Академический Документы
Профессиональный Документы
Культура Документы
SPRING 2008 A MAGAZINE PUBLISHED BY CME GROUP, A CME/CHICAGO BOARD OF TRADE COMPANY
BAXTER focuses on "Best Execution" in Currency markets. Our mission is to open access to
the most competitive and liquid FX markets, in the most ecient way. A choice of our proprietary
multi-bank ECN and a selection of the best 3
rd
party FX venues. Advanced trading functions for professional
traders, delivered over the Web, electronically via the FIX Protocol or a choice of the best ISV's.
BAXTERs product range includes
BAXTER Financial Services Ltd.
www.baxter-fx.com
Tel 24hr: +353 (1) 670 04 55
info@baxter-fx.com
Best Execution in
Currency Markets
Spot-FX & Currency Derivatives
Cutting-edge technology
24hr trading in 70+ currency pairs
Currency Futures
DMA (Direct Market Access) to 3
rd
party Platforms and Exchanges
EFP's Spot-FX
If youre going to succeed,
you need a vision one
thats affordable, practical
and fills a customer need.
Then go for it.
MICHAEL BLOOMBERG
MAYOR, NEWYORK CITY
ON THE COVER
Bloomberg L.P. founder and New
York City Mayor Michael Bloomberg
in Chicago, where he received the
2008 CME Group Fred Arditti Award.
To read CME Group Magazine online, visit us at
www.cmegroup.com/magazine
CME Group Magazine
CME Group
20 South Wacker Drive
Chicago, IL 60606-7499
312.930.1000 tel
312.466.4410 fax
www.cmegroup.com
info@cmegroup.com
Editorial Directors
Anita Liskey, William Parke
Managing Editor
Pamela Plehn
Editorial Advisory Board
Meg Austin (Legal), Neal Brady (Business Development), Tim Doar
(Clearing), Randy Frink (Corporate Marketing), Mary Haffenberg (Product
Public Relations), John Harangody (Commodity Products), Alex Harris
(Corporate Marketing), Jeremy Hughes (EMEACorporate Communications),
Dave Lerman (Equity Products), Chris Mead (Product Marketing), Gail Moss
(Marketing Communications), Robin Ross (Interest Rate Products), Derek
Sammann (Foreign Exchange Products), Allan Schoenberg (Technology
Public Relations)
CME Group Magazine is published by CME Group in conjunction with
Newsdesk Media Inc. and VSAPartners, Inc. All rights reserved.
Newsdesk Media Inc.
700 12th Street, NW,
Suite 700
Washington, D.C. 20005
202.904.2423 tel
202.904.2424 fax
www.newsdeskmedia.com
Maysoon Kaibni, Vice President Business Development
Maryellen Thielen, Consulting Editor
VSA Partners, Inc.
1347 S. State Street
Chicago, IL 60605
312.427.6413 tel
312.427.6534 fax
www.vsapartners.com
Art Directors
David Cooper, Newsdesk Media Inc.
Brock Conrad, VSA Partners, Inc.
Do you have a question for CME Group Magazine?
E-mail us at info@cmegroup.com with your questions and comments,
or to be added to or removed from the mailing list. Further information
about CME Group and its products is available on our Web site at
www.cmegroup.com. Information made available on our Web site does
not constitute part of this document.
The Globe logo, CME
, CME Group
, Clearing360
, E-mini
, Globex
, Ideas
That Change the World
, IMM
and SPAN
, CBOT
and e-cbot
is a trademark of LIFFE
Administration and Management and is used with permission. NASDAQ
is a trademark of The Nasdaq Stock Market, used under license. Pivot Instant
Markets
is a trademark
of Standard & Poors, a division of The McGraw-Hill Companies, Inc.
Swapstream
and sPro
is a
trademark of Bloomberg Financial L.P., a Delaware limited partnership,
or its subsidiaries.
All matters pertaining to rules and specifications herein are made subject
to and are superseded by official CME Group rules. Current CME Group
rules should be consulted in all cases concerning contract specifications.
2008 CME Group Inc. All rights reserved.
CME Group Magazine is printed on recycled paper.
A Newsdesk Media Group Company
MEDIA INC.
Spring
Issue Ten
Successful traders and investors
understand that superior technology
and low trading costs hold the key
to greater returns.
Sl ocks Opl i ons lul ures lorex 8onds lunds
Markets
Worldwide
70from One Account
in over
Options
*
$0.15 - $0.70
per contract
(plus exchange lees)
Futures &
Commodities
$0.25 - $1.20
per contract
(plus exchange lees)
Stocks &
ETFs
*
$0.005 or less
per share
(all-in)
Forex
As low as 1/2 PIP
wide spreads
plus 0.1 - 0.2 of
trade value
Bonds
(all-in)
$1.00 per $1,000
face value (d$10,000)
$0.25 per $1,000
face value (>$10,000)
Interest
USD Fed Funds
-0.25 to -0.50% Paid
USD Fed Funds
+0.50% to 1.5%
Charged
Interactive Brokers
The Professionals Gateway to the Worlds Markets
Interactive Brokers LLC is a member of NYSE, FINRA, SIPC * $1.00 minimum on all orders, no extra ticket charge. No technology surcharges. Commissions above are for US
products, international products available at comparable rates. Supporting documentation for any claims and statistical information will be provided upon request.
05IB08-120
www.interactivebrokers.com
5 SPRING 2008
FEATURES CONTENTS
8 Global Insight 6 From the Top
A letter from the CME Group
executive chairman and CEO
41 Cutting Edge
Gaining Exposure
to the Credit
Derivatives Market
The strategic acquisition
of CMA, a leading provider
of market data, opens new
opportunities for CME Group
12 Guest Column
The Financial Crisis:
Does the Road to Global
Serfdom Lie Ahead?
Bernard Connolly predicted
the collapse of the global market
boom in our spring 2007 issue.
He explains why he was right
and the implications
38 Current Pulse
U.S. Secretary of Agriculture
visits CME Group NYSE
Euronext to purchase metals
complex A new source of
information Survey provides
insights on FX trends
Nonfarm payroll futures
launch CME Group
earns top honors
42 Industry Connections
Insight for Tomorrow
As change accelerates,
CME Group plans to host
a new forum for financial
industry leaders to discuss
trends in global finance,
politics and business
16 Partner Ties
20 Cover Story
26 Market Efficiencies
34 Product Focus
CME Swaps on Swapstream
Efficient and Effective
Soon there will be a better way
to trade interest rate swaps
Clearing the Way
A new look at the futures industrys
longstanding model: centralized
clearing, where futures exchanges
around the world operate their
own clearing houses
30 At Your Service
Two Legacies Under One Roof
Blueprints. Timelines. Meetings.
Now the Chicago-based futures
pits are operating in a single location
for the first time in 100-plus years
Michael Bloomberg:
Inspiration for Innovation
As someone who brought
groundbreaking change to financial
markets, Michael Bloomberg offers
his perspective on innovation
U.S. Grain Contracts Tap
Benefits of CME Globex
Grain contracts traded at the
Minneapolis Grain Exchange,
Kansas City Board of Trade
and Chicago Board of Trade have
come together on CME Globex
The Hunger for New Solutions
The daily headlines discuss rising
food prices and resulting unrest.
Noted economist David Hale looks at
why this is happening and the forces
reshaping global agricultural markets
Spring
Issue Ten
6 CME GROUP MAGAZINE
Craig Donohue (left) and Terry Duffy (right).
7 SPRING 2008
FROM THE TOP
TERRENCE A. DUFFY
Executive Chairman
CRAIG S. DONOHUE
Chief Executive Officer
CME Group has never been known to avoid tough subjects. In this edition of CME Group Magazine,
we take a closer look at a number of the challenging issues our global economy is currently facing.
Those of you who have been reading our magazine for a while may recall our spring 2007 cover
story, Collapse of the Global Boom?by Banque AIGs Global Strategist Bernard Connolly. Written at a
time when most markets were still buoyant, Connolly presciently outlined the economic problems that
were on the horizon. Now that the credit bubble has burst, we have invited Connolly back to provide his
thoughts on the current state of the financial system and global economy.
In the wake of the subprime meltdown and credit crunch, concerns about counterparty risk
have grown. This has turned the spotlight on the role of clearing houses like CME Clearing and revived
the periodic debate about whether the derivatives industry is best served by an exchange-owned or a
utility clearing model. In our view, the derivatives market has been well-served, both in terms of risk
management and product innovation, by the exchange-owned model. Clearing the Way takes a
closer look at the critical factors involved in this debate.
World commodity markets are facing unprecedented volatility and all of us are experiencing
the shock of rising food prices. As is often the case, the issue is far more complex than simply rising
demand and falling supply. In The Hunger for New Solutions,international economist and CME Group
Center for Innovation advisory council member, David Hale, examines various forces at play in one of
the most important global food markets grains and oilseeds.
As participants in a global economy, it is important to understand the trends that directly and
indirectly affect our markets and our lives. With that goal in mind, we are hosting our first-ever Global
Financial Leadership Conference in September. It will provide an opportunity for leaders in our
industry, as well as the broader business and political communities, to discuss vital issues in todays
increasingly challenging environment. We look forward to sharing highlights of the conference with you
later this year.
8
GLOBAL INSIGHT
CME GROUP MAGAZINE
THE HUNGER
FOR NEW
SOLUTIONS
UNDERSTANDING WORLD
FOOD MARKETS
The impact of rising food prices is of global concern. The United
Nations considers food insecurity to be a major emerging risk of
the 21st century. According to the World Economic Forums Global
Risks 2008: A Global Risk Network Report, food prices in 2007
increased 17 percent in China, 4.7 percent in the United Kingdom
and 4.4 percent in the United States. The core of the solution is to
grow more food.
Supply and demand issues have affected the markets as long
as markets have existed. What is noteworthy now is that tradi-
tional supply issues are the most severe they have been in some
time, while, simultaneously, demand is increasing. The result is
a one-two punch for prices.
SUPPLYAND DEMAND IN THE GRAIN MARKETS
The worldwide grain trade represents a classic example of how
supply and demand shape markets. Fundamental supply issues,
including weather witness the recent catastrophic flooding in
Iowa and other Midwestern states and export policies are push-
ing up prices. At the same time, increased demand is coming from
emerging markets, with more corn diverted to the creation of bio-
fuels and fewer soybeans planted as farmers turn to corn as the
grain of choice. Also helping push up prices is the declining dollar,
which makes dollar-denominated products look like attractive
buys, and fuel prices, which are running up the cost of fertilizer
and distribution.
The result? Global grain stocks are declining, placing greater
pressure on prices. According to the International Food Policy
Research Institutes 2007 report, The World Food Situation: New
Driving Forces and Required Actions, wheat and corn production
decreased 12 to 16 percent in the United States and United
Kingdom between 2004 and 2006. Cereal stocks in China, which
constitute approximately 40 percent of total stocks, declined sig-
nificantly from 2000 to 2004 and had yet to recover in 2007.
For most observers of the grain and oilseed markets, climate is
among the biggest factors causing declining global stocks of grain.
For example, due to drought, the Australian wheat crop produced
only 12.7 million tons in 2007-2008 and 9.7 million tons in 2006-
2007, compared with 25 million tons in 2005-2006, according to
the Australian Governments Department of Agriculture, Fisheries
and Forestry.
Some crop experts also cite carbon fertilization, the idea
that plants grow faster and larger as they absorb the atmospheres
increased levels of carbon dioxide. This can result in higher pro-
duction for crops such as rice and soybeans, but not necessarily
for corn, sugarcane and other crops because of temperature and
other factors.
On the other side of the supply-and-demand equation, food
demand is rising as incomes increase in emerging economies
including the fast-developing BRIC nations Brazil, Russia, India
and China especially in cities where people now can afford a diet
richer in calories and protein. In India, meat consumption has
grown 40 percent over the last five years. Demand is rising for
pork in Russia, beef in Indonesia and dairy products in Mexico.
Higher meat consumption creates greater demand for grains to
feed cows, pigs and chickens.
Further competition now exists between food and fuel.
U.S. legislation is fostering demand for ethanol, a renewable
gas that burns cleaner than petroleum gas and is domestically
9 SPRING 2008
Increased demand and insufficient supply are causing food prices
to rise and reshaping how we think about agricultural markets.
By David Hale
International Economist and President of Hale Advisers, LLC
its your trading system,
build it your way...
I can have my coffee exactly the way I want it, so why should my trading system be different.
Well never try to push a one-size-ts-all trading system onto you. Well work with you to deliver tailored solutions, built from modular
components, that maximize the investment youve already made and align with your business strategies.
From high speed trading platforms with global market access, to our pre- and post-trade risk management systems, Patsystems
solutions are designed to enhance derivatives trading performance and trade processing. We call it FlexAbility.
For more information call our sales team at +1 312 922 7600.
www.patsystems.com
11 SPRING 2008
RIGHT: Actress Drew Barrymore
and World Food Program
Executive Director Josette
Sheeran tour the CME Group
agricultural trading floor at the
historic CBOT building.
FAR RIGHT: WFPs Josette
Sheeran tours the Central Grain
Market in Addis Ababa, Ethiopia
where transportation
obstacles can contribute
to food shortages.
produced from corn. Biofuels are expected to consume up to
30 percent of the U.S. corn crop by 2010, according to the
World Economic Forums Global Risks 2008: A Global Risk
Network Report.
Ironically, U.S. ethanol production still contributes only mar-
ginally to meeting domestic demand for transportation fuel, says
Dr. Peter Goldsmith, extension specialist, agribusiness manage-
ment, in the Department of Agriculture and Consumer Economics
at the University of Illinois at Urbana-Champaign.
U.S. ethanol has no role in fuel pricing, while the reverse
holds that ethanol prices are tightly correlated to petroleum prices.
The corn-based ethanol market is still relatively small, so it only
minimally reduces our dependence on foreign oil, Goldsmith says.
Government trade policies also have had an impact on food
prices. The trend is toward increasing export tariffs and decreasing
import tariffs on grain and oilseeds. For example, India has
increased its grain export tariffs while lowering import tariffs on
edible oils. China has announced a further increase in edible oil
imports with projections currently up an additional 14 percent.
The result of keeping domestic production off the global market
while lowering barriers for the acquisition of grain and other com-
modities from the global market has been increased demand for
U.S. grain and oilseed products.
Also worth noting is the recent attention focused on index
funds. According to Commodity Futures Trading Commission
(CFTC) data, there is no evidence that these funds are the cause
of the bull market in grains. Data published by the CFTC indicate
the percentage of open interest held by index funds has remained
relatively constant since 2006, when this data was first published.
This means that, while index fund positions are growing, positions
by commercial and non-commercial participants have been grow-
ing at about the same rate. It should also be noted that wheat
futures, which hit a record $13 in March, closed below $7 in the
beginning of June. Speculators, including index funds, remained
in grain markets throughout the price drop.
All market participants play important roles. The speculators
role is to provide liquidity. Speculators often take on the other side
of the trade when a buyer or seller is needed. They are taking on
the risk someone else wants to lay off. It is also important to note
that speculators participate on both sides of the market holding
both long and short positions.
RESPONDING TO THE MARKET
These issues are reflected in CME Groups grain and oilseed mar-
kets, which provide a venue for price discovery and a means to
manage price risk. As a result of market volatility, increased access
to the markets and expanded trading hours, volume in corn and
soybeans is up 23 and 29 percent, respectively, and wheat volume
is up nine percent.
CME Group has responded to rising volatility and prices
in these markets by increasing price limits for its grain and
oilseed contracts. This move was made to allow market partici-
pants to continue to utilize the contracts for price discovery
and risk mitigation at levels more aligned with todays market.
CME Group also has submitted a petition to the CFTC for
approval to clear over-the-counter (OTC) calendar swaps
for corn, wheat and soybeans and basis swaps for corn. These
OTC swaps would enhance risk management practices, improve
transparency in the OTC grains swap market, and reduce
counterparty credit risk.
P
h
o
t
o
c
r
e
d
i
t
:
W
F
P
/
A
n
t
o
n
i
o
J
a
e
n
Beyond Feeding the Poor
On March 3, actress Drew Barrymore visited the CME Group trading floor at
141 W. Jackson, with Josette Sheeran, executive director of the United Nations
World Food Program (WFP). The two were in Chicago for the Oprah Winfrey
Show where Barrymore announced a $1 million personal donation to the
WFP for feeding Kenyan schoolchildren. But they also made a point to visit
CME Group for insight into the global food markets.
I think the traders have a feel for where things are going, Sheeran says.
Its important for the World Food Program to get a better sense of whether
we are going to see a sustained high level of food prices, to help us help those
who are simply being priced out of the food market.
Although WFPs primary mission is to feed those in need, the organization
also focuses on improving nutrition and quality of life, building assets and pro-
moting the self-reliance of poor people and communities. For more informa-
tion on this organization, please visit www.wfp.org.
12 CME GROUP MAGAZINE
THE
FINANCIAL
CRISIS:
Does the Road
to Global
Serfdom
Lie Ahead
13
In this magazine a year ago, I wrote that a compla-
cent consensus held by the central banking, politi-
cal, media and financial market worlds was totally
wrong. I wrote that credit conditions that formed
the fundamentals of the U.S. economy were likely
to deteriorate dramatically, with profound effects
both on the U.S. financial system and the worldwide
real economy.
The U.S. and world economy had been massive-
ly distorted by then-Federal Reserve Chairman Alan
Greenspans mistaken reaction to the technological
innovation and entrepreneurial dynamism trans-
forming the U.S. economy in the mid-1990s.
Greenspan rightly praised this free-market capital-
ism but totally misread the appropriate monetary
policy response. A year ago, I warned that Greenspan
unwittingly might have delivered free-market capi-
talism into the hands of its enemies. Sadly, that pre-
diction was horribly accurate.
Has the financial crisis opened the door to
world government?
Now, we should have grave fears about the future
organization of the global financial system and the
global economy. It is clear that the U.S. authorities
are prepared to do whatever it takes to fend off the
risk of depression. Unfortunately, whatever it
takes will be very unwelcome to all of us who rec-
ognize the moral and practical superiority of a free-
market capitalist system. Those who do not admit
that superiority are undoubtedly gleeful about the
present mess. They see it as an opportunity to
increase government control.
The global Financial Stability Forum, though a
worthy body in itself, is seeking to issue instructions
to the U.S. Securities and Exchange Commission
SPRING 2008
In the spring 2007 issue of CME Group Magazine, Bernard Connolly
predicted the collapse of the global market boom. He was right. Heres why
along with his views on the implications of todays global financial crisis.
The U.S. economy is still
structurally excellent, but
simply cannot operate except
with real long interest rates
significantly below normal.
By Bernard Connolly
Global Strategist, Banque AIG
and, ultimately, to Congress. British Prime Minister
Gordon Brown is talking about a vision of a global
covenant. . . to build the truly global society. Brown
and some European Union allies may even view the
financial crisis as an opportunity to try to impose
elements of the bureaucratic E.U. model on the
United States.
In April, Greenspan wrote in the Financial
Times that, [F]ree competitive markets are the
unrivalled way to organize economies. We have
tried regulation ranging from heavy to central plan-
ning. None meaningfully worked. He is absolutely
right in that. But he ended, Do we wish to retest
the evidence? There are many who wish to do pre-
cisely that, with a worrying risk that they will get
their way. Why?
Has Greenspan killed free-market capitalism in the
United States?
I wrote a year ago that, The tumor is inoperable,
but fatal if nothing is done. Chemotherapy can halt
the progression of the disease; but at the cost of
severe damage to the overall health of the organism
the global free-market capitalist financial system.
The tumor is a level of real long rates of interest far
below reasonable guesses of the economys potential
growth rate. Greenspan wrote in April that the dra-
matic fall in real long-term interest rates between
2001 and 2006 created housing bubbles and thus a
credit boom-bust in many countries. He is quite
right. But he will no doubt claim that the reason
long real rates fell was some alleged global savings
glut and that Fed [Federal Reserve] policy had
nothing to do with it.
The reality is very different. In March 2000,
the Treasury inflation-protected securities (TIPS)
curve was virtually flat at about 4.4 percent. In June
2007, the 10-year TIPS yield reached 2.83 percent.
In both episodes, the peaks in long rates were nor-
mal somewhat above the expected trend rate of
growth. But both were immediately followed by a
burst bubble NASDAQ in spring 2000, credit in
summer 2007. In both episodes, long rates subse-
quently plunged not because of a global savings
glut but because markets became pessimistic about
the U.S. economys growth prospects.
The U.S. economy is still structurally excellent
but simply cannot operate except with real long
interest rates significantly below normal. That
conclusion is deeply disturbing indeed, tragic. It
implies that free-market capitalism no longer can
work properly in the United States. The real long
rate of interest is the single most important regula-
tor of a capitalist economy. If it once goes seriously
wrong, getting it right again will be extremely
painful and dangerous. The 1930s showed that,
bringing a retreat from free markets even in the
United States.
The Fed implicitly shares the judgment that the
risks involved in trying to put real long rates right
are just too horrible. But avoiding them requires real
14
GUEST COLUMN
long rates to stay aberrantly low indefinitely, bring-
ing misallocated capital, lower productivity growth,
and depressed confidence about the future. Asset
prices would have to go back to substantially over-
valued levels to sustain U.S. domestic demand in
line even with reduced potential growth rates.
Without a new credit bubble, that will require real
interest rates to move ever lower on a secular basis.
The alternative is to allow U.S. real rates to nor-
malize, but to offset the U.S. growth impact by
encouraging further massive dollar depreciation.
That is probably neither financially nor politically
feasible, either for the United States or the rest of
the world.
In short, the United States is, at best, likely to
become an economy with inefficiently allocated
capital, distorted risk-reward incentives, a low rate
of productivity growth, inflated asset prices and
ever-increasing financial vulnerability, all as part of
a Ponzi game. Income-distribution questions will
become more and more politically pointed. Even
worse, this unsatisfactory outcome can be achieved
only if the financial system is bailed out, possibly by
taxpayers. In such circumstances, it is almost
inevitable that financial regulation will become
more intrusive, onerous and harmful to economic
efficiency and economic freedom.
Euro-barbarians at the gate but dont
blame markets
If there had not been a credit bubble, even lower real
rates would have been needed. Those lower rates
would have produced a credit bubble. Ponzi games
and bubbles are symptoms of an underlying problem
distorted intertemporal price signals for which
central banks, not the private financial markets, are
squarely to blame. It is pointless to worry about
price discovery in financial or property markets
unless the central banks are prepared to eliminate
the underlying distortion. To do that, central banks
would have to try to engineer a very sharp rise in
real long rates particularly in U.S. real long rates.
That would be the most irresponsible action of all at
this time.
Policy needs to find a middle way. At one extreme
are the fundamentalists who abhor any government
intervention, however dangerous the liquidation that
could result. At the other extreme are those who want
a more statist financial and economic system. The U.S.
authorities should certainly take no notice of advice
from Europe. Any unavoidable government interven-
tion should be done by people who hate doing it, not
by people who do it gleefully.
CME GROUP MAGAZINE
What we most admire in Greenspan is his devo-
tion to free-market capitalism. He would be well-quali-
fied to advise on the least harmful form of intervention.
However, he now seems to have reverted to the funda-
mentalist camp. That is ironic, given his disastrous, anti-
Austrian reluctance in the mid-1990s to prevent asset-
price booms, which are clear indications of distorted
intertemporal price signals. Did Greenspans failure to
act come from his close association with the prepos-
The United States is, at best, likely to become an economy
with inefficiently allocated capital, distorted risk-reward
incentives, a low rate of productivity growth, inflated
asset prices and ever-increasing financial vulnerability.
terous novelist and philosopher Ayn Rand, who held
the great Austrian-British economist Friedrich von
Hayek in contempt for being insufficiently individual-
ist and too open to an altruistic ethic that supposedly
opened the door to collectivism?
Hayek identified and warned against the road
to serfdom in the world. One has to hope that the
journey will not turn out to have been routed from
Rand via Greenspan.
Solutions should t the risk.
ANDREW COYNE
Managing Director,
Head of FX Prime Finance
and eCommerce, Citi
In the face of global exchange rate uctuations, traders demand risk management
solutions that t. Thats why Andrew Coyne relies on CME Group, the largest regulated
foreign exchange (FX) marketplace in the world. CME Group offers unparalleled liquidity,
with tight bid-offer spreads, in all major currencies including the euro, British pound,
Swiss franc and Japanese yen. By trading on the CME Globex electronic platform, leading
corporate and investment banks like Citi utilize cutting-edge technology to provide
customers with credit-efcient, cost-effective ways to manage FX exposure.
By improving the way markets work, CME Group is a vital force in the global economy,
offering futures and options products on interest rates, equity indexes, foreign exchange,
commodities and alternative investments. Learn how CME Group can change your world
by visiting www.cmegroup.com/info.
The Globe logo, CME
, CME Globex
and
CME Group
and
Chicago Board of Trade