME Group was created July 12, 2007 from the merger between the Chicago Mercantile Exchange and the Chicago Board of Trade ....
 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.

CME trades several types of financial instruments: interest rate
Interest rate

An interest rate is the price a borrower pays for the use of money they do not own, for instance a small company might borrow from a bank to kick start their business, and the return a lender receives for deferring the use of funds, by lending it to the borrower....
s, equities, currencies, and commodities. It also offers trading in alternative investments such as weather and real estate derivatives.

CME has the largest options
Option (finance)

In finance, an option is a contract between a buyer and a seller that gives the buyer the right?but not the obligation?to buy or to sell a particular asset at a later time at an agreed price....
 and futures contract
Futures contract

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality at a certain date in the future, at a price determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders...
s open interest
Open interest

Open interest denotes the total number of Derivative contracts, like Futures contract and option s, that are currently active on a specific underlying security, having specific terms....
 (number of contracts outstanding) of any futures exchange in the world.

On October 7, 2008, the Chicago Mercantile Exchange
Chicago Mercantile Exchange

The Chicago Mercantile Exchange is an United States financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board....
 (CME) Group announced that it will be teaming up with Citadel Investment Group LLC
Citadel Investment Group

Citadel Investment Group is an international financial institution based in Chicago, Illinois. Founded in 1990 by trader Kenneth C. Griffin, the firm today deploys investment capital across multiple asset classes and strategies....
 to create a transparent electronic trading platform for credit defaults swaps
Credit default swap

A credit default swap is a credit derivative contract between two counterparty. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument default ....
. 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 percent equity portion of the venture.

Trading Methods

Trading is conducted in two methods; an open outcry
Open outcry

Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange which involves shouting and the use of Hand signaling to transfer information primarily about buy and sell orders....
 format and the CME Globex electronic trading platform. Approximately 70 percent of total volume at the exchange occurs on CME Globex.

Open Outcry

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 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....
) 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 of the CME trading pits is currently being compiled at

CME Globex

Today the CME Globex trading system operates at the heart of CME. Proposed in 1987, it was introduced in 1992 as the first global electronic trading
Electronic trading

Electronic trading, sometimes called etrading, is a method of trading security , foreign currency, and derivative #Exchange traded derivatives electronically....
 platform for futures contract
Futures contract

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality at a certain date in the future, at a price determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders...
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 Group Limited is a United_Kingdom-based, Canadian controlled news agency and former financial market data provider that provides reports from around the world to newspapers and broadcasters....
 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....
 for the MATIF
MATIF

MATIF SA is France's futures exchange, absorbed in the merger of the Paris Bourse with Euronext NV to form Euronext Paris. Derivatives formerly traded on the Matif and other members of Euronext are traded on LIFFE Connect, the electronic trading platform of the London International Financial Futures Exchange....
 (now Euronext
Euronext

Euronext Naamloze Vennootschap is a pan-European stock exchange based in Paris and with subsidiaries in Belgium, France, Netherlands, Luxembourg, Portugal and the United Kingdom....
).

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

Mergers

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
Chicago Board of Trade

The Chicago Board of Trade , established in 1848, is the world's oldest futures exchange. More than 50 different option s and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading....
 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
Derivatives market

The derivatives markets are the financial markets for derivative s. The market can be divided into two, that for derivative #Exchange traded derivatives and that for derivative #Over-the-counter derivatives....
. 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
Chicago Board of Trade

The Chicago Board of Trade , established in 1848, is the world's oldest futures exchange. More than 50 different option s and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading....
 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, located in New York City. Its two principal divisions are the New York Mercantile Exchange and Commodity Exchange, Inc which were once separate but are now merged....
 (NYMEX) accepted an offer from CME Group, the parent of the Chicago Mercantile Exchange, to purchase it for $8.9 billion in cash and CME Group Stock. The acquisition was formally completed on August 22, 2008, and the NYMEX systems are expected to be fully integrated by September 30, 2009.

See also

  • Demutualization
    Demutualization

    Demutualization 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....
  • List of futures exchanges
    List of futures exchanges

    This is a list of futures exchanges. Those stock exchanges that also offer trading in futures contracts besides trading in security are listed both here and the list of stock exchanges....
  • List of traded commodities
    List of traded commodities

    Agricultural ...
  • Commodity Exchange Act
    Commodity Exchange Act

    Commodity Exchange Act is a federal act passed in 1936 by the U.S. Government .The Act provides federal regulation of all commodities and futures trading activities and requires all futures and commodity options to be traded on organized exchanges....
  • Chicago Board of Trade
    Chicago Board of Trade

    The Chicago Board of Trade , established in 1848, is the world's oldest futures exchange. More than 50 different option s and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading....


External links