Chicago Mercantile Exchange
| Company type | Public (since December 2002) |
|---|---|
| Industry | Financial services |
| Predecessor | Chicago Butter and Egg Board |
| Founded | January 1, 1898 in Chicago, Illinois, United States |
| Fate | Merged with Chicago Board of Trade (July 2007) to form CME Group Inc. |
| Successor | CME Group Inc. |
| Headquarters | Chicago , United States |
Area served | Global |
Key people | Terrence A. Duffy (Chairman and CEO), Bryan Durkin (President) |
| Products | Derivatives, futures contracts, options, CME SPAN software |
| Owner | Public shareholders (as part of CME Group) |
| Parent | CME Group Inc. |
| Website | www |
The Chicago Mercantile Exchange ('CME), commonly referred to as "the Chicago Merc” or simply "the Merc", is a premier American derivatives market headquartered at 20 S. Wacker Drive in Chicago. Established in 1898 originally as the Chicago Butter and Egg Board, an exchange focused on agricultural commodities, it functioned predominantly as a member-owned non-profit organization throughout much of its existence. The Merc underwent demutualized status in November 2000, transitioned to a publicly traded company by December 2002, and subsequently merged with the Chicago Board of Trade in July 2007, forming the CME Group Inc., which oversees both exchanges. The current executive team features Chairman and CEO Terrence A. Duffy along with President Bryan Durkin. On August 18, 2008, shareholders sanctioned a merger involving the New York Mercantile Exchange (NYMEX) and COMEX, bringing these entities under the CME Group umbrella. Following this integration, CME's market capitalization exceeded $25 billion within two years.
Presently, CME stands as the largest global exchange by options and futures contracts open interest. It facilitates trading across diverse asset categories such as interest rates, equities, currencies, and commodities. Additionally, the exchange is recognized for developing the widely implemented CME SPAN software, which functions as the official margining solution utilized by over 50 exchanges, clearinghouses, and regulatory authorities worldwide.
Trading platforms
Trading activity is conducted through two primary channels: traditional open outcry and the electronic CME Globex platform, which generates more than 90% of the exchange’s total volume.
Open outcry
During regular trading hours (RTH), the open outcry system involves floor traders gathered in trading pits vocally communicating orders, prices, and quantities related to commodities or derivatives. Participants don jackets of various colors to signify their representing firms and employ intricate hand gestures (known as Arb) that were introduced in the 1970s. Communication also includes the use of headsets among brokers. These pits are recessed areas on the trading floor designed to enhance interaction and can be adjusted in height depending on trading intensity. Although it may seem disorderly, open outcry remains a precise and effective method for executing trades. A detailed visual guide documenting CME’s hand signals used in trading pits has been compiled.
In 2021, CME Group declared the permanent shutdown of most physical trading pits, including those dedicated to grain trading that had been suspended since March 2020 due to the impact of the COVID-19 pandemic.
Electronic trading
The CME Globex Trading System, operating virtually around the clock, is integral to CME’s operations. Initially proposed in 1987 and launched in 1992 as the first international electronic trading platform for futures contracts, it allows traders to execute transactions either from exchange booths or remotely anywhere across the globe. By October 19, 2004, Globex had processed its one billionth trade.
At its inception, CME Globex relied on technology and networks provided by Reuters. In September 1998, a second-generation platform was introduced utilizing an adapted version of the NSC trading system originally developed by the Paris Bourse for MATIF (now part of Euronext).
Market participants connect to CME Globex through protocols such as Market Data Protocol (MDP) and utilize iLink 2.0 for order routing purposes.
Merger
On October 17, 2006, the Chicago Mercantile Exchange revealed plans for an $8 billion merger with the Chicago Board of Trade. The transaction received shareholder approval on July 9, 2007, and was finalized three days later on July 12, 2007, resulting in the creation of the parent entity known as CME Group. Subsequently, on January 13, 2008, the Chicago Board of Trade's electronic trading operations were integrated into CME Globex.
Investigation
In 1984, the U.S. Government Accountability Office conducted an inquiry into the CME, uncovering possible exploitation within the open-outcry trading framework. Although measures were taken to curb misconduct, it is probable that some illicit practices continued.
Products
Originally established in 1898 as the Chicago Butter and Egg Board, the exchange’s initial emphasis was on agricultural futures contracts. It adopted the name Chicago Mercantile Exchange in 1919 and broadened its scope beyond dairy products to include commodities such as potatoes, onions, and cheese. The year 1972 marked a milestone when CME introduced the first financial futures market featuring contracts on seven foreign currencies. By the early 2000s, CME's product lineup encompassed four primary financial categories: commodities, foreign exchange, interest rates, and stock indices.
By 2022, as part of CME Group, the exchange offers an extensive selection of derivative instruments covering commodities, equity indexes, currencies, interest rates, and weather-related products. Agricultural futures include staples like wheat, corn, soybeans, and lean hogs. Metal futures span precious metals, base metals, and ferrous metals. Notably, CME stands alone in providing weather derivatives with futures based on rainfall, snowfall, hurricanes, and temperature fluctuations—a market segment it entered in 1999 with its inaugural weather-linked products.
See also
- Commodity Exchange Act
- Demutualization
- List of futures exchanges
- List of traded commodities
- Securities market participants (United States)
References
- Durica, 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. .