Chicago Mercantile Exchange - Explained
What is the Chicago Mercantile Exchange?
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Table of ContentsWhat is the Chicago Mercantile Exchange?What Does the Chicago Mercantile Exchange Do?Academic Research on the Chicago Mercantile Exchange
What is the Chicago Mercantile Exchange?
The Chicago Mercantile Exchange (CME) is a Chicago-based facility that offers futures and options trading services in industry segments such as agribusiness, power, stock market index, currency, real estate and commodities. The Chicago Mercantile Exchange is the global leader in the derivatives market and has a diverse range of futures and options on offer.
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What Does the Chicago Mercantile Exchange Do?
The Chicago Mercantile Exchange (CME) began operations as Chicago Board on Oil and Eggs in 1898. It acquired its present name in 1919. In 2000, CME transitioned into a demutualized, shareholder-owned corporation - the very first of its kind to do so. CMEs first futures contract was for frozen meat products in 1961. In 1969, the exchange incorporated financial futures and currency undertakings. Three years on, CME became the first exchange to offer interest rate, bond and futures undertakings. CMEs merger with the Chicago Chamber of Commerce in 2007 led to the creation of the CME Group as one of the largest financial exchanges anywhere. The following year saw the acquisition of NYMEX Holdings Inc. by the group. This was a significant move because it allowed CME Group to exercise control over both the New York Mercantile Exchange (NYMEX) as well as Commodity Exchange, Inc. (COMEX) - the two companies held by NYMEX Holdings. The CME Group went on to acquire a 90% majority stake in the Dow Jones Stock and Financials Indices in 2010, and followed it up by acquiring the Kansas City Board of Trade just two years later. In 2017, CME ventured into Bitcoin futures trading. The CME Group claims to process an average of three billion contracts per year, amounting to $1000 trillion, or roughly 15 times the GDP of the world! CMEs Globex electronic trading platform has ensured that 80% of all CME trading is electronically processed. CME Clearing is another subsidiary of the CME Group that provides central counterparty clearings. The unpredictable nature of global events makes it all the more necessary for financial managers and businesses to have anti-risk devices in place so as to lower the risks associated with negative price movements. Futures especially come in handy in such situations - forward contracts make it possible for sellers to know beforehand what price their products will sell for in the market. Similarly, futures also benefit buyers by giving them an accurate figure of what they will have to pay for products at a stipulated time in the future. The immense popularity of futures as hedging instruments cannot be underemphasized. However, speculators habitually take opposite sides, attempting to benefit from price fluctuations of commodities, while assuming all underlying risks typically associated with such endeavors. The CME Group offers a modulated, realizable and integrated mechanism for the trading of futures and options. Moreover, the family of futures exchanges also provides other trading services such as settlement, clearing and reporting.