The CME Group Inc., based in Chicago, Ill., is one the world's largest derivatives exchange management companies. The company handles 3 billion contracts annually, worth approximately US$1 quadrillion. Clients of the exchange include companies and institutions that want to manage risk through hedging operations, in addition to investors seeking profits by accepting risks through speculation.
The group's exchange operations include the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange, the Kansas City Board of Trade and the New York Commodity Exchange.
CME Group Products And Operations
The CME Group offers more than 170 derivative products in several asset classes, including interest rate futures and options, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. Trading is done through the group's Globex electronic trading system and through some open outcry systems. However, open outcry has been gradually phased out over recent years.
Today's CME Group has origins in the 1874 formation of the Chicago Produce Exchange, which traded eggs, butter and other farm goods. In December 1919, the board began operations as the Chicago Mercantile Exchange, later nicknamed "The Merc." It later merged with the Chicago Board of Trade in 2007 and with the New York Mercantile Exchange in August 2008. The Chicago Board of Trade had operated independently since 1848, and the New York Mercantile Exchange since 1872.
Trading of futures contracts in Chicago markets began with the formation of the Chicago Board of Trade to help accommodate Midwestern farmers who sought buyers for their future production of corn and wheat. As egg and butter production followed a seasonal pattern at the time, futures contracts were offered at the mercantile exchange in addition to spot contracts.
By the 1940s, technological changes in the production of eggs and butter made them available throughout the year, reducing the demand for futures contracts in those industries. In response, the CME sought out other markets in which to offer futures. These included:
- 1960s: Pork belly and cattle futures.
- 1970s: Financial futures contracts, including currency contracts and US Treasury bill futures. The latter launched the interest rate futures market.
- 1982: Eurodollars futures, which has become its most-traded contract; equity index futures and treasury bond futures contracts.
- 1997: "Mini-sized" electronic futures contracts, such as the E-Mini S&P futures and Dow Jones contracts
- 1999: Weather and climate-risk futures contracts
Other notables events launching its Globex electronic trading platform in 1987, and de-mutualising to become the first shareholder-owned exchange in the U.S. in 2000.
With this change, its stock was listed on the New York Stock Exchange. Following its merger with the Chicago Board of Trade in 2007, the CME was renamed to the CME Group Inc. In 2010, the company launched clearing services in Europe through CME Clearing Europe and in 2012, it acquired the Kansas City Board of Trade.
Trading Volume And Revenues
Of its top product categories, interest rate products generated the largest volume in 2015, ending the year at an average of about six million contracts per day. Those were followed by equities futures at 2.7 million contracts; energy at two million; and agricultural commodities at 1.2 million.
Metals futures trading was the most lucrative, however, at US$1.64 per contract. It was followed by agricultural commodities at US$1.34 per contract; energy at US$1.23 per contract; and foreign exchange at US$0.81 per contract.
The CME Group reported total revenues of US$3.3 billion in 2015 and net profits of US$1.25 billion.
The CME Group's competitors, across its exchange activities, include the following:
- Intercontinental Exchange Inc.
- Hong Kong Exchanges and Clearing Ltd.
- Deutsche Borse AG
- London Stock Exchange Group PLC
- NASDAQ Inc.
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Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…