The Chicago Mercantile Exchange (CME or, simply, "The Merc") (NYSE: CME) is an American financial exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a not-for-profit organization. The exchange demutualized in November 2000, went public in December 2002, and merged with the Chicago Board of Trade in July 2007 to become CME Group Inc. The Chief Executive Officer of CME Group is Craig S. Donohue. Currently there are negotiations taking for the Chicago Mercantile Exchange to take over the New York Mercantile Exchange, for a total of 11 billion U.S. Dollars.
CME trades several types of financial instruments: interest rates, equities, currencies, and commodities. It also offers trading in alternative investments such as weather and real estate derivatives.
CME has the largest options and futures contracts open interest (number of contracts outstanding) of any futures exchange in the world.
Trading is conducted in two methods; an open outcry format and the CME Globex® electronic trading platform. Approximately 70 percent of total volume at the exchange occurs on CME Globex.
The open outcry method consists of floor traders standing in a trading pit to call out orders, prices, and quantities of a particular commodity. Different colored jackets are worn by the traders to indicate their function on the floor (traders, runners, CME employees, etc.). In addition, complex hand signals (called Arb) are used. These hand signals were first used in the 1970s. The pits are areas of the floor that are lowered to facilitate communication, sort of 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.
Today the CME Globex trading system operates at the heart of CME. Proposed in 1987, it was introduced in 1992 as the first global electronic trading platform for futures contracts. 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 Globex was first launched, it used Reuters' technology and network. September 1998 saw the launch of the second generation of Globex using a modified version of the NSC trading system, developed by Paris Bourse for the MATIF (now Euronext).
To connect to Globex, traders connect via Market Data Protocol (MDP) and iLink 2.0 for order routing.
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 currently uses outsourced technology platforms, but will move 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 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.
Chicago Mercantile Exchange has a 50-50 joint venture with Singapore Exchange (SGX) to list commodity futures on a Singapore-based platform called Jade, which aims to tap a fragmented but fast-growing market for derivatives. Chicago Mercantile is considering to take a major stake in its partner Singapore Exchange by the end of October 2007 (December 2007: needs update).
- 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. ISBN 10: 3-939533-05-X.