CME Group, Inc.

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CME Group
Image:CmeGroupLogo.gif
Founded July 12, 2007 (through merger of Chicago Mercantile Exchange Holdings and CBOT Holdings)
Headquarters Headquarters: 20 South Wacker Drive, Chicago, IL 60606 (plus other CME Group offices domestic and international)
Key People Terrence Duffy, executive chairman; Charles P. Carey, vice chairman; Craig Donohue, CEO; Phupinder Gill, president; Kathleen Cronin, MD/general counsel/corporate secy; Bryan T. Durkin, MD/COO; Julie Holzrichter, MD, Operations; James R. Krause, MD/chief information officer; James Parisi, MD/CFO; Hilda Harris Piell, MD/chief org. dev. officer; Rick Redding, MD, Products & Services; Kim Taylor, MD & Pres., CME Clearing; Ken Vroman, MD/chief corporate development officer.
Products Interest rate, equity index, foreign currency, commodity futures and options and alternative investments (e.g. weather, real estate)
Web site http://www.cmegroup.com/

CME Group, Inc. (CME) is the world's largest derivatives exchange, formed by the $11.6 billion merger in July 2007[1] [2] of the 109-year-old Chicago Mercantile Exchange (CME) and the 159-year-old Chicago Board of Trade (CBOT).

In late January 2008, CME Group officially responded to rumors regarding a potential NYMEX acquisition, indicating that the rumor was factual. Roughly a month-and-a half period of negotiations followed to sort out details of the proposed $11-billion merger, with the proposed merger announcement made on March 18, 2008.[3] [4].[5]

The CME's complex spans all major asset classes, including: futures and options on interest rates, equities indexes, currencies, commodities, and alternative investment instruments such as weather and real estate derivatives. Its on-exchange activities have been supplemented with a push to offer clearing and execution services to the over-the-counter market with relatively recent additions, including FXMarketSpace and Swapstream.

The CME surpassed Eurex and Korea Exchange as the world's largest derivatives exchange by volume for the first time in 2007, with trading volume of almost 2.8 billion contracts.

Contents

Integration of Two Organizations

Member Privileges

http://www.patsystems.com/
The formation of CME Group did not result in any change to trading privileges for CME and CBOT members.[6] Currently, CME and CBOT members continue to trade on the same terms as before the merger transaction. CME members can trade CME products at reduced rates directly from the trading floor, and CBOT members are able to enjoy the same benefits on CBOT products only. To cross-trade products offered by the individual exchanges belonging to CME Group, participants need to have memberships at each of the individual exchanges. Additionally, CME and CBOT membership types, fees and requirements vary, as do terms for purchasing and leasing memberships.

Operational Integration

A massive integration plan, incorporating operational, staffing and communications issues with customers, stockholders, and staff began, to the entent allowable by the U.S. Department of Justice, a number of months prior to the merger of CME and CBOT being sealed in July 2007. The final result has been a fairly seamless melding of corporate processes/operational/real estate issues.

Though the CME Group headquarters office is located at 20 South Wacker Drive in Chicago, all trading floor operations move from the CME trading floor to the CBOT floor at 141 West Jackson by early to mid-2008, according to a schedule[7]:

  • Equity complex moves in March 2008.
  • Interest rate and FX complex moves April 2008.
  • Ag complex moves in May 2008.

In addition, in January 2008 all legacy CBOT products migrated successfully to the CME Globex platform from e-cbot. [8]. In the near term, the CBOT metals complex continues to trade on eCBOT into Q2 2008.

In 2003 CBOT moved clearing of all trades to CME Clearing from its legacy clearing provider, the Board of Trade Clearing Corp.; thus, this was one huge operational hurdle that did not require consideration during the migration.

Products

CME Group offers contracts in all major asset classes:

CME Group offices

CME Group offices are located in Chicago (headquarters), London, Hong Kong, Tokyo, Sydney and Washington, D.C.

Leadership

2008 CME Group Holiday Calendar

CME Holiday Calendar, 2008

New Web Site

In mid-January 2008, CME Group launched its new web site in an effort both to combine data from CME and CBOT and to enhance usability by those visiting the site. A virtual tour of new features and navigation is available Virtual Tour of Website.

Contract Volume

2007: First year of combined volume

For 2007, total annual volume for CME Group, which combines CME and CBOT volume, reached close to 2.8 billion contracts, record-volume growth for the seventh consecutive year on a combined basis; this translates into volume of 11 million contracts per day. Total electronic volume in 2007 averaged 8.5 million contracts per day, up 41% from 2006.

Of the total 11 million average daily contract volume in 2007, options volume constituted 2 million contracts perday, up 14% from 2006. Of that, electronic options volume averaged 288,000 contracts per day for the year, up 46%. Thus, about 14.5% of total options volume in 2007 was electronic.[9]

2006

Prior to the merger, in 2006 CME trading volume totaled a record 1.3 billion contracts, a 28% increase over 2005. For the CBOT, 2006 volume reached a new record of 805 million-plus contracts traded, a 19.5% increase. The year 2006 was the seventh consecutive record volume year for CME and the fifth for CBOT. The combined notional value of contracts traded on CME and CBOT in 2006 exceeded $1,000 trillion.

In terms of annual contract volume, interest rate futures and options - in large part due to the success of Eurodollar futures and options, the most actively traded futures and options contracts in the world - in 2007, constituted the greatest percentage of CME Group trading volume. To the CME's interest rate products have been added CBOT Treasuries, long-time mainstays and volume leaders for CBOT. Down the volume continuum are stock index and foreign currency products, and finally, commodities, which today accounts for the smallest futures segment in terms of trading volume.

The bulk (70-75%) of the exchange's business today is electronically traded versus by open outcry.

Financial futures, introduced only about 35 years ago (beginning with currency futures in 1972), and options on futures (starting in 1982), have taken over the futures markets in response to global needs for risk-averse strategies. While agricultural products have grown in acceptance, used to diversify portfolios and to help producers and users offset risk, they are a very small piece of the trading volume and profit landscape at CME Group.

Regulation

The U.S. Commodity Futures Trading Commission, an independent government agency, is the regulatory body for CME Group as for all other US futures exchanges. Futures broker members of CME Group, known as futures commission merchants, are registered through the National Futures Association (NFA).

Clearing

CME Clearing is the exchange's central futures clearing mechanism, which settles all trades and acts as the counterparty between buyers and sellers, thus virtually guaranteeing the creditworthiness of every transaction. In addition, it is the clearing entity for FXMarketSpace, an FX OTC facility jointly owned by CME Group and Reuters. In its history, CME Clearing has never experienced a default.

History

CME Group's history (through individual and intertwining paths of CME and CBOT) is rooted in early Chicago from grain trading in the late 1840s to introduction of financial futures in the 1970s, to electronic trading in the early 1990s, and demutualization at the turn of the 21st century. At the time of the merger in July 2007, the Chicago Board of Trade was 159 years old and CME, 109 years.

Early Years

1848: CBOT creates the world’s first futures exchange, based in Chicago.

1851: CBOT offers earliest of "forward contracts" ever recorded; forward contracts begin to gain popularity among merchants and processors.

1865: CBOT formalizes grain trading with the development of standardized agreements called "futures" contracts, world’s first such agreements.

1865: CBOT creates world’s first futures clearing operation when it begins requiring performance bonds, (or margin), to be posted by buyers and sellers in its grain markets.

1870: CBOT develops first octagonal futures trading pit.

1877: Trading in CBOT grain complex (corn, oats and wheat futures) is launched.

1885: To accommodate rapid growth of futures trading, CBOT constructs a new building at LaSalle and Jackson streets, at the time Chicago’s tallest building and first commercial structure with electric lights.

1898: Chicago Butter and Egg Board, predecessor of Chicago Mercantile Exchange, opens in Chicago.

20th Century

1919: Chicago Butter and Egg Board becomes Chicago Mercantile Exchange.

1926: CBOT founds Board of Trade Clearing Corporation to guarantee its trades.

1961: CME launches first futures contract on frozen, stored meats – frozen pork bellies -- bacon.

1964: CME launches first agricultural futures based on non-storable commodities – live cattle futures.

1968: CBOT begins trading its first non-grain-related commodity, futures on iced broilers (chickens).

1969: CBOT begins trading its first non-grain product, silver futures.

1972: CME launches second[10] financial futures contracts, offering contracts on seven foreign currencies.

1973: CBOT launches first exchange for trading equity options, Chicago Board Options Exchange.

1975: CBOT launches first interest rate futures contract, futures on the Government National Mortgage Association rates (GNMA futures).

1981: CME launches first cash-settled futures contract, Eurodollar futures.

1982: CME launches first successful stock index futures contract, S&P 500 Index futures.

1982: CBOT launches first options on futures contract -- U.S. Treasury bond futures.

1987: CME pioneers electronic futures trading with conceptualization and initial development of CME Globex electronic trading platform.

1992: First electronic futures trades are made on CME Globex platform.

1997: CME develops and launches the first mini-sized, electronic futures contract, E-mini S&P 500 futures, which expands trading past traditional trading floor hours.

1999: CME launches first weather-based futures contracts.

2000 to Present

2000: CME membership agrees to de-mutualize and become a publicly traded exchange.

2002: CME becomes first U.S. exchange to go public; stock is listed on New York Stock Exchange.

2003: CBOT moves clearing of all of its products from independent Board of Trade Clearing Corp., where it has transacted its business since 1926, to CME Clearing to add capital efficiencies for its customers.

2004: CME Globex executes the one billionth contract traded since its June 1992 launch.

2005: CBOT demutualizes and becomes publicly traded company, listed on New York Stock Exchange.

2006: CBOT and CME sign an agreement to merge into a single company pending regulatory and shareholder approval.

2006: CME becomes a listed component of the Standard & Poor's 500.

July 2007: CME and CBOT officially merge to form CME Group, Inc., capping off an unfriendly takeover attempt to purchase the CBOT by Intercontinental Exchange, announced in March 2007. Though in the end CME won over shareholders, they were forced to spend substantially more than the original purchase price of approximately $8 billion.

Globalization

In a recent article in P&I Online, CME Group's Craig Donohue commented, "There are interesting things taking place right now on a global basis,”...“Having solidified our position in North America, we have really strong capabilities. We are interested in a number of the large developing economies, India, China and the Asia-Pacific region.”

CME and other exchanges over the years have sealed memorandums of understanding with stock and futures exchanges globally. The bilateral agreements basically cover a loose exchange of information and technical cooperation, but they represent bridges that could lead to stronger ties in the future. [11] However, CME Group recently signed a letter of intent with South Korea's Korea Exchange to list the popular Kospi 200 futures contract in 2008.

In November 2007 Donohue told Reuters that CME Group would be interested in entering "all the BRIC countries (Brazil, Russia, India and China) and also other emerging markets that may not be as large as the BRICs," though he did not disclose what percentage of total revenue CME Group would expect to earn from those markets, indicating only that it would be significant. Donohue said he sees the exchange's recent purchase of ten percent of Brazil's BM&F, the world's fourth largest futures exchange, adding to revenue in the "immediate to near term."

Donohue said the Brazilian deal and CME Group's agreement with Korea "are examples of the kind of global strategy we might have, to diversify our products...We want to have products that trade during the Asian time zone and the European time zone, and Latin American markets and track into Asian and Latin American investors."[12]

CME Group Stock Quote

CME Group stock quote - quotes delayed - and history

News

  • On Jan. 28, 2008, CME Group issued a statement responding to rumors about the potential acquisition of NYMEX. It confirmed that the two exchanges were in preliminary discussions and had agreed to a 30-day exclusive negotiating period. Under the terms being discussed, shareholders of NYMEX would receive $36 in cash and 0.1323 of a share of CME Group's common stock (the exchange ratio), in exchange for each NYMEX share. CME Group expects to maintain trading floors in the New York City metropolitan area. The potential transaction also contemplates that NYMEX will repurchase the 816 New York Mercantile Exchange memberships upon closing of the potential acquisition for an aggregate purchase price not to exceed $500 million. CME Group has indicated that terms and conditions could change as negotiations progress and that they will make no further statements regarding the discussions until they are either consummated or terminated.[13]


  • On Oct. 5, 2007, CME Group for the first time surpassed one billion contracts traded electronically in a single year on the CME Globex electronic trading platform, which made its debut just 15 years earlier.[14]


  • On Oct. 24, 2007, CME Group reported that total revenues had increased 106% to $565 million and that net income had increased 94% to $202 million for third-quarter 2007 compared with third-quarter 2006. Diluted earnings per share rose 31% to $3.87 from $2.95.[15]

References

  1. ↑ "CME and CBOT Agree to Increase Merger Offer,” 7/6/08. CME Group. Retrieved on January 19, 2008.
  2. ↑ "Shareholders Approve $11.9 billion CME-CBOT Merger," 7/10/07. Seeking Alpha. Retrieved on January 10, 2008.
  3. ↑ "Big Nymex Shareholder Supports CME's Merger Plan”. WSJ. Retrieved on January 31, 2008.
  4. ↑ "Legacy deal could force CME to boost NYMEX offer,” Feb. 22, 2008. ChicagoBusiness.com. Retrieved on February 23, 2008.
  5. ↑ "CME adds political muscle to Nymex bid; Illinois, N.Y. senators back revised $9.4 billion plan as scrutiny looms,” 3/18/08. Chicago Tribune. Retrieved on March 18, 2008.
  6. ↑ "Membership at CME Group”. CME Group. Retrieved on Jan. 20, 2008.
  7. ↑ "Frequently Asked Questions about Trading Floor Migration," August 2007. CME Group. Retrieved on January 20, 2008.
  8. ↑ "Moving from e-cbot to CME Globex–Product Migration; What You Need to Know: Quick Reference for Traders,” 1/7/08. CME Group. Retrieved on January 20, 2008.
  9. ↑ "CME Group Posts Seventh Consecutive Year of Record Volume on a Combined Basis as Total Volume Approached 2.8 Billion Contracts; Exchange Daily Volume Averaged 11m Contracts per Day, Up 28 Percent,” 1/2/08. CME Group. Retrieved on January 19, 2008.
  10. ↑ Trading Organizations. U.S. Commodity Futures Trading Commission. Retrieved on April 11, 2008.
  11. ↑ "CME on lookout for further expansion". P&I Online. Retrieved on November 1, 2007.
  12. ↑ "International operations to drive CME revenue". reuters.com. Retrieved on November 8, 2007.
  13. ↑ "CME Group and NYMEX Confirm Preliminary Discussions”. CME Group. Retrieved on January 28, 2008.
  14. ↑ "CME Group Surpasses One Billion Contracts Traded on CME Globex in a Single Year; Rise in Volume Seen from Growth in Electronic Options, International Customers and Market Volatility,” 10/5/07. CME Group. Retrieved on January 19, 2008.
  15. ↑ "CME Group Inc. Reports Strong Third-Quarter Revenues and Profits". CME Group. Retrieved on January 19, 2008.

Resources

External links

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