CME Group, Inc.
|CME Group, Inc.|
|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)|
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. Its on-exchange activities have been supplemented with a push to offer clearing and execution services to the over-the-counter and swaps markets.
CME Group ranked second in global exchange volume in 2011 with over 3.38 billion contracts traded, an almost 10 percent increase over the previous year. CME Group's full-year 2011 revenues were $3.3 billion and operating income was $2.0 billion.
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. We are exploring 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, increasing protections while preserving the operating model for the vast majority of firms who respect and comply by the rules."
On August 20, 2012, the CME announced its intent to open a European exchange in mid-2013. The exchange will start with currency futures and will progress into other markets. Robert Ray, CME's managing director in charge of international products will lead the new exchange, which will utilize CME Globex for electronic trading and CME Clearing Europe for processing the transactions. The new exchange plans to directly challenge Eurex and NYSE Liffe in the derivatives and OTC space.
Integration of CME and CBOT
Earlier attempts between the two exchanges to reach a merger agreement had been stonewalled by floor traders, when both exchanges were member-owned. The CME went public in 2002 and the CBOT followed suit in 2005, paving the way for a possible merger. By late 2008, the CME had closed its trading floor and moved its remaining pits to the CBOT building.
The formation of CME Group did not result in any change to trading privileges for CME and CBOT members. 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.
A massive integration plan, incorporating operational, staffing and communication issues with customers, stockholders and staff began, to the extent allowable by the U.S. Department of Justice, a number of months before the merger of CME and CBOT was completed in July 2007. Though the CME Group headquarters is located at 20 South Wacker Drive in Chicago, all trading floor operations moved from the CME trading floor to the CBOT floor at 141 West Jackson by mid-2008.
In addition, in January 2008 all legacy CBOT products migrated successfully to the CME Globex platform from e-cbot.. CBOT had already moved clearing of all trades to CME Clearing from its legacy clearing provider, the Board of Trade Clearing Corp., in 2003; thus, this was one huge operational hurdle that did not require consideration during the migration.
NYMEX Acquisition Timeline
In late January 2008, CME Group officially confirmed rumors regarding a potential NYMEX acquisition. Roughly a month-and-a half period of negotiations followed to sort out details of the proposed $11-billion merger, with an announcement made on March 18, 2008.  The terms finalized in March 2008 called for NYMEX shareholders to receive $36 and 0.1323 shares of CME Group for each NYMEX share. It also included a bid to buy the 816 NYMEX memberships for $612,000 each.
On June 24, 2008, CME Group received an unconditional approval from the U.S. Department of Justice to acquire NYMEX. CME Group followed up with a slightly sweetened offer in June 2008, announcing a CME Group share buyback plan with a special dividend of five dollar per share if the deal was approved. The buyback and dividend were expected to cost CME Group $4 billion in debt.
On July 18, 2008, CME Group revised its bid again increasing the offer for NYMEX memberships to $750,000, from $612,000. The offer would allow members to keep their rights to lease seats for floor trading and maintain the floor trading seat market. The trading floor would also remain in New York as long as it was profitable and met certain trading thresholds. CME Group, which called the deal its "full and final offer," did not change the cash and ratio of shares.  The shareholder vote on Aug. 18, 2008, was successful in terms of the acquisition.
CME Group offers contracts in all major asset classes:
- CME Group interest rate products
- CME Group foreign currency products
- CME Group stock index products
- CME Group commodity products
- CME Group weather products
- CME Group real estate products
- CME Group metals products
CME Group said in May of 2010 that it was targeting a third-quarter launch for new services to handle swap transactions tied to interest rates and currencies. CME aimed to expand its clearing services for over-the-counter derivatives as the exchange operator looks to June for a full roll out of its nascent credit-default swap clearing capability.
In early March of 2012, it was announced that CME Group and MGEX, a designated contract market (DCM) and derivatives clearing organization (DCO), would launch of MGEX-CBOT Wheat Spread Options to begin trading on March 26 of that year. These contracts are listed with, and subject to, the rules and regulations of CBOT. MGEX-CBOT Wheat Spread Options are unique hedging tools based on the price differentials between hard red spring wheat futures listed on the Minneapolis Grain Exchange, Inc. (MGEX) and soft red winter wheat futures on the Chicago Board of Trade (CBOT), which are the result of fundamental supply and demand factors and varying protein levels between these two distinct classes of wheat.
CME Direct Messenger
On July 31, 2012, CME launched an instant messaging platform, CME Direct Message, for traders in the energy markets. The technology surrounding the platform was created by CME's subsidiary, Pivot Inc., which has also built a similar messenger for equity markets. The tools provided are expected to increase the distribution of request-for-quotes, block orders, complex options and other order types within the energy and equity markets and will integrate that technology into pre-trade, trade and post-trade workflows of traders.
Direct Message is part of a wider CME program called CME Direct. Direct is a new technology offering side-by-side trading of exchange listed and over-the-counter energy markets. The platform creates a workflow where traders can message customers or other traders while trading on listed and OTC markets 
CME Group Offices
CME Group offices are located in Chicago (headquarters), Houston, Washington D.C., London, Singapore, Tokyo, Sao Paulo, Calgary, Belfast, Hong Kong and Seoul.
- Terrence Duffy, Executive Chairman/President
- 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
- Laurent Paulhac, Senior Managing Director, OTC Products and Services
- Hilda Harris Piell, Senior Managing Director and Chief Human Resources Officer
- John W. Pietrowicz, Senior Managing Director, Business Development and Corporate Finance
- 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
- Sung Hee Hong, Executive Director, Head of Korean Operations
|Year||Total Annual Volume*||Percent Change|
(*)Volumes include CBOT and NYMEX. 
The U.S. Commodity Futures Trading Commission, an independent government agency, is the regulatory body for CME Group (and all other U.S. futures exchanges). Futures broker members of CME Group, known as futures commission merchants, are registered through the National Futures Association (NFA).
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.
Enhanced Consumer Protections
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.
In 2008, CME introduced Clearing360, an extension of its clearing services to the over-the-counter marketplace. Clearing360 allows hedge funds, proprietary trading firms, and regional banks to substitute OTC trades for cleared only futures positions. The first OTC marketplace to participate in this service was the short-term interest rate swap marketplace, which parallels the CME Eurodollar market. CME expects to extend CME Clearing360 services to other markets in the future.
On Nov. 19, 2008, CME Group announced that it had named Michael O'Connell managing director, clearing business development. O'Connell would be responsible for developing CME Clearing products and services. He would report to Kim Taylor, managing director and president, CME Clearing.
On Nov. 12, 2009, CME Group announced the launch of clearing services for cash-settled swaps on the Dow Jones-UBS Commodity Index (DJ-UBSCI SM) to be launched Monday, December 7. Clearing services will be available through CME ClearPort.
CME Group clearing member firms can be found here.
On May 31, 2002, NYMEX launched ClearPort as a clearing service for bilateral over-the-counter (OTC) natural gas contracts. The platform was started in the aftermath of the Enron scandal, in order to allow energy market participants to mitigate counterparty credit risk.  Over the next five years, NYMEX added product listings in electricity, coal, crude oil, soft commodities, and metals. After NYMEX merged with CME Group, ClearPort was renamed CME ClearPort, and began listing swaps and OTC derivatives associated with other CME Group asset classes. To view a 2-minute video on CME Clearport, click HERE.
In 1988, CME launched its Standard Portfolio Analysis of Risk, or SPAN as the first system to calculate performance bond requirements solely on the basis of overall portfolio risk at both clearing and customer level. SPAN calculates value-at-risk (VaR by using a formula that considers price and volatility scans, inter- and intra-commodity spread adjustments, spot risk, and short option premium risk.
By 2010, the CME SPAN entered its fourth generation, and consists of three software products:
- PC SPAN, A desktop application that offers margin calculation across multiple exchanges.
- SPAN Risk Manager, which combines PC SPAN with a risk analytics package that includes option pricing, stress testing, and other risk analysis.
- SPAN Risk Manager Clearing, which adds real-time margining.
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 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.
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 Derivatives Berhad, Dubai Mercantile Exchange, GreenX, Johannesburg Stock Exchange, Kansas City Board of Trade, Korea Exchange, Minneapolis Grain Exchange, Multi Commodity Exchange of India Ltd, National Stock Exchange of India Ltd., Osaka Securities Exchange, Russian Trading System Stock Exchange and Singapore Exchange Limited.
For more see CME Group's "Global Presence" Page.
On June 8, 2012, The CME Group announced that it will extend open outcry hours on its trading floor by 45 minutes (from 9:30 am - 2:00 pm Monday - Friday Central Time) to coincide with the exchange's Globex hours. Open outcry will also open at 7:20 am on USDA crop report dates to allow trading before the release.  Similar actions were taken by the KCBOT the same week.
On March 12, 2012, it was announced that Terrence Duffy would assume the additional role of president of CME Group upon the retirement of Craig Donohue, who retired on May 1, 2012. Current president Phupinder Gill would move into the CEO position. 
In January of 2012, it was announced that CME Group and the National Futures Association (NFA), in conjunction with the InterContinental Exchange (ICE), the Kansas City Board of Trade (KCBOT) and the Minneapolis Grain Exchange (MGEX) had formed a joint committee to review how self-regulatory organizations could strengthen current safeguards for customer segregated funds held at the firm level in light of the MF Global bankruptcy.
In late 2011, CME Group Executive Chairman Terry Duffy testified before three separate Congressional panels investigating the bankruptcy of MF Global. 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. 
On July 14, 2010, CME COO Bryan Durkin urged the Commodity Futures Trading Commission to give more study to the role of high-frequency trading and algorithmic trading before increasing electronic market regulation. Durkin said tighter regulation could limit the liquidity and efficiency boost from these trading methods. About a quarter of major global futures volume comes from professional high-frequency traders, and the share is expected to increase, according to consultancy Aite Group.
On March 10, 2010, CME Group entered a significant cross-listing partnership with India's largest listed-equities market, the National Stock Exchange of India, involving benchmark stock indexes in the two countries. Futures contracts on the NSE's benchmark S&P CNX Nifty Index (better known as the Nifty 50) will soon be listed on exchanges controlled by the CME Group, denominated in local currency, CME Group announced March 10, 2010. In return, the NSE will be able to list their own futures contracts, denominated in Indian rupees, on the CME Group's S&P 500 and Dow Jones Industrial Average index contracts. NSE entered into a significant cross-listing partnership with the CME Group, the world's largest derivatives-exchange operator, in March of 2010, involving benchmark stock indexes in the two countries. Futures contracts on the NSE's benchmark S&P CNX Nifty Index (better known as the Nifty 50) will soon be listed on exchanges controlled by the CME Group, denominated in local currency, CME Group announced March 10, 2010. In return, the NSE will be able to list their own futures contracts, denominated in Indian rupees, on the CME Group's S&P 500 and Dow Jones Industrial Averages stock index contracts. The contracts commenced trading on July 19, 2010. Also beginning July 19, CME introduced two new contracts as part of its NSE partnership, the E-mini and E-micro S&P CNX Nifty (Nifty 50) futures. On March 11, 2009, CME Group announced that it inked a deal with Markit to license indicies covering the multi-trillion dollar market on these forms of insurance against bonds defaulting.
On Feb. 18 of 2009, CME Group announced it would launch a series of smaller-sized foreign exchange (FX) contracts, called Forex E-Micros, designed to enable retail traders and investors to cost-effectively access the security, transparency and liquidity of CME Group's FX products. The contracts would be listed with, and subject to, the rules and regulations of CME.
On Feb. 3, 2009, CME Group reported that profits fell 69 percent in the fourth quarter of 2008 as trading houses cut back on futures operations and the exchange group wrote down $275 million on a 2007 cross-equity deal. Separately, CME said trading volumes plummeted by more than 40 percent in January 2009 compared with January 2008, with interest-rate trading down nearly 60 percent. That suggested the pace of deleveraging by financial institutions was quickening: in December, CME’s trading volumes fell by 22 percent, while interest-rate volumes were down by 49 percent.
On Oct. 7, 2008, CME Group and Citadel Investment Group, L.L.C., analternative investment and technology firm, announced they had executed a non-binding term sheet to launch a joint venture company within 30 days that would be the first electronic trading platform fully integrated with a central counterparty clearing house for Credit Default Swaps (CDS). CME Clearing would be the central counterparty for this solution.
On Aug. 4, 2008, CME Group announced the appointments of Helen Flanagan as a director of equity markets, and Phillip Hatzopoulos as a director of equity products - OTC. These newly created positions focus on selling and marketing CME Group's suite of equity index products.
On June 17, CME Group announced the appointment of R. Jason Weller as Managing Director, Corporate Strategy. Weller will be responsible for the research, development and implementation of CME Group's strategic plan as well as directing the company's business planning process.
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.
On Oct. 24, 2007, CME Group reported that total revenues had increased 106 percent to $565 million and that net income had increased 94 percent to $202 million for third-quarter 2007 compared with third-quarter 2006. Diluted earnings per share rose 31 percent to $3.87 from $2.95.
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.
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