Many people are very interested in the activities of various stock and commodity exchanges. At the same time, the majority of inhabitants have a very persistent stereotype that there must be a large number of people on such trading floors who constantly shout something and constantly talk about something on the phone. Yes, indeed, just a few years ago, this was how exchanges worked, but today their activities have somewhat changed. In this article, we will consider the operation of an international outlet called the Chicago Mercantile Exchange CME.
Features
Stock exchanges where stocks and securities are traded are much more familiar. But if you study how the Chicago Mercantile Exchange works, you should immediately indicate that it trades various natural resources, agricultural products and futures on them. At the same time, in the USA there is another similar exchange - New York.
Role in the global economy
The Chicago Mercantile Exchange is the first in the world ranking among similar trading floors. Immediately, we note that it is impossible to fully evaluate it by the size of capitalization or the number of companies, like a stock exchange. However, it is quite possible to assess its trading volume, which is really colossal. Over a month, transactions amounting to over two trillion US dollars are carried out on the CME, which is many times more than on the stock exchanges. In addition, the Chicago stock exchange has the widest range of its assets. This international trading establishment is located in a building that is adjacent to the Willis Tower skyscraper - the structure that was the highest in the world until 1998.
Affiliation
Let us dwell separately on the conglomerate called CME Group. The Chicago Mercantile Exchange is part of it, which also includes the New York Mercantile Exchange, which is the world leader in oil trading. Thus, the concern itself is a huge organization that has firmly taken first place on the planet in the field of asset trading, from currency derivatives to energy carriers and agricultural products.
Causes of occurrence
At the beginning of the 19th century, the Erie Canal was built in the United States of America. Its main task was to ensure fast and uninterrupted transport links between the central and eastern states of the country. This event led to the strong development of two major cities - Chicago and New York. In addition, Chicago is also a powerful railway junction, which quite logically made it the main connecting element between the farms of the center of the state and the cities of the East of the United States. Chicago could also be called the main warehouse of the country, because of the frequent interruption of communication between the regions, the question arose about storing perishable goods, and therefore this city was literally “overgrown” with huge storage facilities and became the main granary of the entire North American state.
First bid
Answering the question: “When was the Chicago Mercantile Exchange founded?”, We indicate that it was 1874. Initially, it specialized exclusively in the sale of agricultural products and was called the butter and egg chamber. Due to the fact that the goods were very specific (it was far from always possible to deliver them), from the first days of the work of the exchange, futures began to be used.
In 1895, this board was replaced by the Produce Exchange Butter and Egg Board, which has more convenient and understandable conditions for conducting active trading activities. However, the ongoing civil armed confrontation led to the formation of an independent platform called the Chicago Butter and Egg Board, which became the real prototype of the current trading platform.
On the verge of collapse
Despite the fact that the Chicago Mercantile Exchange is the largest of its kind in the world, but even the edge of bankruptcy has not bypassed it. It happened in the 1960s. Extremely thoughtless experiments with the introduction of new products to the market served as a fault. Initially, these were futures contracts that were concluded for the purchase of cheeses, apples, and ideas, but the volume of contracts for these goods was very low. After that, oil and potatoes were completely withdrawn from the auction, because the demand for their purchase was practically zero. A historical moment can also be considered the adoption at the legislative level of a regulatory act that completely prohibited the onion trade. Congressmen justified their decision by saying that the rights of manufacturers would be protected in this way, because there were suspicions of fraud on the exchange. All of this combined, led to the fact that the operation of the exchange almost completely ceased. Its complete closure was nearing, but in the end she not only “survived”, but also began to gain momentum again.
Resume bidding
The Chicago Mercantile Exchange, or rather its management, in every possible way sought the chances to continue working. And the work was rewarded. In 1966, futures for frozen pork, on the basis of which bacon is made, got to this trading platform. The uniqueness of this contract is that it became the first in the history of world stock trading. But to store this product needed special freezers. And at the same time, another successful cattle contract appeared on the exchange, which no longer required storage. All these agreements and several other innovations have contributed to the fact that the exchange has revived again. Its popularity began to grow day by day, and becoming a member became more expensive: three thousand in 1964 increased to 8.5 thousand in 1965. In 1968, a membership card had a record price of 38 thousand US dollars.
Age of Breakthrough
The Chicago stock exchange of options in the 1970s received a new leadership, which reasoned that the scale of gaining momentum trade literally obliges to introduce new instruments to insure currency risks. As a result, in 1972, a new section of the exchange was opened under the name International Monetary Market (IMM). The exclusivity of this step was that this section was the very first futures platform on the planet for the available base currencies. Bidding on it immediately went very actively and in large amounts. The range of assets grew rapidly, and therefore the Chicago Stock Exchange gained momentum. Later, several more innovations were introduced: contracts for betting on Eurodollars, mini-contracts, futures for various indices were approved. Thus, the involvement of the trading platform has become maximum.
Electronic commerce
The Chicago Mercantile Exchange launched its first electronic trading systems in 1987, which is already quite distant from us. At that time, most traders were very skeptical of this venture, because they believed (and quite reasonably) that as a result of this, the market would split into two large parts, and they would lose their advantages. However, it was just an experiment.
The modified and fully thought out trading electronic network appeared on the exchange only after five years. It is called CME Globex. Initially, it functioned only as an auxiliary supplement to open bidding at a time when they were physically closed. In 1998, the system was maximally modernized. The result was a pool of screaming traders located in the room, and traders who place orders directly in the system. At the same time, it was immediately agreed that absolutely all bidders were equal in their rights. However, many traders were still forced to leave the trading floor, because they paid rather high membership fees, but did not receive any preferences in return.
Decisive step
In 2000, exchange managers decided to place its shares on the New York Stock Exchange. Thanks to this CME GROUP, the Chicago Mercantile Exchange was the first in the United States to publicly sell its shares. At the end of 2002, they placed shares in the amount of 191 million US dollars. Since that time, the conglomerate has grown at times, but the company's securities are traded to this day. The managers raised the profits for the development of innovative technologies, the introduction of new options, and the expansion of the trading network itself. This approach fully paid off, because literally in a matter of years, tenders migrated to electronic platforms, and traders began to work from anywhere in the world, thereby increasing the trading turnover of the exchange itself and the concern's profit.
Tools
The Chicago Stock Exchange today can offer its customers four main types of assets:
- Commodity, traditional contracts (mostly livestock and dairy products).
- Interest rates. The main position is occupied by the euro-dollar.
- Money from G10 and developing countries.
- Stock Indices.
The Chicago Exchange is trading three dozen options and fifty futures contracts on world currencies. At the same time, there is a division into the currencies of the Big Ten, the currencies of developing countries and mini-contracts. The latter option is very convenient for its small volumes and minimal costs, and therefore it is widely demanded by those traders who came to trade on the exchange with Forex. The amounts of transactions on IMM are simply colossal and amount to around $ 100 billion a day. The Russian ruble also takes part in transactions, but the bulk falls on the dollar, euro, yen and the British pound.
If we talk about agricultural products, the first place in this category belongs to the corn exchange. About 600,000 contracts are fixed on the trading floor per day. At the same time, the volume of culture is within 3B bushels (or 100M cubic meters).
As for wheat, which is the number one crop in Russia, on the Chicago Stock Exchange its sales volumes significantly lag behind corn - three times.
Interesting facts for online traders
When comparing a commodity exchange with a stock exchange, it is worth noting that the former is more speculative than the latter. This is due to the fact that the commodity exchange is focused on real satisfaction of the urgent needs of customers, and even entire countries, in energy resources, various raw materials and food. A stock can be sold, bought or resold immediately or even after many years. But a barrel of kerosene or a wagon with agricultural products is much more difficult to resell, because after receiving them, the consumer almost immediately uses them for their intended purpose. And because network traders are particularly interested in futures and options, because they can be sold exactly like various securities. However, trading options and futures means taking on very high risks compared to trading stocks. But at the same time, the return in monetary terms is much faster.
Entry rules
A man who is at least 21 years old can become a member of the Chicago Stock Exchange. Moreover, he must have a good reputation and receive a recommendation from two existing members of the exchange. Within thirty days from the moment of its entry into the stock exchange, a new member must pay a membership fee to the Chicago Board of Trade.
Conflict Resolution
In the process of trading on the exchange, there is a high probability that unusual situations may arise, which may be caused by an error, an attempt to commit fraud, etc. In this case, the conflict is resolved on the stock exchange by a neutral body - arbitration or an arbitration court.
We hope that this article allowed you to understand when the Chicago Stock Exchange was founded, its main historical milestones and features.