Increasing Futures and Options

Increasingly, futures and options are becoming mainstream as more and more market participants worldwide turn to the safety and soundness of exchange-traded futures products, like those listed at CME, to meet their investment and risk management needs. As a result, the scope of our business continues to expand. In 2005, CME again achieved record growth, with total annual trading volume up 33 percent. Trading in each major product line was up 20 percent or more and 70 percent of our volume was transacted on the CME Globex electronic trading platform, an increase of 62 percent from the prior year. And we are continuing to diversify our product offerings. We recently announced an agreement with NYMEX to become the exclusive electronic trading services provider for NYMEXs energy futures and options contracts. The addition of energy contracts makes our CME Globex platform the first electronic platform offering global access to every major asset class interest rate, stock index, foreign exchange, agriculture and now energy (see page 5). In fact, an increasing number of global customers from world-class companies are relying on CME products to manage their risks in an ever-changing global economy. This issue of CME Magazine features some of these customers and their organizations: In our cover feature, Terry McGraw, chairman and chief executive officer of McGraw-Hill, reveals how the 25-year relationship between CME and S&P, the McGraw-Hill business unit relevant to our S&P index futures, has been a key factor in the dynamic growth of that business. Separately, Robert Hormats, vice chairman of Goldman Sachs, provides insightful analysis regarding the international flow of capital. Steven Schoenfeld, chief investment strategist at Northern Trust Global Investments, discusses the art of indexing and his strategies for using our newest index product, CME E-mini MSCI EAFE futures and options. William Knottenbelt, managing director of Royal Bank of Scotland and global head of futures in London, talks about the benefits of our CME Globex electronic trading platform to his company. And Kevin Davis, chairman and chief executive officer of Man Financial, offers his view of where the futures industry is heading. Other articles in this issue will keep you up to date on our newest products, services and other news. As always, we are committed to helping you achieve your business objectives by offering the best tools and services possible. We hope you enjoy reading CME Magazine.

Terrence A. Duffy
Chairman of the Board, CME

Craig S. Donohue
Chief Executive Officer, CME

Ideas That Change the World

Spring 2006

Vo l . 2

Issue 1

features

6 10 18
on the cover
Terry McGraw began his career with McGraw-Hill in 1980. As top executive since 1998, McGraw transformed three seemingly disparate business units into a global powerhouse.

GLOBAL PLATFORM
The Ebb and Capital Flow

INDUSTRY CONNECTIONS
Royal Bank of Scotland Extending Its Reach

FINANCIAL FOCUS
Northern Trust Global Investments Making Index Investing Look Easy

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1 4

CUTTING EDGE
CME Eurodollar Options on BARX

14

IDEAS THAT CHANGE THE WORLD

departments
CME INSIGHT
CME posted record volumes in 2005 due in large part to the diversity and depth of the world-class companies that are its customers.

As a proven leader in innovation, CME has created new products, markets and technologies that have changed the world of modern finance. We invented financial futures and were the first exchange in the United States to demutualize and become publicly traded, creating a successful business model that other leading exchanges are following. Our breakthrough ideas have generated a range of risk management tools that improve the way markets work for customers everywhere. To recognize the impact of other ground-breaking contributions wherever they have made a difference, we are dedicating the cover story in each issue of CME Magazine to individuals or organizations whose ideas have had a similar impact in effecting change. In this issue, we are featuring Terry McGraw, Chairman and CEO of McGraw-Hill, whose creativity and management skills have transformed a family-run business into a global powerhouse. Terry McGraw Leading and Learning appears on page 14.

CURRENT PULSE
More choices for S&P options A rising tide CME Globex platform to host NYMEX energy contracts CME finds Chinese partner

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MARKET INSIGHTS
Clearing security - CME now clearing over-the-counter derivatives Fast TRAKRS - Round two of LM TRAKRS comes to CME Let it snow - CME launches monthly snowfall futures and options Special FX - Futures traders have online education option Electronic avenue - New CME Globex technology boosts Eurodollars

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GUEST COLUMN
Where the Futures Industry Is Heading Man Financials Kevin Davis leads one of the worlds hottest FCMs Man Financial stands today as the world's leading provider of brokerage services for both institutional and private clients. The Futures Commission Merchant made a splash last year when it purchased the regulated division of Refco Inc. out of bankruptcy court.

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AT YOUR SERVICE
MyCME Web site pulls in data users and education seekers. CME education opportunities

cme magazine | www.cme.com

Robert Hormats knows a thing or two about the economy. As vice chairman of Goldman Sachs (International) and managing director of Goldman, Sachs & Co., Hormats writes that if you want to know where interest rates are going, keep an eye on capital flows.

Known as Greenwich Capital Markets in the United States, the Royal Bank of Scotland is the second largest bank in the United Kingdom and the worlds sixth largest in market capitalization. By any name, this major world player is distinguished by its tailor-made strategies for customers.

Few, if any, firms are more plugged in to the world of indexes than Northern Trust Global Investments (NTGI). NTGI, a division of Northern Trust Bank, managed just under $620 billion in assets at the end of 2005 and offers more than 100 different index-based products to customers. But there is more to index investing than most people think.

Barclays Capital is now offering CME Eurodollar options on BARX, its electronic trading system, making it the first bank to offer these products to customers from its own platform.

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News about CME and its products and services

S&P 500

MORE CHOICES FOR S&P OPTIONS

Customers who trade CME S&P 500 and E-mini S&P 500 options will soon be able to choose monthly option expirations that will expire on the last trading day of the month. These new end-of-month options will have European style expirations, meaning that options holders can only exercise their contracts on the date of expiration. This is the first time CME is offering end-of-month options for its equity index line of products. These new products will build on existing liquidity in both the floor and electronically traded contracts, and will also make it possible to spread between both the monthly and quarterly options on the S&P 500 and E-mini S&P products. End-of-month options offer customers more flexibility, said Tom Boggs, associate director, CME equity products. Customers can initiate end-of-month trades here rather than over-the-counter (OTC) and get the benefits of CME Clearing. Firms with OTC trades tied to month-end dates will be able to hedge those trades here.

Customers were asking for these products, and we are happy to meet their needs, said Rick Redding, managing director, products and services for CME. We have experienced record open interest levels with our CME S&P 500 product, reaching 1.2 million positions on March 10, and we hope this builds on our increased customer interest. Launch of these products is scheduled for May. Five market makers will help grow electronic end-of-month options for the CME E-mini S&P 500 equity options markets by providing continuous, transparent and competitive markets for these products. The regular options contracts with American style expiration on the standard and E-mini S&P 500 futures will still be available. www.cme.com/e-mini

A RISING TIDE
CME posted another record-setting year in 2005 as trading volumes across its core product lines recorded at least 20 percent increases over the previous year. Total average daily volume on CME rose 34 percent to 4.2 million contracts traded, with electronic trading leading the way. Average daily volume on the CME Globex electronic trading platform increased 62 percent to 2.9 million in 2005. Electronic volume represented 70 percent of total CME volume in 2005, up from 57 percent one year ago. Other stellar performers included foreign exchange, which rose 65 percent; CME Eurodollar options, up 45 percent; CME Eurodollar futures, up 38 percent; commodities, up 23 percent; and CME E-mini futures, up 21 percent. The notional value of all CME's 2005 transactions rose 38 percent to $638 trillion. www.cme.com/2005volume

cme magazine | www.cme.com

CME GLOBEX PLATFORM TO HOST NYMEX ENERGY CONTRACTS

On April 6, CME announced a definitive technology services agreement under which it will become the exclusive electronic trading services provider for NYMEXs energy futures and options contracts. Access to electronic trading of NYMEX products will be available virtually 24 hours a day on the CME Globex electronic trading platform. CME is committed to bringing opportunities in energy trading to our customers around the globe, said CME Chairman Terry Duffy. Our long-standing relationship with NYMEX and our experience in listing their contracts on our platform will greatly benefit market participants seeking access to the worlds most liquid energy derivatives. Initial trading of NYMEX energy products on CME Globex, scheduled for the second quarter of 2006, is expected to include side-by-side trading of NYMEX standard-sized and miNY energy futures contracts for crude oil, natural gas, heating oil and gasoline with NYMEXs floor-based products during open outcry trading hours and when the NYMEX trading floor is closed. In the third quarter, all products trading on NYMEX ACCESS, the exchanges after hours electronic trading platform, are expected to transition to the CME Globex platform. Per the agreement, CME Globex will be the exclusive trading platform for metals products currently listed on the COMEX Division, with an anticipated third-quarter launch. This agreement establishes the most robust and liquid energy trading model in the world, said NYMEX President and

CEO James E. Newsome, Listing our energy contracts on CME Globex enables us to dramatically increase our distribution much more quickly and cost-efficiently than we could have by building our own capability. This agreement will complement and enhance our open outcry trading, expand the accessibility of our benchmark energy contracts to investors worldwide and allow us to build on the record electronic trading volumes we have been experiencing. Providing third-party technology services is a key element of CME's growth strategy," said CME CEO Craig Donohue. "This agreement will leverage CME's proven electronic trading platform and global distribution network to expand access to the largest and most liquid energy market in the world. All NYMEX contracts traded on the CME Globex platform will be cleared by the NYMEX clearinghouse. In addition to NYMEX liquidity providers, a specified number of CME market makers will be designated by CME to build electronic liquidity at NYMEX member rates. www.cme.com/NYMEX

This will provide Chinese institutions and investors with a new range of foreign currency denominated investment and risk management tools that complement CFETS product offerings, said CME CEO Craig Donohue. CFETS is an arm of the Peoples Bank of China, the countrys central bank, and it is the official market for interest rate and foreign exchange products. It is also the only foreign exchange and interbank money market in China. Our cooperation with CME provides a great opportunity for us to learn current experiences and practices associated with developing and deepening international financial markets said CFETS President Xie Duo. CME products will be added to the instruments currently traded at CFETS, which include spot and forward foreign currencies (U.S. dollar, Japanese yen, the euro and the Hong Kong dollar against Chinese Renminbi), and Renminbidenominated lending. CFETS also calculates and publishes official key benchmark rates such as the Renminbi benchmark exchange rate and Libor-like (CHIBOR) money market rates in China, and it recently implemented market reforms that modernized trading mechanisms in China. As part of the agreement, CFETS will become a CME super-clearing member, providing services for investors based in mainland China who will be trading CME interest rate and FX products. In addition, CME and CFETS will jointly provide consulting and technical services to CFETS members and staff. The terms of the agreement are subject to final approval by the governing bodies of CFETS and CME and regulatory agencies within China and United States. www.cme.com/cfets

CME FINDS CHINESE PARTNER

CME has forged another important partnership with China. In March, CME and the China Foreign Exchange Trade System & National Interbank Funding Center (CFETS), Chinas interbank foreign exchange and bond market, announced a multi-year agreement that allows Chinese financial institutions and investors to gain access to CME foreign exchange (FX) and interest rate products on the CME Globex platform.

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Robert Hormats, vice chairman, Goldman Sachs, offers insights on why and how capital flows from one economy to another

cme magazine | www.cme.com

Todays economy is truly global: Everything from goods and services to information is passed from time zone to time zone.

That is certainly the case with todays capital flows, which move from one economy to another and cause dramatic ripples that can affect currency valuations along with valuations in the Treasury, stock and housing markets. A number of trends in the global economy in recent years have affected the way financial markets function and will perform in the future. The U.S. and indeed global capital markets are experiencing major changes, particularly in fixed-income markets. These changes can be seen in an ongoing trend in U.S. capital inflows, driven in part by the reduction in what former Federal Reserve Bank Chairman Alan Greenspan has called home country bias. That has led to a deepening of capital markets, so the mortgage market and the average corporation have greater access to a broader range of borrowing instruments and benefit from flows from around the world. But what happens if capital flows in the United States slow or if a major shock, such as a terrorist attack or natural disaster, severely harms the U.S. economy and weakens investor confidence in U.S. assets, especially in fixed-income assets? What might that do to one of the pillars of the U.S. economy, the housing sector? This article examines how the gears of the world economy are moving and where that leaves the United States, the biggest gear in the global engine.

why there continues to be relatively little concern about inflation in fixed-income markets. In the United States, the Fed has successfully managed the inflation outlook for years under Alan Greenspans stewardship and before that under Paul Volckers. That success, in turn, has allowed for a very low bond risk premium, not only in Treasury markets but also in the corporate bond market. And with inflation risk dramatically reduced, the United States has been able to attract a tremendous amount of foreign investment in longer-dated government, corporate and agency securities. Second, a broad collection of countries in Asia and elsewhere have experienced a high savings rate relative to investment. Part of that is due to the excess capacity many Asian countries built up in the late 1990s, which meant many Asian companies didnt need to make huge investments domestically to keep up with growing demand in recent years. In the aftermath of the Asian currency crisis in the late 1990s, a more conservative financial approach was adopted. This boosted foreign exchange reserves and private sector precautionary savings, a large part of which came into the U.S. capital market. Asian banks, corporations and other investors also had confidence in the quality and transparency of U.S. capital markets and in a U.S. inflationary picture that was the result of effective Fed policy. The bulk of foreign investment has gone into fixed-income assets. It is interesting to note that even with the ongoing discussion of the U.S. budget and current account deficits, investors continue to put massive amounts of money into the U.S. fixed-income arena. Although those deficit concerns are important, investors are searching for and finding good returns and inflationary stability in the U.S. market. They come to the United States not so much due to the growth outlook or productivity but because of the liquidity, credibility and interest differentials of the U.S. fixed-income market. The massive amounts of money sent abroad to pay for the products the United States imports from the rest of the world, which far exceed the amounts or products the world buys from the United States, comes back in investment in fixed-income assets.

Where We Have Been

To examine just where the U.S. economy and its fixedincome markets are heading, it is helpful to recall what has happened around the world in recent years. The term globalization generally applies to trade, capital flows, people and technology, but it also applies to central banking. There has been a globalization of good central bank banking practices. Central banks in most major economies have done very well individually and working together to sustain growth and contain inflationary expectations and thus enable investors to lock in a stable, real rate of return. And the globalization of trade and of the Internet has contributed to international competition, thus reinforcing the process of holding down price and wage increases. These are among several reasons

Spring 06 | cme

A significant part of that money comes from foreign central banks, which park roughly 70 percent of their reserves in dollar assets in the United States. The United States recycles some of this money and its own savings into riskier investments in other regions of the world for a higher return. So how does all this affect the U.S. housing market, arguably the largest driver of the U.S. economy over the past decade? Sure enough, the capital flows in U.S. fixed-income markets in recent years have made much of the low interest rate real estate boom happen. The Federal Reserve Bank valued U.S. residential real estate at almost $20 trillion in 2004, second only to, you guessed it, the fixedincome market valued at $23.6 trillion. Investment of foreign savings in the United States has helped to offset the

Fed policy plays a crucial role. But there are structural issues in the United States as well that also keep downward pressure on costs. Competition is a powerful force and continues to be so. In todays global marketplace, more choices and possibilities enable companies to find the lowest cost sources of production and supply to remain competitive. Part of the competition equation stems from increased transparency in the marketplace. Comparative shopping on the internet and the increasing free flow of information today give buyers and sellers a much more accurate and timely view of the cost and price of goods and services. Also, foreign goods from Asia have kept prices low in the United States and

Looking at the issue more broadly, the globalization of financial markets and goods and services sector are working together to keep inflation and interest rates low. However, not everyone is a winner in the process, even if the macro-economy is.

The Road Ahead

The trend heading forward for mortgage rates still looks relatively benign, but the fact that U.S. home buyers are in a happy circumstance now does not mean its perpetual. While U.S. consumers and home buyers are continuing to reap the benefits of this capital flow, there is a major trade imbalance with Asia and Europe, which leads to pressures to impose restrictions or tariffs on imports. Then there is what Greenspan calls concentration risk, which refers to the large amounts of capital being invested in the United States from abroad. One scenario that could unfold is that Asian companies and banks will invest or consume more at home, thus saving fewer dollars and, therefore, having less excess savings to invest in the United States. There is some evidence of this occurring, but the trend could accelerate as investment opportunities abroad increase and prosperity becomes more broadly based, causing consumption to strengthen over the next several years. However, it would be wrong to focus simply on Asia. Capital flows in the second half of 2005 came primarily from London. A closer look shows that money was originally from the Middle East and flows through the United Kingdom into the United States. Over time, it can be assumed that more Middle Eastern cash will be used for

Foreign goods from Asia have kept prices low in the United States and continue to put pressure on American workers wages. Income among middle-class Americans has risen just modestly.

BOB HORMATS
very low American savings rate and thus in conjunction with sound Fed policy and subdued inflation enabled interest rates to remain low, giving a boost to the housing market and to consumption that resulted from the wealth effect of the rise in home prices, home refinancing and home equity loans. continue to put pressure on American wages. Income among middle-class Americans has risen only modestly. There is the added competitive element of outsourcing business practices and services. Although these help to restrain inflation, they do create job location uncertainty among large numbers of Americans, which leads to pressures for protection and for government support. Measures will be required to avoid larger numbers of people from being left behind by the forces of globalization and technological advances.

Inflation in Check
Low and stable inflation reassures foreign investors regarding capital flows into the United States. Reasons for low inflation levels vary. Of course,

cme magazine | www.cme.com

infrastructure and increased consumption in that region. As major emerging economies broaden and deepen their domestic capital markets, they will ultimately absorb more of their savings at home. So the nature of the adjustment process will mean higher interest rates in the United States to slow consumption and increase savings in this country. The adjustment process, because of the nature of U.S. and global capital markets, could take longer or be put off longer than in the past because most parties in this equation feel relatively comfortable with the current circumstances; the United States is hooked on foreign capital and other nations are hooked on the U.S. market for their exports. Most foreign governments do not want the value of the dollar to decline because that would weaken their exports to the United States and, thus, their economic growth. But there are risks of a fall in the dollar in the event of a crisis, such as an act of terrorism. And a sustained, large deficit could result in protectionist measures or, more likely, lack of willingness to liberalize trade farther, and that could impede future growth opportunities.

ample, the United States currently has about $1.5 trillion more invested in direct and equity investments abroad than foreign countries do in the United States. Conversely, foreign countries own about $4.5 trillion more in U.S. fixed-income investments than U.S. investors hold abroad. In recent years, foreigners have been accumulating more assets of all kinds in the United States than Americans have abroad at a net rate of $700 million. This means that the United States will have to pay more in interest and dividends on the investments foreigners have made in the United States than the country receives from U.S. investments abroad. Over time, that reduces the growth of the U.S. gross domestic product (GDP). This trend is not often examined, but the transfer abroad of just one percent of U.S. GDP in a $12 trillion economy is a lot of money.

Robert Hormats
Robert Hormats is vice chairman of Goldman Sachs (International) and managing director of Goldman, Sachs & Co. Prior to joining Goldman Sachs, he served as a senior staff member of international economic affairs on the National Security Council staff, Ambassador and Deputy United States Trade Representative and Assistant Secretary of State for Economic and Business Affairs.

Flatter Curve Logical

Some wonder why the U.S. yield curve has been flattening. But when you look at the world from a capital flows and inflationary perspective, it is quite clear. Two wings are holding the bond market up: decline of the bond risk premium and excess savings relative to other investments around the world. In the past, an inverted yield curve has been a barometer for a recession, especially with a very tight monetary policy. Now the yield curve can be inverted without a very tight monetary policy because the 10-year note has been very desirable due to the lack of concern regarding inflation. If the yield on the 10-year note, the instrument most used by the mortgage industry, does rise, then home loan rates will rise as well. That, in turn, will take

some demand out of the housing market and slow the rise in the price of real estate. Once that slows, spending by consumers will weaken because fewer people will experience a positive wealth effect or borrow equity against their home for big-ticket items, home repairs and other items. If U.S. consumption slows or foreign demand decreases, that will cause weakness in the U.S. economy. How long the United States will continue to attract foreign investment depends on a number of issues, primarily confidence in the U.S. market as well as foreign investors own domestic needs for capital. One thing is certain: Countries will provide votes of confidence or no-confidence with their investments. You can tally the votes by watching the capital flow numbers. www.cme.com/gs

Sustainability the Issue

So how long can this last? Even though the current account deficit has been widening, the net investment income flow so far has been in favor of the United States. The reason for that is American investments abroad tend to be equity investments as opposed to bond investments. That higher risk investment tends to generate higher returns. For ex-

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Speak with anyone at The Royal Bank of Scotland (RBS) and youll probably have an aha! moment when you realize you knew more about the bank than you thought.

Although many in the financial industry know of RBS, few have any idea that the bank stands as the second largest bank in the United Kingdom or that it is the sixth largest bank in the world in terms of market capitalization. The RBS name may not resonate with many CME customers either, because in the United States the institution has been called by the better-known name of Greenwich Capital Markets. All of that is reason enough to get to know one of the larger players in the banking and futures markets. Like other large institutions, RBS gained significant market share and a truly global presence through a major acquisition National Westminster Bank (NatWest) in 2000. The deal included Greenwich Capital, a major player in the U.S. fixed income and derivatives space. The Royal Bank of Scotland has a significant market capitalization, so people are viewing RBS in a very different light, says William Knottenbelt, global head of RBS Greenwich Futures in London. In terms of RBSs trading operations, it recently created the Global Banking and Markets business, which is split internally into two further businesses: Debt Markets and Treasury and Investor Products. Debt Markets includes all of its interest rate, fixed income and swaps trading.

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As RBS continues to expand its trading capability in the swaps market and CME advances its electronic trading offering, we are confident that our volumes will continue to grow.
William Knottenbelt

Treasury and Investor Products handles foreign exchange, money markets, asset management and emerging markets. The futures trading operation is global with about 130 people and offers trading and clearing services on every major exchange. Clearing is handled in three locations Chicago, London and Singapore. Two other offices operate in Greenwich, Conn., and Atlanta. The futures business is completely separate from the banks proprietary trading desk to avoid any conflicts of interest. RBS works with asset managers, hedge funds, banks, unit trusts, mutual funds and other institutional firms.

RBS developed a strategies team that posts information to clients on a Web-based platform. This allows us to generate trading ideas and also create tailor-made strategies for clients, Knottenbelt says. Once weve enacted those trades and modeled them, we also have the capability to track them and give clients an interactive Web page so the client can follow them. Knottenbelt says this service is considered key to keeping customers and adding new ones. Customers can enter the Web page and download the idea, or we can forward ideas via Bloomberg or e-mail, he explains. It basically creates a dialog from which we can move on, because really, the vanilla futures business is done electronically now. We can provide customers the ability to do that themselves. So your trade and execution desk is a value-added proposition.

Differentiating
In an industry where clearing and trade execution services seem pretty similar among institutions, RBS set itself apart by investing heavily in value-added trading support and services that offer customers exclusive investment strategies and data.

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A team of RBS traders and strategists develop trading strategies that cross the spectrum of asset classes and trading time frames. RBS also offers advice using a combination of fundamental and technical trading tools. On the clearing side, RBS has also worked hard to offer clients something unique. By focusing on the communication and the reporting required between investment managers and custodians, RBS has developed straight-through processing from order execution to payment of margin. This has been achieved through analysis of the major issues and problem areas both clients and custodians face. Armed with this detail, we have worked in conjunction with State Street one of the worlds largest global custodians with whom we have a very close alliance to develop systems that eliminate areas of difficulty, yet remain flexible enough to suit different client environments and feed a range of custodial systems. Weve developed a lot of interesting tools for our clearing product that make it easy for them to execute and clear a trade, says Knottenbelt. What makes the end product attractive, Knottenbelt says, is that the process is customized to clients systems and needs.

One of the key asset classes where RBS excels is foreign exchange (FX). The institution is among the top five FX houses globally and is one of the initial entrants in CMEs partnership with Reuters, which enables Reuterss FX spot trading customers to view and trade CME FX futures on Reuters trading screens. We see a continuation of the trend toward greater volumes on the FX side, Knottenbelt says. And we believe, as a house, we will only get more active in the FX suite of products on CME.

Having Globex has significantly improved liquidity in Eurodollars in the Asian and London time zones. This creates a much more consistent and active market when the U.S. day comes to an end.

WILLIAM KNOTTENBELT
RBS, a significant player in the swaps market, is also looking to increase its trading of interest rate products. RBS recently ranked first in FRA dollar swaps and third in short-term interest rate dollar swaps in Risk magazine. As RBS continues to expand its trading capability in the swaps market and CME advances its electronic trading offering, we are confident that our volumes will continue to grow, Knottenbelt says.

Using CME tools

Like virtually every major institutional firm, RBS has evolved into an almost exclusively electronic trading and execution firm. That evolution, coupled with advances in CMEs Globex electronic trading platform, gives RBS and its customers more reason to use the exchange. The functionality that is available now with packs, bundles, spreads and the enhanced options system is a great improvement, Knottenbelt says. Having Globex has significantly improved liquidity in Eurodollars in the Asian and London time zones and this creates a much more consistent and active market when the U.S. day comes to an end.

Heading forward
RBS is looking to grow its business as exchanges look to expand their products. This fits nicely with RBSs current strategy of offering customers value-added services that help them profit and efficiently manage money. As clearing houses and exchanges get more adaptable, it will allow more products to become exchange traded, Knottenbelt says. Theres significant room for exchanges to expand their franchises. www.cme.com/rbs

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President John F. Kennedy once said, Leadership and learning are indispensable to each other. Speak for a minute or two with Harold Terry McGraw III, Chairman and CEO of McGraw-Hill Co., and youll soon find out how important these ideas are to him.

You have to constantly put yourself in a position to learn from others in any way you can, says McGraw. The worst thing to do when you think you have the playbook is to think all you have to do is execute. With that approach, McGraw has injected innovation and business savvy into the company his great-grandfather James McGraw founded more than 100 years ago. McGraw, 57, began his career with McGraw-Hill in 1980, joining the corporations finance department after working in pension fund management at GTE, the former telecommunications company. He worked his way up over the next 18 years and took over as CEO in April 1998, adding the chairmans title in 1999. Since being elected to the top spot, McGraw has dramatically transformed the company into a leaner and more straight-forward company. He shrank 15 different business units into three: McGraw-Hill Financial Services, which includes Standard & Poors (S&P), a leading provider of independent investment research, indexes and ratings and one of the major partners of CME, which trades more than a half dozen futures and options contracts based on S&P indexes. McGraw-Hill Education, a global education and book publishing firm that produces kindergarten to professional titles. McGraw-Hill Information & Media, publisher of several business and trade periodicals including flagship magazine BusinessWeek, as well as customer satisfaction experts J.D. Power and Associates.

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As part of the reorganization, McGraw divested the company from some of its slower growing trade-media businesses, acquired education properties and oversaw the dramatic growth at S&P. The results since he took the leadership position have been impressive for shareholders and on Wall Street.
McGraw-Hill Information & Media publishes several business and trade periodicals including flagship magazine BusinessWeek,and includes customer satisfaction experts J.D. Power and Associates.

McGraw-Hills stock price from April 1998 to March 17, 2006, rose from $18.81 to $58.26, up 209 percent. That includes two-for-one stock splits in May 2005 and March 1999. The companys market capitalization rose from $7.5 billion to $21.2 billion, up more than 183 percent. Revenue grew from $3.52 billion in 1997 to $6 billion in 2005, a 70 percent increase. Transforming the company into three well-defined business units produced several benefits for McGraw-Hill. For starters, McGraw had fewer divisional managers to meet with instead of 15. Another positive was that the restructuring clarified for Wall Street how McGraw-Hill operated.

Today, revenue from that unit with fewer properties has remained relatively flat while revenue from its education branch and financial services group have quadrupled. S&P now represents 68 percent of the company's operating profits, compared with 42 percent a decade ago. The relationship between S&P and CME is certainly part of that growth. CME and S&P have worked together since 1980 to make the CME S&P 500 Index futures contract one of the most recognized traded instruments in the world. The CME S&P 500 Index futures contract is known as the worlds first successful stock index futures contract, which helped revolutionize the way financial markets work and enabled CME to become the top equity index futures exchange. The two companies renewed a long-term licensing agreement in September 2005 that allows CME to continue to offer futures and options on futures contracts on the S&P 500 Index and other S&P indexes exclusively until 2017. In some ways, the growth of McGraw-Hill and its Standard & Poors unit mirror the growth of CME. Both are considered pioneers in the financial markets and both rank at the top of their respective corporate classes today.

McGraw-Hill Education produces books for kindergarteners to professionals.

One of the things that started to change in the 1990s in a big way is that it became an increasingly global environment. The competitiveness has gone up in quantum measures.

We aligned our businesses around three powerful, growing global needs the need for knowledge, the need for capital and the need for business information that enables informed decision making. By doing this, we also made it easier for Wall Street to understand our growth strategy, our priorities and our prospects getting to know 15 different markets and submarkets, the dynamics of each business and each customers wants and needs, it gets a little crazy, McGraw says of the old business model. From an investor relations standpoint, youre going to drive securities analysts crazy because they have to determine where earnings are coming from and whether they are sustainable. So theyll have to spend 70 percent of their time on your stock and 30 percent of their time on other companies they cover. Guess what? They just wont cover companies that take that much time. So we had to simplify the equation and be very clear about the markets we were in. The transformation made McGraw-Hill a more focused company, with one eye on what it does well and another on the growth opportunities of tomorrow. For example, in 1990, roughly half of the corporations revenue came from its information and media division.

This has been a terrific relationship with the CME, McGraw says. When I think back to 1980, the capital markets world was still emerging and companies like S&P were still relatively small. Its been terrific to embark on new areas and have partners you could work with and make things better. We started our CME relationship with the S&P 500 futures contract and look what has taken place since 1980. So you have to keep focused on markets, the changes taking place, and together we can figure out anything. He adds that there is much more to come. We are now 35 years into a 75-year trend in the growth of capital markets, he says.

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Global education
It is this can do attitude that McGraw exudes. He is the kind of top executive who is smart without being condescending, visionary without being esoteric and motivating without the management empowerment slang. He also communicates a sense of practicality that fathers often impart to their children. What is quickly picked up from McGraw is that those attributes helped him transform McGraw-Hill into a global information services powerhouse across three growing business units. Looking globally is what McGraw has been spending much of his time doing in recent years. Among a long list of organizational affiliations, McGraw is chairman of the Business Roundtables International Trade and Investment Task Force, chairman of the Emergency Committee for American Trade, a member of the Business Council and chairman of the National Council on Economic Education. He also served as a member of President George W. Bushs Transition Advisory Committee on Trade and accompanied the president on his visit to India in March. He also is a strong proponent of Bushs No Child Left Behind program that aims to improve education in the United States using standards, measurements and accountability. To compete in a more competitive and changing global economy, McGraw believes the United States needs to continue the push to improve its education. America was still living within itself, he says of the fragmented U.S. education system of decades past. One of the things that started to change in the 1990s in a big way is that it became an increasingly global environment. The competitiveness has gone up in quantum measures. Now you are not entitled to anything. McGraw sees the rising stars of the global economy coming from Asia, where countries emphasize math, science and other key subjects. That will only make already rising economies even stronger, he says. Its a very dynamic environment, he says. The playbook, using the knowledge society and learning agenda, has been utilized big time by China, India, Taiwan, Singapore and so on. They start children at a very young age and really develop math, science, computing skills and the like. McGraw has adapted the education maxim to his company, which is looking for opportunities and partnership around the world.

A lot of what weve done over the past 25 years is making sure we recognize the clarity of the markets were in, understanding why we are essential, who the different players are that make them up and who the future players might be and then building size and scale and executing, McGraw says. And then Id say understanding the talent becomes critical. The companies that do best are those that train relentlessly.

CME and Standard & Poor's have worked together since 1980 to make the CME S&P 500 Index Futures contract one of the most recognized traded instruments in the world.

McGraw has pushed his employees to be flexible and transfer their talents used in one division to other business units. All of our business units are global, and all will get increasingly more global, he says. One of the lines Ive used is, All roads go to Asia and all roads go online. So being able to develop cross-sectional capabilities and bring them to bear is very important.

Family name
Although McGraw is the current link in the chain of family members who have run the company, he is careful to differentiate his family name and his title as top executive. Youve got to separate the notion of being a family member and being a CEO or professional manager, he explains. Im very proud to be a member of the McGraw family. But when you are talking about the business, you have to run it like a business and performance counts. And if youre not about performance, then you really ought to be doing other things. Still, McGraw says that he sees some of the qualities that his father, grandfather and great-grandfather instilled in the company. A lot of the value structure is there, McGraw says. The collegiality, integrity, trust and those kinds of things were planted from the very beginning. James H. McGraw believed so strongly in those. When you talk about ethics and the types of businesses were in, people take that very seriously. Its ingrained in the organization and starts with the founder. www.cme.com/sp

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Few, if any, firms are more plugged in to the world of indexes than Northern Trust Global Investments (NTGI). NTGI, a division of Northern Trust Bank, managed approximately $620 billion in assets at the end of 2005, of which $210 billion is quantitatively-managed in index and enhanced index strategies. It offers more than 100 different index-based products to its institutional and high net worth individual customer base. To help manage all that, NTGI uses several index futures offered by CME, including: Standard & Poors 500, Russell 2000, NASDAQ-100 and Nikkei 225. NTGI is also very interested in one of

CMEs newest stock index contracts, the CME E-mini MSCI EAFE futures, a benchmark known for measuring international stock market performance, excluding the United States. Approximately $1.5 trillion is benchmarked to the EAFE Index worldwide, and NTGI is a major manager of international index strategies tracking the index. For Steven Schoenfeld, chief investment strategist, global quantitative management at NTGI, the CME E-mini MSCI EAFE futures contract could be used in the same way that NTGI uses other liquid index futures contracts at CME. The futures contract will provide an excellent tool for cash equitization within our

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It looks easy but.

What is interesting about NTGI and other index-focused firms is that they are often thought of as simple index matchmakers for clients. But Schoenfeld points out that offering an index is far more complex than it may appear to customers. index funds and exposure for management in our higher-risk quant active strategies, Schoenfeld says. Currently we use optimized baskets of CFTC-approved local futures contracts to equitize cash accruals and thus enable us to minimize the cash position within our funds. Schoenfeld adds that NTGIs current approach of using a basket of local futures often generates additional tracking error compared to the funds benchmark. Provided that the new EAFE futures contract has sufficient liquidity, we would anticipate using it to supplement our current approach and replace the use of futures baskets in many cases. Managing index and quantitative strategies is a key focus at NTGI. With investment offices in Chicago, New York, London and Tokyo, NTGIs Global Quantitative Management group does business with some major heavyweights in the institutional investment world. Clients for corporate and public retirement plans include Motorola, Caterpillar, State of Indiana Public Employees, Chicago Policemens Annuity and Benefit Fund and North Dakota State Investment Board. NTGI also manages money for Mayo Foundation and other health care organizations, not-for-profit programs and insurance companies. There is a myth that managing an index strategy is easy, says Schoenfeld, who edited a book called Active Index Investing.

This year, NTGI plans to offer clients even broader international equity exposure through international small-capitalization strategies, as well as strategies for less correlated classes.

STEVEN SCHOENFELD
(The book can be found online at www.activeindexinvesting.com and is being published in Japanese this spring.) People may think that if you want S&P 500 exposure, you just go buy the futures. But when youre managing portfolios of actual securities, such as the S&P 500, very often were buying all 500 stocks. The S&P 500, Russell 2000 or Wilshire 5000 are not static indexes. Issues that the team at NTGI must account for include dividends, mergers, annual and quarterly rebalances and other occurrences that alter the composition of the index. The S&P 500, for example, has stocks entering and exiting the index regularly. Google is an example of a company which the entire index investment community was closely watching as a potential addition to the S&P 500 Index.

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We need to be thinking about additions and deletions and their impact on the rest of the portfolio, Schoenfeld says. Managing other indexes isnt quite as straightforward as the S&P 500. Take the Russell 2000, a small-cap index which includes the smallest 2,000 securities in the Russell 3000 index, or the Russell 2000 Value and Growth indexes.

to sell a stock in the U.S. just to buy it in the U.K. So the cross-border component of a globalized world and global investment management company is very challenging. The MSCI EAFE index may also comprise stocks that are not particularly liquid, which can make it difficult for institutional money managers to take a position in the individual stocks and fully track a benchmark index. The MSCI EAFE index futures, launched on the CME Globex platform on March 19, are one of several ways to trade that index. CME E-mini MSCI EAFE futures offer the advantage of capturing the value of the entire index in one transaction, without having to buy and sell the underlying stocks in over 20 markets. Another challenge that NTGI and other index investors face is the different profiles of their customers. A large state pension fund, for example, may want NTGI to track the S&P 500 but exclude any tobacco- or alcohol-related companies. Another customer may want only socially responsible companies in its portfolio, which could eliminate a variety of heavily weighted companies ranging from big oil firms to companies that lack diversity in their executive ranks. One relatively recent trend for money management firms is to exclude investments in companies that do business in countries that sponsor terrorism. NTGI recently launched a series of Sudan-Free funds satisfying the demands of its customer base. We will work with our clients and have either the index provider calculate a custom index or a custom attribution that would show the S&P, with tobacco stocks and without them, Schoenfeld says. More often than not, we prefer to have a third party (index company) calculate the custom index so there is a separation between the benchmark and the manager.

As we look out over the next 12 to 24 months, we see ourselves building our capabilities as a solutions provider in the global context by using our index and enhanced products in conjunction with new portable alpha products, including equity long/short, liability-driven solutions across a variety of products.

STEVEN SCHOENFELD
There is much more movement and turnover in these indexes, says Schoenfeld. So if were managing $5 billion for a certain client who is adding several hundred million more to the fund, we have to carefully buy the securities to minimize the cost. The Russell 2000 is a very complex index to manage against. Now take the MSCI EAFE, which is comprised of more than 1,000 stocks in 21 countries. NTGI portfolio managers then must take into account 21 potentially different dividend rules and tax laws. EAFE can also include or exclude companies due to cross-border mergers of companies. One example of that was the energy industry merger of London-based British Petroleum and Chicago-based Amoco, which moved the merged entitys headquarters to the United Kingdom. So you have very complicated trades where were selling out of Amoco in the U.S. portfolio and buying it in the European portfolio, which is a component of EAFE, Schoenfeld says. And you want to do it in a way that maximizes the wealth of our clients. You would not want

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Steven Schoenfeld, chief investment strategist, global quantitative management, NTGI.

Building the global business

NTGIs Quantitative Management group employs more than 45 portfolio managers and traders worldwide. Although the major focus is on the blocking and tackling of managing portfolios, NTGI constantly monitors existing index products and develops and launches new products for customers. It also spends a considerable time researching indexes and portfolios to improve performance and meet customer needs. In addition, staff meets regularly with clients to examine existing funds and to see how they can incorporate other quantitative strategies into their overall portfolios. Looking forward, Schoenfeld says NTGI is looking to expand the current product offering. It launched two new international equity strategies in 2005 for exposure to emerging markets and a broader total international benchmark, MSCIs ACWIex-US Index. This year, NTGI plans to offer clients even broader international equity exposure through international small-capitalization strategies as well as strategies for less correlated asset classes including commodities and the global-listed property sector.

In addition, NTGI is devoting significant resources to expanding its products in the enhanced index and quantitative active area by increasing research and development and staff for new product development across a number of benchmarks. NTGI is also raising the profile of existing products to the forefront of the marketplace as its overall investment process evolves. As we look out over the next 12 to 24 months, we see ourselves building our capabilities as a solutions provider in the global context by using our index and enhanced strategies in conjunction with new innovations, including portable alpha products, and long/short equity strategies across a variety of benchmarks and asset classes. Schoenfeld says. The growing range of risk-management tools from the CME will certainly play an important role in our expanding investment activities. www.cme.com/ntgi

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Insights on CME
Products and Services
Clearing security
Traders who deal in certain over-the-counter (OTC) derivatives can find clearing security at CME. In April, CME began offering a clearing service called Clearing360, whereby the exchange serves as counterparty to a customer's OTC trade by converting the contract into a CME-traded futures contract. At present, Clearing360 is available only for bilateral OTC interest rate transactions, beginning with substitutions using CME Eurodollar futures. These subs allow customers to substitute CME futures contracts for an OTC transaction in standard contract terms, such as an interest rate swap or forward rate agreement with flexible settlement dates. Clearing360 represents a further expansion into new markets for CME, which expects to expand this service into other OTC derivatives products in the future. With CME Clearing360 we will offer the full resources of CME Clearing to a market that lacks the benefit of a central clearing process, said CME Chief Executive Officer Craig Donohue. Clearing360 eliminates perhaps the largest source of risk in OTC derivatives trading: the possibility of counterparty default. In addition, the service also offers OTC traders the benefits of a centralized clearing process, which can be faster and more efficient and provides risk offsets against related positions. Clearing360 also offers access to CME's proven history of managing the credit, operational and legal risks of its market participants. CME Clearing is the world's largest derivatives clearing house and processes approximately 90 percent of all futures and options on futures contracts in the United States. It holds approximately $45.6 billion daily in collateral deposits to support transactions on CME and the Chicago Board of Trade. www.cme.com/360

Fast TRAKRS
An updated futures contract of a well-known low-cap equity index has already proven popular with CME traders. Round two of LM TRAKRS, which tracks Merrill Lynch's LMC index of selected low-cap growth and value stocks, traded 2.9 million contracts with more than $72.5 million in value at its launch on January 31. LM II TRAKRS is the ninth TRAKRS futures contract launched through a joint agreement between CME and Merrill Lynch and joins other TRAKRS contracts in commodities, gold, currency and technology. TRAKRS are the first index products traded on a futures exchange that can be sold by securities brokers and the first futures products that can be held by a non-institutional investor in a securities account. www.cme.com/trak

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Let it snow
Winter whiteouts on the East Coast might not be such bad news in the future for savvy derivatives traders. In March CME began trading monthly snowfall futures and options on futures contracts for Boston and New York, aimed at allowing traders to hedge or speculate on winter weather-related risks in those cities. CME Snowfall futures are based on the CME Snowfall Index, which defines daily snowfall as the total recorded at a location between 12:01 a.m. and 12:00 p.m. on the same day as reported by EarthSat. Total January volume in all weather contracts traded at CME rose more than two-and-a-half times annually, from 42,000 in 2005 to 108,000 in 2006. www.cme.com/snow

Special FX
Futures traders anxious about getting into the booming foreign exchange (FX) market now have an online education option. CME's recently released online course, The Dynamics of Foreign Exchange, aims to build traders' understanding of the political, economic and technical factors that move FX markets. The course is broken into eight chapters aimed at preparing the trader for dealing in CME FX futures, including history and concepts of FX, trading FX futures and options, currency pricing and using CME E-quivalents. All course work is conducted via the Internet and e-mail. Enroll at either the Education or FX section of the CME Web site at www.cme.com. www.cme.com/fxcourse

Electronic avenue
Electronic traders specializing in CME Eurodollar futures and options now have more reasons to trade on the CME Globex platform. In February, functionality was expanded to include an extensive array of possible new spread types for futures, including implied pack spreads and new bundle, butterfly, double butterfly and bundle spreads. The new features are expected to bring even more liquidity to these already deep markets. New options capabilities include functionality that rewards a market participant who is the first to quote a price in a given instrument or who augments the market with tighter bids and offers. It also automates trades involving a pre-execution discussion and broadens spread strategies on CME Eurodollar options products. www.cme.com/enhancedoptions

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An interview with Kevin Davis, chairman and chief executive officer, Man Financial
Man Group plc is a leading global provider of alternative investment products and solutions as well as the parent of one of the world's largest futures brokers, Man Financial. Man Financial made a splash last year when it purchased the regulated division of Refco Inc. out of bankruptcy court.
CME: Lets start with a bit of recent history and where Man came from. Man dates back to 1783, but how has Man grown over the last several decades? KD: Among the key events in Mans recent history was creation of the brokerage business about 35 years ago, which ultimately led to the creation of our funds management business in the early 1980s. From a brokerage perspective, clearly I think the most important event was my recruitment in April of 2000! Since then, we have acquired approximately 14 different businesses in several different countries in various different products. While Refco is the most recent and notable, other major brokerage acquisitions include GNI, GNP, Gelderman and Fox Investments. CME: Man Financial stands as one of the largest players in the futures business. Man is listed as the number one clearing or executing firm on several exchanges and consistently among the top five in CMEs interest rate volume. What is driving business today for Man retail, institutional, hedge fund or CTA business? KD: We hold equal importance of our retail and institutional and CTA businesses. Each one of those commands vastly different customers. But all of these businesses rely on the same core clearing and settlement and accounting platform. CME: Many firms focus on just retail or institutional business. But Man is a major presence in both customer bases. How do you address their different needs? KD: The client staff who deal with retail and institutional bases are vastly different and provide vastly different services. In the institutional space, we are more execution and advisory oriented, whereas in the retail space our clients tend to be full service. In the institutional business, our clients tend to be specialists in one or more product segments such as interest rates or energy. But in the retail space, our customers are much more general. CME: In todays competitive market, how does Man differentiate itself from others structurally, technologically or service-wise? KD: Man offers its clients a wide variety of access points to the markets. These vary from offering full-service voice execution and clearing services to electronic-only. Because we have specialist teams across almost all sectors of global futures, we offer a unique depth of expertise across a wide variety of markets all over the world. CME: How would you describe the culture at Man Financial? What do you look for in employees today? KD: The culture at Man is one where, to be successful, you need to be selfmotivated. We give our colleagues the tools to be successful. But in the end, its up to them to succeed. We try to create conditions for the people who are ambitious and honest and who can apply themselves. CME: Beyond another record year for derivatives, perhaps the biggest story of 2005 was the Refco scandal and bankruptcy. Man, of course, picked up a substantial piece of Refcos business in bankruptcy court. Why the interest? And what has that acquisition done for Man? KD: As a publicly traded company, Im limited in what I can say. That said, we expect Refco to meet or succeed our expectations. We were interested in Refco because, while both companies are extremely large in this space, with a few exceptions, we didnt compete directly. The main

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exception was in the retail space. But Man was much more focused on the specialist/institutional teams and execution whereas Refco was built upon a more generalist approach. Clearly, there have been synergy-related cost savings in settlements and other support areas. But both companies did focus on different sides of the business so there was an enormous complementarity about the two companies. CME: Are there any misperceptions from customers or within the industry about Refcos divisions? KD: Almost all Refco customers were assured that the rules of segregation worked in such a way that they suffered no defaults in their regulated accounts. Indeed, the crisis itself has had a positive impact on the overall client perception of the safety of these mechanisms. CME: What impact has the Refco story had on the futures business as a whole? KD: I dont think itll have any longterm negative impact. If anything, the success of CME in managing the crisis shows that we operate in a robust regulatory environment. CME: Everything from financials to metals and energies and agricultural products continues to post record volumes in the futures industry. What do you see in the derivatives space that continues to attract volume into this market? World demand, more capital coming in, new users? KD: The overall derivatives market is benefiting from a number of factors. One is growth of alternative investment industries, which are driving increasingly higher trading volumes. The second positive impact has come from the ever-increasing needs from banks and other counterparties to use

central clearing counterparties for their trading. Those two factors combined are responsible for the bulk of the increase in volumes the last few years and will be for some time to come. CME: One of the ongoing trends in the industry is the move toward electronic trading, or in CMEs case, the move toward more sophisticated functionality for its Globex platform. How has electronic trading changed your business? Where does it go from here? KD: Electronic trading has transformed our business in a multitude of ways, some positive and some negative. On the positive side, weve seen very steep decreases in our operating costs. Its also enabled us to distribute these products to a wider audience. And its changed the nature of the way in which we interface with our customers. Traditionally, client contact was by voice. Today, many clients dont speak to us at all and conduct all of their trading and back office dealings electronically. On the negative side has been the closure of floor operations, most particularly in Europe. Those floors represented a concentration of an incredible variety of talented and interesting individuals. I am not at all sure that our new electronic world will be as interesting or as much fun. Over time, I suspect more markets will go to screens. However, I see no reason why the traditional agricultural commodities markets cannot remain in an open-outcry format. Furthermore, there is a strong argument that suggests that in markets that lack the depth of most financial futures open outcry will benefit. CME: CME offers some of the most liquid contracts in the world and continues to grow volumes across a number of asset classes stock indexes, interest rates and FX for

starters. What can you say about the exchanges products and the interest your customers have in them? KD: In general terms, we see CME as the best-run exchange in the world with the best suite of products. CME: What are your thoughts about other markets that CME has been developing or serving? KD: The most important development CME could undertake for its large customers would be one where it manages to create a central counterparty clearing entity for a large portion of the cash markets, most particularly interest rates, which operate side-byside with futures. CME: What impact has the CMECBOT Clearing Link had on Man and your customers? KD: Id say it has had a moderately positive impact on our customers costs. CME: What is Mans strategy heading forward? KD: We want to consolidate the Refco transaction and continue to grow market share and focus quite heavily on growth in the Asia Pacific region, which today represents about 15 percent of our business. That region is expanding in a way that suggests it will represent close to 50 percent in five years time. The main countries where we see growth are India, Taiwan and Korea where we have a very significant presence. CME: What will the futures landscape look like in your view in the coming year or years? How large can the industry become? KD: Given the growth were seeing in Asia today, we should expect many more years of similar expansion. www.cme.com/manfinancial

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Our clients will greatly benefit from this additional functionality and the market transparency that comes with direct access to the CME Eurodollar options market, says Alasdair Hodge, managing director, head of listed futures and options at Barclays Capital. BARX clients will be able to utilize the CME Globex platforms cutting edge options functionality to access an enormous pool of liquidity. Averaging more than 1 million contracts a day in the first quarter of 2006, CME Eurodollar options are the worlds largest interest rate options market. The electronic CME Eurodollar marketplace offers real-time prices from major market-making participants for thousands of outright contracts and complex spread combinations. Barclays Capital, the investment banking arm of British bank Barclays PLC, has become the first bank to offer CME Eurodollar options trading on its electronic trading system. Users of Barclays Capital BARX trading platform can now trade products in the world's largest interest-rate options market. The investment banking division of Barclays PLC implemented this service to provide its customers easy and convenient access to products it considers vital to customer needs. Barclay's Capital is a recognized leader in electronic trading across all markets, says Robin Ross, managing director of CME interest rate products. BARX, which provides seamless electronic access to futures, commodities, securities, FX and fixed-income markets, was recently voted overall winner in Banking Technology magazines European Banking Technology Awards. www.cme.com/barcap The tremendous distribution network and sophisticated functionality of the BARX trading system will further extend the reach of the CME Eurodollar options market. Barclays Capital has offices in 25 countries and has the global reach and distribution power to meet the needs of issuers and investors worldwide.

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Getting on the Same Page

MyCME Web site pulls in data users and education seekers
About a year ago, Jim Sherman and his team at CME's direct marketing division faced an online challenge: how to get the CME Web site's two most frequent user groups to meet at one web space. The problem, Sherman said, was that users who logged on for access to CME's data products often just bookmarked the relevant page and never saw another CME product. Likewise, those who visited the sites on educational courses often had no exposure to the exchange's data products. For a direct marketer, it begged for a solution. The result, launched last July, was MyCME (www.cme.com/mycme/), a single Web site/portal on the CME Web site with direct links to all CME's free and paid-subscription data products and its educational courses, plus an e-mail link to CME publications. "The functions inside MyCME have always been available," said Sherman, who is CME's director of direct marketing. "But now we're trying to put everything into an easy-to-see, one-stop shop." Currently MyCME is divided into two product/service sections. The first, called Market Data Services, provides links to all CME's data products, separated into free and paid sub-groups. DataSuite is MyCME's centralized free data-product set and includes realtime, delayed and historical products. It contains five real-time products, including live quotes in the CME Eurodollar, FX and E-mini markets, two delayed Flash Quote products and nine historical data sets. Under Subscription Data Services, MyCME currently offers three paid premium services. E-quotes offers real-time market quotes, premium charting and a news wire; E-px is a premium data service for the Eurodollar market; and CME DataMine offers customized historical data on any aspect of any trade. MyCME's Online Education section has an overview of CME's Internet course offerings. These range from beginner-level courses in futures markets and brokerage to more advanced courses in market analysis and specialized trading in areas like commodities and options on futures. Sherman says MyCME tries to appeal to as broad a range of frequent visitors as possible. As a direct marketer, his main aim is getting additional information to users about products and services they're not using now or in which they might be interested. And he notes that, for the time being at least, the user base of MyCME is segregated along several dimensions. For example, data product users are not the same people as educationservice consumers, while free-product data users are generally less experienced traders than those paying for premium services. But Sherman says data users often recommend MyCME's education courses to newcomers while more complex new product offerings are sending more traders back to virtual school. And as their thirst for new and better market information grows, so will MyCME's offerings. Sherman says MyCME will soon launch a self-service publications portal, which will let MyCME users download CME print products like newsletters and brochures as well as subscribe to CME Magazine. On the education side, new leadership is currently revamping all of CME's online courses and will add new classes over the next year. As part of it, MyCME recently began translating some of its course work into several foreign languages, reflecting the fact that, as Sherman notes, "CME is a global exchange." www.cme.com/login

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CME Magazine
CME 20 South Wacker Drive Chicago, IL 60606-7499 312-930-1000 tel 312-466-4410 fax www.cme.com info@cme.com

CME Education Opportunities

In addition to the classes listed here, CME also conducts seminars at locations around the world, as well as webinars available on the Internet, sometimes in conjunction with partner brokerage firms or partner vendors. Several online courses are also available.

Senior Editors Anita Liskey, William Parke Editorial Advisory Board Maz Chadid (Operations), Tim Doar (Clearing), Arman Falsafi (Europe), John Harangody (Commodity Products), Bryan Hunter (Foreign Exchange Products), David Lerman (Equity Products), Lynn Lipsig (Corporate Marketing), Gail Moss (Corporate Communications), Pamela Plehn (Product Public Relations), David Prosperi (Corporate Public Relations), Robin Ross (Interest Rate Products), Allan Schoenberg (Technology Public Relations) CME Magazine is published by CME in conjunction with Penton Custom Media. All rights reserved. Penton Custom Media 1300 E. 9th Street Cleveland, OH 44114 216-696-7000 tel 216-931-9441 fax www.pentoncustommedia.com Editorial Director Darrell Jobman Contributing Editor James Kharouf Art Directors David Bosak Greg Kiskadden

Free Online Course

The Dynamics of Foreign Exchange www.cme.com/fxcourse

On-site Classroom Courses

Technical Analysis (7 sessions) Tuesdays and Thursdays April 4 - April 27 4:00 p.m. - 6:00 p.m. Note: Class will not be held on Thursday, April 13 Instructor: Ken Shaleen Cost: $320 Principles of Futures (7 sessions) For dates and times go to www.cme.com/education. Instructor: Larry Schneider Cost: $320 Electronic Trading Strategies (2 sessions) For dates and times go to www.cme.com/education. Instructor: Dan Gramza Cost: $250 21st Century Elliott Wave Theory (6 sessions) For dates and times go to www.cme.com/education. Instructor: Nina Cooper Cost: $250

Japanese Candlestick Trading Strategies (2 sessions) For dates and times go to www.cme.com/education. Instructor: Dan Gramza Cost: $250 Advanced Japanese Candlestick Trading Strategies (2 sessions) For dates and times go to www.cme.com/education. Instructor: Dan Gramza Cost: $300 Introductory Trading Seminar (1 session) For dates and times go to www.cme.com/educatio. Instructor: Mickey Hoffman Cost: $150

Do you have a question for CME Magazine?

E-mail us at info@cme.com with your questions and comments, or to be added to or removed from the mailing list.
Further information about CME and its products is available on our Web site at www.cme.com. Information made available on our Web site does not constitute part of this document. The Globe logo, Globex, Chicago Mercantile Exchange, Clearing360, CME, E-mini, E-quivalents, E-quotes, E-px, International Monetary Market and IMM are trademarks of CME. All other trademarks are the property of their respective owners and are licensed for use by CME. Chicago Board of Trade is a trademark of the Chicago Board of Trade. MSCI EAFE are trademarks of Morgan Stanley Capital Investments. NASDAQ-100 is a trademark of The Nasdaq Stock Market, (with which its affiliates are the Corporations). Nikkei 225 is a trademark of Nihon Keizai Shimbun Inc. ACCESS is a trademark of the New York Metals Exchange (NYMEX). The Russell 2000 Index is a trademark of the Frank Russell Company. Standard & Poors, S&P and S&P 500 are trademarks of Standard & Poors, a division of The McGraw-Hill Companies, Inc. TRAKRS is a trademark of Merrill Lynch and Co. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME rules. Current CME rules should be consulted in all cases concerning contract specifications. Copyright 2006 CME. All rights reserved. CME Magazine is printed on recycled paper.

Special College and University Event

CME College Day Thursday, May 25 Juniors and seniors from Illinois and neighboring states are invited to visit and learn about CME and the futures industry. Afternoon activities include scheduled sessions by industry experts, a market overview overlooking the trading floor and a hands-on experience with electronic mock trading. Additional information and registration will be available at www.cme.com in early May.

For a complete list of CME classes, go to www.cme.com/edu

To view CME Magazine online, visit www.cme.com/cmemagazine

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