CME Group

In July 2007, the Chicago Mercantile Exchange (CME) merged with the Chicago Board of Trade (CBOT) under the ownership of the CME Group Inc. The following year on August 18, shareholders approved a merger with the New York Mercantile Exchange (NYMEX), with the CME Group remaining the holding company. Prior to the merger of these three entities, they had operated individually for many years and, while staying within the framework of regulating bodies, each had developed its own set of rules. These rules have initially been kept in place as they operate under the CME Group Market Regulation Department. However, recognizing the advantages of having standardized rules, the CME Group has initiated a process it calls “CME and CBOT Rule Harmonization”.

The Chicago Mercantile Exchange (CME) started off as the Chicago Butter and Egg Board in 1898, a non-profit organization serving as a commodity derivative exchange. In November 2000, the exchange demutualized, going public in December 2002, and later merging with the Chicago Board of Trade (CBOT). CME trades a variety of financial instruments, including equities, currencies and commodities, as well as trading in alternative investments such as real estate derivatives. The CME conducts trade by means of both the CME Globex electronic trading platform, and the open outcry format, with the latter only operating during regular trading hours. While electronic trading is making rapid inroads into the stock market investment world, the open outcry format of trading remains a well respected, tried and tested form of trade. Wearing different colored jackets to indicate their various functions, floor traders stand in a trading pit, calling out orders, prices and quantities of a particular commodity. In addition to verbal communication, a set of complex hand signals are used. Known as arb, or arbing, these hand signals are invaluable as the excitement of trading increases, and with it the volume. To the uninitiated a trading pit may seem chaotic, but it works. The electronic CME Globex trading system operates virtually 24/7, allowing market players to trade from anywhere.

The Chicago Board of Trade (CBOT) is believed to be the world’s oldest futures and options exchange, having been established in 1848 as a centralized platform to buy and sell commodities. In 1864, the CBOT was the first ever trading entity to list exchange traded forward contracts, referred to as futures contracts. Trading at CBOT takes place both electronically and by means of open outcry from a trading pit.

The New York Mercantile Exchange (NYMEX) is a component of the CME Group, and handles billions of dollars worth of metals, energy products and other commodities which are bought and sold both on the trading floor and by means of the overnight electronic trading systems. NYMEX is regulated by the Commodity Futures Trading Commission, with individual companies trading on the exchange being represented on the exchange floor by their own employees, with NYMEX employees merely recording transactions, not negotiating them.

Together, under the ownership of the CME Group, these trading entities offer comprehensive services to stock market players and the companies listed with them.

 



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