CME Group, Inc.

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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 Page
Website www.cmegroup.com
Releases Company News

CME Group, Inc., based in Chicago, is the world's largest derivatives exchange, offering a broad array of derivatives contracts, clearing services, market data and indexes products. The publicly traded company had a market cap of $18.97 billion, as of January 2013.

The exchange was 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), its former rival. It expanded further with its August 22, 2008 acquisition of energy and metals exchange NYMEX Holdings, Inc.[3] The two acquisitions resulted in CME Group becoming the largest U.S. futures exchange, with an estimated 98 percent of the US futures volumes, as well as the largest futures exchange in the world.

The 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. [4]

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. 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.

CME Group plans to open an all-electronic European exchange, to be called CME Europe, in mid-2013, starting with currency futures. The European market will be cleared by its own clearing house called CME Clearing Europe.[5][6][7]

CME Group also is a joint-venture minority shareholder of S&P Dow Jones Indices, a benchmark index firm which is 24.4 percent owned by CME Group and 73 percent owned by McGraw-Hill. The partnership, announced in July 2012, provides licensing of benchmark indices, several of which are offered by CME Group as listed contracts.[8]

In October 2013, it was reported that CME Group planned to launch an aluminum futures contract to challenge the London Metal Exchange’s dominance of the largest base metals market.[9] The contract will be physically delivered and resemble the LME contract in many ways, but it will be a monthly as opposed to a daily contract. The CME had tried launching an aluminum contract before, first in 1983, and then in 1999.[10]

On March 20,2014, CME Group announced it would launch shorter-term weekly energy and metal option contracts effective on April 14, in order to boost trading volume. It would launch crude oil, natural gas, gold, silver and copper weekly options on both the trading floors and Globex electronic platform. The new products were based on the popular weekly options in other assets such as interest rates, equities and agricultural products. [11]


CME Group reported that its average daily volume for 2012 was 11.4 million contracts, down 15 percent from 2011.[12]

CME Group ranked first in global exchange volume in 2012 with over 2.8 billion contracts traded, a 14.7 percent decrease from the previous year, according to the FIA Annual Volume Report.[13]

John Lothian News Interviews


Products

CME Group offers contracts in all major asset classes:

CME OTC Products

CME Group offers trading on hundreds of OTC derivatives contracts, from commodities to financial contracts. The exchange offers interest rate swaps, credit default swaps, FX and commodities such as energies, agriculture, metals and commodity index swaps.[15]

In April 2012, CME cleared its first FX OTC non-deliverable forward (NDF) trade, a Brazilian real. It also launched NDF clearing for the Chinese Renminbi Yuan, Philippine Peso, Malaysian Ringgit, Indian Rupee, Korean Won, Taiwan Dollar, Chilean Peso, Colombian Peso, Peruvian Sol, Russian Ruble and Indonesian Rupiah.[16] The exchange also offers cash settled forwards (CSFs) on 26 currency pairs.[17]

On December 3, 2012, CME Group launched trading on swap futures for two-year, five-year, 10-year and 30-year interest rate maturities. Swap futures, which require less collateral than OTC swaps, are converted or delivered as OTC swaps upon expiry and cleared by the CME Clearing. [18] CME also offers other OTC products such as 51 CDX Indices, as well as cash settled forwards (CSFs) on 26 currency pairs.[19]

On March 11, 2009, CME Group announced a deal with Markit to license credit default swap indices covering the multi-trillion dollar market on these forms of insurance against bonds defaulting.[20]

Trading

  • CME Globex is the CME's electronic trading platform versus, which went live in 1992.
  • CME floor trading: CME Group maintains a trading floor and provides member firms with access to electronic order entry to the floor, API connections, electronic order transmission devices for floor-based member firm desks (COMET), and automated trade data routing into bookkeeping. [21]
  • CME Direct is the exchange's side–by–side platform for online trading of exchange listed and OTC markets through a single application. On July 31, 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. [22]
  • CME & BM&FBOVESPA have a strategic partnership that allows their customers to trade contracts of both exchanges in real time. Investors who want to trade CME Group products by routing orders from BM&FBOVESPA to CME Group must be registered as BM&FBOVESPA Derivatives Clearinghouse customers and comply with the CME Group requirements for participation. BM&F BOVESPA customers have access to the CME Group contracts through the same trading system on which they trade in their domestic market.
  • 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.[23] 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.[24] To view a video overview of CME Group's Colocation Services, click HERE.

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.

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. [33] [34]

Management Team

  • Terrence Duffy, Executive Chairman/President[35]
  • Phupinder Gill, CEO
  • Kathleen Cronin, Senior Managing Director, General Counsel and Corporate Secretary
  • Bryan T. Durkin, Chief Operating Officer and Senior Managing Director, Products and Services
  • Julie Holzrichter, Senior Managing Director, Global Operations
  • Kevin Kometer, Senior Managing Director and Chief Information Officer
  • James Parisi, Chief Financial Officer and Senior Managing Director, Finance and Corporate Development
  • Hilda Harris Piell, Senior Managing Director and Chief Human Resources Officer
  • John W. Pietrowicz, Senior Managing Director, Business Development and Corporate Finance
  • Linda D. Rich, Senior Managing Director, Government Relations and Legislative Affairs
  • Derek Sammann, Senior Managing Director, Foreign Exchange and Interest Rate Products
  • Kim Taylor, President, CME Clearing House Division
  • Ken Vroman, Senior Managing Director, Commodity Products, OTC Services and Information Products
  • Scot E. Warren, Senior Managing Director, Equity Index Products and Index Services

Contract Volume

Year Total Annual Volume* Percent Change World Ranking
2012 2,890,036,506 (-) 14.7% 1
2011 3,386,986,678 (+) 9.9% 2
2010 3,080,492,118 (+) 19% 2
2009 2,589,551,487 (-) 21% --
2008 3,277,645,351 (+) 3.8% --
2007 3,158,383,678 (+) 26.97% --

2012

Exchange Volume Percent Change
Chicago Mercantile Exchange 1,429,853,403 (-) 20.8%
Chicago Board of Trade 943,717,276 (-) 9.1%
New York Mercantile Exchange 516,465,827 (-) 5.2%
CME Group 2,890,036,506 (-) 14.7%

(*)Volumes include CBOT and NYMEX. [36]

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 15 years earlier.[37]

History

Also See: CME Group History Timeline

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 the introduction of financial futures in the 1970s, to electronic trading in the early 1990s, and demutualization in the early 2000s. At the time of the merger in July 2007, the CBOT and CME were 159 and 109 years old, respectively.

Mergers, Acquisitions and Joint Ventures

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.[56], Osaka Securities Exchange, Russian Trading System Stock Exchange and Singapore Exchange Limited.

Index partners include Dow Jones Indexes, NASDAQ, Nikkei Inc. and Standard & Poor's.[57]

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. [58]

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.[59] The Family Farmer and Rancher Protection Fund, which began accepting applications on April 3, 2012,[60] 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.[61]

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.[62]

Resources

References

  1. "CME and CBOT Agree to Increase Merger Offer,” 7/6/08. CME Group.
  2. "Shareholders Approve $11.9 billion CME-CBOT Merger," 7/10/07. Seeking Alpha.
  3. "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.
  4. Cleared OTC Interest Rate Swaps: Overview. CME Group.
  5. CME Planning Europe Exchange To Compete With Eurex, Liffe. Bloomberg Businessweek.
  6. DERIVATIVES: CME plans European derivatives venture. IFRE.
  7. CME Europe Plans to Add Currency Options at London Venue. Bloomberg.
  8. McGraw-Hill, CME Group Start S&P Dow Jones Indices Venture. FIA.
  9. CME takes on LME with aluminium contract. The Financial Times.
  10. Third Time Lucky? CME Set To Launch Aluminum Futures. The Wall Street Journal.
  11. CME Group to launch energy, metal weekly options in April. Reuters.
  12. CME Group Volume Averaged 9.6 Million Contracts per Day in December 2012, Up 1 Percent from December 2011, and 11.4 Million Contracts per Day in 2012. CME Group.
  13. FIA Annual Volume Survey: Trading Falls 15.3% in 2012. Futures Industry Magazine.
  14. Allan Schoenberg on the Evolution of CME Group’s Social Media Strategy. John Lothian News.
  15. About OTC Derivatives. CME Group.
  16. CME Group Expands Multi-Asset Class OTC Offering with First Cleared FX Non-Deliverable Forward. CME Group.
  17. CME Group OTC FX Clearing. CME.
  18. CME to launch interest rate swap contract. FT.
  19. CME Group OTC Clearing. CME.
  20. CME Group deal with Markit Brings It Closer To Credit Default Swap Market. NewsCred.
  21. CME Floor Trading. CME Group.
  22. CME Direct Messenger. Reuters.
  23. CME Co-Location Services launch date announced. Automated Trader.
  24. CME Co-Location Services. CME Group.
  25. CME Clearing Europe Expands its Metals Offering with Two Iron Ore Contracts. CME Group.
  26. European Clearing for OTC Commodity and Financial Derivatives. CME Group.
  27. CME to push clearing rate swaps in London. FT.
  28. Press Release. CME Group.
  29. CME Group Announces the Launch of Dow Jones-UBS Commodity Index Swap Futures. PR Newswires.
  30. CME ClearPort: Celebrating Seven Years of OTC Clearing. CME Group.
  31. How Does Your Margin Grow?. Investopedia.
  32. SPAN. CME Group.
  33. CME Group Announces Approval of CME European Trade Repository. PR Newswire press release.
  34. CME European Trade Repository. CME Group.
  35. Management Team. CME Group.
  36. Trading Volume Statistics. Futures Industry.com.
  37. "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.
  38. CME/CBOT merger goes through. Futures Magazine.
  39. CBOT Holders Choose To Merge With CME. Forbes.
  40. "Membership at CME Group”. CME Group.
  41. CBOT Agricultural and Equity Index Products Begin Trading on CME Globex. CME Group.
  42. CME boosts NYMEX trading rights offer to $750,000 7/18/08. Dow Jones.
  43. CME 'sweetens' NYMEX offer with buyback, dividend 6/23/08. MarketWatch.
  44. Nymex Shareholders Approve $8.3 Billion Takeover by CME. New York Times.
  45. CME Group to Buy Kansas City Board of Trade for $126 Million. Bloomberg.
  46. Press Release. PR Newswire.
  47. CME Group Completes Acquisition of Kansas City Board of Trade. PR Newswire, via CME Media Room.
  48. CME to Close Kansas City Board of Trade Pits in June. Dow Jones Newswires, via NASDAQ.
  49. About S&P Dow Jones Indices. S&P Dow Jones Indices.
  50. CME-McGraw-Hill Launch S&P-Dow Jones. Zachs.
  51. About CMA. CMAVision.com.
  52. CME Group to Acquire Credit Market Analysis. Bloomberg.
  53. CME Group and Thomson Reuters to Close FXMarketSpace Joint Venture. CME Group.
  54. Who’s afraid of single-stock futures?. Medill Reports.
  55. The Wallendas Hit Wall Street. Forbes.
  56. National Stock Exchange of India and CME Group Announce Cross-Listing Relationship. PRNewswire-FirstCall.
  57. Growing Global Presence. CME Group.
  58. CME's Duffy Says MFGI Moved Customer Funds. Futures Magazine.
  59. CME Will Protect Farmers' Hedges. Wall Street Journal.
  60. CME Group opens registration for Farmer Protection Fund. Futures Magazine.
  61. CME Creates $100 Million Fund for Farmers and Ranchers. New York Times Dealbook.
  62. Open Letter. CME Group.