Chicago Stock Exchange: history and interesting facts

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Many people are very interested in the activities of various stock and commodity exchanges. At the same time, most of the inhabitants have developed a very persistent stereotype that such trading floors must necessarily have a large number of people who, at the same time, are constantly shouting something and constantly talking on the phone about something. Yes, indeed, a few years ago, this was exactly how the exchanges worked, but nowadays their activities have changed somewhat. In this article, we will consider the functioning of an international trading point called the Chicago Mercantile Exchange CME.

Features

Many are more accustomed to stock exchanges, where stocks and securities are traded. But if you study how the Chicago Mercantile Exchange works, you should immediately point out that it trades in various natural resources, agricultural products and futures for them. At the same time, there is another similar exchange in the USA - New York.

Role in the global economy

Chicago Mercantile Exchange is the world's first such trading platform. Immediately, we note that it is impossible to fully assess the sizecapitalization or the number of companies, like the stock exchange. However, it is quite possible to estimate the volume of its trading, which is really colossal. Over a month, CME conducts transactions worth over two trillion US dollars, which is many times more than on stock exchanges. In addition, the Chicago Stock Exchange has the widest range of its assets. This international retail establishment is located in a building adjacent to the Willis Tower, the tallest building in the world until 1998.

Affiliation

Let's dwell separately on a 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 the largest organization that has firmly taken first place on the planet in the field of asset trading, ranging from currency derivatives to energy and agricultural products.

Causes of occurrence

Erie Canal was built in the United States of America in the early 19th century. Its main task was to provide fast and uninterrupted transport links between the central and eastern states of the country. This event led to the strong development of two large cities - Chicago and New York. In addition, Chicago is also a powerful railway hub, which quite logically made it the main connecting element between the farms of the state center and the megacities of the US East. It was also possible for Chicagocalled the main warehouse of the country, because due to the frequent disruption of communication between regions, the issue of storing perishable products became acute, and therefore this city was literally “overgrown” with huge warehouses and became the main granary of the entire North American state.

First auction

Answering the question: "When was the Chicago Mercantile Exchange founded?", we indicate that it was 1874. Initially, it specialized exclusively in the trade in agricultural products and was called the butter and egg chamber. Due to the fact that the goods were very specific (they could not always be delivered), futures began to be used from the first days of the exchange.

In 1895, this board was replaced by the Produce Exchange Butter and Egg Board, which has more convenient and understandable conditions for active trading. However, the civil armed confrontation that began led to the formation of an independent platform called the Chicago Butter and Egg Board, which became a real prototype of the current trading platform.

On the brink of collapse

Despite the fact that the Chicago Mercantile Exchange is the largest of its kind in the world, even it has not escaped the brink of bankruptcy. It happened in the 1960s. Everything was to blame for extremely rash experiments with the introduction of new products to the market. Initially, these were futures contracts, which were concluded for the purchase of cheeses, apples, ideas, however, the volumes of contracts concluded under thesegoods were very low. After that, oil and potatoes were completely removed from the auction, because the demand for their purchase was practically zero. The adoption at the legislative level of a regulatory legal act that completely banned the onion trade can also be considered a historical moment. Congressmen justified their decision by the fact that in this way the rights of manufacturers would be protected, because there were suspicions of fraud on the stock exchange. All this in total led to the fact that the functioning of the exchange almost completely ceased. Its complete closure was already approaching, but in the end it not only “survived”, but also began to gain momentum again.

Resumption of trading

Chicago Mercantile Exchange, or rather its management, in every possible way sought out chances for continuing work. And the work was rewarded. In 1966, a futures contract for frozen pork, which is used to make bacon, hit this trading floor. The uniqueness of this contract is that it was the first in the history of world exchange trading. But to store this product, special freezers were needed. And at the same time, another successful livestock contract appears on the stock exchange, which no longer required warehousing. All these agreements and several other innovations contributed to the fact that the exchange came to life again. Its popularity began to grow day by day, and it became more expensive to be a member: three thousand in 1964 rose to 8.5 thousand in 1965. In 1968, a membership card had a record price of 38,000 US dollars.

Breaking Age

The Chicago Board Options Exchange received new management in the 1970s who reasoned that the scale of the growing trade literally required the introduction of new instruments to hedge against currency risks. As a result, in 1972 they opened a new section of the exchange called the International Monetary Market (IMM). The exclusivity of this step was that this section became the very first futures platform on the planet for the available base currencies. Bidding on it immediately went very actively and for large sums. The range of assets grew rapidly, and therefore the Chicago Stock Exchange gained momentum. Later, several more innovations were introduced: contracts for eurodollar rates, mini-contracts were approved, and futures for various indices. Thus, the involvement of the trading platform has become maximum.

Ecommerce

Chicago Futures Commodity Exchange launched its first electronic trading systems in 1987, already quite far from us. At that time, most traders were very skeptical about this idea, because they believed (and rightly so) that as a result of this the market would be divided into two large parts, and they would lose their advantages. However, this was just an experiment.

The finalized and fully thought-out trading electronic network appeared on the exchange only five years later. She received the name CME Globex. Initially, it functioned only as an auxiliary addition to open auctions at a time when they were already physically closed. In 1998, the system was maximally modernized. The result was a pool of screaming traders located in the hall and traders placing orders directly in the system. At the same time, it was immediately stipulated that absolutely all participants in the ongoing auction were equal in their rights. However, many traders were forced to leave the trading floor after all, as they paid rather high membership fees, but did not receive any preferences in return.

A decisive step

In 2000, the leaders of the exchange decided to place its shares on the New York Stock Exchange. With this CME GROUP, the Chicago Mercantile Exchange became the first in the US to publicly sell its shares. At the end of 2002, they held a placement of shares in the amount of 191 million US dollars. Since then, the conglomerate has grown exponentially, but the company's securities are still traded to this day. The managers attracted the profits received for the development of innovative technologies, the introduction of new options, and the expansion of the sales network itself. This approach has fully justified itself, because in just a few years, trading migrated to electronic platforms, and traders began to work from anywhere in the world, due to which the trading turnover of the exchange itself and the profit of the concern increased.

Toolkit

The Chicago Stock Exchange today can offer its clients four main types of assets as assets:

• Commodity, traditional contracts (mostly livestock and dairy products).
• Interest rates. The main position is occupied by the euro-dollar.
• Money from G10 countries and developing countries.
• Stock indices.

Chicago Stock Exchange trades three dozen options and fifty futures contracts for world currencies. At the same time, there is a division into the currencies of the Big Ten states, the currencies of developing countries and mini-contracts. The latter option is very convenient due to its small volumes and minimal costs, and therefore it is widely demanded by those traders who came to trade on the stock exchange from Forex. The amounts of transactions concluded on IMM are simply colossal and amount to within 100 billion dollars a day. The Russian ruble also takes part in transactions, however, the bulk is accounted for by the dollar, euro, yen and British pound.

If we talk about agricultural products, then the first place in this category belongs to the corn exchange. About 600,000 contracts are fixed on the trading floor per day. In this case, the volume of culture is within 3B bushels (or 100M cubic meters).

As for wheat, which is the number one crop in Russia, its sales volumes significantly lag behind corn on the Chicago Stock Exchange - three times.

Interesting facts for online traders

If we compare the commodity exchange with the stock exchange, it is worth noting that the former is more speculative, unlike the latter. This is due to the fact that the commodity exchange is focused on the real provision of essenti althe needs of customers, and even entire countries in energy, a variety of raw materials and food. A share can be sold, bought or resold immediately or even after many years. But it is much more difficult to resell a barrel of kerosene or a wagon with agricultural products, because after receiving them, the consumer almost immediately uses them for their intended purpose. And that is why network traders show an increased interest in futures and options, because they can be sold in the same way as 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 over the age of 21 can become a member of the Chicago Stock Exchange. At the same time, he must have a good reputation and receive a recommendation from two already existing members of the exchange. Within thirty days from the date of its entry into the exchange, a new member is required to pay a membership fee to the Chicago Trade Association.

Conflict resolution

In the process of trading on the stock exchange, there is a high probability that non-standard situations may arise, the cause of which may be an error, an attempt to commit fraud, and so on. In this case, the conflict on the exchange is resolved by a neutral body - arbitration or an arbitration court.

We hope that this article helped you understand when the Chicago Stock Exchange was founded, its main historical milestones and features.