Best Futures Exchange: CME Group

Terry Flanagan

TOTAL TRADING VOLUME ON CME Group increased 10% in 2013, across a broad array of products including agriculture, interest-rate, and energy futures.

For the Chicago-based exchange giant, more volume is a sign that its customers are doing what they need to do. “Our primary accomplishment in 2013 was providing our customers with the risk-management tools they needed,” said CME President and Exec­utive Chairman Terry Duffy.

Terry Duffy, CME Group

Terry Duffy, CME Group

CME’s volume interest-rate in interest-rate futures averaged 5 million contracts per day in December 2013, while foreign-exchange volume averaged 760,000 daily contracts and energy futures trading averaged 1.5 million contracts. Open interest for over-the-counter interest-rate swaps, a gauge of the value of outstanding contracts, rose to $9.1 trillion.

“2013 was one of our better years,” Duffy told Markets Media. “We had numerous vol­ume and open-interest records throughout all our different asset classes over the course of the year.”

CME’s interest-rate complex started churn­ing a bit as the Federal Reserve first pon­dered, and then announced, a plan to taper, or start to unwind its massive program of monetary easing. Volatility “sparked up as macro events began to happen,” Duffy noted. “The Fed is sitting with $4 trillion on its bal­ance sheet, and it needs to figure out what it’s going to do. That was a big conversation in 2013, and our products became quite active around those discussions.”

CME emphasizes product innovation as a fabric of the company, according to Duffy. “I always tell people around here that if we didn’t have competition or innovation, we’d still be trading butter and eggs. And we wouldn’t be very successful at it,” he said. “Competition helped us think differently — innovation is the lifeblood of this industry, and it always will be.”

“We need to always be thinking a couple steps ahead and develop products today for the world to trade tomorrow; before market participants even know they need it,” Duffy continued. “Innovation is critically important to us, and new products are something we are constantly bringing forward.”

As a derivatives exchange operator, CME stands to benefit from the ongoing regulatory push to move the trading of some derivatives from private negotiations, onto a framework of exchange trading and centralized clearing. Having the right technology is necessary to accommodate this transition.

“Our IT department is constantly looking for new developments as it relates to the OTC market,” Duffy said. “We’re now clear­ing a tremendous amount of interest-rates swaps, with CME’s market share surpassing 50%. We filed for a swap execution facility for energy. We’re enhancing our technology for that and for our swap data repository.”

In November 2013, CME announced that one of its clearing systems had been hacked four months earlier. “The ultimate technology function that we are constantly evaluating is security,” Duffy said. “We got hacked, but they did not access any client information. Unfor­tunately, they got into our web-based system, but not our main CME Globex secured sys­tem. That’s a big, important difference.”

Aside from new products, CME also plans further expansion across borders. “We opened up our clearinghouse in London, which is very important,” Duffy said. “I’m hopeful that we’ll get approval for our Lon­don exchange very soon, so we can move forward to list products for trade in the Euro­pean market.

“We believe we have a great opportunity with our different asset classes, the broad­est of any exchange in the world, and our diverse customer base to expand and bring new benefit to European market,” he con­tinued. “And we’ll continue to grow revenue with our partners in Brazil and Kuala Lumpur, Mexico and other countries where we have relationships.”

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