What is the Chicago Mercantile Exchange? Definition and history

The official logo of the Chicago Mercantile Exchange (CME Group)

The Chicago Mercantile Exchange (CME), often referred to as the Chicago Merc, is an organized exchange for investing in futures and contracts. The CME offers futures and, in most circumstances, options in agricultural, oil, stock indexes, FOREX, interest rates, commodities, property investment, and even weather.

CME was initially known as the Chicago Butter and Egg Board as a non-profit organization and was known to trade farming items like wheat and corn.

In the mid-1970s, the CME launched financial futures, which were soon followed by rare metals, bonds, as well as other securities. The Chicago Mercantile Market (CME) is the major futures market in the USA and the world’s 2nd biggest for exchanging derivatives and contracts on futures. 

Established in 1898 as a non-profit company, CME was also the only U.S. financial exchange to demutualize and be a stockholder-owned business in November 2000. Its derivatives and contracts on futures are traded on the CME’s trading platforms, on the GLOBEX digital trading system, and in confidentially brokered deals. 

Screenshot from the official website of CMC Groups' CME Globex
CME Globex video series

CME has 4 key products premised on fixed incomes (such as EUR/USD futures, the globe’s most widely exchanged futures market), equity indexes like the (S&P 500 and 100 futures from the NASDAQ), FOREX and commodity markets.

History of the Chicago Mercantile Exchange (CME)

The history of the Chicago Mercantile Exchange

The CME began as the Chicago Butter and Egg Board, a non-profit organization, in 1898. The company was renamed the Chicago Mercantile Exchange in 1919. C.E. McNeil, S.E. Davis, and O.W. Olson were among the initial developers. Three futures were exchanged on the opening day of operations as the CME, and a maximum of eight were transacted throughout the week.

Following World War I, civilian involvement in markets became legalized. Even though the CME professes to have “invented” futures in numerous promotional collateral, the presently International Commerce Exchange, established in 1970 by associates of the New York Produce Exchange (with whom it eventually merged) and based in New York, was the very first platform to make a deal of futures contracts, commencing on April 23, 1970, 2 years before actually the Chicago Mercantile Exchange. CME became a publicly listed corporation in December 2002.

Shareholders who purchased the firm’s publicly listed Category A stocks at the IPO price received approximately earnings of nearly 3,000%, compared to approximately 340% for the relatively broad equity market. However, they did not receive 100% of CME director chairs – 6 of the 20 CME directors have been voted into office by Class B new shares to shareholders of CME chairs when the exchange transformed from a member-owned organization to a corporate entity in 2000. CME proposed Class B shareholders $10 million in August 2018 in exchange for handing over ownership of 6 board positions as part of a restructuring of the management board.

The exchange claimed in October 2006 that CME and its cross-town competitor, the Chicago Board of Trade, planned to merge, which was completed in July 2007. CME Group is a consolidated company. The CME Group paid $8.9 bn for the New York Mercantile Exchange in March 2008.

The CME made attempts to regulate the market in late 2019 with unrestrained algorithms that led data volumes to skyrocket at the exchange. This volume primarily comprised of computerized messaging displaying fluctuations in quotations to purchase or sell EUR/USD futures.

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