Chicago Mercantile Exchange - 1928

Copyright 2005 David R. Phillps

The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc," or "the Merc") is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization. The exchange demutualized in November 2000, went public in December 2002, and it 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 On August 18, 2008 shareholders approved a merger with the New York Mercantile Exchange.

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.

On October 7, 2008, the Chicago Mercantile Exchange (CME) Group announced that it will be teaming up with Citadel Investment Group LLC to create a transparent electronic trading platform for credit default swaps. The joint venture between CME and Citadel will operate as an independent organization with its own board of directors and management team. The new venture plans to initially provide clearing services for contracts involving credit-default swap indices, which typically have more standardized terms than swap contracts for individual bonds. It is expected to eventually expand its offering to include other derivative indices as well as the multitude of single-name corporate derivatives. Major market participants will be invited to join the platform as founding members, in return for receiving a 30 percent equity portion of the venture.

Trading platforms

Former President George W. Bush at the CME (March 6, 2001). 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 electronically on CME Globex.

Open Outcry

Operating during regular trading hours (RTH), 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. An illustrated project to record the hand signal language of the CME trading pits has been compiled.

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