Our broad range of products includes futures contracts and options on futures
contracts based on interest rates, equity indexes, foreign exchange and commodities.
Our products are traded through our open outcry auction markets, through the CME
Globex electronic trading platform or in privately negotiated transactions that
we clear. These fees include per contract charges for trade execution, clearing
and CME Globex fees. Fees are charged at various rates based on the product traded,
the method of trade and the exchange trading privileges of the customer making
the trade. Generally, members are charged lower fees than non-members. Certain
of our customers benefit from volume discounts and limits on fees as part of our
effort to encourage increased liquidity in our markets. Our markets also generate
valuable data and information regarding pricing and trading activity in our products.
Revenues from market data products totaled $60.9 million, or 8% of our net revenues,
in 2004.
We identify new products by monitoring economic trends and their impact on
the risk management and speculative needs of our existing and prospective customers.
Interest Rate Products. Our interest rate products include our global benchmark
CME Eurodollar futures contract. Eurodollars are U.S. dollar bank deposits outside
the United States. Eurodollar futures contracts are short-term interest rate
products and constitute one of the most successful products in our industry
and one of the most actively traded futures contracts in the world.
The growth of our CME Eurodollar futures market has been driven by the general
acceptance of the U.S. dollar as the principal reserve currency for financial
institutions throughout the world. As a result, Eurodollar deposits have significance
in the international capital markets. Participants in the Eurodollar futures
market are generally major domestic and international banks and other financial
institutions that face interest rate risks from their lending and borrowing
activities, their activities as dealers in OTC interest rate swaps and structured
derivatives products and their proprietary trading activities. Many of these
participants use CME Eurodollar and other interest rate contracts to hedge or
arbitrage their money market swaps or convert their interest rate exposure from
a fixed rate to a floating rate or a floating rate to a fixed rate. Asset managers
also use our interest rate products to lengthen the effective maturity of short-term
investment assets by buying futures contracts, or shorten the effective maturity
by selling futures. CME contracts are an attractive alternative when physical
restructuring of a portfolio is not possible or when futures transaction costs
are lower than the cash market transaction costs.
In 1999, we initiated simultaneous, side-by-side electronic trading in our
CME Eurodollar contract. Trading in CME Eurodollar contracts often involves
complex trading strategies that we believe cannot be fully accommodated by existing
electronic trading platforms. We continue to develop and implement new electronic
functionality to accommodate trading strategies required for electronic trading
of Eurodollar contracts. In August 2004, we launched our enhanced options system
for electronic trading of options on CME Eurodollars for a limited group of
market participants. This system is designed to facilitate trading of complex
combination and spread trades typically used with short-term interest rate options
on futures, within a fully transparent and competitive execution environment.
To make the enhanced functionality available to the entire marketplace, we plan
to link the system with the CME Globex platform in the second half of 2005.
In addition, in October 2004 we introduced new implied spread trading functionality
for CME Eurodollars on CME Globex. This functionality added the capability to
more efficiently establish and liquidate certain spread positions within the
first three years of the ten-year yield curve. In 2004, electronic average daily
volume of CME Eurodollars increased to approximately 593,000 contracts from
approximately 45,000 in 2003. We intend to introduce more functionality that
will accommodate other complex trading strategies electronically.
We intend to increase our revenues from our interest rate product sector by
optimizing pricing of existing products, introducing new products to increase
our trading volume and enhancing the functionality of our CME Globex electronic
platform through the integration of our enhanced options system to increase
the electronic trading volume of our options on futures contracts. We have been
active in adopting new policies and practices that are closely aligned with
customer demand and designed to promote enhanced market penetration.
Equity Index Products. We began offering stock index futures in 1982. Stock
index futures products permit investors to obtain exposure, for hedging or speculative
purposes, to a change in the weighting of one or more equity market sectors
more efficiently than by buying or selling the underlying securities. We offer
trading in futures contracts based upon the S&P 500 Index, NASDAQ-100 Index,
certain Russell indexes and other small-, medium- and large-capitalization domestic
indexes and indexes on foreign equity markets. As of December 31, 2004, our
market share in all U.S. listed stock index futures was approximately 92%, based
on the number of contracts traded.
Standard & Poor’s Corporation designed and maintains the S&P 500 Index
to be a proxy for a diversified equity portfolio representing a broad cross-section
of the U.S. equity markets. The Index is based on the stock prices of 500 large-capitalization
companies. We have an exclusive license with Standard & Poor’s until 2008.
The NASDAQ-100 Index is based on the 100 largest non-financial stocks listed
on the NASDAQ National Market. We have a license with Nasdaq that allows us
to offer the NASDAQ-100 Index and NASDAQ Composite contracts exclusively until
October 2011. Our standard size S&P and NASDAQ contracts are traded through
our open outcry facilities during regular trading hours and on the CME Globex
platform after the close of open outcry trading.
In addition to contracts based on the S&P 500 and NASDAQ-100 indexes, we
also offer the following equity futures and options on futures contracts: E-mini
NASDAQ Composite; S&P Midcap 400; Russell 2000; NIKKEI 225 and the Goldman
Sachs Commodity Index®. We also offer seven TRAKRS contracts. TRAKRS are a series
of non-traditional futures contracts developed with Merrill Lynch & Co.,
Inc. and licensed exclusively to us for North America, and are the first broad-based
index products traded on a U.S. futures exchange that can be sold by securities
brokers. TRAKRS are designed to enable customers to track an index of stocks,
bonds, currencies or other financial instruments.
We believe the variety of our stock index futures products appeals to a broad
group of equity investors. These investors include public and private pension
funds, investment companies, mutual funds, insurance companies and other financial
services companies that benchmark their investment performance to different
segments of the equity markets.
In 1997, we launched our E-mini S&P 500 futures contracts. We followed
this new product offering with the introduction of E-mini NASDAQ-100 futures
contracts in 1999. E-mini contracts are traded exclusively on our electronic
CME Globex platform and are one-fifth the size of their standard counterparts.
These products are designed to address the growing demand for stock index derivatives
and electronically traded products from individual traders and small institutions.
Trading volumes in these products have grown rapidly, achieving new volume and
open interest records during 2004 and 2003. This growth is attributable to the
benefits of stock index futures, electronic market access and, prior to 2003,
significant volatility in the U.S. equity markets. We also trade the E-mini
Russell 2000, E-mini Russell 1000, E-mini S&P MidCap 400 and E-mini NASDAQ
Composite.
We believe our leading market position in equity index products is a result
of the liquidity of our markets, the status of the S&P 500 Index and the
NASDAQ-100 Index as two of the principal U.S. financial standards for benchmarking
stock market returns and the appeal to investors and traders of our E-mini products
and our CME Globex platform. We believe future growth in our stock index products
will come from the introduction of electronically traded options on our existing
equity index products, including our E-minis, expanding customer access to our
electronic markets, enhancing the functionality of our CME Globex electronic
platform to increase the electronic trading volume of our options on futures
contracts as well as further educating the marketplace on the benefits of these
products.
Foreign Exchange Products. We became the first exchange to introduce financial
futures when we launched foreign exchange futures in 1972. Institutions such
as banks, hedge funds, commodity trading advisors, corporations and individuals
use these products to manage their risks associated with, or speculate on, fluctuations
in foreign exchange rates. Foreign exchange products represented nearly 7% of
our trading volume in 2004, an average of approximately 202,000 contracts per
day. We offer futures and options on futures contracts on 36 currencies, including
the euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Mexican
peso, Australian dollar, Brazilian real, New Zealand dollar and South African
rand.
Our total foreign exchange trading volume increased 51% during 2004 from 2003.
We have begun improving the performance of this product sector by expanding
the distribution of our foreign exchange products through the CME Globex platform
and by establishing incentive programs to increase volume. We introduced side-by-side
electronic and open outcry trading of foreign exchange futures in April 2001.
We believe this change has helped facilitate the increase in volume in these
products.
We expect the growth in our foreign exchange product line to come from further
transitioning to electronic trading and through our new distribution agreement
with Reuters. This will allow us to compete more effectively in an environment
where electronic execution is growing rapidly and accounts for a significant
portion of global foreign exchange volume. The foreign exchange interbank spot
market is heavily reliant on electronic trading, with the majority of trades
brokered online. We continue to increase both functionality and distribution.
Commodity Products. Commodity products were our only products when our exchange
first opened for business. We have maintained a strong franchise in our commodity
products, including futures contracts based on cattle, hogs, pork bellies, lumber,
weather and dairy products.
We believe continuing consolidation and restructuring in the agricultural sector,
coupled with the reduction or elimination of government subsidies and the resulting
increase in demand for risk management in this sector, provide an opportunity
for growth in our commodity markets as more producers and processors adopt formal
hedging and risk management programs. We intend to leverage our experience in
trading futures on physical commodities to jointly develop new commodity products
with operators of electronic, cash and derivatives trading platforms.
Market Data and Information Products. Our markets generate valuable information
regarding prices and trading activity in our products. The market data we supply
is central to trading activity in our products and to trading activity in related
cash and derivatives markets. We sell our market data, which includes information
about bids, offers, trades and trade size, to banks, broker-dealers, pension
funds, investment companies, mutual funds, insurance companies, individual investors
and other financial services companies or organizations that use our markets
or monitor general economic conditions. We distribute our market data directly
to our electronic trading customers as part of their access to our markets through
our electronic facilities. We also distribute market data via dedicated networks
to approximately 210 worldwide quote vendors who consolidate our market data
with that from other exchanges, other third party data providers and news services,
and then resell their consolidated data.
We continue to enhance our current market data and information product offerings
by packaging the basic data we have traditionally offered with advanced analytical
data and information. We have created marketing programs to increase the use
of our market data.
Execution
Our trade execution facilities consist of our open outcry trading floors and
the CME Globex electronic trading platform. Both of these execution facilities
offer our customers immediate trade execution and price transparency and are
state-of-the-art trading environments supported by substantial infrastructure
and technology for order routing, trade reporting, market data dissemination
and market surveillance and regulation. In addition, trades can be executed
through privately negotiated transactions that are cleared and settled through
our clearing house.
Open Outcry Trading. Open outcry trading represented approximately 41% of our
total trading volume in 2004. The trading floors are the centralized meeting
place for floor traders and floor brokers representing customer orders to trade
contracts. The trading floors, covering approximately 70,000 square feet, have
tiered booths surrounding the pits from which clearing firm personnel can communicate
with customers regarding current market activity and prices and receive orders
either electronically or by telephone. In addition, our trading floors display
current market information and news on electronic wallboards hung above the
pits. During 2004, nearly 32% of our clearing and transaction fee revenues were
derived from open outcry trading.
CME Globex Electronic Trading Platform. The CME Globex electronic trading platform
maintains an electronic, centralized order book and trade execution algorithm
for futures contracts and options on futures contracts and allows users to enter
orders directly into the order book. Initially, our electronic trading platform
was used to offer our products to customers after the close of our regular daytime
trading sessions. Today, however, we trade some of our most successful products
on the CME Globex platform nearly 24 hours a day, five days a week. In 2004,
approximately 57% of our trading volume was executed using CME Globex, compared
to approximately 42% in 2003. This was the first year that total volume traded
on the CME Globex platform exceeded total volume traded on open outcry. Electronic
trading volume has increased from approximately 35 million contracts in 2000
to more than 451 million contracts in 2004. On October 19, 2004, the one billionth
contract was traded on the CME Globex platform since it was launched in 1992.
During 2004, nearly 61% of our clearing and transaction fee revenues were derived
from electronic trading.
Privately Negotiated Transactions. In addition to offering traditional open
outcry and electronic trading through the CME Globex platform, we permit qualified
customers to trade our products by entering into privately negotiated transactions,
which are reported and included in the market data we distribute. We also clear,
settle and guarantee these transactions through our clearing house. Some market
participants value privately negotiated transactions as a way to ensure that
large transactions can be completed at a single price or in a single transaction
while preserving their ability to effectively complete a hedging, risk management
or other trading strategy. During 2004, approximately 7% of our clearing and
transaction fee revenues were derived from this type of trading.
Our privately negotiated transactions include exchange for physical, or EFP,
transactions, exchange basis facility, or EBF, transactions and block trades.
Both EFP and EBF trades involve a futures contract and a spot commodity or cash
position. The term EFP is used with all of these types of futures transactions,
except interest rate transactions, which are referred to as EBFs. A block trade
is the privately negotiated purchase and sale of futures contracts. Block trading
was introduced on our exchange in late 2000, and volume has been limited to
date. We believe block trading provides an important source of access designed
to appeal to large-scale institutional traders. Originally, these transactions
were limited to a certain number of contracts and required high minimum quantity
thresholds along with a fee surcharge. We have implemented pricing and trading
rules designed to increase customer participation. We intend to continue to
enhance the utility of privately negotiated transactions while maintaining an
appropriate balance with the transactions conducted within the open outcry and
electronic trading environments.
Clearing
We operate our own clearing house that clears, settles and guarantees the performance
of all transactions matched through our execution facilities and futures contracts
and options on futures contracts traded through the CBOT. Many derivatives exchanges
do not provide clearing services for trades matched through their execution
facilities, relying instead on outside clearing houses to provide these services.
Ownership and control of our own clearing house enables us to capture the revenue
associated with both the trading and clearing of our products. This is particularly
important for trade execution alternatives such as block trades, where we can
derive a higher clearing fee for each contract traded compared to other trades.
By owning our clearing house, we also control the cost structure and the technology
development cycle for our clearing services. It also helps us manage our new
product initiatives without being dependent on an outside entity. We believe
having an integrated clearing function provides significant competitive advantages.
Additionally, owning our own clearing house allows us to provide clearing services
to other exchanges, such as the CBOT.
The clearing function provides three primary benefits to our markets: efficient,
high-volume transaction processing; cost and capital efficiencies; and a reliable
credit guarantee. The services we provide can be broadly categorized as follows:
• transaction processing and position management;
• cross-margining and mutual offset services;
• market protection and risk management;
• settlement, collateral and delivery services; and
• investment services.
Transaction Processing and Position Management. We developed a state-of-the-art
clearing system, CLEARING 21®, in conjunction with NYMEX, to provide high quality
clearing services. This system processes reported trades and positions on a
real-time basis, providing users with instantaneous information on trades, positions
and risk exposure. CLEARING 21 is able to process trades in futures and options
products, securities and cash instruments. CLEARING 21 can also support complex
new product types, including combinations, options on combinations, options
on options, swaps, repurchase and reverse repurchase agreements, and other instruments.
Through CLEARING 21 user interfaces, our clearing firms can electronically manage
their positions, exercise options, enter transactions related to foreign exchange
deliveries, manage collateral posted to meet performance bond requirements and
access all of our other online applications. Together with our order routing
and trade matching services, we offer straight-through electronic processing
of transactions in which an order is electronically routed, matched, cleared
and made available to the clearing firm’s back-office systems for further processing.
Cross-Margining and Mutual Offset Services. We have led the derivatives industry
in establishing cross-margining agreements with other leading clearing houses.
Cross-margining arrangements reduce capital costs for clearing firms and customers.
These agreements permit an individual clearing house to recognize a clearing
firm’s open positions at other participating clearing houses, and clearing firms
are able to offset risks of positions held at one clearing house against those
held at other participating clearing houses. This reduces the need for collateral
deposits by the clearing firm. For example, our cross-margining program with
the Options Clearing Corporation reduced performance bond requirements for our
members by approximately $1.6 billion a day in the fourth quarter of 2004. We
have implemented cross-margining arrangements with the Fixed Income Clearing
Corporation, formerly the Government Securities Clearing Corporation, and LCH.Clearnet
Group for positions at the London International Financial Futures and Options
Exchange. In addition, our mutual offset agreement with the Singapore Derivatives
Exchange, which has been in place since 1984, allows a clearing firm of either
exchange initiating trades in certain products on either exchange to execute
after-hours trades at the other exchange in those products and then transfer
them back to the originating exchange. This mutual offset arrangement enables
firms to seamlessly execute trades at either exchange virtually 24 hours per
day.
Market Protection and Risk Management. Our clearing house guarantee of performance
is a significant attraction, and an important part of the functioning, of our
exchange. Because of this guarantee, our customers do not need to evaluate the
credit of each potential counterparty or limit themselves to a selected set
of counterparties. This flexibility increases the potential liquidity available
for each trade. Additionally, the substitution of our clearing house as the
counterparty to every transaction allows our customers to establish a position
with one party and then to offset the position with another party. This contract
netting process provides our customers with significant flexibility in establishing
and adjusting positions.
In order to ensure performance, we establish and monitor financial requirements
for our clearing firms. We also set minimum performance bond requirements for
our traded products. Our clearing house uses our proprietary CME SPAN software,
which determines the appropriate performance bond requirements by simulating
the gains and losses of complex portfolios. We typically hold performance bond
collateral to cover at least 95% of price changes for a given product within
a given historical period. Performance bond requirements for a clearing firm’s
or customer’s overall portfolio are calculated using CME SPAN.
At each settlement cycle, our clearing house values, at the market price prevailing
at that time, or marks-to-market, all open positions and requires payments from
clearing firms whose positions have lost value and makes payments to clearing
firms whose positions have gained value. Our clearing house marks-to-market
all open positions at least twice a day, and more often if market volatility
warrants. Marking-to-market provides both participants in a transaction with
an accounting of their financial obligations under the contract.
Having a mark-to-market cycle of a minimum of two times a day helps protect
the financial integrity of our clearing house, our clearing firms and market
participants. This allows our clearing house to identify quickly any clearing
firms that may not be able to satisfy the financial obligations resulting from
changes in the prices of their open contracts before those financial obligations
become exceptionally large and jeopardize the ability of our clearing house
to ensure performance of their open positions.
In the unlikely event of a payment default by a clearing firm, we would first
apply assets of the clearing firm to cover its payment obligation. These assets
include security deposits, performance bonds and any other available assets,
such as the proceeds from the sale of Class A and Class B common stock and memberships
of the clearing firm at our exchange owned by or assigned to the clearing firm.
In addition, we would make a demand for payment pursuant to any applicable guarantee
provided to the exchange by the parent of a clearing firm. Thereafter, if the
payment default remains unsatisfied, we would use our surplus funds, security
deposits of other clearing firms and funds collected through an assessment against
all other solvent clearing firms to satisfy the deficit. We have a secured,
committed $750 million line of credit with a consortium of banks in order to
provide additional liquidity to address a clearing firm payment default. The
credit agreement requires us to pledge clearing firm security deposits held
by us in the form of U.S. Treasury or agency securities, as well as security
deposit funds in our second Interest Earning Facility program, called IEF2,
to the line of credit custodian prior to drawing on the line. Performance bond
collateral of a defaulting clearing firm may also be used to secure a draw on
the line. This line of credit may also be utilized if there is a temporary disruption
with the domestic payments system that would delay settlement payments between
our clearing house and clearing firms.
Although more than 95% of all futures contracts are liquidated before the expiration
of the contract, the underlying financial instruments or commodities for the
remainder of the contracts must be delivered. We act as the delivery agent for
all contracts, ensuring timely delivery by the seller of the exact quality and
quantity specified in a contract and full and timely payment by the buyer.
In order to administer its system of financial safeguards efficiently, our
clearing house has developed banking relationships with a network of major U.S.
banks and banking industry infrastructure providers, such as the Society for
Worldwide Interbank Financial Telecommunications. Among the key services provided
to our clearing house by these banks and service providers are a variety of
custody, credit and payment services that support the substantial financial
commitments and processes backing the guarantee of our clearing house to market
participants.
Investment Services. In order to achieve collateral efficiencies for our clearing
firms, we have established a number of collateral programs under the designation
Interest Earning Facility, or IEF®. The first IEFs were organized in 1997 as
two managed funds with interest earned, net of expenses, passed on to the participating
clearing firms. The principal of the first IEFs is guaranteed by us. We believe
that the market risk exposure relating to our guarantee of the principal is
not material to the financial statements taken as a whole. In 2002, IEF2 was
organized. IEF2 offers clearing firms the opportunity to invest cash performance
bonds in shares of approved money market mutual funds. Dividends earned on these
shares, net of fees, are solely for the account of the clearing firm on whose
behalf the shares were purchased. The principal of IEF2 is not guaranteed by
us. In 2003, IEF3 was launched. In 2004, IEF4 and IEF5 were launched. IEF3 and
IEF4 are specialized collateral programs that utilize various services and methods
of processing that are most typically associated with tri-party repossession.
Unlike the first IEF and the IEF2 programs, these programs do not employ an
interest rate component. These programs allow clearing firms to pledge a wider
range of collateral than we have typically accepted. IEF5 is an interest-bearing
cash deposit account recorded on the trust ledger of JP Morgan Chase Bank. As
of December 31, 2004, there was more than $19.2 billion in balances in these
programs, compared to $14.4 billion at December 31, 2003. We earn fee income
in return for providing these value-added services to our clearing firms.
Our clearing house launched a securities lending program in 2001 using a portion
of certain securities deposited to meet the proprietary performance bond requirements
of our clearing firms. Under this securities lending program, we lend a security
to a third party and receive collateral in the form of cash. The majority of
the cash is then invested on an overnight basis to generate interest income.
The related interest expense represents payment to the borrower of the security
for the cash collateral retained during the duration of the lending transaction.
Securities on loan are marked-to-market daily and compared to collateral received.
Technology
Our operation of both trading facilities and a clearing house has influenced
the design and implementation of the technologies that support our operations.
Trading Technology. We have a proven track record of operating successful open
outcry and electronic markets by developing and integrating multiple, evolving
technologies that support a growing and substantial trading volume. The integrated
suite of technologies we employ to accomplish this has been designed to support
a significant expansion of our current business and provides us with an opportunity
to leverage our technology base into new markets, products and services.
As electronic trading activity expands, we continue to provide greater match
engine functionality unique to various markets, market models and product types.
We have adopted a modular approach to technology development and engineered
an integrated set of solutions that support multiple specialized markets. We
continually monitor and upgrade our capacity requirements. Our goal is to design
our systems to handle at least twice our historical peak transactions in our
highest volume products. Significant investments in production planning, quality
assurance and certification processes have enhanced our ability to expedite
the delivery of the system enhancements that we develop for our customers.
Speed, reliability, scalability, capacity and functionality are critical performance
criteria for electronic trading platforms. A substantial portion of our operating
budget is dedicated to system design, development and operations in order to
achieve high levels of overall system performance. In 2004, we expanded our
existing remote data facility and leased a second site to provide additional
system capacity and redundancy for our trading and clearing technology. Our
first remote data center features a unique network to enhance database and order
routing servers and to improve overall system performance and functionality.
Our data centers support our customer interfaces, trading and execution systems,
as well as clearing and settlement operations.
The technology systems supporting our trading operations can be divided into
four major categories:
Distribution Technologies that support the ability of customers to access our
trading systems from terminals through network access to our trading floor and/or
electronic trading environments.
Order routing/order management Technologies that control the flow of orders
to the trading floor or electronic trading systems and that monitor the status
of and modify submitted orders.
Trade matching (electronic market) Technologies that aggregate submitted orders
and electronically match buy and sell orders when their trade conditions are
met.
Trading floor operations Technologies that maximize market participants’ ability
to capitalize on opportunities present in both the trading floor and electronic
markets that we operate.
The CME Globex electronic trading platform includes the distribution, order
routing, order management and trade matching technology. The modularity and
functionality of CME Globex enable us to selectively add products with unique
trading characteristics onto the trading platform with minimal additional investment.
The distribution technologies we offer differentiate our platform and bring
liquidity and trading volume to our execution facilities. As of December 31,
2004, nearly 1,150 customers connected directly with us, and thousands more
connected with us through 22 independent software vendors and data centers,
as well as all clearing firms that have interfaces with our systems. Many of
these customers connect through a dedicated private frame-relay network that
is readily available, has wide distribution and provides fast connections in
the Americas, Europe and Asia. We have initiated efforts to provide additional
access choices to customers. In early 2001, we implemented a Web-based, virtual
private network solution, CME Globex Trader-Internet, for our lower-volume customers.
This added a low-cost alternative that was the first of its kind among major
exchanges. Approximately 250 customers currently use CME Globex Trader-Internet.
In 2004, we also established telecommunications hubs in Amsterdam, Dublin, Frankfurt,
Gibraltar, Milan and Paris in addition to our preexisting London hub and plan
to add another hub in Singapore in 2005 to respond to customer requests and
bring down the cost of trading for certain foreign customers.
In order routing and management, we offer a range of mechanisms and were among
the first U.S. derivatives exchanges to fully implement the FIX 4.2 protocol—the
standard order routing protocol used within the securities industry. In addition,
our order routing and order management systems are capable of supporting multiple
electronic trading match engines. This functionality gives us great latitude
in the types of markets that we choose to serve.
Several key technology platforms and standards are used to support these activities,
including fault-tolerant Non-Stop (Tandem systems), IBM mainframes, Sun Microsystems
and HP servers, HP and Dell PCs, Oracle and DB2 databases, LINUX, Unix, Windows
NT, Novell, Unicenter TNG software systems, TIBCO middleware and multi-vendor
frame relay and virtual private network solutions.
Our match engine is based upon the computerized trading and match software
known as the NSC system. We have a long-term license from Euronext-Paris, under
which we have the ability to modify and upgrade the performance of the basic
NSC system to optimize its performance to suit our needs. We have a fully trained
development team that maintains, upgrades and customizes our version of the
NSC system. For example, despite a large increase in trading volume, we reduced
the average customer response time from approximately 0.17 seconds at the beginning
of 2004 to approximately 0.11 seconds at year-end, allowing trades to be executed
more quickly and consistently. The customized enhancements that we have developed
address the unique trading demands of each marketplace that we serve. We continue
to focus on performance features of the match engine and presently have multiple
enhancements under development.
Clearing Technology. CLEARING 21, our clearing and settlement software, and
CME SPAN, our margining and risk management software, form the core of our clearing
technology.
CLEARING 21 is a system for high-volume, high-capacity clearing and settlement
of exchange-based transactions that we developed jointly with NYMEX. The system
offers clearing firms improved efficiency and reduced costs. CLEARING 21’s modular
design gives us the ability to rapidly introduce new products. The software
can be customized to meet the unique needs of specialized markets.
CME SPAN is our sophisticated margining and risk management software. CME SPAN
has now been adopted by 50 exchanges and clearing organizations worldwide. This
software simulates the effects of changing market conditions on a complex portfolio
and uses standard options pricing models to determine a portfolio’s overall
risk. CME SPAN then generates a performance bond requirement that typically
covers 95% of price changes within a given historical period.