![Cme building aerial view](https://upload.wikimedia.org/wikipedia/commons/0/03/Cme_building_aerial_view.jpg)
The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global
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
In financial accounting, an asset is any resource owned or controlled by a ...
place based in
Chicago
(''City in a Garden''); I Will
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and located at 20 S. Wacker Drive. The CME was founded in 1898 as the
Chicago Butter and Egg Board The Chicago Butter and Egg Board, founded in 1898, was a spin-off entity of the Chicago Produce Exchange. In the year 1919, it was re-organized as the Chicago Mercantile Exchange (CME). Roots of the Chicago Butter and Egg Board are traceable to the ...
, an agricultural commodities exchange. Originally, the exchange was a non-profit organization. The Merc
demutualized
Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, memb ...
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. On August 18, 2008, shareholders approved a merger with the
New York Mercantile Exchange
The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City.
T ...
(NYMEX) and COMEX. CME,
CBOT,
NYMEX, and
COMEX are now markets owned by CME Group. After the merger, the value of the CME quadrupled in a two-year span, with a market cap of over $25 billion.
Today, CME is the largest
options and
futures contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
s
open interest Open interest (also known as open contracts or open commitments) refers to the total number of outstanding derivative contracts that have not been settled (offset by delivery).
For each buyer of a futures contract there must be a seller. From the t ...
(number of contracts outstanding) exchange of any futures exchange in the world. The Merc trades several types of
financial instruments:
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
s,
equities
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
,
currencies
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
, and
commodities.
CME also pioneered the
CME SPAN The Standard Portfolio Analysis of Risk, or SPAN, is a system for calculating margin requirements for futures
Futures may mean:
Finance
*Futures contract, a tradable financial derivatives contract
*Futures exchange, a financial market where futu ...
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
CME Globex Trading System CME. or cme, can refer to any of the following:
Organizations
* Canadian Military Engineers, the military engineer branch of the Canadian Forces
* Central European Media Enterprises
* Central Music Company (CME), Beijing, China
* Christian Me ...
which is an
electronic trading platform
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ...
. More than 90 percent of total volume at the exchange occurs electronically on CME 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 or its derivatives. 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.
CME Group recently announced that it will permanently close most of its physical trading pits, including those for grain trading. They had been closed since March 2020 due to the outbreak of the COVID-19 pandemic.
Electronic trading
Operating virtually around the clock, today the CME
Globex Trading System The Globex Trading System which was introduced in 1992, was the first global electronic trading system designed to handle both futures trading and options trading. It was developed by the Chicago Mercantile Exchange (CME) along with other technolog ...
is at the heart of CME. Proposed in 1987, it was introduced in 1992 as the first global
electronic trading platform
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ...
for
futures contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
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 CME Globex was first launched, it used
Reuters
Reuters ( ) is a news agency owned by Thomson Reuters Corporation. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide. Reuters is one of the largest news agencies in the world.
The agency was esta ...
' technology and network. September 1998 saw the launch of the second generation of CME Globex using a modified version of the NSC trading system, developed by
Paris Bourse
Euronext Paris is France's securities market, formerly known as the Paris Bourse, which merged with the Amsterdam, Lisbon, and Brussels exchanges in September 2000 to form Euronext NV. As of 2022, the 795 companies listed had a combined market ...
for the
MATIF
MATIF SA ( French: ''Marché à Terme International de France'') 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 N.V. (short for European New Exchange Technology) is a pan-European bourse that offers various trading and post-trade services.
Traded assets include regulated equities, exchange-traded funds (ETF), warrants and certificates, bonds, ...
).
Traders connect to CME Globex via Market Data Protocol (MDP) and iLink 2.0 for order routing.
Mergers and acquisitions
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 derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets
In financial accounting, an asset is any resource owned or controlled by a ...
. 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 CME Globex.
On March 17, 2008, the
New York Mercantile Exchange
The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City.
T ...
(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.
Investigation
In 1984, the CME was investigated by the U.S. Government Accountability Office. During this investigation, it was realized that the open-outcry system could be abused. The GAO noted that the exchange made attempts to cut down on malpractice, but that it is likely that illegal activity still occurs.
Products
Agricultural Commodity
Agricultural Commodity Contracts include: Grains, Soybeans, Oilseeds, Live Cattle,
Lean Hog
Lean Hog is a type of hog (pork) futures contract that can be used to hedge and to speculate on pork prices in the US.
Lean Hog futures and options are traded on the Chicago Mercantile Exchange (CME), which introduced Lean Hog futures contracts i ...
s, Feeder Cattle, Class IV Milk, Class III Milk, Nonfat Dry Milk Powder, Dry Whey, Cheese, Butter, and
Random Length Lumber.
Cryptocurrency
Since December 2017
bitcoin futures are traded.
Ether
In organic chemistry, ethers are a class of compounds that contain an ether group—an oxygen atom connected to two alkyl or aryl groups. They have the general formula , where R and R′ represent the alkyl or aryl groups. Ethers can again be ...
futures are traded since February 2021.
Energy
WTI Crude, Henry Hub Natural Gas, Brent Crude, and
RBOB Gasoline.
Equity Index Products
Equity Index Products include: E-mini S&P 500 Futures, S&P 500 Futures, E-mini Nasdaq-100 Futures, Nikkei/Yen Futures, E-mini Dow ($5) Futures, E-mini Russel 2000 Index Futures, Bitcoin Futures, Yen Denominated TOPIX Futures, Micro E-mini S&P 500 Futures, Micro E-mini Nasdaq-100 Index Futures, Micro E-mini Russel 2000 Index Futures, Micro E-mini Dow Jones Industrial Average Index Futures. There are also index products that follow specific international indexes and select sectors.
Interest Rate Products
Interest rate products include:
Foreign Exchange Products
Foreign Exchange featured products include:
Foreign Exchange products also include futures for G10 currencies, Emerging market currencies, and Cross rates.
Metals Products
Metals Products include:
Weather Derivatives
The Chicago Mercantile Exchange is the only market for trading in weather derivatives. It launched its first weather products in 1999. Products include, but are not limited to: futures on rainfall, snowfall, hurricanes, and temperature.
See also
*
Commodity Exchange Act
*
Demutualization
Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, member ...
*
List of futures exchanges
This is a list of notable futures exchanges. Those stock exchanges that also offer trading in futures contracts besides trading in securities are listed both here and the list of stock exchanges.
Africa Kenya
* Nairobi Securities Ex ...
*
List of traded commodities
The following is a list of futures contracts on physically traded commodities.
Agricultural
Grains, food and fiber
Symbol from "CME Group Website". cmegroup.com. CME Group. Retrieved 2010-10-20.
Livestock and meat
Energy
Forest product ...
*
Securities market participants (United States)
Securities market participants in the United States include corporations and governments issuing securities, persons and corporations buying and selling a security, the broker-dealers and exchanges which facilitate such trading, banks which safe k ...
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. .
Further reading
*
*
*
*
Notes
External links
CME Group Inc. website
{{Authority control
Financial services companies established in 1898
1898 establishments in Illinois
Commodity exchanges in the United States
Self-regulatory organizations in the United States
Companies based in Chicago
Futures exchanges
Economy of Chicago
CME Group