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35-615: The Chicago Mercantile Exchange ( CME ) (often called " the Chicago Merc ", or " the Merc ") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board , an agricultural commodities exchange. For most of its history, the exchange was in the then common form of a non-profit organization, owned by members of

70-690: A "rule of reason." On October 19, 2005, the initial public offering (IPO) of 3,191,489 CBOT shares was priced at $ 54.00 (USD) per share. On its first day of trading the stock closed up +49% at $ 80.50 (USD) on the NYSE . In 2007, the CBOT and the Chicago Mercantile Exchange merged to form the CME Group. Since 1930, the Chicago Board of Trade has been operating out of 141 West Jackson Boulevard, Chicago, in

105-470: A Constitution. A committee then developed bylaws that were adopted on the first Monday of April by 82 charter members of the Board of Trade. In 1864, the CBOT listed the first ever standardized "exchange traded" forward contracts, which were called futures contracts . In 1919, the Chicago Butter and Egg Board , a spin-off of the CBOT, was reorganized to enable member traders to allow future trading, and its name

140-596: A building designed by architects Holabird & Root that is 605 feet (184 m) tall, the tallest in Chicago until the Richard J. Daley Center superseded it in 1965. This Art Deco building incorporates sculptural work by Alvin Meyer and is capped by a 31-foot (9.5 m) tall statue of the Roman goddess Ceres in reference to the exchange's heritage as a commodity market . Ceres

175-655: A new focus on commodities beyond butter and eggs, including potatoes, onions, and cheese. In 1972, CME introduced the first financial futures market, offering contracts on seven foreign currencies. By the 2000s, CME had expanded to offer four core financial instruments: commodities, foreign exchange, interest rates, and stock indexes. As of 2022, CME operates under CME Group, which offers a number of derivatives products, including commodities, equity indices, foreign exchange, interest rates, and weather. For example, as of 2017, agricultural contracts were offered on products such as wheat, corn, soybeans, and lean hogs . In metal futures,

210-587: A rapid pace since the last triennial survey was undertaken in 2004. Notional amounts outstanding of such instruments totalled $ 516 trillion at the end of June 2007 (according to the Bank for International Settlements [7] ), 135% higher than the level recorded in the 2004 survey (Graph 4). This corresponds to an annualised compound rate of growth of 34%, which is higher than the approximatively 25% average annual rate of increase since positions in OTC derivatives were first surveyed by

245-460: A serious problem. The CBOT took shape to provide a centralized location, where buyers and sellers can meet to negotiate and formalize forward contracts. An early 1848 discussion between Thomas Richmond and W. L. Whiting regarding the propriety of creating a board of trade led to the March 13 meeting merchants and businessmen in favor of establishing it and a resulting resolution for such an establishment and

280-438: A whole range of underlying products. The members of the exchange hold positions in these contracts with the exchange, who acts as central counterparty . When one party goes long (buys a futures contract), another goes short (sells). When a new contract is introduced, the total position in the contract is zero. Therefore, the sum of all the long positions must be equal to the sum of all the short positions. In other words, risk

315-638: Is also the title and subject of a classic novel (1903) by Frank Norris . Trades are made in the pits by bidding or offering a price and quantity of contracts, depending on the intention to buy (bid) or sell (offer). This is generally done by using a physical representation of a trader's intentions with his hands. If a trader wants to buy ten contracts at a price of eight, for example, in the pit he would yell "8 for 10", stating price before quantity, and turn his palm inward toward his face, putting his index finger to his forehead denoting ten; if he were to be buying one, he would place his index finger on his chin. If

350-409: Is often claimed to be faceless because its sculptor, John Storrs , believed that the forty-five story building would be sufficiently taller than any other nearby structure and as a result that no one would be able to see the sculpture's face anyway. However, this popular rumor was disproved, with the sculptor intending to give the statue an ethereal and god-like look by being faceless. On May 4, 1977,

385-550: Is one of the world's oldest futures and options exchanges . On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group . CBOT and three other exchanges (CME, NYMEX, and COMEX) now operate as designated contract markets (DCM) of the CME Group. The concerns of U.S. merchants to ensure that there were buyers and sellers for commodities have resulted in forward contracts to sell and buy commodities. Still, credit risk remained

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420-436: Is transferred from one party to another is a type of a zero sum game . The total notional amount of all the outstanding positions at the end of June 2004 stood at $ 53 trillion (source: Bank for International Settlements (BIS): [1] ). That figure grew to $ 81 trillion by the end of March 2008 (source: BIS [2] ) Tailor-made derivatives, not traded on a futures exchange are traded on over-the-counter markets , also known as

455-538: Is very different, as well as the way they are traded, though many market participants are active in both. The derivatives market in Europe has a notional amount of €660 trillion. Participants in a derivative market can be segregated into four sets based on their trading motives. Futures exchanges, such as Euronext.liffe and the Chicago Mercantile Exchange , trade in standardized derivative contracts. These are options contracts , swaps contracts and futures contracts on

490-564: The CME SPAN software that is used around the world as the official performance bond (margin) mechanism of 50 registered exchanges, clearing organizations, service bureaus, and regulatory agencies throughout the world. Trading is conducted in two methods; an open outcry format and the CME Globex electronic system. More than 90 percent of total volume at the exchange occurs electronically on CME Globex. Operating during regular trading hours (RTH),

525-456: The Chicago Board of Trade Building was designated a Chicago Landmark . The building is now a National Historic Landmark . Today the Board of Trade Building is closely joined by numerous skyscrapers in the heart of Chicago's busy Loop commercial neighborhood. The pit is a raised octagonal structure where open-outcry trading takes place. Operating during regular trading hours (RTH),

560-648: The New York Mercantile Exchange (NYMEX) and COMEX. CME, CBOT, NYMEX , and COMEX are now markets owned by CME Group. After the merger, the value of the CME quadrupled in a two-year span, with a market cap of over $ 25 billion. Today, CME is the largest options and futures contracts open interest (number of contracts outstanding) exchange of any futures exchange in the world. The Merc trades several types of financial instruments : interest rates , equities , currencies , and commodities . CME also pioneered

595-402: The financial crisis of 2007–2008 . Credit default swaps (CDSs), financial instruments traded on the over the counter derivatives markets, and mortgage-backed securities (MBSs), a type of securitized debt were notable contributors. The leveraged operations are said to have generated an "irrational appeal" for risk taking, and the lack of clearing obligations also appeared as very damaging for

630-407: The open outcry method consists of floor traders standing in a trading pit to call out orders, prices, and quantities of a particular commodity or its derivatives. Different colored jackets are worn by the traders to indicate what firm they are a part of. In addition, complex hand signals (called Arb ) are used. These hand signals were first used in the 1970s. Today, however, headsets are also used by

665-593: The BIS in 1995. Notional amounts outstanding provide useful information on the structure of the OTC derivatives market but should not be interpreted as a measure of the riskiness of these positions. Gross market values, which represent the cost of replacing all open contracts at the prevailing market prices, have increased by 74% since 2004, to $ 11 trillion at the end of June 2007. [8] (page 28) Notional amounts outstanding as of December 2012 are $ 632 trillion as per recent survey. The derivative markets played an important role in

700-408: The CBOT trading floor contains many such pits. The steps up on the outside of the octagon and the steps down on the inside give the pit something of the appearance of an amphitheater, and allow hundreds of traders to see and hear each other during trading hours. The importance of the pit and pit trading is emphasized by the use of a stylized pit as the logo of the CBOT. The Pit: a story of Chicago

735-493: The CME trades precious metals , base metals , and ferrous metals. The Chicago Mercantile Exchange is the only market for trading in weather derivatives . It launched its first weather products in 1999. Products include, but are not limited to: futures on rainfall, snowfall, hurricanes, and temperature. Derivatives market The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives . The legal nature of these products

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770-419: The OTC market. These consist of investment banks with traders who make markets in these derivatives, and clients such as hedge funds , commercial banks , government-sponsored enterprises , etc. Products that are always traded over-the-counter are swaps , forward rate agreements , forward contracts , credit derivatives , accumulators etc. The total notional amount of all the outstanding positions at

805-442: The balance of the market. More specifically, interdealer collateral management and risk management systems proved to be inadequate. The G-20 's proposals for financial markets reform all stress these points, and suggest: Chicago Board of Trade 41°52′40″N 87°37′56″W  /  41.877821°N 87.632285°W  / 41.877821; -87.632285 The Chicago Board of Trade ( CBOT ), established on April 3, 1848,

840-422: The brokers to communicate with the traders. The pits are areas of the floor that are lowered to facilitate communication, somewhat 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. An illustrated project to record

875-563: The end of June 2004 stood at $ 220 trillion (source: BIS: [3] ). By the end of 2007 this figure had risen to $ 596 trillion and in 2009 it stood at $ 615 trillion (source: BIS: [4] ) OTC Markets are generally separated into two key segments: the customer market and the interdealer market. Customers almost exclusively trade through dealers because of the high search and transaction costs. Dealers are large institutions that arrange transactions for their customers, utilizing their specialized knowledge, expertise, and access to capital. In order to hedge

910-470: The exchange made attempts to cut down on malpractice, but that it is likely that illegal activity still occurs. Chicago Mercantile Exchange was known as the Chicago Butter and Egg Board when it was founded in 1898, and futures available through the exchange were initially limited to agricultural products. In 1919 the Board was restructured and the name changed to Chicago Mercantile Exchange, which reflected

945-603: The exchange. The Merc demutualized in November 2000, went public in December 2002, and merged with the Chicago Board of Trade in July 2007 to become a designated contract market of the CME Group Inc., which operates both markets. The chairman and chief executive officer of CME Group is Terrence A. Duffy , Bryan Durkin is president. On August 18, 2008, shareholders approved a merger with

980-417: The hand signal language used in CBOT's trading pits has been compiled and published. With the rise of electronic trading, the importance of the pit has decreased substantially for many contracts, though the pit remains the best place to get complex option spreads filled. In 2015, The Chicago Board of Trade officially eliminated the use of open outcry in all agricultural products in favor of electronic trading,

1015-528: The hand signal language used in CME's trading pits has been compiled. CME Group announced in 2021 that it will permanently close most of its physical trading pits, including those for grain trading. They had been closed since March 2020 due to the outbreak of the COVID-19 pandemic . Operating virtually around the clock, today the CME Globex Trading System is at the heart of CME. Proposed in 1987, it

1050-523: The launch of the second generation of CME Globex using a modified version of the NSC trading system, developed by Paris Bourse for the MATIF (now Euronext ). Traders connect to CME Globex via Market Data Protocol (MDP) and iLink 2.0 for order routing. On October 17, 2006, Chicago Mercantile Exchange announced a merger with the Chicago Board of Trade in an $ 8 billion deal. Shareholders of both companies approved

1085-409: The merger on July 9, 2007, and the deal closed on July 12, 2007. The overarching holding company then launched as CME Group. On January 13, 2008, electronic trading at the Chicago Board of Trade shifted onto CME Globex. In 1984, the CME was investigated by the U.S. Government Accountability Office. During this investigation, it was realized that the open-outcry system could be abused. The GAO noted that

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1120-488: The risks incurred by transacting with customers, dealers turn to the interdealer market, or the exchange-traded markets. Dealers can also trade for themselves or act as market makers in the OTC market (source: Federal Reserve Bank of Chicago [5] ). US : Figures below are from the second quarter of 2008 [6] Archived 2007-12-26 at the Wayback Machine Positions in the OTC derivatives market have increased at

1155-419: The trader wants to sell five contracts at a price of eight, they would yell "5 at 8", stating quantity before price, and show one hand with palm facing outward, showing 5 fingers. The combination of hand-signals and vocal representation between the way a trader expresses bids and offers is a protection against misinterpretation by other market participants. For historical purposes, an illustrated project to record

1190-498: Was changed to Chicago Mercantile Exchange (CME). The Board's restrictions on trading after hours on any prices other than those at the Board's close gave rise to the 1917 case Chicago Board of Trade v. United States , in which the U.S. Supreme Court held that the Sherman Antitrust Act of 1890 's language outlawing "every contract ... in restraint of trade" was not to be taken literally, but rather should be interpreted under

1225-439: 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 October 19, 2004, the one billionth (1,000,000,000) transaction was recorded. When CME Globex was first launched, it used Reuters ' technology and network. September 1998 saw

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