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CME Group, Inc.
CmeGroupLogo.gif
Founded July 12, 2007 (through Chicago Mercantile Exchange Holdings and CBOT Holdings merger)
Headquarters Headquarters: 20 South Wacker Drive, Chicago, IL 60606 (plus other CME Group offices domestic and international)
Key People Terrence Duffy, Executive Chairman/President; Phupinder Gill, CEO
Products Interest rate, equity index, foreign currency, commodity futures and options and alternative investments (e.g. weather, real estate)
Twitter @CMEGroup
StockTwits CMEGroup
LinkedIn Profile
Facebook CMEGroup
Website www.cmegroup.com
Releases Company News

CME Group, Inc., based in Chicago, is a global derivatives marketplace that handles, on average, 3 billion contracts with a notional value of $1 quadrillion daily. The company, which in 2002 transformed from a privately-held, member-owned exchange to publicly traded company, has a market cap of $30 billion, as of January 2016. The group consists of four U.S. exchanges the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), New York Mercantile Exchange(NYMEX) and COMEX, and CME Europe, launched in 2014, offering futures on 30 foreign currencies and biodiesel.

CME Group's product complex spans all major asset classes, including: futures and options on interest rates, equities indexes, currencies, commodities, energy products, precious metals and alternative investment instruments such as weather and real estate derivatives. The exchange also pushed into the OTC interest rate swaps space in 2012, offering futures and clearing of those contracts. [1]

CME Group’s trading runs largely on its electronic platform called Globex with local electronic access hubs around the world that provide trading almost 24 hours per day, six days per week. Traditional floor-based trading is still featured at its trading facilities in Chicago in the Chicago Board of Trade building and New York on the former New York Mercantile Exchange floor, but is largely being phased out. Other exchanges, such as the Minneapolis Grain Exchange and Kansas City Board of Trade, which was acquired by CME in 2012, also run their electronic trading on the Globex platform.

The exchange is supported by CME Clearing, which clears not only its traditional futures contracts but also OTC contracts in interest rates, swaps, FX and commodities.

Exchange Histories

For a recap of the history of each of CME Group's business units pre-merger, visit the following pages:

Also See: CME Group History Timeline

Exchange Demutualization, Mergers and the End of Open Outcry

Up to the 1990s, exchanges were made up of member-owned, privately held organizations, with boards, and thus the decision-making process, comprised of members (called "seat owners"). In anticipation of transitioning to a publicly traded company, the exchanges, beginning with CME, "demutualized," or split each seat into two parts - trading rights (which allowed members to act as traders and brokers on the exchange), and equity shares. This move essentially transferred the decision making process from members with often competing interests to a board whose chief concern is to act in the best interest of the company as a whole.

In 2002, CME became the first U.S. exchange to go public, with an initial public offering (IPO). CBOT and NYMEX followed in 2005 and 2006 respectively.[2]

Once the demutualization and IPO phase was complete, the merger phase began. In July 2007, the 109-year-old Chicago Mercantile Exchange (CME) and the 159-year-old Chicago Board of Trade (CBOT), its former rival, agreed to a merger under the name "CME Group."[3] [4] The group expanded further with its August 22, 2008 acquisition of energy and metals exchange NYMEX Holdings, Inc., which included the NYMEX energy products plus the metals complex at NYMEX's COMEX division.[5] The acquisitions resulted in CME Group becoming the largest U.S. futures exchange, which at the time represented 98 percent of the US futures volumes.

In 2012, the company paid $126 million for the Kansas City Board of Trade, ending a history of Kansas City grain trading dating to 1856. It sold the KCBOT building in January 2014.[6]

In February 2015 the company announced it would close most of its futures trading pits in Chicago and New York, and July 5, 2015 marked the last day for nearly all of the floor-based futures pits. One exception is the S&P 500 futures market, which remains open on the Chicago trading floor.[7] The options pits, which have remained active in the face of electronic trading, will mostly remain open in both cities.[8] CME said it expects to save $10 million per year by closing the futures pits.[9]

For more on the company's mergers, acquisitions and initiatives, see the "Strategic Investments: An In-depth Look" section below

Products and Services

CME Group earns its revenues in three basic categories - trade execution, clearing and data services, including connectivity and access

Trading

The exchanges offer contracts in all major asset classes:

Additionally, CME Group offers trading on hundreds of OTC derivatives contracts, including:

  • Interest rate swaps, including deliverable swap futures of the two-year, five-year, 10-year and 30-year interest rate maturities.[10]
  • Credit default swap indices, via a 2009 licensing deal with Markit[11]
  • FX OTC non-deliverable forwards (NDF) on Brazilian real, Chinese Renminbi Yuan, Philippine Peso, Malaysian Ringgit, Indian Rupee, Korean Won, Taiwan Dollar, Chilean Peso, Colombian Peso, Peruvian Sol, Russian Ruble and Indonesian Rupiah. The exchange also offers cash settled forwards (CSFs) on 26 currency pairs.[12]
  • Commodities such as energies, agriculture, metals and commodity index swaps.[13]

Trading occurs primarily on Globex, its electronic trading platform versus, which went live in 1992. A fraction of its futrures and options volume is transacted via open-outcry, but as of 2015, the trading puits are being phased out. CME Direct is the exchange's side–by–side platform for online trading of exchange listed and OTC markets through a single application. In 2012 CME launched Direct Messenger, an instant messaging platform for energy traders which is part of CME Direct and is fully integrated with CME Clearport. CME's subsidiary Pivot Inc. created the technology surrounding the platform. The tools the platform provides are expected to increase the distribution of request-for-quotes, block orders, complex options and other energy and equity order types. [14]

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 its history, CME Clearing has never experienced a default.

In early April of 2012, CME announced to users of the market that it would adopt several enhancements to its reporting requirements in an effort to further safeguard customer funds at the firm level. Enhancements were put forward in conjunction with recommendations from the National Futures Association (NFA), Futures Industry Association (FIA) and others. In addition to increased reporting requirements, limited reviews of customer segregated, secured and sequestered statements would be put into play on a surprise basis outside of the regular examinations.

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Data Services

In November 2013, the European Securities and Markets Authority (ESMA) approved the CME European Trade Repository as a Trade Repository (TR) under the European Market Infrastructure Regulation (EMIR). The multi-asset trade repository will accept submission of trades across all mandated derivative asset classes, namely interest rates, FX, credit, commodities and equities. It will be based in London. [23] [24]

  • CME Group's Colocation Services, which consists of hosting, connectivity and support services, began operating out of a new facility in Aurora, IL on January 29, 2012.[25] The facility offers equal access for all participants, including equal pricing, equal terms and conditions, and equal lengths of fiber between customer cabinets. The Aurora data center consists of 428,000 square feet of of space, and is served by two 138,000 volt electric service; each originating from a separate generation plant.[26] To view a video overview of CME Group's Colocation Services, click HERE.

Management Team

Contract Volume

Year Total Annual Volume Percent Change
2014 3,442,766,942 8.9%
2013 3,161,476,638 9.4%
2012 2,890,036,506 (-) 14.7%
2011 3,386,986,678 9.9%
2010 3,080,492,118 19%
2009 2,589,551,487 (-) 21%
2008 3,277,645,351 3.8%
2007 3,158,383,678 26.97%

2014

Exchange Volume Percent Change
Chicago Mercantile Exchange 1,775,988,677 14.4%
Chicago Board of Trade 1,171,499,384 7.4%
New York Mercantile Exchange 495,278,881 (-) 4.6%
CME Group 3,442,766,942 8.9%

(*)Volumes include CBOT and NYMEX. [28]

Strategic Investments: An In-depth Look

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Global Partnerships

CME Group has pursued partnerships, memorandums of understanding (MOU) and other deals with exchanges, index providers and others in an effort to secure a global presence.

Exchange partners include BM&FBOVESPA, Bursa Malaysia Berhad, Dubai Mercantile Exchange, GreenX, Johannesburg Stock Exchange, Kansas City Board of Trade, Korea Exchange, Minneapolis Grain Exchange, Multi Commodity Exchange of India, National Stock Exchange of India Ltd.[47], Osaka Securities Exchange, Russian Trading System Stock Exchange and Singapore Exchange Limited.

Index partners include S&P Dow Jones Indices, NASDAQ, Nikkei Inc. and Standard & Poor's.[48]

For more see CME Group's "Global Presence" Page.

MF Global And Peregrine

After the bankruptcy of MF Global in October 2011, CME Group Executive chairman Terry Duffy testified before three separate Congressional panels investigating the bankruptcy. CME Group was the designated self-regulatory organization for the bankrupt FCM. Duffy said in his testimony that customer money had been transferred out of segregation to firm accounts and commingled. [49]

In response to the eroding customer confidence in the wake of the MF bankruptcy, on February 2, 2012, CME Group announced the creation of a $100 million protection fund for farmers and ranchers.[50] The Family Farmer and Rancher Protection Fund, which began accepting applications on April 3, 2012,[51] will bank individuals up to $25,000 and cooperatives up to $100,000 in the event of a broker bankruptcy where there is a shortfall of segregated funds. If a bankruptcy were to exceed the money in the fund, participants would receive a pro rata share.[52]

In late July of 2012, CME Group distributed a letter to customers and to the media, saying that the organization was "appalled by the recent misuse of segregated funds by two firms, MF Global Inc. and PFG, particularly since there has never been anything like it in the history of the futures industry" and said "But while these firms may have been at fault, it's nevertheless our problem as an industry, and this problem needs a solution. Not protecting customer funds is such a fundamental breach of trust that, without question, the current system in which customer funds are held at the firm level must be re-evaluated." CME Group explored the concept of having clearing houses or other depositories hold all customer segregated funds while returning any interest earned on that money back to the FCMs, however, that idea did not garner traction within the industry.[53]

John Lothian News Interviews

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Resources

References

  1. Cleared OTC Interest Rate Swaps: Overview. CME Group.
  2. http://www.cmegroup.com/stories/#!3-ipos. CME Group.
  3. "CME and CBOT Agree to Increase Merger Offer,” 7/6/08. CME Group.
  4. "Shareholders Approve $11.9 billion CME-CBOT Merger," 7/10/07. Seeking Alpha.
  5. "CME Group Inc. Completes Acquisition of NYMEX Holdings, Inc., Expands Its Diversified Product Offerings to Include Energy and Metals and Also Announces Preliminary Election Results". CME Group.
  6. CLeawood firm is acquiring Board of Trade building. Kansas City Star.
  7. CME Group to close most floor-based trading in Chicago, New York. The Chicago Tribune.
  8. Ending an Era, CME Group to shutter most futures pits. Reuters.
  9. CME options traders see open outcry resisting fate of futures pits. Reuters.
  10. CME Group Expands Multi-Asset Class OTC Offering with First Cleared FX Non-Deliverable Forward. CME Group.
  11. CME Group deal with Markit Brings It Closer To Credit Default Swap Market. NewsCred.
  12. CME Group OTC FX Clearing. CME.
  13. About OTC Derivatives. CME Group.
  14. CME Direct Messenger. Reuters.
  15. CME Clearing Europe Expands its Metals Offering with Two Iron Ore Contracts. CME Group.
  16. European Clearing for OTC Commodity and Financial Derivatives. CME Group.
  17. CME to push clearing rate swaps in London. FT.
  18. Press Release. CME Group.
  19. CME Group Announces the Launch of Dow Jones-UBS Commodity Index Swap Futures. PR Newswires.
  20. CME ClearPort: Celebrating Seven Years of OTC Clearing. CME Group.
  21. How Does Your Margin Grow?. Investopedia.
  22. SPAN. CME Group.
  23. CME Group Announces Approval of CME European Trade Repository. PR Newswire press release.
  24. CME European Trade Repository. CME Group.
  25. CME Co-Location Services launch date announced. Automated Trader.
  26. CME Co-Location Services. CME Group.
  27. Management Team. CME Group.
  28. Trading Volume Statistics. Futures Industry.com.
  29. CME/CBOT merger goes through. Futures Magazine.
  30. CBOT Holders Choose To Merge With CME. Forbes.
  31. "Membership at CME Group”. CME Group.
  32. CBOT Agricultural and Equity Index Products Begin Trading on CME Globex. CME Group.
  33. CME boosts NYMEX trading rights offer to $750,000 7/18/08. Dow Jones.
  34. CME 'sweetens' NYMEX offer with buyback, dividend 6/23/08. MarketWatch.
  35. Nymex Shareholders Approve $8.3 Billion Takeover by CME. New York Times.
  36. CME Group to Buy Kansas City Board of Trade for $126 Million. Bloomberg.
  37. Press Release. PR Newswire.
  38. CME Group Completes Acquisition of Kansas City Board of Trade. PR Newswire, via CME Media Room.
  39. CME to Close Kansas City Board of Trade Pits in June. Dow Jones Newswires, via NASDAQ.
  40. About S&P Dow Jones Indices. S&P Dow Jones Indices.
  41. CME-McGraw-Hill Launch S&P-Dow Jones. Zachs.
  42. About CMA. CMAVision.com.
  43. CME Group to Acquire Credit Market Analysis. Bloomberg.
  44. CME Group and Thomson Reuters to Close FXMarketSpace Joint Venture. CME Group.
  45. Who’s afraid of single-stock futures?. Medill Reports.
  46. The Wallendas Hit Wall Street. Forbes.
  47. National Stock Exchange of India and CME Group Announce Cross-Listing Relationship. PRNewswire-FirstCall.
  48. Growing Global Presence. CME Group.
  49. CME's Duffy Says MFGI Moved Customer Funds. Futures Magazine.
  50. CME Will Protect Farmers' Hedges. Wall Street Journal.
  51. CME Group opens registration for Farmer Protection Fund. Futures Magazine.
  52. CME Creates $100 Million Fund for Farmers and Ranchers. New York Times Dealbook.
  53. Open Letter. CME Group.
  54. Allan Schoenberg on the Evolution of CME Group’s Social Media Strategy. John Lothian News.